WORLD TRADE
ORGANIZATIONWT/DS121/R
25 June 1999
(99-2217)
Original:  English
ARGENTINA– SAFEGUARD MEASURES ON IMPORTS OF
FOOTWEAR
Report of the Panel
The report of the Panel on Argentina – Safeguard Measures on Imports of Footwear is being
circulated to all Members, pursuant to the DSU.  The report is being circulated as an unrestricteddocument from 25 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 thePanel 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 sha ll 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.WT/DS121/R
Page i
TABLE OF CONTENTS
Page
I. INTRODUCTION................................................................................................................. .......................1
II. FACTUAL ASPECTS ............................................................................................................. ....................1
III. FINDINGS AND RECOMMENDATIONS RE QUESTED BY TH E PARTIE S...............................3
IV. PROCEDURAL ISSUES AND REQUESTS  FOR PRELIMINARY RULINGS ..............................4
A. ARGENTINA'S REQUESTS REGARDING TH E PANEL’S TERMS OF  REFERENCE .....................4
1. Minimum Specific Impo rt Duties (DIEMS)....................................................................................... ..4
(a) The European Communities' Acc ount of the "Factual and Procedural  History" of the Dispute .........................4
(b) Argument of Argentina....................................................................................................... ...............................6
(c) Argument of the European Communities ........................................................................................ ..................7
2. Resolution MEYOSP 512/98, Resolution MEYOSP 1506/98, and Resolution SICyM 837/98, and
panel recommendations on "hypot hetical future measures"...................................................................8
(a) Arguments of Argentina ...................................................................................................... ..............................8
(i) Resolution MEYOSP 512/98 an d Resolution MEYOSP 1506/98 ..................................................................8
(ii) Panel recommendations on "h ypothetical futu re measures".................................................................... .....9
(b) Argument of the European Communities ........................................................................................ ................10
B. S UBMISSION  OF EVIDENCE :  EXHIBIT ARG -21...........................................................................................13
V. MAIN ARGUMENTS OF THE PARTIES CONCE RNING THE ISSUES ARISING UNDER THE
AGREEMENT ON SAFEGUARDS AND THE GATT 1994.........................................................................14
A. A RTICLE XIX:1( A) OF GATT 1994 –" UNFORESEEN DEVELOPMENTS ".....................................................14
1. Argument of the European Communities ......................................................................................... .14
2. Argument of Argentina........................................................................................................ ................19
3. Response by the Eu ropean Comm unities......................................................................................... ..23
4. Rebuttal by Argentina........................................................................................................ ..................26
B. INTERPRETATION AND APPLICATION OF ARTICLE 2.1 OF THE AGREEMENT ON SAFEGUARDS – "THE
MERCOSUR QUESTION ".............................................................................................................................. ........27
1. Argument of the European Communities ......................................................................................... .27
2. Argument of Argentina........................................................................................................ ................30
(a) Introduction ................................................................................................................ .....................................30
(b) The criterion supported by  the European Communities......................................................................... ..........31
(c) Applicable provision:  Meaning of the text.................................................................................. ....................32
(i) Application to the claim by  the European Communities ........................................................................ .....32
(ii) Literal interpretation of  Article 2.1 an d footnot e 1....................................................................... ..............33
(iii) Object and purpose  of the footnote ........................................................................................ .....................35
(iv) Effectiveness of the footnote.............................................................................................. ..........................37
(v) Scope of the obligation contained in the footnote ........................................................................... ............37
(vi) Meaning of the phrase "and the measure shall be limited to that member State" in the second sentence ofthe footnote................................................................................................................... ........................................37
3. Response of the European Communities......................................................................................... ...38
C. DEFINITIVE SAFEGUARD MEASURE ...........................................................................................................43
1. Standard of Review ........................................................................................................... ...................43
(a) Argument of the European Communities ........................................................................................ ................43
(b) Argument of Argentina....................................................................................................... .............................45
2. Article 2.1 of the Agreement on  Safeguards:  Alleged failure to  demonstrate an "increase" in
imports and alleged failure to analyse the "conditions" under which the imported productsinvestigated entered the import market......................................................................................... ..........45
(a) "Increased imports" ......................................................................................................... ................................45
(i) Argument of the European Communities ........................................................................................ ............45
(ii) Argument of  Argentina...................................................................................................... ..........................49
(b) "Under such conditions" ..................................................................................................... .............................51
(i) Argument of the European Communities ........................................................................................ ............51
(ii) Argument of  Argentina...................................................................................................... ..........................55WT/DS121/R
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3. Article 2.1 and Article 4 of the Agreement on Safeguards – A lleged failure to demonstrate that
"serious injury" or "threat of seri ous injury" occurred to the domest ic industry that produces like
or directly competitive products............................................................................................... ................58
(a) Period of investigation..................................................................................................... ................................58
(i) Argument of the European Communities ........................................................................................ ............58
(ii) Argument of  Argentina...................................................................................................... ..........................59
(b) Segmentation of products/market ............................................................................................. .......................61
(i) Argument of the European Communities ........................................................................................ ............61
(ii) Argument of  Argentina...................................................................................................... ..........................63
(c) Investigation; Evaluation of "all relevant factors" ......................................................................... ..................64
(i) Factors set out in Article 4.2(a)........................................................................................... .......................64
(ii) Additional factors an alysed by Argentina................................................................................... ................80
(d) Finding of serious injury................................................................................................... ...............................81
(i) Argument of the European Communities ........................................................................................ ............81
(ii) Argument of  Argentina...................................................................................................... ..........................83
(e) Threat of "serious injury".................................................................................................. ...............................85
(i) Argument of the European Communities ........................................................................................ ............85
(ii) Argument of  Argentina...................................................................................................... ..........................85
4. Article 2.1 and Article 4.2(b) of the Agreement on Safeguards -- Alleged failure to demonstrate a
"causal link" between increased imports and seri ous injury or threat of serious injury....................86
(a) Causal link – First sentence of Article 4.2(b) .............................................................................. ....................86
(i) Argument of the European Communities ........................................................................................ ............86
(ii) Argument of  Argentina...................................................................................................... ..........................91
(iii) Response by the European Communities ...................................................................................... ..............93
(iv) Rebuttal by  Argentina ...................................................................................................... ...........................98
(b) Other factors – Second sentence of Article 4.2(b) ........................................................................... ................99
(i) Argument of the European Communities ........................................................................................ ............99
(ii) Argument of  Argentina...................................................................................................... ........................100
5. Article 5.1 of the Agreement on Safeguards -  Alleged failure to demonstrate that the safeguard
measure was applied only to the extent "necessa ry" to prevent or reme dy serious injury and
facilitate "a djustm ent ......................................................................................................... .....................102
(a) Argument of the European Communities ........................................................................................ ..............102
(i) "necessary" ................................................................................................................. ..............................102
(ii) Adjustment plan ............................................................................................................ ............................105
(b) Argument of Argentina....................................................................................................... ...........................106
6. Article 12.1 and 12.2 of the Agreement on Safeguards – Alle ged failure to fulfil procedural
requireme nts................................................................................................................... ..........................107
(a) Sufficiency of notifications on fi ndings of serious in jury and causation .................................................... ...107
(i) Argument of the European Communities ........................................................................................ ..........107
(ii) Argument of  Argentina...................................................................................................... ........................108
(b) Non-notification of Resolutions  512/98, 1506/98  and 837/98 .................................................................. .....109
(i) Argument of the European Communities ........................................................................................ ..........109
(ii) Argument of  Argentina...................................................................................................... ........................110
D. PROVISIONAL SAFEGUARD MEASURE ......................................................................................................111
1. Arguments of the European Communities.......................................................................................1 11
2. Argument of Argentina........................................................................................................ ..............113
VI. ARGUMENTS OF THIRD PARTIES ..............................................................................................115
A. BRAZIL , PARAGUAY AND URUGUAY .......................................................................................................115
B. I NDONESIA ............................................................................................................................... ..............117
C. UNITED STATES ............................................................................................................................... ........119
1. Introduction ................................................................................................................. .......................119
2. Standard of Review ........................................................................................................... .................119
3. Legal Arguments .............................................................................................................. ..................120
(a) Argentina’s Safeguard Measure Violates Article 2 of the Agreement on Safeguards....................................120
(b) Argentina’s Safeguard Measure Violates Ar ticle 5 of the Agreement on Safeguards....................................124
(c) Argentina’s Purported Modification of its Safeguard Measure Violates Article 7.4 of the Agreement onSafeguards..................................................................................................................... ..........................................126
(d) The Requirements of Article XIX of GATT 1994 are Subsumed by the Agreement on Safeguards.............127
4. Conclusion................................................................................................................... ........................128
VII. INTERIM REVIEW............................................................................................................. ...............129WT/DS121/R
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VIII. FINDI NGS .................................................................................................................. .........................136
A. F ACTUAL BACKGROUND .........................................................................................................................136
B. C LAIMS ............................................................................................................................... ...................139
C. T ERMS OF REFERENCE AND SCOPE OF THE MEASURES IN DISPUTE ..........................................................139
1. Minimum specific duties (DIEMs) .............................................................................................. ......139
2. Subsequent modifications of the definitive safegu ard measure......................................................139
D. T HE CLAIM UNDER ARTICLE XIX OF GATT 1994 AND "UNFORESEEN DEVELOPMENTS " ...........................145
E. C LAIMS UNDER THE SAFEGUARDS AGREEMENT .....................................................................................151
1. The imposition of safeguard measures  in the case of a customs union ..........................................151
(a) Article 2 and the footnote to Article 2.1 ................................................................................... .....................153
(b) Article XXIV of GATT ........................................................................................................ .........................156
2. Background to th e investi gation.............................................................................................. ..........159
(a) The domestic industry....................................................................................................... .............................159
(b) The footw ear products ....................................................................................................... ............................160
3. Standard of review ........................................................................................................... ..................161
(a) No de novo  review........................................................................................................................ .................161
(b) Consideration of "all relevant factors"..................................................................................... ......................163
(c) Argentina's report on the “detailed analysis of the case” setting forth its “findings and reasoned
conclusi ons"................................................................................................................... ........................................164
4. Claims under Articles 2 and 4 of the Agreement on Safeguards regarding Argentina’s
investigation, and findings of serious injury, threat of seri ous injury and causation ........................165
(a) Product segments............................................................................................................ ...............................166
(b) Are there “increased” imports in the sense of Article 2.1 and Article 4.2(a) of the Agreement?...................167
(i) Imports in absolute terms................................................................................................... .......................168
(ii) Imports Relative to Domestic Production .................................................................................... .............169
(iii) Evaluation by the Panel................................................................................................... .........................170
(c) Serious injury.............................................................................................................. ...................................174
(i) Production .................................................................................................................. ..............................174
(ii) Sales...................................................................................................................... ....................................175
(iii) Productivity .............................................................................................................. ................................177
(iv) Capacity Utilisation....................................................................................................... ...........................177
(v) Profits and losses.......................................................................................................... ............................178
(vi) Employment ................................................................................................................. .............................180
(vii) Other injury indicators considered ........................................................................................ ...................181
(viii) Evaluation by the Panel.................................................................................................. ..........................183
(d) Causation................................................................................................................... ....................................189
(i) Summary of parties' arguments............................................................................................... ..................189
(ii) Coincidence of trends ...................................................................................................... .........................192
(iii) “Under such conditions”................................................................................................... .......................194
(iv) Other factors.............................................................................................................. ...............................199
(v) Summary regarding the cl aims under Artic les 2 and 4......................................................................... ....201
(e) Threat of serious injury.................................................................................................... ..............................202
5. Claims regarding the application of  safeguard measures (Article 5).............................................203
6. Claims regarding the provisional safeguard me asure (Article 6) ..................................................203
7. Claims regarding notification  requirements (Article 12)................................................................204
(a) The notification of "all pertinent information" ............................................................................. .................204
(b) Notification of subs equent modi fications .................................................................................... ..................206
(c) Concluding remark ........................................................................................................... .............................207
IX. CONCLUSIONS................................................................................................................. .................208WT/DS121/R
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I. INTRODUCTION
1.1 On 3 April 1998, the European Communities requested consultations with the Government of
Argentina under Article XXII:1 of the GATT 1994 ("GATT") and pursuant to Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”) and
Article 14 of the Agreement on Safeguards with regard to provisional and definitive safeguard
measures imposed by Argentina on imports of footwear.
1.2 The European Communities and Argentina held consultations on 24 April 1998, but failed to
reach a mutually satisfactory solution.
1.3 On 10 June 1998, pursuant to Article 6 of the DSU, the European Communities requested the
establishment of a panel with standard terms of reference.
1.4 At its meeting on 23 July 1998, the DSB established a panel pursuant to the request by the
European Communities (WT/DS121/3).
1.5 At that DSB meeting, parties agreed that the Panel should have standard terms of reference.
The terms of reference of the Panel are the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the European Communities in document WT/DS121/3, the matter referred to the
DSB by the European Communities in that document and to make such findings as
will assist the DSB in making the recommendations or in giving the rulings providedfor in those agreements".
1.6 On 15 September 1998, the Panel was constituted as follows:
Chairman: Mr. John McNab
Members: Ms. Claudia Orozco
Ms. Laurence Wiedmer
1.7 Brazil, Indonesia, Paraguay, Uruguay and the United States reserved their rights to participate
in the Panel proceedings as third parties.
1.8 The Panel met with the parties on 30 November – 1 December 1998 and 3 February 1999.  It
met with the third parties on 1 December 1998.
1.9 The Panel submitted its interim report to the parties on 21 April 1999.  On 10 May 1999, both
parties submitted comments on the interim report, and Argentina requested that an interim review
meeting be held.  On 20 May 1999, the Panel held the interim review meeting with the parties.   The
Panel submitted its final report to the parties on 4 June 1999.
II. FACTUAL ASPECTS
2.1 This dispute concerns the application of provisional and definitive safeguard measures on
imports of footwear by Argentina.  Following a request made on 26 October 1996 by the Argentine
Chamber of the Footwear Industry (CIC) for the application of a safeguard measure on footwear, and
pursuant to Resolution MEYOSP No. 226/97
1, a safeguard investigation on footwear was initiated.
At the same time, a provisional measure was imposed.  The opening of the safeguard investigation
                                                     
1 Published in the Boletín Oficial  of 24 February 1997.  The Resolution was adopted on
14 February 1997 and became effective on 25 February 1997.WT/DS121/R
Page 2
and the implementation of a provisional safeguard measure were notified to the Committee on
Safeguards in a communication dated 21 February 1997.2  In a communication dated 5 March 1997, a
copy of Resolution 226/97 was transmitted to the Committee on Safeguards.3
2.2 On 25 July 1997 Argentina notified the Committee on Safeguards, pursuant to Article 12.1(b)
of the Agreement on Safeguards, of the determination of serious injury made by the National Foreign
Trade Commission ("CNCE").4  On 1 September 1997, Argentina notified the Committee on
Safeguards of the intention of the Argentine authorities to impose a final safeguard measure under
Article 12.1(c) and Article 9 (footnote 2) of the Agreement on Safeguards.5  Consultations between
Argentina and the European Communities and the United States took place on 9 September 1997
pursuant to Article 12.3 of the Agreement on Safeguards.6
2.3 On 12 September 1997, Argentina published7 a definitive safeguard measure, under
Resolution 987/97, in the form of minimum specific duties on certain imports of footwear identified
in Annex I of the Resolution, effective as of 13 September 1997.  On 26 September 1997, Argentinatransmitted to the Committee on Safeguards a copy of Resolution 987/97.
8  In a communication dated
26 September 1997, Uruguay, as Pro Tempore President of MERCOSUR9 and on behalf of Argentina,
notified under Article 12.1(c) and footnote 2 to Article 9 the definitive safeguard measure imposed by
Resolution MEYOSP 987/97.10
2.4 On 31 December 1993, Resolution n° 1696/93 of the Argentine Ministry of Economy, Public
Works and Public Services had introduced minimum specific duties on certain footwear imported into
Argentina.11  On the date of their original intended expiry (31 December 1994), the minimum specific
duties were extended for one year by Article 15 and Annex XII of Decree 2275/9412.  They were
again prolonged until 31 December 1996 by Article 9 of Decree 998/9513 and then until
31 August 1997 by Resolution 23/97 of 7 January 1997.14  Various amendments were also made to the
duties over the period.15 Argentina adopted a Resolution repealing the minimum specific duties on
imports of footwear16 on 14 February 1997, the same day that Argentina adopted Resolution
                                                     
2 G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, 25 February 1997, Exhibit EC-11.
3 G/SG/N/6/ARG/1Suppl.1 and G/SG/N/7/ARG/1/Suppl.1, 18 March 1997, Exhibit EC-12.
4 G/SG/N/8/ARG/1, Exhibit EC-16.
5 G/SG/N/10/ARG/1, G/SG/N/10/ARG/1, 15 September 1997, Exhibit EC-17, with corrigendum dated
18 September 1998, Exhibit EC-18.
6 In accordance with Article 12.5 of the Agreement on Safeguards, the results of the consultations were
notified to the Committee in a communication dated 10 September 1997, G/SG/14-G/L/195.
7 Boletin Oficial , No. 28,729, 12 September 1997.
8 G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, 10 October 1997, Exhibit EC-20.
9 The Southern Common Market (MERCOSUR) was formed on 26 March 1991, when four Latin
American countries (Argentina, Brazil, Paraguay and Uruguay) signed a treaty in Asuncion, providing for thecreation of a common market among the four participants.
10G/SG/N/10/ARG/1/Suppl.2, G/SG/N/11/ARG/1/Supp.2, G/SG/14/Suppl.1 and G/L/195/Suppl.1,
22 October 1997.
11 Exhibit EC-1.  The Resolution is dated 28 December 1993 and published in the Official Journal of
the Argentine Republic of 30 December 1993, to enter into force the next day.
12 Exhibit EC-2.  Published in the Official Journal of the Argentine Republic of 30 December 1994, to
enter into force on 1 January 1995.
13 Exhibit EC-3.
14 Exhibit EC-4.
15 Similar minimum specific duties also applied to textiles and clothing.  The minimum specific duties
on textiles and clothing were the subject of WTO complaints by the United States (WT/DS56) and the European
Communities (WT/DS77).  The Panel in those disputes excluded minimum specific duties on footwear from itsexamination because these had been elim inated before the panel was formed.
16 Resolution 225/97, Exhibit EC-5.WT/DS121/R
Page 3
MEYOSP 226/9717, referred to above, initiating the safeguard proceedings and imposing provisional
measures in the form of minimum specific duties on imports of footwear.
2.5 On 28 April 1998, Argentina published Resolution 512/9818 modifying Resolution 987/97.
2.6 On 26 November 1998, Argentina published MEYOSP Resolution 1506/9819, further
modifying Resolution 987/97. On 7 December 1998, Argentina published SICyM Resolution
837/9820, implementing Resolution 1506/98.
III. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES
3.1 The European Communities requests the Panel to find that "Argentina has violated Articles
2:1, 4:2(a), 4:2(b), 4:2(c), 5:1, 6, 12:1 and 12:2 Agreement on Safeguard[s] and Article XIX:1(a) of
GATT 1994."
3.2 The European Communities argues that:
"All of the above violations, except for the violation of Article 5:1, relate to
the way in which the investigation was conducted or the way in whichprocedural obligations were carried out by Argentina.  Accordingly, any
change to the measure which Argentina may introduce will only affect the
violation of Article 5:1 (necessity of the measure and adequacy of the
adjustment plan) and not the remaining violations."
"Accordingly, the EC submits that Argentina's safeguard measures on
imported footwear, however they may be adapted or adjusted in the meantime,
should be removed."
3.3 In particular, "[b]ecause of the continued changes in the safeguard measures, the European
Communities requests the Panel to find all Argentine measures based on the safeguard investigation
subject of this dispute to be contrary to Argentine WTO obligations."
3.4 Argentina requests the Panel:
(a) "to give consideration to the issues of procedure raised in its first written submission"
(section IV.A).  First, Argentina "[does] not consider that the DIEMs applied to
footwear and now revoked should be discussed by the Panel.  [Argentina] therefore
respectfully request the Panel not to take into account any of the claims made by theEC in this respect".  Second, "Argentina respectfully requests the Panel not to make
any ruling on Resolution 512/98, which was never the subject of consultations
between the European Communities and Argentina and is not included in the terms of
reference which the DSB adopted for the Panel's proceedings, although these were the
subject of detailed discussions at two consecutive meetings of the DSB";
(b) "to reject the EC's request for a preventive ruling by the Panel on any change that
Argentina might make to the measure";
(c) "to reject the request that the panel "find" that Argentina, in conducting its
investigation, has failed to comply with the different provisions that the EC claims to
                                                     
17 Exhibit EC-6.
18 Exhibit EC-28.
19 Exhibit EC-32.
20 Exhibit EC-35.WT/DS121/R
Page 4
have been violated, in particular its obligations under Articles 2.1, 4.2(a), 4.2(b),
4.2(c), 6, 12.1 and 12.2 of the Agreement on Safeguards and Article XIX:1(a) of the
GATT 1994";
(d) "to reject the EC's request that any change to the measure which Argentina may
introduce only affect the alleged violation of Article 5.1 and not the remaining
alleged violations";
(e) "to reject the EC's request that the Panel "recommend" that however the measure may
be adjusted, it should be removed."
IV. PROCEDURAL ISSUES AND REQUESTS FOR PRELIMINARY RULINGS21
A. ARGENTINA'S REQUESTS REGARDING THE PANEL’S TERMS OF REFERENCE
1. Minimum Specific Import Duties (DIEMS)
(a) The European Communities' Account of the "Factu al and Procedural History" of the Dispute
4.1 As part of its description of the "factual and procedural history" of this dispute, the European
Communities asserts the following:
On 31 December 1993 Resolution n° 1696/93 of the Argentine Ministry of Economy,
Public Works and Public Services introduced minimum specific duties on certain
footwear imported into Argentina22. The text of this Resolution is annexed as Exhibit EC-
1. The justification given for this measure in the first Preamble was the low price ofcertain imports and the resulting injury caused to the Argentine industry. It was stated to
be of a temporary nature and to be linked to an investment plan for the adjustment and
specialisation of the industry. Indeed, Article 6 of the measure specified that the
minimum specific duties were to expire on 31 December 1994 and that there was a
"possibility of a single non-renewable extension of six months" provided that the injurypersisted and the adjustment justified it.
However, the protection proved easier to introduce than to remove and the duties have in
effect been in force ever since.  On the date of their original intended expiry and on the
eve of the entry into force of the WTO Agreements, they were extended for one year byArticle 15 and Annex XII of Decree 2275/94
23 (Exhibit EC-2).  They were again
prolonged until 31 December 1996 by Articl e 9 of Decree 998/95 (Exhibit EC-3) and
then again prolonged until 31 August 1997 by Resolution 23/97 of 7 January 1997
(Exhibit EC-4). Various amendments were also made to the duties over the period.
Similar minimum specific duties also applied to textiles and apparel. They were all in
principle calculated by multiplying a “representative international price” by the
applicable ad valorem customs duty24. A minimum specific duty became payable where
its application resulted in a duty higher than would have resulted from the application of
                                                     
21 Except as otherwise noted, the footnotes and citations, and the emphasis in the text are as contained
in the parties’ submissions.
22 The Resolution is dated 28 December 1993 and published in the Official Journal of the Argentine
Republic of 30 December 1993, to enter into force the next day.
23 Published in the Official Journal of the Argentine Republic of 30 December 1994, to enter into force
on 1 January 1995.
24 See the description of the system given at paragraph 6.18 of the Report of the Panel and 49 of the
Appellate Body Report in Argentina - Certain Measures  Affecting Imports of Foot wear, Textiles, Apparel and
Other Items referred to below.WT/DS121/R
Page 5
the applicable ad valorem customs duty (in principle for all goods priced below the
“representative international price”). The levels of specific duties which were reached,
surpassed in certain cases 200 per cent ad valorem  equivalent, clearly breaching
Argentina's bound rate of 35 per cent ad valorem , provided in Argentina's
Schedule LXIV.  In effect, Argentina wa s applying a safeguard measure without
following any of the required procedures laid down in the WTO Agreement applicable
after 1 January 1995.
The regime of minimum specific duties applied by Argentina did not fail to provoke
international protests and both the EC and the US commenced dispute settlement
proceedings. The US requested consultations on 4 October 1996 (WT/DS56) which gave
rise to the Panel and Appellate Body Reports Argentina - Certain Measures Affecting
Imports of Footwear, Textiles, Apparel and Other Items25. The European Communities,
which was a third party in the US proceeding, requested its own Panel under Article 10.4
Dispute Settlement Understanding (DSU) on 10 September 1997 (WT/DS77).  This gave
rise to a Panel proceeding Argentina - Measures Affecting Textiles and Clothing,  which is
currently suspended.
When it became clear that the Panel requested by the US would be established, Argentina
repealed the minimum specific duties on imports of footwear while maintaining such
duties on imports of clothing and textiles (Resolution 225/97 –Exhibit EC-5) and
simultaneously initiated safeguard proceedings and imposed provisional measures in the
form of minimum specific duties on imports  of footwear (Resolution 226/97 – Exhibit
EC-6). These decisions were both adopted on 14 February 1997 and both entered into
force the day after their publication in the Official Journal of the Argentine Republic, that
is on 25 February 1997, the very day the panel was established by the DSB in case
WT/DS56. The minimum specific duties, which were imposed as a provisional safeguard
measure were virtually identical to the minimum specific duties which had just beenrepealed.
This was a manoeuvre that proved successful for Argentina, in the sense that footwear
was excluded from the WTO Panel in case WT/DS56
26, which therefore only considered
the illegality of the minimum specific duties for textiles and apparel, as well as anArgentine statistical tax.  The minimum specific duties in that case were held to violate
Article II:1(b) GATT 1994 in so far as they exceeded the bound rate of 35 per cent ad
valorem.  These minimum specific duties were identical in form and nature to the
minimum specific duties on footwear.
The opening of the safeguard investigation and the implementation of a provisional
safeguard measure were notified to the Committee on Safeguards on 21 February 1997(document G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, Exhibit EC-11).
27
On 25 July 1997 Argentina notified (docum ent G/SG/N/8/ARG/1, Exhibit EC-16) the
Committee on Safeguards, pursuant to Article 12:1(b) Agreement on Safeguards, of the
                                                     
25 WT/DS56/R of 25 November 1997, confirmed and partially modified on Appeal - WT/DS56/AB/R
and WT/DS56/AB/R Corr.1 of  27 March 1998,  (AB-1998-1).
26 See paragraph 6.15 of the Panel Report in Argentina - Certain Measures Affecting Imports of
Footwear, Textiles, A pparel and Other Items .
27 On 5 March 1997 Argentina informed the Committee on Safeguards of the content of Resolution
226/97 (document G/SG/N/6/ARG/1/Suppl.1, G/SG/N/6/ARG/1/Suppl. 1 dated 18 March 1997, Exhibit EC-12)
in an additional notification.WT/DS121/R
Page 6
determination of serious injury made by the NFTC (National Foreign Trade
Commission).
On 1 September 1997 Argentina notified the Committee on Safeguards of the intention of
the Argentine authorities to impose a final safeguard measure under Article 12:1(c) and
Article 9 (footnote 2) Agreement on Sa feguards (see document G/SG/N/10/ARG/1,
G/SG/N/10/ARG/1, dated 15 September 1997, Exhibit EC-17, with corrigendum dated
18 September 1998, Exhibit EC-18).
On 12 September 1997 Argentina published in the Official Journal of the Argentine
Republic No. 28,729 a definitive safeguard measure in the form of minimum specific
duties on imports of footwear, effective as of 13 September 1997, under
Resolution 987/97.
On 26 September 1997 Argentina transmitted to the Committee on Safeguards (see
document G/SG/N/10/ARG/ 1/Suppl.1, G/SG/N/11/ ARG/1/Suppl.1 dated
10 October 1997, Exhibit EC-20) a copy of Resolution 987/97.  The resolution imposed
as from 13 September 1997 a definitive safeguard measure on certain imports offootwear, listed in Annex I of the Resoluti on. This definitive safeguard measure was in
the form of minimum specific duties, in many cases identical to the provisional duties and
the former Article II GATT-illegal duties.
(b) Argument of Argentina
4.2 Referring to the European Communities' account of the "factual and procedural history" of
this dispute in paragraph 4.1, supra  Argentina states that the European Communities endeavours to
introduce the question of the DIEMs applied to footwear, which were revoked almost two years
before, calling them "Article II GATT-illegal duties", indicating that they were "clearly breaching
Argentina's bound rate of 35 per cent ad valorem …", and suggesting that in practice they constituted a
safeguard measure.
4.3 In this connection, Argentina notes that discussion of the DIEMs that applied to footwear in
the past and have now been revoked is not covered by the terms of reference of this Panel.  These
DIEMs cannot be the subject of review under the WTO's dispute settlement system because the
measure is not in force and discussing it would not meet the objective of securing "a positive solutionto a dispute" (Article 3.7 of the DSU).
4.4 Argentina asserts that the EC qualification of the DIEMs applied to footwear as "GATT-
illegal duties" should clearly be rejected.  The DIEMs in question have now been revoked and were
not the subject of any recommendation by the DSB c oncerning their consistency or inconsistency with
the rules of the WTO, the only body authorised to  declare the illegality of a measure within the
multilateral trading system.
4.5 Argentina asserts that in Argentina – Measures Affecting Imports of Footwear, Textiles,
Apparel and Other Items, the United States requested the Panel to rule on the legality of the footwear
DIEMs.  The panel, however decided not to accede to the United States request, considering that:
"…in the absence of clear evidence to the contrary, we cannot assume that Argentina will
withdraw the safeguard measure and reintroduce the specific duties measure in an attempt to
evade Panel consideration of its measures.  We must assume that WTO Members willperform their treaty obligations in good faith, as they are required to do by the WTO
Agreement and by international law.  We consider, therefore, that there is no evidence that the
minimum specific import duties on footwear will be reintroduced….  Consequently, we willWT/DS121/R
Page 7
not review the WTO compatibility of the specific duties which used to be imposed on
footwear and which have, since the establishment of this Panel, been revoked… ".28
4.6 Argentina contends that the European Communitie s also tried to discuss the legality of the
DIEMs within the dispute settlement system when it requested the establishment of a panel on
Argentina – Measures Affecting Imports of Textiles and Clothing .  The original document
(WT/DS77/3) indicated that the European Communities requested the DSB to establish a panel to findthat the imposition of DIEMs on footwear violated Article II.1(b) of GATT.  As reflected in the
Minutes of the DSB meeting on 25 September 1997
29, however, Argentina rejected the inclusion of
this measure in the Panel's terms of reference because the measure did not exist and consequently this
was a moot point that could not be dealt with in th e framework of the DSU.  As a result, the European
Communities withdrew its objection to the DIEMs on footwear and submitted a revised version of its
request for the establishment of a panel.30  At the same meeting, other Members of the DSB expressed
their concern that the European Communities' request was equivalent to setting up a "preventivepanel" by trying to include in the terms of reference any other measure that might be adopted in the
future.
4.7 Therefore, Argentina does not consider that the DIEMs applied to footwear and now revoked
should be discussed by this Panel, and requests the Panel not to take into account any of the claims
made by the European Communities in this respect.
(c) Argument of the European Communities
4.8 The European Communities observes that Argentina began the implementation of a
comprehensive liberalisation programme by the beginning of this decade.  It signed in 1991 the Treaty
of Asuncion, with the aim of creating a customs uni on with Brazil, Paraguay and Uruguay.  However,
in 1993 Argentina decided to introduce restrictive trade measures to protect its industry from theliberalisation measures: it introduced minimum specific duties for a number of products, including
footwear, as well as textiles and apparel.  The duties of the latter two, which are not within the terms
of reference of the present case, have already been declared WTO-illegal by a previous Panel and the
Appellate Body earlier this year.
4.9 The European Communities asserts that Argentina realised as early as 14 February 1997 that
these minimum specific duties could not be in confor mity with its international obligations under the
WTO and decided to abolish them for footwear
31 and replace them with the present safeguard
measure.
4.10 The European Communities clarifies that it is  not asking the Panel to declare the former
minimum specific duties on footwear -- which ha ve been abolished since February 1997 -- WTO-
illegal.  The European Communities has no intention of opening up a debate on whether those duties
for footwear violated Article II:1(b) GATT or not.  These duties were revoked just before the panel in
Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items  was
established.  Consequently, that panel, and no other panel afterwards, was in a position to review the
WTO compatibility of the minimum specific duties for footwear, even though those duties were
identical to those applied at that time by Argentin a for textiles.  This is expressly recognised  in
paragraph 6.15 of that panel report where it stated that, "when reviewing the import regime applied totextiles and apparel, [we may] refer to some examples of transactions involving footwear because the
type of duties used at the time by Argentina for textiles, apparel and footwear was the same ".
                                                     
28 Document WT/DS56/R, paragraphs 6.14 and 6.15, page 86.
29 Document WT/DSB/M/37.
30 Document WT/DS77/3/Rev.1/Corr.1.
31 Resolution 225/97, see Exhibit EC-5.WT/DS121/R
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2. Resolution MEYOSP 512/98, Resolution MEYOSP 1506/98, and Resolution SICyM
837/98, and panel recommendations on "hypothetical future measures"
(a) Arguments of Argentina
(i) Resolution MEYOSP 512/98 and Resolution MEYOSP 1506/98
4.11 In connection with the European Communities' claims concerning Resolution MEYOSP
512/98 and 1506/98, Argentina maintains that these regulations are not covered by the terms ofreference of this Panel (document WT/DS121/3).  These terms of reference only cite and include the
measures contained in Resolution MEYOSP 226/97 and Resolution MEYOSP 987/97.  Resolutions
512/98 and 1506/98 are foreseen modifications to the measure adopted by Resolution MEYOSP
987/97.  Argentina recalls the decision of the Appellate Body in Guatemala – Anti-Dumping
Investigation Regarding Portland Cement from Me xico, which states that: "its [Mexico's] panel
request did not identify the final anti-dumping duty as the 'specific measure at issue', as is required by
Article 6.2 of the DSU".  Likewise, Argentina argues, in this case the European Communities failed toidentify and could not identify Resolution 512/98 or 1506/98 as the "specific measures at issue".
4.12 Moreover, Argentina asserts, Resolution MEYOSP 512/98 is part of a context in which
private individuals have brought legal proceedings contesting the safeguard before the Argentine
courts.  The existence of these legal proceedings was not notified to the WTO either, because they are
not covered by the obligations under Article 12, although this did in fact modify the safeguardmeasure by limiting its scope through the granting of an exception for the largest importers.  To recap,
Resolution MEYOSP 512/98 was adopted in order to preserve a situation that was considered
necessary in terms of imports at the time the measure was imposed so as to allow the industry to
adjust and the liberalisation calendar to be pursued in accordance with the original notification.
4.13 Argentina therefore requests the Panel not to make any ruling on Resolution 512/98, which
was never the subject of any consultations between the European Communities and Argentina and is
not included in the terms of reference which the DSB adopted for the Panel's proceedings, although
the terms of reference were the subject of detailed discussions at two consecutive meetings of the
DSB.
4.14 In the hypothetical case of the Panel rejecting the special preliminary ruling requested by
Argentina, Argentina states that, in compliance  with Article 9 of Resolution MEYSOP 987/97,
Argentina duly notified to the WTO, and with a view to advancing the review, issued Resolution
512/98.  The result of this review showed that th e objective of limiting imports in order to "remedy
the injury and facilitate adjustment" was not being achieved. Rather, according to the conclusions of
the report prepared by the Secretary of Industry, Trade and Mining, the status of the safeguardmeasure, after 15 months in force, was unusual in that there had been an increase in footwear imports
during that period as compared to the previous pe riod.  Imports increased rather than slowing down,
maintaining their level or decreasing and enabling the measure to fulfil its objectives of remedying the
injury and facilitating adjustment in the meaning of Article 5 of the AS.  Thus, the adjustment plan
presented by the domestic industry could neither be implemented, nor could it achieve its planned
objectives.  Consequently, Argentina states, it found itself in a situation that was not covered by the
hypothesis set forth in Article 7.4 of the Agreement on Safeguards.  That Article, which provides forreviews and progressive liberalisation of the safeguard measure, presupposes that the measure in force
is achieving its objective.  In the case of Argentine footwear imports, the objective of the safeguard
measure was not being achieved, and it was necessary to amend it in order to comply with the
provisions of Article 5.1 of the Agreement. This led to the decision to adopt Resolution 1506/98,which currently regulates the safeguards situation, and does not come under the terms of referencecontained in document WT/DS121/3.WT/DS121/R
Page 9
4.15 In response to a Panel question regarding how Argentina reconciles its arguments that
resolutions 512/98 and 1506/98 are based on and flow out of Article 9 of Resolution 987/97 on the
one hand, and that these resolutions are outside the Panel’s terms of reference because they are new
measures, Argentina indicated that it does not refer to two new measures.  Rather, these are foreseen
modifications to the measure adopted by Resolution MeyOySP 987/97.  These modifications do not,
in Argentina's opinion, come within the terms of reference of the Panel, which cite only Resolution987/97 (see para. 4.11, supra ).
(ii) Panel recommendations on "hypothetical future measures"
4.16 Argentina notes that the European Communities requests the Panel "… to find all Argentine
measures based on the safeguard investigation subject of this dispute to be contrary to Argentine
WTO obligations".
32  Argentina further notes that the European Communities, states that " … any
change to the measure which Argentina may introduce  will only affect the violation of Article 5.1
(necessity of the measure and adequacy of the adjustment plan) and not the remaining violations"33
and that "… the European Communities submits that Argentina's safeguard measures on imported
footwear , however they may be adapted or adjusted  in the meantime, should be removed".34
Argentina considers that these claims are hypotheses regarding future measures that have no place in
the WTO dispute settlement system.
4.17 Argentina argues, first, that the Panel's term s of reference set out in document WT/DS121/3
do not contain the words "all Argentine measures based on the safeguard investigation subject of this
dispute".  Second, as stated in the Appellate Body's Report on the case of Guatemala – Anti-Dumping
Investigation Regarding Portland Cement from Mexico :
"… Article 6.2 of the DSU requires that both the 'measure at issue' and
the 'legal basis for the complaint' (o r the 'claims') be identified in a
request for the establishment of a panel.  As we understand the Panel,
it would, in effect, suffice, under Article 6.2 of the DSU, for a panel
request to identify only the 'legal basis for the complaint', without
identifying the ' specific  measure at issue'.  This is inconsistent with the
plain language of Article 6.2 of the DSU ."35
Argentina submits that if the claims refer to future measures and the measures at issue cannot
therefore be identified, it is not possible to rule on their legality.  This is why, under Article 6.2 of the
DSU, the European Communities cannot question the investigation as such and obtain a ruling
whereby (" all Argentine measures based on the safeguard investigation subject of this dispute [are
found] to be contrary to Argentine WTO obligations").
4.18 Furthermore, Argentina continues, as stated by Panel in the case of Argentina – Measures
Affecting Imports of Footwear, Textiles, Apparel and Other Items :  "We must assume that WTO
Members will perform their treaty obligations in good faith, as they are required to do by the WTO
Agreement and by international law".36   No provision in the DSU allows recommendations to be
made on future or hypothetical measures or the establishment of preventive panels.  The contrary
would imply a violation of the pr ovisions of Article 3.7 of the DSU, namely that "… the first
objective of the dispute settlement mechanism is usually to secure the withdrawal of the measuresconcerned if these are found to be inconsistent with the provisions of any of the covered agreements".
                                                     
32 Supra , para. 3.3.
33 Supra , para. 3.2.
34 Ibid.
35 Document WT/DS60/AB/R, paragraph 69, page 24.
36 WT/DS56/R, paragraph 6.14, page 86.WT/DS121/R
Page 10
A supposed future measure cannot be withdrawn before it exists, neither can it be deemed inconsistent
with the provisions of the WTO Agreements.
4.19 Argentina considers that this interpretation is also reaffirmed by Article 19.1 of the DSU,
which, referring to recommendations by panels, states that " … where a panel … concludes that a
measure is inconsistent with a covered agreement, it shall recommend that the Member concerned
bring the measure into conformity with that agreement".  It should be noted that the verb is used in the
present tense, i.e. "is inconsistent" and not in the subjunctive ("might be inconsistent").
4.20 Argentina also asserts, first, that the terms of  reference of the Panel as set forth in document
WT/DSB/121/3 are perfectly clear as regards the scope of these proceedings and the content of the
dispute as presented before the Panel; and second, as the Appellate Body stated in the Bananas III
case, the DSU requires claims to be specified in a way that allows the respondent and third parties to
understand the legal basis of the complaint.37
4.21 According to Argentina, the condition imposed by the DSU in Article 6.2, that Members
should explicitly identify their complaints in the re quest for the establishment of a panel, is justified
by the need to be able to argue and rebut arguments on the basis of concrete and real claims, and thus
be able to arrive at a conclusion as to whether or not a given action is consistent with the obligations
of a given agreement.  Argentina queries how it is possible to verify or observe the consistency or
inconsistency with a provision of the Agreement on Safeguards of a measure applied by a Member ifit is described in such vague terms as "however they may be adjusted in the meantime".
38  The DSU
does not provide for the kind of "preventive" panel which seems to be behind the European
Communities’ request to this Panel to rule on an issue which was never included in the terms of
reference.
4.22 Argentina therefore requests the Panel not to rule on any future or hypothetical measures
alluded to by the European Communities in its first submission without any further details.
(b) Argument of the European Communities
4.23 The European Communities argues that the measures the subject of the present proceeding are
the provisional safeguard measure introduced on 25 February 1997 and the definitive safeguard
measures introduced by Resolution 987/97.39  This Resolution contained in its Annex I a timetable for
the progressive liberalisation of the restrictive measure.  Just before the first liberalisation was to take
effect, at the end of April 1998, Argentina postponed it with Resolution 512/98.40  The date of May 1st
1998, when the first step of the progressive liberalisation was foreseen, was put back until the 15th of
December 1998.  Furthermore, Argentina modified Article 9 of Resolution 987/97 by introducing the
possibility of further changes in the liberalisation schedule. The most recent Resolution adopted byArgentina in this respect is Resolution 837/98, which the European Communities now puts forward as
Exhibit EC-35.  This latest Resolution, published in the Argentine Official Journal of 7 December
1998, implements certain aspects of Resolution 1506/98 and establishes a quota-management system
based on trimesters.
4.24 According to the European Communities, Argentina has stated that the subsequent
Resolutions are not new measures, but merely applications of the adjustment procedure.  As such, the
European Communities submits, they are of course covered by this Panel's procedures.  In any event,even if they are amendments, they equally become  null and void from the moment that the original
Resolution falls.
                                                     
37 WT/DS27/AB, paragraph 143.
38 Supra , para. 3.2.
39 Document G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, Exhibit EC-20.
40 See Exhibit EC-28.WT/DS121/R
Page 11
4.25 The European Communities maintains that this claim falls within the terms of reference41,
since the original measure ( i.e. the definitive safeguard measure imposed under Resolution 987/97) is
specifically mentioned by the European Communities in its Request for the Establishment of a
Panel.42  The European Communities states that it is clear th at this measure is still in existence, be it in
a somewhat different format than previously not ified by Argentina.  Therefore, the European
Communities' claim is in conformity with Article 6:2 DSU, since the measure at issue was properlyidentified by the European Communities as 'the definitive safeguard measure' imposed by Argentina
under 'Resolution 987/97'.  The present case differs in that respect from 'Guatemala - Cement'
43,
where Mexico had not identified the final anti-dumping duty as the measure at issue.
4.26 Thus, the European Communities requests the Panel to recommend the removal of the
original safeguard measure set out in Resolution 987/97, so as to automatically render null and void
the subsequent application of that Resolution as well as modifications to this measure.
4.27 The European Communities asserts that the late November 1998 modification of the
safeguard measures was drastic.44  The European Communities contends that the original safeguard
measures were based on  an investigation  initiated on 25 February 1997, which, in the European
Communities' view, was flawed for more than one reason.  The subsequent changes to these measures
are modifications of the original safeguard measure and are claimed by Argentina to be based on  the
same investigation and findings .
4.28 The European Communities recalls that it has re quested that the Panel rule that Argentina's
safeguard measures on imported footwear, however they may be adapted or adjusted in the meantime,
should be removed.  The European Communities observes that Argentina has objected to this request,
claiming that it goes beyond the Panel's terms of reference.  The European Communities notes that it
is not seeking an extension of the terms of reference.  It is merely noting, and asking the Panel to note,that once the original measures mentioned in the request for the establishment of the Panel are
removed, the amendments which have been made to them will also disappear.
4.29 The European Communities underlines that Argentina has argued that the Resolutions 512/98
and 1506/98 are a simple application of Article 9 of the original safeguard measures and thus an
integral part of that measure.
45  According to the European Communities, Argentina must therefore
accept that these Resolutions suffer the same fate as the principal measure.  The European
Communities states, in addition that, first, Resolutions 512/98 and 1506/98 concern the very same
safeguard measure which was introduced by Resolution 987/97 (i.e. Argentina’s safeguard measures
on footwear adopted following the submission of a complaint by Argentina’s CIC in October 1996).
The former Resolutions are mere modifications of the same safeguard measure, and should berepealed together with Resolution 987/97, since all are affected by the same fundamental
shortcomings, which the European Communities has brought forward.  That is, these Resolutions are
a modification and an 'application' of the original Resolution, and therefore if the basic Resolution
becomes null and void, then -- automatically -- the subsequent modifications in application of it fall as
well.
                                                     
41 According to Argentina (see para.. 4.18) the te rms of reference do not contain the words "all
Argentine measures based on the safeguard investigation subject of this dispute."
42 Exhibit EC-26.
43 Report by the Appellate Body on 'Guatemala – Anti-Dumping Investigation regarding Portland
Cement from Mexico' , WT/DS60/AB/R, 2 November 1998, at paragraph 86.  Argentina claims in its reply to
question 35 by the Panel that the EC failed to identify the specific measure at issue and refers in this respect tothe 'Guatemala – Cement'  case.
44 The European Communities submitted, during the first meeting of the Panel with the parties, the text
of Resolution 1506/98, of 16 November 1998 (Exhibit EC-32) which modified the safeguard measures beingreviewed by this Panel.
45 Supra , paras. 4.11-4.15.WT/DS121/R
Page 12
4.30 Second, Resolutions 512/98 and 1506/98 modify the original Resolution to render Argentina's
safeguard measures on footwear more stringent.  The European Communities submits that no
provision in the Agreement on Safeguards permits that type of modification.  Accordingly, such
modifications per se  are illegal. The European Communities argues that it is clear from the wording of
Article 7.4 of the Agreement on Safeguards ("shall progressively liberalise") that safeguard measures
must be "progressively" liberalised at regular intervals during the period of application.  A safeguardmeasure can not, during its period of application, be made more restrictive  than the measure which
was originally notified.   For the European Communities, the safeguard measure can only be relied
upon in exceptional circumstances and its provisions therefore should be interpreted strictly.
4.31 The European Communities submits that if it we re possible for a WTO Member to maintain a
safeguard regime which had been condemned by a Panel, by introducing a series of increasingly
stricter Resolutions, this would amount to a justification of an abus de droit .  Indeed, if such practice
were allowed to stand, then the security and predictability of the multilateral trading system, whichwas agreed upon by all Members in 1994, would be seriously jeopardised and the European
Communities and other Members would be required to shoot at a moving target.
4.32 Regarding Argentina’s arguments concerning  Article 7:4 Agreement on Safeguards, the
European Communities notes that Argentina has sought in effect unilaterally to modify the content of
the Agreement on Safeguards by introducing a new requirement which should be fulfilled beforeArticle 7:4 would apply.  Argentina reads in the Ag reement on Safeguards a condition that only if the
‘objective of the safeguard measure is achieved’, this provision becomes applicable, and speaks of a
‘hypothesis’ and a ‘presupposition’ on which Article 7:4 would be based.
4.33 The European Communities states that it has grave difficulties with this approach by
Argentina.  The text of Article 7:4 Agreement on Safeguards is crystal clear and does in no way leaveroom for such unwarranted interpretation.  It reads in the first sentence: ‘the Member applying the
measure shall progressively liberalise it’.  Nowhere in the text of the Agreement on Safeguards can a
provision be found which makes this obligation dependent on whether or not the ‘objective is being
achieved’ of the safeguard measure and Argentina does not put forward any evidence which would
support its position.
4.34 The European Communities also argues that in case the duration of the measure would be
extended to over three years, the second sentence of Article 7:4 requires the conduct of a mid-term
review  and requires the Member as a result of this review either to ‘withdraw [the measure] or
increase the pace of liberalisation.’  The drafters left out the possibility that the measure would be
made stricter, and Argentina should therefore not be allowed to somehow read this option in the text.
4.35 The European Communities states that Argentina confirms that the new Resolutions should
not be seen as ‘new measures’, and argues  that should Argentina desire to apply new  safeguard
measures, it would be required to comply with all the conditions contained in the Agreement on
Safeguards, including the carrying out of a new and separate investigation (Article 3).  Moreover,
Argentina would be obliged (Article 7:5) to aw ait the expiration of a two-year period of non-
application of safeguard measures.  Argentina did not follow this option, since it merely modified
(through Resolutions 512/98 and 1506/98) the same safeguard measures (Resolution 987/97) which
were imposed as the result of the October 1996 complaint by the domestic industry.
4.36 The European Communities also takes issue w ith Argentina’s statement that Resolution
1506/98 ‘currently regulates the safeguards situation’.  The European Communities notes that
Argentina forgets to mention Resolution 837/98 (published in the Argentine Official Journal on the 7th
of December 199846 which is the latest ‘regulation’ of the safeguard measure on footwear.  The
European Communities questions why in its second submission Argentina decided not to include
                                                     
46Exhibit EC-35WT/DS121/R
Page 13
information on the latest modification in the safeguard regime on the 19th of January 1998 (the date of
transmission of the rebuttals), whereas such change had been made public six weeks before.
B. SUBMISSION  OF EVIDENCE :  EXHIBIT ARG -21
4.37 At the end of the first meeting of the Panel, Argentina sought to submit to the Panel one copy
of the entire record of its safeguard investigation on footwear.  Argentina added that the copy could be
left with the WTO Secretariat for the parties to the dispute to consult.  The Panel, upon beinginformed that no copy would at the same time be provided to the European Communities, indicated to
the parties that it could not accept the documents, as in the Panel’s view, this would constitute an ex
parte  submission, which is not permitted by the DSU (Article 18.1).  In presenting its second written
submission, Argentina again sought to submit, in a single copy to the Panel only, the same
documentation, as an annex identified as Exhibit ARG-21.  The Panel again declined to accept the
documentation, for the reasons given previously, which it indicated in a letter to the parties.  In the
same letter, the Panel sought the views of the parties as to the best way to proceed.  The EuropeanCommunities responded that the submission of the evidence in question at such a late stage in the
proceeding should not be permitted.  Argentina indicated that it was at that time preparing a copy of
the documentation for the European Communities, and would submit the documentation to the Panel
and the European Communities once the copy was ready.  The Panel informed the parties that it
would accept the documentation so long as it was submitted no later than the date of the secondmeeting of the Panel, with a copy at the same time to the European Communities, and that this same
deadline would apply to any other new evidence to be submitted by either party.  The Panel also
informed the parties that each party would be given an opportunity to comment on any new evidence
submitted by the other party.
4.38 Argentina submitted the documentation identified as ARG-21, and provided a copy to the
European Communities, on the day before the second meeting of the Panel.  At the second meeting,
Argentina objected to the fact that the documentation had not been accepted at the time it was
presented as an annex to Argentina’s second written submission; in the view of Argentina, this
constituted a unilateral decision by the Secretariat, that only the Panel was able to take.  The Panel
recalled that its original decision regarding this evidence, taken at the end of the first substantivemeeting, had not changed and explained that the Secretariat had operated on that basis.  The European
Communities stated that it considered the rejection of ARG-21 at the time the second submission was
presented to have been perfectly correct in the light of Article 18.1 of the DSU.
4.39 At the second meeting, the Panel indicated that , in keeping with its earlier ruling that each
party would be given an opportunity to comment on any new evidence submitted by the other party,the European Communities would have a period in which to submit written comments regarding
ARG-21, which was the only new evidence submitted.  At the request of the European Communities,
Argentina provided a list of those pages of ARG-21, pertaining to the various factors addressed in the
investigation, that had not already been submitted as annexes to submissions by Argentina and that
Argentina considered to be relevant to the reso lution of this dispute.  The European Communities
commented that none of the listed pages contained any assessment or discussion of the relevance of
the factors or issues regarding causality or any of the other determinations made in this investigation,
but rather contained only raw data and accounting information.  Thus, for the European Communities,
these pages did not support any change in the European Communities’ previous conclusions regarding
the present dispute.WT/DS121/R
Page 14
V. MAIN ARGUMENTS OF THE PARTIES CONCERNING THE ISSUES ARISING
UNDER THE AGREEMENT ON SAFEGUARDS AND THE GATT 199447
A. ARTICLE XIX:1( A) OF GATT 1994 –" UNFORESEEN DEVELOPMENTS "
1. Argument of the European Communities
5.1 The European Communities argues that it clearly results from the wording of Article
XIX:1(a) GATT that in order to allow the imposition of a safeguard measure, not any increase inimports is relevant, but only those which result from both "unforeseen developments" and
"compliance with GATT obligations", including tariff liberalisation according to a party's Schedule of
Concessions.  Since tariff concessions and other obligations are an additional element to "unforeseen
developments", it necessarily follows that liberalisation cannot constitute by itself such unforeseen
developments.  The European Communities submits that  Argentina's trade liberalisation, in particular
within the MERCOSUR and WTO framework, was a conscious commercial policy.  The development
in trade since 1991 – particularly since the signing of the Treaty of Asuncion – is the natural result ofthe commercial policy followed by the Argentine government and that this and the illegality of the
trade protection measures which preceded the safeguard measures the subject of these proceedings,
were in no way unforeseen
48.  Argentina therefore violated Article XIX:1(a) GATT.
5.2 The European Communities submits that Artic le XIX of GATT, and in particular the
requirement in Article XIX:1(a) of GATT, that safeguard measures only be taken in the event of"unforeseen developments", has never been repealed or modified.  Accordingly, there is no doubt that
this requirement remains fully applicable, even if not repeated in the Agreement on Safeguards.
5.3 The European Communities asserts that incr eased imports as a consequence of tariff
concessions agreed for footwear cannot be considered "unforeseen" within the meaning of
Article XIX:1(a) GATT
49. If it were otherwise, a WTO Member would be allowed to withdraw the
very benefits which it had agreed to when entering into tariff commitments.  This would neither be
consistent with a good faith interpretation of that provision nor with the liberalisation aims pursued by
the GATT and the WTO Agreement overall.50  For the European Communities, the sequence of
events is clear:  first, an unforeseen development is to take place;  second, as a result of this
unforeseen development an increase in imports occurs.  An increase in imports can (by definition) notbe the result of an increase in imports.  Argentina's argument is thus circular.
5.4 In addition, the European Communities emphasises, safeguard measures are by definition
"emergency" measures.  The very nature of a safeguard measure is to tackle an urgent situation which
was not expected.  The safeguard mechanism is not an instrument of medium to long-term trade
policy, as Argentina has applied it.  Once more, this fact is demonstrated by the long investigationperiod from 1991-1995.  It is revealing that even Argentina, in its own report, noted
51 that the big
increase in imports occurred "immediately after the opening up of the economy which began in
1989/90."
                                                     
47 Except as otherwise noted, the footnotes and citations, and the emphasis in the text in this section are
as contained in the parties’ submissions.
48 Indeed, the prime objective of concluding a cust oms union or a free trade area is, according to the
text of Article XXIV:4 GATT 1994, " to facilitate trade between the constituent territories ."
49 This also reflects a generally accepted tenet of economic theory, i.e. that tariff protection can be
measured in advance according to specific formulas: see B. Hoekman, M. Kostecki, The Political Economy ofthe World Trading System, Oxford, 1995, pp. 88, 93.
50 See the Preambles of the Agreement establishing the World Trade Organization and of GATT 1994,
both referring to "reciprocal and mutually advantageous agreements directed to the substantial reduction of
tariffs and other barriers to trade."
51 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 3.WT/DS121/R
Page 15
5.5 Nor, according to the European Communities, can the necessity of removing the Article II
GATT-illegal measures be considered an "unforeseen development".  This is in fact nothing more
than the implementation of agreed trade liberalisation, which, as has just been explained, is a separate
condition of Article XIX:1(a) GATT, and cannot itself constitute an "unforeseen development".  The
European Communities submits therefore that, by imposing safeguard measures in the absence of an
increase in imports of footwear resulting from "unforeseen developments", Argentina violated theobligations which it assumed under Article XIX:1(a) GATT.
5.6 The Panel  asked the European Communities to comment on the meaning that the European
Communities would give to the language of Article 2 of the Agreement on Safeguards in the light of
the language of Article 1 and 11.1 of the Agreement and the second and fourth recitals of the
preamble.  The European Communities responded that Article XIX GATT and the Agreement on
Safeguards set out the requirements which must be fulfilled before a safeguard measure can be taken.
There is substantial overlap between the conditions set out in Article XIX GATT and the conditionsset out in the Agreement on Safeguards, including in its Article 2.  However, none of the provisions of
the Agreement on Safeguards, including Article 1, Article 11:1, nor the second and fourth recital,
allow for any of the additional conditions set out in Article XIX to be ignored.
5.7 For the European Communities, one way of understanding the requirement of "unforeseen
developments" is to consider that the continuu m starting with trade liberalisation, running into
unforeseen developments which result in increased imports which occur under conditions which are
such that serious injury results.
52  This starts with loss of sales, continues with loss of sales and
production, falling capacity utilisation, losses and finally unemployment.  In 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.
5.8 The European Communities notes that Article 1 of the Agreement on Safeguards establishes
"rules " for the application of safeguard measures.  However, it does not establish " the rules " or " the
only rules " for the application of safeguard measures.  Therefore, the Agreement on Safeguards is not
intended to be the exclusive source of safeguard rules.  The Agreement on Safeguards elaborates on a
number of the conditions mentioned in Article XIX which should be fulfilled before a measure can betaken.  However, the Agreement on Safeguards does not elaborate on all of the conditions set out in
Article XIX GATT.  Some of those conditions, such as " as a result of unforeseen developments " or
"the effect of the obligations incurred by a contracting party under this Agreement, including tariff
concessions ", are not repeated, but this can by no means have as a consequence that they are made
invalid.
5.9 For the European Communities, the non-repeating of these two conditions can be explained
by the intention of the Agreement on Safeguards to provide more detailed explanation of some of the
conditions mentioned in Article XIX, which were not further defined at the time.  Conditions such as
"serious injury" or "threat of serious injury" or "causation" are elaborated upon further in the
Agreement on Safeguards and defined in much greater detail than before.
5.10 The European Communities asserts that Article 1 Safeguard Agreement does not define what
a safeguard measure is but expressly refers to Article XIX GATT.  If Article XIX tells what asafeguard measure is (an "emergency" measure, to be taken in case of "unforeseen developments")
and the Safeguard Agreement tells how to apply it, the consequence must be that the Safeguard
Agreement is not exhaustive.
                                                     
52 The European Communities adds that the continuing need for unforeseen developments is also clear
from Article 1 of the Agreement on Safeguards.  According to the EC, the Agreement on Safeguards lays down
conditions and explains how to apply safeguard measures but Article XIX defines what they are.WT/DS121/R
Page 16
5.11 In the view of the European Communities, Article 11:1 Agreement on Safeguards requires
that safeguard action conforms to both Article XIX GATT and to the Agreement on Safeguards.
Paragraph (a) sets out that Members considering taking a safeguard measure should apply the
conditions of Article XIX in accordance with  the Agreement on Safeguards.  Therefore, this
paragraph requires that, for example, if "serious injury" is to be demonstrated, this should be done in
accordance with  the more elaborated provisions set out in this respect in Article 4:1(a) and 4:2(a)
Agreement on Safeguards.  This paragraph does not state that the conditions mentioned in
Article XIX GATT -- but not repeated in the Agr eement on Safeguards -- should be ignored.  Indeed,
paragraph (c) of Article 11:1 confirms that Article XIX is still fully applicable beside the Agreement
on Safeguards.
5.12 According to the European Communities, the second recital strengthens this argument.  It
explains that the aim of the Agreement on Safeguards is not to replace Article XIX, but instead that it
has the objective of clarifying  and reinforcing  this provision.  For example, a term such as "serious
injury" is clarified by Article 4:1(a) and 4:2(a) Agreement on Safeguards.  These more detailed
elaborations have the effect of reinforcing the sa feguard mechanism: with the text of the Agreement
on Safeguards in place, it is now much clearer which steps should be undertaken by a Member before
"serious injury" is proved to exist.  Given this clarity, Panels are now in a much better position to
verify whether all of the relevant factors were evaluated.
5.13 Finally, regarding the fourth recital, it is the view of the European Communities that this
provision reaffirms that the comprehensive Agreement on Safeguards is applicable to all Members
and is based on  the basic principles of GATT.  Therefore, all WTO Members -- not just a sub-set --
are required to comply with the Agreement on Safeguards, which incorporates some of the more
fundamental concepts contained in the GATT.  This recital cannot be interpreted in such a way as tohave the Agreement on Safeguards replace  Article XIX GATT, nor can it be read in such a way as to
allow for some of its conditions to be ignored."
5.14 In response to a question from the panel regarding whether Article XIX of GATT and the
Agreement on Safeguards provide for conflicting, cumulative or alternative conditions, the European
Communities responded that there is no conflict between Article XIX GATT and the Agreement onSafeguards, and that the conditions are cumulative.  The Appellate Body in The Appellate Body in
'Guatemala – Cement'  defined the notion of "conflict" as follows:
"… In our view, it is only where the provisions of the DSU and the special or
additional rules and procedures of a covered agreement cannot be read as
complementing  each other that the special or additional provisions are to prevail .  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. … "
53
5.15 Therefore, in line with the argumentation by the Appellate Body, the European Communities
submits that, as long as adherence to the Agreement on Safeguards does not lead to a violation of
Article XIX GATT (or vice versa), they both apply,  complementing each other.  Therefore, the
requirement that imports must have increased " as a result of unforeseen developments " applies in
addition to the other conditions set out in Article 2:1 Agreement on Safeguards.  In other words, this
is a separate condition and should have been demonstrated by Argentina.  Since it has failed to do so,
the European Communities submits that Argentina did not comply with Article XIX GATT.
5.16 The European Communities submits that in the same terms the interpretative note to Annex
IA to the WTO Agreement provides that:
                                                     
53 Appellate Body Report, Guatemala - Anti-Dumping Investigation regarding Portland Cement from
Mexico, WT/DS60/AB/R, 2 November 1998, at paragraph 65.WT/DS121/R
Page 17
"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."
5.17 The European Communities fails to see how Articl e XIX GATT, 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."
5.18 In response to a Panel request for comments on the relevance, if any, of previous panel and
Appellate Body reports addressing the relationships  between various agreements and provisions, e.g.,
Brazil  Desiccated Coconut, Guatemala-Cement (dealing with DSU Article 1.2 as opposed to the
General Interpretative  Note to Annex I A),  Indonesia-Cars, EC-Bananas III or EC-Hormones , the
European Communities stated regarding 'Brazil - Measures Affecting Desiccated Coconut'  that the
Report of the Panel, upheld by the Appellate Body, supports the European Communities’ view that
the GATT and the Agreement on Safeguards "represent an inseparable package of rights and
disciplines that must be considered in conjunction".54 (emphasis added)
5.19 The European Communities notes the quotation by the United States in its third party
submission of the following passage from that panel report:
"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 ofcountervailing 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."55
5.20 The European Communities notes and agrees with the US statement in this respect that the
"new package" made up by the Agreement on Safeguards and Article XIX GATT is different from
Article XIX GATT 1947.  The European Communities disagrees with the United States’ interpreting
the "new package" as consisting of the Agreement on Safeguards only.  This, in fact, is the exact
opposite of what the Appellate Body meant when it stated (see quote above) that the GATT provisionand the specific agreement together  "define, clarify and in some cases modify the whole package of
rights and obligations".
5.21 The European Communities in this respect no tes the following further comments from the
Coconut Panel Report.  On the applicability of the GATT within the WTO system, the Panel
considered the following passage
56:
"It is evident that both Article VI of GATT 1994 and the SCM Agreement have force,
effect and purpose within the WTO Agreement.  That GATT 1994 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 Agreement57.
                                                     
54 Panel Report, Brazil – Measures Affecting Dessicated Coconut,  WT/DS22/R, 17 October 1996, at
paragraph 227.
55 Appellate Body Report, Brazil – Measures Affecting Dessicated Coconut, WT/DS22/AB/R,
21 February 1997, at page 16.
56 Panel Report, Brazil – Measures Affecting Dessicated Coconut, WT/DS22/R, 17 October 1996, at
paragraph 227.
57 Footnote omitted.WT/DS121/R
Page 18
The fact that certain important provisions of Article VI of GATT 1994 are neither
replicated nor elaborated in the SCM Agreement further demonstrates this point.58"
5.22 In this regard, the European Communities recalls 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 theinapplicability of the whole relevant "package" to the case before it.
59
5.23 Regarding 'Guatemala - Anti-Dumping Investigat ion regarding Portland Cement from
Mexico' , the European Communities notes its comments above.  The European Communities sees no
'conflict' between Article XIX GATT and the Agreement on Safeguards, for the same reasons as the
Appellate Body did not see a 'conflict' between a pr ovision in the DSU and a provision in the Anti-
Dumping Agreement: if Argentina would comply with the "unforeseen developments" condition, it
would not violate any provision of the Agreement on Safeguards.
5.24 Regarding 'Indonesia - Cars' , the European Communities refers to what the Panel in that case
said in paragraphs 14.97 - 14.100.  The question before the Panel was whether Article III:2 GATT
was -- or was not -- applicable to the dispute.  Indonesia had argued that there was a conflict between
this provision and the SCM Agreement, in that the respective obligations were mutually exclusive.
However, the Panel disagreed and found that they were not mutually exclusive.  The Panel ruled that:
"It is possible for Indonesia to respect its obligations under the SCM Agreement without
violating Article III:2 since Article III:2 is concerned with discriminatory product
taxation, rather than the provision of subsidies as such.  Similarly, it is possible for
Indonesia to respect the obligations of Article III:2 without violating its obligations
under the SCM Agreement since the SCM Agreement does not deal with taxes onproducts as such but rather with subsidies to enterprises.  At most, the SCM Agreement
and Article III:2 are each concerned with different aspects of the same piece of
legislation (footnote omitted)."
5.25 Similarly, in the European Communities’ view it is possible for a WTO Member to respect its
obligations under the Agreement on Safeguards without violating Article XIX GATT, in particularwith respect to the requirement of "unforeseen de velopments".  Given that they are not mutually
exclusive, Article XIX GATT is applicable to the present dispute.
5.26 Regarding Bananas III , the European Communities notes that the Appellate Body had to
decide whether both Article X:3(a) GATT and Ar ticle 1:3 Agreement on Import Licensing Procedures
applied with regard to the EC import licensing procedures60.  Notwithstanding the fact that the
Appellate Body found that " there are distinctions between [the] two articles " (i.e. that the two
provisions read differently), and at the same time that they have " identical coverage " (i.e. that they
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 IA applied.  Consequently, the Appellate
                                                     
58 Footnote 60 reads: “For example, the SCM Agreem ent does not replicate or elaborate on Article VI:5
of GATT 1994, 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 1994.  Ifthe SCM Agreement were considered to supersede Ar ticle VI of GATT 1994 altogether with respect to
countervailing measures, these provisions would lose all force and effect.  Such a result could not have been
intended.”
59 Panel Report, paras 231, 257.
60 Appellate Body Report, EC - Regime for the Importation, Sale and Distribution of Bananas ,
9 September 1997, WT/DS27/AB/R, paragraph 199 (and following).WT/DS121/R
Page 19
Body found that both Article X:3(a) GATT and Article 1:3 Agreement on Import Licensing
Procedures were applicable.
5.27 The European Communities submits that the hypothesis considered in the above parts of
Appellate Body Report 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 above-mentioned
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
5.28 The European Communities further notes that the Appellate Body in Bananas III also
addressed the relationship between Article XIII GATT and the Agreement on Agriculture61, 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."62  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 Agreement63.  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."64  The
European Communities submits that, likewise, the Agreement on Safeguards does not authoriseArgentina to act inconsistently with the requiremen ts of Article XIX GATT.  Indeed, the contrary is
the case, since Article 11:1(a) Agreement on Safeguards requires Members to take action "which
conforms with the provision of that Article".
5.29 Finally, regarding 'Hormones' , the European Communities refers to paragraphs 8.31 and 8.32
of the Panel Report in this case, which state that:
"both the SPS Agreement and GATT apply to this dispute, we next examine the
relationship between these two agreements.  The parties to the dispute present
diverging views with respect to whether we should first address GATT or the
SPS Agreement.  However, neither of the parties claims that the relevant
provisions of the SPS Agreement and the GATT are in conflict.  Therefore, we
do not need, as a preliminary matter, to address the General InterpretativeNote". (emphasis added).
5.30 Given this statement by the Panel, the European Communities submits that this case is not
relevant for the present dispute, since none of the parties had claimed that a conflict existed between
provisions in the two agreements and the Panel confirmed that both agreements applied to the dispute.
2. Argument of Argentina
5.31 Argentina observes that the European Communities submits that "the development of trade
since 1991 - particularly the signing of a Treaty of Asunción - is the natural result of the commercial
policy followed by the Argentine Government and that this and the illegality of the trade protection
measures which preceded the safeguard measures the subject of these proceedings, were in no way
unforeseen".
65  Argentina considers this statement by the European Communities to be irrelevant,
from the legal point of view, to whether Argentina fu lfilled, in this case, the requirements laid down
                                                     
61 Id, at paragraph 153 (and following).
62 Id, at paragraph 155.
63 Id, at paragraph 153.
64 Id, at paragraph 158.
65 Supra , para. 5.1.WT/DS121/R
Page 20
by the Agreement on Safeguards for the application of a safeguard measure.  In Argentina's view, a
correct interpretation of the legal relationship between Article XIX of the GATT and the Agreement
on Safeguards would indicate that the WTO disciplines contain no obligation relating to "unforeseen
developments" as the European Communities claims.
5.32 Argentina notes that at various points in its submission, the European Communities repeats
that the objective of a safeguard measure, under Article XIX of the GATT, is protection in case ofemergencies and "unforeseen circumstances".
66  According to this interpretation, if a WTO Member
decides to apply a safeguard it must show that the imports increased sharply during the most recent
period.  Argentina further notes that the European Communities maintains that Article XIX:1(a) of the
GATT is applicable to the case in that the increase  in imports allowing the imposition of a safeguard
measure must result from "unforeseen developments" and Argentina violates that provision by failing
to demonstrate that the imports were the result of unforeseen developments.
5.33 Argentina maintains that the Ar ticle XIX requirement whereby imports must be the result of
unforeseen developments has not been valid since the entry into force of the WTO Agreement on
Safeguards.  Indeed, the Agreement on Safeguards, which interprets Article XIX of the GATT, makes
no reference in Article 2 (conditions for the application of a safeguard measure), or in any other
article, to the need for the increase in imports to be the result of "unforeseen developments".
Argentina maintains that the Safeguards Agreement has precedence over Article XIX, and thatconsequently it should not be obliged to fulfil a requirement of this article that has not been
established in the Safeguards Agreement.
5.34 Argentina argues that the fact that this requirement was not included in the Agreement on
Safeguards, a multilateral agreement designed to "clarify and reinforce the disciplines of GATT, and
specifically those of its Article XIX" in order to  produce a "structural adjustment" (as stated in the
preamble to the Agreement) cannot be considered as unintended or as an oversight.  The omission
must be interpreted as a result of the "structural adjustment", a deliberate intention not to include the
requirement in the Agreement on Safeguards in order to  ensure that this tool could be used in cases in
which imports of a product fulfilled the conditions laid down in Article 2, even when the increase in
imports was not the result of unforeseen developments, but in general "of such conditions as to causeor threaten to cause serious injury".
5.35 Argentina contends that this discrepancy between the Agreement on Safeguards and
Article XIX of the GATT with respect to the requirements for the application of a safeguard must be
resolved in accordance with the General Interpretative Note to Annex 1A which stipulates that: "In
the event of conflict between a provision of the General Agreement on Tariffs and Trade 1994 and aprovision of another agreement in Annex 1A to  the Agreement Establishing the World Trade
Organization (referred to in the agreements in Annex 1A as the "WTO Agreement"), the provision of
the other agreement shall prevail to the extent of the conflict."  According to Argentina, in the case at
issue, there is a clear and specific conflict between Article XIX of the GATT and the Agreement on
Safeguards (as per Annex 1A of the WTO Agreement)  since the former contains a condition which is
not contained in the AS, an agreement intended to clarify and reinforce the Article XIX.
5.36 Argentina submits that in public international law, for there to be a conflict between two
treaties, the three following conditions must be met:  firstly, the parties to the treaty in question must
be the same;  secondly, the treaties must have the same substantive purpose;  and thirdly, the
provisions must be contradictory in the sense that they impose obligations that are mutually exclusive.
Argentina maintains that in the case at issue, th e three conditions are met:  (1) Argentina and the
European Communities, as Members of the WTO, are both parties to the Agreement on Safeguardsand the GATT;  (2) the Agreement on Safeguards and Article XIX of the GATT have the same
substantive purpose, clearly set forth in the preamble to the Agreement on Safeguards, to "clarify and
                                                     
66 See, e.g., para. 5.195.WT/DS121/R
Page 21
reinforce the disciplines of the GATT, and specifically those of its Article XIX";  (3) the provisions of
Article XIX and Article 2 of the Agreement on Safeguards are contradictory in that Article XIX
establishes a condition (that imports should be the result of "unforeseen developments") which Article
2 of the Agreement on Safeguards does not establish.  The inconsistency lies in the fact that one of the
provisions contains a condition which was not taken up by the provision that "clarifies" and interprets
it.
5.37 According to Argentina, the fact that the term  "unforeseen developments" does not appear in
the text of the Agreement on Safeguards can only be taken as a conscious and deliberate removal of a
standard set by Article XIX of the GATT.
5.38 Argentina points out that the actual meaning of the term "unforeseen developments" was
ambiguous and subjective (to what extent is an even t unforeseen?).  For example, in the "Hatters' fur"
case the United States considered the change in fashion for women's hats, a highly subjective and
cyclical development, to be an "unforeseen development".  In this case, the Panel stated that:
"The term 'unforeseen development' should be interpreted to mean developments occurring
after the negotiation of the relevant tariff concession which it would not be reasonable to
expect that the negotiators of the country making the concession could and should have
foreseen at the time when the concession was negotiated."67
5.39 Argentina submits that what it is "reasonable" to expect at a time when a concession is being
negotiated continues to be an ambiguous and subjective concept.  Consequently, Argentina reasons,
under the General Interpretative Note to Annex 1A, the Agreement on Safeguards must prevail over
Article XIX in not requiring compliance with a condition provided for under Article XIX but not
included in the Agreement on Safeguards.
5.40 In the alternative, on the basis of the criterion established by the Working Party and
mentioned above, Argentina argues that even if this requirement is still considered enforceable as a
condition for applying a safeguard measure (a hypothesis which Argentina does not accept), it would
be difficult to imagine that the Argentine authorities could have predicted in 1991, when it unilaterally
opened up its economy, an increase in imports of anywhere near 157 per cent.
5.41 In response to a request from the Panel that Argentina comment on whether it viewed the
concepts of "conflict" (to which Argentina referred in its first written submission) and "difference" (to
which Argentina referred in its oral statement at the first substantive Panel meeting) as synonymous
and to specify the way in which there exists a "conflict" (defined as the case of two mutually
exclusive or contradictory obligations in the sense that one obligation cannot be met without violatingthe other) between the "unforeseen developments" condition of Article XIX and the conditions
provided for in Article 2 and other articles of the Agreement on Safeguards, Argentina stated that with
respect to the validity of the "unforeseen developments" requirement of Article XIX, there is a
conflict between the provisions of that Article and the Agreement on Safeguards.  Argentina states
that the reference by Argentina to a "difference" in its oral submission should simply be understood as
a reference to a conflict of provisions which always implies a difference between them (there is a
"genus to species" relationship between the conc ept of "difference" between provisions and the
concept of "conflict" between provisions, the former being general and the latter specific.
5.42 Argentina asserts that the Agreement on Safeguards was developed to interpret Article XIX
and, as stipulated in its preamble, it recognises the need to clarify and reinforce Article XIX as well as
                                                     
67 Report on the intersessional working party on the complaint of Czechoslovakia concerning the
withdrawal by the United States of a tariff concession under Article XIX of the GATT, November 1951,
CP/106, page 4.WT/DS121/R
Page 22
the importance of structural adjustment.  Argentina considers that there is a conflict of provisions in
this case, since the Article XIX "unforeseen circumstances" requirement has not been taken up in the
Safeguards Agreement in spite of the fact that it had painstakingly repeated the other requirements of
Article XIX.1(a).  This requirement cannot be fulfilled, and not fulfilled, at the same time.  The
absence of any mention of this requirement in Article 2 of the AS is evidence of the fact that the
"unforeseen circumstances" requirement no longer applies with respect to the application of asafeguard measure.
5.43 Moreover, according to Argentina, Article 11.1(a) of the AS specifically establishes that
action under Article XIX of the GATT must conform with "the provisions of that Article applied in
accordance with this Agreement " (referring to the AS) (emphasis added by Argentina).  This last
reference makes it clear that Article XIX has been s ubsumed into the Agreement on Safeguards to the
extent that it conforms with that Agreement.
5.44 Argentina does not agree that the concept of conflict defined as the case of two mutually
exclusive or contradictory obligations in the sense that one obligation cannot be met without violating
the other  can be applied to this case.  This criterion was raised in paragraph 65 of the Report of the
Appellate Body in  Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico
in connection with the effort to establish whether there was a discrepancy between the rules of
procedure contained in the DSU and in Article 17 of the Anti-Dumping Agreement.
5.45 Argentina submits that this definition of "conflict" of provisions is not applicable in the case
of a conflict between a provision which interprets another provision.  In such cases, a conflict cannot
be considered to exist only when compliance with one provision implies violation of the other, but
must be understood to exist also if the interpretative provision includes or excludes a requirement or
condition established in the interpreted provision.
5.46 According to Argentina, in the case at point, where the AS excludes a requirement established
in Article XIX it is wrong to consider that there is no conflict simply because the requirements of
Article XIX could be cumulated with Article 2 of the AS.  If the AS, whose intention, as we have
mentioned, was to interpret and  clarify  Article XIX, did not include in its provisions the "unforeseen
development" requirement, it is clear that the negotiators had the intention of leaving it aside as fromthe entry into force of the interpretative provision.  Article XIX and Article 2 of the AS are not
complementary provisions as in the Guatemala - Anti-Dumping Investigation case, - indeed, there is a
qualitative difference when we are dealing with the relationship between an "interpretative" provision
and an "interpreted" provision.  The omission of this requirement in the AS conflicts with the
inclusion of the requirement in Article XIX, and in accordance with the General Interpretative Note toAnnex 1A, the AS must prevail.
5.47 For Argentina, it should also be borne in mi nd that in fact, the CNCE found in its final
determination that there had been unforeseen circumstances when it states that "The pressure
exercised by imports was unforeseen in its rapid progress in the market during a period in which the
country's economy was beginning to suffer from macroeconomic difficulties."
68  Imports achieved and
preserved a considerable share of the domestic market, and even in 1995, they continued to preserve
their share in a rapidly declining market.69  The rapid growth in imports at the beginning of the period
was also unforeseen, and particularly significant since the rate of growth was much higher than that of
overall imports between 1991 and 1993.70
                                                     
68 Exhibit ARG–2, Act No. 338, page 47.
69 Exhibit ARG-3, CNCE Technical Report, Table 20a (sheet 5501) and Table 21a (sheet 5505).
70 Exhibit ARG-2, Act No. 338, page 25.WT/DS121/R
Page 23
5.48 Finally, in Argentina’s view, the significance of the different impacts of imports on the
footwear industry could not have been foreseen.  The comparative GDP data clearly shows that the
footwear industry was affected disproportionately in relation to the manufacturing sector as a whole.71
3. Response by the European Communities
5.49 The European Communities observes that Arge ntina dismisses the European Communities'
claim that it had not demonstrated the existence of  any "unforeseen developments", as required by
Article XIX:1(a) GATT, and that, according to Argentina this issue should be decided by invoking the
General Interpretative Note to Annex 1A , which sets outs the appropriate steps to take in case of a
"conflict" between a provision of GATT and a pr ovision of another Agreement in Annex 1A.
Argentina claims that in the present case such "conflict" exists, since Article XIX contains a condition
which is not contained in the Agreement on Safeguards72.
5.50 The European Communities takes issue with Argentina's position.  Even if the three
conditions for a "conflict" mentioned by Argentina73 would exist in the framework of the WTO74,
there are in the present case no two mutually exclusive or contradictory obligations, in the sense that
one obligation cannot be met without violating the other.  The latter criterion was developed in
'Indonesia - Cars'75 and 'Guatemala - Cement'76 and is equally applicable as a criterion in the present
case.  The European Communities sees no reason why a WTO Member would not be able to respect
on the one hand the obligations set out in the Agreement on Safeguards while at the same timecomplying with the "unforeseen developments" requirement set out in Article XIX:1(a) GATT.
5.51 The European Communities comments on Argentina's reply to questioning of the Panel
77,
noting that Argentina made a number of statements with which the European Communities takes
issue.  The European Communities observes that  Argentina claims that the above-mentioned
definition of "conflict" does not apply in the present case, which concerns a conflict between aprovision and a provision which interprets that provision.  Argentina states that "a conflict cannot be
considered to exist only when compliance with one provision implies violation of the other, but must
be understood to exist also if the interpretative provision includes or excludes
 a requirement or
condition established in the interpreted provision ." (emphasis added).
5.52 The European Communities submits that this new criterion by Argentina adds nothing to the
above-mentioned traditional criterion, which Argentina accepts.  First, if the interpretative provision
(the Agreement on Safeguards) were to include  a requirement or condition established in the
interpreted provision (Article XIX GATT), there can by definition be no "conflict".  For example, the
requirement that the domestic industry must suffer "serious injury" is a condition established in
Article XIX:1(a) GATT and was included and further defined, and in that sense "subsumed" (in thewords of the US) in Article 2 and 4 of the Agreement on Safeguards.  If a WTO Member complies
with the "serious injury" requirement in the Ag reement on Safeguards, it automatically complies with
the same requirement set out in Article XIX GATT and therefore no conflict exists.  Second, if the
                                                     
71 Exhibit ARG-3, CNCE Technical Report, Table 6, sheet 5431, and Chart 7, sheet 5434.
72 The US in this respect claims that "[t]he requirements of Article XIX of GATT 1994 are "subsumed"
by the Agreement on Safeguards.  See infra,  para. 6.44-6.47.
73 Supra , para. 5.36.
74 The three conditions in international law were outlined in the Report by the Panel on 'Indonesia -
Certain Measures Affecting the Automobile Industry' , WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, 2
July 1998, at footnote 549.
75 Report by the Panel on 'Indonesia - Certain Measures Affecting the Automobile Industry' ,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, 2 July 1998, see paragraphs 14.97 - 14.100.
76 Report by the Appellate Body on  'Guatemala - Anti-Dumping Investigation regarding Portland
Cement from Mexico' , WT/DS60/AB/R, 2 November 1998, at paragraph 65 .
77 See supra , para. 5.45.WT/DS121/R
Page 24
interpretative provision (the Agreement on Safeguards) were to exclude  a requirement or condition
established in the interpreted provision (Article XIX GATT), there would be no difference with the
traditional "conflict" situation: in that case there would be an obligation in one provision which cannot
be met without violating the other.  Therefore, Argentina's argumentation does not add anything to the
traditional criterion developed in 'Indonesia - Cars'  and 'Guatemala - Cement' and thus must be
disregarded.
5.53 Moreover, the European Communities asserts, Argentina bases its conclusion on the wrongful
assumption that the Agreement on Safeguards interprets Article XIX GATT in a full and
comprehensive way78.  This is not correct. 79  The Agreement on Safeguards establishes " rules " for the
application of safeguard measures.  However, it does not establish " the rules " or " the only rules ". The
fact that some of the conditions of Article XIX, such as " as a result of unforeseen developments ", are
not repeated in the Agreement on Safeguards cannot have as a consequence that they are
automatically made invalid. 80
5.54 The European Communities maintains that the wrongful assumption by Argentina leads it to
unsubstantiated conclusions in its reply to the Panel.  For example, Argentina claims81 that it is
somehow "clear" that the negotiators had the intention of leaving the "unforeseen developments"
requirement aside with the entry into force of the Agreement on Safeguards.  However, Argentina
fails to provide any evidence for this claim.  If Ar gentina were to be allowed to ignore certain legal
requirements which are included in the text of an International Agreement without demonstrating, on
the basis of any evidence, that there was a common intention  of the parties to delete the requirement
from the text, this would seriously jeopardise the security and predictability of the multilateral trading
system.82
5.55 The European Communities cannot accept Argentina's alternative  argument where Argentina
claims to have fulfilled the "unforeseen developments" requirement by stating that "it would be
difficult to imagine that the Argentine authorities could have predicted in 1991, when it unilaterally
opened up its economy, an increase in imports of anywhere near 157 per cent."  The European
Communities asserts that according to the text of Article XIX:1(a) GATT, the increase of imports
must occur "as a result of unforeseen developments".  In other words, a certain development,
unknown at the time that the tariff concession was made, must have occurred, and as a result of this
development imports must have increased.  Therefore, by definition, the increase in imports itself can
never be the development as a result of which imports increased.  Such circular interpretation would
effectively empty the "unforeseen developments" requ irement of its content, which according to the
Appellate Body83 is not allowed, since "an interpreter is not free to adopt a reading that would result
in reducing whole clauses or paragraphs of a treaty to redundancy or inutility".
5.56 The European Communities notes that Argentin a has argued that the magnitude of the
increase in imports could not have been foreseen.  The European Communities notes that this
                                                     
78 Argentina uses the wording "interpretative" provis ion and "interpreted" provision in its reply to the
Panel question, thereby falsely assuming that there is an all-encompassing overlap between the Agreement onSafeguards and Article XIX GATT 1994.
79 European Communities' reply to Panel questioning, s upra , para. 5.6.  See in particular the European
Communities' comments concerning Article 1, 11:1, the second recital and the fourth recital Agreement on
Safeguards.
80 See also the European Communities’ response to questioning by the Panel, supra , para. 5.8.
81Supra, para. 5.46.
82 The Appellate Body in EC - Customs Classification of Certain Computer Equipment ,
WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, 5 June 1998, at paragraph 84 stated: "These common
intentions cannot be ascertained on the basis of the subjective and unilaterally determined "expectations" of one
of the parties to a treaty."
83 Report by the Appellate Body on 'United States - Standards for Reformulated and Conventional
Gasoline' , WT/DS2/9, 20 May 1996, at page 23.WT/DS121/R
Page 25
argument does not stand, basing itself on the text of Article XIX:1(a) GATT, which reads "If, as a
result of  unforeseen developments […] any product is being imported […] in such increased
quantities […]" (emphasis added).
5.57 Thus, according to the European  Communities, the sequence of events is clear: first, an
unforeseen development is to take place; second, as a result of  this unforeseen development an
increase in imports occurs.  According to the Euro pean Communities, this logical sequence, based on
the text of Article XIX, makes clear that Argentina's argument is circular: an increase in imports can
(by definition) not be the result of an increase in  imports.  In fact, Argentina's argument would result
in reducing the term "unforeseen developments" to redundancy or inutility.
5.58 Indeed, according to the European Communities, unforeseen developments is at the beginning
of the continuum of events that may justify safeguard measures.  This starts in fact with trade
liberalisation which runs into unforeseen developments which causes an increase of imports in the
presence of such conditions (notably price) that serious injury can be caused, starting with loss ofsales, than loss of production, falling capacity utilisation leading to losses and finally unemployment.
5.59 The European Communities argues that, in the light of this explanation, the continuing need
for unforeseen developments is also clear from Article I of the Safeguards agreement.  This provision
states that it provides "rules for the application of safeguard measures which shall be understood to
mean those measures provided for in Article XIX GATT."  In other words, according to the European
Communities, the Agreement on Safeguards lays down conditions and explains how to apply
safeguard measures but Article XIX GATT defines what they are .  Therefore, the European
Communities argues that, in the present case, not only was there no increase in imports, but the
preliminary requirement of unforeseen developments which is needed to give rise to such increase
was entirely missing since the imports of footwear was being carefully controlled by the applicationof Argentina's system of DIEMs.
5.60 The European Communities does not understand Argentina's statement
84 that "the problem of
the concept of 'unforeseen developments' is that it renders the Agreement on Safeguards practically
irrelevant, depriving WTO Members of a useful tool which plays an essential role as a form of
reinsurance in dealing with import growth situations."  The European Communities notes thatArgentina adds
85 that "[t]his is contrary to the principle of encouraging trade liberalisation."
5.61 The European Communities is unable to see how the "unforeseen development" requirement,
which has been present in the text of the GATT since 1947, could suddenly have such a sweeping
result and render the entire safeguard regime unworkable.  On the contrary, Article XIX and the
Agreement on Safeguards strongly encourage trade liberalisation, by reassuring those WTO Members
which engage in tariff negotiations that, if imports were to increase to such an extent that the domestic
industry were to suffer "serious injury", temporary relief is available which would allow for
adjustment.  However, in order to prevent misuse of the safeguards regime, a number of reasonable
conditions (set out in Article XIX and the Agreement on Safeguards) will need to be fulfilled before
the regime can be invoked.  The European Communities does not require anything more from
Argentina than mere compliance with a condition which has already existed for over 50 years.
According to the European Communities, such request is fully justified and does not put in jeopardythe "principle of encouraging trade liberalisation".
5.62 In response to questioning by the Panel about how the European Communities would prove or
demonstrate that a given development was "unforeseen" in the sense of Article XIX:1, the European
Communities stated that it concurs with the inte rpretation of the term 'as a result of unforeseen
                                                     
84 Infra , para. 5.65.
85 Id.WT/DS121/R
Page 26
developments' which is given by the members of the Working Party on " Withdrawal by the United
States of a Tariff Concession under Article XIX of the General Agreement ".  These members agreed
"that the term 'unforeseen development' should be interpreted to mean
developments occurring after the negotiation of the relevant tariff
concession which it would not be reasonable to expect that the
negotiators of the country making the concession could and shouldhave foreseen at the time when the concession was negotiated"
Therefore, the European Communities submits that the requirement is fulfilled if: 1. a development
occurred after  the negotiation of the relevant tariff concession; and 2.it was not reasonable to expect
that negotiators -- at the time of the tariff concession -- could and should have foreseen  that the that
development was to occur.  The European Communities noted that the 'unforeseen development' must
be the cause of the increased imports, which in turn
 causes 'serious injury'.86
4. Rebuttal by Argentina
5.63 Argentina takes issue with the remarks made by the European Communities concerning the
general trade liberalisation process in Argentina, and the MERCOSUR integration process in
particular, a policy which the European Communities describes as deliberate and whose resultsArgentina should have foreseen.
5.64 Argentina submits that if the European Communities' interpretation were followed, this would
contradict the preambles to the Agreement Establishing the World Trade Organization and to the
GATT, on which the European Communities bases its arguments.  Indeed, countries grant each other
mutual and reciprocal benefits designed to reduce tariffs and other barriers to trade.  These benefits
are granted in the framework of the multilateral disciplines in force, which include the safeguard
measure as a tool for alleviating situations where the results of these concessions in fact go furtherthan could reasonably be foreseen.  In other words, Argentina could have foreseen and calculated an
increase in imports (for example, up to a level of about 11 million pairs), but could never have
foreseen an increase of a magnitude of 21.7 million pairs when it granted the "mutual benefit on the
                                                     
86 The European Communities offered some examples to clarify what kind of 'developments' could be
considered as 'unforeseen'.  First, the Working Party on  "Withdrawal by the United States of a Tariff Concession
under Article XIX of the General Agreement" based itself on the change in demand in the importing country for
particular types of hat body, the production of which required much more labour than did the production of
plain-finished hat bodies.  As a result (primarily of this higher labour content and of the high level of wages in
the importing country's hat body industry, which was not matched by correspondingly high output),manufacturers of the importing country were unable to produce special finishes which could compete withsimilar imported hat bodies, which were entering the country at reduced rates since the 1947 tariff negotiations.As a result, the overseas suppliers were able to secure by far the greater part of the increasing market for specialfinishes, and the volume of imports increased accordingly.  The Working Party therefore concluded
"that the fact that hat styles had changed did not constitute an 'unforeseen development' within
the meaning of Article XIX , but that the effects of the special circumstances of this case, and
particularly the degree to which the change in fashion affected the competitive situation, couldnot reasonably be expected to have been fore seen by the United States authorities in 1947."
(emphasis added)
Second, another example of an 'unforeseen deve lopment' which could not reasonably have been
expected is the collapse of the Soviet Union in the beginning of the 1990's, the subsequent dire need for hard
currency by the newly formed governments, the resulting rise in world stock of unwrought aluminium, the sharp
drop in prices and a sudden increase in imports into the Community of that product and let to safeguard
measures.  Another example of what could be considered an 'unforeseen development' is the sudden closure of
third country markets or the inability of certain importing countries (due, for example to a financial crisis) whichleads to a re-routing of traditional flows and a need to find new markets for existing products.WT/DS121/R
Page 27
basis of reciprocity", since an increase of that ma gnitude would have implied the liquidation, pure and
simple, of the sector.
5.65 In other words, Argentina argues, leaving aside the different legal views defended before this
Panel by the United States and Argentina on the one hand, and by the European Communities on the
other, the problem of the concept of "unforeseen developments" is that it renders the Agreement on
Safeguards itself practically irrelevant, depriving WTO Members of a useful tool which plays anessential role as a form of reinsurance in deal ing with import growth situations.  For Argentina,
precisely the problem of definition of the "unforeseen" concept is the reason that, after fifty years,
there is practically no example of applied safeguard measures. This is contrary to the principle of
encouraging trade liberalisation in accordance with the objectives contained in the preambles to the
Agreement Establishing the WTO and to the GATT.
5.66 Argentina further submits that, as regards the EC assertion that "by definition, the increase in
imports itself can never be the development as a result of which imports increase"87, even if this were
considered valid, and in Argentina's view it is not, Article XIX does not require the identification of
the unforeseen circumstances as such, but only "unforeseen developments", the clear manifestation of
which, in this case, was the evaluation by the Argentine authorities at the time of liberalisation of
tariffs in the sector which yielded unforeseen results in that the magnitude of the flow of importsresulting from the liberalisation was considerably greater than expected.
B. INTERPRETATION AND APPLICATION OF ARTICLE 2.1 OF THE AGREEMENT ON SAFEGUARDS –
"THE MERCOSUR QUESTION "
1. Argument of the European Communities
5.67  The European Communities takes issue with th e fact that the Argentine authorities have
conducted an analysis on the basis of figures for all imports -- from MERCOSUR countries and from
non-MERCOSUR counties -- while applying a safe guard measure only with respect to non-
MERCOSUR countries.  The European Communities fails to understand how logically, throughout
the analysis of injury and causation, imports from MERCOSUR countries can be included  in the
figures, while the subsequent safeguard measure excludes  MERCOSUR countries from its
application.88
5.68 The European Communities clarifies that it does not challenge -- as such -- the exclusion of
MERCOSUR imports of footwear from the scope of the safeguard measure imposed.  However, such
exclusion should necessarily entail the exclusion of MERCOSUR imports from the "increased
imports", "serious injury" and "causality" analyses, as required by Article 2.1 of the Agreement on
Safeguards, which Argentina did not do.  This erro r is of particular importance, because MERCOSUR
                                                     
87Supra , para. 5.55.
88 In response to a Panel question, the European Communities states that there is an inherent link
between the conduct of the analysis of the conditions and the making of the determinations  on the one hand and
the scope  of the intended safeguard measure on the other hand.  If, already prior to the initiation of the
investigation, it is known that the scope of the safegu ard measure will exclude certain countries, then imports
from these countries should necessarily be excluded from the determinations. In the case of MERCOSUR, apolicy decision has been taken that one member will never apply a safeguard measure against another member.
Accordingly, since MEROCSUR countries will be exclud ed from the scope of the safeguard measure, intra-
Mercosur imports are to be excluded from the determinations.  The European Communities believes that theAgreement on Safeguards does not contain an obligation on the investigating authority to conduct a
disaggregated analysis of imports.  A WTO Member is free to group all imports together in order to determinewhether the product is being imported into its territory in such increased quantities and under such conditions asto cause or threaten to cause serious injury.  However, it should exclude from its determinations the imports
from those countries which -- at the end -- will necessarily be excluded from the scope of the measure.WT/DS121/R
Page 28
imports account for the largest percentage of imports in Argentina (Argentine data for 199689 show
that that 7.5 million pairs were imported from MERCOSUR countries, while only 5.97 million pairs
were imported from non-MERCOSUR countries, i.e. a total of 13.47 million pairs).90  Furthermore,
the European Communities notes the fact that since 199391 imports from non-MERCOSUR countries
have actually decreased , not increased.  Safeguard measures should only be allowed in exceptional
circumstances, and as emergency measures, so as to allow the domestic industry relief from sharply
increased imports.  In the view of the European Communities, it is therefore wholly inappropriate to
impose a safeguard measure if imports showed a declining trend.
5.69 The European Communities alleges that Argentina wrongly interprets the condition of
"increased imports" in Article 2.1 of the Agreement on Safeguards: it has made its determinations and
findings on the basis of figures for all imports – from MERCOSUR countries and from non-
MERCOSUR countries – while applying a safeguar d measure only with respect to non-MERCOSUR
countries.  The European Communities states that MERCOSUR imports should have been excluded
from Argentina's increased imports, injury and caus ality determinations  According to the European
Communities, Argentina, given that it is precluded from applying safeguard measures to other
MERCOSUR members, violated Article 2.1 of th e Agreement on Safeguards by including imports
from MERCOSUR countries in its determinations.  The Agreement on Safeguards, like
Article XIX:1(a) of GATT, sets out a number of conditions which need to be complied with before a
WTO Member can take a safeguard measure.  The condition of "increased imports", which is not
further defined in the Agreement, should, according the European Communities, be interpreted
according to the scope of the safeguard measure to be taken.  For the European Communities, the
question to be answered here is the following: if from the outset it is known that no measure will be
applied to other MERCOSUR countries, should or  should not their imports be included in the
determinations concerning the scope of the measure.
5.70 The European Communities states as a preliminary matter, first that although it believes the
above-mentioned issue is an important principle on which the Panel should rule, the Panel should also
note that this matter is not determinative for the final outcome of this case.  Indeed, whether the
statistics of total imports (including imports from MERCOSU R countries) are considered or whether
exclusively statistics of extra-zone  imports are considered, in both cases did imports not increase.
Therefore, in both cases did Argentina not comply with a key requirement of Article 2.1 of the
Agreement on Safeguards and was thus not allowed to impose safeguard measures.
5.71 Second, the European Communities does not question the right of a member of a customs
union to exclude other members of that customs union from the scope of a safeguard measure.  Whatthe European Communities objects to (a concern fully shared by the United States
92), is "Argentina's
use of the MERCOSUR imports for its increased-imports analysis when there was no possibility  that
those imports could be included in any safeguard action, even where those imports are demonstrably
the cause of the injury suffered by the domestic industry."  In the view of the European Communities,
safeguard measures do not as such affect the establishment and the nature of a customs union or free-
trade area.  According to the European Communitie s, Article XXIV GATT permits the members of a
customs union or free trade area to decide whether, when applying a safeguard measure pursuant toArticle XIX GATT and the Agreement on Safeguards, to exempt the other members of the customs
union or free trade area from the measure.  This option, however, has to be carried out in a consistent
manner: for example, if -- as is the case in the present dispute -- a member of a customs union has the
obligation not to impose safeguard measures on the other members of the customs union, it should
necessarily exclude intra-zone imports from the determinations on which the application of safeguardmeasures is based.  The European Communities refers the Panel to the Treaty of Asuncion
                                                     
89 See Exhibit EC-16, Document G/SG/N/8/ARG/1, Table I, at page 21.
90 EC-Graph-1.
91 EC-Graph 1.
92 Infra , para. 6.37.WT/DS121/R
Page 29
(L/7370/Add.1) which contains the decision concerning the non-application of safeguards within the
customs union as of 31 December 1994.
5.72 In reaction to Argentina's reply to questions by the Panel (para. 5.102), the European
Communities submits that Argentina is permitted on the basis of Article XXIV GATT to exclude
MERCOSUR countries from the application of a safe guard measure.  Argentina therefore was equally
permitted to conclude an agreement with Paraguay, Brazil and Uruguay, that safeguard measures
would not apply to MERCOSUR countries.  The European Communities disagrees however with
Argentina that Article 2.1 Agreement on Safeguards (and its footnote) should be interpreted as toallow for a "methodology" whereby MERCOSUR impor ts would be included in a determination of
"increased imports" while not applying measures to those countries.
5.73 According to the European Communities, Arge ntina has, in answering a Panel question,
attempted to explain why it believed it was "reasonable" to consider intra-zone imports in the present
case
93.  It had said in its notification that such imports (in spite of different duties applied to
MERCOSUR members and non-MERCOSUR members) sh ould be considered " for injury analysis
purposes since in the absence of DIEM or protective measures there would be at least an equal flow of
imports from the world into the Argentine Republic”.  The European Communities notes that
Argentina’s response to the Panel also indicates that (para. 5.112):
"Although import duties are different for trade within MERCOSUR than for imports
from outside MERCOSUR, this difference does not alter the established fact that the
levels of imports of all origins were increasing and both would have continued to
increase , as happened with imports from MERCOSUR, if the specific duties had not
been imposed .  The logical conclusion  was that the increases would have continued  in the
absence of the DIEMs, and the increase in imports from MERCOSUR was simply afurther confirmation of this conclusion." (emphasis added by the European
Communities).
5.74 The European Communities maintains that it is cl ear from this statement that Argentina based
its measure not on the actual  and present existence of an increase in imports, but on a hypothetical
increase in imports, which is not allowed under Article 2.1 of the Agreement on Safeguards.  In
addition, no explanation is given by Argentina for the calculation that there would be "at least an
equal flow of imports" from the rest of the world, in spite of the differences in tariff levels for imports
from MERCOSUR countries a nd from non-MERCOSUR countries
94.  The European Communities
agrees with the United States95 that "the effect of Argentina's action is to penalise producers from
third countries for the [alleged] injuri ous imports emanating from MERCOSUR."
5.75 The European Communities objects to a statement made by Argentina on page 23 of its
notification of its finding of injury (Exh. EC-16), where Argentina explains why it believed that it was
"reasonable" to consider intra-zone imports in the present case:
The Commission decided to investigate total imports, differentiating between those
originating in Mercosur and those from the rest of the world.  As has been pointed
out, a good deal of the former are the result of imperfect substitution of imports fromthe rest of the world consequent upon the diversion of trade created by the DIEM.
Therefore, it is reasonable to consider  them on equal terms for injury analysis
                                                     
93 For the European Communities, this constitutes a de facto acknowledgement by Argentina that
imports from non-MERCOSUR countries should normally have been excluded from the increased-importsdetermination if no safeguard measure would apply to them in the future.
94 Exhibit EC-16, at page 8.
95 Infra , para. 6.38.WT/DS121/R
Page 30
purposes since in the absence of DIEM or protective measures there would be at least
an equal flow of imports from the rest of the world into the Argentina Republic.
In the view of the European Communities, this st atement is a de facto acknowledgement by Argentina
that imports from non-Mercosur countries should normally have been excluded from the increased
imports determination if no safeguard measure would apply to them in the future.
5.76 In other words, according to the European Communities, since the minimum specific duties
had been in place for some years and had reduced imports from third countries, Argentina estimated
that those third-country imports would have increased by roughly the number of current imports from
MERCOSUR countries.  The European Communities strongly objects to this sort of calculation as a
justification.  For the European Communities, the quoted statement makes clear that Argentina based
its measure not on an actual  increase of imports but on a hypothetical  increase, which Argentina
conveniently equalled to imports from MERCOSUR countries.  The European Communities submits
that, in addition to having no legal grounds to apply such a calculation, there is absolutely no basis to
assume that current MERCOSUR imports represent even a crude estimate of the increase in imports
which would occur if the minimum specific duties were removed.
2. Argument of Argentina
(a) Introduction
5.77 Regarding the EC statements about imports fr om MERCOSUR countries,  Argentina asserts
that the European Communities has obfuscated the true problem in this particular case, manipulating
its arguments as though Argentina was obliged to  exclude MERCOSUR imports from the analysis of
injury if MERCOSUR was subsequently excluded from application of the measure.  Argentina
contends that, in order to win its argument, the European Communities must show that such an
obligation is required under the Agreement on Safeguards.  According to Argentina, the European
Communities deflects attention from  an essential point, namely the lack of any specific provision in
the Agreement on Safeguards providing that, in the case of customs unions, if members of the union
are to be excluded from a measure, the investigation must be conducted according to the methodologyset out by the European Communities.
5.78 Argentina submits that if a WTO agreement is specifically recognised by the Members as
having more than one possible interpretation, and, in the absence of a single interpretation, a Member
adopts a measure within the scope allowed by the text, the measure must be considered to be in
conformity with the agreement.  The very nature of public international law supports this statement
(in public international law delegation of sovereignty cannot be assumed).
5.79 Argentina submits that the footnote to Article 2.1 of the Agreement on Safeguards is the
result of the maximum consensus achieved by the negotiators during the Uruguay Round.  The replies
by the United States to the Panel in this connection mention texts and alternatives discussed during
the negotiation on which, in the end, no agreement was ever reached .  The result of this situation is
the footnote to Article 2.1 of the Agreement on Safeguards, which confirms the agreement on the
disagreement concerning the relationship betw een Article XIX and Article XXIV of the GATT.
5.80 Argentina asserts that, as provided in the DSU, a panel may not "add to or diminish the rights
…" under the Agreement on Safeguards.  Consequently, the Panel cannot impose a single
"methodology", as proposed by the European Communities, when there is no agreement among the
Members on a definitive interpretation of the rights and obligations laid down in both Articles
(relationship between Articles XIX and XXIV of the GATT, as stated in footnote 1 to Article 2.1 ofthe Agreement on Safeguards).WT/DS121/R
Page 31
5.81 According to Argentina, the footnote to Articl e 2.1 expressly states that there is no agreement
between the parties concerning the way in which to conduct the analysis of injury in the case of a
safeguard measure applied by a customs union on behalf of a Member States, and the Panel may
neither comment nor prejudge matters that are not covered by the GATT/WTO disciplines.
5.82 Argentina maintains that the European Co mmunities has no backing for its "methodology"96,
which has no basis either in the language of the agreements or in customary practice.  Article 31.2 of
the Vienna Convention on the Law of Treaties specific ally states that the context for the interpretation
of a treaty includes its text.  Nothing in the text of the Agreement on Safeguards explicitly requires
application of the methodology suggested by the Europe an Communities.  In fact, the text itself shows
that an analysis of the circumstances must be made with respect to imports , with no indication of any
limitations except for footnote 1, on which there is no agreement among Members regarding the
application of the measures in question and Article XXIV.  The only specific requirements concerninganalysis of injury itself are in Articles 2 and 4.  No article defines or limits the concept of "imports" in
any way.
5.83 Argentina argues that where the Agreement on Safeguards seeks to make an exception or
regulate a particular situation, it does so explicitly, for example, in the provision on excluding
developing countries from the application of safeguard measures.  When the negotiators of the WTOAgreements wished to exclude or include a rule or exception, they did so explicitly.  This is the case
for developing countries, which are included in the analysis of the impact of injury and then excluded
if they meet the requirements of Article 9 of the Agreement on Safeguards.  In response to an EC
question, Argentina stated that even though Articl e 9 permits the possibility of excepting developing
countries from a measure, the imports of those countries are always included in the investigation ofinjury.  Consequently, there is no reason for maki ng any exception in respect of the methodology for
conducting the overall analysis of injury when the Agreement is silent on the matter.
(b) The criterion supported by the European Communities
5.84 Argentina points out that the European Commun ities' argument is not based on a criterion of
legality but a criterion of "logic".
97  Obligations under the WTO Agreement do not stem from a simple
concept of "logic" but from a logic based on multilaterally agreed disciplines that necessarily reflect a
balance of interests reached through negotiation.  In the opinion of certain Members of the WTO,
some of the disciplines negotiated may lack economic logic or be inconsistent with other disciplines
(the discussions in the Working Group on the Interaction between Trade and Competition Policy are
an example).
5.85 Argentina states that it has, for example, drawn attention to the harmful and distorting effect
of subsidies on the efficient allocation of resources at the global level.  The Cairns Group has been
quite outspoken in the negotiations on agriculture, but there is a "peace clause".  According to
Argentina, the European Communities' protection structure is an example of "the outcome of
negotiations" as against logic.  Each discipline is negotiated in a global context of conflicting interests
and the result is embodied in agreements, in which it is sometimes difficult to see the economic logic.
The system cannot correct the alleged lack of economic logic in the agreements via the disputesettlement mechanism.  The provisions of agreements, even if they lack economic logic, are being and
must be observed "dura Lex sed Lex".  In turn, however, requiring observance of the agreements does
not mean that they can generate obligations that have not been agreed multilaterally by the Members,
through the mechanisms available under public international law.  In other words, the content of a
                                                     
96 (Note: "Methodology" is the appropriate term becau se it indicates greater discretionary power on the
part of the national authorities).
97 Argentina refers to the EC argument in para. 5.40.WT/DS121/R
Page 32
"covered agreement", under which disputes can be resolved through the DSB, encompasses
everything and only everything on which the Members of the WTO have collectively agreed.
5.86 Argentina states that one cannot read into the text of a treaty anything that the treaty itself
does not spell out, still less in cases where a treaty explicitly states that there is no common
interpretation or that the scope of the relationship between two provisions cannot be prejudged.  There
is only an obligation on the parties if the common intention of the parties is set out in a text that canbe interpreted literally and consistently with its purpose and object.  This principle is clearly
confirmed in the rulings of the Appellate Body.
98
5.87 In Argentina’s view, if one were to follow the reasoning which emerges, for example, from
the European Communities' reply to Panel questioning …" If, already prior to the initiation of the
investigation, it is known that the scope of the safeguard measure will exclude certain countries, then
imports from these countries should necessari ly be excluded from the determinations"… one would
start by determining the "target of the safeguard measure" and subsequently begin to conduct thecorresponding injury, thereby altering the sequence of the text of the Agreement on Safeguards.  This
text establishes first the obligation to determine the increase in imports (Article 2) and then to analyse
the determining factors for the verification of injury (Article 4.2(a)), to establish the causal
relationship (Article 4.2(b)) and then, finally, to define the measure (Article 5.1).
5.88 Argentina alleges that since the European Co mmunities recognises that Argentina has the
right to conduct the investigation as it did, the European Communities' problems would seem to be
with the measure itself, and it should therefore be questioning the measure under Article 5.1.
Argentina does not think that it is appropriate to adduce the existence of an obligation that Article 2.1
does not provide for and that the practice of GATT and WTO Members never endorsed, particularly
when the problem raised by the European Communities would not appear to be one of methodologyof the investigation, but of the measure applied as a consequence of such methodology.  In fact,
Argentina argues, the European Communities reduces the scope of its own questioning on failing to
find support in Article 2.1 by recognising that what Argentina has done is "failed to construct a
safeguard measure that addressed the imports that were causing the injury".
99  This must be the only
reason for which the EC pleadings separate the claims relating to injury from the measure itself.
(c) Applicable provision:  Meaning of the text
(i) Application to the claim by the European Communities
5.89 Argentina, noting the European Communities’  statement that it does not challenge the
exclusion of MERCOSUR from the scope of the measure as such100 (which in Argentina’s view the
European Communities could hardly do, ignoring one of the Community's constant practices since the
creation of the GATT).  Argentina disagrees with the European Communities’ argument that such
exclusion necessarily entails the obligation to exclude MERCOSUR imports from the analysis of
"serious injury", "increased imports", and "causality", required by Article 2.1.
                                                     
98 "The purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the
common intentions of the parties.  These common intentions cannot be ascertained on the basis of the subjective
and unilaterally determined 'expectations' of one of the parties to a treaty".  " European Communities – Customs
Classification of Certain Computer Equipment ", Report of the Appellate Body, WT/DS68/AB/R, page 31.  The
finding of the Appellate Body in " India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products " was similar:  "The duty of a treaty interpreter is to examine the words of the treaty to determine the
intentions of the parties.  This should be done in accord ance with the principles of treaty interpretation set out in
Article 31 of the Vienna Convention.  But these principles of interpretation neither require nor condone the
imputation into a treaty of words that are not there or the imputation into a treaty of concepts that were not
intended ".  WT/DS50/AB/R, paragraph 45, emphasis added.
99 Infra , para. 5.124.
100 Infra , para. 5.116.WT/DS121/R
Page 33
5.90 Argentina submits that, first, Article 2.1 refers to the "conditions" under which goods are
imported and which have to be analysed for the purposes of applying the safeguard measure.  The
imports must have increased ("han aumentado" in the past tense in the Spanish text , "is being
imported" in the present continuous tense in the English text, according to Article 2.1) "in such
increased quantities", "absolute or relative to domestic production" (there must be an increase), "under
such conditions" (not any type of imports), as to "cause or threaten to cause serious injury".
5.91 In Argentina's view, these requirements, literally all of them, refer to the "Conditions" laid
down in Article 2.1 for app lication of the measure, but NONE of them mentions the investigation as
such.  None of these provisions prescribes who is to investigate, how to investigate, how to collect
information, what basis to use, etc.  Article 2.1 itself states "… if that Member has determined,
pursuant to the provisions set out below …".  The provisions below  in the Agreement are the way in
which the investigation should be conducted in Article 3 and the other substantive conditions laid
down in Articles 4 et seq.  of the Agreement on Safeguards.
5.92 Argentina contends that, as far as the invest igation is concerned, the European Communities
has not claimed that , by including MERCOSUR in the analysis, Argentina failed to respect Article 3 ,
which specifically prescribes the terms of the investigation ("pursuant to procedures previously
established").
(ii) Literal interpretation of Article 2.1 and footnote 1
5.93 Argentina states that the European Communities, in describing the elements of the alleged
non-compliance with Article 2.1, strangely enough excludes a reference to the footnote, which in fact
describes the way in which the "Conditions" set out in Article 2.1 must be analysed in the case of a
safeguard applied by a customs union (on behalf of a member State in this particular case).  That is,
the European Communities states " Article 2.1, Agreement on Safeguards (footnote omitted) reads as
follows ".101  According to Argentina, this omission of the footnote is not unintentional or a mistake.  It
is in fact necessary in order to avoid the discussion of the key element in determining whether or not
Argentina erred in verifying the injury requir ements, taking into account imports from MERCOSUR.
5.94 Argentina submits that Article 2.1 concerns "Conditions" for application of a safeguard
measure, whereas footnote 1 to this Article clarifie s the situation in the case of customs unions.  The
footnote specifies how a customs union should act in such cases and at the same time preserves the
rights both of the customs union and of the other Members of the WTO.  Argentina asserts that,
among the obligations set out in the footnote that ar e relevant to this dispute, the third sentence is
important:
"When a safeguard measure is applied on behalf of a member State, all the
requirements for the determination of serious injury or threat thereof shall be
based on the conditions existing in that member State  and the measure shall be
limited to that member State" (emphasis added by Argentina).
5.95 According to Argentina, the footnote simply clarifies the scope of the general obligation
contained in Article 2.1 to verify the existence of the "Conditions" concerning imports when a
customs union applies a safeguard measure on behalf of a member State.102  The text is crystal clear in
                                                     
101 Infra , para.  5.144.
102 In response to a Panel  question, Argentina stated that the notion of "conditions" with reference to
the requirements for the determination of injury is relevant throughout the text of the Agreement.  In Argentina'sview, the essence of the way in which the Agreement treats the notion of "conditions" with respect to therequirements for the determination of injury lies in the fact that the Agreement does not contain any proposed
limitations to the "conditions" that must exist, nor does it provide for any limitations with respect to theWT/DS121/R
Page 34
imposing the obligation that all the requirements for determining injury shall be based on the
conditions existing in that member State.   The footnote does not provide that intra-zone imports
should be excluded nor does it say, for example, whether, in order to determine the threat of injury,
estimated imports resulting from the possible convergence of a tariff in the adaptation regime (the
transitional stage in the establishment of a customs union) should be taken into account.
5.96 Argentina maintains that the conditions of  footwear imports in Argentina have a
MERCOSUR component that cannot be ignored.103  If one accepts the European Communities'
interpretation, this would mean failing to comply  with the requirement to verify all of the
"Conditions", as required for customs unions in the foot note itself.  Argentina argues that the footnote
does not specify which "conditions" must be taken into account.  It does not establish a threshold
which triggers the obligation.  The obligation has effect  de jure  and applies to all the conditions that
must be analysed when a measure is imposed by  a customs union on behalf of a member State.
5.97 Argentina poses as an example the United States, one of the major users of safeguard
measures, which analyses injury considering imports on a global basis (as Section 202 is a global
safeguards law, the ITC considers imports of any origin when determining which imports have
increased).  The United States then examines which members of NAFTA should be excluded.  This
investigation is conducted separately from the global analysis of injury and decisions are based on
Section 311(a) of the NAFTA Implementation Act.  If the International Trade Commission decidesthat a member of NAFTA should be excluded, the determination of global injury will result in
measures that do not apply to the member or members of NAFTA.  In the Wheat Gluten  case, the
United States excluded Canada from the measures, citing the requirement to apply the NAFTA, even
though Canada had been the third largest supplier of wheat gluten to the United States over the whole
period of the investigation.  (The United States verified that imports from Canada had decreased.)Related to this case and in the light of the level of Canadian wheat gluten exports to the United States,
it is not understandable why the European Communities affirms (para. 5.123) that Canadian exports
did not cause injury.  Argentina asks which were the EC criteria to arrive at this conclusion, and
which percentage related to total imports constitutes a threshold acceptable to exclude a partner of a
free trade zone from a measure.
5.98 Argentina states that when the European Communities made use of the retortion option
afforded by Article 8.2 of the Agreement on Safeguards (G/L/251,  G/SG/N/12/EEC/1), it did not
calculate the possible increase in exports from Canada as a result of the favourable effects of Canada's
exclusion from application of the measure, which led to a loss of the European Communities' market
share in the United States.  According to Argentin a, if the European Communities followed its own
"logic", it should have asked the United States why th ey attributed injury to their third largest supplier
yet excluded it from the measure.  They did not contest this point in the Committee on Safeguards,
however, nor did they take this injury into account for the purposes of the proposed retortion.  These
are double standards which are more demanding for developing countries applying safeguards than
the standards imposed among developed countries.
5.99 Argentina also wonders how it is possible to  be so demanding and impose a requirement not
contained in the Agreement when, for example, it is EC practice to extend anti-dumping measures in
                                                                                                                                                                    
"imports" or other indicators of injury as defined in Article 2.  The reference to imports in Article 2 and in the
footnote is to "all" imports, and there is no distinction between the conditions and requirements in the two cases.
103 In response to a Panel request for clarification of this statement, Argentina  stated that this assertion
must be placed in its context, i.e. the considerations concerning "conditions" referred to in footnote toArticle 2.1 and, specifically, the "conditions existing in that member State" which must be taken into account inaccordance with the third sentence of the footnote.  These conditions include the imports whose evolution must
be examined and the possible increase in such imports cau sing serious injury.  This statement refers to the fact
that in considering the "conditions" existing in a member State of a customs union (in this case Argentina), thefootwear imports to be considered comprise footwear th at enters the country from other member States of the
MERCOSUR customs union and footwear which enters from other countries, i.e. from the rest of the world.WT/DS121/R
Page 35
force to new countries which join the Community, as reflected in the Note on the meeting of the
Committee on Regional Trade Agreements.104
5.100  For Argentina, it is neither compatible with the text nor the object and purpose of the
Agreement on Safeguards (Article 2.1 and the footnote) "to require" a form of evaluation of the
"conditions" of imports which Article 2.1 of the Agreement on Safeguards does not contain, when the
European Communities' practice in applying another agreement on rules (anti-dumping) is to extendthe measure without any investigation, or, in the case of safeguards, to grant "more favourable
treatment" to developed partners in its investigations.
(iii) Object and purpose of the footnote
5.101  Argentina submits that the object and purpose of the footnote can only be to create the least
possible distortion to trade flows and at the same time to eliminate the restrictions on intra-zone trade
and help the customs union, or one of its members, to use a legitimate tool such as safeguards.  For
Argentina, the footnote will create the least possible distortion of trade since in principle a safeguardmeasure will have a lesser effect on global trade flows if it is applied by a member State and not by a
customs union as a single entity.  For Argentina, the objective of the footnote is to eliminate
restrictions on intra-zone trade (and safeguards would be restrictions on intra-zone trade) precisely
because Article XIX was specifically excluded from  the list in Article XXIV.8(a)(i).  According to
Argentina, if a customs union were obliged to apply a safeguard measure to imports from othermembers of the union, this would be contrary to the objective of Article XXIV, namely that "duties
and  other restrictive regulations of commerce  … are eliminated with respect to substantially all the
trade … ".
5.102  In response to questioning by the Panel concerning whether Article XXIV:8 of the GATT
prohibits the maintenance or introduction of safeguard measures between the member States of acustoms union or free-trade area, Argentina replies that Article XXIV:8 does not prohibit the
maintenance or introduction of safeguard measures, but, in conjunction with the footnote to
Article 2.1, it clearly permits members of a customs union to exempt their partners from the
application of a safeguard measure.  Argentina underlines that under Article XXIV:8, the obligations
arising from the MERCOSUR agreements, which establish a common trade policy instrument inrespect of safeguards (CMC decision 17/96), require Argentina not to apply safeguard measures to its
partners in the customs union.
105  Argentina explains that, in the case of a customs union,
subparagraphs 8(a)(i) and (ii) of Article XXIV indicate that the application of safeguard measures
must be carried out by the customs union as such or on behalf of one of its member States, in keeping
with the provisions of the WTO Agreement on Safeguards.  A customs union such as MERCOSUR,
which has agreed on the adoption of a common trade policy instrument in respect of safeguards
against imports from third countries (CMC decision 17/96), does not maintain any safeguard
measures on trade between its member States.  And indeed, this is consistent with Article XXIV:8(a).
Argentina asserts that the elimination of the restriction (in this case a safeguard), for which the
required time-period differs according to the integration process concerned, is operative as from the
                                                     
104 Document WT/REG/22/M/1, paragraphs 39, 41-43.
105 Argentina points out that the Treaty of Asunción and the Common Regulation, adopted by
Decision 17/96 of the Common Market Council, preclude States party to MERCOSUR from applying safeguardmeasures to trade in goods between them.  Article 98 of the said Regulations stipulates that when safeguard
measures are applied, imports from member States of  the customs union must be excluded.  Secondly, the
interpretation of Article XXIV:8(a) set forth above has been amply confirmed by GATT practice, since thesafeguard is a restriction in the terminology used in the Panel's question, a restriction which Article XXIV:8(a)entitles Members to remove.  Consequently, the basis for the measure adopted by Argentina is MERCOSUR,formed under the Treaty of Asunción, which is an agreement under Article XXIV and, in particular, underparagraph 8 thereof, which has been incorporated in to the Agreement on Safeguards through footnote 1 to
Article 2.1 of that Agreement.WT/DS121/R
Page 36
moment at which the customs union is constituted.  There would be no reason for the elimination of
the restriction to be authorised only at the end of the period since it is the elimination itself that the
Article authorises, leaving it up to the Members to decide on the timing in accordance with the
progress achieved in establishing the customs union.
5.103  Argentina states that in December 1996, th e Council of Ministers of MERCOSUR adopted
Decision 17/96 establishing the Common Regulation on the Application of Safeguard Measures to
Imports from Non-Members of MERCOSUR.106  Under the transitional provisions of these
Regulations, until 31 December 1998 each State Party shall apply its domestic legislation with respect
to safeguards, and if it applies a measure shall so inform the pro-tempore Presidency of MERCOSUR
so that it may notify the WTO Committee on Safeguards.  The same provision also stipulates that
such measures as may be taken by a State party to MERCOSUR shall be adopted on behalf of
MERCOSUR and shall not apply to imports of the ot her States party.  Argentina points out that by
Decision 19/98 of the Common Market Council (Decembe r 1998) it was decided to extend the period
of validity of the transitional provisions until 31 December 1999.
5.104  In response to questioning by the Panel  concerning the significance of the fact that footnote 1
to Article 2 immediately follows the word "Member", Argentina  states, first, the footnote does not
refer to Article 2 as a whole, but is a footnote to Article 2.1.  If it referred to Article 2 as a whole, the
note would have been placed either after the title "Article 2" or after the word "conditions" identifyingthe article.  Moreover, Argentina asserts, the placem ent of the footnote, originally following the words
"contracting parties" in drafts of the Uruguay Round text (as pointed out by the United States in its
replies to the Panel)
107, was necessary because the text applied only to the contracting parties of the
GATT, and the European Communities were never a contracting party.
5.105  Argentina states that customs unions are presented to the WTO through a decision by the
WTO Member countries that form part of them, and once they have been examined in the light of
Article XXIV of the GATT and Article V of the GATS, the WTO General Council concludes that
they are not in opposition to those provisions.  Argentina asserts that MERCOSUR has been a
customs union since 1 January 1995, when it adopted a common external tariff, and was presented as
such to the WTO, which initiated the process of examination on the basis of Article XXIV of theGATT.  This process is currently in its final stage.  The countries making up the MERCOSUR
Customs Union are Argentina, Brazil, Paragu ay and Uruguay.  MERCOSUR has its Common
Regulations on Safeguards in Relation to Third Countries (Decision CMC 17/96), notified to the
WTO in the context of the Working Party on MERCOSUR set up in the framework of the Committee
on Regional Trade Agreements and the Committee on Safeguards.  Argentina points out that in theCommittee on Safeguards, Argentina provided deta ils of the MERCOSUR review process in the
Committee on Regional Trade Agreements, where it answered specific questions concerning the
common safeguards regime. The Common Regulations on Safeguards establish a period of transition
for the full entry into force of all of its provisions and establish that during that period, investigations
will be conducted by the authorities of the State Party, in which case the measures are applied by the
Customs Union on behalf of that State Party.  Th us, Argentina asserts, it is odd that the European
Communities should qualify the MERCOSUR phenomenon as a "curiosity" and the Customs Unionas a "nascent" process.
108
5.106  Argentina disagrees with the European Communities that neither one of the Argentine
Resolutions 226/97 and 987/97 (the only ones at issue in this case) mentions Decision CMC 17/96.
Article 8 of Resolution 987/97 specifically indicates that the meeting of the MERCOSUR CMC inDecember 1997 was to consider the measure in the light of the Common Regulations on Safeguards
approved by that Decision.
                                                     
106 Exhibit ARG-19.
107 Infra , para. 6.32.
108 Infra , para. 5.113.WT/DS121/R
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5.107  Argentina contends that to interpret the footnote to Article 2.1 as applying only to customs
unions that are Members per se  of the WTO would be to deprive the third sentence of the footnote,
which states that nothing in the agreement prejudges the interpretation of the relationship between
Article XIX and paragraph 8 of Article XXIV of GATT, of its effectiveness.  The specific reference to
Article XXIV makes it clear that the customs unions referred to in the footnote are not only those thatare Members of the WTO per se , since Article XXIV does not apply only to customs unions that are
Members of the WTO.  Argentina notes that Article XXIV, paragraph 8 does not draw any distinction
between customs unions that are "WTO Members" and those that are "WTO non-members", but
defines a customs union as the substitution of a single customs territory for two or more customs
territories, so that duties and other restrictive regulations of commerce are eliminated with respect to
substantially all trade between the constituent terr itories of the union.  MERCOSUR fits the definition
of Article XXIV, paragraph 8, and therefore constitutes a customs union under WTO rules.
(iv) Effectiveness of the footnote
5.108  Argentina submits that if one were to accep t the European Communities' interpretation, this
would prevent a Member of the WTO from availing itself of the right given by Article XXIV and at
the same time complying with the obligation in the footnote to take into account the conditions under
which the goods are imported.  Furthermore, if one were to accept the European Communities'interpretation, the second requirement which the European Communities' submission seeks to impose
unilaterally on the agreement ("largest percentage") would deprive the footnote of its effectiveness as
there might be a sought-after increase in imports when a customs union is established, an increase that
must be calculated in each case, while at the same time the existence of imports from outside the zone
which cause or threaten to cause injury can be verified.
(v) Scope of the obligation contained in the footnote
5.109  Argentina submits that even if its interpreta tion is deemed to be incorrect, in the case of
customs unions all these considerations on the scope of the disciplines are governed by the last
sentence of the footnote to Article 2 of the Agreement on Safeguards:
"Nothing in this Agreement prejudges the interpretation of the relationship
between Article XIX and paragraph 8 of Article XXIV of GATT 1994."
According to Argentina, this text specifies the ex tent to which there is a "common" determination on
the part of the Members of the WTO "to be bound by the terms of a treaty" (in the sense of the Vienna
Convention on the Law of Treaties).  On this basis, any obligation that is added unilaterally or by
means of interpretation cannot in any way be consider ed as forming part of the "covered agreements"
within the meaning of Article 1.1 of the DSU.
(vi) Meaning of the phrase "and the measure shall be  limited to that member State" in the second
sentence of the footnote
5.110  In response to questioning by the Panel regarding the meaning of the phrase "and the measure
shall be limited to that Member states" in the second sentence of the footnote to Article 2.1, Argentinanotes that the phrase must be read with the full sentence:  "When a safeguard measure is applied (i.e.
when the customs union applies a safeguard measure) on behalf of a member State, all of the
requirements for the determination of serious injury or threat thereof shall be based on the conditions
existing in that member State and the measure shall be limited to that member State ."  According to
Argentina, it is by reading the sentence in full a nd considering its place in the context of the footnote
to Article 2.1 that its meaning and correct interpretation can be determined.  The sentence refers to theWT/DS121/R
Page 38
situation which could arise when a customs union applies a safeguard measure on the basis of
conditions investigated within a member State.
5.111  In other words, according to Argentina, the sentence specifically refers to the fact that a
safeguard measure can only be applied in the territory of a member State in which serious injury or
threat thereof has been determined.  In the case at issue, for example, since it was the conditions in
Argentina that were investigated, the safeguard measure could not have been adopted byMERCOSUR in respect of all of the footwear imports into the MERCOSUR customs union, but only
for imports entering Argentina, the member of the customs union in which serious injury was
determined.  Thus, in Argentina's view, the sa feguard measure imposed by MERCOSUR on behalf of
Argentina is perfectly consistent with the sentence of Article 2.1 mentioned by the Panel since it
applies only to footwear imports entering the Ar gentine market, and not those entering MERCOSUR
as a whole.  If one of the member States has carried out an investigation in accordance with the
Agreement on Safeguards, has proved that the conditions set forth in Article 2.1 have been met andhas shown that there is serious injury to the domes tic industry or a threat thereof in accordance with
Article 4 of the Agreement on Safeguards, a decision can be made to apply a safeguard measure on
behalf of that member State.
5.112  In answer to a panel question concerning the basis for the statement in Act 338  that “in the
absence of minimum specific duties or protective measures there would be at least an equal flow ofimports from the rest of the world into the Argentine Republic” in the light of inter alia  the tariff
differential between MERCOSUR and non-ME RCOSUR goods, Argentina states that the
Commission decided to investigate total imports, differentiating between those originating in
MERCOSUR and those from the rest of the world.  Ar gentina submits that a good deal of the former
are the result of imperfect substitution of imports from the rest of the world consequent upon thediversion of trade created by the DIEM.  Therefore, it is reasonable to consider them on equal terms
for injury analysis purposes since in the absence of DIEM or protective measures there would be at
least an equal flow of imports from the rest of the world into the Argentine Republic.  Argentina
further indicates that although import duties are different for trade with in MERCOSUR than for
imports from outside MERCOSUR, this difference does not alter the established fact that the levels ofimports of all origins were increasing and both would have continued to increase, as happened with
imports from MERCOSUR, if the specific duties had not been imposed.  The logical conclusion was
that the increases would have continued in the absence of the DIEMs, and the increase in imports
from MERCOSUR was simply a further confirmation of this conclusion.
3. Response of the European Communities
5.113  The European Communities submits that the footnote to Article 2.1 of the Agreement on
Safeguards is not applicable and, in any case, does not have the meaning given to it by Argentina. The
footnote is not applicable because it relates to the application of a safeguard measure by a "customs
union" .  Argentina is of course part of a nascent customs union, MERCOSUR.  However, it is not
MERCOSUR which took the measure the subject of this case but Argentina.  It is not MERCOSUR
which conducted the investigation, it was Argentina. Some of the notifications were made by
MERCOSUR Members but this seems more of a curiosity than anything else and it is in any eventArgentina which is defendant in the present case, not MERCOSUR or the other notifying Members.
In fact, Argentina has acknowledged that MERCOSUR is not able to apply for the time beingsafeguard measures in the absence of legislation and procedures to do so.  This was confirmed by the
joint oral statement of Brazil, Paraguay and Uruguay.
109
5.114  In any event, the European Communities submits, the footnote does not have the meaning
Argentina claims.  Footnote 2 of Article 2.1 can be  divided into three parts: first, where a customs
union applies a safeguard measure as a single unit;  second, where a safeguard measure is applied on
                                                     
109 Infra , para. 6.6.WT/DS121/R
Page 39
behalf of a member State;  and third, a statement regarding the relationship between Article XIX and
paragraph 8 of Article XXIV of GATT.  The European Communities states that the first part of the
footnote is clearly not relevant for this case, and Ar gentina has not claimed that it is.  This part deals
with safeguard measures taken by a customs union as a single unit, on the basis of the conditions
existing in the customs union as a whole: injury and causation have to be determined on the basis of
the increase in imported products from outside the customs union.  The situation of the relevant
industry within the entire territory of the custom s union has to be analysed.  The second part deals
with the situation where a safeguard measure is taken for one of the members of a customs union.  In
that case, according to the text, injury and causation have to be determined on the basis of the
situation existing in that member and the situation of the relevant industry within the territory of the
member has to be analysed.
5.115  Therefore, the European Communities continues, the object and purpose of the first two parts
of the footnote are clear from the text: when a measure is taken for the customs union as a whole, theinjury determination should be done on the basis of the conditions relevant for the entire territory of a
customs union; when the measure is taken for a single member, this determination should be done onthe basis of the conditions present in the territory of the member.  In other words, no safeguard
measure can be taken for the customs union as a whole if the conditions only concern one of itsmembers.  Alternatively, no member can take a safeguard measure by itself if the conditions wereinvestigated for the customs union as a whole.  For the European Communities, that is what the first
and second part of the footnote do, and nothing more.  The European Communities observes that the
text of the footnote contains no similar exception as was allowed in Article 9 of the Agreement on
Safeguards.
5.116  Finally, the European Communities states, the third part of the footnote makes clear that the
text of the Agreement on Safeguards cannot prejudge the interpretation of the relationship between
Article XIX and paragraph 8 of Arti cle XXIV of GATT.  In other words, the question of whether the
Agreement on Safeguards would necessarily "eliminate" duties and other restrictive regulations of
commerce between the constituent territories of the customs union, as set out in Article XXIV, is left
open.  The European Communities states that the historic explanation of this phrase is to be found inthe disagreement which existed amongst GATT members at the time of the negotiation of the
Agreement on Safeguards with respect to whether or not Article XXIV GATT would allow a member
of a customs union or a free trade area to exclude the other members of such preferential trade regime
from the application of the safeguard measures.  The negotiated solution to this question was to
maintain the status quo , i.e. the Agreement on Safeguards does not, on its own, provide new or
additional elements to solve this interpretative question.  The European Communities does not address
this issue in the present dispute.  It leaves this question open, in line with the text of the third part of
the footnote.  The European Communities does not challenge – as such – the exclusion of
MERCOSUR imports of footwear from the scope of th e safeguard measure.  However, nothing in the
third part of the footnote says anything about an  exception which would allow an approach which
includes imports from members of the customs union in the investigation while excluding
 those
members from the safeguard measure.  It is this inconsistency which the European Communities
cannot agree to and which it asks the Panel to condemn.
5.117  The European Communities points out that Arge ntina presents this issue in its first
submission as a question of "methodology" (" methodology  is the appropriate term because it indicates
greater discretionary power on the part of the national authorities").  The European Communities
disagrees with Argentina that this issue is a question of "methodology", which necessarily wouldallow for wide discretionary practices by WTO Members: it is a matter of correct legal interpretation
of the meaning of the phrase "being imported in such increased quantities so as to cause serious
injury" set out in Article 2.1 of the Agreement on Safeguards.  It cannot vary at the discretion of
Members.WT/DS121/R
Page 40
5.118  The European Communities asserts that in order to  interpret this phrase, it should be read in
its context .  The immediate context in which this phrase is placed is Article 2.1 of the Agreement on
Safeguards, which sets out the requirements which should be fulfilled before "[a] Member may apply
a safeguard measure to a product."  This provision underlines the inherent link between the
requirements  (including increased imports) and the measure  itself: the importance with which the
requirements present themselves determine the scope of the safeguard measure.  This link is alsoconfirmed by another provision, which equally forms part of the context of the phrase "being
imported in such increased quantities so as to cause serious injury": Article 5.1 of the Agreement on
Safeguards.  The European Communities asserts that the United States states correctly that, "in order
for a safeguard measure to be effective, and to comport with Article 5:1, it must affect the imports that
are causing the injury ."
5.119  In this respect, the European Communities accepts the US position
110 that Argentina was free
to investigate  all imports into its territory, so as to have full information on the different sources from
which the product entered.  However, Argentina should subsequently have refrained from using the
import statistics from MERCOSUR countries for its determination  that the product was "being
imported in such increased quantities", while knowing beforehand that the scope of the safeguard
measure could not include imports from MERCOSUR countries.
5.120  According to the European Communities, a similar reasoning applies to the legal
interpretation of the terms "requirements" and "conditions" in the second part of the footnote to
Article 2.1 of the Agreement on Safeguards, even though the European Communities does not
recognise that the footnote in the present case is relevant.  The second part of this footnote reads:
"When a safeguard measure is applied on behalf of a member State, all the
requirements for the determination of serious injury or threat thereof shall be based
on the conditions existing in that member State and the measure shall be limited to
that member State."
The European Communities submits that these two terms equally refer ( inter alia ) to the phrase
"being imported in such increased quantities so as to cause serious injury "111, so that the above-
mentioned interpretation applies.
5.121  The European Communities takes issue with a comment made in the joint oral statement
during the first substantive Panel meeting by Brazil, Paraguay and Uruguay in this respect.  According
to these countries, "what happens after the investigation has been concluded is a separate matter .
Other rights and obligations come into effect."112 (emphasis added)  The European Communities does
not see the reason why a clear distinction should be made between the investigation (and in particular
the determination  that imports have increased) and the scope of the measure.  In the European
Communities' view the matter is not separate , but is inherently linked , as argued before.
5.122  Furthermore, the European Communities asserts, Argentina's interpretation of Article 2.1
unjustifiably reflects the content of Article 9 of the Agreement on Safeguards.  Argentina argues that
Article 9 is an exception in the Agreement on Safeguards : "Where the Agreement on Safeguards
seeks to make an exception or regulate a particular situation, it does so explicitly". The European
Communities agrees with this statement, but comes to the opposite conclusion to Argentina.  The
                                                     
110 Infra , para. 6.37.
111 The very close link between the conditions  and the measure  is confirmed by the "mirror-like" use of
these terms in the last sentence of the second part of the footnote: " conditions  existing in that member State and
the measure  shall be limited to that member State."  In other words, the conditions are a pre-requisite for the
measure, while the measure is the direct consequence of the existence of the conditions: they are thus
"inherently linked".
112 Infra , para. 6.7.WT/DS121/R
Page 41
European Communities states that Article 9 of the Agreement on Safeguards makes clear that the
imports of developing country members are included in the determination but that those developing
country members can be excluded from the safeguard measure when such imports are considered
negligible (i.e. below 3  per cent).113  Therefore, the Agreement on Safeguards introduces here, on an
exceptional basis and for a limited quantity of imports, the possibility of including certain imports in
the investigation while excluding certain countr ies from the measure.  The European Communities
submits that neither Article 2.1 nor its footnote provide for such an exception in the case of a customs
union.  Argentina is unable in its reply to a question by the European Communities to indicate where
in the Agreement on Safeguards a similar exception can be found (allowing for the inclusion of
imports from customs union members in the determination of the investigation and subsequent
exemption of customs union members from the measure)114.  The European Communities therefore
submits that Argentina has imputed a concept  into the Agreement on Safeguards which was not
intended and has never been the subject of the common intention  of the parties115.
5.123  Finally, the European Communities argues, Argentina has relied on an example of a recent
safeguard measure taken by the United States regarding wheat gluten, which excluded Canada from
the measure, to justify its practice.116  Although the European Communities states that this Panel
cannot address the legality of the safeguard measure imposed on wheat gluten by the United States, it
nevertheless notes that the US wheat gluten case is radically different to the present.  The UnitedStates made separate determinations concerning imports from NAFTA members and concluded that
imports from that source and, in particular, Canada did not cause injury.  If Argentina had acted in thesame way as the United States, it would not have been able to come the conclusion it did.  In addition,
the European Communities notes that United States in its third party statement to the Panel
117 did not
side with Argentina, but instead strongly rejected Argentina's practice as unwarranted, therebyrendering Argentina's argumentation invalid.
5.124  According to the European Communities, Argentina investigated imports from all sources
and had determined that "serious injury" had been caused by all imports  (including imports from
MERCOSUR countries).  However, it subsequently  failed to construct a safeguard measure that
addressed the imports that were causing the injury
118.  The European Communities therefore agrees
with the US119 that what is "troubling is Argentina's use of MERCOSUR imports for its increased-
imports analysis when there was no possibility  that those imports could be included in any safeguard
action, even where those imports are demonstrably the cause of the injury suffered by the domestic
industry."   Moreover, if Argentina had acted in the exactly the same way as the US has done,
Argentina would not have been able to come to the conclusion it did.
5.125  The European Communities states that a more relevant example of third country practice is
evidenced by Exhibit EC-33, which is a notification dated 28 July 1998 by Australia, announcing the
                                                     
113 If imports from developing country members are, collectively, more than the 9 per cent threshold,
this would allow the WTO Member taking the measure to block imports from developing country members.  Iftheir share of imports is below the threshold, the harm done by this segment is considered non-substantial and
developing countries members can be given preferential treatment.
114 Instead, Argentina relies exclusively on "Article  2:1 and the footnote thereto" to explain its
procedural steps.  These provisions however, as discussed before, do no allow for a similar exceptional
procedure as foreseen in Article 9.
115 Appellate Body Report, EC - Customs Classification of Certain Computer Equipment,
WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, 5 June 1998, at page 31, 32. Appellate Body Report,
India - Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R,
19 December 1997, at paragraph 45.
116 Supra , para. Error! Unknown switch argument. .
117 Infra , section VI.C.
118 See also US argument, infra, para. 6.33-6.39.
119 Infra , para 6.37.WT/DS121/R
Page 42
initiation of a safeguard investigation regarding swine meat.  Australia under paragraph 3(ii) lists the
total imports of the product in question.  In doing so, it expressly excludes the imports from
New Zealand from the total number of imports.  In addition, it announces that it will exclude New
Zealand from the action under the Safeguard Agreement, since New Zealand is a member of the
'Australia – New Zealand Closer Economic Relations Trade Agreement'.  A further example may be
found in Article 3 of the Central American Regulations on Safeguard Measures (Document
G/SG/N/1/CRI/2, Exhibit EC-36), which provides that "[t]he safeguard measures which these
Regulations refer shall apply to imports from third countries."  Furthermore, Article 6 of these
Regulations provides that "[t]he purpose of the investigation procedure shall be to determine whether
or not it is appropriate to apply safeguard measures when a product is being imported into the territory
of a State Party from third countries […]".
5.126  In addition, and with respect to Argentina’s continuous references in its replies to the
questions by the Panel to MERCOSUR’s Common Re gulations on Safeguards in Relation to Imports
from Third Countries (Decision CMC 17/96), the European Communities submits that the text of
neither Resolution 226/97 nor Resolution 987/97 indicates that these Regulations have been adopted
pursuant to Decision CMC 17/96.
5.127  Furthermore, the European Communities reiterated that both total imports  and extra-zone
imports  into Argentina had decreased since 1993.  Therefore, according to the European
Communities, in both cases did Argentina not comply with a key requirement of Article 2:1
Agreement on Safeguards.  Therefore, accordin g to the European Communities, the so-called
"Mercosur Question" is important as a principle, but the answer to it is not determinative for the
outcome of this case.
5.128  The European Communities stated that the issue is a question of correct legal interpretation of
the phrase " being imported in such increased quantities so as to cause serious injury ".  Articles 2:1
and 5:1 Agreement on Safeguards underscore the inherent link between the requirements (one of
which is increased imports) and the measure itself.  As the US correctly stated, "in order for a
safeguard measure to be effective […] it must affect the imports that are causing the injury."  In fact,
according to the European Communities, what Argen tina has done in the present case is to penalise
European producers and other third country producers for the alleged injurious imports from
Mercosur countries.
5.129  The European Communities recalls Argentina's statement120 that the result of following the
EC's view is that "we would find ourselves in a situation where we would start by determining the
'target of the safeguard measure' and subsequently begin to conduct the corresponding injury[analysis] thereby altering the sequence of the AS text".
5.130  In the view of the European Communities, Argentina was of course free to (and indeed
should )  investigate  all imports into its territory, so as to put together a complete file on the level of
imports from all different sources.  For the European Communities there is however a difference
between conducting an investigation and making a determination  that the product was "being
imported in such increased quantities" in the framework of Article 4:2(a) Agreement on Safeguards:
whereas the investigation could be considered as a mere collection of information, the determination
is the legal basis on which a safeguard measure is built.  According to the European Communities, the
determination of "increased imports" is inherently linked with the scope of the safeguard regime
applied subsequently.
5.131  The European Communities submits that this di stinction between the investigation on the one
hand and the determination on the other is also the reason why the wheat gluten case was rejected bythe United States as a justification for Argen tina's procedure.  According to the European
                                                     
120 Supra , para. 5.87.WT/DS121/R
Page 43
Communities, if Argentina had applied the same procedure as the United States in the wheat gluten
case, then Argentina would not have been able to come to the conclusion it did.  The European
Communities submits that Exhibits EC-33 and 36 demonstrate that its reasoning is correctly applied
by a number of other WTO Members.
5.132  The European Communities notes that Argentina has itself altered the sequence of the
Agreement on Safeguards.  Together with Brazil, Paraguay and Uruguay, Argentina signed the Treaty
of Asuncion and decided subsequently never to apply safeguard measures internally.  In other words,
according to the European Communities, Argentina be forehand determined the target for all safeguard
measures.  It therefore knew, when it began its analysis in 1997, that, whatever the outcome was of
the analysis, it could never apply a safeguard measure towards the other three members of Mercosur.
In such a situation, Argentina should not have included footwear imports from those three countries in
its determination
5.133  Furthermore, the European Communities argues that Argentina misquotes the content of the
footnote to Article 2.1 when it states that "the footnote to Article 2:1 expressly states that there is no
agreement between the parties concerning the way in which to conduct the analysis  of injury in the
case of a safeguard measure applied by a customs union on behalf of a Member State."121  T h e
European Communities is unable to find in the text  any such reference and it invites Argentina to
indicate where these words are used. On the other hand, the European Communities asserts thatArgentina is correct  where it states that this footnote "confirms the agreement on the disagreement
concerning the relationship between Article XIX and Article XXIV of the GATT."122  However, that
is something very different from what Argentina claims.
5.134  Finally, the European Communities asserts that the placement of the footnote to Article 2:1
Agreement on Safeguards immediately after the term "Member" reflects the historic origin andpurpose of this clause.  According to the European  Communities, this footnote, which concerns the
application of a safeguard measure by a customs union, was specifically designed to deal with the
case of the EC.  The European Communities, as a Member of the WTO, may -- in accordance with the
requirements set out in Article XIX GATT and the Agreement on Safeguards -- apply a safeguard
measure in its own right, i.e. as a customs union, either as a single entity or on behalf of a memberState.
5.135  In the present dispute, according to the European Communities, the safeguard measure was
not taken by a customs union, but by Argentina.  According to the European Communities the
footnote is therefore not applicable in the present di spute, since the footnote refers specifically to a
"customs union".  Although Argentina is part of a nascent customs union -- Mercosur -- it was notMercosur which took the safeguard measure and conducted the investigation, it was Argentina.
C. 
DEFINITIVE SAFEGUARD MEASURE
1. Standard of Review
(a) Argument of the European Communities
5.136  The European Communities submits that the ro le of a panel is not to engage in a de novo
review.  Such review was never requested by the European Communities.  The European
Communities believes that the provisions which should be relied upon in this respect are Article 11DSU and Articles 4.2(a) and (c) of the Agreement on Safeguards.  In particular, a panel should make
an objective assessment of whether or not the national authorities correctly considered each of the
                                                     
121 Supra , para. 5.81.
122 Supra , para. 5.79.WT/DS121/R
Page 44
relevant factors mentioned in Article 4.2(a) of the Agreement on Safeguards; whether the national
authorities made a "detailed analysis of the case under investigation" and whether they made a proper
"demonstration of the relevance123 of the factors examined", as set out in Article 4.2(c) of the
Agreement on Safeguards.
5.137  The European Communities takes issue with th e statement by Argentina that the European
Communities "wishes the Panel to reconsider [the] evidence [collected in the CNCE's file], conductnew analyses, prepare new reports and reach new conclusions."
 124
5.138  The European Communities notes that throughout Argentina’s first written submission, there
are assertions that the investigation established that the conditions of the Agreement on Safeguards
were fulfilled.  The European Communities submits that although the Panel cannot reinvestigate the
economic data included in Argentina’s report, it can and should verify if the conclusions relating to
the requirements of the Agreement on Safeguards follow from that economic data.  In this case, they
simply do not.  The European Communities submits 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 .  The
European Communities recalls that the 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 reasonedopinion explaining how such facts and arguments had led to their finding.”
125.
5.139  The European Communities can, to a large extent, agree with the US statement126 regarding
the appropriate standard of review in this case.  The European Communities submits that a panel
would be assured of arriving at an 'objective assessment' of the matter in dispute if it applied a
standard of review (developing on what the panels have said in Underwear127 and Wool Shirts128) that
examines whether (1) the domestic authority has examined all relevant facts, including each of the
factors listed in Article 4:2(a) Agreement on Safeguards;  (2) adequate explanation has been provided
of how the facts supported the determination made; and  (3) consequently, whether the determination
made is consistent with the international obligations of the Member.
5.140  The European Communities disagrees with Argentina's claims129 that the two panel reports
which were cited by the European Communities ( US – Underwear  and US – Wool Shirts ) cannot give
guidance for the present case, since the standards, criteria and the scope for safeguard measures in the
Agreement on Textiles are different, requiring a much more precise investigation than is required for
the Agreement on Safeguards.  The observations by the respective panels which the European
Communities has cited are highly relevant comments of a general nature, and are not strictly confinedto safeguard measures taken within the framework of the Agreement on Textiles.  The two panels
confirmed the argument put forward by the European Communities that no safeguard measure should
be based on inconsistent or inadequate
 information.  If the Member taking the measure bases itself on
incomplete, vague  or imprecise  information in its investigation, then the high threshold set by Article
4.2(a) of the Agreement on Safeguards, which speaks of "factors of an objective and quantifiable
nature", cannot be considered as met.  The text of Article 6.3 of the Agreement on Textiles does not
even set the threshold so high, since it speaks of "changes in such relevant economic variables".
                                                     
123 See also Panel Report on 'Brazil - Milk Powder' , at paragraph 286.
124 Infra , para. 5.142.
125 See Panel Report, Brazil – Milk Powder, at paragraph  286.
126 Infra , para. 6.22-6.26.
127 Panel Report, United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear ,
WT/DS24/R, 8 November 1996, at paragraph 7.13.
128 Panel Report, United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from
India,  WT/DS33/R, 6 January 1997, at paragraphs 7.13 - 7.15 and 7.51 - 7.52.
129 Infra , para. 5.143.WT/DS121/R
Page 45
Therefore, if two panels under the Agreement on Textiles did not accept the information provided by
the United States as sufficient, then surely this Panel should not accept the information by Argentina
as such.
(b) Argument of Argentina
5.141  Argentina states that it does not expect the Panel to carry out a de novo  review since this is
not its function, and in this respect, Argentina agrees with the statement by the EuropeanCommunities that the role of a panel is not to engage in a de novo  review".  Argentina does, however,
expect the Panel to analyse objectively the entire file including Exhibit ARG-21, to pay particular
attention to the various citations and references and to confirm that Argentina complied with its
obligations under the Agreement on Safeguards.
5.142  According to Argentina, the EC position in the present dispute ignores the evidence collected
in the CNCE's file, as well as the analyses and reports drawn up on that basis.  Argentina believes that
the European Communities wishes the Panel to reconsider this evidence, conduct new analyses,prepare new reports and reach new conclusions.  Argentina emphasises that there is a precedent, the
United States – Salmon  case, where it was found that the Panel should not reconsider the evidence
analysed by the investigating authority.
130
5.143  Argentina states that the decisions of the Panels in the cases United States – Restrictions on
Imports of Cotton and Man-Made Fibre Underwear  and United States – Measures Affecting Imports
of Woven Wool Shirts and Blouses from India , cannot provide guidance when analysing serious injury
in an investigation under the Agreement on Safeguards.  This is because the standards and criteria are
different, as is the scope of the investigation.  For example, in the case of the ATC, the authorities
analyse a very specific product and an equally specific supplier.  The analysis must necessarily be
very precise both regarding the product and the country investigated.  Nevertheless, it should be notedthat, with regard to the review standard, the Panel stated that "[t]he relative importance of particular
factors including those listed in Article 6.3 of the ATC is for each Member to assess in the light of the
circumstances of each case" (paragraph 7.52 of the panel report).  In the preceding sentence, the Panel
noted that "[t]his is not to say that the Panel interprets the ATC as imposing on the importing Member
any specific method either for collecting data or for considering and weighing all the relevanteconomic factors upon which the importing Member will decide whether there is need for a safeguard
restraint" (paragraph 7.52 of the panel report).  The Panel goes on to indicate how the specific factors
peculiar to the ATC (but not the Agreement on Safeguards) should be considered.
2. Article 2.1 of the Agreement on Safeguards:  Alleged failure to demonstrate an
"increase" in imports and alleged failure to analyse the "conditions" under which theimported products investigated entered the import market
(a) "Increased imports"
(i) Argument of the European Communities
5.144  The European Communities recalls that Article 2:1 Agreement on Safeguards (footnote
omitted) reads as follows:
                                                     
130 The Panel considered that, although different weight  could be accorded to certain facts, this was not
a sufficient ground to find that a determination of material injury based on such facts was not based on positiveevidence within the meaning of Article 3.1.  Thus, the question of whether a determination of injury was basedon positive evidence was distinct from the question of the weight to be accorded to the facts by the investigatingauthorities.  Panel Report, United States – Salmon  Panel (paragraph 494).  See also Panel Report, United States
– Measures Affecting Imports of Woven Wool Shirts and Blouses from India , WT/DS33/R.WT/DS121/R
Page 46
"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
like or directly competitive products." (emphasis added).
Therefore, according to the European Communities,  the safeguard investigation by Argentina needed
to establish that footwear was being imported into its territory in such increased quantities , absolute
or relative to Argentine footwear production, and under such conditions  as to cause or threaten to
cause serious injury  to the Argentine footwear industry.  In the view of the European Communities,
the investigation did not sufficiently address or demonstrate these requirements.
5.145  The European Communities asserts that the most serious deficiency of the Argentine measure
is that proceedings were initiated and measures imposed, even though imports from non-MERCOSUR
countries did not increase since 1993.  Therefore, the European Communities submits that the
requirement of Article 2.1 of the Agreement on Safeguards -- that products are "being imported in
increased quantities, absolute or relative to domestic production" -- is not met.
5.146  The European Communities argues that the notification issued by Argentina on 25 July
1997131, clearly demonstrates that imports into Argentina from non-MERCOSUR countries decreased
substantially every year in volume terms since 1993 (16.70 millions of pairs) until 1996 (5.97 millions
of pairs) and in value terms since 1994.  Therefore,  according to the Europ ean Communities, if total
imports would have been the reason for the alleged harm suffered by the domestic industry, surely the
main source  of those imports in 1996, the year that this industry asked for protection, came from
Mercosur countries.  Instead, non-Mercosur countries are bearing the full burden of the safeguard
measure, while Mercosur countries are now able to establish themselves unhindered on the Argentina
market and gain an unwarranted market share.  Even total imports (which include imports from
Mercosur countries) decreased every single year  from 1993 (21.78 millions of pairs) until 1996 (13.47
millions of pairs).132  The European Communities refers to EC-Graph 1 as representing this patent
absence of any increase in imports.
5.147  The European Communities asserts that Argentina does not deny these important facts, but
chose to ignore them.  Instead, Argentina claimed that there was a general increase in imports of
footwear between 1991 and 1995.  It stated133: "[a]s may be gathered from Table I, during the period
1991-1995 there was a 70 per cent increase in imports in physical units and if the analysis for 1996 isincluded, the increase was 52 per cent for the whole period."  Of course, these figures include
MERCOSUR countries and so are irrelevant.  But ev en if the overall import figures were accepted,
the increase over the 1991-1995 (or 1996) period in no way complies with the requirements of
Article 2.1 of the Agreement on Safeguards.  Argentina' s failure to take note of the most recent trends
demonstrates that it failed to evaluate all the relevant evidence and pertinent information available.
5.148  According to the European Communities, imports into Argentina (whether they be non-
MERCOSUR imports or total imports) have continuously and consistently decreased since 1993.Thus, the European Communities submits that the imposition of a safeguard measure should not be
allowed: if Argentina, or any other WTO Member in the future, were able to construct its analysis on
the basis of figures going back six years (in this case on the basis of 1991-figures, for safeguard
measures taken in 1997), while disregarding the intervening trends, the security and predictability of
                                                     
131 G/SG/N/8/ARG/1, Exhibit EC-16, in particular Table I on page 21.
132 EC Graph-1.
133 Exhibit EC-16, document G/SG/N/8/ARG/1, at page 21.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 2.  Argentina concluded on the same page that "an absolutegrowth of imports between 1991 and 1995 has been found to exist.  Furthermore, this increase has also takenplace relative to domestic production and the domestic market."WT/DS121/R
Page 47
the multilateral system would be seriously jeopardised.  The European Communities strongly objects
to using statistics that go back for such a long period, for the following reasons:
5.149  First, Article XIX GATT is clear on the objective of safeguard measures: they are intended to
protect against emergencies and unforeseen circumstances .  The European Communities considers
that an increase in footwear imports between 1991 and 1993 cannot justify the imposition ofprovisional safeguard measures in February 1997 and definitive safeguard measures in September1997, in particular when there was a decrease in  imports from non-MERCOSUR countries (as well as
of total imports, including MERCOSUR countries) du ring the most recent period for which data were
available
134 (1994, 1995 and 1996).  The nature of safeguards as "emergency" measures makes clear
that their use is not appropriate in the case of a long-term increase in imports.  The ordinary meaning
of the wording of Article 2.1 of the Agreement on Safeguards necessarily makes clear (the text reads:
"is being imported ") that this provision deals with current imports, i.e. an on-going  situation, not with
a situation in the past.  The other official language versions of the text confirm the increase of the
imports has to be still relevant at the time of making the final findings for the imposition of safeguard
measures.
5.150  In response to questioning by the Panel regarding whether any decreasing trend in imports at
the end of an investigation period would make a resulting safeguard measure inconsistent with the
WTO, the European Communities states that one of the key conditions which must be fulfilled is thata product is being imported in increased quantities absolute or relative to domestic production.  The
increasing  trend in imports must be in evidence at the time when the determination is made.
Therefore, if there is a clear and confirmed decreasing  trend over the last years of the investigated
period, the condition of increasing imports of Article 2.1 of the Agreement on Safeguards is not
fulfilled, and therefore no safeguard measure can be imposed.  According to the EuropeanCommunities, it cannot be accepted, as suggested in the question by the Panel, that a safeguard
measure could be taken only on the basis that the level of imports at the end of an investigation period
was higher than at the beginning of the period.  If this calculation method were to be accepted as
valid, then it would become very simple for WTO Members to demonstrate that the increased imports
requirement had been fulfilled: it would suffice to set the beginning of the investigation period at ayear during which the level of imports was lower than the level at the end of the investigation period,
while ignoring intervening trends, in particular at the end of the period.  The European Communities
submits that this method is not in accordance with the correct interpretation of the import condition
set out in Article 2.1 of the Agreement on Safeguards.
5.151  The European Communities asserts that in the pr esent case, during the last three years before
the safeguard measure was taken, Argentina's imports showed a clear and confirmed decreasing  trend,
both with regard to total imports and with re gard to non-MERCOSUR imports.  Therefore, the
European Communities believes that the key condition set out in Article 2.1 of the Agreement on
Safeguards, that a product is being imported in increased quantities absolute or relative to domestic
production, is not fulfilled.  A different situation would be that in which, at a point in time, there
might have been a decrease in imports, but without altering an increasing trend which is still relevant
at the time of making the determinations required by the Agreement on Safeguards.  In other words, if
                                                     
134 Whilst the investigation by Argentina disregarded 1996 footwear imports data (although they were
already available: see Exhibit EC-16, document G/SG/N/8/ARG/1, at page 21, where data for 1996 imports are
mentioned) Argentine Resolution 987/97, which imposed definitive safeguard measures, refers in its fourth
recital to imports which "increased during the period 1991-1996" (see Exhibit EC-20, documentG/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, p.2).  Accordingly, Argentina carried out aninvestigation on the basis of 1991-1995 data but took a decision based on the 1991-1996 period.  See alsoExhibit EC-17, document G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 2, which states that the domesticmarket share of imports reached a peak of 25 per cent in 1997.  However, this year was not analysed in Exhibit
EC-16, document G/SG/N/8/ARG/1, at page 21.WT/DS121/R
Page 48
no determination of increased imports can be made, no safeguard measure may be imposed, even if it
were a "reduced" safeguard measure.  On the other hand, the European Communities asserts, it is only
after it has been determined that, inter alia , there are increased imports that a safeguard measure
should be applied only to the extent necessary to prevent or remedy serious injury, pursuant to Article
5.1 of the Agreement on Safeguards.  The level of the increased imports will be one of the factors to
take into account in the decision concerning the nature and scope of the measure.
5.152  Second, the European Communities submits, if a WTO Member decides to take a safeguard
measure (which is a measure which in fact contradicts the general aim of trade liberalisation and
should therefore only be allowed under exceptional circumstances), that Member must demonstrate
convincingly that imports had gone up sharply over th e most recent period and that -- as a direct result
of this sharp rise in imported goods -- the domestic industry suffers, or will imminently suffer, serious
injury.  In such an analysis, it is of no direct use to look back at the economic situation which existed
many years ago.  What should have been analysed by Argentina are data of the relevant economicfactors prevailing at the time before a safeguard measure would be taken.  It must have established
that these factors constituted serious injury and were caused by a large increase in imports, whichmust therefore have been recent.  Thus, even if it may be justified to provide (as in Article 8 and
Annex I of Decree 1059/96
135), that information on import data “must be supplied for the last five (5)
full years”, this is only to provide a background against which trends could be established, not in
order to measure the injury.
5.153  Finally, regarding the inclusion of imports fr om MERCOSUR countries in the analysis and
the subsequent exclusion of MERCOSUR countries from the application of the safeguard measure,
the European Communities argues that Argentina has attempted to justify this inconsistency as
follows: according to Argentina136, it was "reasonable" to consider MERCOSUR imports in the
analysis, because "in the absence of minimum specific duties or protective measures there would be at
least an equal flow of imports from the rest of the world into the Argentine Republic."  The European
Communities disagrees.  This statement clearly indicates that Argentina based its measure, not on the
actual and present existence of an increase in imports, but on a hypothetical  increase in imports.  This
is contrary to Article 2.1 of the Agreement on Safeguards137.  In any event, there is absolutely no basis
to assume that present MERCOSUR imports represent even a crude estimate of the increase in
imports which would occur if the minimum specific duties were removed.
5.154  Regarding the imports/production ratio, the European Communities submits that a decreasing
trend during the last years of the investigated period is apparent in the statistics given by Argentina.138
Argentina stated139 that "[t]he import/production ratio was 11 per cent in 1991, 24 per cent in 1992, 34
per cent in 1993, 36 per cent in 1994, 34 per cent in  1995 and 28 per cent in 1996."  Imports have
therefore also not increased "relative to domestic production", as set out in Article 2.1 of the
Agreement on Safeguards.  In fact, these statistics demonstrate clearly that the domestic industry was
capturing an ever increasing share of the domestic market during the most recent years.140  In 1996,
the domestic industry occupied 72 per cent of the Argentine domestic market.
                                                     
135 See Exhibit EC-10, document G/SG/N/1/ARG/3, at page 5, 15.
136 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 23.
137 A similar hypothetical reasoning may also be seen in Resolution 226/97 (which imposed provisional
duties).  It is stated therein that “the mere absence of Minimum Specific Duties would  recreate the critical
circumstances, required for the adoption of provisional safeguard measures".  (emphasis added).  See Exhibit
EC-12, document G/SG/N/6/ARG/1/Suppl. 1, G/SG/N/7/ARG/1/Suppl. 1, at page 2.
138 EC Graph-2.
139 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 25.
140 The percentages provided by Argentina actually overstate the situation, because the denominator
(production) includes only production  for the domestic market .  If total production (i.e. including production for
exports and for contractors or joint venture production)  had been used as the denominator, the percentages
would have been lower.WT/DS121/R
Page 49
5.155  The European Communities argues that in its first submission, Argentina -- as it did in its
investigation -- relies exclusively on the mere comparison of the absolute figures at the beginning of
the investigated period with those at the end, and has chosen not to comment on the relevance  of the
intervening trends141, thereby violating Article 4.2(c) of the Agreement on Safeguards.  Argentina
even incorrectly states that imports had increased more rapidly at the beginning of the period and
"remained at very high levels both in relative and absolute terms"142 (emphasis added), even though it
is obvious that import levels declined sharply during the last years of the investigated period.143
5.156  The European Communities agrees in this re spect with the United States, which states144 that,
regarding the import condition set out in Article 2.1 of the Agreement on Safeguards, "a Member
must examine imports during the full period under review to ensure that imports are currently
increasing, and that such increase is currently  causing or threatening serious injury."  Indeed, in the
EC view, the text of Article 2.1 of the Agreement on Safeguards supports such interpretation which
focuses on the period immediately preceding the taking of the safeguard measure.  With the UnitedStates
145, the European Communities does not view the English and Spanish texts of Article 2.1 to be
inconsistent with each other, since both texts convey the understanding that imports must have
increased and that such increased imports cause (or threaten to cause) serious injury to the domestic
industry.  This means that current  imports must be at a higher level than previous  imports: the
increasing  trend in imports must be in evidence at the time when the determination is made.
5.157  The European Communities objects to statements made by Argentina to the effect that the
"increased imports" condition can already be considered fulfilled simply by comparing the data from
1991 with the data from 1995.  Argentina stated that such a comparison of data "does not mean that in
the investigation the evolution of this variable during the years in between  was not analysed."
However, the European Communities notes that Argentina does not indicate where  in its reports such
an analysis of the evolution of imports over the five-year period can be found.  According to the
European Communities, unless Argentina is able to do so, it has not demonstrated that it examined the
"relevance of the factors", in violation of Article 4:2(c) Agreement on Safeguards.
5.158  Thus, the European Communities submits that by not demonstrating an increase in imports,
Argentina violated Article 2.1 of the Agreement on Safeguards, by not evaluating the relevance of theintervening trends, Argentina violated Article 4.2(c) of the Agreement on Safeguards and by not
evaluating "all relevant factors of an objective and quantifiable nature" regarding the rate and amount
of increase in imports, Argentina violated the requirements set out in Article 4.2(a) of the Agreement
on Safeguards.
(ii) Argument of Argentina
5.159  Argentina submits that over the period investigated (1991-1995), there was an increase in the
average number of pairs  imported of 70 per cent in absolute terms, and an increase of 157 per cent in
                                                     
141 The US notes that there may be reasons why imports may show a decreasing trend, including: the
timing of shipments, seasonality of the product, or importer concern about the investigation ( infra , para. 6.39).
The European Communities agrees with the US that in deciding whether the requirements of Article 2:1 are
satisfied, the relevance of such trends, as well as possible others, should be carefully considered.  In the present
case, it is clear that the decreasing trend of imports is not a temporary feature.
142Infra, para. 5.160.
143 The European Communities refers to EC-Graphs 1 and 2.
144 US argument in infra , para. 6.27.
145 Infra , note 395.WT/DS121/R
Page 50
value.146  In relative terms, i.e. the share of imports in comparison with domestic production, the
increase was 235 per cent over the period investigated.147
5.160  According to Argentina, the CNCE noted in particular that imports over the period
investigated had increased much more rapidly at the beginning of the period and had remained at very
high levels both in relative and absolute terms.  For information purposes and prior to concluding the
investigation, as the official import statistics for 1996 were available, the absolute increase in importsover the period 1992-1996 was examined.  This examination revealed an increase of 52 per cent in
volume and 162.58 per cent in value.
148
5.161  Argentina maintains that the decline in imports in absolute terms in 1995 was deemed to be a
temporary reaction of the general economy to the "tequila effect", because all imports fell
significantly due to the dramatic drop in consumption in general and in footwear in particular.  The
value of imports also fell in 1995 as a result of the recession caused by the economic crisis in Mexico.
The volume of imports of footwear, however, remained at such high levels that, despite the dramaticdecrease in consumption, imports maintained their share of a deteriorating market.  Their volume in a
depressed market was particularly damaging.
5.162  According to Argentina, Article 2.1 of the Agreement on Safeguards lays down the
requirement that such product "imported … in such increased quantities (in Spanish "han aumentado
en tal cantidad" - past tense) … and under such conditions as to cause (in Spanish "y se realizan encondiciones tales que causan" – present tense) or threaten to cause serious injury …".  Argentina
argues that there is a linguistic difference here between the Spanish and English versions which, in
spite of the fact that the European Communities and the United States do not perceive it, probably
because Spanish is not a dominant language in either the European Communities or the United States,
Argentina considers to be important to this case.
5.163  Argentina contends that if the two versions were equal or the English version were accepted
as the correct one, imports would have to be increasing at the moment at which the measure is taken
and would have to be causing injury or threatening to cause injury at that moment.  This would
preclude the possibility of imports having increased and as a result of such increase (which may
temporarily have stopped), causing or threatening to cause injury to the domestic industry.
5.164  According to Argentina, if the European Communities' assertion were interpreted strictly, a
temporary decline within the context of a growth trend verified throughout the period of the
investigation would automatically make it impossible to apply the measure.  Argentina does not think
that this is what the text of the Agreement means, nor does Argentina believe that the linguistic
difference is without importance.  Argentina argues that its opinion is shared by the United Stateswhich, in its oral statement to the Panel, expressed its disagreement with the European Communities'
assertion that the CNCE had failed to demonstrate convincingly that imports "have gone up sharply
over the most recent period".
149
5.165  According to Argentina, in other words, neither do imports have to have increased in
accordance with the European Communities' interpretation of the English version of the Agreement
on Safeguards, nor is it in the period "immediately" prior to the application of the measure that they
                                                     
146 Preliminary Report by the Department, page 4 (Exhibit ARG-1), consistent with Act No. 338,
pages 25 and 32 (Exhibit ARG-2).  See also the CNCE Technical Report and Table 21 A, sheet 5505 and 20 A,
sheet 5501 (Exhibit ARG-3).
147 Document G/SG/N/8/ARG/1, page 56 (corresponds to EC-16).
148 Exhibit ARG-3, Technical Report, Table 15 in Annex 5;  Table 1 Exhibit ARG-2, Act 338.
149 Infra , para. 6.30.WT/DS121/R
Page 51
have to go up sharply.  Moreover, it is over a period such as the five years used for the investigation
that the authority can analyse all of the factors including those other than imports.150
5.166  In Argentina's view,  it is difficult to understand how the European Communities can draw the
conclusion that there was no increase in imports during the investigation period, i.e. from 1991 to
1995, when EC–16 itself recognises a total increase of 70.04 per cent in millions of pairs from 1991 to
1995 considering the totality of imports (includi ng from MERCOSUR), or 44.75 per cent excluding
MERCOSUR.  If for the same period we consider im ports in c.i.f. value, the total increase for 1991-
1995 amounts to 157.2 per cent, and even if we exclude MERCOSUR (although there are no legal
grounds for doing so under Article 2.1), the figure for the growth of imports from outside
MERCOSUR for the period investigated is 124.87 per cent.151  Argentina points out that the analysis
of imports conducted by the CNCE is only partially reflected in Exhibit EC-16.  The performance of
imports is analysed in detail in the file, and we would ask the Panel to verify and confirm the
existence of the objective evidence that served as a basis for the CNCE.  Argentina also submittedcharts which, in its view, are sufficiently self-explanatory to refute the assertion in paragraph 37 of the
EC Rebuttal that there was no increase in imports.
152
(b) "Under such conditions"
(i) Argument of the European Communities
5.167  The European Communities observes that Argentin a has limited its analysis to demonstrating
an increase in quantity of imports (during the 1991-1995 period).  However, Argentina failed to
examine under which conditions  these imports occurred, in spite of the clear wording of the text of
Article 2.1 of the Agreement on Safeguards, which requires WTO Members to do so.  The relevant
part of this provision reads as follows:
"… 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 like or directly competitive
products." (emphasis added)
5.168  The European Communities submits that the conditions under which imports take place (i.e.
the term " and under such conditions ") mean, notably, the price of imports as a fundamental and
additional element to the increased imports.  It is normally only through low prices that increased
imports exert pressure on the domestic industry and cause serious injury.  Given the inclusion of this
requirement in Article 2.1, a safeguard investigation should therefore identify the conditions which, inaddition to the increase in imports, gave rise to the injury and explain in what way they occurred.
Clearly, the drafters of the Agreement on Safeguards intended to exclude that an increase of imports --
as such -- could already be sufficient to justify a safeguard action.
5.169  The European Communities argues that, in this regard, Resolution 987/97
153 stated, in the
sixth recital, that "[o]wing to their lower price, imports exerted strong pressure  on the domestic
footwear industry, significantly affecting its activ ity and results." (emphasis added).  Furthermore,
                                                     
150 Argentina asserts that this is also corroborated by the argument of the United States, infra ,
para. 6.29.
151 Exhibit EC-16, page 21.
152 Exhibit ARG-22, Charts G1 and G2.
153 See Exhibit EC-20, document G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, at page 2.
See also Exhibit EC-17, document G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 2.WT/DS121/R
Page 52
Argentina, in its "Final Opin ions" in its injury analysis154, referred to "a gradual increase in the
average price of imports" and to the "lower price of imports, exerting heavy pressure on the industry,
significantly affecting its results".  However, import prices were not analysed.  The Argentine
investigation and analysis is limited to the evolution of "domestic prices", regardless of import
prices.155  The European Communities objects to the fact that Argentina has failed to investigate,
analyse and notify the conditions under which foreign footwear was being imported into its territory.In this respect, in spite of the requirement set out in Article 2:1 Agreement on Safeguards and its
statements regarding the effect of lower price of imports, the European Communities asserts that
Argentina made no price analysis of imports (in order to determine the possible existence of price
undercutting), nor did it make any other possibly relevant analysis.  Moreover, according to the
European Communities, Argentina gave no explanation for the absence of such analysis.
5.170  In its reply to a question by the Panel as to what kind of elements, in the view of the European
Communities should be taken into account in the interpretation of the phrase "under such conditions"in Article 2:1, in addition to the volume of imports, the European Communities submits that the effect
of prices of imports on prices of domestic products is a "condition of imports" which should always
be analysed.  In all cases, according to the Euro pean Communities, imports are characterised not only
by their volume, but also by their prices
156.  These import prices may have an effect on the prices --
and therefore market position -- of the like or directly competitive domestic products (e.g. priceundercutting or price depression).
5.171  Therefore, the European Communities submits that prices of imports should always be
analysed as an essential "condition of imports", in order to determine the existence of a possible
causality link between imports and any alleged injury.  The European Communities does not exclude
the possible existence of other "conditions of imports" (not conditions of "injury") which could beanalysed subsequently and taken into account in specific cases.
5.172  The European Communities submits that Argent ina claims, without providing a valid legal
argumentation, that the terms "under such conditions" do not constitute a legal requirement.
According to the European Communities, the interpre tation of this provision by Argentina makes the
meaning of the term "and under such conditions" redundant, which cannot be permitted: according to
principle of effective of treaty interpretation recalled and enunciated by the Appellate Body in
Gasoline157, "[a]n interpreter is not free to adopt a readin g that would result in reducing whole clauses
or paragraphs of a treaty to redundancy or inutility."
5.173  According to the European Communities, the words "and under such conditions" are present
in the text of Article 2:1 Agreement on Safeguards and cannot be ignored.  As is the case for
"quantities", the "conditions" relate to imports: a product is being imported in such quantities  and
under such conditions .  Therefore, Article 2:1 Agreement on Safeguards requires that certain
conditions accompany the increased imports.  As stated before by the European Communities, in most
cases such "conditions" are likely to relate to significantly lower import prices, which may force
domestic prices down, and consequently trigger the injury to the domestic industry.  In its notification,
the European Communities argues, Argentina did not address which "conditions", if any, would
satisfy the requirement of Article 2:1.  Accordin g to the European Communities, the suggestion made
by Argentina that the "conditions" should relate to market share is just as unfounded as stating that the
conditions should relate to sales, production or employment.
                                                     
154 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 37-38.
155 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 19.
156 This is clearly shown by taking the simple example of import/export statistics.  The two variables of
such statistics always are expressed in both "quantity" and "value".
157 Report by the Appellate Body on 'United States – Standards for Reformulated and Conventional
Gasoline' , WTO/DS2/9, 20 May 1996, at page 23.WT/DS121/R
Page 53
5.174  The European Communities submits that the analysis and determination of the existence of
“such conditions” is an element of particular importance for any subsequent causality determination.
This is shown by Argentina itself, which notes158 that "[o]wing to their lower price, imports exerted
strong pressure on the domestic footwear industry."  The European Communities has the following
comments to make regarding this statement.
5.175  First, according to the European Communities, Argentina claims that it never received the
prices from importers and therefore did not analyse them.  In other words, the statement that import
prices were low, and therefore  exerted strong pressure on the domestic footwear industry is no more
than a convenient assumption by Argentina, on the basis of which it considers the causality
requirement fulfilled.  Second, according to the European Communities, Argentina requests the
European Communities to present the exact prices of imported footwear to the Panel.  This the
European Communities fails to understand: did not the Appellate Body in 'US –Wool Shirts'159
confirm "the rule that the party who asserts a fact is responsible for providing proof thereof"?
Argentina, not the EC, has claimed that low import prices have caused harm to the domestic industry
and it is therefore up to Argentina, not the EC, to prove that fact.  Thirdly, the European Communities
submits that it should be noted that Argentina disposes of official data concerning the value of
imports, per customs subheading, per origin, etc.  According to the European Communities, Argentina
simply did not analyse such data.
5.176  The European Communities observes that in its reply to a question by the Panel160, Argentina
sets out a list of examples of "conditions" which in its view could possibly be envisaged, either
individually or jointly, in this respect.  However, Argentina does not indicate which of those
conditions, if any, it considers relevant for the present case.  The European Communities notes that
this new list is radically different from the one presented in Argentina's first submission161, where
Argentina mainly focused on the "share of the domestic market".  According to the European
Communities, such reference was just as unfounded as  stating that "conditions" should relate to sales,
production or employment.  The European Communiti es welcomes Argentina's change of view on
this issue, including the fact that Argentina now recognises that "price" is a relevant factor. The
European Communities asserts that the effect of prices of imports on prices of domestic products is a"condition" of imports which is always present and, thus, should always be analysed.  In all cases,
imports are characterised not only by their volume, but also by their price
162.  These import prices may
have an effect on the prices -- and therefore market position -- of the like or directly competitive
domestic products163.  With Argentina, the European Communities does not exclude the possible
existence, in specific cases, of other "conditions " of imports (not conditions of "injury") to be
subsequently taken into account.
5.177  The European Communities welcomes the statemen t by Argentina later in the proceeding that
the term "under such conditions" "constitutes a legal requirement".164  The European Communities is
therefore puzzled when Argentina seems to claim that this requirement should be read together with,and not independently from, the "increased imports" requirement.  If "under such conditions" is a
                                                     
158 Exhibit EC-17, page 2.
159 Report by the Appellate Body on 'United States – Measure Affecting Imports of Woven Wool Shirts
and Blouses from India' , WT/DS33/AB/R, 25 April 1997, at page 14.
160 Infra, para. 5.186.
161 Infra , para. 5.185.
162 This is clearly shown by taking the simple example of import/export statistics.  The two variables of
such statistics always are expressed in both "quantity" and "value".
163 In its reply to questioning by the Panel ( infra , para. 5.191-5.194), Argentina acknowledges the fact
that the price of imports can have a bearing on the health of a domestic industry producing the like or directlycompetitive product.  Argentina puts forward in its repl y to this question new statistics, which do not relate to
the investigation.
164 Infra , para. 5.187.WT/DS121/R
Page 54
separate legal requirement, why then, the European Communities queries,  should its compliance not
be separately demonstrated?  Argentina finds a good reason: the GATT Analytical Index and
Professor Jackson in his book "The World Trading System" did not make special headings entitled
"under such conditions".  The European Communities asks whether Argentina is seriously arguing
that because the WTO Secretariat decided that it was not useful in its publication to make a separate
heading for the "under such conditions" requirement in Article XIX (not even Article 2:1 Agreementon Safeguards) that a -- black letter -- requirement contained in an international agreement can be
ignored?  The European Communities queries whether Argentina really believes that Professor
Jackson's writings have more weight than the text of the Agreement on Safeguards.  The European
Communities observes that while Professor Jackson undoubtedly would take great pride in being
given so much importance.  However, he would be the first to disregard Argentina's reliance on his
words as opposed to relying on the actual text of the Agreement on Safeguards.  The requirement is
there and Argentina should have demonstrated in its notifications that it complied with therequirement.
5.178  In this respect, the European Communities contends, it cannot be accepted that Argentina
gives ad-hoc  proof of compliance with the "under such conditions" requirement in reply to a question
by the Panel.  Argentina does not indicate where such data and their assessment can be found in the
relevant documents of the investigation.  Compliance was not demonstrated at the time and can not,afterwards, be repaired.
5.179  Regarding Argentina's reply to a question from the Panel on Argentina's price analysis, the
European Communities notes first that Argentina had previously stated
165 that "importers refused  to
provide the data it requested [i.e. prices]."  However, although the CNCE (in Act 338) first stated that
"the enterprises that provided information on imports represented not less than 49 per cent of totalimports in each year"
166, it is subsequently noted that "the Commission, bearing in mind the failure of
a majority of importers to collaborate with the inve stigation, in as much as they failed to submit the
import data in the form requested, found itself obliged to adopt the criterion of best information
available."167  The reason on which the CNCE based itself to disregard importers' data was the
importers' questioning of the necessity to supply data in accordance with the "five-segment" approach,instead of in relation to the official customs nomenclature.  Nowhere in Act 338 is it stated that
importers refused to provide information on prices.  Thus, according to the European Communities, it
is clear that the importers did not in fact refuse to hand over prices to the CNCE, but instead were
simply unable to provide data which corresponded exactly to the "five segments" approach which the
CNCE had adopted for its investigation.  Argentina now explains that importers had data on pricesavailable, but that they were broken down by "tar iff categories", or "market headings".  Therefore,
prices on imports were available, but were disregarded because the importers' categorisation was not
compatible with the CNCE's categorisation.  In  the EC view, it appears that Argentina later
abandoned the "five segments" approach and considered there to be a "single product".  The European
Communities does not understand why Argentina did not use the data held by importers and
subsequently include an analysis of them in its investigation report.
5.180  Second, Argentina mentions in its reply to the Panel
168 that the CNCE's reference to "low-
value imports" was not necessarily based on the unit value of the imports, but instead on the
"notorious under-invoicing in Argentina which was to a great extent the factor which led to the
modification of tariff protection from ad valorem  duties to similar levels in the form of specific
duties."  The European Communities is concerned by this observation, since the low prices of imports
in particular have been mentioned by Argentina as the main reason why safeguard measures were
                                                     
165 Infra , para. 5.188
166 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 8.
167 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 12.
168 Infra , para. 5.194.WT/DS121/R
Page 55
adopted169.  The European Communities notes that the safeguard instrument is not the appropriate
means of dealing with problems related to under-invoicing.  Such problems should, in the European
Communities' view, be dealt with by the means provided for in the Customs Valuation Agreement170.
5.181  In addition, the European Communities adds, Argentina provides in its reply to a Panel
question a table171 containing data allegedly concerning prices of imports and domestic products.
However, there is no reference to where such data and their assessment can be found in the relevantdocuments of the investigation.
5.182  The European Communities objects to the fact that Argentina has failed to investigate,
analyse and notify the conditions under which foreign footwear was being imported into its territory.
In this respect, in spite of the requirement set out in Article 2.1 of the Agreement on Safeguards and
its statements regarding the effect of lower price of imports, Argentina made no price analysis of
imports (in order to determine the possible existence of price undercutting), nor did it make any other
possibly relevant analysis.  Moreover, Argentina gave  no explanation for the absence of such analysis.
5.183  The European Communities therefore submits that Argentina, by not identifying or examining
the conditions under which imports occurred, violated Article 2.1 of the Agreement on Safeguards.
(ii) Argument of Argentina
5.184  Argentina notes that the European Communities maintains that the term "under such
conditions" in Article 2 means analysis of the price of imports as a fundamental and additionalrequirement to the performance of imports
172, and that the European Communities argues that a
demonstration of "the price of imports as a fundamental and additional element to the increased
imports" is required and that there must normally be "low prices".173  Argentina states that nowhere
does the Agreement on Safeguards explicitly impose this requirement.  A clear and correct reading of
Article 4.2 reveals that the term "under such conditions" refers to all of the conditions under which theincrease in imports takes place.
5.185  In Argentina's view, Article 4.2(a) points out certain factors that must be examined in order to
determine whether imports have caused serious inju ry to the domestic industry, including the "rate
and amount of the increase" and "the share of the domestic market".  This third element, the share of
the domestic market, is clearly one of the "such conditions" under which the increase in imports istaking place and could cause serious injury.  The data on the market share of imports clearly confirm
that products of imported origin took (increase in share) and maintained (consolidation of the level of
imports) a significant share of the Argentine footwear market.
174
                                                     
169 Argentina has mentioned (see paragraph 2 of Argentina's notification of 1 September 1997,
Exhibit EC-17) that "owing to their lower price,  imports  exerted strong pressure on the industry, significantly
affecting results."  In addition, Argentina has mentioned (Id.) that the "decline in output was replaced byimports, essentially cheap imports
."
170 Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.
171 Infra , paras. 5.192-5.193.
172 Argentina maintains that the expression "under such conditions" was not universally recognized as a
basis for making an independent determination arising from the "increase in imports".  GATT, Analytical Index:
Guide to GATT Law and Practice, updated 6th Edition (1995), pages 517-518, and John Jackson, The World
Trading System, pages 181-182.  United States Law does not require independent determinations concerning
"under such conditions" 19 USC 2252.
173 Supra , para. 5.168.
174 Act No. 338 (Exhibit ARG-2) pages 31-32;  see also CNCE Technical Report (Exhibit ARG-3),
sheet 5500, and Table 20(a) (sheet 5501) and Table 21(a), (sheet 5505).WT/DS121/R
Page 56
5.186  In response to a Panel  question about the kinds of elements, in addition to the volume of
exports, that should be taken into account to satisfy the requirement of "under such conditions" in
Article 2.1, Argentina  states that the so-called "such conditions" refer to the characteristics of the
imports of goods under consideration and their impact upon entry into the market of the country
carrying out the analysis.  The characteristics of the imported goods could comprise, in addition to
their quantity, their quality, composition, specific nature, end use, the degree of substitutabilitybetween them and with respect to domestic productio n, technology, consumer tastes, influence of the
brand name in marketing, and price.  The other element which, in Argentina's view, is included in the
notion of "conditions" and which is present in the expression " en condiciones tales " in Spanish and
"under such conditions" in English derives from the "totality of the circumstances" under which the
increase in "imports" has occurred.  Article 4.2(a) specifies a few injury factors that should be
analysed in assessing the impact of the "totality of  imports".  In this respect, the "rate and amount" of
the increase in imports and the "share of the domestic market" taken by increased imports areparticularly relevant.  In the case at hand, the imports maintained a significant market share
throughout the period.
175
5.187  Argentina disagrees with the European Communities' statement that, according to Argentina,
the term "under such conditions" does not constitute a legal requirement.176  Argentina does indeed
consider the expression "under such conditions" to constitute a legal requirement under theAgreement on Safeguards, but its content differs from what the European Communities claims to be
an Argentine interpretation.  For Argentina, a clear and correct reading of Article 4.2 suggests that the
expression "under such conditions" refers to the totality of the conditions in which the increase in
imports takes place.  In considering the totality of circumstances, both the CNCE and, subsequently,
the Department of Foreign Trade, considered the evolution of prices before adopting the decision toapply the safeguard measure, in spite of the fact that this is not a legal requirement under the
Agreement on Safeguards.  This evaluation and the comparison of import prices in dollars c.i.f. with
the prices of domestic production can be found in Argentina's reply to questioning by the Panel.
177
5.188  Argentina argues that the European Communities' attempt to cast doubt on the CNCE's
analysis on the grounds that it lacked price data is  ironic.  Argentina underlines that the CNCE did not
have the information on prices because the importers refused to supply the data it requested, including
a breakdown of prices according to the categories defined by the CNCE for that purpose.  The
CNCE's price analysis was seriously limited by this refusal of the importers to participate properly,
and the CNCE could rightly assume as an undisputed fact that the prices of imports for the categories
of products analysed were lower than the prices of the domestic product.  Indeed, the importers didnot submit any information to the contrary.  Faced with this refusal by the importers to provide data as
required by the CNCE, Argentina, as any other Member would have had to do, had no choice but to
make certain assumptions concerning prices.
5.189  Finally, Argentina contends, if the prices of EC exports to Argentina are indeed low, the
European Communities could have presented them in this dispute so that the Panel could form an idea
of the "conditions" in which such imports were entering the Argentine market.  But the presentation of
this statistical data would have shown that, as Argentina has argued, the prices of imports are so lowthat they displace domestic production.  In other words, one has the impression that the European
Communities prefers to invoke Argentina's non-compliance with a non-existent requirement under the
Agreement on Safeguards rather than to contribute to the verification of prices which would confirm
that Argentina's determination of injury is irrefutable.
                                                     
175 Act No. 338, (Exhibit ARG-2) pp. 31-32.  See also Technical Report, (Exhibit ARG-3), sheet 5500,
Table 20.a (sheet 5501) and Table 21.a (sheet 5505).  (See supra  para. 5.159.)
176 Supra , para. 5.172.
177 Infra , paras. 5.191-5.193.WT/DS121/R
Page 57
5.190  Noting that Argentina discussed the difficulties its authorities had in collecting information on
the prices of imported footwear, and concluded that these prices were lower than those for domestic
production, the Panel asked Argentina whether it agreed that the price of imports can have a bearing
on the health of a domestic industry producing the like or directly competitive product.
5.191  Argentina  responds that, in its view, prices must be taken into consideration in an analysis of
injury, which is why it requested information on prices.  At the same time, the fact that prices do notdecline does not mean that they are not "suppressed".  Argentina states that in its investigation, the
CNCE verified that the growing share of imports in the market had an impact on sales prices of local
products with the result that these products did not produce any income in excess of the "break-even
point".  Starting in 1993, profits declined sharply, narrowing the gap between sales revenue and the
break-even point. The sharpest decreases took place in 1995 and 1996, when sales revenue dropped
below the "break-even point" and companies were unable to cover their fixed and variable costs and
earn normal sales profits.
178  The complainants described this effect as a price-cost "contraction".179
The CNCE viewed the situation as a "strong pressure on the industry" which "significantly affected its
results".180  181
5.192  Also in response to the Panel’s question, Argentina presented a table comparing the average
unit values of imports and domestic products.  On the basis of this table, Argentina stated that the
average c.i.f. import prices throughout the period were half or less than half those of domesticproduction.  Although this is an average, the magnitude of the difference implies, by virtue of the very
meaning of the word "average", that a significant share of imports took place at prices considerably
lower than those of the domestic product.
5.193  In discussing the table in its answer, Argentina states that for the types of products identified
as "permanent" throughout the period, the CNCE obser ved a decline in the price/cost ratio, indicating
that the prices of outside competitors were exerting pressure on domestic prices, which in its turn, fit
in with the increase in the market share of imports.  The fact the comparison cannot be made product-
by-product has led to an overall analysis in which consumers, making a rational choice, showed that
imports as a whole were less expensive than the domestic products.  This "rational" choice is not
made exclusively on the basis of the nominal price, but preferences can also be affected by worldwideadvertising campaigns, the leading brands being among those which spend the most in comparison to
any other non-durable consumer good.  For example, the brand Reebok paid $80 million to sponsor
the clothing of the national football team, and Nike paid $200 million to sponsor the Brazilian team.
Pricing policy and advertising are so clearly related to each other that they cannot be analysed
independently from each other.
5.194  The Panel  asked Argentina where in the record of its investigation this analysis based on
average unit values could be found.  In response, Argentina stated that the CNCE resorted to this
                                                     
178 Exhibit ARG-3, CNCE Technical Report, sheet 5471, Table No. 12 and Chart No. 23.
179 Exhibit ARG-3, CNCE Technical Report, Annex 6, sheet 5760.
180 Exhibit ARG-2, Act No. 338, p. 47.
181 The Panel  asked Argentina to reconcile its argument that imports moved into the low-priced end of
the market with upward trend in average unit values in imports as shown in G/SG/N/8/ARG/1 (Exhibit EC-16)and the statement in that document that there was a shift in the composition of some imports, in response to theDIEM, away from cheap footwear and toward higher-valued footwear.  Argentina responded that the
impossibility of competing with imported goods owing to their low prices constitutes a negative factor for
domestic producers, and that the corresponding analysis is set forth in the Technical Report (Exhibit ARG-3)and the Preliminary Report of the Department of Forei gn Trade (Exhibit ARG-1).  According to Argentina, the
change in the behaviour of imports is the result of the application of the DIEMs.  Indeed, the DIEMs cause the
value of imports to grow faster than the volume and at the same time change the composition of those importstowards footwear with a higher unit value that are not affected by the DIEMs.  Added to which, Argentina
states, there was no longer any possibility of under-invoicing.WT/DS121/R
Page 58
analysis in the absence of information on import prices and because the aggregate import data was too
general to provide an indication of price trends.182  Argentina submitted that the tariff categories do
not correspond to specific types of shoes.183  Moreover, some of the tariff classifications are "market
headings" which contain a wide range of footwear types, so that the unit values vary according to the
product mix.  Finally, the CNCE also determined that  the rapid changes in style made it impossible to
examine historical series for the period, in particular with respect to sports footwear184 which was
predominantly of Asiatic origin.185  Argentina considered the average prices which emerged from the
information on imports subject to the above-mentioned limitations.  This analysis pointed to the
existence of low-value imports even if it was not possible to know the specific prices of the different
kinds of footwear.  When the CNCE mentioned the low-value imports, it was referring to Act 338,
XIII.2, page 46.  This reference to low value was not necessarily based on the low unit value of the
product, but on the notorious under-invoicing in Argentina which was to a great extent the factor
which led to the modification of tariff protection from ad valorem  duties to similar levels in the form
of specific duties.
3. Article 2.1 and Article 4 of the Agreement on Safeguards – Alleged failure to
demonstrate that "serious injury" or "th reat of serious injury" occurred to the
domestic industry that produces like or directly competitive products
(a) Period of investigation
(i) Argument of the European Communities
5.195  The European Communities argues that the Argent ine analysis of “serious injury” or “threat
of serious injury” suffers from the same deficiency as the "increased imports" analysis.  Argentina
took 1991 as the base year of its analysis.  In other words, Argentina relied on figures which were five
to six years old, as a basis for imposing the safeguard measure in 1997.  Given the fact that the WTOsafeguard mechanism is meant to deal with "emergency" measures the European Communities
submits that it is not appropriate to rely on statistics which go so far back.  An investigation over an
extremely long period (from 1991 – 1995) does not demonstrate the existence of present serious
injury or the threat thereof.  In the European Communities' view, a comparison with the figures for1991 is more likely to indicate a past structural change which has taken place in Argentina, rather thanan unforeseen emergency development, which is the kind of situation safeguard measures are
designed to deal with.  Therefore, according to the European Communities, the arguments put forward
by the European Communities regarding "increased imports" are mutatis mutandis  relevant to
condemn the Argentine analysis regarding "serious injury".  Safeguard measures are meant to deal
with emergency situations and unforeseen developmen ts.  A safeguard analysis should concentrate on
the factors prevailing at the time before a safeguard measure would be taken.  Furthermore, an
investigation which compares figures for a five-year period is more likely to indicate a past structural
change which has taken place in Argentina, rather than an unforeseen emergency development.  Five-
year-old figures can only provide a general background of economic trends.
5.196  According to the European Communities, it is not appropriate to simply compare figures that
go back five years with the most recent figures, without looking at the intervening trends.  An
investigation over a longer period can be useful to  demonstrate, for example, when imports went up,
when they went down, and when they reached their highest or lowest levels.  If Argentina would have
studied the intervening trends, as opposed to simply compare the imports in 1991 and the imports in
1995, it would have noted that there was a sharp decrease in footwear imports over the last three
                                                     
182 The Panel  notes that Argentina provided no citation to the record where this analysis could be
found.
183 See tariff structure in Table No. 4 of the Technical Report (Exhibit ARG-3), sheet 5386.
184 Exhibit ARG-3, CNCE Technical Report, sheet 5464.
185 Exhibit ARG-3, CNCE Technical Report, sheet 5484, and Table 16, sheet 5486.WT/DS121/R
Page 59
years.  The European Communities underlines that Argentina often compares 1995 data with only
1991 data, ignoring 1996 as well as the intervening trends.  Argentina provides no explanation for the
disregard of 1996 data, nor for the simple comparison of figures for the beginning of the investigation
period with those for the end.  The European Communities submits that such a comparison cannot
provide a complete picture.
5.197  The European Communities does not contest the fact that an investigation is carried out over a
five-year period.  In fact, Argentina could even have chosen an even longer period.  The European
Communities does however object to the way in which the statistics have been used by Argentina in
the present case, since figures relating to a period of five years ago are of only limited relevance.
5.198  Regarding the list of examples of practice of other Members given by Argentina186, the
European Communities submits that this is not a relevant overview, since it does not shed any light on
the time frame on which the determinations were based, but simply on the years analysed during the
investigation.  In fact, numerous examples can be  given which demonstrate that determinations are
based on conditions which have arisen in the recent past and continue to exist at the time of making
the determinations.
5.199  The European Communities notes that Argentina187 also argues that a long investigation
period is appropriate in the case of safeguard measures which can remain in force for eight years.  The
European Communities takes issue with this statemen t.  The investigation needs to determine whether
an emergency measure is necessary or not.  If it is decided that such a measure is justified, then the
domestic industry obtains a sufficient number of years to adjust.  The time to adjust can be much
longer than the time during which the serious injury was done, in the same way that someone who has
been in a serious car accident needs more time to  recover than the time during which the actual injury
occurred.  In addition, Article 7.1 of the Agreement on Safeguards clearly states that the adjustmenttime is "such period of time as may be necessary".  This period "shall not exceed
 four years",
indicating that a shorter time period is in fact preferred.  When the total period is extended to eightyears, as Argentina has mentioned, the Member imposing the measure is obliged to re-investigate the
situation, in accordance with Articles 2, 3, 4 and 5 of the Agreement on Safeguards.  In other words,
an 8-year extension is exceptional and can only be applied if the new investigation determines that asafeguard measure continues to be necessary.
5.200  The European Communities considers that a WTO Member is free to analyse a five-year
period or longer in order to discern trends, but that its determination that serious injury exists must
still be relevant at the time the determination is made, i.e., relate to the end of the period.
(ii) Argument of Argentina
5.201  Argentina notes that in Resolution MEYOSP 226/97, issued on 24 February 1997, the
Ministry of the Economy and Public Works and Services declared the initiation of the investigation,
and that based on this, the CNCE proceeded with the investigation into injury caused to the domestic
industry, taking into account the parameters and requirements laid down in the Agreement on
Safeguards, Law 24425, and Regulatory Decree 1059/96.  On the basis of the aforementioned
provisions and Decree 766/94, the CNCE drew up questionnaires in order to gather additional specific
and relevant information both from the sector requesting the measure and other parties interested inthe investigation - importers and exporters, whether individually or through the Chambers to which
they belonged - so as to assess the situation in the Argentine footwear market.  These questionnaires
were given to a representative number of domestic producers and importers.  At the same time, other
official bodies were requested to provide information concerning trade in this sector.
                                                     
186 Infra , para. 5.203.
187 Infra , para. 5.204.WT/DS121/R
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5.202  Argentina points out that the request for a safeguard measure was submitted by the domestic
industry on 26 October 1996 in accordance with the provisions of Decree 1059/96.  This Decree
requires that a request for application of a safeguard measure contain information covering the last
five full years.  Accordingly,  the corresponding period in this particular case is 1991-1995.188
Argentina asserts that the fact that there was an increase in imports is clearly demonstrated bycomparing the data for 1991 and 1995.  However, this does not mean that in the course of theinvestigation the evolution of this variable during the years in between was not analysed.  This period
of five years complies with the requirements of Decree 1059/96, duly notified to and reviewed by the
Committee on Safeguards.
189  In the light of this requirement, the only complete series that could be
produced from the statistics subsequently produced in support of the application were for the period
1991-1995, and, Argentina states,  this is what determined the choice of that period.  In the case at
issue, the five-year period is particularly relevant because the Argentine economy had embarked upon
a process of structural economic reforms which, starting in April 1991 with the Law on Convertibility,led to increased trade flows and a reinforcement of economic liberalisation.
5.203  Argentina argues that the Agreement on Safeguards does not specify a particular period for
gathering information nor does it define the spec ific period to be covered by the investigation.
Nowhere does previous GATT practice or current WTO practice establish any standard for the period
to be analysed.  Nevertheless, any safeguard investigation must cover a given period so as to ensurethat the analyses carried out are reliable and transparent.  The choice of a five-year period is validated
by the experience of the GATT Contracting Parties and by the practice taken over by the WTO.
Argentina states that simply as an example, the following is a list of safeguard investigations notified
to the Committee and the period analysed in each case:
Country Product Initiation of the
InvestigationPeriod investigated Comments WTO document
Brazil Toys 18 June 1996 January 1991 - D ecember  1995 Period for
determining
injuryG/SG/N/6/BRA/1
G/SG/N/7/BRA/1
Korea Dairy
products28 May 1996 January 1993 – June 1996 Idem G/SG/N/6/KOR/2
Korea Bicycles 27 August 1996 January 1993 – July 1996 Idem G/SG/N/6/KOR/3
G/SG/N/8/KOR/2
UnitedStatesWheat
gluten1 October 1997 July 1992 – June 1997 Idem G/SG/N/6/USA/4
G/SG/N/8/USA/2/Rev.1
United
StatesBroom
corn4 March 1996 1991 - 1995 A safeguard
measure was
adopted (effective28 November1996) but it does
not apply to
Canada nor Israel
nor to developing
countriesG/SG/N/6/USA/2
G/SG/N/8/USA/1
G/SG/N/10/USA/1G/SG/N/11/USA/1
5.204  Argentina states that in order to obtain additional information to substantiate its conclusions
derived from the analysis of the period 1991-1995, the CNCE collected information on the year 1996,
which confirmed that the levels of imports190, the share of apparent consumption and the available
indicators of injury had not changed.  Moreover, Argentina questions how, if the Agreement on
Safeguards itself fixes three years for a quota, it can reasonably be thought that a "representative"
                                                     
188 The Agreement on Safeguards only refers once to specific periods for the analysis.  Article 5.1
states that the level of quantitative restrictions shall be the average in the last three representative years.  Even
here, the three years are not mandatory, because if there is "clear justification" another period may be chosen.
In any case, the three most recent years are not required.  The period must be "representative".
189 Article 8 – Annex I of Decree 1059, G/SG/N/1/ARG/3 of 13 January 1997.
190 Exhibit ARG-2, Act 338, page 47;  and Exhibit ARG-3, Technical Report, Tables 20.a and 21.a,
Sheets 5501 and 5505 respectively.WT/DS121/R
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period could be two years.  To Argentina, this appears to be an extrapolation from Article 6.8 of the
ATC.  In the case of the Agreement on Safeguards, where a measure can last for up to eight years, it is
difficult to sustain that it is enough to investigate only the previous two years.  A longer period is
necessary in order to verify the increase and confirm the continued trend.
5.205  Argentina states that the request by the Argentine footwear-producing industry was made in
October 1996 and, as the questionnaires were sent out in March 1997, there were no complete data for1996.  In addition, it was not possible to delay sending out the questionnaires because of the
time-limits fixed in the Agreement on Safeguards and the relevant domestic legislation.
191
Consequently, Argentina asserts, in deciding that the investigation period should be 1991-1995, theCNCE acted in strict compliance with domestic regulations and with the obligation to obtain
comprehensive information in order to analyse each and every one of the variables and indicators
stipulated in the Agreement on Safeguards and give the parties an opportunity to take full part in the
proceedings.
192
5.206  Argentina submits that it is quite clear th at there was compliance with the Agreement on
Safeguards and that the period of the investigation was reasonable.  It is also obvious that the EC
attempt to impose its own standards ("there must be a sharp rise in imports") and/or requirements
("the first five years can be analysed only as background"), in spite of the fact that the Agreement on
Safeguards nowhere specifically mentions this methodology and/or these requirements, is withoutfoundation.
(b) Segmentation of products/market
(i) Argument of the European Communities
5.207  The European Communities asserts that a Member is free in its choice of the product for
which it intends to apply the safeguard measure, as long as all requirements (relating inter alia  to
imports, injury and causality) of the Agreement on Safeguards and Article XIX GATT have been met
with regard to that product and, consequently, with regard to the domestic industry that produces like
or directly competitive products.  In the present case, the European Communities argues, Argentina
was free to choose "footwear" as the product for which it intended to apply a safeguard measure.
Consequently, Argentina was required to demonstrate that all requirements of the Agreement on
Safeguards and Article XIX GATT were met with regard to "footwear" and consequently with regard
to the Argentine industry that produces products which are like or directly competitive "footwear"
products.  In that case, all determinations  would have to be made in relation to "footwear" as a whole.
However, in the EC view, the Agreement on Safeguards does not contain an obligation to conduct an
                                                     
191 In response to Norway's claim that the USITC had not collected data on the actual injury until the
time at which it determined the injury, the Panel on United States - Imposition of Anti-Dumping Duties on
Imports of Fresh and Chilled A tlantic Salmon from Norway  found that the requirements on analysis in this
Agreement (the Anti-Dumping Agreement) must strike a balance with the other requirements of the Agreement,
for example, the rights of interested parties to take part in the proceedings.  A period of review that was
constantly being updated might not guarantee all the parties a satisfactory opportunity to review and commenton the data.  Report by the GATT Panel " United States - Imposition of Anti-Dumping Duties on Imports of
Fresh and Chilled Atlantic Salmon from Norway " adopted by the Committee on Anti-Dumping Practices on
27 April 1994,  ADP/87, paragraphs 580 et seq.
192 As indicated in the Report of the United States - Salmon  Panel, it was found that "An interpretation
of this sentence under which investigating authorities would somehow be obliged to continue to collect data upto the time of the final determination would undermine other provisions of the Agreement, in particular thoserelating to rights of interested parties concerning access to information used by the investigating authorities …
An adequate protection of procedural rights of interested parties therefore required that determinations of(present) material injury be based on a defined record of facts before the investigating authorities." ADP/87,
page 213, paragraph 580.WT/DS121/R
Page 62
analysis of the requirements on the basis of the "footwear" market as a whole.  There is no obligation
in the Agreement on Safeguards to conduct a disaggregated injury analysis.  Argentina was free to
disaggregate the "footwear" market into separate parts, "for the purposes of the investigation".
5.208  The European Communities asserts that Argentina adopted in its analysis an approach of
segmenting the market in five sectors193, taking into account the different competitive situations with
regard to those types of footwear.  Having adopted such an approach, Argentina was obliged to followit consistently throughout the injury analysis and to prove serious injury in all segments in which
measures were to be imposed.  Only if in all five segments those requirements were met could
Argentina have made the determination that for the "footwear" market as a whole, safeguard measures
should be applied.  No such conclusion would be justified if only in a limited number of segments the
requirements would be met.  In fact, Argentina has not proved "serious injury" in any of the selected
five segments.  It established an alleged injury only for the whole footwear sector and provided no
explanation for ignoring the sectors in its conclusions.  It has merely used data of one or other sectoras it considered appropriate for its purposes.  Furthermore, factors relating to import trends, market
share, profits and losses and employment have not been investigated for each market segment.
5.209  The European Communities asserts that Argentina tried to justify this deficiency by stating
194
that it had to resort to "best information available", given the "failure of a majority of importers to
collaborate with the investigation, inasmuch as they failed to submit the import data in the form
requested".  However, objective information is available from official statistical sources.
Accordingly, the threshold of objective evidence195 must be reached before safeguard measures can be
imposed.  The European Communities submits that if Argentina is not able to provide such objective
evidence in its demonstration of "serious injury", it should not be allowed to impose a safeguard
measure.
5.210  The European Communities submits that, contrary to Argentina's assertion196, there is no
confusion in the EC argument.  It is clear that each  WTO Member is free to determine, if it intends to
apply a safeguard measure, the scope of the "dom estic industry that produces like or directly
competitive products".  It is equally clear that each WTO Member can apply such measure if it can
demonstrate convincingly that all the requirements set out in the Agreement on Safeguards arefulfilled.  In the present case, the Argentine authorities chose to initiate procedures regarding the
product footwear for the footwear industry as a whole
197.  The Argentine authorities should therefore
have demonstrated that the footwear industry as a whole suffered "serious injury" (or the threat
thereof) before imposing safeguard measures.  In this respect, the CNCE concluded that it was
"reasonable to preserve the unity of the footwear market for the purposes of the injury analysis"198.
5.211  The European Communities asserts that the CNCE  recognised that it was necessary to break
down the market for the purposes of the investigation"199 (although Argentina now claims200 that this
breakdown was necessary "merely for the purpose of gathering information").  In spite of this
decision, this breakdown was not followed in its analysis201, even though this "five segments"
                                                     
193 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 12.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 3.
194 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 12.
195 Article 4:2(a) Agreement on Safeguards uses the wording " factors of an objective and quantifiable
nature having a bearing on the situation of industry ."
196 Infra , para. 5.214.
197 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 9 - 13.
198 Id, at page 11.
199 Id, at page 11 - 12.
200 Argentina's reply to questioning by the Panel ( infra  note 205).
201 This breakdown may have been useful for practical reasons, but it necessarily complicated the
drawing of conclusions at the end of the investigation.  For example, what should Argentina have concluded ifin only two of the five segments "serious injury" was found?  Would this be enough to conclude that the entireWT/DS121/R
Page 63
approach was the main reason why Argentina rejected importers' data202.  It is not clear to the
European Communities when during the investigation, if at all, Argentina decided that it should
analyse the industry in its totality203, instead of analysing the industry in five separate segments, as
stated by the CNCE.
5.212  This procedure, whereby Argentina bases itself "for the purposes of the investigation"204 on
five segments, but in fact does not do so in a consistent way which can be verified by other parties ora Panel, should, according to the European Communities, not be considered as a valid evaluation of
"all the relevant factors of an objective and quantifiable nature".  Therefore, the European
Communities recalls its statement that, unless Argentina demonstrated this for the footwear industry
in its totality, "serious injury" should have been demonstrated in each of the five segments before
safeguard measure could be applied
5.213  The European Communities maintains that, having chosen to divide the sector into five
segments and to reject price information that did not correspond, Argentina should either havemaintained its "five segments" approach and establis h injury for each segment, or if it changed its
mind, have reversed its rejection of the importers' data.
(ii) Argument of Argentina
5.214  Argentina maintains that with respect to like products, the European Communities confuses
the analysis by the CNCE, which covered the whole of the Argentine footwear-producing industryand the like product defined when initiating the investigation, with the categories used by the CNCE
in the questionnaires sent out for the purpose of obtaining information.  The CNCE determined that
there was only one like product and therefore one domestic industry.
205  Consequently, the analysis of
injury was made in relation to the industry as a whole and each factor analysed within that context.206
Since Argentina determined that there was only one like product, Argentina submits that the European
Communities’ statement that Argentina should have analysed the different factors, import trends and
situation of the industry for each of the five elements for which it collected information is not correct.
5.215  According to Argentina, the EC assertion that  the reason why Argentina defined a single like
product was that the importers had not provided in formation broken down into the five elements, as
requested in the questionnaires, is not acceptable.  In a safeguard investigation the parties should atleast provide the information requested by the compet ent authority.  In the case of the importers, this
information was not furnished.  The CNCE endeavoured to collect information on the broadest
                                                                                                                                                                    
footwear industry suffered "serious injury"?  What if these two segments covered 40 per cent of the footwear
market?  What if these two segments covered 80 per cent of the footwear market?  Argentina made no such
analysis nor did it weigh the importance of the different sectors for which it claimed that "serious injury"existed, so as to come to the conclusion that such injury was present for the industry in its totality.
202 For example, no information on the situation in the five sectors was given for the factor
"employment".  See Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 18.
203 In its reply to a Panel question, Argentina claims that the industry is analysed "as a whole".
(para. 5.214).
204Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 11.
205 In reply to a Panel  question, Argentina states:  "The CNCE determined that there was only one like
product.  The categories originally identified were not like products, but were established merely for the purposeof gathering information, as indicated at the beginning of the investigation (see pages 12-13 of Act No. 338; see
also sheets 5390-5406 of the Technical Report)".
206 In its response to Panel  questioning, Argentina explained that this point is covered in Parts VI.1 to
VI.9 of Act No. 338.  The information taken into account in evaluating the relevant factors in each part refers tothe industry as a whole (Production, pages 15-17;  Sales, pages 18-19;  Inventories, page 19;  Costs, pages 19-20;  Installed Capacity and Investment, pages 20-21;  Employment, page 22;  Domestic Prices, pages 22-23;Ownership and Financial Situation of Enterprises, pages 23-24).  In certain specifically identified cases, the
CNCE also considered whether certain particular segm ents were affected in an atypical or extreme way.WT/DS121/R
Page 64
possible bases in order to ensure that the data would permit a comprehensive evaluation of the
question of "like product" and also to obtain the data needed to evaluate injury.  The CNCE decided to
divide the footwear market into various groups that were more or less homogeneous from the
standpoint of competitive conditions. As a principle, each group was defined on the basis of
substitutability of the products as concerns both supply and demand.  The analysis of the various
segments or groups in the course of the investigation led to the conclusion that the degree ofsubstitutability as regards both supply and demand was not exclusive to each of the segments.  On the
contrary, the elasticity of substitution underlined the need to include all these segments in a single
market and to define one single like product:  "footwear".
5.216  Argentina asserts that the tariff categories for the types of footwear defined by the CNCE for
the purpose of collecting information are not specific, but are based on the materials used in the
product (see tariff structure in Table 4 of the Technical Report, sheet 5386).  In addition, some tariff
categories are "market headings" which cover a wide range of products so the values vary accordingto the "mix" of products.  Consequently, this in formation is not useful when analysing injury.
207
(c) Investigation; Evaluation of "all relevant factors"
(i) Factors set out in Article 4.2(a)
Argument of the European Communities
5.217  The European Communities notes that Article 4.2(a) of the Agreement on Safeguards requires
that the investigation of serious injury, or the threat thereof, evaluate "all relevant factors of an
objective and quantifiable nature having a bearing on the situation of the domestic industry, in
particular the rate and amount of the increase in imports of the product concerned in absolute and
relative terms, the share of the domestic market taken by increased imports, changes in the level of
sales, production, productivity, capacity utilisation, profits and losses, and employment."  Accordingto the European Communities, this provision lays down the principle that an injury investigation must
be complete ("all relevant factors") and reliable ("factors of an objective and quantifiable nature
having a bearing on the situation of that industry").  Furthermore, an investigation must be consistent,
adequate, complete, clear and precise for its conclusions to be sufficiently motivated and transparent.
The European Communities notes that this position finds support in two recent Panel reports
208 which
dealt with the standard of "serious damage" set forth in Article 6.3 of the Agreement on Textiles and
Clothing (ATC)209.  Both Panel Reports stressed the obligation to examine each of the enumerated
injury factors in detail.  In United States – Restrictions on Im ports of Cotton and Man-made Fibre
Underwear'210, the Panel criticised the US for providing inconsistent and inadequate  information.  The
Panel in United States – Measure Affecting Woven Wool Shirts and Blouses from India  stated211 that,
"[a]t a minimum, the importing Member must be able to demonstrate that it has considered the
relevance or otherwise of each of the factors listed […]".  Since the United States examined only eight
                                                     
207 Exhibit ARG-2, Act No. 338, page 13.
208 See Panel Report on 'United States – Measure Affecting Imports of Woven Wool Shirts and Blouses
from India' , 6 January 1997, WT/DS33/R; and Panel Report on 'United States – Restrictions on Imports of
Cotton and Man-made Fibre Underwear' , WT/DS24/R, 8 November 1996.  Both Panel Reports were subject to
review by the Appellate Body which did not, however, rule on the standard of serious damage.
209 Article 6:3 ATC reads: "In making a determination of serious damage, […] the Member shall
examine  the effect of those imports on the state of the particular industry, as reflected in changes in such
relevant economic variables  as output, productivity, utilization of capacity, inventories, market share, exports,
wages, employment, domestic prices, profits and investments; none of which, either alone or combined withother factors, can necessarily give decisive guidance." (emphasis added).
210 Panel Report on 'United States – Restrictions on Imports of Cotton and Man-made Fibre
Underwear' , WT/DS24/R, 8 November 1996, at paragraph 7.45.
211 See Panel Report on 'United States – Measure Affecting Imports of Woven Wool Shirts and Blouses
from India' , 6 January 1997, WT/DS33/R, at paragraph 7.26.WT/DS121/R
Page 65
out of eleven listed factors, while some of the information provided by the United States was either
incomplete, vague or imprecise, the Panel ruled that the requirements of Article 6.3 of the Agreement
on Textiles and Clothing had not been respected.212
5.218  The European Communities argues that even though the wording of Article 6.3 of the
Agreement on Textiles and Clothing is slightly different from Article 4.2(a) of the Agreement on
Safeguards, both provisions nevertheless contain a list of injury factors which must be evaluatedproperly by the investigating authority.  Therefore,  in accordance with the rationale stated in the
above-mentioned Panel Reports, the European Communities submits that, at a minimum, a "serious
injury" determination under the Agreement on Safeguards must demonstrate that the relevance or
otherwise of each of the factors listed in Article 4.2(a) of the Agreement on Safeguards was
considered.  The European Communities further submits that that provision requires each injury factor
to be properly analysed.  All listed factors have to  be investigated completely and in full.  The result
of the analysis cannot be inconsistent, inadequate, in complete, vague or imprecise.  Therefore, in the
EC view, if Argentina investigates five separate sectors of the footwear industry, but fails – as
mentioned earlier – to investigate import trends, market share, profits and losses and employment for
each  market segment, it violates its obligations under the Agreement on Safeguards.
5.219  The European Communities contends, in addition, that Article 4.2(c) of the Agreement on
Safeguards requires Argentina to provide a "detailed analysis of the case under investigation" as wellas a "demonstration of the relevance of the factors examined."  According to the European
Communities, judging from the little explanation Argent ina has offered, it failed to comply with these
conditions.  Argentina also failed to consider the full range of evidence available.  For example, it
wrongly excluded 1996 data from its period of investigation and failed to consider in detail the trends
within the investigation period.  Mere recitation of the changes which occurred in the listed factors of
Article 4.2(a) is not sufficient to meet the obligations of the Agreement on Safeguards, given the
requirements set out in Article 4.2(c).  If Argentina would have considered all of the relevant factors,
based on all the evidence available, it would have found that the Argentine footwear industry was not
suffering serious injury, or the threat thereof.
5.220  The European Communities notes that in Section VI (State of the Domestic Industry)
Argentina provides
213 a lengthy, yet incomplete summary of  some of the data gathered in its
investigation, including with regard to production, e xports, sales, stocks, costs, installed capacity and
investment, employment, domestic prices and assets & financial position of the enterprises.  At no
point in this recitation of the data does Argentina tie any of the data to the condition of the domestic
industry.  Not until the final section (Section XIII) does Argentina discuss the relevance of the factorsexamined.  Therein, in a sub-section entitled "Effects of imports on domestic production", Argentina
concluded
214 that "the increased imports have caused serious injury to the domestic industry and that
there is an additional threat of injury in the absence of measures additional to the existing Common
External Tariff."  According to the European Communities, the facts cited by Argentina215 as
indicative of such injury include that the decline in output was "replaced by imports, essentially cheap
imports".  On the same page, Argentina also noted a decline in employment and the financial situation
of domestic companies, as well as a rise in inventories.  These observations, however, are notsupported by the facts available in the analysis and do not prove serious injury.
                                                     
212 Idem,  at paragraph 7.51.
213 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 13.
214 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 2.  See also Exhibit EC-20, documentG/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 2.
215 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.WT/DS121/R
Page 66
5.221  The European Communities stresses the lack of consistency and of representativity of many
of the figures used by Argentina as a basis for the imposition of safeguard measures.  In this sense, the
Argentine authorities admitted, for example, in their Acta 266, concerning the initiation of the
safeguard investigation, that “data on production could not be verified” and that the information
gathered in this respect is “imperfect”.  Thus, in Acta 338, concerning the serious injury
determination, they note that the Commission used its own “estimates”.  No indication is given of the
overall representativity of such “estimates”.  Similarly, the findings contained in Acta 338 concerning
sales refer to a percentage decline in “the sample group of large and medium enterprises”.  No official
statistics concerning overall sales are given.  In addition, as regards profitability, assets and financial
situation, the Argentine authorities acknowledge in Acta 338 that that their data subset “does not
constitute a representative sample of the sector, since it consists only of four “medium” enterprises”.
5.222  The European Communities submits that the evidence presented in the Argentine analysis
does not support a finding of "serious injury" for the whole of the footwear sector.  Regarding  market
share, the European Communities asserts that Argentina stated216 that the domestic market share of
imports increased substantially.  However, the European Communities notes that Argentina has also
mentioned217 that the market share of all footwear im ports (i.e. including imports from MERCOSUR
countries) decreased in 1996, the year before the safeguard measure was taken.  Argentina stated218
that "[t]he market share of imports increased from 10 per cent in 1991 to 20 per cent in 1992, 26 per
cent in 1993, 27 per cent in 1994 and 1995, and 22 per cent in 1996." According to the European
Communities, it is clear that in the first two years of the investigated period the share of total imports
increased, while in the more recent period domestic production has become more and more
important.219  The European Communities notes that the domestic industry in 1996 occupied 78 per
cent of the market.  Argentina, in its first submission, chose to simply compare the number for 1991with the number of 1996 and concluded that the share had increased.  By doing so, the European
Communities states that it missed the intervening decreasing trend.
5.223  Regarding changes in the level of domestic sa les, the European Communities contends that
the analysis cites not a decrease, but a strong increase with regard to women's and casual footwear.
The European Communities notes that Argentina stated220: "[…] while both exclusively women's
footwear and town and/or casual footwear recorded increases in sales over the interval in question, by
71 per cent in volume and 76 per cent in value in the first case and by 111 per cent and 124 per cent,
respectively, in the second."  In spite of these strong increases in sales, safeguard measures were
imposed also on exclusively women's footwear a nd town and/or casual footwear.  The European
Communities states that although such estimates do not reflect the state of the whole industry, theyshow the sales on the domestic market remained relatively stable during most of the investigation
period, although the figure for 1996 ended just below the figure of 1991.
221  However, the European
Communities cannot agree with the sweeping conclusion that these figures demonstrate an industry
suffering from a "significant overall impairment".
5.224  Regarding production, the European Communities observes first that Argentina stated222 that
production of footwear (measured at current prices) did not decrease, but instead increased  by 7.7 per
cent during the 1991-1995 period.  This important figure was immediately discarded by Argentina,
                                                     
216 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 37.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 2.  See also Exhibit EC-20, document
G/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 2.
217 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 25.  The statistics presented by Argentina
make clear that the figure in 1996 is lower than the three preceding years (1993, 1994 and 1995).
218 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 25.
219 The European Communities refers to EC Graph-3.
220 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 16.
221 The European Communities refers to EC Graph-4.
222 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 3.WT/DS121/R
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stating223 that "the industry shifted production to higher-unit-value products in response to demand
factors and the need to compete in the internatio nal footwear trade within the constraints of the
Argentine rules of the game."  Whatever may exactly  have been meant with th e latter, it is clear that
production did not decline and that Argentina's industry has shown that it was capable of shifting
production to more valuable products. According to the European Communities, it should be clearthat the production level during the investigation period has largely remained within the band of 800million pesos and 1000 million pesos, ending slightly above the band in 1996.
224  I n spite of  th ese
positive figures, Argentina found it necessary to impose safeguard measures.
5.225  The European Communities notes that, according to Argentina225, net increase in production
should be disregarded, because "the industry shifted production to higher-unit-value products in
response to demand factors and the need to compet e in the international footwear trade within the
constraints of the Argentine rules of the game". The European Communities fails to see how a shift to
products with a higher value, so as to become more  competitive, can be a reason to ignore the positive
production figures.  Furthermore, according to the European Communities, Argentina cannot claim,
on the one hand, that the investigation concerns a single like product, i.e. footwear, and, on the other
hand, argue that there have been changes in the type of footwear produced which result in higher
value products.  In this respect, the European Communities argues that it is also relevant to note that,
according to Argentina’s reasoning, any possible increase in the value of imports would not berelevant since it could simply be due to a shift in the type of imports.  However, Argentina has not
analysed the conditions under which imports took place.
5.226  Second, the European Communities would like to point at the following quotes from a
document produced by Argentina
226: "[t]he data on domestic footwear production have been
questioned in the investigation.  The CIC and CAPCICA took divergent positions from the verymoment of formulation of the safeguard request."  "The Commission used its own estimates based on
the macro-economic statistics and the results of the questionnaires, since it did not consider those
submitted by the parties to be suitable."  In this respect, the European Communities notes that
Argentina, having discarded the production data submitted by the parties, did not provide any precise
data on domestic production and excluded from its consideration production intended for exports aswell as contractor or joint venture production.  The European Communities submits that the
Agreement on Safeguards requires transparency.  Argentina's reliance on data which are not reported
anywhere, nor replicable because the recalculations were not explained, patently violates that
requirement.  Furthermore, Argentina only analyses  production trends in percentage terms, without
providing absolute figures on Argentina's footwear production.  Also, the data on production
227 only
refer to the total for "medium-sized and large enterprises" and appears as a sample whose
representativity is not established.
5.227  Third, the European Communities asse rts, the reliance by Argentina228 on a decline in total
production (in physical terms) between 1991 and 1995 is flawed for another reason.  Argentina, in
comparing just these two years data, ignored data from 1996229, and all the intervening trends.  The
injury test of the Agreement on Safeguards is not satisfied by a simplistic comparison of one year's
data against those of a prior, arbitrarily chosen, year.  Rather, the requirement that the "competent
                                                     
223 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 14, 38.  See also Exhibit EC-20, document
G/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 3.
224 The European Communities refers to EC Graph-5.
225 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.
226 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 13, 14.
227 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 41 and following.
228 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38. See also Exhibit EC-17 at page 3.
229 Data for 1996 were analysed by Argentina: see Exhibit EC-16, document G/SG/N/8/ARG/1, at
page 14.WT/DS121/R
Page 68
authorities" evaluate "all relevant factors" mandates that Argentina puts the present year's condition
into the context of the preceding years.  In fact, a 1998 study230 by the 'Centro de Estudios para la
Producción' analysed the relative advantages of the different sectors of Argentine industries.
Surprisingly, coming from this department, it show s that the footwear industry is the third best
situated of the 27 sectors considered.  But not only that: the report shows that it was one of the sectors
that had improved most since 1980.
5.228  The European Communities states that one could readily imagine a situation in which an
industry had an extraordinary year, with record pro duction, shipments, prices, financial returns, etc.,
only to have those indicators fall the following year  for any number of reasons.  However, even if the
industry started to recuperate, and the next thre e years showed increasing production, shipments,
prices, financial return, etc., under Argentina's methodology, that industry would be experiencing
injury if those indicators did not reach the record levels of five years ago.  The comparison of the
"present" situation only to that of a single prior year, ignoring the intervening trends, opens the doorfor manipulation any time an industry fails to repeat an extraordinary year.  Thus, even if Argentina
had explained its recalculation of the production data, its reliance on the decrease in 1995, as
compared to only 1991, cannot, in the EC view, meet  the requirement that Argentina consider all
relevant factors.
5.229  Finally, the European Communities states, Argentina failed to properly explain the inherent
contradiction that production figures increased, when measured at current prices, and decreased, when
measured in physical terms.  As the Panel explained
231 in 'Brazil – Imposition of Provisional and
Definitive CVD's on Milk Powder and Certain Types of Milk from the EEC' , it is not enough for the
competent authority to recite facts.  Rather, it  is incumbent upon the investigating authorities to
"provide a reasoned opinion explaining how such facts and arguments had led to their finding."Argentina's explanation
232 that the simultaneous increase in value and decrease in volume was due to
a shift to higher unit-value products does not explain how the decline in volume "trumps" the increase
in value, and can be considered to demonstrate serious injury.  In short, Argentina gives no reasoned
conclusions concerning the relative weight of these two contradictory trends.
5.230  The European Communities observes that Argentina notes that similar positive statistics for
production which were produced by the Centro de Estudios para la Producción , which is part of the
Argentina government, should not be considered  because its production statistics excluded
"vulcanised rubber or moulded plastic footwear".233 The European Communities has the following
two comments to make regarding this statement.
First, it would seem that, if production for this sector were included in the figures as well,
then the total figure for production would rise, possibly even bringing the footwear sector
higher in the competitivity ranking (in 1997 it was third out of 27).
Second, the European Communities believes it is us eful to consider the figures set out by the
Centro , since, even though Argentina may claim that the exact definition of the footwear
industry is not fully comparable these are official statistics which are not challenged by
Argentina and which are more reliable than the estimates used for the safeguard investigation.
                                                     
230 Exhibit EC-30, at page 21.  The 'Centro de Estudios para la Producción'  forms part of the
'Secretaría de Industria, Comercio y Minas',  falling under the Argentina Ministry of Economy.
231 Panel Report on 'Brazil – Imposition of Provisional an d Definitive Countervailing Duties on Milk
Powder and Certain Types of Milk from the European Economic Community, adopted by the Committee on
Subsidies and Countervailing Measures on 28 April 1194, SCM/179, and Corr. 1 (hereinafter referred to as
'Brazil – Milk Powder' ), at paragraph 286.
232 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.  See also Exhibit EC-20, document
G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, at page 3.
233 Infra , para. 5.261.WT/DS121/R
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Furthermore, what it does demonstrate clearly is that, if a different definition of "the footwear
industry" is used than the one in the present investigation, then the situation would indicate
the complete opposite of the alleged "significant overall impairment in the position of the
domestic industry."  The European Communities questions how the results of two separateinvestigations can be so totally different, even  if the exact scope of the investigation is not
fully overlapping.
5.231  The European Communities also draws the Panel's attention to another factor, exports, which,
according to the European Communitie s, indicates clearly that the Argentine industry is not suffering
from an alleged serious injury.
234
5.232  Regarding productivity  , the European Communities notes that, in spite of the fact that this
factor is clearly mentioned in the list of Article 4.2(b) of the Agreement on Safeguards, Argentina did
not examine this requirement in a separate heading in  its investigation, under Chapter VI (State of the
Domestic Industry).  However, the above-mentioned 'Centro de Estudios para la Producción'  noted235
that, if productivity in base-year 1991 was 100, it was 129.2 in the year 1996 if calculated 'per
employee' and 124.3 if calculated 'per worked hour'.  In other words, this organisation noted a
significant increase in productivity at the end of the investigated period, if compared to the start of
this period.  Again, these figures would not seem to justify the implementation of a safeguard measure
by Argentina.
5.233  The European Communities maintains that, on an ad hoc  basis, Argentina has decided to
address the issue of productivity in its first submission.  However, the European Communities submits
the Panel should find that Argentina did not evaluate "all" relevant factors having a bearing on the
domestic industry, as required by Article 4.2(a)  of the Agreement on Safeguards.  Furthermore,
Argentina does not provide any "quantifiable" data, as required by Article 4.2(a) nor bases itsdeterminations on a "detailed analysis" as required by Article 4.2(c) of the Agreement on Safeguards
The European Communities contends that data provided by the Centro de Estudios para la
Producción  indicated that the productivity (per employee) had increased during the investigated
period only in 1993 did productivity fall slightly below the 1991 level.
236  For all other years,
productivity was higher, in particular in 1996, the year before the safeguard measure was taken, whenproductivity was almost 30 per cent higher than the base year.  These statistics are hardly evidence of
the alleged "significant overall impairment in the position of the domestic footwear industry".
5.234  Regarding installed capacity: the European Communities notes that Argentina stated
237 that
"for the total of large and medium enterprises the installed capacity for performance sports footwear
increased  between 1991 and 1995, reaching almost 19 million pairs in the latter year and increasing
again in 1996" (emphasis added).  In the same paragraph, Argentina noted that installed capacity for
the production of exclusively women's foot wear and town and/or casual footwear increased , while
that for non-performance footwear held steady .  Thus, the only category that did not increase was the
"other" category.  Therefore, Argentina failed to po int to any evidence to support a finding of serious
injury to the entire footwear market during the investigated period. The European Communities notes
that for most sectors which Argentina had investigated, installed capacity had increased.  This fact,
which, in the EC view, is confirmed by Argentina contradicts the statement made by Argentina that
installed capacity decreased.  This increase took place in spite of the allegation that 997 factories
closed during the investigation period. The European Communities surmises that this may have had to
do something with the fact that, as Argentina stated238, "the sector had been fitted out with the latest
generation of new installations with a view to improving its competitive profile by closing down
                                                     
234 The European Communities refers to EC Graph-6.
235 See Exhibit EC-29.
236 The European Communities refers to EC Graph-7.
237 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 17.
238 Exhibit EC-16, document G/SG/N/8/ARG/1, page 18.WT/DS121/R
Page 70
inefficient plants and developing new product lines". However, in spite of the extremely brief
reference239 that "utilisation declined from 65 percent [in 1991] to 53 percent [in 1995]" no
information was given by Argentina in its notification. According to the European Communities,
these two figures however do not say anything about  intervening trends and can hardly be called a
"detailed analysis" as required by Article 4.2(c) of the Agreement on Safeguards.
5.235  Furthermore, the European Communities asserts, Argentina asked a number of enterprises to
indicate the year in which they had produced most since 1986.  At least two enterprises claimed to
have the highest production in 1996, the year before the safeguard measure was taken, while five
others had their best year during the investigation period240.  Still, Argentina decided to impose
safeguard measures.
5.236  Regarding profits and losses: the European Communities submits that the evidence presented
by Argentina on this factor241 was insufficient to demonstrate serious injury or the threat thereof.
Furthermore, the methodology used to analyse profitability is questionable.  For example, Argentinadid not separate profitability data regarding footwear production from other business lines but
considered only global financial data, with the exception of a subset of only four medium-sized
companies
242 producing exclusively footwear and with regard to ten other firms, for which specific
accounts of the footwear sector were consolidated.
5.237  Hence, according to the European Communities, it is unclear for which proportion of the
domestic industry reliable data on profitability was gathered and even for the proportion of the
domestic industry investigated, the evidence is not conclusive as to whether it was in fact profitable.
Even though Argentina included243 a statement that in 1995 and 1996 results were "below the break-
even point", there was no evidence submitted to support this and indeed tables presented in its
notification do not show that the industry made losses244.  This is particularly relevant, because
Resolution 987/97245 bases the imposition of definitive measures on inter alia , "a worsening of the
economic and financial situation of companies in the domestic industry".
5.238  The European Communities argues that Argentina expressly states, in Section VI.9 of Acta
338, which deals with “Assets and financial position of the enterprises, that “out of the total number
of cases for which the corresponding accounting information could be obtained (six “large” and six“medium” enterprises) a subset consisting of firms devoted exclusively to footwear production was
split off” and continues but noting that “this subset does not constitute a representative sample of the
sector, since it consists of only four “medium” enterprises”. .  Subsequently, ten "specific accounts for
the footwear sector" were investigated and further calculations were made.  The European
Communities questions how then Argentina can, on the basis of such unrepresentative samples, claimin Resolution 987/97 that there was “a worsening of the economic and financial situation of
companies in the domestic industry”.  Consequently, the European Communities alleges, Argentina
did not base its investigation on factors of a "quantifiable nature", as required by Article 4.2(a) of the
Agreement on Safeguards, nor did it make its determinations on the basis of a "detailed analysis" as
required by Article 4.2(c) of the Agreement on Safeguards.
                                                     
239 Exhibit EC-16, document G/SG/N/8/ARG/1, page 17.
240 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 18.
241 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 20.
242 Argentina admits that this cannot constitute an appropriate sample.  On page 20 of document
G/SG/N/8/ARG/1, Exhibit EC-16, Argentina stated: " Although this subset does not constitute a representative
sample of the sector […]".
243 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 20.
244 See Exhibit EC-16, document G/SG/N/8/ARG/1, Table 8, Accounting Ratios Profitability Indices,
at page 46.
245 See Exhibit EC-20, document G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, at page 2.
See also Exhibit EC-17, document G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 3.WT/DS121/R
Page 71
5.239  Regarding employment, the European Communities submits that in its findings, Argentina did
not analyse any official statistics concerning empl oyment in this sector.  Argentina simply arrived at
the conclusion that employment had declined246 on the basis of the information submitted by the
petitioner and a sample of enterprises the representativity and reliability of which is not established.
However, nowhere in its investigation did Argentina demonstrate that the footwear sector had
suffered an exceptional growth in unemployment.  Indeed, the statistics247 put forward by Argentina
show relative stability in employment.  Argentina stated248 that "the employment data provided by the
large and medium enterprises in the sample indicate the loss of 560 jobs exclusively in footwear
production between 1991 and 1995 […]."  This loss represents, "in relative terms, 5.2 per cent […] of
employment in 1991". According to the European Communities, data provided by Argentina shows
the number of employees for medium-sized and large enterprises has remained relatively stable during
the investigation period, after an initial increase in 1992.249  The total number of employees in 1995 is
slightly lower than the initial number in 1991, indicating a loss of 635 jobs out of a total of around14,000.  In addition, Argentina noted
250 that, for 30 per cent of small firms, employment figures
increased while for 19 percent they remained steady.  Furthermore, data on employment in the
footwear sector, provided by the above-mentioned 'Centro de Estudios para la Producción'  confirm
the stability in employment in the sector from 1991 up to 1996.251  Therefore, given these employment
statistics, the European Communities fails to understand how Argentina could have concluded thatthey demonstrated in some way a "serious injury" fo r the domestic industry, i.e. a "significant overall
impairment".  The European Communities points out that there is some discrepancy in the data
proffered by Argentina:  the European Communities notes that Argentina claims that "the information
for medium and large enterprises indicated a 13 per cent fall in employment" during the 1991-1995
period, while Argentina had previously given252 a lower figure of 4.6 per cent.  However, according to
the European Communities, a closer look at the table set out in the CNCE Technical Report (sheet5640) confirms that, according to this table, the previous lower figure given by Argentina was correct.
Argument of Argentina
Investigation
5.240  Argentina states that the competent authorities in the National Foreign Trade Commission
(CNCE) and the Department of Foreign Trade (Depar tment) of the Ministry of the Economy made a
preliminary determination, finding that there was clear and sufficient evidence of an absolute increase
in imports of footwear and a damaging effect on the domestic industry.  Based on this finding, they
decided to initiate an investigation and, in view of the existence of critical circumstances within the
meaning of Article 6 of the Agreement on Safeguar ds and Article 35 of Decree 1059/96 and the fact
that any delay in taking action would cause damage which it would be difficult to repair, they applied
a provisional measure.
5.241  According to Argentina, the measures taken by the Argentine Government to open up the
economy led to increased imports of consumer goods in general and imports of footwear in particular.
For example, during the period 1991-1993, imports of footwear increased by 190 per cent in terms of
                                                     
246 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 3.  See also Exhibit EC-20, document
G/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 2.
247 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 18.
248 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 18.
249 The European Communities refers to EC Graph-8.
250 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 19.
251 See Exhibit EC-29.
252 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 19.WT/DS121/R
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value, compared with an increase of 134 per cent for imports of consumer goods in general.253 For
imports of footwear, the data analysed at that tim e showed an absolute increase in imports from 1991-
1995254, and justified the initiation of an investigation since the claims by the applicants concerning
serious injury caused by the imports were borne out by the evidence they submitted.
5.242  Argentina states that, in its preliminary determination, the Department underlined "the high
rate of unemployment, the precarious financial situation of the companies, the fall in production andthe decrease in the utilisation of installed capacity during the period under review, reflected in the
industry's declining share of Argentina's GDP", and that these developments were caused by the
increase in imports.
255  When evaluating imports of fo otwear over the period (1991-1995), the
Department found an increase of footwear imports of over 70 per cent in terms of volume and more
than 150 per cent in terms of value.256  It confirmed that, despite the specific duties which led to a fall
in imports, their level largely exceeded the figure for 1991.257
5.243  Argentina asserts that the Department decided that the circumstances and merits of the case
justified the initiation of an investigation and, in view of the critical circumstances258, the application
of a provisional measure.  The Department recommended the application of a provisional safeguard
measure in the form of specific duties and, when calculating the measure, decided that an acceptable
level of imports would be 11 million pairs.259  This level of 11 million pairs was lower than the
average level of imports for the period 1993-1995260, which had caused the injury to the industry
confirmed in the preliminary determination.
5.244  Argentina maintains that, in accordance with Decree 1059/96 and the Agreement On
Safeguards, the measures were imposed for a period of 200 days.  The Department calculated duties
for each tariff heading taking into account factors such as price elasticity, the volume imported under
each tariff heading and also the existence of distortions due to seasonal shipments from the northernhemisphere and the undervaluation of imports.  The decision to initiate an investigation and impose
provisional safeguard measures based on critical circumstances was duly notified to the WTO on
21 February 1997
261 and subsequently published in Argentina's Boletín Oficial  on 24 February 1997.
Methodology for gathering data from firms
5.245  Based on the analysis of the application and on subsequent consultations with other interested
parties, the CNCE considered that the different sizes of the producers made it necessary to divide
them into three categories according to the numbers employed:  (a) large (over 100 employees);
(b) medium (between 41 and 100 employees);  and (c) small (less than 41 employees).  Importing
                                                     
253 Exhibit ARG-1, Report by the Department on the feasibility of initiating an investigation and
applying provisional safeguard measures, hereinafter referred to as the "Preliminary Report by the Department",
page 32.
254 Exhibit ARG-1, Preliminary Report by the Department, page 31.
255 Exhibit ARG-1, Preliminary Report by the Department, page 32.
256 Exhibit ARG-1, Preliminary Report by the Department, page 4.
257 Exhibit ARG-1, Preliminary Report by the Department, page 32.
258 Exhibit ARG-1, Preliminary Report by the Department, page 32.
259 In response to a question put to it by the European Communities  about why this level of imports
was considered "acceptable", Argentina  responded that Annex ARG-1 – Preliminary Report of the Department
of Foreign Trade of 6 January 1997 - page 32, Annex IX, contains the basis on which the figure of 11 millionpairs was chosen as "an acceptable level of imports".  This report considers imports for the period 1990-1992.Average annual imports for that period amounting to 8.98 million pairs, the average level was increased to 11million for the calculation of the specific duty levels that would be needed to maintain total imports at that level.
Eleven million was considered acceptable because it permitted the maintenance of a percentage share of imports
in apparent consumption that would enable domestic production to compete with imported goods.
260 Exhibit ARG-1, Preliminary Report by the Department, pages 32-33.
261 G/SG/N/6/ARG/1.WT/DS121/R
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enterprises were classified according to the va lue of imports:  large (over US$1 million) and
(b) medium and small (between US$100,000 and US$1,000,000).  Following this classification, 60
questionnaires were sent to domestic producers and 69 to importers.262
5.246  The questionnaires sent to large and medium enterprises requested quantifiable data and small
enterprises were asked to reply to multiple choice questions indicating trends.  Of the 60
questionnaires sent out, 24 went to large and medium firms and 36 to small firms, taking intoconsideration their geographical location so as to cover the whole of Argentina.
263  The information
supplied by the producers and importers was checked by the CNCE.
Hearings
5.247  Argentina states that both the Department and the CNCE held public hearings to give all
interested parties an opportunity to state their position, as required by Article 3.1 of the Agreement on
Safeguards.  Prior to its hearing, the CNCE met with various interested parties in order to give them a
pre-hearing report which classified the information collected to date.  Argentina maintains that theEuropean Communities took part in this hearing, putting forward arguments similar to those used
before this Panel.
Factors considered when determining injury
5.248  Argentina submits that on the basis of the information in the replies to the questionnaires, as
well as the information provided by the parties and the data contained in official sources, the CNCEanalysed all the factors corresponding to the requirements under the Agreement on Safeguards and
determined the existence of serious injury as a result of the increase in imports.
5.249  Argentina notes that Article 4.2(a) of the Agreement on Safeguards provides that, in
determining injury, the competent authorities shall evaluate "… in particular, the rate and amount of
the increase in imports of the product concerned in absolute and relative terms, the share of thedomestic market taken by increased imports, changes in the level of sales, production, productivity,
capacity utilisation, profits and losses, and employment".  According to Argentina, the European
Communities argues that Argentina did not take into account all the factors in Article 4.2 that should
be examined and therefore did not prove the relevance of the factors examined.
264  The European
Communities also claims that discussion of the factors by Argentina is not related to the situation ofthe industry.
5.250  According to Argentina, the final decision of the CNCE, contained in Parts I-XII of Act No.
338, is a review of the evidence and the factual conclusions taken into account.  The factual basis
comes from the evidence collected during the investig ation (positive evidence) and included in the
Technical Report.  Part XIII of Act No. 338 contains a summarised version of the CNCE's
conclusions based on the evidence collected during the investigation, as recorded in the preceding
Parts I–XII of the Act.  For example, the "conditions of the domestic industry" in Part VI are findings
that result from an examination of the evidence on the domestic footwear-producing industry in
Argentina.  The CNCE's final conclusions are based on these findings.  To take an example, the
                                                     
262 Exhibit ARG-2, Act No. 338, page 5.
263 Annex ARG-4, a model of the questionnaires sent to large and small enterprises.
264 Regarding the decisions of the Panels in the cases United States – Restrictions on Imports of Cotton
and Man-Made Fibre Underwear , in document WT/DS24/R of 8 November 1996, and United States –
Measures Affecting Imports of Woven Wool Shirts and Blouses from India , in document WT/DS33/R of
6 January 1997, Argentina does not agree with the argument that these decisions can provide guidance whenanalysing serious injury in an investigation under the Agreement on Safeguards.  See argument supra ,
para. 5.143.WT/DS121/R
Page 74
examination of the financial situation in Part VI leads to the determination that it had deteriorated.265
At the same time, it was determined that the fina ncial situation was caused by the increase in costs
and the downward trend in sales by the industry (break-even point).266  Imports replaced the reduction
in sales.267
5.251  The Panel  notes that in response to its question regarding which of the documents submitted
to the Panel constituted the published "report setting forth [the] findings and reasoned conclusionsreached on all pertinent issues of fact and law" referred to in Article 3.1 of the Agreement on
Safeguards, Argentina responded that Act No. 338 is the published report of the findings of the CNCE
with respect to serious injury.  It establishes th e grounds for the determination of injury and includes
as a reference document the Technical Report.  The Technical Report, prepared by CNCE staff,
summarises all of the factual data gathered during the investigation.  Resolution 987/97 of the
Ministry of the Economy includes as a reference document Act 338 as well as the report published by
the Department of Trade and Industry.  Argentina s ubmits that it fulfilled the obligation contained in
Article 3 by publishing Resolution 987/97 containing a summary description of the results of the
injury investigation and the reasons which led to the decision to apply a safeguard measure and to the
consultations carried out with the Member countries of the WTO in conformity with Article 12.3.
Argentine Law No. 19.549 on Administrative Proce dure which, together with Regulatory Decree
1059 regulates the processing of requests for the application of safeguard measures, states that theinterested parties shall have access to all informat ion contained in the file except information deemed
to be "confidential", and moreover, all parties were supplied with information by the implementing
authority during the hearings provided for under that legislation.  Thus, Argentina explains, the file
contains one part representing a compilation of facts and background material and another part
containing the conclusions of the CNCE together with the Final Report of the Department of ForeignTrade.  These various elements develop and explain the causal link stipulated in Article 4.2(b) of the
Agreement on Safeguards which the European Communities claims that the Argentine Government
failed to establish.  The file, which contains more that 10,000 pages, cannot be published with the
administrative act ordering the measure.
5.252  With respect to the share of the domestic market, Argentina asserts that the share of imports
in apparent consumption increased during the investigation period from 12 per cent in 1991 to 21 per
cent in 1995 in terms of pairs, and from 10 per cent in 1991 to 27 per cent in 1995 in terms of value in
millions of current pesos.268  Even if this factor is analysed on the basis of the evidence provided by
the European Communities269 there is still confirmation of growth in the market share taken by
imports (period 1991-1996).  There is nothing in the Agreement on Safeguards to suggest that theincrease in imports, as a relevant factor in the determination of injury, should not be determined by
comparing imports at the beginning and at the end of the period.  This yields a higher level of imports
than in 1991, a result which is moderated in the EC graph by the so-called DIEM effect.  Argentina
recalls the EC statement that domestic production grew at the expense of imports into the domestic
market
270 and remarks that: first, the European Communities arrived at this figure for increased share
of production in the domestic market by shortening  the period of investigation; and second, that
different conclusions can be reached depending on how the figure is analysed.  Argentina submitted agraph
271 which set out the import figures and market share taken by imports in what Argentina
considered to be the proper perspective for a safeguard investigation which, Argentina contends,
reflects a reading exactly opposite to the EC reading in EC Graph-2.
                                                     
265 Exhibit ARG-2, Act No. 338, page 48.
266 Exhibit ARG-2, Act No. 338, page 24,  Exhibit ARG-3, Technical Report of the CNCE, sheet 5471.
267 Exhibit ARG-2, Act No. 338, pages 47-48.
268 Exhibit ARG-3, Technical Report, Table 20, sheet 5501;  and Exhibit ARG-2, Act 338, sheet 5334.
269 EC-Graph 3.
270 Infra , para. 5.340.
271 Exhibit ARG-22, Graph 4.WT/DS121/R
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5.253  Concerning the volume of sales, Argentina states that the CNCE determined that sales of
footwear produced in Argentina fell by 15 per cent in value and 27 per cent in volume over the period
1991-1995 and the volume continued to fall in 1996.272  From the replies to the questionnaires sent out
by the CNCE, it appeared that the majority of small enterprises had seen their sales drop273, and that
sales of performance sports footwear showed an even greater decrease:  33 per cent in volume and 35
per cent in value.
5.254  Argentina submits that EC Graph 4 is described by the European Communities as showing
that the figures for 1996 were barely lower than th e 1991 figures.  In Argentina's view, first, this
confirms that in comparison to 1991, the level of sales had declined at the end of the investigation
period.  At the same time, and following the European Communities' logic that the period from
beginning to end only serves to confirm trends, EC-Graph 4 clearly reveals a sharp decrease in sales
for the period 1994-1995.  Finally, the particular comment on the situation with respect to women's
footwear and casual footwear is irrelevant in view  of the definition of "like product" contained in the
file.
5.255  Regarding production, Argentina submits that the CNCE noted an average decrease of 15 per
cent in volume over the period investigated, 1991-1995.274  Argentina notes that, although there was a
7.7 per cent increase in the value of production in current pesos, this was due to a change in the
product mix following a decision to concentrate on products with a higher unit value.275
5.256  According to Argentina, the replies to the ques tionnaires also showed that output over the
period investigated had fallen by 24 per cent in large and medium firms.  Contrary to the EC
assertion, information on total production in 1996 showed an even greater decrease.276
5.257  Argentina observes that the European Communities criticises the methodology used to
determine the production in physical units and conseque ntly the values calculated on this basis.  This
criticism is the result of failing to read the Technical Report of the CNCE.  Section III.2 of Act No.
338 and pages 5443 and 5491 of the Technical Report explain in detail how official information was
used to arrive at an estimate that completes the information in the questionnaires, which do not cover
the whole sector.
5.258  In this connection, Argentina explains, the CNCE used official macroeconomic statistics and
made its own estimates of domestic production based on official data.  Based on these
macroeconomic statistics, the gross value of production at 1986 prices for the footwear manufacturing
sector according to the INDEC was estimated.  This indicator provides an estimate of the trend in the
physical volume of production in the sector.  In addition, the trend in the gross value of production in
                                                     
272 Exhibit ARG-2, Act No. 338, page 18.
273 Exhibit ARG-2, Act No. 338, page 18.
274 Exhibit ARG-2, Act No. 338, page 15.
275 Exhibit ARG-2, Act No. 338, Section XIII.2, page 46.  In reply to a question put to it by the
European Communities , about how such a change could be seen as a factor which contributes to "significant
overall impairment" of its domestic industry, Argentina  stated that the question distorted the meaning of the
determinations made.  On the one had, there is the explanation of why, while there is a decrease in theproduction of pairs, there was an increase of some 7.7 per cent in value.  On the other hand, there is an attemptto extend this notion and conclude there is no significant impairment of the domestic industry.  Argentina states
that it should be made clear that in analysing injury, an en tire set of factors (not just one factor) were considered.
The higher production value in current pesos must, according to Argentina, be analysed in the context of that set
of factors.  In fact, Argentina asserts, production was focusing on higher-priced products in response to therequirements of a changing market, and the point is that at these higher values, the industry suffered in terms ofthe cost-price ratio as a result of the imports.
276 Exhibit ARG-2, Act No. 338, page 16;  and Exhibit ARG-3, CNCE Technical Report, Table 14,
sheet 5599.WT/DS121/R
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the footwear sector at current prices was also estimated as follows:  firstly, in order to estimate the
trend in production at current values, the variation in the index of physical volume was adjusted by
the variation in the wholesale price index for the footwear sector, drawn up by the National Institute
of Statistics and Censuses;  secondly, in order to calculate the gross value of production for each of
the years considered, the above estimated variations were applied to the value for the year 1993
according to the final figures in the 1994 National Economic Census.
5.259  According to Argentina, the CNCE also made its own estimate of the volume of domestic
production of footwear on the basis of data from the CIC, replies to the questionnaires, the
verification undertaken and official data, as follows:
(a) Firstly, it calculated a base value for 1995, partly using the figures provided by the
CIC in its request for that year, which were  broken down according to the size of the
enterprise.  The figures for total production of large enterprises provided by the CIC
were adjusted in accordance with those obta ined by the CNCE in the replies to the
questionnaires for the same group of enterprises (the CIC figures showed total
footwear production by large enterprises to be around 25 million pairs in 1995
whereas the figure for the CNCE was 21.5 million).  According to the CIC figures,
production by large enterprises accounted for 39 per cent of the domestic production
in 1995.  It should be noted that the CNCE obtained information from all the largeenterprises, almost all of which was verified.
(2) The above trend in the index of volume in physical terms in the sector was then
applied to this base value in order to obtain a series for the whole period analysed.
The production data included exports and production for third parties (contracts and
joint ventures).
5.260  Argentina submits that Tables 12 to 17
277 of the Technical Report show production in terms of
absolute value, not only in percentages of variation.  Production is also expressed in absolute terms in
the tables on apparent consumption, except that in this case exports have been deducted, leaving only
the share of production actually intended for the domestic market.
5.261  Argentina contends that in order to substantia te the alleged inconsistency in the information
used by the CNCE, the European Communities presented a study carried out by the CEP, Centro de
Estudios de la Producción  (Centre for Production Studies), which forms part of the Department of
Industry, Trade and Mines, whose purpose is to carry out studies, analyses and investigations on
economic and trade matters.  In this study, the CEP provided information on footwear concerning the
"manufacture of footwear with the exception of vulcanised rubber or moulded plastic footwear(INDEC, Rev.2, Code 324) and the manufacture of footwear and its parts (INDEC, Rev. 3, Code
192)" although this information does not correspond to the product investigated.  Argentina argues
that the CEP report does not cover the same area as  the investigation conducted by the CNCE, so that
its conclusions cannot be compared with the CNCE's Technical Report and it cannot be claimed that
there are contradictions.  Argentina also argues that if the CEP information is accepted as valid, the
European Communities also should accept other information in the same CEP report that contradicts
other EC arguments.
5.262  Argentina notes that the CNCE determined th at production in the footwear sector decreased
and that its contribution to the GDP also fell, thereby indicating a deterioration in conditions in the
sector compared with production in the economy as a whole.
278  In 1995 as well, the footwear sector's
contribution to the GDP fell279, showing a relative deterioration in this industry in comparison with
                                                     
277 Exhibit ARG-3, Technical Report, Tables 12 to 16.
278 Exhibit ARG-3, Technical Report, Table 6, sheet 5431.
279 Exhibit ARG-3, Technical Report, Table 7, sheet 5432.WT/DS121/R
Page 77
industry in general.280  The Department also noted the same wide disparity in the impact of footwear
imports.  It confirmed the CNCE's determination in its final report regarding the decrease in domestic
production and compared the trend in GDP in the footwear sector with that of the manufacturing
sector in general, noting a significant difference.  Whereas GDP in the manufacturing sector rose by
11 per cent between 1991 and 1995, GDP in the footwear sector fell by almost 16 per cent.281  The
European Communities was wrong in stating that production did not decrease (Table 14, sheet 5599)in 1996.  In fact, it declined by a further 2 per cent in 1996 in large and medium enterprises.
282
According to Argentina, the Panel cannot fail to recognise the significance, in the context of the
strong GDP growth that was taking place in Argentina during the investigation period, of the
particularly sharp decline in one sector.283
5.263  Argentina submits that an industry, analysed in its own context284 and in relation to the
manufacturing industries as a whole285, that shows significant negative trends, is an industry which is
suffering "serious injury" within the meaning of the Agreement on Safeguards.
5.264  Argentina submits that according to the in formation provided in the replies to the
questionnaires, which was checked and classified in the Technical Report, there was no increase in
productivity in physical terms (pairs per employee) for the large and medium enterprises taken as a
whole during the period 1991 to 1995.  On the contrary, information on total production and
employment shows a drop in productivity over this period.  However, change in product mix towardsmore complex products means that it takes more time and work to make each pair, and this fits in with
the investment made by the sector during the period analysed.  Argentina observes that this could lead
to confusion when reading the figures, which may give the impression that there had been increases in
productivity because of the higher value of the product.
5.265  Argentina asserts that to examine the utilisation of installed capacity, installed capacity must
be considered on the one hand, and production on the other.  As regards installed capacity, it appears
from the replies to the questionnaires that there was an increase for all of the enterprises concerned.
During the period, the companies had made investments with a view to increasing their production
capacity.  However, there was also a drop due to the declared closure of enterprises, and the level that
had been reached at the beginning of the period under investigation was never recovered.  Theinformation provided by the Chamber of the Footwe ar Industry (CIC) showed that 997 companies had
closed between 1991 and 1995, and the average total utilisation of capacity had declined to 53 per
cent of installed capacity.  On the basis of the analysis of the installed capacity and production figures,
the CNCE reached the conclusion that the utilisation of installed capacity had decreased by
approximately 15 per cent in the period 1991-1995.
286  In any case, Argentina states, the European
Communities confuses the evolution of installed production capacity with the utilisation of that
capacity.287
                                                     
280 Exhibit ARG-3, Technical Report, Table 6, sheet 5431and chart 7, sheet 5434, and chart 8,
sheet 5435.
281 Exhibit ARG-5, Report on the final conclusions of the investigation in question, 28 August 1997,
pages 4 and 13, hereinafter referred to as the Final Report of the Department.
282 Exhibit ARG-3, Technical Report, Table 14, sheet 5599;  see also Exhibit ARG-2, Act No. 338,
page 16.
283 Exhibit ARG-22, Graph 5.
284 See, in general, Exhibit ARG-2, Act No. 338, and Exhibit ARG-5, Final Report of the Under-
Secretary.
285 See comparative data, Exhibit ARG-2, Act No. 338, page 15;  and Exhibit ARG-3, CNCE Technical
Report, Table 6, sheet 5431 and Chart No. 8, sheet 5435, and Exhibit ARG-5, page 13 (sheet 1788).
286 Exhibit ARG-6.
287 In response to a Panel question regarding as to where in the r ecord the analysis of capacity could be
found, Argentina stated that the table that it had presen ted on capacity utilization in answer to an earlier PanelWT/DS121/R
Page 78
5.266  According to Argentina, the fact that the i ndustry made investments is not necessarily an
indication of its health.  The investments in question were necessary in  order to ensure the capacity to
compete and survive in the new market conditions that the industry now faced.  The companies that
made the investments assumed the costs and risks of having to contract debts in order to attain that
objective.
5.267  With respect to profits and losses, Argentina submits that as regards the assets and financial
position of the enterprises, the profit indexes for the industry as a whole showed a significant decline
during that period. Among the enterprises producing footwear exclusively, the net margin in relation
to sales fell by 18 per cent to about 6 per cent at the end of the period.  The trend was the same in the
multi-product enterprises where there was a confirmed decline, down to a level of 1 per cent at the
end of the period under analysis.  In other words, the profits and losses situation reflects the
impossibility of covering a minimum level of operating costs representing the "break-even point".
According to Argentina, this factor played a partic ularly important role in determining injury caused
by a steady increase in imports over time, or in other words, the injury suffered when a certain level of
imports was reached.288  Argentina notes that from 1993, the level of indebtedness increased, causing
the capacity of enterprises to generate their own f unds to cover interest payments to decrease, with a
negative impact on the resulting net profits (in a context in which it was increasingly impossible to
pass on cost increases).  Starting in 1993, the level of the industry's indebtedness increased and thecapacity to meet financial costs declined, resulting in a decrease in net profits.
5.268  Argentina contends that the CNCE examined the data on profitability
289 and confirmed
significant decreases in liquidity and profitability as well as substantial increases in the level of
indebtedness.  One of the factors that accounted for this level of indebtedness was the imperative need
for enterprises to invest in response to the changes that were taking place in the Argentine footwearmarket.  Since there were multi-product enterpri ses, the CNCE examined the state and the
profitability trends of all of the enterprises in the footwear sector, the "multi-product" enterprises on
the one hand, and the enterprises producing footwear exclusively on the other.  In the enterprises in
general and in the multi-product enterprises in particular, the CNCE examined the so-called "specific
accounts" reflecting the status of footwear production and sales.
5.269  According to Argentina, the table below clearly shows the downward profitability trend
during the period 1991-1995, both in terms of the profitability indicators themselves and in relation to
their assets and sales.
290
                                                                                                                                                                    
question was based on information gathered through the questionnaires and set forth in Exhibit ARG-3, the
Technical Report, and more specifically that it is the quotient between total production of medium and largeenterprises (Table 17 of Annex III to the Technical Report), and installed capacity (Table 43 of Annex III of theTechnical Report).  Argentina further indicates that the information concerning installed production capacity
and its utilization as well as the analysis and conclusions relating thereto can be found in folios 5459 to 5463 of
the Technical Report and page 20 of Act 338 (Exhibit ARG-2).
288 Exhibit ARG-3, Technical Report, Table XII, Chart 23, sheets 5467 and 5472.
289 Exhibit ARG-3, Technical Report Sheet 5467.
290 Idem.WT/DS121/R
Page 79
Profitability indexes
All enterprises Enterprises producing footwear only
% change 1991/1995 % change 1991/1995
Gross profitability -15.6 -44
A complete listing of the indices examined is found at Technical Report (Exhibit ARG-3) folio 5467.
5.270  Argentina states that the data on the so-called "specific accounts" comes from the replies to
the questionnaires sent to the enterprises requesting specific information on the financial activities
connected with the production of footwear.291  The analysis of this information can be found in
Section VI.9 of the final ruling of th e CNCE and in the Technical Report.292
5.271  According to Argentina, the CNCE proceeded on the basis of a definition of a break-even
point consisting of the value corresponding to the point at which average income on sales covers thevariable costs of the pairs sold and the fixed costs of the pairs produced.  The fact that the ratio
between sales and the break-even point falls abruptly from positive figures in 1991 (19.8 per cent) to
strongly negative figures in 1995 and 1996 (-34.16 per cent and -24.51 per cent respectively) implies
a clear negative impact on prices, with the consequent injury clearly evidenced by the industry.
5.272  With respect to profitability indexes,  Argentina asserts that the financial indexes of Table 8
of the Notification are taken from the financial statements and balance sheets presented by large and
medium-sized enterprises and represent on average 85 per cent of the total production of those
enterprises, and in the small enterprises, as well,  89 per cent showed decreases in profits during the
period under investigation.  The methodology used is the methodology accepted under the rules of
financial analysis corresponding to international standard systems.
5.273  Argentina further notes the European Communities' persistent tendency to consider any figure
that confirms the existence of the factors required to  verify injury to be unrepresentative.  Thus, the
European Communities describes as unrepresentative the sample of large and medium enterprises that
served as a basis for the CNCE's analysis of this factor.
293  In Argentina's view, the European
Communities proceeds on the basis of the erroneous idea that the number of enterprises per se  is a
determining element in defining representativity.  For the investigating authority, representativity
must be determined on the basis of the relative weight of the enterprises in the productive sector underanalysis.  The sample of six large and six medium  enterprises, in the view of the CNCE, was a
representative sample of the sector.
5.274  Concerning employment, according to Argentina, all of the available figures clearly point to
an increase in unemployment in the footwear production sector in Argentina.  Argentina asserts that
the CIC submission, which was subsequently backed by the submission of the union representingworkers in the footwear sector during the public hearing, points to a loss of approximately 14,000
jobs, with total employment in the sector dropping from 42,000 to 28,000.  In its submission
following the public hearing, the chamber grouping together the importers includes a table concerning
" workers employed " between 1991 and 1995 (source:   INDEC) for the sector "footwear manufacture
excluding rubber footwear", showing a decrease of 20.96 per cent.
294  Argentina argues that, in view
of this figure (21 per cent) provided by the importers themselves (against whom the safeguard
                                                     
291 Ten multi-product enterprises, small and medium, supplied specific information on footwear, so that
more than 80 per cent of the overall production of these enterprises was covered.
292 Exhibit ARG-3, Technical Report, Table 12 and Chart 23, sheets 5472/73.
293 Infra , para. 5.345.
294 Sheet 5074 of the file.WT/DS121/R
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measure was taken), it is difficult to understand the EC claim295 that the employment figure remained
stable during the investigation period.  The debate concerning the official or unofficial nature of the
figures provided does not alter the unemployment figure provided by the importers in the
investigation file.  Argentina states that according to the replies to the questionnaires, from 1991 to
1995 the number of employees decreased by 5.2 per cent in the large enterprises and 4.6 per cent in
the medium-sized enterprises296, while 52 per cent of the small enterprises claimed that their level of
employment had declined.  Argentina emphasises that there was clearly a loss of jobs which, in the
Argentine context, was sufficiently significant to be considered an indicator of injury within the
context of the factors analysed.297
5.275  Argentina wishes to clear up the confusion emerging from the EC argument298 that Argentina
first notified a minor drop in employment (4.6 per cent) to the WTO and subsequently argued in reply
to a Panel question that the drop in employment verified by the CNCE was 13 per cent.  Firstly, the
figures of 4.6 per cent and 13 per cent refer to two different things.  The former represents the declinein employment for all of the enterprises that supplied information for both years, while the latter refers
to unemployment or loss of jobs in production corresponding, as stated in the explanatory note to
table 47 of the Technical Report,
299 to the same group of enterprises for both years.300  At the same
time, Argentina maintains, it is important to st ress that in the Commission's evaluation of this
parameter used for the determination of injury, the figure of 13 per cent mentioned in the reply to aPanel question represents the threshold at which the CNCE considered that this requirement of the
Agreement had been met.  Thus, the evaluation of  unemployment in the footwear industry made by
the importers themselves, i.e. CAPCICA,
301 pointing to a figure of 21 per cent, serves as evidence of
the difference between the threshold conservatively verified by the Commission and the
unemployment estimate submitted by the importers.
(ii) Additional factors analysed by Argentina
Argument of the European Communities
5.276  Regarding domestic prices: the European Communities submits that this is often one of the
more significant indicators to establish whether a given sector has suffered damage as a consequence
of imports.  Indeed, if confronted with sharply increased imports (for example as a result ofsignificantly lower prices of imports) an expected reaction of the domestic industry would be to
significantly lower domestic prices, with the likely result of harm for the domestic industry.  Official
statistics however clearly show
302 that industrial footwear prices registered no reduction whatsoever
during the 1991-1995 period.
5.277  The European Communities states that, according to the Argentine analysis, domestic prices
as a whole increased  during the 1991-1996 period.  Indeed, there is no indication of price depression.
Argentina explained303 that "the increases in wholesale price indices were due, not to an attempt by
the industry to increase its profit margins, but to increased costs and the difficulty which the indices
have in reflecting the trend in the face of significant changes in supply and demand (quality, new
                                                     
295 Infra , para. 5.286.
296 Act  338, Exhibit ARG-2, page 21.
297 Argentina's response to questioning by the Panel.  Argentina states that the information derived
from the questionnaires in absolute values reflects the values of the representative sample of enterprises, and thedownward trends were determined on that basis.  The information from the questionnaires confirmed thedownward trend for employment during that period.
298 Supra , para. 5.239
299 Exhibit ARG-3.
300 Argentina refers to G3 of Annex ARG-22.
301 Exhibit ARG-21, Sheets 5073 to 5075.
302 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 19.
303 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 19.WT/DS121/R
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products, etc), such as occurred during the period 1991-1995."  Despite these figures, Argentina found
it necessary to impose safeguard measures.
5.278  Regarding investment, the European Communities observes that Argentina noted304 that the
domestic industry had made substantive efforts to improving productivity.  The industry had invested
251.75 million pesos between 1990 and 1995, mainly to improve the equipment, the infrastructure and
the training of human resources: "[t]he sector had been fitted out with the latest generation of newinstallations with a view to improving its competitive profile by closing inefficient plants and
developing new product lines.  Thus, these invest ments had made possible the transformation of the
sector with improvements in productivity and product quality to enable it to compete on the domestic
and foreign markets."
5.279  Regarding total investments by large enterprises, the European Communities states that
Argentina noted
305 that 168 million pesos had been invested during the 1991-1995 period.  In
addition, during 1996 the large enterprises invested another 17 million pesos.  The EuropeanCommunities submits that these positive statements hardly support an impression of an industry
which suffers a "significant overall impairment".  On the contrary, an increase in investment
evidences an optimistic industry, planning for a better future.  In particular, large enterprises would
not have invested an additional 17 million pesos in 1996 if they had been suffering serious injury.
Argument of Argentina5.280  Regarding the European Communities' comments on the price analysis  conducted during the
investigation,  Argentina states that it relied on detailed information on price indexes (wholesale and
retail) compiled by INDEC and on information obtained from replies to the specific questionnaires
circulated during the investigation.  According to Argentina, the CNCE concluded that this indicator
was not significant to the analysis in that the "footwear" sector covered a product range which did notremain invariable over time.  On the contrary, the very nature of the sector implied constant changes
of models, qualities, specific applications etc., which not only qualified the application of this
parameter to the use of price indexes but also made it impossible to construct a series on the basis of
the replies to the questionnaires.
5.281  Regarding investment, Argentina points out that the Agreement on Safeguards does not in
fact require an analysis of investments.  In Ar gentina's view, the European Communities is mistaken
in saying that the investments made in the sector were an indicator of "good health".  The change in
consumer patterns made it necessary to change the domestic product mix in order to adapt to the new
conditions.  This called for investments, particularly in machinery, equipment and tooling, both
domestic and imported, that were independent from the economic results and represented the onlyway of remaining in the market
(d) Finding of serious injury
(i) Argument of the European Communities
5.282  The European Communities submits that Argentina' s analysis with regard to the condition of
the domestic industry cannot support a finding of serious injury or threat thereof.  According to the
European Communities, a review of the investigation demonstrates that the Argentine industry was
not suffering serious injury caused by imports.  The errors and omissions present in Argentina's injuryanalysis are such as to render meaningless any conclusion on the existence of injury as whether or not
it was serious.
                                                     
304 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 18.
305 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 18.WT/DS121/R
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5.283  The European Communities maintains that accord ing to the wording of Article 2.1 of the
Agreement on Safeguards, Argentina, before imposing a safeguard measure, is required to
demonstrate "serious injury", which is explained by  Article 4.1(a) and Article 4.1(c) of the Agreement
on Safeguards as meaning "a significant overall impairment in the position of the producers as a
whole of the like or directly competitive products operating within the territory of a Member, or those
whose collective output of the like or directly competitive products constitutes a major proportion ofthe total domestic production of those products."
5.284  The European Communities stresses that the standa rd of "serious injury" is -- by definition --
higher than the standard of "material injury", which is used in anti-dumping investigations.  The
factors mentioned in Article 4.2(a) of the Agreement on Safeguards must clearly point at a significant
overall impairment in the position of the domestic industry.  The European Communities submits thateven material injury was not established and that serious injury could not be shown given the
limitations of the investigation undertaken.
5.285  The European Communities submits that Argentina, on the basis of its investigation, could
not have established that its industry had suffered "serious injury".  Equally, the European
Communities submits that Argentina did not establish a "threat of serious injury".  Instead, Argentina
has shown nothing more than a long-term trend of a consolidation of the industry.  The European
Communities submits therefore that Argentina violated Article 2.1, Article 4.2(a) and Article 4.2(c) ofthe Agreement on Safeguards.
5.286  The European Communities submits that Argentina' s analysis of the injury factors set out in
Article 4.2 (a) of the Agreement on Safeguards does not warrant a determination that "serious injury"
was present in 1996 because:
(a) imports (whether including or exclud ing MERCOSUR) did not increase, neither in
absolute nor in relative terms;
(b) sales have remained stable;
(c) production figures show a net increase (7.7 per cent in value over the 1991-1995
period), even excluding exports;
(d) productivity increased by almost 30 per cent over the 1991–1996 period;(e) installed capacity increased significantly over the period and insufficient information
was given regarding capacity utilisation;
(f) evidence regarding profits and losses was not representative; and
(g) official employment figures were not provided.  Estimates showed that employment
remained  stable.
5.287  With respect to Argentina's replies to question s concerning the injury analysis, the European
Communities submits that, first, production figures (measured at current prices) had not declined, but
instead had increased by 7.7 per cent during the investigated period.  Argentina had discarded this
positive figure by stating that "the industry shifted production to higher-unit-value products".
306  The
European Communities notes that Argentina in its re ply to a Panel question on this issue is unable to
explain how this move toward the higher-valued products could be seen as indicative of injury to the
                                                     
306 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 14, 38.WT/DS121/R
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domestic footwear industry.  In addition, Argentina is unable to indicate, when asked to do so by the
Panel, where in the record of the investigation this development is addressed.307
5.288  In addition, the European Communities notes an inherent contradiction in the second part of
the reply to a certain Panel question.  While Argentina had previously stated308 that Argentine
producers moved toward higher-valued products while imports moved to the lower end, Argentina
now seems to argue the opposite, when it states th at DIEMs in fact "caused the value of imports to
grow" and "change the composition of those imports towards footwear with a higher unit value".
5.289  Second, in reply to a Panel question, Argentina submits a new definition of what in its view
should be considered an industry suffering "serious injury", thereby side-stepping the definition set
out in Article 4.1(a) of the Agreement on Safeguards.  According to Argentina:
"an industry, analysed in its own cont ext and in relation to the manufacturing
industries as a whole, that shows significan t negative trends, is an industry which is
suffering 'serious injury' within the meaning of the Agreement on Safeguards."
The European Communities cannot accept this interp retation of the term "serious injury".  WTO
Members are not in a position unilaterally to change the agreed text of an international agreement.
The Agreement on Safeguards does not contain a requirement to compare the situation of the relevant
industry with the "manufacturing industries as a whole"309, nor does the Agreement on Safeguards
contain the criterion "significant negative trends."  The European Communities therefore requests the
Panel to disregard these new criteria put forward by Argentina.
5.290  Third, the European Communities notes that Ar gentina seems not to have provided the
statistics for a number of categories, as required by specific questioning by the Panel, including
certain figures for production, productivity, capacity utilisation, profits and losses and employment.
(ii) Argument of Argentina
5.291  Argentina considers that all of the requirements of Article 4 of the Agreement on Safeguards
for the determination of serious injury have been  fulfilled.  Argentina maintains that the analysis
conducted by the CNCE reached the following conclusions:
(a) Imports in terms of c.i.f. values increased 157 per cent between 1991 and 1995.
(b) Imports in terms of number of pairs increased 70 per cent during the period under
investigation.
(c) The increase was faster between 1991 and 1993, and the subsequent decline was the
result of the application of the DIEMs.
                                                     
307 Instead, Argentina refers to "ARG-3" and "ARG -1" in general.  Its answer to a question ( supra ,
note 275) by the European Communities  is not convincing either.  Argentina states that "it should be made
clear that in analysing the injury, an entire set of factors were considered and not only one single factor.  Thishigher production value in current pesos must be analysed in the context of that set of factors."  In other words,
Argentina admits that, as far as the production factor is concerned, no "serious injury" contribution could be
determined.  This is exactly what the European Communities  had claimed.
308 Document G/SG/N/8/ARG/1, Exhibit EC-16, at page 14, 38.
309 Such comparison could lead to the absurd resu lt of having to allow a safeguard measure, even
though the situation of the relevant industry had remained unchanged.  For example, if the "whole of themanufacturing industries" would have an exceptionally good year, the "trend" for the industry in question could
be "significantly negative" in comparison.WT/DS121/R
Page 84
(d) The domestic market share of imports rose from 10 per cent in 1991 to 21 per cent in
1995, with greater penetration in the sports shoe segment.
(e) The volume of output declined, both overall and specifically for the domestic market.
(f) The difference in the performance of production at current prices was accounted for
by the changes in product mix in the industry.
(g) The lost output was replaced by imports, especially cheap imports.
(h) Employment decreased, inventories rose and the economic and financial situation of
the enterprises deteriorated as a result of the displacement of domestic production310.
5.292  Similarly, Argentina maintains that it anal ysed the situation in the footwear industry
individually and relative to the situation in the manufacturing industry as a whole, and demonstrated
that there was serious injury  as reflected in a significant increase in idle capacity, a high and
committed level of financial indebtedness and a significant drop in the levels of production and
employment.  According to Argentina, this demonstration of serious injury  clearly complies with the
requirements laid down in the Agreement on Safeguards and presents an industry which is far from
being "vigorous" as the European Communities claims.
5.293  Argentina submits that the letter of the Agreement does not require that all of the factors
considered should be negative - it only requires that the factors should be considered and analysed
("the competent authorities shall evaluate")311, as the CNCE did in this case.  The CNCE considered,
in its determination of injury, the interaction between rapid growth of imports and a decline in
economic and financial performance of an industry leading directly to the replacement of the domestic
industry with imports.312
5.294  Argentina submits that in its determination of serious injury, the CNCE took account of all
relevant factors of an objective and quantifiable nature having a bearing on the situation of theArgentine footwear industry.  Not only did it consider the factors mentioned in Article 4.2(a) but also
a series of industrial indicators, the analysis of which is set forth in the Commission document in
Sections VI (State of the Domestic Industr y), VII (Performance of Imports), VIII (Apparent
Consumption and Market Shares), X (Conditions of  Competition between the Domestic Product and
Imports) and XIII (Final Opinions of the Commission), and in Sections VII, VIII and IX of theTechnical Report.  The CNCE analysed the evolution of these factors during the period under
investigation, from 1991 to 1995, and its conclusions were backed by the information for 1996.
5.295  Argentina contends that the CNCE determined  that the absolute and relative increases in
imports during the period under investigation caused serious injury and justified the safeguard
measures.  This determination was based on the statement, hardly surprising, that imports would havecontinued their objectively observed growth trend if the specific duties had not been applied.
5.296  In Argentina's view, the European Communities is totally mistaken in its view that it is
impossible to determine serious injury when a restrictive measure is in force.  For one thing, the
European Communities has used this practice.
313  But also, Argentina was not applying any restrictive
                                                     
310 Exhibit ARG-21, sheets 5350-5352.
311 Article 4.2(a).
312 Exhibit ARG-2, Act No. 338, pages 47 and 48.
313 The European Communities  reached a similar conclusion concerning the effects of a quota applied
during the review period for certain types of footwear that were under a safeguards investigation in 1988.  "The
growth of imports from Taiwan has, however, been restrained by the national quota applied during this period tosome of the  types of footwear which were the subject of the inquiry."  (Commission Regulation (EEC)No. 1857/88, Section C)WT/DS121/R
Page 85
measure, but a simple tariff expressed in the form of specific duties, whose legitimacy cannot be
questioned, being outside the terms of reference of this Panel.  It is important to point out that the
WTO Panel that examined the specific duties on textiles stated that a distinction should be drawn
between the specific duty regime in force during a previous stage and the preliminary safeguard
measure imposed in February 1997.  The Panel rejected the request by the United States to review the
WTO compatibility of the specific duties on footwear, claiming that the measures had been revoked(WT/DS56/R, 25 November 1997, paragraph 6.15).
(e) Threat of "serious injury"
(i) Argument of the European Communities
5.297  According to the European Communities, Argentina based its conclusions
314 on a prognosis of
what would happen if the specific duties imposed, in excess of bound rates, were removed.  However,
the European Communities argues, such an approach is not supported by WTO rules: Article 4.2(a) of
the Agreement on Safeguards clearly requires that an investigation be based on "all relevant factors ofan objective and quantifiable nature", not on a hypothetical analysis.
5.298  The European Communities observes that Argentina noted
315 that it had found the existence
of a "threat of injury".  However, the European Communities asserts that Article 4.1(b) of the
Agreement on Safeguards clearly states that such a threat can only be found if the serious injury is
"clearly imminent". Also, it states that such determination "shall be based on facts and not merelyallegation, conjecture or remote possibility."  In the EC view, no such analysis was carried out.
Furthermore, a "threat of serious injury" cannot be based on the effect of the removal of WTO-illegal
minimum specific duties.  In effect, Argentina has invoked a threat of serious injury based on a threat
of increased imports.  According to the European Communities, Argentina, in its reply to a Panel
question, confirms that its determination of the threat of serious injury was based on the anticipatedrise in imports.  It states
316 that "if these duties were removed, imports could be expected  to resume
the same upward trend" and "[f]urther increases could only aggravate the serious injury".  (emphasis
added).  This is not allowed by the Agreement on Safeguards.  Thus, the European Communities
alleges, the existence of a threat of serious injury was neither existent nor established.
(ii) Argument of Argentina
5.299  According to Argentina, thorough examinatio n of the Technical Report in Act No. 338
reveals a complete and integrated analysis of each relevant factor.  Part XIII, Section 2 sets forth the
grounds for the Commission's determination that the increase in imports caused serious injury and that
there was an additional threat of injury.  The Commission found that national output had decreased,
that domestic sales had decreased even more and that the production had been replaced by importsduring the increases and decreases experienced by the market in general (1995).
5.300  Argentina submits that in spite of the effects of the DIEMs, which managed to keep imports
below 1993 levels, the effects of imports continued to cause serious injury.
317  These harmful effects
were shown by the reduction in employment, the increase in inventories throughout the industry and
the deterioration in the economic and financial situation of the enterprises concerned.318
                                                     
314 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.
315 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.
316 Argentina's reply to Panel questioning, infra, note 338.
317 Exhibit ARG-2, Act No. 338, pages 47 and 48.
318 Exhibit ARG-2, Act 338, sheets 5322, 5325 and 5326 and 5851.WT/DS121/R
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5.301  Argentina argues that the European Communities is mistaken in concluding that import levels
no longer caused injury following the application of the DIEMs.  Argentina contends that the
Commission simply found that imports had decreased to a certain extent, but its complete analysis
confirms (paragraph 98) that the injury continued and that there was an additional threat of injury in
the absence of the DIEMs which were to be withdrawn.
5.302  Finally, Argentina continues, the GDP data confirms a clear interrelationship between the
increase in imports and the decrease in the industry's GDP.  Thus, in analysing the causal link, the
CNCE points out that:  "the Co mmission … concluded that increased imports are causing serious
injury to the domestic industry and that there is a further threat of injury in the absence of safeguard
measures."319
5.303  In response to questioning by the Panel concerning the legal basis in the Agreement on
Safeguards for its apparent view that it is possible to find actual injury and threat simultaneously,
Argentina asserted that the notifications to the WTO indicate the circumstances in which the threat ofserious injury was determined, a threat which grew during the investigation and led to the decision to
apply the definitive measure.  Argentina states that once these first requirements contained in Article
4.1(b) were verified Argentina was in a position to  apply a provisional measure under Article 6.  At
the same time, there were other elements, including the DIEMs applied to footwear which were
revoked by Resolution 225/97 and which were never found to be inconsistent with the WTOAgreement.  The elimination of the DIEMs led to a change of circumstances which affected the
situation of the domestic market and of the domestic industry.  Consequently, it had influence in the
determination of injury.  In fact, the injury was exacerbated during the period from February to
September 1997 which led to the establishment of a definitive measure different from the provisional
measure initially applied.  In any case, Argentina does not consider that the threat of injury, whichwas used in connection with the application of the provisional measure, is relevant when by
definition, what the Panel is called upon to decide is the conformity of the definitive measure.
According to Argentina, WTO precedent is restrictive as regards panel rulings on measures that are
not definitive.  Finally,  Argentina stated, the concepts of threat of injury in Article 4.1(b) of the
Agreement and serious injury in Article 4.1(a) of the Agreement are not mutually exclusive, nor doesthe Agreement lay down any time-sequence as regards the verification by the investigating authority
of the existence of either one separately or both together, simultaneously or separately.
4. Article 2.1 and Article 4.2(b) of the Agreement on Safeguards -- Alleged failure to
demonstrate a "causal link" between increased imports and serious injury or threat of
serious injury
(a) Causal link – First sentence of Article 4.2(b)
(i) Argument of the European Communities
5.304  The European Communities asserts that even if se rious injury or a threat thereof did exist and
imports were increasing, Argentina still has the obligation, when taking a safeguard measure, to
demonstrate that there is a causal link between any proven increased imports (and the conditions
under which they are imported) and the serious injury or the threat thereof.  Other factors causing
injury to the domestic industry at the same time should not be attributed to imports.  Furthermore, theEuropean Communities submits, just as for injury, Article 4.2(c) requires that a “detailed analysis”
and a “demonstration of the relevance of the factors examined” be given and published for the
establishment of a causal link under the first sentence of Article 4.2(b).  The European Communities
submits that Argentina has failed to establish a causal link between increased imports of footwear and
serious injury or the threat thereof.  By taking the safeguard measure at issue, Argentina violatedArticle 2.1, Article 4.2(b) and Article 4.2(c) of the Agreement on Safeguards.
                                                     
319 Exhibit ARG-2, Act No. 338, page 47.WT/DS121/R
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5.305  The European Communities contends that in the present case, Argentina was obliged to
demonstrate on the basis of objective evidence320 that a causal link between the two conditions
existed.  Such a causal link can not be demonstrated, as Argentina has done, by making simple
references to the investigated factors.  Argentin a has merely listed the results of the analysis of
increased imports and serious injury without giving any reasoned  opinion  on how the two factors
were linked321.  This is not sufficient to satisfy the requirement that, on the basis of objective
evidence, the existence of a link is demonstrated.
5.306  The European Communities maintains that there is no specific  proof  mentioned in the
Agreement on Safeguards which constitutes objective evidence  that a link exists.  In the present case,
Argentina has provided two reasons why it believed this link was present.  First, it has stated that
"owing to their lower price, imports exerted strong pressure on industry, significantly affecting
results" and second, it has said that "the decline in output was replaced by imports, essentially cheap
imports."  Neither statement in the European Communities' view is based on "objective evidence" ofthe existence of a causal link, as required by the first sentence of Article 4:2(c) Agreement on
Safeguards.
5.307  The European Communities asserts that the reasons given by Argentina for finding a causal
link are set out in paragraph 2 of its notification of 1 September 1997 (Exhibit EC-17).  According to
the European Communities, it is worth quoting this paragraph in full as it demonstrates the utterinadequacy of Argentina’s reasoning on the causal link between the alleged increased imports and the
alleged injury.  It reads as follows:
"By Act No. 338 of 12 June 1997, the Natio nal Foreign Trade Commission (CNCE),
the body responsible for making the determination in question, concluded that
"increased imports are causing serious injury to the domestic industry and that there isa further threat of injury in the absence of safeguard measures".
This determination is based on a number of preceding conclusions which are
summarised below, with an indication in each case of the corresponding section of the
National Foreign Trade Council's Act:
(a)  Imports:  the increase in imports, both in absolute terms and relative to domestic
production, is of the kind covered by the Agreement on Safeguards.  There is an
increase such as to cause significant impairment to the domestic industry.  This
conclusion is based on the following facts:
- The c.i.f. value of imports increased by 157 per cent between 1991 and 1995,
and by 163 per cent between 1991 and 1996 (Section VII.1).
                                                     
320 The European Communities  asserts that Argentina, infra , para. 5.353, seeks to restate its view that
the requirement to establish a causal link can be met by the investigating authority surveying the evidence and
concluding that there is a causal link.  In response, the European Communities  argues that it never said that the
term “objective evidence” was unclear and does not agree that it requires a “precise definition”. For theEuropean Communities  it is quite clear what is meant by “objective evidence”.  However, the European
Communities  argues that the point is that the failure to estab lish a causal link is not so much a question of there
not being “objective evidence” in the CNCE report (that is a matter which according to the European
Communities  was discussed in examining the injury factors) but that there is no real statement of the reasons
for concluding the existence of a causal link. The CNCE report (the relevant part of which, the European
Communities  repeats, was quoted and analysed by it in its First Written Submission) simply juxtaposes alleged
increased imports and injury factors and contains no explanation or reasons. The European Communities
mentions elsewhere the kind of reasoning that in its view  could have satisfied the requirements of the Safeguard
Agreement.
321 See Panel Report, Brazil - Milk Powder , at paragraph 286.WT/DS121/R
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- The quantity of pairs imported increased by 70 per cent between 1991 and
1995, and by 52 per cent between 1991 and 1996 (Section VII.1).
- The domestic market share of imports also increased substantially.  For all
types of footwear, the share of imports in apparent consumption, measured at
current prices (pesos), increased from 10 per cent in 1991 to 27 per cent in
1995, while measured in numbers of pairs it rose from 12 per cent in 1991 to21 per cent in 1995, reaching a peak of  25 per cent in 1997 (Section VIII.1
and VIII.2).
- The growth of imports was greater in the performance sports shoe segment
than for other types of footwear (Section VIII.2).
- Owing to their lower price, imports exerted strong pressure on the industry,
significantly affecting results (Section XIII.1).
- The international picture shows a strong growth of imports of footwear and
major restructuring processes, together with many cases of government action
to restrict such imports (Section IX).
Thus, an absolute growth of imports between 1991 and 1995 has been found to exist.
Furthermore, this increase has also taken place relative to domestic production and the
domestic market.
(b)  Effects of imports on domestic production:  increased imports are causing serious
injury to the domestic industry and there is a further threat of injury in the absence of
safeguard measures, according to the factual findings of the investigation:
- During the period under investigation, the volume of output declined
both overall and for the domestic market.  The decline was greater for
the sample of enterprises surveyed than for estimated total output based
on macroeconomic statistics (Section VI.1).
- The performance of production measured at current prices was different from
that of production in physical terms, showing a growth of 7.7 per cent
between 1991 and 1995.  This is accounted for by the fact that the industry
shifted production to higher unit-value products in response to demand factorsand the need to compete in the international footwear trade within the
constraints of the Argentine rules of the game (Section VI.1).
- This decline in output was replaced by imports, essentially cheap imports, as
the investigation shows a growth in apparent consumption, both in current
pesos and in pairs, with the sole exception of the latter estimate for the year
1995, which showed a significant drop due to the economic recession (Section
XIII.1).
- Production for the domestic market declined proportionally more than total
output, as exports increased significantly over the period 1991-1995 (Section
VI.2 and VI.3).
- Although the effect of the special minimum import duties (DIEMs) began in
1994 and increased between 1995 and 1996, the industry's condition hasdeteriorated, with a demonstrated reduction in employment, rising inventoriesWT/DS121/R
Page 89
and worsening of the economic and financial situation of companies (Section
VI).”322
5.308  The European Communities argues that examinat ion of this statement reveals that most of
these claimed explanations of causal link are in reality simple references to the existence of "increased
imports" and “injury”. The European Communities submits that the simple juxtaposition of statementsabout increased imports and injury are clearly not sufficient to satisfy the requirements of Article 4.2
of the Agreement on Safeguards.  As a previous panel once had the opportunity to note, it is not
sufficient for an authority to refer to the evidence it considered and state its conclusion. “It was
incumbent upon the investigating authorities to prov ide a reasoned opinion explaining how such facts
and arguments had led to their finding.”
323
5.309  The European Communities maintains that in the above purported explanation of causal link,
there are only two instances where the situation of the domestic industry is referred to in anyrelationship with imports at all.  The first is in pa ragraph (a), fifth indent: “Owing to their lower price,
imports exerted strong pressure on the industry, significantly affecting results”. The second is in
paragraph (b), third indent: “This decline in output was replaced by imports, essentially cheap
imports.”  The European Communities states that it will demonstrate that these statements are
inaccurate and can in no way be considered as justifying a finding of causal link. Both statements inthe EC view are not based on "objective evidence" of the existence of a causal link, as required by the
first sentence of Article 4.2(c) of the Agreement on Safeguards.
5.310  First, the European Communities argues, the statement that “owing to their lower price,
imports exerted strong pressure on the industry” is wholly unsupported by any evidence.  One of the
errors committed by Argentina in this case was that there was no analysis of the prices of imports(although there was some consideration of the prices of domestic  production).  There is therefore no
basis to even start to examine whether import prices might have “exerted pressure” on the domestic
industry.
5.311  Secondly, the European Communities considers the claim that imports were displacing
domestic production ("this decline in output was replaced by imports, essentially cheap imports").The European Communities will show that there are two complementary errors here.  First, output is
not shown to have declined and, second, imports did not increase.  There can therefore be no question
of replacement of domestic production by imports. (A further error is the reference to  “essentially
cheap imports”; that has already been discussed above -- there is no analysis of the price of imports).
5.312  The European Communities submits that output did not decline between 1991 and 1996 on
any basis.  Argentina could only pretend to find a decline by ignoring 1996.  Also, the figures it used
related only to production for the domestic market.  Exports and subcontracting are ignored although
they keep the production lines running, employ workers, and generate revenue.  Also, even according
to Argentina’s own way of calculating production (disregarding exports and subcontracting), there
was an increase in exports in value  terms even from 1991 to 1995.
5.313  The European Communities states that the co mplementary error was that imports (whether
from non-MERCOSUR countries only or from all countries) had not increased (see sectionV.C.2(a)(i)), a manifest error.  The European Communities states that it submitted material to the
                                                     
322 See Exhibit EC-17, document  G/SG/N/10/ARG/1, G/SG/N/11/ARG/1 of 15 September 1997, at
page 2-3. The same reasons are also given in the injury notification of 25 July 1997, Exhibit EC-16, documentG/SG/N/8/ARG/1, at pages 37 and 38. See also Exhibit EC-20, document G/SG/N/10/ARG/1/Suppl. 1,G/SG/N/11/ARG/1, Suppl. 1, at page 2.
323 See Panel Report, Brazil – Milk Powder, at paragraph  286.WT/DS121/R
Page 90
Panel which show how imports decreased both absolutely and as a proportion of domestic production
at the end of the investigation period.324
5.314  The European Communities argues that in addi tion to not providing proper arguments for a
causal link, Argentina's analysis is also inadequate in  a number of other respects by failing to consider
relevant factors which would have demonstrated an absence of causal link or demonstrated that other
causes were to blame for the developments observed.  According to the European Communities, theseinclude:
--  The failure to carry out a price analysis of imports which could have shed light on the market
relationship between imports and domestic production and thus on causal link;
--  The structural changes in production patterns occurring in Argentina which were being
brought about deliberately through the operation of the Industrial Specialisation Law
325. The
operation of this law, which allows producers to import at much reduced duty rates (includingexemption from minimum specific duties) on condition that they export equivalent quantities)
must have had a number of effects on the various injury factors examined by Argentina but no
allowance is made for this;
-- There is another reason why imports could not have been causing any injury which might
have existed. Argentina found serious injury despite the presence of the 1993 minimum specific
duties, which were in many cases identical to the 1997 safeguard measures. Thus, even if --
despite the imposition of such duties on imports -- the alleged serious injury had occurred, it can
be concluded that the injury could not have been caused by imports. This would indicate that
any "serious injury" would necessarily have been caused by other factors (e.g. macro-economicdifficulties). No explanation is given by Arge ntina of how imports could have caused injury in
spite of the existence of the minimum specific duties
5.315  Accordingly, the European Communities asserts, it is impossible to argue that imports
replaced domestic production.
5.316  In response to Argentina's query about what test the European Communities would suggest
concerning a causal link,
326 the European Communities underlines its position that it is not possible to
establish a causal link by comparing the beginning of a 5 year period with the end and noting an
increase of overall imports and some change in the condition of the domestic industry – causation is a
process and to reveal a causal link it is necessary to examine and explain what has happened duringthis period.  This is especially so when a lot else is happening in that period.  A major move towards
liberalisation of imports in the Argentine economy, an economic crisis (the tequila effect) and the
introduction of a system of minimum specific duties on imports of footwear.
5.317  According to the European Communities, it is in particular not possible to claim, after
surveying the evidence, to have established a causal link between imports and injury when no detailed
examination has been made of the relationship between the prices of imported goods and those of the
domestic goods.  Price is the means by which products compete with each other and thus the way inwhich imports could be found in a safeguard investigation to be taking market share from domestic
production.  Argentina was asked to give more detail on the examination that it did carry out an
investigation of prices.  The European Communities asserts that Argentina's answer to Panel
questioning 
327 merely confirms the inadequacy of its data since Argentina only presents average
                                                     
324 EC Graphs 1 and 2.
325 The operation of this scheme is explained in notification G/SCM/N/3ARG/Suppl. 1, of
28 July 1997.  Exhibit EC-31.
326 Infra, para. 5.357.
327 Supra , paras. 5.191-5.194.WT/DS121/R
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figures for the whole industry and thus ignores the fact that imported shoes were of different types and
that the kinds of shoes produced by the domestic industry and imports varied over the period.  Thus,
according to the European Communities, the additiona l elements which would have been needed are
inter alia an examination of:  the trend  in imports over the period; the changes  that took place over
that period (i.e. the other factors that might have been involved); a price analysis showing how the
prices of imported products affected the prices of domestic products; and a reasoned explanation of
how the trend in imports caused the injury and the other factors did not.  This is precisely what
Argentina has failed to do, for the simple reason, the European Communities submits, that there was
no causal link between imports and the alleged serious injury.
5.318  The European Communities also takes issue with Argentina’s invocation of threat of injury.
Perhaps because it realised the weakness of the arguments on serious injury, Argentina adds to the
preface to its list of alleged causality indicators in paragraph (b) of the text quoted above: "there is a
further threat of injury in the absence of safegu ard measures". However, nothing in the reasoning
contained in the above quotation points to a causal link between increased imports and a threat of
serious injury.  Article 4.1(b) provides that “a determination of the existence of a threat of serious
injury shall be based on facts and not merely on allegation, conjecture or remote possibility”. The
European Communities submits that the same applies a fortiori to the establishment of a causal link.
(ii) Argument of Argentina
5.319  Argentina points out that the Argentine authorit ies, the CNCE, the Under-Secretary of Trade
and the Secretary of Trade, in their respective reports to the Ministry of the Economy, clearly
established on the basis of substantiated facts and sufficient evidence that the increase in footwear
imports has been the cause of the serious injury to the industry.  For reference purposes, the complete
file of the investigation and its findings were included in the notification to the Committee onSafeguards.
5.320  Argentina argues that the CNCE based its fi ndings on the interaction between a rapid growth
in imports and a decline in the performance of the industry which led directly to the replacement of
domestic production with imports.  Argentina refers to Chart 7
328 which, it asserts, clearly shows that
until 1992, there was no marked change in overall production, but that the increase in imports from1991 to 1993 caused a decline in production and a corresponding decline in GDP, while the GDP for
overall production actually increased.
329  Argentina refers to Chart 8 which, it submits, shows that the
GDP of the economy in general was growing in real terms while the GDP for footwear was
decreasing sharply, even more sharply for footwear  than for production or for the economy as a whole
in 1995.330
5.321  According to Argentina, thorough examinatio n of the Technical Report in Act No. 338
reveals a complete and integrated analysis of each relevant factor.  Part XIII, Section 2 sets forth the
grounds for the Commission's determination that the increase in imports caused serious injury and that
there was an additional threat of injury.  The Commission found that domestic production had
decreased, that domestic sales had decreased even more and that the production had been replaced by
imports during the increases and decreases experienced by the market in general (1995).
5.322  Argentina submits that in spite of the effects of the DIEMs, which managed to keep imports
below 1993 levels, the effects of imports continued to cause serious injury.331  These harmful effects
                                                     
328 Exhibit ARG-3, Technical Report, Chart 7, sheet 5434.
329 Exhibit ARG-3, Technical Report, Table 6, sheet 5431 and Final Report of the Under-Secretary of
Foreign Trade, Exhibit ARG-5, page 13.
330 Exhibit ARG-3, Technical Report, Chart 8, sheet 5435.
331 Exhibit ARG-3, Act No. 338, pages 47 and 48.WT/DS121/R
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were shown by the reduction in employment, the increase in inventories throughout the industry and
the deterioration in the economic and financial situation of the enterprises concerned.332
5.323  Argentina argues that the European Communities is mistaken in concluding that import levels
no longer caused injury following the application of the DIEMs.  Argentina contends that the
Commission simply found that imports had decreased to a certain extent, but its complete analysis
confirms (paragraph 98) that the injury continued and that there was an additional threat of injury inthe absence of the DIEMs which were to be withdrawn.
5.324  Finally, Argentina continues, the GDP data confirms a clear interrelationship between the
increase in imports and the decrease in the industry's GDP.  Thus, in analysing the causal link, the
CNCE points out that:  "the Co mmission … concluded that increased imports are causing serious
injury to the domestic industry and that there is a further threat of injury in the absence of safeguard
measures."
333
5.325  Thus, in Argentina's view, it is unacceptable for the European Communities to argue that
Argentina did not relate its determination of injury to the state of the industry.  Once it had finished
compiling and analysing the information on, for example, the financial position in the industry, the
CNCE determined that there has been a considerab le decline.  Moreover, Argentina concluded that
this financial position was brought about by an increase in inventories and a decline in the industry's
sales (break-even point), which were replaced by imports.
5.326  According to Argentina, the European Commun ities cannot expect to find the conclusions of
an investigation covering 10,000 sheets compressed into one sheet.  The investigation contains all of
the elements required to prove that there has been  an increase in imports and to demonstrate the
effects of that increase on the footwear-producing industry.  Thus, it fulfils the requirement of Article
4.2(b) concerning the causal link between the increase in imports and the serious injury or threatthereof.
5.327  In short, Argentina contends, the CNCE simply proceeded according to Article 4.2(a) and
analysed the factors.  Subsequently, when those factors made it possible to prove the existence of
serious injury, the CNCE and the other authorities drew up their reports emphasising the rational link
between each one of them and the state of the footwear industry (as required by Article 4.2(b)).  Forexample, increased imports = increased unemployment;  increased imports = increased share in the
domestic market;  decline in domestic production = increased share of imports in apparent
consumption while total apparent consumption remains stable, and so on.
5.328  Argentina notes that the European Communities attacks these links established by the
Argentine authorities on the grounds that they are not sufficiently substantiated.  However, theEuropean Communities itself, in arguing that Argentin a failed to consider "other factors", is simply
making assertions without any empirical backing.  It states, for example, that Argentina failed to carry
out a price analysis (when in fact, it did) and concludes that such an analysis would have shown that
other causes were responsible for the mentioned facts.  In other words, Argentina analyses the factors,
concludes that there is injury and demonstrates the causal link, while the European Communities
asserts that there are "other causes" besides the increase in imports that cast doubt on the causal link –
but it does not say what they are so that Argentina can refute its claims.  For example, Argentinaqueries how the EC statement that it is "the macroeconomic difficulties" that are causing injury to the
domestic industry can be refuted.
334
                                                     
332 Exhibit ARG-21, Act No. 338, sheets 5322, 5325 and 5326 and 5851.
333 Exhibit ARG-3, Act No. 338, page 47.
334 Infra , para. 5.359.WT/DS121/R
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(iii) Response by the European Communities
The arguments in Argentina's first written submission
5.329  The European Communities states that the response in Argentina’s first written submission is
brief and unconvincing. It does not address most of the European Communities’ arguments and seeks
to obfuscate the issues with references to the Techni cal Report and in particular to its conclusions and
by complaining that the European Communities "cannot expect to find the conclusions of aninvestigation covering 10 000 pages compressed into one page.”  The European Communities
emphasises that it is not in conformity with the Agreement on Safeguards for an investigating
authority to survey a mass of documents and simply conclude  that there is a causal link. It needs to
state its reasons and these reasons need to make sense.  The European Communities considers that
Argentina has confirmed the European Communities’ conclusion that no causal link was established
by not replying to the EC criticisms of the statement.
5.330  Regarding the issue of causality, the European Communities notes that Argentina first
chooses to refer to Chart 7 to the CNCE Report at page 5434 which is supposed to clearly show that
“until 1992, there was no marked change in overall production, but that the increase in imports from
1991 to 1993 caused a decline in production and a corresponding decline in GDP, while the GDP for
overall production actually increased". Chart 8 to the same Report at page 5435 is called in aid to
show GDP for footwear was “declining sharply” in 1995.  According to the European Communities,this “clear evidence” consists of:
• Chart 7 comparing footwear production with total manufacturing production, a procedure
rendered necessary by the fact that footwear production is constantly increasing. There is a relative
decline in footwear production between 1992 and 1993, which according to the European
Communities disappears when the scale is shifted.   The European Communities questions whether
this shows an industry in distress, and whether a one-off not-repeated relative decline in 1992-3justifies safeguard measures in 1997;
• Chart 8, which in fact is the same as Chart 7 but with the upper line inflated by including total
domestic product at “market prices”. For the European Communities, it is difficult to see how thiscan provide any more information than Chart 7.
5.331  The European Communities questions in any event how this demonstrates a causal link with
increased imports particularly since the mechanism by which any increased imports could adversely
affect domestic industry, that is the interaction between the prices of imported and domestic goods has
not been analysed.
5.332  The European Communities notes that Argentina th en refers the Panel to Part XIII Section 2
of the Technical Report in Act N° 338 as setting out the grounds of causality.  For the European
Communities, this adds nothing new.  The Technical Report in Act N° 338 is reproduced in
Argentina’s injury notification and the European Communities attached it as Exhibit EC-16. The
causality grounds are at page 38 and referred to footnote 67 to the European Communities’ first
written submission.  It is included in the more complete list of “grounds of causality” which the
European Communities quoted in extenso and analysed above
335.  The European Communities asserts
that Argentina fails to mention that the European  Communities considered this list or of course to
reply to the European Communities’ criticisms of it.
5.333  The European Communities argues that, as if ac cepting that there is nothing to demonstrate
causality, Argentina next resorts to explaining that :
                                                     
335 Supra , para. 5.307.WT/DS121/R
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“In spite of the effects of the DIEMs, which managed to keep imports below 1993
levels, the effects of imports continued to cause serious injury” (paragraph 152) and
“The European Community is mistaken in concluding that import levels no longer
caused injury following the application of the DIEMs.  The Commission simply
found that imports had decreased to a certain extent, but its complete analysis
confirms (paragraph 98) that the injury continued and that there was an additionalthreat of injury in the absence of the DIEMs which were to be withdrawn” (paragraph
153).
The European Communities contends that this does  not make sense.  The Agreement on Safeguards
requires that increased imports cause serious injury.  It is impossible to conclude, while respecting the
Agreement on Safeguards, that there was nevertheless serious injury caused by increased imports
despite the fact that import decreased.  For the Europe an Communities, if it is true that there is injury,
this simply proves that there must be some cause other than increased imports.
5.334  In the EC view, Argentina’s real argument seems to be that there would have been increased
imports if it had not been for the DIEMs and this woul d then have been the cause of injury or a threat
of injury.  The European Communities underlines that this is not allowed by the Agreement on
Safeguards.  A threat of injury must be due to an actual  increase in imports . Safeguard measures
cannot be justified by a threat of increased imports .  The European Communities argues that there is
nothing much else in this section on causality except that Argentina repeats that the investigation was
long and complicated, that the CNCE concluded that there was a causal link, and that the European
Communities has merely mentioned other possible factors and not demonstrated that they caused
injury.  The European Communities contends that there was no serious injury.  The European
Communities did not seek to show that other factors caused the alleged serious injury, which in anycase this is not its role.  It pointed to the absence of analysis of certain factors, which Argentina has
not refuted.  The European Communities points as an example to the issue of the Industrial
Specialisation Law, which promotes imports and exports by Argentine producers.
Argentina's answers to the Panel’s questions
5.335  The European Communities states that the Panel first asked Argentina
336 to specify where in
its investigation report it considered the relevan ce of each injury factor, in particular for its
determination of causation.  Argentina responded by explaining the structure of Act 338 and the
CNCE Report, and confirming that the "causality decision" could be found in the subsection entitled
"final conclusions" at the end of Act 338 (pages 47 - 48) which "determines the causal relationship".
The European Communities points out that the subsection of Act 338 to which Argentina is referringcorresponds to pages 37 and 38 of the injury notification of 25 July 1997 in Exhibit EC-16 and is
reproduced in paragraph 2 of the notification of 1 September 1997 (Exhibit EC-17) which was quoted
in extenso  by the European Communities
337.  It is this reasoning (or rather list of considerations)
which the European Communities analysed and demonstrated that it did not contain a justification of a
causal link.
5.336  The European Communities argues that the Pa nel also invited Argentina to provide the
missing causality analysis by asking the following questions at the first meeting:
“20. Argentina makes the argument that the repeal of the DIEMs would have caused a
threat of serious injury to the domestic industry unless provisional safeguards were taken.  Is
it Argentina's argument that removal of the DIEMs necessarily would have led to an
increase in imports, and that such increase necessarily would have caused serious injury?  If
                                                     
336Question 19 by the Panel to Argentina, at page 9.
337Supra , para. 5.307.WT/DS121/R
Page 95
so, how can Argentina reconcile this argument with the language in Article 4.1(b) regarding
the determination of a threat of serious injury (i.e., to be “based on facts and not merely on
allegation, conjecture or remote possibility”).  If not, how did Argentina establish and
substantiate the link between the two?  Wher e in the record of the investigation can this
analysis be found?
21. Assuming that an investigating authority finds (i) absolute or relative increases inimports and (ii) serious injury to the domestic industry, what else in specific terms must it
establish in order to demonstrate a causal link between the two?  Please indicate how
Argentina addressed this point in its investigation on footwear, and indicate where in the
record this analysis can be found.”
5.337  According to the European Communities, the first of these questions (n° 20), is asking
Argentina to justify its “threat of injury” argument.  The European Communities notes that Argentina
responds by saying that the removal of the DIEMs would cause imports to increase and that “the levelof imports at the moment at which the preliminary measure was imposed was causing actual serious
injury.  Further increases could only aggravate the serious injury.”
338  The European Communities
asserts that it therefore confirms that the threat of injury was based on an anticipated rise in imports
due to the removal of the DIEMs.  The European  Communities maintains its position that the clear
text of the Agreement on Safeguards requires that a threat of injury must be due to an actual  increase
in imports  and cannot be justified by a threat of increased imports, however probable such an increase
might appear.
5.338  The European Communities asserts that it therefore only remains to examine Argentina’s
allegation that at the time the provisional measure was imposed the level of imports was causing
actual serious injury.  According to the European Communities, this is what the Panel’s secondquestion on causality (n° 21) invited Argentina to justify.
5.339  The European Communities contends that Argentina bases its reply to Question 21 on a series
of findings and pointing to the places in the investigation record where they are allegedly to be found.
The European Communities quotes the passage in its entirety and then states that it will demonstrate
that they in no way contribute to establishing a relevant causal link:
“Argentina specifically determined that imports had increased
15 at the expense of national
production16 causing sales to fall17 and inventories and associated costs to increase.  The
decline in local production as well as the costs associated with increased inventories had been
directly responsible for a decrease in the profitability of the industry18 and resulted in an
inability to service debts19 or to remain above the "break-even point".20  This examination is
described in detail in the determinations concerning the factors in Parts VI.1 to VI.9 of Act
No. 338.”
_________________________________________
15 Page 47 of Act No. 338 indicates absolute increases in volume and value terms for the periods
1991-1995 and 1991-1996.  In terms of value, the penetration of imports increased for all types offootwear during the investigation period.
                                                     
338 Argentina 's full response to by the Panel was as follows: "Argentina analysed import trends before
and after the DIEMs.  The CNCE reached the conclusion, hardly surprising, that the application of import duties
in the form of specific duties had caused a decrease in imports, and that if these duties were removed, imports
could be expected to resume the same upwards trend.   The level of imports at the moment at which the
preliminary measure was imposed was causing actual serious injury.  Further increases could only aggravate theserious injury.   These are not hypothetical conclusions, but conclusions based on import trends observed duringthe analysis period and the injury they caused during that period.  In determining the threat of injury, theauthorities always have to anticipate future events.  However, when future trends are projected on the basis ofobjective evidence of imports in the recent past, the re sults can never be considered as mere speculation or
conjecture."WT/DS121/R
Page 96
16 The market share of imports also increased during the period, from 12 per cent in terms of volume in
1991 to 21 per cent in 1995 (see Act No. 338, page 47, and the CNCE Technical Report, sheet 5504and Table 21a, sheet 5505).  According to the CNCE's estimates, domestic production in the sector fellby 15 per cent between 1991 and 1995, while the replies to the questionnaires from the medium andlarge enterprises showed a sharper decrease of 24 per cent during the same period (see Act No. 338,pages 16 to 17).
17 The CNCE determined, on the basis of the replies to the questionnaires for large and medium
enterprises, that sales fell by 27 per cent in volume and 15 per cent in value between 1991 and 1995(see Act 338, page 18).
18 The data on profitability showed consistent weakness during the period.  Profitability indexes
showed significant decreases in all cases (including operating profits, sales profitability, earning powerof assets and yield of capital) (Act No. 338, page 24, and Annex 4, Table 8, sheet 5467 of the CNCE
Technical Report).
19 See CNCE Technical Report, sheet 5467 and sheet 5665, Annex 4, Table 9, which shows a decline
in the ability to cover interest costs from 1993-1995,  with a recovery in 1996 to a level still below the
1993 level.
20 The small increase in the value of production during this period clearly did not generate enough
income to cover costs.  The decrease in sales profits narrowed the gap between sales revenue and the
"turning-point".  In 1995 and 1996, sales revenue was below the "turning-point" and enterprises wereunable to cover their fixed and variable costs and convert sales into profits (Act No. 338, page 24, andCNCE Technical Report, sheet 5471, and Table 12 and Chart 23, sheets 5472 and 5473.)]
The allegation that the increase in imports was “at the expense of national production”
5.340  The European Communities states that the issue of the increase in imports has been
sufficiently discussed in connection with the EC arguments under Article 2.1.  It is only necessary to
recall that the increase was established by including MERCOSUR imports, comparing the beginningof the investigation period to the end and ignoring the trend at the end of the period.  In any event, the
European Communities continues, there is no justification for the suggestion that domestic production
was suffering.  Argentine statistics clearly demonstrate that the domestic industry was capturing an
ever increasing share of the domestic market during the end of the period.
339  In 1996, the domestic
industry occupied 72 per cent of the market.340
The allegation that the increase in imports was causing sales to fall
5.341  The European Communities notes that the author ity for the allegation that the increase in
imports was causing sales to fall is said in footnote 17 to be at page 18 of Act 338.  This corresponds
to page 16 of notification G/SG/N /8/ARG/1 in Exhibit EC-16.  The referenced text is simply a
description of the sales of part of the Argentine i ndustry and contains no analysis of any causal link to
imports.
5.342  The European Communities in particular draws the attention of the Panel to the fact that the
figures provided on sales related to the domestic sales of own-production footwear by the sample
group of large and medium enterprises.  Of course, the European Communities asserts, such a fall
could also be explained by sales of non-own-production footwear or even by loss of sales to
companies outside the sample group of large and medium enterprises.  Indeed, two paragraphs further
it is revealed that 34 per cent of the responding small enterprises said that their sales had increased.
Furthermore, and as a further example of the lack of representativity of the figures on sales and of the
inconsistent approach followed dur ing the investigation, it should be noted that the CNCE specifically
stated that "companies exclusively producing footwear experienced, in general, increases in the
amount of their sales and profits."341
                                                     
339 The EC refers to EC Graph-2.
340 Exhibit EC-16, at page 26.
341 Exhibit ARG-3, Technical Report, sheet 5471.WT/DS121/R
Page 97
5.343  According to the European Communities, the unreliable and unrepresentative character of
these sales figures is also clear when they are contrasted with the positive developments on production
which increased by 7.7 per cent over the reference period.  If there was a drastic fall in sales by the
Argentine industry over the reference period as suggested by Argentina, the European Communities
asks how can production have increased by 7.7 per cent and where in the determination can any
explanation of this contradiction be found?
The allegation that decline in production and increase in costs had been directly responsible
for a decrease in profitability
5.344  The European Communities argues that no authority is given for the allegation in Argentina’s
answer to Question 21 that imports caused inventories and associated costs to increase.  The only
authority which is given is in footnote 18 which is supposed to support the allegation that this increase
in inventories and associated costs (together with the alleged decline in production) was “directly
responsible for a decrease in profitability”.  The relevant reference in footnote 18  is to Act No. 338,page 24, and Annex 4, Table 8, sheet 5467 of the CNCE Technical Report.  The European
Communities invites the Panel to refer to page 24 of Act No. 338 (which corresponds to page 20 of
notification G/SG/N/8/A RG/1 in Exhibit EC-16).  It should first be noted that this page is purely
descriptive and contains no causality analysis.  It is also important to note Argentina’s admission in its
notification (and Act 338) that:
“out of the total number of cases for which the corresponding accounting information could
be obtained (six "large" and six "medium" enterprises) a subset consisting of firms devoted
exclusively to footwear production was split off.  Although this subset does not constitute a
representative sample of the sector, since it consists of only four "medium" enterprises, it
was taken as a guide since the trend is not affected by other activities (imports or theproduction of other goods).
342”
5.345  In other words, the European Communities contends, this description of the financial position
cannot be taken as representative even of large and medium companies.  The underlying data referred
to (Annex 4, Table 8, sheet 5467 of the CNCE Tec hnical Report – Exhibit ARG-3) does in any event
not show an industry showing “serious injury."
The allegation that decline in production and increase in costs resulted in an inability to
service debts or remain above “break-even point”
5.346  The European Communities submits that the author ity given for the allegation that the decline
in production and increase in costs resulted in an inability to service debts is given in footnote 19
which refers to sheet 5467 and sheet 5665, Annex 4, Table 9 of the CNCE Technical Report, which issaid to show “a decline in the ability to cover interest costs from 1993-1995, with a recovery in 1996
to a level still below the 1993 level.”
5.347  The European Communities argues that the author ity given for the allegation that the decline
in production and increase in costs resulted in an inability to remain above “break-even point”  is
given in footnote 20 which refers to page 24 of Act No. 338 and sheet 5471, and Table 12 and Chart
23, sheets 5472 and 5473 of the CNCE Technical Report.
5.348  The European Communities has already noted that page 24 of Act No. 338 corresponds to
page 20 of notification G/SG/N/8/ARG/1 in Exhibit EC-16 which is describing the situation of an
unrepresentative subset of large and medium-sized companies.
                                                     
342 See first paragraph of Section 9 on page 20 of Notification G/SG/N/8/ARG/1 in Exhibit EC-16.WT/DS121/R
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The rest of Argentina’s answer to Question n° 21
5.349  The European Communities asserts that Argentina draws on the above findings and a
quotation from the conclusion to its injury analys is to make an unwarranted statement that "the
decline in profitability took place simultaneously and was directly related to the increase in imports".
According to the European Communities, the simultaneity and direct relationship are nowhere shown
by Argentina.  In fact, the Argentine import statistics illustrated in EC Graph 1 demonstrate theopposite, since it shows imports declining since 1993.
5.350  The European Communities notes that the only au thority quoted by Argentina in its answer to
support its claim is the determinations concerning GDP trends.  This is a reference back to the
Charts 7 and 8 discussed at the first meeting of the Panel.  It is true that there was a relative decline of
the footwear industry in Argentina between 1992 and 1993 but this did not continue as reference to
these Charts shows.
5.351  In any event, the European Communities challenges Argentina’s assertion that a relative
decline in relation to the manufacturing industries as a whole can be considered “serious injury”
within the meaning of the Agreement on Safeguards. Finally, the European Communities agrees that
the Agreement on Safeguards does not require that all of the factors considered in Article 4:2(a) need
be negative. The Agreement does however require that the relevant injury factors be shown to be
caused by increased imports and that Argentina has not done.
(iv) Rebuttal by Argentina
5.352  Argentina notes that the concept of causality calls for the establishment of a link between the
growth of imports and the existence of the injury factors relevant to the situation of the industry.  The
CNCE based its conclusion that there was such a causal link on the interaction between the rapid
growth of imports and the deteriorating performance of the footwear industry which led to thereplacement of domestic production by imports.
5.353  Argentina submits that if it disaggregates the components of this relationship, it cannot but
agree with the European Communities concerning the absence, in the Agreement on Safeguards, of a
precise definition of "objective evidence".
343   According to Argentina, the European Communities
cannot argue that Argentina has not used objective evidence as a basis for the analysis of the factorsset forth in Article 4.2(a).  The objective evidence which, in Argentina's view, proved the existence of
a causal link is contained in the file of the investigation.
5.354  Argentina notes that the European Communities quotes the Panel Report on " Brazil –
Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of
Milk from the European Economic Community "
344, explaining that it is not enough for the competent
authority to recite facts.  Argentina certainly does not dispute this assertion.  The panel's conclusions
in the mentioned Report refer strictly to Administrative Order 297 of the Government of Brazil which
imposed a provisional measure (qualitatively different, surely, from a definitive measure).  In this
case, the definitive measure was based not only on the CNCE Technical Report, which provided the
justification for Part XIII of Act No. 338 (final opinions of the CNCE) setting forth in detail the
reasons and methods behind the CNCE's evaluation of the evidence (pages 46-48), but also on the
evaluation contained in the Final Report of the Department of Foreign Trade, which forms part of thereasoned substantiation of the causal link.
5.355  Moreover, Argentina continues, to draw an even clearer distinction between the " Brazil –
Powdered Milk " case and the safeguard measure applied by Argentina, paragraph 292 of the above-
                                                     
343 Supra , para. 5.306.
344 SCM/179.WT/DS121/R
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mentioned Report specifies that the disputed Brazilian order (which established provisional duties)
does not include a definition of such elements as domestic industry, and the panel could not therefore
discern how the authorities had examined the volume of the imports, the price effects of the imports
and the consequent impact of the imports on the domestic industry.  In this case, Argentina argues, the
CNCE clearly defined the domestic industry, analys ed the volume of imports both in absolute and
relative terms, defined the so-called "break-even point" (negative impact on prices) and confirmed thespecific effect of imports on the industry.
5.356  Argentina argues that if all of the elements by which Argentina substantiated the causal link
on which its decision was based are borne in mind, i.e. the CNCE Technical Report, the notification
of injury submitted to the Committee in accordance with the agreed format, and Resolution 987/97
itself, published in the Official Bulletin, the two cases appear to be quite different from each other.
5.357  Argentina notes that the investigating author ity assessed the pressure being exercised by
imports and their replacement of domestic production.  Argentina questions, if this does not constitutea reasoned development of the causal link, what in the way of Cartesian logic might be more
convincing to the European Communities, or when could the legal standard be met?
(b) Other factors – Second sentence of Article 4.2(b)
(i) Argument of the European Communities
5.358  The European Communities states that the second sentence of Article 4.2(b) of the Agreement
on Safeguards requires an investigating authority to eliminate the effect of other factors than the
increased imports in its causality analysis and provides that injury caused by these "shall not be
attributed to increased imports."  Thus, even if it were correct for Argentina to assess the volume of
imports by including MERCOSUR imports and it had been able to show a causal link between these
overall increased imports and serious injury ( quod non ), the European Communities submits that it
would still have been necessary for Argentina to examine whether and to what extent the
MERCOSUR imports had been causing injury and to have  allowed for this effect so as not to attribute
this injury to the increased imports subject to the proceeding.
5.359  The European Communities argues that another factor which could have been contributing to
any injury which might have existed and which should have been allowed for under the secondsentence of Article 4.2(b), is the general economic situation.  According to the European
Communities, Argentina admits the relevance of macroeconomic difficulties where it refers in the
"Final Opinions" of the injury analysis
345 to the fact that "[i]t was not foreseen that the pressure
exerted on the market by imports would develop so rapidly in a period in which the national economy
was experiencing macroeconomic difficulties".  Furthermore, Argentina also refers to the so-called
"tequila effect" as being relevant346.
5.360  Furthermore, the European Communities notes that Argentina acknowledges in Resolution
226/97347, imposing provisional safeguard measures, that
"the technical report of the above-named body [the National Foreign
Trade Commission] considered the difficult situation  of the domestic
industry and the financial situation of the main footwear companies,
                                                     
345 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 38.  See also Exhibit EC-17, document
G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, at page 3, where Argentina notes a significant drop in consumption in1995, due to the "economic recession".
346 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 14.
347 See Exhibit EC-12, document G/SG/N/6/ARG/1/Suppl. 1, G/SG/N/6/ARG/1/Suppl. 1, at page 2.WT/DS121/R
Page 100
whose debts are increasing as domestic sales fall, and this partly as a
result of import trends ". (emphasis added)
5.361  The European Communities argues that although Resolution 226/97 concerns the imposition
of provisional safeguard measures, this statement is equally relevant for definitive safeguard
measures, since it relates to the alleged existence of a "difficult situation" which would be partly theresult of import trends.  Whilst such an alleged "difficult situation" (i.e. the alleged existence of
serious injury) is also the basis for the imposition of definitive safeguard measures, Argentina did not,
in its investigation, analyse the other factors which it had admitted existed and could be the possible
cause of such situation.
5.362  With respect to the Industrial Specialisation Law, the European Communities states that
Argentina says that the Industrial Specialisation Law was investigated and found to be “insignificant”.
The European Communities finds this difficult to beli eve and submits that it has searched in vain in
the volumes of data produced by Argentina to de termine what “insignificant” means.  Why, the
European Communities queries, did the investigating authority not consider the figures for imports
and exports of footwear under this regime? The European Communities points out that there was no
data anywhere in the voluminous reports which could help to establish what “insignificant” means.
Only in its reply to the European Communities’ questions did Argentina state that in 1996 theproportion of total imports benefiting from this regime was 9.7 per cent.
348
5.363  The European Communities would repeat that such a figure is more significant than it appears
at first sight since only Argentine manufacturers can benefit from the scheme and then only on
condition that they export equivalent quantities.  Imports under the Industrial Specialisation Law as a
percentage of the total imports by Argentine manufacturers would be much higher.
5.364  The European Communities maintains its position that Argentina should have taken account
of the impact of the Industrial Specialisation Law in its causality analysis and was wrong to dismiss it
as "insignificant".  First, its purpose was to increase subcontracting and would have had the effect of
increasing imports, exports and sales on non-own-production footwear during the latter part of the
investigation period.  It therefore had an effect on many of the statistics which Argentina analysed inorder to assess the impact of imports.  Its effects should have been taken into account in order to
validly compare the beginning of the reference period with the end.  This was all the more important
because it was a temporary phenomenon and was suspended in August 1996.
349
5.365  With regard to indebtedness, the European Communities argues that Argentina has repeatedly
claimed that its industry is suffering from indebtedness.  However, and apart from the fact that the
data obtained during the investigation on profit and losses are not representative, the European
Communities asserts that nowhere has Argentina assessed the origin of such debts and their effect on
the alleged injury of the industry.  Any such debts do not appear in any event to be related to imports
and would accordingly be another factor, alleged by  Argentina in its injury determination, but which
the Argentine authorities have failed to assess in their causality determination.  In reality, any such
debts would appear to be the result of the misc alculation of the Argentine producers which, according
to Argentina350, significantly increased its installed capacity without due regard to the evolution of the
local and foreign footwear markets.
(ii) Argument of Argentina
5.366  Argentina argues that it addressed the only other factor considered relevant to the injury to its
industry, the so-called "tequila effect", and ensured that the injury caused by that factor was not
                                                     
348 This is the figure given in Argentina’s answer to EC Question 4.
349 Reply of Argentina to Panel question, infra , note 353.
350 Supra , para.5.273.WT/DS121/R
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attributed to increased imports (as required under Article 4.2(b) of the Agreement on Safeguards).
Argentina points out that during 1995, market cond itions had grown worse;  in any case, the CNCE
specifically verified that imports were particularly damaging in the context of these depressed
macroeconomic conditions.351  Argentina states that it was under no obligation to evaluate any other
possible factor, but to be sure that imports were the cause of the serious injury.
5.367  Argentina also maintains that it found that imports under the Industrial Specialisation Regime
were insignificant and, consequently, could not cause injury.352  Thus, contrary to the European
Communities' claims, Argentina argues that it did evaluate this "other factor".  The analysis took
account of the conditions in which the imports took place in the context of the mentioned regime, and
concluded that they had contributed marginally to a change in production patterns of Argentine
enterprises in the footwear sector353.
                                                     
351 Exhibit ARG-2, Act No. 338, page 47.
352 Exhibit ARG-2, Act No. 338, page 28.
353 In response to questioning by the Panel  concerning the nature and operation of the Industrial
Specialization Programme, Argentina clarified that th e Industrial Specialization Programme was described in
Argentina's notification to the Committee on Subsidies and Countervailing Measures on 24 July 1997.353
According to Argentina, the operation of the Industrial  Specialization Programme can briefly be described as
consisting in granting a benefit to cer tain enterprises by permitting them to import goods subject to the payment
of an import duty of 2 per cent over the first thr ee years (1993-1996), subsequently increasing according to a
formula contained in the regulations to Decree 2641/92 creating the Industrial Specialization Programme.  Thebenefit is granted to enterprises which undertake to carry out exports exceeding the quantities exported in 1992
by a given amount.  The enterprises in question are supp lied with a certificate which they must present to the
General Customs Directorate (DGA) in order to obtain the benefit.  The certificate is only issued if theenterprises registered in the Industrial Specializatio n Programme provide a document proving that they have
carried out the exports as provided for in the programme and are thus entitled to the benefits.  Argentina states
that these benefits were available until August 1996, when it was decided to suspend them in respect of newenterprises.  Indeed, Decree 977/96 ordered this suspension as from August 1996.  In any  case, the programmewas to be concluded in 1999.  Following the suspension in August 1996, the programmes originally submittedby enterprises and approved the implementing authority remained in force.  Argentina further explained that
when the DIEMs were imposed, the enterprises that ha d been approved under the Industrial Specialization
Programme wished to continue importing at the reduced duty rate of 2 per cent under the benefit.  Subsequently,it was decided to limit this benefit and apply a formula for calculating import duties to be paid by enterprisesbenefiting from the Industrial Specialization Programme.  Although continuing to receive a benefit in that they
were able to pay an import duty lower than the DIEMs, the beneficiary enterprises nevertheless had to paysubstantially more than the original 2 per cent.  Argentina asserts that this adjustment was introduced by
MEYOSP 543/95.WT/DS121/R
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5. Article 5.1 of the Agreement on Safeguards -  Alleged failure to demonstrate that the
safeguard measure was applied only to the extent "necessary" to prevent or remedy
serious injury and facilitate "adjustment
(a) Argument of the European Communities
(i) "necessary"
5.368  The European Communities points out that the first sentence of Article 5.1 of the Agreement
on Safeguards provides that:  "A Member shall apply safeguard measures only to the extent necessary
to prevent or remedy serious injury and to facilitate adjustment . […]".  The European Communities
states that, for the reasons outlined, it cannot accept that a safeguard measure should have been
imposed in this case.  However, even if the Panel should find that Argentina's analysis of increased
imports, serious injury and causation was correct, the European Communities submits that Argentina
violated Article 5.1 of the Agreement on Safeguards because the measures were not necessary and the
most suitable to remedy any serious injury and facilitate adjustment.
5.369  According to the European Communities, the fact that safeguard measures are "limitative and
deprivational in character or tenor and impact upon Member countries and their rights or privileges
and upon private persons and their acts" was clearly recognised by the Appellate Body in United
States – Restrictions on Imports of Cotton and Man-made Fibre Underwear .354  In the light of that
characterisation, the Appellate Body drew the c onclusion that an importing Member should not be
allowed "an enhanced ability to restrict the entry into its territory of goods in the exportation of which
no unfair trade practice such as dumping or fraud or deception as to the origin, is alleged or
proven"355, by taking safeguard action beyond the strict limits laid down in the relevant WTO
provisions.
5.370  The European Communities contends that the term "necessary" in Article 5.1 indicates the
"fit" between the cause of injury and any safeguard measure to be applied.  In other words, Article 5:1
requires that the safeguard measure be specifically tailored to remedy the injury; the measures may
neither be so broad as to overcompensate for the injury, or so narrow as to fail to remedy the injury.
As stated in the last sentence of Article 5.1: "Members should choose measures most suitable for the
achievements of these objectives."
5.371  Furthermore, the European Communities continues, Article XIX:1(a) GATT356 requires that
safeguard measures must be necessary to remedy serious injury.  Article 5.1 of the Agreement on
Safeguards requires that the temporary protection from foreign competition must be necessary to
prevent or remedy serious injury, as well as to facilitate adjustment by the domestic industry357.  The
rationale for these two provisions is clearly that protection of an inefficient industry sector with norecovery prospects by means of safeguard measures should be excluded.  A WTO Member seeking to
take a measure under the Agreement on Safeguards must put forward convincing evidence
demonstrating that such a measure is, in its scope and level, "necessary".
5.372  The European Communities submits that Argentina failed to provide any justification as to
the reasons why the specific minimum duties applied we re "necessary" in the present case.  First, the
                                                     
354 Appellate Body Report, United States – Restrictions on Imports of Cotton and Man-made Fibre
Underwear , WT/DS24/AB/R, 10 February 1997, at page 13.
355 Appellate Body Report, United States – Restrictions on Imports of Cotton and Man-made Fibre
Underwear' , WT/DS24/AB/R, 10 February 1997, at page 14.
356 Article XIX:1(a) GATT 1994 refers, in virtually identical terms, to the "extent and for such time as
may be necessary to prevent or remedy such injury".
357 See also the Preamble of the Agreement on Safeguards, second last paragraph: "[r]ecognizing the
importance of structural adjustment and the need to enhance rather than limit competition in internationalmarkets."WT/DS121/R
Page 103
European Communities notes that Argentina imposed definitive safeguard measures on a full range of
footwear products which, according to the Argentine analysis, were divided into 5 categories of
footwear.  Whilst Argentina failed to demonstrate the existence of serious injury or threat thereof in
all and each of these sectors, it imposed safeguard measures to the products included in all five
categories.  Such measures clearly were not "necessary".  The European Communities particularly
objects to the fact that there is no justification, or even explanation, of the level of minimum specificduties imposed by Argentina.  The calculation of the duties appears completely arbitrary.
5.373  Second, the European Communities argues that Argentina's analysis of the years 1991-1995
was based on imports from both MERCOSUR c ountries and non-MERCOSUR countries, while the
safeguard measure only applies to the latter.  Clearly, if the analysis would demonstrate that all
imports (from both sides) had caused serious injury to the domestic industry, quod non , a safeguard
measure limited to non-MERCOSUR imports w ould violate Article 5.1 of the Agreement on
Safeguards, since the application of a sa feguard measure to non-MERCOSUR countries only would
place the burden of the measure beyond what was "necessary" to remedy the limited degree to which
those countries had contributed to the injury.  In short, Argentina would have overcompensated for the
degree to which non-MERCOSUR imports had contributed to the injury.
358
5.374  Finally, the European Communities submits, as noted above, the alleged serious injury
occurred despite the presence of minimum specific duties of a similar, and in many cases identical,amount as those applied by the safeguard measure now in force.  Since Argentina claims to have
found actual serious injury during the investigation period, the minimum specific duties have
therefore not been effective to remedy injury to the domestic industry.  Thus, the same minimum
specific duties in the form of a safeguard measure cannot be considered "necessary" in the sense of
Article 5.1 of the Agreement on Safeguards.
5.375  The European Communities points out that Argentina misrepresents the EC argument as
meaning that it (Argentina) should be prevented from applying safeguard measures because the
European Communities considers that the industry has no hope of recovery.  The first reason that this
is inaccurate is that the European Communities does not consider the Argentine industry injured at all.
The point the European Communities was making however  is that the majority of imports and all the
increase in imports is coming from MERCOSUR countries.
359 and that that safeguard measures which
according to Argentina cannot be applied to MERCOSUR would have no hope of preventing or
remedying the supposed serious injury and no prospect of facilitating adjustment.  They are therefore
neither necessary nor suitable.  Therefore, applying the burden of the safeguard measure only on non-
MERCOSUR countries places the burden of the measure beyond what was "necessary" to remedy thelimited degree to which those countries had contributed to the injury.  In other words, Argentina has
overcompensated for the degree to which non-ME RCOSUR imports had contributed to the injury.
5.376  The European Communities argues that the objective of the safeguard instrument is to provide
temporary relief during a limited period of time so that a domestic industry, which has suffered
                                                     
358 In response to questioning by the Panel , the European Communities  stated that Article 5.1 of the
Agreement on Safeguards sets out that a safeguard measure shall only be applied "to the extent necessary" toprevent or remedy the serious injury which is being caused by increasing imports.  If safeguard measures are not
to be applied within a regional integration area, such as a customs union, a positive injury determination may
only be made if the serious injury is caused by the extra-zone imports.  Thus, according to the European
Communities , it is not a question of "overcompensation" but rather of whether increased extra-zone imports
cause the serious injury to the domestic industry, and subsequently what measure, given this link, is necessary to
prevent or remedy such injury.  If serious injury is caused by other factors, for example intra-zone imports, no
measure should be imposed on extra-zone countries.
359 EC Graph-1.WT/DS121/R
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"serious injury", can adjust360.  This objective is incorporated in the text of Article 5.1, which speaks
of "adjustment" and in the text of Article 7, which underlines the "temporary" aspect of safeguard
measures.  The safeguard instrument is therefore a us eful tool to help an industry through a difficult
period.  Furthermore, as has already been noted, any alleged injury situation could not have been
redressed by imposing safeguard measures solely on decreasing non-MERCOSUR imports, whilst
exempting from the measure rapidly increasing MERCOSUR imports.  The European Communitiesconcurs with the United States where it claims
361 that Argentina violated Article 5.1 of the Agreement
on Safeguards.  The United States states362 that "[d]espite identifying MERCOSUR as the source of
the injurious imports, however, Argentina proceeded to implement a safeguard measure that was not
designed to affect the imports that caused the injury, and thus could not remedy the serious injury
suffered by the domestic industry nor facilitate its adjustment to import competition."  These
comments by the United States closely resemble what the European Communities has said in its own
submission.
5.377  According to the European Communities, Argentin a has, in attempting to defend its measure
further demonstrated its excessive nature.  The European Communities states that Argentina has
explained in response to a question from the European Communities that the Undersecretary
recommended that an "acceptable level of imports" would be 11 million pairs.363  The European
Communities notes that the 21 February 1997 notification364 nowhere refers to this number, or to the
Report of the Undersecretary in general, which Argentina for the first time made available, as an
Annex to its first submission.  The European Communities notes that the arbitrary figure of 11 million
pairs is far below the average of import figures of 1993, 1994 and 1995, which were 22 million, 20
million and 15 million pairs respectively. The European Communities also notes that Argentina gave
no explanation as to why the years 1990, 1991 and 1992 were chosen and not the three years whichpreceded the safeguard measure.
5.378  The European Communities submits that if the measure would have been introduced as a
'quantitative restriction' in terms of the Safeguards Agreement, which it was not, such low level of
imports would have clearly violated the requirement set out in Article 5.1 of this Agreement, which
would have obliged Argentina "not [to] reduce the quantity of imports below the level of a recentperiod which shall be the average of imports of the last three representative years for which statistics
are available. "  The notification of 21 February 1997 contains no analysis whatsoever as to why this
figure was chosen by the Argentine Undersecretary and not another, higher number.  Accordingly, the
European Communities submits, Argentina has also violated Article 5.1 of the Agreement on
Safeguards by adopting a measure designed to bring the level of imports down below the limitindicated in the second sentence of Article 5.1 in respect of quantitative restrictions.
5.379  Finally, the European Communities asserts that it is concerned by the confusion which
persists in the mind of the drafters of Argentin a's Submissions.  For example, Argentina insists --
again -- that its
"decision to exempt Mercosur from the measure is consistent with the various
international provisions by which Argentina is legally bound: with Article XXIV:8(a)(i)
[…] and with Common Market Council Decision 17/96."365
                                                     
360 The US, infra , para. 6.34, states that "the purpose of a safeguard measure is to provide the affected
domestic industry with a temporary buffer from increasing imports that are causing or threatening serious injuryto the industry.  This 'time out' permits the beleaguered domestic industry to adjust to import competition eitherthrough technological or economic advances, or through a transition to other productive uses."
361 Infra , para. 6.33-6.39.
362 Infra , para. 6.36.
363 Supra , note 259.
364 Document G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, Exhibit EC-11.
365 Emphasis added.WT/DS121/R
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5.380  The European Communities repeats -- again -- that this issue is not contested, neither under
Article XXIV, nor under Article XIX, nor under the footnote of Article 2:1, nor under Article 2:1
itself, nor under Article 5:1 Agreement on Safeguards.  The European Communities has never -- in
any of its written or oral statements -- made the point that Argentina was not allowed to exempt the
members of the customs union from the measure.  It therefore asks the Panel to disregard Argentina'sconclusions that somehow the EC's position would imply that
"Mercosur cannot constitute a customs union in the footwear sector if any of its members
is required to apply a safeguard measure"
or, a contrario , that the EC's position would be tantamount to
"a denial of the right of members of a customs union to eliminate a restriction to trade,
such as a safeguard."
5.381  The European Communities argues that these allegations have no ground in the observations
made by the European Communities and they can therefore only confuse the matter and give a wrong
impression of the EC's position.  What the European Communities has objected to was that Argentinainterpreted Article 2:1 Agreement on Safeguards (and its footnote) in such a way as to allow for a
"methodology" whereby Mercosur imports would be included in a determination of "increased
imports" while not applying measures to those countries.  The European Communities stresses that it
is this inconsistency which defines the so-called "Mercosur Question", not the exclusion of the
application of the safeguard measure to members of the customs union as such.
(ii) Adjustment plan
5.382  According to the European Communities, Argentina submitted
366 only very limited and
unconvincing information as to the adjustment plan which would allegedly restore the domestic
industry's competitiveness while its footwear industry would be temporarily shielded from foreign
competition.  The adjustment plan does not appear to contain detailed plans of changes to be achievedor targets to be attained.  For example, it is silent on the time-span during which the programme
would be in force;  on the detailed objectives to be  achieved (where the sector should be after a certain
period of time with regard to production, employment, quality, etc);  on the public support for the
plan;  on the instruments to be used (subsidies, interest rate reductions, etc);  on the criteria to be used;
and on specific actions for SME's; etc.  Furthermore, the European Communities argues, theArgentine authorities acknowledged
367 that they have been "unable to reach firm conclusions with
regard to the plan's prospects of success".  It is clear that by not giving sufficient and convincing
consideration to the adjustment plan, a fortiori,  Argentina has failed to examine how that measure
could be necessary to "facilitate adjustment". Regarding the argument by Argentina that no
information needs to be notified concerning an adjustment plan, the European Communities notes that
this statement is contradicted by Argentina's own analysis of the safeguard instrument368, where the
conditions of a "viable plan for restructuring the industry" is mentioned in addition to otherrequirements.
                                                     
366 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 34-36.  See also Exhibit EC-20, document
G/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 2.
367 See Exhibit EC-16, document G/SG/N/8/ARG/1, at page 35.
368 Exhibit EC-16, at page 37.WT/DS121/R
Page 106
(b) Argument of Argentina
5.383  Argentina states that the Argentine authorities decided to apply a safeguard measure on the
basis of the investigation carried out in conformity with the provisions of the Agreement on
Safeguards (Articles 2 and 4) and in order to remedy the injury and facilitate adjustment of the
domestic industry as provided for in Article 5.  Acco rding to Argentina, the interpretation provided by
the European Communities is unacceptable in that it is subjective, and fails to analyse the variouselements contributed by the investigation.
5.384  Argentina begins by rejecting the European Communities’ statement that a measure may not
be applied in order to protect an inefficient sector with "no recovery prospects".  The Agreement on
Safeguards speaks only of applying a measure in order to remedy injury and to facilitate adjustment,
and does not lay down any standard or provide a definition of an "inefficient" industry or one with "no
recovery prospects".  According to Argentina, acceptance of this EC principle would imply that any
industry of a WTO Member country could be prev ented from having recourse to the safeguard
remedy merely on the basis of a judgement pronounced unilaterally by another Member of the
Agreement.  What counts is compliance with the requirements of the Agreement on Safeguards, not
the subjective description of an industry by another Member which, as in this case, is in fact
questioning the measure.
5.385  Secondly, Argentina maintains, the duties applie d were calculated according to the criterion
of maintaining a volume of imports of 11 million pairs per year.  Defining a volume and applying a
measure designed to achieve that result is very di fferent from the "arbitrary calculation" that the
European Communities claims the Argentine authorities applied.
5.386  Argentina argues that the only specific requirement in the Agreement on Safeguards
concerning the adjustment plan for the original measure is that the measure must be necessary tofacilitate adjustment (Article 5.1).  Argentina notes that the Agreement on Safeguards does not require
the specific elements mentioned by the European Communities to be included in the adjustment plan
(for example, "objectives", time-spans", etc.).  In fact, the Agreement on Safeguards does not lay
down any requirements concerning the adjustment plan.  Only in the case of the extension of a
measure, Article 12.2 calls for the submission of evidence that the industry concerned is adjusting.Argentina states that the Argentine Government found specifically that the industry had assumed the
commitments of the adjustment plan that it had submitted, which would be supervised by the
competent authority (Resolution 987/97 – G/SG/N /10, and 11/ARG/1/Suppl.1 of 10 October 1997).
These commitments are set forth in detail in Part XI of Act No. 338.
5.387  According to Argentina, the problems of fulfilling the Article 5.1 objectives to remedy the
injury and facilitate adjustment detected during the application of the measure do not derive from the
design of the measure – i.e. from exempting ME RCOSUR from the application of the measure – as
claimed by the European Communities, and the United States.  The decision to exempt MERCOSUR
from the measure is consistent with the various international provisions by which Argentina is legally
bound:  with Article XXIV.8(a)(i) which authorises the dismantling of trade restrictions in the context
of a customs union, and with Common Market Council Decision 17/96 by which the above obligation
is implemented within MERCOSUR.
5.388  Argentina submits that to claim that the objective of Article 5.1 was doomed from the outset
by the exclusion of MERCOSUR imports from the measure is tantamount to asserting either that
MERCOSUR cannot constitute a customs union in the footwear sector if any of its members is
required to apply a safeguard measure or, a contrario , to a denial of the right of members of a customs
union to eliminate a restriction to trade such as a safeguard.
5.389  Argentina stresses that it does not dispute the fact that the objective of the safeguard measure
is to provide relief to the domestic injury experiencing difficulties, although it does not share the ECWT/DS121/R
Page 107
view that by applying the measure only to im ports from outside the MERCOSUR zone it was
preventing the objective of Article 5.1 from being attained.  Argentina states that it is important to
point out that the imports from outside the MERCO SUR zone did not decline in the period following
the adoption of the safeguard measure - in fact, they increased.  Even more serious, they increased in
1997 and 1998, showing that imports from outside MERC OSUR have not been penalised.  Indeed, the
figures for those years confirm that the original level of 11 million pairs that Argentina intended toachieve and that the European Communities questions was an acceptable level for the domestic
industry to adjust to the new conditions of competition in the market.
6. Article 12.1 and 12.2 of the Agreement on Safeguards – Alleged failure to fulfil
procedural requirements
(a) Sufficiency of notifications on findings of serious injury and causation
(i) Argument of the European Communities
5.390  The European Communities submits that it has explained extensively
369 that the information
provided by Argentina in its notifications did not contain all pertinent information and evidence to
demonstrate the requirements set out in Article 2.1 of the Agreement on Safeguards.  Therefore, the
European Communities submits that the notifications put forward by Argentina do not meet the
standard set by Article 12.2 of the Agreement on Safeguards.
5.391  In response to Panel questions regarding in what respect the European Communities
considered that Argentina’s notifications did not contain all pertinent information and evidence, and
regarding whether in the European Communities’ view conclusions can be drawn from Argentina’s
notifications as to the consistency of the safeguard investigation with Articles 2 or 4 of the
Agreement, the European Communities responded that, regarding Article 12.2 of the Agreement on
Safeguards, Argentina's notifications are inadequate because they do not contain sufficientinformation on "increased imports", "serious injury or  threat thereof" and a "causal link".  In fact, a
violation of Article 12:2 Agreement on Safeguards  derives from a violation of Article 2 and 4
Agreement on Safeguards.  The violation of Article 12.2 would have been of more significance if
Argentina had attempted to justify its measure on the basis of information not contained in the
notifications.
5.392  The European Communities argues that all pertinent information  should, according to Article
12.2 of the Agreement on Safeguards be provided to the Committee on Safeguards.  Such information
would therefore necessarily contain all facts, investigated data and evaluations needed to establish that
"increased imports", "serious injury" or the threat thereof, and a "causal link" were present before a
safeguard measure was taken.  It is therefore incorrect to state, as Argentina has done
370, that certain
information, relevant for the determination of compliance with the requirements of Article 2 and 4
Agreement on Safeguards, could be missing from the notification.  The European Communities
queries how, if this were allowed, WTO Members woul d be able to verify whether the conditions of
Article 2 and 4 had been met.
5.393  According to the European Communities, Article 12.2 is clear: it mandates Argentina, and
any other WTO Member that wishes to rely on the safeguard instrument, to set out clearly every bit of
information which is "pertinent".  This "shall incl ude evidence of serious injury or threat thereof
caused by increased imports, precise description of the product involved and the proposed measure,
proposed date of introduction, expected duration and timetable for progressive liberalisation."
                                                     
369In those parts of its first submission which discuss the Argentine investigation on "increased
imports", "serious injury or th reat thereof" and "causal link".
370 Infra , para. 5.403.WT/DS121/R
Page 108
Therefore, if Exhibit ARG-21, which was not notified but only now made available, were to contain
such pertinent  information, Argentina would have violated Article 12:2 Agreement on Safeguards.  In
this respect, the European Communities submits that  the “making available for Members to consult in
the Argentine Mission in Geneva”, as Argentina has indicated on the cover note of its communication
of 25 July 1997 (Exhibit EC-16) is not a correct “notification”.  A document, containing all pertinent
information, should be handed over to the Committee on Safeguards, not made available for someoneto consult somewhere.  The European Commun ities has -- as the Chairman has ruled -- the
opportunity to comment on document Exhibit ARG-21 and will do so, if need be, as soon as possible.
5.394  Finally, the European Communities makes some comments on the double violations of
Articles 2 and 4 on the one hand and Article 12 on the other.  The European Communities does not
"confuse", as Argentina claims
371, the substantive and notification requirements of the Agreement on
Safeguards.  It is clear that these requirements are separate conditions in the Agreement.  However,
the fact that these obligations are separate does not exclude the possibility that a violation of one ofthe conditions can lead to the violation of anot her.  For example, if a WTO Member would not
provide sufficient proof that all elements of the requirements in Articles 2 and 4 were fulfilled, then it
automatically did not provide the evidence necessary to establish the requirements set out in
Article 12.  In other words, the European Communities continues, a violation of Article 12.2 derives
from  a violation of Article 2 and 4.  However, the European Communities maintains, Article 12.2 also
can be violated without relying on Articles 2 and 4, for example when a justified safeguard measure is
taken without any (or improper) notification.
5.395  The European Communities disagrees with Argentina's claim that, if the methodology
followed by the European Communities were followed "we would have to add the entire file to the
notification", which could include more than 10,000 pages.  The European Communities asserts thatwhat is required by Article 12:2 Agreement on Safeguards, is that "all pertinent information is
notified".  This, according to the European Communities, does not require the notification of ten
thousand pages.  The notification to be transmitted to the Committee on Safeguards should however
contain the essential information and in particular a convincing statement of the reasons which are
supposed to justify the adoption of the measure.
5.396  In response to a question by Argentina, the European Communities recalls that it never
required Argentina to submit the full report of 10,000 pages.   The European Communities has only
claimed that Argentina should comply with the requirements set out in Article 12:2 Agreement on
Safeguards, including the condition that all 'pertinent' information should be provided.  The European
Communities reiterates that a WTO Member may not satisfy its notification requirements byinforming Members that a document is available for consultations at a given place.  The notification
must be sufficient in itself, although of course there is no objection against indicating that additional
'non-essential' information can be consulted elsewhere
(ii) Argument of Argentina
5.397  Argentina states that it followed the notification format approved by the Committee, and
moreover, the notification of serious injury (Act No. 338 of the CNCE) of 25 July 1997 specifically
indicated that the remaining documents of the investigation ("the full text of the Report ondetermination of injury") would be available for Members to consult at the Argentine Mission in
Geneva.
5.398  According to Argentina, the European Communities' comments confuse the formal
notification requirements (which Argentina more than fulfilled) with the substantive requirements for
the application of a measure set forth in Article 2.1.  When it states that the information provided tothe Committee did not contain all pertinent information and evidence to demonstrate the
                                                     
371 Infra , para. 5.400.WT/DS121/R
Page 109
"requirements" set out in Article 2.1, the European Communities is adding the substantive
requirements under Article 2.1 to the notification obligations under Article 12, implying a double
failure by Argentina to comply with the Agreement and establishing a standard of notification that the
Agreement on Safeguards does not provide for.
5.399  Furthermore, Argentina argues, if Argentina we re to follow the methodology proposed by the
European Communities, in order to comply with the requirements of Article 12, Argentina wouldhave to add the entire file to the notification (in this case more than 10,000 pages);  in fact, Argentina
has made the file available to WTO Members at its Mission in Geneva in August 1997.  Argentina
submits that it bears repeating that the notification obligations contained in Article 12.2 are
implemented through the format that was agreed upon in the Committee on Safeguards.
5.400  Argentina points out that in its replies to certain questions by the Panel
372, the European
Communities seems to persist in confusing the formal requirements contained in the Agreement on
Safeguards, to be implemented through the negotiated notification formats, with the substantiverequirements established by the Agreement on Safeguards for applying the measure.  In doing so, it is
undermining the legal basis for the application of the measure by adducing that the information
contained in the notifications provides insufficient justification.
5.401  To Argentina, it is important to point out that the decision to adopt the measure was based on
all of the elements of objective evidence contained in the complete file of the investigation which, as
Argentina pointed out in its reply to a Panel question, includes the Technical Report containing the
relevant findings and conclusions.  At the same time, Argentina points out, in its reply to a further
question by the Panel, Argentina provided a summary of  the content of that Report which, owing to its
physical volume, could not be included in the notification formats agreed upon by the Committee.
5.402  Argentina contends that by concluding that the Argentine measure is inconsistent with
Article 2 of the Agreement on Safeguards because the content of its notifications (which follow the
appropriate format) is insufficient, the European Co mmunities is in fact ignoring the true legal basis
for the decision adopted.  The decision is sustained by the objective evidence contained in the CNCE
Technical Report which, together with the Report of the Department of Foreign Trade and Resolution
987/97, constitutes the "findings" and "reasoned conclusions" to which Article 3.1 refers.
5.403  Argentina states that, as can be inferred from the Panel’s question to the European
Communities
373, the relevant information for evaluating compliance with Articles 2 and 4 of the
Agreement on Safeguards cannot consist only of th e information notified to the Committee according
to the approved formats.
(b) Non-notification of Resolutions 512/98, 1506/98 and 837/98
(i) Argument of the European Communities
5.404  The European Communities states, on 28 April 1998, Argentina published Resolution
512/98374, modifying Resolution 987/97 in relation to the liberalisation schedule of the definitive
safeguard measures imposed under the latter Resolution.  The former Resolution suspends the entry
into force of the liberalisation of the measures which had been foreseen for 1 May 1998 by Resolution
                                                     
372 Supra , para. 5.391.
373 Cited supra , para. 5.391.
374 Exhibit EC-28.WT/DS121/R
Page 110
987/97375.  Furthermore, it modifies Article 9 of Reso lution 987/97 by introducing the possibility of
further changes in the liberalisation schedule.
5.405  The European Communities submits that the original safeguard measure was notified by
Argentina.376  However, Resolutions 512/98, 1506/98 and 837/98 do not seem to have been notified to
the WTO.  By not notifying these Resolutions, Argentina violated Article 12.1(c) and 12.2 of the
Agreement on Safeguards.  The European Communities agrees in this respect with the United States,which believes
377 that "Argentina's implicit contention that it does not have to notify a new and more
stringent 'modification' of its safeguard measure would defeat the very purpose of the notification
provisions of Article 12." The European Communities takes issue with Argentina's implicit
interpretation of Article 12 Agreement on Safeguards, in particular with Article 12:1(c) and 12:2
Agreement on Safeguards, that Argentina believes that it was required just to notify the original
safeguard measure.  However, the European Communities submits, Argentina does not consider itnecessary to notify subsequent applications or further modifications
 of the original measure, leaving
other WTO Members in the dark about any changes made to the regime in the meantime, notably any
stricter changes to the regime.
5.406  The European Communities submits that the or dinary meaning of the combination of the
terms "apply" (in Article 12.1(c)) and "precise description of the measure" (in Article 12.2) leads it to
conclude that what is required is proper notification of the measure actually applied.378 According to
the European Communities, it cannot be so that only the content of the original measure should be
made known, but that subsequent applications or modifications are kept internal.  If Argentina's
interpretation of the notification requirements would be allowed to stand, it would effectively empty
the object and purpose of Article 12 Agreement on Safeguards, according to the European
Communities.  In addition, the obvious object and purpose of Article 12 is to fully inform WTOMembers of the use which is made of the safeguard instrument.  The Panel should therefore not
accept the implicit interpretation by Argentina that a notification requirement exists for the original
measure only.  If such interpretation were accepted, the security and predictability of the multilateral
trading system would be at risk.
5.407  The European Communities therefore submits that Argentina violated Article 12.1(c) and
12.2 of the Agreement on Safeguards by not notifying to the WTO Committee on Safeguards
Resolutions 512/98, 1506/98 and 837/98.
(ii) Argument of Argentina
5.408  Argentina maintains that it notified all of  the measures adopted to the WTO Committee on
Safeguards from the initiation of the investigation to the publication of the definitive measures,including the results of the consultations and the exceptions to the application of the safeguard where
appropriate. Argentina notes that Article 12.1 and 12.2 of the Agreement on Safeguards do not impose
the obligation to notify a measure modifying the timetable for gradual liberalisation if the final
objective of the liberalisation does not change.
5.409  Argentina notes that the European Communities accepts that Argentina's notification in
Resolution 987/97 was correctly made, and questions why the European Communities, in its
pleadings, persists in claiming that Argentina is still violating Article 12.  According to Argentina,now that the European Communities has recognised that Argentina properly notified Resolution
987/97, it should not try to broaden the scope of the terms of reference of this Panel by introducing
the subjects of Resolutions 512/98, 1506/98 and 837/98 as examples of non-compliance with the
                                                     
375 Exhibit EC-20, document G/SG/N/10/ARG/1/Suppl. 1, G/SG/N/11/ARG/1/Suppl. 1, at page 6, 7.
376 Ibid.
377 Infra , note 398.  
378 Ibid.WT/DS121/R
Page 111
obligation to notify under Article 12.1.  For Argentina, two considerations are in order:  first, the said
Resolutions are not part of the terms of reference of this Panel, and those terms of reference set forth
the legal elements of the dispute that the Panel is ca lled upon to settle.  In the alternative, if the Panel
rejects this interpretation, the European Communities allegation of non-compliance with Article 12.1
of the Agreement on Safeguards is unfounded, since the text of Article 12.1(c) speaks of "taking a
decision to apply or extend a safeguard measure."  Argentina applied a safeguard measure throughResolution 987/97, duly notified it to the Committee and never extended it.  Thus, the European
Communities cannot claim that Argentina violated its obligations under 12.1(c).
5.410  Argentina also observes that the European Communities also claims that Argentina violated
Article 12.2 of the Agreement on Safeguards.  According to Argentina, this is irrelevant to the
resolutions concerned, since the introductory part of Article 12.2 concerns "the notifications referred
to in paragraphs 1(b) and 1(c)".  This text mere ly describes the elements to be included in the
notification required under Article 12.1.  In Argentina's view, the only resolution to be notified underArticle 12.1(c) of the Agreement on Safeguards was Resolution 987/97.  Consequently, the
requirements of Article 12.2 do not apply to Resolutions 512/98, 1506/98 and 837/98.
D. 
PROVISIONAL SAFEGUARD MEASURE
1. Arguments of the European Communities
5.411  The European Communities observes that Article 6 of the Agreement on Safeguards reads as
follows:
"In critical circumstances  where delay would cause damage which it
would be difficult to repair, a Member may take a provisional
safeguard measure pursuant to a preliminary determination that there
is clear evidence that increased imports  have caused  or are threatening
to cause serious injury .  […]" (emphasis added).
5.412  Therefore, according to the European Commun ities, in order to be allowed to take a
provisional safeguard measure, Argentina must establish that footwear was being imported under
certain conditions, all of which must be fulfilled and examined correctly.  The European Communitiesasserts that it will demonstrate that Argentina has failed to satisfy the above-mentioned requirements.
The European Communities considers that the imposition of a provisional safeguard measure in this
case was manifestly unjustified and that Argentina therefore violated Article 6 Agreement on
Safeguards.
5.413  The European Communities submits that there are no critical circumstances justifying the
adoption by Argentina of provisional safeguard measures.  In this respect, there is no reference to an
imminent danger of damage in the notification documents, except the fact that the "mere absence of
minimum specific duties would recreate the critic al circumstances required for the adoption of
provisional safeguard measures."
379  The European Communities submits that it is unacceptable that
Argentina would base its decision on "critical circumstances" which are not actually present but only
anticipated.  Even if a "threat of critical circumstances" were a legitimate basis for provisional
measures, they cannot be considered to arise merely out of a voluntary act or from the fact that aWTO Member complies with its obligations, i.e. the removal of the previous WTO-illegal minimum
specific duties.
380
                                                     
379 See Exhibit EC-12, document G/SG/N/6/ARG/1/Suppl.1, G/SG/N/7/ARG/1/suppl.1, at page 2.
380 Nemo auditur propriam turpitudinem allegansWT/DS121/R
Page 112
5.414  The European Communities contends that Argen tina confirmed that it believed that it was
justified to claim "critical circumstances" on the basis of an anticipated situation.  The European
Communities asserts that Argentina noted that "imports would have continued the growth trend […] if
the specific import duties had not been applied"381 and that "without the specific duties regime,
imports would grow even beyond existing levels".382  According to the European Communities, these
statements by Argentina do not seek to discard the European Communities' claim on legal grounds,
but instead confirm that what the European Communities has stated is correct, i.e. that Argentina
based itself on a hypothetical situation to demonstrate "critical circumstances".  The European
Communities submits that Article 6 of the Agreement on Safeguards does not allow for such aninterpretation, for which Argentina does not put forward any evidence.  The European Communities
therefore requests the Panel to rule that Argentina violated Article 6 by not demonstrating actual
"critical circumstances".
5.415  The European Communities states that the Agreement on Safeguards does not recognise that
serious injury or threat of serious injury can be caused by a factor other than increased imports.  Since
in the present case imports from non-MERCOSUR c ountries decreased, the imposition of provisional
measures was in clear violation of Argentina's obligations.  Even if imports from both MERCOSUR
countries and non-MERCOSUR countries had been take n into consideration, total imports had still
decreasing continuously since 1993 and did not justify the adoption of provisional safeguardmeasures.
5.416  The European Communities contends that according to Argentine figures mentioned
383 in its
notification under Article 12:1(a) of the Agreem ent on Safeguards, import levels of footwear
decreased from 21.78 (million pairs) in 1993, to 19.84 in 1994 and 15.11 in 1995.  Since the factors
which should have been analysed by Argentina are those prevailing at the time before a safeguardmeasure would be taken (i.e. a continuous decrease in imports), it is surprising that Argentina decided
to impose provisional safeguard measures.  Finally, if a safeguard measure is only applied to non-
MERCOSUR countries, imports of only non-MERCOSUR countries should have been considered in
the analysis.
5.417  Furthermore, the European Communities states, according to Article 6 of the Agreement on
Safeguards, there must be clear evidence of serious injury or a threat of injury  The European
Communities submits that no clear evidence in this respect existed and, thus, the imposition of
provisional safeguard measures by Argentina violated this provision.
5.418  In addition, according to the European Communities, the WTO notification document
presented by Argentina does not contain any evidence of a causal link between increased imports andthe condition of the domestic industry.  On the contrary, Argentina stated
384 that the situation of the
domestic industry is only "partly" a result of import trends.  Therefore, the European Communities
submits that the application of safeguard measures in this case was not justified: even the Argentineauthorities acknowledge that increased imports could not be the cause of the alleged serious injury.
5.419  The European Communities submits that compliance with the causality  requirement is
extremely important, since the purpose of a safeguard measure is to allow the domestic industry to
adjust to an unforeseeable change in the terms of trade in a particular product.  If the condition of theindustry is caused by any other factor than imports, such as the natural consolidation of the industry
by increasing its productivity or a general economic crisis (the "tequila" effect in 1995, for example),
then the serious injury, allegedly suffered by the domestic industry, can not be regarded as being
caused by increased imports, and consequently, no safeguard measure can be imposed.
                                                     
381 Infra , para. 5.422.
382 Argentina's reply to the Panel.  Infra , para. 5.424.
383 See Exhibit EC-11, document G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, at page 5.
384 See Exhibit EC-12, document G/SG/N/6/ARG/1/Suppl.1, G/SG/N/7/ARG/1/Suppl.1, at page 2.WT/DS121/R
Page 113
5.420  The European Communities states that Argentina does not appear to have substantially
addressed its claims that Argentina had not complied with the other requirements set out in Article 6
Agreement on Safeguards, including the condition that there is "clear evidence that increased imports
have caused  or are threatening to cause serious injury ".
2. Argument of Argentina
5.421  Argentina argues that the CNCE concluded that the absolute and relative increase in imports
during the period under investigation was the cause of serious injury to the industry, and that there
could be a further increase in imports and deepening of the injury already verified in the absence of
safeguard measures (Act No. 338, page 47).
5.422  Argentina observes that the European Communities argues that Argentina based its safeguard
measures and its conclusion of the existence of critical circumstances on a "hypothetical" increase in
imports.  Argentina states that the basis for the conc lusion with respect to the threat of serious injury
and the existence of critical circumstances lies in the fact that the imports would have continued thegrowth trend already verified throughout the investigation period if the specific import duties had not
been applied.  Argentina further states that the European Communities is completely mistaken when it
says that serious injury cannot be found coexisting with restrictive measures.  Argentina cites a
safeguard investigation on footwear conducted by the European Communities in 1988, in which the
European Communities reached the same conclusion regarding  injury, despite the effects of a quotaapplied during the review period.  "However, the gr owth of imports from Taiwan has been restrained
by the national quota applied during this period to some of the types of footwear which were the
subject of the inquiry."  This situation is compar able to the circumstance in which an examination of
injury is conducted during a period in which an anti-dumping measure or other restriction on imports
is being applied.
5.423  Argentina asserts that the Argentine authorities analysed the evidence gathered during the
preliminary determination and confirmed the existence of serious injury reflected in the evolution of
production and sales, the state of indebtedness and the financing capacity of the enterprises,
concluding that these facts constituted "critical circumstances" because they affected the continuity
and subsistence of the footwear manufacturers.  In the immediate term, these companies faced the riskof new closures of factories and increased unemplo yment.  According to Argentina, the confidential
information contained in the file made it possible to confirm the impossibility of refinancing debts
contracted by the large enterprises and the difficulty in renewing short-term lines of credit for the
small and medium-sized enterprises.  In the first half of 1997, there was a high probability that the
companies would cease to operate, with consequences difficult to repair.
5.424  The Panel asked Argentina to identify the "critical circumstances", in addition to the absence
of minimum specific duties after their repeal on 14 February 1997, justified the imposition of
provisional safeguard measures.  Argentina responded that in making its determination prior to the
opening of the investigation, the CNCE found that at that stage, the vulnerability of the industry due
to imports was verified and that the industry was therefore already suffering a serious injury.  In its
final determination, the CNCE confirmed the existence of this serious injury.  Thus,  since the final
determination confirmed the validity of the preliminary determination, the provisional measure was,in Argentina's view, correctly introduced.  The investigation revealed that at the moment the
provisional measure was issued, there was clear evidence in the petition and in the preliminary
investigation that without the specific duties regime, imports would grow even beyond existing levels
which were already causing injury.
385  Similarly, in its preliminary determination of critical
circumstances, the Department spoke of "high unempl oyment, the precarious financial situation of the
companies, the fall in their production, and the fall in utilisation of capacity in spite of a decrease in
                                                     
385 Exhibit ARG-1, Preliminary report of the Department, page 31.WT/DS121/R
Page 114
installed capacity during the period under examination, reflected in the decreasing share of that
industry in the GDP" due to the increase in imports.386  Consequently, the Department endorsed, in its
recommendations, the application of provisional measures.  In other words, Argentina contends, there
were critical circumstances.387
                                                     
386 Exhibit ARG-1, Preliminary report of the Department, page 32.
387 Exhibit ARG-1, Preliminary report of the Department, pages 31-32.WT/DS121/R
Page 115
VI. ARGUMENTS OF THIRD PARTIES388
A. BRAZIL , PARAGUAY AND URUGUAY
6.1 In order to comply with the Panel's request that the intervention by third parties be as short as
possible, the delegations of Brazil, Paraguay and Uruguay decided to present a joint statement
conveying their views on certain aspects of the case that is before the Panel.
6.2 Brazil, Paraguay and Uruguay state that it will come as no surprise to the Panel that the issues
that they wish to address concern certain aspects of the interpretation given by the European
Communities to Article 2.1 and 4 of the Agreement on Safeguards.  They want to make sure that their
rights under those provisions, as well as their rights under the Agreement on Safeguards and other
WTO Agreements are not altered.
6.3 The first element of the European Communities' interpretation on which Brazil, Paraguay and
Uruguay wish to comment relates to the issue of whether imports from Members of a customs union,
or of a free-trade area, can be included in the determination of serious injury and excluded from the
application of the safeguard measure.  Brazil, Paraguay and Uruguay maintain that it is clear that the
European Communities is not questioning the right, and in their view obligation, of a Member of
MERCOSUR to exclude other Members of the customs union from the application of the measure.389
That is something that the European Communities could not question without questioning itself and
its rights under Article XXIV of the GATT.
6.4 Brazil, Paraguay and Uruguay assert that what the European Communities is questioning is
Argentina's methodology in the investigation, and here, one does not need to go further than the
Agreement on Safeguards itself.  Brazil, Paraguay and Uruguay believe that Argentina acted in
accordance with the provisions of Article 2.1 and with the complementary provisions of Article 4.They find nothing in the text of paragraph 1, or, for that matter, in any other Article of the Agreement
on Safeguards, to support the EC contention that Argentina was obliged to exclude imports from
                                                     
388 Except as otherwise noted, the footnotes and citations, and the emphasis in the text are as contained
in the parties’ submissions.
389 In response to questioning from the Panel  concerning whether Article XXIV:8 of GATT 1994
prohibits the maintenance or introduction of safeguard m easures between the member States of a customs union
or free-trade area during its formation or after its completion, Brazil, Paraguay and Uruguay  responded that it
was not a matter of being precluded from imposing WTO safeguards against the other members of
MERCOSUR.  Argentina has specific rights under Article 2.1 of the Agreement on Safeguards andArticle XXIV of the GATT 1994.  According to Brazil, Paraguay and Uruguay, Argentina also has contractualrights and obligations under the MERCOSUR.  They referred the Panel, for example, to the Treaty of Asuncion(L/7370/Add.1), which contains the decision concerning the non-application of safeguards within the customsunion as of 31 December 1994.  Responding to questioning of the Panel  concerning the relationship between
the footnote to Article 2.1 of the Agreement on Safeguards and the MFN obligation contained in Article 2.2,
Brazil, Paraguay and Uruguay  noted, as a preliminary point, that there is no disagreement between the parties
to the dispute concerning the fact that the safeguard should not be applied to the members of MERCOSUR and
that this should, therefore, not be an issue for the Panel.  They added that the footnote to Article 2.1 can bedivided into two parts, the first one relating to the two different modalities of application of a safeguard measure
by a customs union and to the parameters for such an application; the second part relating to the interpretation of
the relationship between Article XIX and paragraph 8 of Article XXIV.  According to Brazil, Paraguay andUruguay, Article 2.2 of the Safeguards Agreement relates to the application of the safeguard.  Article 2.1 gives
consideration to the fact that a safeguard measure can be  applied by a customs union as a whole or on behalf of
one of its member countries.  Article 2.2 does not address this issue.  They underlined that Article 2.2 should notbe read in such a way as to invalidate a Member's rights under other WTO provisions, including Article 2.1 and
its footnote, and Article 9 of the Agreement on Safeguards.WT/DS121/R
Page 116
Brazil, Paraguay and Uruguay from the investigation.  Article 2.1 only refers to "imports".  There is
no reference regarding the source of imports.  Article 4 does not contain, either, any sort of limitation
concerning the origin of imports.  It only refers to "increased imports".
6.5 Brazil, Paraguay and Uruguay assert that Argentina makes an important point that exceptions
and specific situations are explicitly provided for in the text of the Agreement.  There is no reason,
therefore, for the European Communities, or for th is Panel, to create an exceptional provision
concerning the conduct of investigations by Members of customs unions that does not exist in the
clear terms of the Agreement.  Furthermore, Brazil, Paraguay and Uruguay are of the view that
Argentina has correctly shown that the European Communities gave little attention to footnote 1 to
Article 2.1.
6.6 Brazil, Paraguay and Uruguay note that, as the Panel is aware, Argentina has stated that
MERCOSUR does not yet have in place the complete legislation and institutions that would permit it
to apply safeguard measures "as a single unit".  MERCOSUR is advancing in the matter but, as oftoday measures still have to be applied on behalf of member States, in accordance with their national
legislation.
6.7 Brazil, Paraguay and Uruguay state that the footnote provides that "all the requirements for
the determination of serious injury or threat thereof shall be based on the conditions existing in that
member State and the measure shall be limited to that member State".  There are no specificqualifications to the word "conditions".  As Argentina pointed out, all conditions that seem relevant to
the investigating authorities have to be taken in to  account.  They add that what happens after the
investigation has been concluded is a separate matter.  Other rights and obligations come into effect.
6.8 Brazil, Paraguay and Uruguay argue that Footnote 1 also contains an additional element
which recommends the caution to which they referred above.  It relates to the relationship betweenArticle XIX and paragraph 8 of Article XXIV of GA TT.  If "nothing prejudges the interpretation" of
the above-mentioned GATT provisions, any interpretation that goes beyond the clear terms of Article
2.1 the Safeguards Agreement, whether apparently "logical" or not, should be undertaken with the
utmost care.
390
6.9 Brazil, Paraguay and Uruguay state that there are other elements of the European
Communities' interpretation of the Agreement on Safeguards which they do not share, and they also
relate both to the way the European Communities reads the terms of the Agreement or creates
additional obligations that simply do not exist.
6.10 As an example, which is also related to Article 2.1, Brazil, Paraguay and Uruguay refer to the
European Communities' continuing wish to translat e the expression "under such conditions" into a
price analysis that determines the existence of low priced imports.  While they understand that the
European Communities would like to transform the Agreement into a reflection of its own internal
legislation, they do not share its restrictive reading of the expression "under such conditions".  It will
be up to each Member, in a specific situation, to determine what are the "conditions" that require the
application of a safeguard measure.
6.11 According to Brazil, Paraguay and Uruguay, a second example refers to the analysis of the
evolution of investments.  While they believe that each Member is free to evaluate relevant factors
                                                     
390 In response to questioning from the Panel  concerning the significance of the placement of
footnote 1 to Article 2.1 immediately after the word "Member", and whether this could imply that the footnoterefers only to those customs unions that are themselves Members of the WTO, Brazil, Paraguay and Uruguay
stated that footnote 1 to Article 2 applies equally to all members of the WTO.  If that were not the case, they
assert, it would defeat the purpose of Article XXIV of the GATT 1994.  Moreover, there is no obligation forcustoms unions to become Members of the WTO in order for Members of the WTO which are members ofcustoms unions to enjoy their rights under the WTO Agreement.WT/DS121/R
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other than those referred to in Article 4, they do not believe that there is an obligation to evaluate
investments, nor that the evaluation is standardised and can only be done in a specific way.
6.12 Brazil, Paraguay and Uruguay note that while they are fully aware that the Panel acts in
accordance with its terms of reference, they respectfully submit that the consideration of certain
aspects of this case – as normally happens in panel proceedings – may have effects that go beyond the
rights and obligations of the parties to this dispute and should be considered in such a light.
B. INDONESIA
6.13 Indonesia states that it is a significant exporter of footwear to Argentina.  In 1996 and 1997,
Indonesia was the third largest supplier of footwear to Argentina, following Brazil and China.
(Exhibit IND-1) However, since 1993 Indonesia's export of footwear to Argentina continues to
encounter restrictions.  Starting in December 1993, specific duties were imposed on Indonesia's
imports of footwear in Argentina.  Although Argentina withdrew its high specific duties on footwear
and reduced its 3 per cent statistical tax after the United States challenged these measures in a WTOdispute in October 1996, in July 1997 Argentina notified the WTO that it had replaced its specific
duties with equally restrictive specific duties in the form of a "safeguard measure".  Under the current
regime of minimum specific duties in the form of  a "safeguard measure", import of footwear from
Indonesia, and from elsewhere, subject to duties as high as US$12.00 per unit on imports with an
average unit value between US$11.00 and US$19.00, the ad valorem  equivalents of which exceed 70
per cent in some cases (Exhibit IND-2).  The data show that Indonesia's footwear exports to Argentina
declined in 1997, both in terms of volume and in value, as compared to 1996 (Exhibit IND-3).
6.14 Indonesia asserts that on 25 July 1997, Argentina submitted to the WTO a notification under
Article 12.1(b) of the Safeguards Agreement of a Fi nding of Serious Injury or Threat Thereof Caused
by Increased Imports (G/SG/N/8/AR G/1, dated 21 August 1997).  The notification includes the report
of the National Foreign Trade Commission.  Indonesi a is of the view that the decision of the
Argentine National Foreign Trade Commission to impose safeguard measures on imported footwear
reveals serious inconsistencies with the Government of Argentina's obligations under the WTO
Agreement on Safeguards and Article XIX of GATT.
391
6.15 According to Indonesia, the Commission's deci sion fails to demonstrate that the domestic
industry was suffering from serious injury and fails to prove the requisite causal link between an
increase in imports and any serious injury.  In reaching its determination of serious injury, or threat
thereof, the Commission failed to provide a "detailed analysis of the case" or a "demonstration of the
relevance of factors examined", as required by the Agreement on Safeguards.  The Commission found
that imports were higher in 1995 than in 1991.  However, the Commission ignored the import volumefor 1996.  The Commission failed to consider the trends between 1991 and 1996 in its evaluation of
the domestic footwear industry.  In fact, by 1996, footwear imports declined nearly 40 per cent from
the 1993 levels. 
392
                                                     
391 With respect to the relationship between Article XIX of the GATT 1994 and the Agreement on
Safeguards concerning "unforeseen developments", Indonesia is of the view that the Agreement on Safeguardswas negotiated and agreed to complement the provisions contained in Article XIX of GATT 1994.  Therefore,the requirements of Article XIX of GATT 1994 and the Agreement on Safeguards should be applied on a
cumulative basis.  According to Indonesia, the complementary nature of the Agreement on Safeguards and
Article XIX of GATT 1994 is clearly provided for in the second paragraph of the preamble and in Articles 1, 10and 11(a) and (c) of the Agreement on Safeguards.
392 In response to questioning by the Panel , Indonesia  expressed its view that it would be WTO-
inconsistent to judge the introduction of any safeguard measure based exclusively on the trend of imports at theend of the investigation period, even if it is still higher than at the beginning of the investigation period.  As
required by Article 4.2(a) of the Agreement, in the investigation to determine whether increased imports haveWT/DS121/R
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6.16 Indonesia asserts that a thorough review of the entire record shows an increase in domestic
sales, an increase in domestic market share by domestic producers, an increase in domestic prices, an
increase in exports, and a strong financial condition in the major footwear producers in Argentina.  It
does not show a decline in production, a rise in unemployment, or other negative indication claimed
by the Argentine National Foreign Trade Commissi on.  If the Commission had considered all of the
relevant factors based on the full record of evidence, Indonesia argues that it would have found thatArgentine footwear industry is not suffering serious injury or the threat thereof.
6.17 Similarly, Indonesia continues, the Commission failed to demonstrate a causal link between
serious injury, or threat thereof, and an increase in imports, as stipulated in Article 4.2(b) of the
Agreement on Safeguards.  Here, again, consideration of the full evidentiary record demonstrates that
imports were declining into 1996, were losing market share, and did not cause price suppression.  If
the domestic footwear industry were injured, the injury was not caused by imports.  In addition, the
Commission's conjecture that the industry would be threatened with serious injury if WTO-inconsistent specific duties were removed was unfounded and insufficient to meet the definition of
"threat of serious injury" set forth in the Agreement on Safeguards.
6.18 Indonesia is very concerned over Argentina's application of the final safeguard measure
which, Indonesia argues, also violates Article 2.2 of the Agreement on Safeguards.  Argentina
improperly excluded from the final safeguard m easures imports coming from its MERCOSUR trading
partners – the very imports that had the highest volume, the greatest rate of increase, and the lowest
average unit values.
393  As a result, Indonesia argues, Argentina limited the application of the final
safeguard measure in such a way as to exclude those imports that the Commission found most
injurious.  Thus, exports from Brazil, Indonesia's largest competitor, are exempted from the safeguard
measure even though Argentina took the impact of imports from Brazil into account when assessingthe injury.  Indeed, according to Indonesia, if the National Foreign Trade Commission had
administered the Agreement on Safeguards prop erly, it would have excluded Brazil and other
MERCOSUR imports entirely from the determination of injury.
394
                                                                                                                                                                    
caused or are threatening to cause serious injury to a domestic industry, the competent authorities should
"evaluate all relevant factors of an objective, and quantifiable nature."  If a "reduced" safeguard measure wereintroduced to the extent necessary to prevent or remedy serious injury and facilitate adjustment within themeaning of Article 5.1, the competent authorities shall not, in determining the appropriate level of suchmeasure, reduce the quantity of imports below the level of a recent period which shall be the average of imports
in the last three representative years.
393 In response to questioning from the Panel , Indonesia  clarified that it is of the view that
Article XXIV:8 of the GATT 1994 prohibits the maintenance or introduction of safeguard measures between themember States of a customs union or free-trade area after its completion and not during its formation. Inresponse to questioning from the Panel  concerning the significance of the placement of footnote 1 to Article 2.1
immediately after the word "Member", and whether this could imply that the footnote refers only to those
customs unions that are themselves Members of the WTO, Indonesia  asserted that the purpose of the placement
of footnote 1 to Article 2 immediately following the word "Member" is to explain how and under whatcondition a customs union that is bound by WTO obligations may apply a safeguard measure as a single unit oron behalf of a member States.  In Indonesia's view, the word "Member" in footnote 1 refers only to a customsunion that is itself a Member of the WTO.
394 In response to questioning from the Panel  concerning the relationship between the footnote to
Article 2.1 and Article 2.2 of the Agreement on Safeguards, Indonesia  replied that  Article 2.1 stipulates that a
Member may apply a safeguard measure to a product only if that Member has determined that a product beingimported has caused serious injury, or threat thereof, pursuant to the provisions set out in the Agreement, inparticular Article 4 thereof;  and Article 2.2 of the Agreement stipulates that a safeguard measure shall be
applied to a product being imported irrespective of its source.  According to Indonesia, paragraphs 1 and 2 of
Article 2 of the Agreement should not be read nor app lied separately.  A detached reading of these paragraphs
would lead to a discrepancy between the object of the determination of injury and the object of application of asafeguard measure.  As required by paragraph 2 of Article 2, the safeguard measures imposed shall be appliedon an MFN basis.  This is to maintain consistency between the determination of injury and the application of aWT/DS121/R
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6.19 Indonesia strongly believes that Argentina's imposition of a safeguard measure on imported
footwear is inconsistent with its obligations under the Agreement on Safeguards and Article XIX of
GATT.  Accordingly, Argentina's safeguard m easure on imported footwear should be removed
immediately.
C. UNITED STATES
1. Introduction
6.20 The United States would like to touch briefly on a number of issues arising out of the
submissions of Argentina and the European Communities in this matter.  These issues are significant
not just for this dispute, but for the conduct of Members in general in the area of safeguards.  The
United States is addressing these issues here because it has a strong systemic interest in the
interpretation of Article XIX of the GATT and the Agreement on Safeguards.
6.21 The United States submits that the safeguard measure which has been applied by Argentina
with respect to certain imports of footwear contravenes the requirements of the Agreement onSafeguards.  The European Communities has raised a number of procedural and substantive
deficiencies in the application of the Argentine safeguard measure; in this statement, the United States
will address a number of points with respect to the inconsistency of Argentina’s safeguard measure
with Articles 2 and 5 of the Agreement on Safeguards.  The United States also brings to the Panel’s
attention the recent modification by Argentina of its safeguard measure introducing a “quantitativerestriction” on certain footwear imports.  This purported modification would appear to be inconsistent
with Articles 7 and 12 of the Agreement on Safeguards.
2. Standard of Review
6.22 The United States asserts that it is important that a panel reviewing disputed safeguard
measures apply a standard of review that provides for meaningful surveillance to ensure that these
measures were investigated and applied in keeping with Members’ obligations under the WTO
Agreement.  At the same time, however, a panel must recognise that Article 4 of the Agreement on
Safeguards specifically assigns responsibility for the investigation and evaluation of relevant factors
to the competent investigating authorities.  Th ese national competent authorities are in the best
position to evaluate the relevant factual evidence.  Thus, the role of a panel is not to engage in a de
novo  review, but rather to ensure that the contested measure comports with the obligations of the
applying Member pursuant to Article XIX and the Agreement on Safeguards.
6.23 The United States recalls the panel in United States - Restrictions on Imports of Cotton and
Man-Made Fibre Underwear arrived at a similar determination regarding the standard of review
applicable to the Agreement on Textiles and Clothing (ATC).  The Underwear  panel concluded that
its function was not to engage in a  de novo  review, but rather to examine the consistency of a
Member’s actions with its international obligations.  ( Underwear,  at paras. 7.12-7.13).  In that
context, the panel decided to make an objective assessment of the written decision of the US
authorities embodying their determination and findings; this objective assessment entailed an
examination of whether those authorities had examined all relevant facts before them, whether
adequate explanation had been provided of how the facts as a whole supported the determination
                                                                                                                                                                    
safeguard measure.  Consequently if, as required under Article 2.1, a Member has determined that a product
being imported from certain countries found to have caused or threatened to cause serious injury to the domestic
market, then the safeguard measures imposed in order to prevent or remedy serious injury shall be applied tothat product being imported irrespective of its source.  According to Indonesia, Article 2.2 prohibits Membersfrom excluding any country from the application of a safeguard measure, specifically those included in the
investigation and found to have caused or threatened  to cause serious injury to the domestic market.WT/DS121/R
Page 120
made, and, consequently , whether the determination made was consistent with the international
obligations of the United States.  ( Id., at para. 7.13).
6.24 Similarly, the United States continues, the panel on United States - Measure Affecting Imports
of Woven Wool Shirts and Blouses from India  followed this standard of review in its assessment of
another textile safeguard action by the United States pursuant to the ATC.  The panel made a close
examination of the written decision of the US authorities; it commented on factors addressed in thewritten decision, and dealt as well with the decision’s failure to address certain factors, and with the
issue of causation.  Finally, the panel made an overall assessment of the US determination.  However,
at no time did the Wool Shirts panel engage in a de novo review.
6.25 The United States observes that the findings of these two panels concerning the issue of
standard of review were adopted by the DSB without any modification by the Appellate Body.
6.26 According to the United States, the standard articulated above is also the appropriate standard
of review for disputes involving the application of the Agreement on Safeguards in the context ofsafeguard determinations made by national authorities.  National authorities are in the best position to
evaluate the facts and determine the applicable weight to be accorded to various factors.  As the
Appellate Body properly noted in EC - Measures Concerning Meat and Meat Products (Hormones) ,
panels “are poorly suited to engage in such review.”  (  Id., at para. 117).  Moreover, the Appellate
Body also noted in Hormones  that the role of a panel is to make an objective assessment of the matter
in dispute, both as to the facts and the law, as mandated by Article 11 of the DSU.  ( Id., at para. 118).
The United States submits that a panel would be assured of arriving at an “objective assessment” of
the matter in dispute if it applied a standard of review, consistent with Underwear  and Wool Shirts ,
that examines whether (1) the domestic authority has examined all relevant facts before it, including
the factors listed in Article 4:2(a); (2) adequate explanation has been provided of how the facts as awhole supported the determination made; and (3) consequently , whether the determination made is
consistent with the international obligations of the Member.
3. Legal Arguments
(a) Argentina’s Safeguard Measure Violates Article 2 of the Agreement on Safeguards
6.27 The United States concurs with the European Communities that the CNCE did not
demonstrate that a product “is being imported ” into Argentina “in such increased quantities, absolute
or relative to domestic production,” as to cause or threaten to cause serious injury, as required by
Article 2.1.  As noted by the European Communities, the phrase “is being imported” in Article 2.1
deals with current imports, as opposed to imports in years past.  In the light of Article 2.1's focus on
current imports, the United States submits that the CNCE erred in basing its increased imports findingon import levels at the beginning and end of a 6-year period, without considering the level of imports
during the intervening years.
395  The United States agrees with the European Communities that a
Member must examine imports during the full period under review to ensure that imports are
currently  increasing, and that such increase is currently  causing or threatening serious injury.
6.28 The United States asserts that while the CNCE found that imports were higher in 1996 than in
1991 in value terms, it did not analyse in its report import data for the intervening years.  Those data
                                                     
395 In response to a question from Argentina  concerning the English and Spanish texts of Article 2.1 of
the Agreement on Safeguards, the United States  asserts that it does not view the English and Spanish texts of
Article 2.1 to be inconsistent with each other with regard  to the increased imports requirement.  The English text
implies a retrospective analysis, requiring that a Member determine that a product "is being imported …in such
increased quantities…."  This means that current imports mu st be at a higher level than previous imports.  Thus,
as under the Spanish text, imports must "have increased".  Both texts convey the understanding that importsmust have increased, and that such increased imports are causing or threatening to cause serious injury to the
domestic industry.WT/DS121/R
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(as reflected in table 1 in section VII of the CNCE ’s report) show that total imports, as measured by
value, peaked in 1993 and declined each year thereafter; the table shows that imports in 1996 were
lower than in any year except 1991 ( see G/SG/N/8/ARG/1, at 21; Exhi bit EC-16).  The table also
shows that imports, as measured in value, were highest in 1994, and then fell sharply in 1995 and then
increased slightly in 1996; imports in 1996 were well below the 1993 level and only slightly above the
1992 level.  Information in the CNCE report show s that the ratio of imports to domestic production
declined irregularly between 1993 and 1996, from 34 percent to 28 percent ( see id., at 26).  The
CNCE reported but did not evaluate the data for th e intervening years, or explain how it concluded,
notwithstanding the downward trend in imports, that  footwear “is being imported” in such increased
quantities as to cause or threaten to cause serious injury to the Argentine footwear industry.  The
United States does not wish to imply that the CNCE, under these import numbers, was absolutely
precluded from finding that a product “is being imported   . . . in such increased quantities”.
However, the United States agrees with the European Communities that the CNCE report fails todemonstrate, in the face of the CNCE’s own data, the relevance of the factors examined.
6.29 The United States must disagree, however, with the inference in the European Communities’
submission that it was inappropriate for the CNCE to review  import data for a 5-6 year period in
determining whether imports have increased.   Article 2.1 does not specify a time period to be
examined, but only requires that the Member find that the product “is being imported” in suchincreased quantities.  In the view of the United States, a period of 5 years would not be inappropriate,
since it would allow the competent authority to examine imports over a period of time and put current
imports in perspective.  A 5-year period also may allow the competent author ity to examine fully the
factors other than imports that may affect the industry’s performance.  The US International Trade
Commission, which makes the injury determinations under the US safeguard law, typically examinesimports over a period of 5 years.  According to the United States, what the CNCE must show, and
failed to show, is that, based on an evaluation of the import data before it, a product “is being
imported     . . . in such increased quantities” as to cause or threaten to cause serious injury to the
domestic industry.
6.30 Similarly, the United States disagrees with the European Communities’ assertion that
Argentina violated Article 2.1, inter alia , because the CNCE failed to “demonstrate convincingly that
imports had gone up sharply  over the most recent period . . . .”   (emphasis added)  Article 2.1 does
not specify an amount or degree by which imports must have increased.  However, the amount or
degree of the increase in the level of imports would be relevant to the question of causation.
6.31 In response to questioning from the Panel  concerning the relationship between the footnote to
Article 2.1 of the Agreement on Safeguards and the MFN obligation contained in Article 2.2, the
United States  asserted that Article 2.2 of the Agreement on Safeguards contains a general
requirement that safeguard measures be applied to a product on an MFN basis;  as a general rule,
safeguard measures may not be applied in a manner that discriminates between or among WTO
Member countries.  The footnote to Article 2.1, on the other hand, references a specific instance
where derogation from the MFN principle is permissible – that is, where a customs union or free-trade
area is implicated.  Furthermore, the footnote to Article 2.1 maintains that "[n]othing in thisAgreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of
Article XXIV of GATT".  The relationship between the MFN requirement of Article 2.2 and the
footnote to Article 2.1 of the Agreement on Safeguards parallels the relationship between the general
requirement of MFN treatment under Article I of the GATT, and the provisions of Article XXIV
recognising the discriminatory elements inherent in customs unions and free trade areas.Accordingly, the footnote makes clear that nothing in the Agreement on Safeguards prejudices the
interpretation of the relationship between the MFN obligation in Article 2.2 and the ability of
Members to derogate from that obligation as part of a customs union or free-trade area.WT/DS121/R
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6.32 In response to questioning from the Panel  concerning the significance of the placement of
footnote 1 to Article 2.1 immediately after the word  "Member", and whether this could imply that the
footnote refers only to those customs unions that are themselves Members of the WTO, the United
States maintained that the placement of the footnote did not reflect the intention that the footnote refer
only to customs unions that are WTO Members.  The United States submitted, therefore, that the
Panel and the parties should refrain from reading a purpose into the text that was never intended.Reviewing the drafting history of the provision, the United States submitted that the placement of the
footnote after "contracting party" in paragraph 2 of the text up through 1991 was necessary because
the text only applied to contracting parties and the European Communities was never a contracting
party to the GATT.  In 1992, when the Legal Drafting Group substituted the word "Member" for the
phrase "contracting party", the group could not alter the placement of footnote 1 because such a
change would have been viewed as a substantive change going beyond the explicitly limited mandate
of the Legal Drafting Group
396.
                                                     
396 To understand the drafting and placement of this footnote, it is helpful to review the drafting history
of the Agreement on Safeguards and to inspect this footnote as it stood at representative points in time.  ThePunta del Este Ministerial Declaration on the Uruguay Round provided that safeguards would be a subject for
negotiation, and stated that "a comprehensive agreement on safeguards is of particular importance to the
strengthening of the GATT system and to progress in the Multilateral Trade Negotiations". (BISD 33S/24,emphasis added)  In pursuance of that mandate, Negotiating Group 9 on Safeguards produced a text labelled as
“Agreement on Safeguards” which took the legal form of a decision of the CONTRACTING PARTIES to the
GATT 1947.  The text was arranged in consecutively numbered paragraphs and it provided for obligationswhich would be binding on all contracting parties to th e GATT.   Indeed, because of the nature of safeguards
action, any agreement in this area would not be effectiv e unless it applied to every contracting party; a Tokyo
Round-style Code approach would not work.  The negotiators therefore settled on a text that would interpret andapply the GATT, such that if a safeguards action satisfied the requirements of that text, it would satisfy the
requirements of GATT Article XIX.
The Chairman of the Negotiating Group tabled a safeguards text on 31 October 1990 with the
statement that “This text represents the level of agreemen t that could be reached at this stage.”  The Negotiating
Group accepted the text as “a working paper for the very final phase of the negotiations”(MTN.GNG/NG9/W/25/Rev.3, 31 October 1990).   The Negotiating Group then decided to send the text
forward (MTN.GNG/NG9/21, 31 October 1990). The text was included in the Draft Final Act of the Uruguay
Round circulated for the Brussels Ministerial Meetin g (MTN.TNC/W/35/Rev.1, dated 3 December 1990).  The
relevant pieces from this text were as follows:
2.  A contracting party1 may apply a safeguard measure to a product only if the importing
contracting party has determined, pursuant to the provisions set out below, that such product is
being imported into its territory in such incr eased 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 like or directly competitive products.
1A customs union may apply a safeguard measure as a single unit or on behalf of a
member State.  When a customs union applies a safeguard measure as a single unit, all therequirements for the determination of serious injury or threat thereof under this agreement
shall be based on the conditions existing in the customs union as a whole.  When a safeguard
measure is applied on behalf of a member State,  all the requirements for the determination ofserious injury or threat thereof shall be based on the conditions existing in that member Stateand the measure shall be limited to that member State.  It is understood that when a safeguardmeasure is applied by a customs union on behalf of a member State, [any injury attributable tocompetition from producers established in other member States in the customs union shall not
be attributed to increased imports, in conformity with the provisions of sub-paragraph 7(b)]
[such a measure shall be applied to imports from other member States of the customs union].
The commentary preceding the safeguards text listed among the outstanding issues: “What should be
the obligations of a customs union in relation to safeguard actions?  (Footnote 1 to paragraph 2).”WT/DS121/R
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The same passages in the safeguards text in the Dunkel Draft Final Act (MTN.TNC/W/FA,
20 December 1991) read as follows:
2. A contracting party1 may apply a safeguard measure to a product only if the importing
contracting party has determined, pursuant to the provisions set out below, that such product isbeing imported into its territory in such incr eased 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 like or directly competitive products.
1A customs union may apply a safeguard measure as a single unit or on behalf of a
member State.  When a customs union applies a safeguard measure as a single unit, all therequirements for the determination of serious injury or threat thereof under this agreementshall be based on the conditions existing in the customs union as a whole.  When a safeguardmeasure is applied on behalf of a member State,  all the requirements for the determination of
serious injury or threat thereof shall be based on the conditions existing in that member State
and the measure shall be limited to that member State.  Nothing in this agreement prejudgesthe interpretation of the relationship between Article XIX and Article XXIV:8 of the GeneralAgreement.
The Dunkel Draft also included an early draft of the Multilateral Trade Organization Agreement.  It was at that
point that the decision was made that the final Uruguay Round results would include the creation of an MTO
with Members.  In January 1993, the Trade Negotiations Committee established a Legal Drafting Committee
whose mandate was limited to considering the institutional and dispute settlement provisions in the Dunkel text,and making necessary legal rectifications in the other provisions in that text.
The Legal Drafting Group met during the spring of 1992 and worked on successive drafts of the MTO
Agreement, and also made systematic changes in the texts in the Dunkel Draft to integrate them into the legal
framework of the MTO .  As part of its work, the Group mechanically substituted the word “Member” for thephrase “contracting party.”
As of the 12 December 1993 close of negotiations in the Uruguay Round, the same passages read as
follows:
2. A Member1 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 intoits territory in such increased quantities, absolute or relative to domestic production, and undersuch conditions as to cause or threaten to cause serious injury to the domestic industry thatproduces like or directly competitive products.
1A customs union may apply a safeguard measure as a single unit or on behalf of a
member State.  When a customs union applies a safeguard measure as a single unit, all therequirements for the determination of serious injury or threat thereof under this Agreementshall be based on the conditions existing in the customs union as a whole.  When a safeguardmeasure is applied on behalf of a member State,  all the requirements for the determination ofserious injury or threat thereof shall be based on the conditions existing in that member State
and the measure shall be limited to that member State.  Nothing in this Agreement prejudges
the interpretation of the relationship between Article XIX and Article XXIV:8 of GATT 1994.
The capitalization of “member State” in the footnote occurred during the final legal drafting process in
February-March 1994.  The present arrangement of the text in articles and paragraphs also dates from the finallegal drafting process (see MTN/FA/Corr.3 dated 21 February 1994, p. 173ff).
The placement of the footnote after “contracting party” in paragraph 2 of the text up through 1991 was
necessary because that text only applied to contrac ting parties, and the European Communities was never a
contracting party to the GATT.  In 1992, when the Legal Drafting Group substituted the word “Member” for thephrase “contracting party,” the group could not alter the placement of footnote 1 because such a change wouldWT/DS121/R
Page 124
(b) Argentina’s Safeguard Measure Violates Article 5 of the Agreement on Safeguards
6.33 The United States notes that in conducting its investigation, Argentina included imports from
MERCOSUR countries for purposes of determinin g whether imports were increasing during the
period of investigation.  In constructing its safeguard measure, however, Argentina excluded
MERCOSUR countries from the application of the safeguard measure.   The United States does notcontest, per se , either the practice of investigating all relevant imports or excluding partners in a
customs union from the application of a safeguard measure.
397  In this instance, however, the United
States submits that Argentina’s safeguard action is inconsistent with the terms of Article 5.1 of the
Agreement on Safeguards.
6.34 The United States asserts that Article 5.1 permits safeguard measures “only to the extent
necessary to prevent or remedy serious injury and to facilitate adjustment.”  Thus, the purpose of a
safeguard measure is to provide the affected domestic industry with a temporary buffer fromincreasing imports that are causing or threatening serious injury to the industry.  This “time out”
permits the beleaguered domestic industry to adjust to import competition either through
technological or economic advances, or through a transition to other productive uses.  In order for a
safeguard measure to be effective, and to comport with Article 5.1, it must affect the imports that are
causing the injury.  Thus, Argentina contends that “[t]he objective of the safeguard measure is toallow the domestic industry to reach the capacity to compete with a determined level of imports
sourced both from MERCOSUR and other countries.”  However, by failing to construct a safeguard
measure that addresses the imports that are causing the injury, Argentina ensures the failure of its
stated objective.
6.35 In short, the United States argues, Argentina appears to concede that the source of its
injurious footwear imports is MERCOSUR.  In its fina l determination of serious injury, notified to the
Committee on Safeguards on August 21, 1997 (G/SG/ N/8/ARG/1), the CNCE acknowledged that the
MERCOSUR countries, Brazil in particular, were the principal suppliers of subject footwear products,
and that  MERCOSUR imports had, in large part, supplanted global footwear imports.  Specifically,
the CNCE concluded that:
The MERCOSUR countries and in particular Brazil, not being
affected by the DIEM, were the sources to benefit from an increase in
Argentine purchases by diversion of trade.  Brazil’s share of total
imports rose from 7.7 per cent in c.i.f. value terms in 1993 ($9.9
million) to 31 per cent ($36.1 million) in 1996, which made it theprincipal foreign footwear supplier.
The CNCE also concluded that:
Between 1994 and 1996 the value of imports from the rest of the
world fell by more than $45 million, whereas the increase in imports
of MERCOSUR origin was $22 million, so that total importsdeclined significantly after 1994.
                                                                                                                                                                    
have been viewed as a substantive change going beyond the explicitly limited mandate of the Legal Drafting
Group.
397 In response to questioning from the Panel , the United States  clarified that it does not view
Article XXIV:8 of GATT 1994 as prohibiting the maintenance or introduction of safeguard measures betweenthe member States of a  customs union or free-trade area, whether during its formation or after its completion.WT/DS121/R
Page 125
6.36 The United States maintains that despite identifying MERCOSUR as the source of the
injurious imports, however, Argentina proceeded to implement a safeguard measure that was not
designed to affect the imports that caused the injury, and thus could not remedy the serious injury
suffered by the domestic industry nor facilitate its adjustment to import competition.
6.37 Again, the United States does not question the propriety of investigating imports from all
sources or excluding customs union partners from the application of a safeguard measure.  What theUnited States finds troubling, however, is Argentin a’s use of MERCOSUR imports for its increased-
imports analysis when there was no possibility  that those imports could be included in any safeguard
action, even where those imports are demonstrably the cause of the injury suffered by the domestic
industry.  (As the Panel is aware, under Ar ticle 98 of the MERCOSU R regulations, MERCOSUR
members exclude each other from the application of their safeguard measures).
6.38 In response to this dilemma, the United States submits, Argentina merely posits that “it is
reasonable to consider them [MERCOSUR and th ird-country imports] on equal terms for injury
analysis purposes since in the absence of DIEM or protective measures there would be at least an
equal flow of imports from the rest of the world into the Argentine Republic.”  According to the
United States, this response is purely speculative and does not address the problem presented.  In
short, the effect of Argentina’s action is to penalise producers from third countries for the injurious
imports emanating from MERCOSUR.  In the US view, Argentina’s safeguard measure therefore
violates Article 5:1 of the Agreement on Safeguards  because it does not address the injurious imports;
thus, the measure can neither remedy the serious injury nor facilitate the domestic industry’s
adjustment to import competition.
6.39 In response to questioning from the Panel  concerning whether the introduction of any
safeguard measure would be WTO-inconsistent in  a situation where imports showed a decreasing
trend at the end of an investigation period even where imports at the end were still higher than at the
beginning of the investigation period, the United States  asserted that the fact that imports showed a
decreasing trend towards the end of the investigative period does not preclude a Member from
applying a safeguard measure.  The question is whether the evidence demonstrates, as required by
Article 2.1 of the Agreement on Safeguards, that the product under investigation "is being imported… in such increased quantities … as to cause or threaten to cause serious injury to the domestic
industry".  Imports may show a decreasing trend towards the end of the investigative period for a
number of reasons, including the timing of shipments, the seasonality of the product, or importer
concern about the investigation.  In deciding whether the requirements of Article 2.1 are satisfied, a
Member should carefully consider whether it is temporary or of longer duration.  A trend of severalmonths may simply reflect irregular shipments.  A trend of several years would normally imply a
more permanent change in direction of imports of a given product, and suggest that the product is not
being imported in increased quantities.  In the US view, in this instance, the CNCE's own data show
that Argentina footwear imports have trended dow nward in recent years.  The CNCE has failed to
demonstrate how it concluded, in the face of such data, that footwear "is being imported" into
Argentina "in such increased quantities" as to cause or threaten to cause serious injury to the
Argentina footwear industry.  According to the United States, assuming a Member has made anadequate injury determination, the fact that imports  show a decreasing trend towards the end of the
investigative period has no direct bearing on the standard that a Member must apply in fashioning a
safeguard measure.  The Agreement on Safeguards contains only one standard for applying a
safeguard measure, the standard set out in Article 5.1.  Article 5.1 states that a Member "shall apply a
safeguard measure only to the extent necessary to prevent or remedy serious injury and to facilitateadjustment."  Thus, the measure applied will depend upon the facts of the case, including the nature
and extent of injury found to exist or threatened, and circumstances relating thereto, and the
adjustment to be facilitated.WT/DS121/R
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(c) Argentina’s Purported Modification of its Safeguard Measure Violates Article 7.4 of the
Agreement on Safeguards
6.40 The United States wishes to bring to the Panel’s attention a recent and troubling development
in Argentina’s safeguard measure on certain footwear imports.  Argentina recently issued
Resolution 1506, which purports to modify its current footwear safeguard by establishing a
“quantitative restriction”  in addition to  the safeguard duty.  The Resolution is somewhat unclear, but
it appears to impose either a quota or a tariff-rate quota (TRQ) of 3.9 million pairs on imports of
footwear falling within certain Universal Nomenclature of MERCOSUR (NCM) numbers.  The
established quota amount represents less than 50 per cent of footwear imports from third countries
over the last 3 years.  Under the terms of the Resolution, Argentina’s safeguard measure appears to
function as follows:  Footwear imports that are below the quota limit are subject to a safeguard duty,
as detailed in the Resolution.  Once the quota limit is filled for each NCM number, imports above the
limit will be assessed a duty rate that is 100 per cent of the current safeguard duty.  In addition, theResolution postpones any liberalisation of th e safeguard until November 30, 1999, whereupon the
quota will be increased by 10 per cent.  Although not clear from the terms of the Resolution, the
United States can only assume that MERCOSUR impor ts will not be counted towards the 3.9 million
quota limit.
6.41 The United States asserts that this alleged modification of Argentina’s safeguard measure
presents issues of grave concern to the United States.  In the US view, Argentina seems to have
crafted a safeguard-upon-safeguard barrier that is unnecessary and may, at the very least, violate
Article 7.4 of the Agreement on Safeguards.  Article 7.4 specifically requires that certain safeguard
measures be progressively liberalised   a t  regular intervals  during the period of application.
Argentina’s modification fails on both counts.  The United States asserts that, first, rather thanliberalising, Argentina has clearly made its safeguard measure more stringent.  Potential exporters of
footwear to Argentina must now contend with a quota or TRQ in addition to a safeguard duty.
Second, Argentina has not liberalised the measure at regular intervals.  As previously notified to the
Committee on Safeguards on September 15, 1997 (G/SG/N/10/ARG/1 a nd G/SG/N/11/ARG/1),
Argentina was to have liberalised the safeguard on 1 May 1998, 16 December 1998 and1 August 1999.  Argentina has already postponed one scheduled liberalisation period, and
Resolution 1506 would again delay liberalisation until 1999.  According to the United States, such
actions violate both the letter and the spirit of the Agreement on Safeguards.
6.42 Moreover, the United States submits, Argentina’s safeguard modification highlights the
original safeguard measure’s inconsistency with Article 5.1 of the Agreement on Safeguards.  Infailing to address the source of the injurious imports, Argentina’s safeguard measure has not
prevented or remedied the domestic industry’s alleged serious injury nor has it facilitated adjustment.
Adding more restrictive elements to the safeguard measure merely aggravates the problem and
compounds the inconsistency of the measure with Argentina’s obligations under the Agreement on
Safeguards.
6.43 Finally, the United States questions whether Argentina has notified Resolution 1506 to the
Committee on Safeguards, as is required by Article 12 of the Agreement on Safeguards.
398
                                                     
398 Argentina  asked the United States where in Article 12 the obligation to notify the Safeguards
Committee of Resolution MEYOSP 1506/98 could be found.  The United States  replied that assuming
arguendo the modification was consistent with the Agreement on Safeguards, it would have to be notified underArticle 12.1(c).  The United States further maintained that acceptance of Argentina's implicit contention that it
does not have to notify a new and more stringent "modification" of its safeguard measure would defeat the very
purpose of the notification provisions of Article 12.  Article 12 maintains the transparency of the system and
ensures that Members are kept informed of the most current status of safeguard measures in all Membercountries taking such measures.  The logical consequence of Argentina's position that Article 12 requiresMembers to notify the taking of a safeguard action, but that further "modification" of the measure need not beWT/DS121/R
Page 127
(d) The Requirements of Article XIX of GAT T 1994 are Subsumed by the Agreement on
Safeguards
6.44 The United States disagrees with the European Communities’ assertion that a Member may
only impose a safeguard measure if, inter alia , the increase in imports results “from both ‘unforeseen
developments’ and ‘compliance with GATT obligations,’ including tariff liberalisation according to a
party’s schedules of concessions.”  Article XIX:1(a) of the GATT must now be read in accordance
with the rights and obligations set out in the Agreement on Safeguards, as required by Article 11:1(a)
of that Agreement.  The Agreement on Safeguards has defined, clarified, and in some cases modified,
the package of rights and obligations of a potential user of safeguard measures, and Article 2 of the
Agreement on Safeguards makes clear that a demonstration of “unforeseen developments” and a
causal nexus to GATT obligations are no longer prerequisites to the application of a safeguard
measure.
6.45 According to the United States, the Agreement on Safeguards clarifies and expands on the
provisions of Article XIX, and establishes procedures for the application of safeguard measures.
Thus, the preamble to the Agreement on Safeguards “recognis[es] the need to clarify  and reinforce the
disciplines of GATT, and specifically those of its Article XIX”, while Article 1 “establishes rules for
the application of safeguard measures . . . provided for in Article XIX of GATT.”  The United States
submits that the two agreements must be read  in tandem  and, together, they create a new package of
rights and obligations which are distinct from the rights and obligations contained in the original
GATT provision.  The United States recalls that the Appellate Body arrived at a similar determination
in Brazil - Measures Affecting Desiccated Coconut, wherein the Appellate Body, quoting the panel,
asserted:
Article VI of GATT 1994 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, clarifyand in some cases modify the whole package of rights and
obligations of a potential user of countervailing measures.399
6.46 In addition, the United States points out, the negotiators of the Agreement on Safeguards were
specific in their intent to subsume Article XIX under the new regime established by the Agreement onSafeguards.  Thus, Article 11:1(a) of the Agreement on Safeguards establishes the relationship
between GATT Article XIX and the Agreement as follows:
A Member shall not take or seek any emergency action on imports of
particular products as set forth in Article XIX of GATT 1994 unless
such action conforms with the provisions of that Article applied in
accordance with this Agreement .
                                                                                                                                                                    
notified, is to approve the dissemination of misleading information.  In failing to notify its action to the
Committee on Safeguards, Argentina erroneously maintains to the World Trade Organization that the only
applicable safeguard measure on footwear imports is the safeguard duties as notified, while in reality Argentina
is applying both a safeguard duty and a TRQ.  Such action is counter to Article 12.1(c), which requiresnotification of the measure actually applied .  There simply is no basis to argue that Article 12 merely requires
notification of the "initial" safeguard measure, even if  subsequent "modifications" render the notified measure
obsolete.
399 WT/DS22AB/R (21 February 1997), at p.16.  (Emphasis in original).WT/DS121/R
Page 128
(Emphasis added).  In the US view, the phrase “applied in accordance with this Agreement” is
significant in that it demonstrates the intent of the negotiators to subsume Article XIX under the new
rights and obligations created by the Agreement on Safeguards.  This intention is made even more
apparent when the language in Article 11:1(a) is contrasted, for example, with language in the
Agreement on Subsidies and Countervailing Measures (SCM) where there is not a similar intent to
subsume Article VI of GATT under the SCM.  Thus, Article 10 of the SCM provides:
Members shall take all necessary steps to ensure that the imposition
of a countervailing duty on any product of the territory of any
Member imported into the territory of another Member is in
accordance with the provisions of Article VI of GATT 1994 and the
terms of this Agreement. (emphasis added)
6.47 The United States argues that in Article 10 of the SCM Agreement, the term “in accordance
with” modifies both Article VI of the GATT and the SCM Agreement, while in Article 11:1(a) of the
Agreement on Safeguards, “in accordance with” modifies solely “this Agreement,” meaning the
Agreement on Safeguards.  Therefore, the proper reading of Article 11:1(a) must be that a safeguard
action has to conform with Article XIX, which in turn must be applied in accordance with the
Agreement on Safeguards.  In other words, Article XIX has been subsumed by the Agreement on
Safeguards, and the provisions of Article XIX that continue to have force and effect are those that are
in accordance with the Agreement on Safeguards.  According to the United States, this interpretation
is further borne out by the fact that the Agreement on Safeguards negotiators conspicuously reiterated
in Article 2 every sentence of Article XIX:1(a) except the language concerning “unforeseen
developments” and GATT obligations.  Since the Agreement on Safeguards is the definitive
interpretation of Article XIX, a safeguard measure that satisfies the Agreement on Safeguards
necessarily satisfies the requirements of Article XIX.
4. Conclusion
6.48 In conclusion, the United States respectfully requests the Panel to find that the safeguard
measure implemented by Argentina on certain impor ts of footwear products is inconsistent with
Articles 2 and 5 of the Agreement on Safeguards.  Moreover, Argentina’s purported modification of
its safeguard measure, at the very least, violates Article 7 of the Agreement on Safeguards.WT/DS121/R
Page 129
VII. INTERIM REVIEW
7.1 The Panel issued its interim report on 21 April 1999 and informed the parties that requests for
the review of precise aspects of the interim reports had to be filed by 5 May 1999.  On 30 April 1999,
Argentina requested an extension of one week of  the time-period for submitting comments on the
interim report.  On 3 May 1999, the Panel granted an extension until 10 May 1999.
7.2 On 10 May 1999, Argentina and the European Communities requested the Panel to review, in
accordance with Article 15.2 of the DSU, precise aspects of the interim report.  Argentina requested a
further meeting with the Panel, whereas the Eur opean Communities did not consider such a meeting
necessary.  The interim review meeting with the parties was held on 20 May 1999.
7.3 The European Communities submitted a number of specific comments.  The comments on the
section entitled "the imposition of safeguard measures in the case of a customs union" addressed in
particular the Panel's description of the European Communities’  position on this issue and the
specific phrasing of the legal reasoning interpreting the relationship between Articles XIX and XXIVof the GATT.  Further to that, the European Co mmunities made minor editing suggestions concerning
the sections on "standard of review", "increased imports" and "the application of safeguard measures".
Moreover, it suggested modifying the Panel's characterisation of the reason why the European
Communities raised a claim under Article 5.  The European Communities also criticised the Panel’s
reasoning on why it refrained from ruling on the EC's claim against the provisional safeguardmeasure.  In response to these comments, we modified paras.  8.78, 8.79, 8.94, 8.287, and 8.292.
7.4 Argentina submitted a number of specific comments on the interim report which it grouped
into three major categories:  (i) comments concerning the descriptive part;  (ii) comments related to
the section entitled "factual background" introducing the Panel's findings and conclusions;  and (iii)
comments on the section of the findings addressing the EC's claims under Articles 2 and 4 of theSafeguards Agreement.
7.5 (i) As to the descriptive part, Argentina suggested changes to the account of events
concerning its submission to the Panel of the entire record of the national investigation (Exhibit ARG-
21).  We carefully considered these suggestions but continue to believe that the description of the
sequence of events in paras. 4.37-4.39 is accurate.  We did introduce a sentence into para. 4.37 at thesuggestion of Argentina, and made a few editing changes to this paragraph.  Argentina further
requested some editing changes in sections describing its arguments, including those concerning "the
imposition of safeguard measures in the case of a customs union", some of which the Panel accepted
in paras. 5.90, 5.97, 5.141, 5.269, 5.303, and 5.352.   However, the Panel did not accept Argentina's
proposals to shorten the description of certain responses by the European Communities to argumentsmade by Argentina.
7.6 (ii) With respect to the sectio n dealing with the "factual background" to this case, the Panel
did not accept Argentina's request to delete portions of this introductory section to the findings
because they are an accurate summary of events discussed by both parties concerning the context of
this dispute.
7.7 (iii) Argentina's fundamental criticism of the findings addressing the EC's claims under
Articles 2 and 4 of the Safeguards Agreement was that it believed that the Panel had carried out a denovo review of the national authority's determinations of increased imports, serious injury and
causation.  Argentina argued that the Panel's review  should have been restricted to considering
whether the Comisión Nacional de Comercio Exterior  (CNCE) had evaluated the proper factors in its
report and whether it had a reasonable basis for its conclusion that negative effects on those factors
were a result of increased imports.  Argentina alleged that the Panel instead substituted its judgementand proceeded to identify those trends and evidence it considered the most relevant.  In Argentina'sWT/DS121/R
Page 130
view, the Panel asked the national authority to explain why it found certain evidence to be
compelling, rather than properly asking whether the evidence as a whole supported the CNCE's
judgement, especially when asking Argentina to provide a complete analysis of any purportedly
"adverse" data to the conclusion it reached.  Argentina claimed that in not doing so, the Panel
exceeded its authority because it was not the Panel's task to reweigh the evidence.  Argentina
submitted that it was for the national authority, as the trier of fact, to weigh all of the evidence andreach a conclusion.  For Argentina it was the role of the Panel to determine whether the judgement of
the national authority was one possible legitimate interpretation of the evidence, and not whether it
was the correct interpretation because the standard based on international law principles is basically
"what is not prohibited, is permitted".
7.8 While we do recognise the general interpretative principle "in dubio mitius"
400 raised by
Argentina, we do not share Argentina's apparent opinion that under the Safeguards Agreement it is for
the national authority to choose one of several poss ible factual or legal interpretations.  Rather,
regarding legal interpretations, a treaty must be interpreted, pursuant to Article 31 of the Vienna
Convention, in accordance with the ordinary meaning to  be given to the terms of the treaty in their
context and in the light of its object and purpose.  Under the Safeguards Agreement, it is incumbent
upon a national authority to adequately explain its factual conclusions on the basis of the evidence
contained in the record of this case, and it is thes e explanations in the light of that evidence that we
have reviewed in accordance with our standard of  review, as explained in section VIII.E.3 of the
findings.  In this regard, the Safeguard Agreement is clear that the existence of increased imports,
serious injury or threat, and causal link between th e two, must be made on the basis of objective and
quantifiable evidence on all relevant factors having a bearing on the situation of the industry,
including factors other than increased imports that at the same time are causing injury.  TheAgreement also is clear that the detailed report on the case must set forth the findings and reasoned
conclusions, and must demonstrate the relevance of the factors considered.
7.9 We consider Argentina's allegation that our findings amount to a de novo review of the case
as unfounded.  We believe that in addressing the EC claims we have kept with our decision not to
engage in a de novo review.  In accordance with Article 11 of the DSU,
401 a panel is required to make
an objective assessment of the matter before it, in cluding an objective assessment of the facts.  In
interpreting that article, the  United States - Underwear  panel found, a policy of total deference to the
findings of the national authorities could not ensure  an "objective assessment" as foreseen by this
article.402  The panel on New Zealand - Transformers  was also confronted wi th the argument of New
Zealand that the determination of "material injury " by the competent authority of New Zealand could
not be scrutinised by the panel.403  The Transformers  panel responded that
"the responsibility to make a determination of material injury caused by dumped
imports rested in the first place with the authorities of the importing contracting party
concerned.  However, the Panel could not share the view that such a determination
                                                     
400 The Appellate Body noted:  The interpretative principle of in dubio mitius , widely recognized in
international law as a 'supplementary means of interpretation', has been expressed in the following terms:  'Theprinciple of in dubio mitius  applies in interpreting treaties, in deference to the sovereignty of states.  If the
meaning of a term is ambiguous, that meaning is to be preferred which is less onerous to the party assuming an
obligation, or which interferes less with the territorial and personal supremacy of a party, or involves less
general restrictions upon the parties.' …"  Appellate Body Report on European Communities - Measures
Concerning Meat and Meat Products (Hormones) , adopted on 13 February 1998, para. 165, footnote 154.
401 Article 11 of the DSU:  "… a panel should make an objective assessment of the matter before it,
including an objective assessment of the facts of the case and the applicability of and conformity with therelevant covered agreements …".
402 Panel Report on United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear
(United States - Underwear) , (complaint by Costa Rica), WT/DS24/R, adopted on 25 February 1997, para. 7.10.
403 Panel Report on New Zealand - Imports of Electrical Transformers from Finland , adopted on 18
July 1985, BISD 32S/55.WT/DS121/R
Page 131
could not be scrutinised if it were challenged by another contracting party.  On the
contrary, the Panel believed that if a cont racting party affected by the determination
could make a case that the importation could not in itself have the effect of causing
material injury to the industry in question, that contracting party was entitled, under the
relevant GATT provisions and in particular  Article XXIII, that its representations be
given sympathetic consideration and that eventually, if no satisfactory adjustment waseffected, it might refer the matter to the CONTRACTING PARTIES, as had been done
by Finland in the present case.  To c onclude otherwise would give governments
complete freedom and unrestricted discretion in deciding anti-dumping cases without
any possibility to review the action taken in the GATT.  This would lead to an
unacceptable situation under the aspect of law and order in international trade relations
as governed by the GATT."
404
7.10 As noted in para. 8.119, the  United States - Underwear  panel405 followed an approach similar to
that developed by the  New Zealand - Transformers  panel.  We agreed with this statement of the New
Zealand - Transformers  and the United States - Underwear  panels in paras. 8.118-8.119 of our findings.
Accordingly, we consider that, whil e it is in the first place the responsibility of the national authority of
the importing country to carry out a safeguard investigation and make a determination, we must address
in our findings the objections raised by the Europ ean Communities to the determinations made by the
CNCE.  In our view, Article 11 of the DSU requires us to conduct an assessment of the claims and the
facts of the case before us as safeguard determin ations made by a national authority are subject to
scrutiny by a panel if they are challenged by another Member (para. 8.118).
7.11 In our review, we followed the test developed by the United States - Underwear and the United
States - Shirts and Blouses  panels (para. 8.119-8.120) which held that "an objective assessment would
entail an examination of whether (i) the [national au thority] had examined all relevant facts before it
(including facts which might detract from an affirmative determination …), (ii) whether adequate
explanation had been provided of how the facts as a whole supported the determination made, and,
consequently, (iii) whether the determination made was consistent with the international obligations
of the [Member concerned]."406
7.12 According to this test, one essential element of a Panel's review of a national investigation is
to evaluate whether "adequate explanation had been provided of how the facts as a whole supported
the determination made".  This standard of review is different from a de novo  review by a panel of a
national investigation and the determination made.  As set forth in paras. 8.205-8.207, in our view, an
                                                     
404 Ibid, para. 4.4.
405 This panel did not see its "review as a substitute for the proceedings conducted by national
investigating authorities or by the Textiles Monitoring Body (TMB).  Rather … the Panel's function should be toassess objectively the review conducted by the national investigating authority, in this case the CITA.  We drawparticular attention to the fact that a series of panel reports in the anti-dumping and subsidies/countervailing dutiescontext 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 anational investigating authority imposing a restriction under the relevant provisions of the relevant WTO legalinstruments, in this case the ATC. …"  United States - Underwear , op.cit ., para. 7.12.
406 The United States - Underwear  panel also noted in footnote 18 to para. 7.13 to that report:  "This
approach is largely consistent with the approach adopted by the panel reports cited in footnote 16  (Korea - Anti-
Dumping Duties on Imports of Polyacetal Resins from the United States , adopted on 27 April 1993, BISD
40S/205;  United States - Imposition of Anti-Dumping Duties on Imports of Fresh and Chilled Atlantic Salmon
from Norway , adopted on 27 April 1994;  United States - Initiation of a C ountervailing Duty Investigation into
Softwood Lumber Products from Canada , adopted on 3 June 1987, BISD 34S/194) although it should be pointed
out that the standard of review was expressed in slightly different terms in each of the aforementioned panel
reports."WT/DS121/R
Page 132
assessment of whether an explanation  was as a whole adequate  concerns the logical relationship
between two given benchmarks, i.e., the facts of a case as collected by a national authority, on the one
hand, and the safeguard determination made by it, on the other.  Our assessment of this case has not
involved questioning the facts as determined by the national authority;  indeed, the European
Communities did not challenge the facts gathered and compiled by the CNCE, but rather alleged that
the determinations made could not be logically drawn from the facts as reflected in the CNCE's recordof the investigation.  As a result of these EC allegations it was necessary for the objective assessment
which we are required to conduct to evaluate whether the explanation given by the national authority
in evaluating the facts before it adequately supported the conclusions drawn with respect to the crucial
conditions (i.e., (i) increases in imports, (ii) serious injury or threat thereof, and (iii) the existence of a
causal link) and the safeguard determination made.  The discussion of the adequacy  of an explanation
cannot merely consist in taking the explanation presented by a national authority at face value; it
requires a process of evaluation of the reasoning by the national authority in its determination, in thelight of arguments advanced by the complaining Member, and of responses by the respondent
Member.  Moreover, for an explanation to be adequate as a whole it must provide adequate reasoning
on how the conclusions drawn flow from the facts of  the case, including those facts that would appear
to detract from such conclusions.
7.13 Argentina further alleged that the Panel crea ted a new concept by requiring that for each
single factor of injury analysis it is necessary to  elaborate a reasonable explanation linking the data to
the conclusion for each factor in isolation.  In Arge ntina's view, it is sufficie nt to comply with the
standard set by the Safeguards Agreement for a national authority to examine the totality of the data.
7.14 In para. 8.123, we noted that the text of Article 4.2(a) of the Safeguards Agreement explicitly
requires the evaluation of "all relevant factors of an objective and quantifiable nature having a bearingon the industry", in particular those listed therein.  We also noted that despite the absence of an
express requirement of a similar nature in the Agreement on Textiles and Clothing (ATC), the panels
on United States - Underwear  and United States - Shirts and Blouses  ruled that each and every injury
factor mentioned in Article 6.4 of the ATC had to be considered by the national authority.  In our
view, for an evaluation of how the facts as a whole  supported the determination made it is necessary
for the national authority to link through an adequate explanation each of the relevant factors  within
the meaning of Article 4.2(a) to the overall determination, including where such factors seem to
detract from that determination.  We believe that in our discussion of the EC's claims under Articles 2
and 4 we have done nothing more than evaluate whether each of the identified factors was analysed
and whether adequate explanations are contained in the record of the investigation as carried out bythe national authority regarding how each of the relevant injury factors supported or was reconciled
with the overall determination made.
7.15 Argentina further submits that under the Safeguards Agreement national authorities have a
broad discretion how to conduct a safeguard investigation.  Therefore, there is no specific requirement
as to the methodology to be used to measure increa ses in imports or as to how thoroughly any factor
must be considered, as long as the approach is reasonable and not in conflict with the specific
requirements provided for in the Agreement.  In Argentina's opinion, in several instances the Panelhas imposed standards and requirements which have no basis in the Agreement.
7.16 In this context, we recall that we endorsed in para. 8.120 the statement by the panel on United
States - Shirts and Blouses which reasoned that
"this is not to say that the Panel interprets the ATC as imposing on the importing
Member any specific method either for collecting data or for considering and weighingall the relevant economic factors upon which the importing Member will decide
whether there is need for a safeguard restra int.  The relative importance of particularWT/DS121/R
Page 133
factors including those listed in Article 6.3 of the ATC is for each Member to assess in
the light of the circumstances of each case."407
7.17 We agree in principle with Argentina that the Safeguards Agreement leaves a margin of
discretion to the national authority to choose it s methodology for carrying out its investigation, in
particular with respect to data collection and the weighing of the relative importance of all relevant
economic factors provided that an adequate explanation is given of how the facts as a wholesupported the determination made.  However, a juxtaposition of data and conclusions without
adequate reasoning linking them is not sufficient under the terms of the Safeguards Agreement.
7.18 We did not find fault with the duration of the investigation period chosen by Argentina for
measuring whether increases in imports occurred, nor with the beginning and end years of that period
(1991 to 1995) as selected by the CNCE.  Nor did we  consider an end-point-to-end-point analysis of a
given investigation period to be problematic per se  under the Safeguards Agreement.  However, in the
light of Article 4.2(a)'s requirement that "the rate and amount of the increase in imports" be evaluated,we considered that only end-point-to-end-point data  are not enough but also that analysis of import
trends during the entirety of an investigation period is required (para. 8.159).  In a factual situation
where the variation by one year of the beginning and the end points of an investigation period yielded
substantially different results and where intervening trends of declines in imports were of a more than
temporary nature, we considered a mere end-point -to-end-point analysis to be insufficient for
demonstrating an increase in import quantities as required by Article 2 of the Safeguards Agreement.
We further note Argentina's statement that certain portions of the record, in some cases even not
explicitly cited by the authorities, were neverthe less within their knowledge and should be assumed to
have been considered by the administering authority.  In this regard, we recall our conclusion,
consistent with the previous panel reports mentioned above, that the national authority of theimporting Member has the obligation to examine, at the time of its determination, at least all of the
factors listed in Article 4.2(a) and to publish a report setting forth, in accordance with Article 3.1, its
findings and reasoned conclusions reached on all pertinent issues of law and of fact.  We cannot
endorse a theory that certain portions of a record of 10,000 plus pages should be assumed, absent
adequate reasoning in the published report on the investigation, to have been considered by the
national authority when making its determination.
7.19 With respect to the publication of a report setting forth findings and reasoned conclusions,
Argentina also emphasised that the Technical Report is an integral part of Act 338, and that these
documents cannot be separated from each other.  Accordingly, it is Argentina's position that both of
these documents constitute Argentina's published report setting forth the competent authority's
findings and reasoned conclusions reached on all pertinent issues of fact and law.  We note that
Argentina largely relied on Act 338 in its argumentation.  We also recall our statements in paras.
8.126-8.128 that we deemed Act 338 to be the most important document, but that we also took the
Technical Report into consideration where that report contained more specific and additional
information.  However, we noted that consideration of the raw data of the investigation in the 10,000-
plus page investigation record appeared to be of lesser importance given that the contents were
organised and summarised by the CNCE in Act 338 and the Technical Report.  Nonetheless, pursuant
to Argentina’s comments, we modified the end of para. 8.128.
7.20 Furthermore, Argentina pointed at certain lega l and factual arguments which it believed the
Panel should have addressed.  In Argentina's view, failing to refer to these arguments, or relegating
them to footnotes or final observations, would be a denial of procedural fairness.  In this regard, we
recall that the Appellate Body characterised an allegation that a panel has failed to conduct an
                                                     
407 Panel Report on  United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from
India (United States - Shirts and Blouses) , adopted on 23 May 1997, para. 7.52.WT/DS121/R
Page 134
"objective assessment" in the meaning of Article 11 of the DSU as a very serious allegation.408  In the
Appellate Body's opinion, a panel may be said to ha ve failed in this basic duty if it deliberately
disregards or distorts a fact or a piece of evidence,409 if in assessing the facts before it, it exhibits
"gross negligence amounting to bad faith",410 or an "egregious error that calls into question the good
faith of a panel",411 or if it "arbitrarily ignores or manifestly distorts evidence".412  In the context of
other fact-intensive cases -- similar to the one before us -- the Appellate Body noted that "a panelcannot realistically refer to all statements made by the experts advising it and should be allowed a
substantial margin of discretion as to which statements are useful to refer to explicitly".
413  I n  t h e
Korea - Liquor Tax  case, the Appellate Body also stated that "it is not an error … for the panel to fail
to accord the weight to the evidence that one of the parties believes should be accorded to it".414  In
light of these considerations, we believe that in making our assessment of the matter before us we
have ensured fundamental fairness and due process for both parties.
7.21 In particular, Argentina made specific comments on the Panel's factual description and
evaluation of the adequacy of the CNCE's explanation regarding specific injury factors.  In reaction to
these comments, we modified para. 8.173 in the section on "production".  With respect to "sales", we
modified paras. 8.175 and 8.180, and we added paras. 8.177 and 8.181.  As regards "productivity", we
added language to paras. 8.183 and 8.211.  In respect of "profits and losses" we added information to
the table on "accounting data" (para. 8.188) and modified or shortened the discussion of profits andlosses in the section on "differences in data", especially regarding the break-even point analysis in
para. 8.224.  In response to Argentina's comments concerning the factor "employment" we did not
consider any adjustments necessary.  Following a comment on market shares of imports, we also
modified footnote 551.
7.22 Concerning the treatment by the CNCE of data  for the year 1996, Argentina stated that 1996
data from the questionnaires were incomplete at least as to the financial indicators because the
petitioners filed their request for safeguard action in October 1996.  We recall our consideration in
para. 8.213 that Argentina should have taken into account 1996 data as a relevant factor in the
meaning of Article 4.2(a) to the extent such data were collected during the investigation and are
contained in the CNCE's record of the case.  In the alternative, the national authority should havegiven an adequate explanation why such consideration of available 1996 data by the national authority
was unnecessary or irrelevant in the particular circumstances of this case.  However, by no means did
we imply an obligation for a national authority to constantly update its data collection.  Nor do we
consider our statement inconsistent with our acceptance of Argentina's choice of an investigation
period from 1991 to 1995.  More specifically, we modified footnote 540 to identify the extent towhich the CNCE had data from 1996 available in the investigation record with respect to particular
injury factors.
7.23 Argentina further criticised that the findings in para. 8.163 mentioned only the preliminary
decision as referring to the impact of the imposition of DIEMs on imports as of 1993, but fail to
mention that the CNCE's final determination also held that imports had declined after 1993 because of
the imposition of the DIEMs.  We inserted footnote 529 to refer in that respect to the CNCE’s final
determination.  At any rate, regardless of whether Argentina raised this argument only in thepreliminary report or also in the final report, a threat of increased imports  cannot be held to amount to
                                                     
408 Appellate Body Report on European Communities - Measures Affecting the Importation of Certain
Poultry Products (European Communities - Poultry) adopted on 23 July 1998, para. 133.
409 Appellate Body Report on European Communities - Hormones , para. 139.
410 Appellate Body Report on European Communities - Hormones , para. 138.
411 Appellate Body Report on European Communities - Hormones , para. 133.
412 Appellate Body Report on European Communities - Hormones , para. 145.
413 Appellate Body Report on European Communities - Hormones , para. 138.
414 Appellate Body Report on Korea - Taxes on Alcoholic Beverages (Korea- Liquor Tax) , adopted on
17 February 1999, para. 164.WT/DS121/R
Page 135
a threat of serious injury .  We reiterate our consideration (para. 8.284) that the Safeguards Agreement
requires actual  imports in increased quantities (in absolute terms or relative to domestic production)
as one of the preconditions for imposing a safeguard measure and that a threat of additional imports as
such is insufficient for a finding of a threat of serious injury.
7.24 Argentina also alleged that the Panel failed to reference a "cornerstone" of the CNCE's
causation decision, i.e., the specific correlation of increasing import trends for footwear in 1991-1993with declines in the gross domestic product (GDP) for footwear in the same period.  In Argentina's
view,  this argument was reinforced by comparative declines in the Argentine footwear GDP versus
increases of the Argentine GDP for the overall manufacturing sector.  Argentina also pointed out that
import increases in 1991 and 1992 were much higher in the footwear sector than overall imports to
Argentina during the same period.  We reflected this argument in para. 8.231 but continue to believe
that above-average sectoral import increases and above-average sectoral GDP declines per se  do not
necessarily justify the imposition of safeguard measures in economic sectors whose performance isless successful than the performance of the national economy as a whole.  We believe that a causal
link needs to be established from an analysis of the impact of increased imports on the injury factors
identified in the Safeguards Agreement.
7.25 With regard to the issue of whether the phrase "under such conditions" in Article 2.1 requires
national authorities to carry out a price analysis, we refer to our discussion and conclusion in paras.8.249ff that this phrase does not constitute a specific legal requirement for a price analysis and that
products may compete on other bases than price, as enumerated in para. 8.251.  We recall, however,
as reflected in para. 8.254, that although in our view a price analysis is not a requirement of Article
2.1, in this case  the alleged price underselling by imports was a major basis for Argentina’s causation
finding.  Consequently, it was necessary for the CNCE to collect and analyse data to support this
finding.  We note, however, that the investigation neither developed nor analysed data on import
prices, and that Argentina informed the Panel that  references in the final determination to “cheap
imports” had to do with underinvoicing rather than underselling (paras. 8.258-8.262).  In the absence
of evidence on or an assessment of import prices , we concluded that the CNCE did not adequately
explain how it was possible for the CNCE to infer that lower-priced imports had had an injuriouseffect on the domestic industry.WT/DS121/R
Page 136
VIII.  FINDINGS
A. FACTUAL BACKGROUND
8.1 This case concerns a challenge by the European Communities to provisional and definitive
safeguard measures taken by Argentina to limit imports of footwear.  The recent history of
Argentina's actions concerning footwear imports includes several measures and developments.
8.2 On 31 December 1993, Resolution 1696/93 introduced minimum specific duties (derechos de
importación espicíficos mínimos or "DIEMs") on certain footwear imports.  This measure originally
foresaw the possibility of a single non-renewable ex tension of six months.  However, it was extended
several times.  The last extension took place on 7 January 1997 by Resolution 23/97.415
8.3 On 4 October 1996, the United States requested consultations in respect of Argentina -
Certain Measures Affecting Footwear , Textiles, Apparel and Other Items416 ("Argentina - Textiles and
Apparel ").  The US request covered DIEMs on footwear and other products and alleged violations of
Articles II, VII, VIII and X of GATT.417
8.4 On 25 October 1996, the Chamber of the Footwear Industry (Cámara de la Industria del
Calzado "CIC") petitioned the National Foreign Tr ade Commission (Comisión Nacional de Comercio
Exterior "CNCE") of the Subsecretaría de Comercio Exterior ("Subsecretaria") of the Ministerio de
Economia y Obras y Servicios Publicos ("MYOSEP") to initiate a safeguard investigation in respect
of footwear.
8.5 On 14 February 1997, the Argentine Ministry of Economy and Public Works repealed the
DIEMs on footwear by Resolution 225/97.  On the same day, the CNCE initiated a safeguard
investigation and imposed provisional measures in the form of minimum specific duties on footwear
(Resolution 226/97 of 14 February 1997).
8.6 On 21 February 1997,418 pursuant to Article 12.1(a) of the Agreement on Safeguards
("Safeguards Agreement"), Argentina notified the WTO Committee on Safeguards of the initiation of
the investigation and the reasons for it, as well as of its intention to apply a provisional safeguard
measure.  On 25 February 1997, the provisional safeguard measure entered into force419.  On the same
day, the panel requested by the United States on Argentina - Textiles and Apparel  was established by
the DSB.
8.7 Subsequently, the panel on Argentina - Textiles and Apparel  decided not to rule on the
DIEMs on footwear which had been revoked on 14 Fe bruary 1997.  During that panel proceeding, the
European Communities participated as a third party.
                                                     
415 Panel Report on  Argentina - Certain Measures Affecti ng Footwear, Textiles,  Apparel and other
Items  (WT/DS56), adopted 22 April 1997, para. 2.4.
416 WT/DS56.
417 On 23 April 1997, the European Communities  initiated consultations regarding the same measures
(WT/DS77).
418 "Notification under Article 12.1(a) of the Agreement on Safeguards on initiation of an investigation
and the reasons for it" and "Notification under Article 12.4 of the Agreement on Safeguards before taking aprovisional safeguard measure referred to in Article 6" (G/SG/N/6/ARG/1, G/SG/N/7/ARG/1) which were
circulated to WTO Members on 25 February 1997.  On 5 March 1997, Argentina added a supplement to these
notifications (G/SG/N/6/ARG/1/Suppl.1, G/SG/N/7/ARG/1/Suppl.1) which was circulated to WTO Members on18 March 1997.
419 Official Journal of the Argentine Republic No. 28.592 of 24 February 1997.WT/DS121/R
Page 137
8.8 On 25 July 1997, Argentina notified the Committee on Safeguards, pursuant to Article
12:1(b) of the Safeguards Agreement, of the dete rmination of serious injury made by the CNCE.420
8.9 On 1 September 1997, Argentina notified the Committee on Safeguards, pursuant to Article
12.1(c) and Article 9 (footnote 2) of the Safeguards  Agreement, of the intention of the Argentine
authorities to impose a definitive safeguard measure.421
8.10 In accordance with Article 12.3 of the Safeguards Agreement, consultations were held
between the European Communities and Argentina on 9 September 1997.422
8.11 On 12 September 1997, Argentina imposed a definitive safeguard measure (Resolution
987/97) in the form of minimum specific duties on im ports of footwear, effective as of 13 September
1997.423  The measure is valid for three years (as of the entry into force of the provisional safeguard
measure on 25 February 1997) and provides that it shall be liberalised on 1 May 1998, 16 December
1998 and on 1 August 1999.
8.12 However, Article 9 of Resolution 987/97424 provides that if imports increase by more than 30
per cent in the first year after the imposition of the definitive measure in comparison to the year
preceding it, the Ministry of Economy and Public Works may suspend the liberalisation schedule for
half a year and extend the safeguard measure accordingly.
8.13 On 26 September 1997, the definitive safeguard measure was notified to the Committee on
Safeguards by Argentina425 and by Uruguay as Presiding Member State of MERCOSUR.426
8.14 On 3 April 1998,427 the European Communities made a request for consultations with
Argentina pursuant to Article XXII:1 of GATT entitled Argentina - Safeguard Measures on Footwear
(DS 121).
8.15 On 22 April 1998, the DSB adopted the reports of the Panel and the Appellate Body on
Argentina - Textiles and Apparel  (WT/DS56) which found Argent ina's minimum specific import
duties on a range of textiles and apparel products to be inconsistent with Article II of GATT "because
                                                     
420 Notification under Article 12.1(b) of the Agreement on Safeguards on finding a serious injury or
threat thereof caused by increased imports (G/SG/N/8/ARG/1) which was circulated on 21 August 1997.
421 G/SG/N/10/ARG/1 and G/SG/N/11/ARG/1, dated 15 September 1997, and
G/SG/N/10/ARG/1/Corr.1, G/SG/N/11/ARG/1/Corr.1, dated 18 September 1997.
422 The outcome of these consultations was notified, pursuant to Article 12.5, to the Committee on
Safeguards on 10 September 1997.
423 Official Journal of the Argentine Republic No. 28,729.
424 Article 9 of Resolution 987/97:  "The Secretariat of Industry, Trade and Mining shall monitor total
imports and the adjustment plan provided for in the commitments undertaken by the petitioner.
(a)  To this end, the Secretary of Industry, Trade and Mining shall prepare a report to determine
whether there has been an increase in imports subject to the safeguard measures and imports originating in thecountries covered by Article 9, paragraph 1, of the Agreement on Safeguards.  The report will provide acomparison between total imports measured in pairs in the period September 1997-August 1998 and the sameimports for the immediately preceding 12-month period up  to September 1997.  The Ministry of the Economy
and Public Works and Services shall examine the report of the Secretary of Industry, Trade and Mining, and if
the increase in imports is greater than 30 per cent it may suspend the liberalisation provided for the periodbetween 30 December 1998 and 31 July 1999, in which case the measure in force at the time will continue until31 July 1999;  while for the remaining period during which the safeguard measure is in effect, the liberalisationtimetable provided for in Annex I of this Resolution shall be maintained. …".
425 Resolution 987/97 was circulated to Member on 10 October 1997 (G/SG/N/10/ARG/1/Suppl.1 and
G/SG/N/11/ARG/1/Suppl.1).
426 G/SG/N/10/ARG/1/Suppl.2 and G/SG/N/11/ARG/1/Suppl.2 of 22 October 1997.
427 WT/DS121/1, dated 8 April 1998.WT/DS121/R
Page 138
the DIEM regime, by its structure and design, results, with respect to a certain range of import prices
in any relevant tariff category to which it applies,  in levying of customs duties in excess of the bound
tariff rate of 35 per cent  ad valorem  in Argentina's Schedule".428
8.16 The consultations in the case on Argentina - Safeguard Measures on Footwear  (DS 121) were
held on 24 April 1998, but did not lead to a satisfactory resolution of the matter.
8.17 On 28 April 1998, Argentina enacted, in accordance with Article 9 of Resolution 987/97,
Resolution 512/98429 which modifies the definitive safeguard measure by postponing the liberalisation
schedule.
8.18 On 10 June 1998,430 the European Communities requested the establishment of a panel.  The
DSB established this Panel on 23 July 1998 and it was composed on 15 September 1998.
8.19 On 16 November 1998, Argentina published Resolution 1506/98 which provided for another
modification of the original definitive safeguard measure.431  Article 2 of Resolution 1506/98 provides
for a further extension of the liberalisation schedule and introduces a tariff quota system.
8.20 On 7 December 1998, Argentina published Resolution 837/98432 which implements
Resolution 1506/98 by regulating the distribution of three-month quota allocations within the tariff
quota system introduced by the latter resolution.
                                                     
428 Appellate Body Report on Argentina - Textiles and Apparel  (WT/DS56/AB/R), adopted on
22 April 1997, para. 87(a).
429 Resolution 512/98:  Amendment of Resolution No. 987/97, which provided for the closure of a
safeguard investigation into footwear imports as regards the liberalization schedule (Exhibit EC-28):
Article 1:  "The liberalization schedule established in Annex I to Resolution … No. 987[/97], of
10 September 1997 shall be modified in accordance with the new schedule contained in Annex I to thisResolution".
Article 2:  "The Secretariat … shall monitor imports …"
(a)  "To that end, an analysis shall be carried out with a view to determining the evolution of imports as
from the date of application of the safeguard measure and to compare those imports with the quantities importedduring a previous representative period …".
"On the basis of the result of these evaluations the Secretary … shall submit a report to the Ministry …
on the appropriateness of maintaining the established liberalization schedule as provided for in the Annex to this
Resolution."
430 WT/DS121/3, dated 11 June 1998.
431 Resolution 1506/98 (Exhibit EC-32):
Article 1:  "The liberalization schedule established in Annex I to Resolution No. 512 of the Ministry …
of 24 April 1998, amending Resolution No. 987 of the Ministry … of 10 September 1997, shall be modified in
accordance with the new liberalization schedule containe d in Annex I which ... is an integral part of this
Resolution".
Article 2:  "A quantitative restriction  is hereby imposed on imports of footwear cleared through
customs under MERCOSUR Common Nomenclature tariff headings … as listed in Annex II which … is anintegral part of this Resolution".  (Emphasis added).
Article 4:  "A levy shall be paid on imports of footwear exceeding the quantity of pairs established in
Article 2 at the rate of the Minimum Specific Duties of the Safeguard Measure described in Annex I to this
Resolution, Article 1 of which amends Resolution No. 512 ... dated 24 April 1998, amending ResolutionNo. 987/97 ... of 10 September 1997, increased by 100 per cent (100%) as listed in Annex III which ... is anintegral part of this Resolution".
432 Resolution 837/98 setting forth the arrangements for the allocation and distribution of the three-
month footwear import quotas established in Annex II to Resolution No. 1506/98 (Exhibit EC-35):
Article 1:  "The allocation of three-month footwear import quotas established in Annex II to
Resolution … 1506/98 shall be under the responsibility of the Directorate-General of Customs".
Article 4:  "In no case shall the figure of 25 per cent (25%) of the total three-month quota assigned to
each tariff heading per importer be exceeded".WT/DS121/R
Page 139
B. CLAIMS
8.21 The European Communities alleges that the provisional and the definitive safeguard measure
are in breach of Argentina's obligations under the Agreement on Safeguards and under the GATT.
The European Communities alleges breaches of:
- Article XIX of GATT 1994 (in particular the lack of "unforeseen developments");
and of the following provisions of the Safeguards Agreement:- Article 2 (especially the requirement of determ ining in an investigation that certain conditions
are present and the non-discrimination obligation);
- Article 4 (in particular that all relevant factors must be investigated and the obligation to
demonstrate the existence of a causal link);
- Article 5 (especially the condition that measures must only be applied to prevent or remedy
serious injury);
- Article 6 (in particular the requirement of evidence of "critical circumstances"); and- Article 12 (especially the notification obligations).
C. T
ERMS OF REFERENCE AND SCOPE OF THE MEASURES IN DISPUTE
1. Minimum specific duties (DIEMs)
8.22 The EC's position is that the previous panel on  Argentina - Textiles and Apparel  (DS 56)433
should have reviewed the WTO compatibility of the DIEMs on footwear, but it does not ask this
Panel to declare these DIEMs WTO-inconsistent.  Argentina requests the Panel not to take into
account any claims made by the European Communities regarding the DIEMs on footwear.  In view
of the facts that the DIEMs on footwear were repealed on 14 February 1997, that they were not
specifically identified in the request for the es tablishment of this Panel, and that the European
Communities makes no claims related thereto, we see no basis to make a ruling concerning them.
2. Subsequent modifications of the definitive safeguard measure
8.23 The European Communities claims that Resolutions 512/98, 1506/98 and 837/98 fall within
this Panel's terms of reference since the definitive safeguard measure (Resolution 987/97) was listed
in its panel request and is still in effect - albeit in a modified form.
8.24 Argentina responds that Resolution 512/98 of 28 April 1998, Resolution 1506/98 of 16
November 1998 and Resolution 837/98 of 4 December 1998 concerning the modification of the
liberalisation schedule of the definitive safeguard measure are not within the terms of reference of this
Panel given that the EC's request for the establishment of this Panel specifically mentions only
Resolution 226/97 of 14 February 1997 on the imposition of a provisional measure and Resolution
987/97 of 12 September 1997 on the imposition of a definitive measure.
8.25 In response to a Panel question regarding how Argentina reconciles its arguments that
Resolutions 512/98 and 1506/98 are based on and flow out of Article 9 of Resolution 987/97, on the
                                                     
433 Panel Report on Argentina - Measures Affecting Imports of Footwear, Textile s, Apparel and Other
Items , adopted on 22 April 1998, WT/DS56/R, paras. 6.14 - 6.15.WT/DS121/R
Page 140
one hand, and that these resolutions are outside the Panel's terms of reference because they are new
measures, Argentina indicates that it does not refer to two new measures.  Rather, in Argentina's view,
these are foreseen modifications to the measure adopted by Resolution 987/97, but do not come
within the terms of reference of this Panel.
8.26 In the EC's view, Argentina itself has admitted  that the subsequent resolutions are a simple
application of Article 9 of Resolution 987/97 and thus an integral part of the definitive safeguardmeasure.  Accordingly, they are modifications of Resolution 987/97 rather than new safeguard
measures.   The European Communities further points out that, contrary to the Guatemala - Cement
434
case where Mexico referred to an antidumping investigation, but failed to identify the definitive anti-
dumping measure in its panel request, the European Communities has identified the definitive
safeguard measure in its request for the establishment of this Panel.
8.27 Before addressing these questions, we recall that Article 6.2 of the DSU requires that both the
"specific measures at issue" and the "legal basis fo r the complaint" (or the "cla ims") be identified in a
request for the establishment of a panel.  We note that the relevant part of the EC's request for the
establishment of this Panel reads:
"Under Resolution 226/97, published in the Official Journal of the Argentine
Republic No. 28592 on 24 February 1997, Argentina imposed a provisional safeguard
measure in the form of minimum specific duties on imports of footwear effective asof 25 February 1997.  Under Resolution 987/97, published in the Official Journal of
the Argentine Republic No. 28729 on 12 September 1997, Argentina imposed a
definitive safeguard measure in the form of minimum specific duties on imports of
footwear effective as of 13 September 1997."
435
8.28 In Guatemala – Cement,  the Appellate Body recently addressed in detail the issues of the
terms of reference in Article 7 of the DSU and the specificity requirements set forth in Article 6.2 of
the DSU:
"[T]he task of a panel is to examine the ' matte r referred to the DSB'. … Article 7 of
the DSU itself does not shed any further light on the meaning of the term ' matter '.
However, when that provision is read together with Article 6.2 of the DSU, theprecise meaning of the term 'matter ' becomes clear.  Article 6.2 specifies the
requirements for a complaining Member to refer the ' matter ' to the DSB.  In order to
seek the establishment of a panel to hear its complaint, a Member must make, in
writing, a 'request for the establishment of  a panel' (a 'panel request').  In addition to
being the document which enables the DSB to establish a panel, the panel request isalso usually identified in the panel's terms of reference as the document setting out
'the matter referred to the DSB'."
436
8.29 Consequently, as a preliminary issue, we have to ascertain which "measures" have been
specified consistently with the requirements of Artic le 6.2 of the DSU so as to fall within our terms of
reference.
                                                     
434 Appellate Body Report on Guatemala - Anti-dumping Investigation regarding Portland Cement
from Mexico  (WT/DS60/AB/R), adopted on 25 November 1998, para. 86.
435 WT/DS121/3, circulated on 11 June 1998.
436 Appellate Body Report on Guatemala - Cement , para. 72.WT/DS121/R
Page 141
8.30 In addressing Argentina's objections to in clusion of Resolutions 512/98, 1506/98 and 837/98
in this Panel's terms of reference, we recall that in Brazil - Desiccated Coconut ,437 the Appellate Body
stated that:
"a panel's terms of reference are important for two reasons.  First, terms of reference
fulfil an important due process objective - they give parties and third parties sufficient
information concerning the claims at issue in the dispute in order to allow them anopportunity to respond to the complainant's case.  Second, they establish the
jurisdiction of the panel by defining the precise claims at issue in the dispute."
438
8.31 The panel request in this dispute clearly identi fied that Argentina's provisional and definitive
measures on footwear are at issue in this dispute.  The European Communities does not contest the
obvious fact that the subsequent Resolutions which modified the definitive safeguard measure were
not explicitly mentioned in the panel request.  The question then becomes whether subsequent
modifications of a definitive measure which are not explicitly mentioned in this request fall within themeaning of Article 6.2 of the DSU, i.e., that "the spec ific measures at issue" must be identified in the
panel request.
8.32 The European Communities - Bananas III
439 panel addressed the issue of measures to be
deemed covered by a panel's terms of reference in the light of the requirements of Articles 6.2 and 7
of the DSU.  The panel request by Ecuador, Guat emala, Honduras, Mexico and the United States in
European Communities - Bananas III  read as follows:
"The European Communities maintains a regime for the importation, sale and
distribution of bananas established by Regulation 404/93(O.J. L 47 of 25 February
1993, p.1), and subsequent EC legislation, regulations and administrative measures,
including those reflecting the provisions of the Framework Agreement on Bananas,which implement, supplement and amend that regime."
8.33 Therefore, in the European Communities - Bananas III  panel request, the "basic EC
regulation at issue" was identified, and in addition, the request referred in general terms to
"subsequent EC legislation, regulations and administrative measures … which implement, supplement
and amend [the EC banana] regime".  The European Communities - Bananas III  panel found that for
purposes of Article 6.2 this reference was sufficient  to cover all EC legislation dealing with the
importation, sale and distribution of bananas because the measures that the complainants were
contesting were "adequately identified", even though they were not explicitly listed.
440  The Appellate
                                                     
437 Appellate Body Report on Brazil - Measures Affecting Desiccated Coconut , (WT/DS22/AB/R)
adopted 20 March 1997, p. 22.
438 Appellate Body Report on Brazil - Desiccated Coconut , p. 22. In this case, the Appellate Body also
referred to the following Panel Reports:  Panel Report on United States - Imposition of Anti-dumping Duties on
Imports of Fresh and Chilled A tlantic Salmon from Norway , adopted on 27 April 1994, BISD 41S/229, para.
229.  United - States - Imposition of C ountervailing Duties on Imports of Fresh and Chilled Atlantic Salmon
from Norway , adopted on 28 April 1994, BISD 41S/576, para. 212 ;  United States - Denial of Most-favoured-
nation treatment as to Non-rubber Footwear from Brazil , adopted on 19 June 1992, BISD 39S/128, para. 6.2;
European Communities - Imposition of Anti-dumping Duties on Imports of Cotton Yarn from Brazil , adopted on
30 October 1995, BISD 42S/17, para. 456.
439 Panel Report on  European Communities - Regime for the Importation, Sale and Distribution of
Bananas  (WT/DS/27/R), adopted on 25 September 1997, para. 7.35;  Appellate Body Report on European
Communities - Regime for the Importation, Sale and Distribution of Bananas  (WT/DS/27/AB/R), adopted on 25
September 1997, para. 142.
440 Panel Report on European Communities - Bananas III , para. 7.27.WT/DS121/R
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Body agreed that the panel request "contains sufficient identification of the measures at issue to fulfil
the requirements of Article 6.2".441
8.34 In the present dispute, Argentina's procedur al objections concern modifications of the
definitive safeguard measure which is a situation quite similar to the "subsequent EC legislation,
regulations and administrative measures … which implement, supplement and amend [the EC banana]
regime" and were found to be within that panel's terms of reference.  If there is a difference betweenEuropean Communities - Bananas III  and the case before us, it is the fact that the EC banana regime
encompassed dozens of subsequent regulations which implemented, but also supplemented and
amended the original Regulation 404/93 on the common market organisation for bananas.  In the case
before us, however, the subsequent resolutions change the legal form or the form of application of the
definitive safeguard measure, while the safeguard investigation made at the outset, which remains the
basis for the definitive safeguard measures, has not changed.
8.35 We further recall that the Japan - Film  panel
442 considered certain measures which had not
been listed in the panel request to be within its terms of reference because they were "implementing
measures" based on a basic framework law, specifically identified in the panel request, which
specified the form and circumscribed the possible content and scope of such implementing measures.
From this we infer that a legal act not explicitly listed in a panel request but which has a direct
relationship to a measure that is specifically described therein, can be said to be sufficiently identifiedto satisfy the requirements of Article 6.2.  In this respect, we agree with the Japan - Film  panel's
statement that the requirements of Article 6.2 could be met in the case of a legal act that is subsidiary
to or so closely related to a measure specifically identified, that the responding party can reasonably
be found to have received adequate notice of the scope of the claims asserted by the complaining
party.
443  The Japan - Film  panel reasoned:
"The two key elements - close relationship and notice - are inter-related.  Only if a
legal act is subsidiary or closely related to a specifically identified measure will
notice be adequate.  For example, where a basic framework law dealing with a
narrow subject matter that provides for implementing acts is specified in a panel
request, implementing acts might be considered in appropriate circumstances aseffectively included in the panel request as well for purposes of Article 6.2."
444
8.36 Accordingly, the Japan - Film  panel excluded from its terms of reference measures which
were based on a framework law of broad scope,445 but included closely related and subsidiary
measures which were based on a framework law with a narrow focus and a specific delegation of
powers to take implementing measures.446
8.37 In case before us, the three subsequent Resolutions at issue are modifications of and based
directly on the original definitive safeguard measure (in particular on Article 9 of Resolution 987/97)
in a way that, in our view, is analogous to the situation where implementing measures are based on a
                                                     
441 Appellate Body Report on European Communities - Bananas III , para. 140.
442 Panel Report on Japan - Measures Affecting Consumer Photographic Film and Paper
(WT/DS/44/R), adopted on 22 April 1998, para. 10.8.
443 Panel Report on Japan - Film , paras. 10.10.
444 Panel Report on Japan - Film , paras. 10.8.
445 The Japan - Film  panel considered the 1971 Japan Fair Trade Commission (JFTC) Rule No. 1
(International Contract Notification Re quirement) not to be covered by its terms of reference because the
explicitly listed Japanese Antimonopoly Law is a law of such a broad scope that the respondent could not beconsidered to be on notice of that rule.
446 The Japan - Film  panel considered the 1967 JFTC Notification No. 17 on premiums between
businesses and the 1977 JFTC Notification No. 5 on premiums to customers to be covered by its terms ofreference because the explicitly listed Japanese Premiums Law is a law of narrow focus and authorizes, in itsArticle 3, the JFTC to limit, if necessary, the use of premiums for purposes of consumer protection.WT/DS121/R
Page 143
framework law that specifies form, content and scope.  Article 9447 makes it clear that Resolution
987/97 and the definitive safeguard measure imposed by it remain in force, i.e., that the subsequent
resolutions have not in any sense repealed or replaced it.  Rather, these later resolutions have only
modified particular aspects of the definitive measure as originally applied (i.e., suspended its
liberalisation timetable and changed its form from a specific duty to a tariff rate quota) within the
parameters set out in the original definitive safegu ard measure.  We find evidence of this in the fact
that, first, Resolutions 512/98 and 1506/98 are explicitly characterised in this way as “modifying”
“the safeguard measure” pursuant to Article 9 of Resolution 987/97, and second, Resolution 837/98 is
characterised as only implementing the tariff rate quota system introduced by Resolution 1506/98 on a
quarterly basis.  Thus, the legal framework provided for in the “definitive safeguard measure” as such
clearly remains in force, although its specific implementation has been subsequently modified in
form.448  This can clearly be distinguished from, e.g., the situation preceding this dispute when the
DIEMs on footwear were repealed and replaced with an entirely new and legally distinct measure(albeit taking the same form), i.e., the safeguard measure at issue.
8.38 In the panel and Appellate Body reports concerning the dispute on Australia - Measures
Affecting Importation of Salmon,
449 we find that a measure not explicitly mentioned in the request for
the establishment of a panel may nevertheless be covered by its terms of reference.  In its panel
request, Canada identified the measure(s) in dispute as the "Australian Government's measuresprohibiting the importation of fresh, chilled or frozen salmon … which include Quarantine
Proclamation 86A, dated 19 February 1975, and any amendment or modification to it."
450  Throughout
the case, the complainant referred to the Quaranti ne Proclamation 86A, as well as to the so-called
"1988 Conditions"451 and the so-called "1996 Requirements",452 which concerned a heat-treatment
requirement, and to the so-called "1996 Decision" which prohibited imports of fresh salmon fromNorth America.
453  The Appellate Body found that the "1988 Conditions" and the "1996
Requirements" could not be considered to be included in that panel's terms of reference because they
did not refer to an import prohibition of fresh salmon, but to a heat treatment requirement applicable
to smoked salmon and salmon roe.  At the same time, the Appellate Body considered that the "1996
Decision" fell within the panel's terms of referen ce because it referred to an import prohibition.  From
that Appellate Body finding we see that not explicitly listed legal acts which might modify the legal
form but confirm in substance a previous measure identified in the panel request (i.e., QP86A) may
fall within a panel's terms of reference.
8.39 The most recent case in which the Appellate Body extensively addressed the issue of a panel's
terms of reference is the dispute on Guatemala - Anti-dumping Investigation regarding Portland
Cement from Mexico.   In this case, Mexico requested that a panel be established "to examine the
                                                     
447 Article 9 of Resolution 987/97 provides that:  "… The Ministry … shall examine the report of the
Secretary …, and if the increase in imports is greater than 30 per cent it may suspend the liberalisation providedfor the period between 30 December 1998 and 31 July 1999, in which case the measure in force at the time willcontinue until 31 July 1999;  while for the remaining period during which the [definitive] safeguard measure isin effect, the liberalisation timetable provided for in Annex I of this Resolution shall be maintained. …".
448 For example, Resolution 837/98 implements and is thus clearly subsidiary to Resolution 1506/98.
By the same token, Resolutions 512/98 and 1506/98 modify, and thus are clearly subsidiary to, Resolution987/97, which remains the legal basis and sets out the parameters of the definitive safeguard measure.
449 Panel Report and Appellate Body Report on Australia - Measures Affecting Importation of
Salmon , (WT/DS/18/R and WT/DS/18/AB/R), adopted on 6 November 1998.
450 WT/DS18/2, dated 10 March 1997.
451 Conditions for the Importation of Salmonid Meat and Roe into Australia.
452 Requirements for the Importation of Individual Consignments of Smoked Salmonid Meat.
453 The so-called "1996 Decision" provides that "having regard to Australian Government policy on
quarantine and after taking account of Australia's inte rnational obligations, importation of … salmonid product
… should not be permitted on quarantine grounds". Appellate Body Report on Australia - Salmon , paras. 90-
105.WT/DS121/R
Page 144
consistency of the antidumping investigation by  the Government of Guatemala into Guatemalan
imports of portland cement with Guatemala's obligations … contained in the Anti-dumping
Agreement."  Although Mexico did not identify any provisional or definitive anti-dumping measure in
its request, that panel refrained from dismissing the case.  The Appellate Body found fault with this
because "[a]s we understand the Panel, it would, in effect, suffice, under Article 6.2 of the DSU, for a
panel request to identify only the 'legal basis fo r the complaint', without identifying the 'specific
measure at issue'".454  The Appellate Body indicated that "the Panel was entitled to examine Mexico's
claims concerning the initiation and conduct of the investigation in this case only if the panel request
properly identified a relevant anti-dumping measure as the "specific measure at issue" in accordance
with Article 6.2 of the DSU".455  Therefore, according to the Appellate Body in Guatemala - Cement ,
the measures to be identified in an anti-dumping case could be the provisional or definitive measure,
or a price undertaking.
8.40 In the dispute before us, while the EC's panel request does cite the numbers of resolutions
(226/97 and 987/97) and the promulgations in Argentina's Official Journal that imposed the
provisional and the definitive measures, respectively, we consider that the EC’s request primarily and
unambiguously identifies the provisional and definitive measures (rather than only the cited
resolutions and promulgations as such).  In our view, it is the identification of these measures (rather
than merely the numbers of the resolutions and the places of their promulgation in the Official
Journal) which is primarily relevant for purposes of Article 6.2 of the DSU.  Therefore, we consider
that it is the provisional and definitive measures in their substance rather than  the legal acts in their
original or modified legal forms that are most releva nt for our terms of reference.  In our view, this is
consistent with the Appellate Body's findings in the Guatemala – Cement  case.
8.41 Moreover, it appears that an interpretation whereby these subsequent Resolutions are
considered to be measures separate and independent from the definitive safeguard measure, and thus
outside our terms of reference, could be contrary to Article 3.3 of the DSU.  Such an interpretation
could allow a situation where a matter brought to the DSB for prompt settlement is not resolved when
the defendant changes the legal form of the measure through a separate but closely related instrument,
while the measure in dispute remains essentially the same in substance.  In this way, Members couldalways keep one step ahead of any WTO dispute settlement proceeding because in such a situation,
the complaining Member would indeed, challenge a “moving target”, and panel and Appellate Body's
findings could already be overtaken by events when they are rendered and adopted by the DSB.
8.42 These considerations are particularly relevant where, as in the case before us, the crucial
question before the panel is whether the safeguard investigation and determination at issue couldserve as the legal basis for any safeguard measure, and not only the particular original definitive
measure, or the subsequent modifications at issue.  In our view, multilateral surveillance of safeguard
investigations and determinations could be circumvent ed if, in such a dispute, a finding that there was
no legal basis for a safeguard measure could not, for procedural reasons, have any remedial effect on
the definitive safeguard measure in its then-current legal form only because the definitive measure
(while continuing to have its original legal basis a nd identity in substance) had been modified in some
way from its original legal form.
8.43 Finally, we recall the important due process objectives fulfilled by a panel’s terms of
reference, as emphasised by the Appellate Body in the Brazil – Desiccated Coconut
456 case.  Inter
alia, the terms of reference provide notice to the parties and third parties concerning the claims and
measures at issue in a dispute, in order to allo w them an opportunity to respond to the complainant’s
allegation.  In the light of the fact that the main question before us is whether the safeguard
                                                     
454 Appellate Body Report on Guatemala - Cement , para. 69.
455 Appellate Body Report on Guatemala - Cement , para. 81.
456 Appellate Body Report on Brazil - Measures Affecting Desiccated Coconut , (WT/DS22/AB/R)
adopted 20 March 1997, p. 22.WT/DS121/R
Page 145
investigation and findings at issue can serve as the legal basis for a safeguard measure, and not just
the particular legal form of the original definitive safeguard measure as identified in the panel request,
in our view, the examination of the definitive safeguard measure in its original legal form but also in
its subsequent legal modifications through Resolutions 512/98, 1506/98, and 837/98 could not in any
way deprive Argentina or third parties of their right to adequate notice and due process concerning the
claims of the European Communities in th e present dispute.  In this context , we recall the Appellate
Body's statement in the case on  European Communities - Computer Equipment  that it could not see
"how the alleged lack of precision of the terms, LAN equipment and PCS with multimedia capability,
in the request for the establishment of a panel affect the rights of defence of the European
Communities in the course  of the panel proceedings.  As the ability of the European Communities to
defend itself was not prejudiced by a lack of knowing the measures at issue, we do not believe that the
fundamental rule of due process was violated by the Panel".457  Similarly, in the present case, the
ability of Argentina to defend itself was not prejudiced by a lack of knowledge of which measureswere of concern to the European Communities.
8.44 Indeed, for these modifications to be new safeguard measures, they would have to be based
on a new investigation, and the conditions for the re-application of a safeguard measure, including the
waiting period foreseen in Article 7.5, would have to be observed.  In this respect, we note that
Argentina itself considers the subsequent resolutions in substantive terms to be based on the samesafeguard investigation as the definitive safeguard measure as originally applied, (Resolution 987/97),
while arguing at the same time that these subsequent modifications are in procedural terms outside our
terms of reference.
458  We further note that Argentina does not argue that these modifications are
extensions of the safeguard measure within the meaning of paragraphs 2 and 4 of Article 7.
8.45 We do not here wish to imply that an expansion of the terms of reference of a panel in the
complainant's first submission or even later could be permissible under Article 6.2 of the DSU.
Clearly, due process and adequate notice would not be served if a complaining party were free to add
new measures or new claims to its original complaint as reflected in its panel request at a later stage of
a panel proceeding.  But this is not the situation in the present dispute because, in our view (and also
in the view of both parties), the subsequent resolutions do not constitute entirely new safeguardmeasures in the sense that they were based on a different safeguard investigation, but are instead
modifications of the legal form of the original definitive measure, which remains in force in substance
and which is the subject of the complaint.
8.46 In the light of these considerations, we find that our terms of reference include Argentina's
provisional and definitive safeguard measures on fo otwear in their original legal form (Resolutions
226/97 and 987/97) as well as in their subsequently modified forms of application (Resolutions
512/98, 1506/98 and 837/98).
D. T
HE CLAIM UNDER ARTICLE XIX OF GATT 1994 AND "UNFORESEEN DEVELOPMENTS "
8.47 The European Communities raises a separate claim under Article XIX:1(a) of GATT with
respect to the failure by Argentina to examine whether the import trends of the products under
investigation are the result of "unforeseen developments" and the "effect of the obligations incurred
by a Member under [the GATT], including tariff concessions".  Since tariff concessions and otherobligations are an additional element to "unforeseen  developments", it necessarily follows for the
European Communities that trade liberalisation per se  cannot constitute such unforeseen
developments.  The European Communities submits that Argentina's trade liberalisation within
MERCOSUR and the WTO framework was a conscious commercial policy and that the large increase
                                                     
457 Appellate Body Report on  European Communities - Customs Classification of Certain Computer
Equipment , WT/DS62/AB/R, WT/DS67/AB/R, WT/DS/68/AB/R, adopted on 22 June 1988, para. 70.
458 Argentina's answer to question 35 by the Panel, see para. 4.11 of the descriptive part.WT/DS121/R
Page 146
in imports occurred "immediately after the opening up of the economy which began in 1989/90".459
Therefore, the European Communities concludes that increased imports of footwear cannot be
considered "unforeseen developments" within the meaning of Article XIX:1(a) of GATT because
increases in imports have to be the result of other unforeseen developments.
8.48 Argentina opposes the EC's theory that the criterion of "unforeseen developments" applies to
safeguard action taken under the WTO agreements.  First, Argentina considers that there is a conflictwith respect to the criterion of "unforeseen developments" between Article XIX and the WTO
Safeguards Agreement and that, pursuant to the General Interpretative Note to Annex 1A to the
Agreement Establishing the WTO, the latter prevails.  In the alternative, Argentina argues that it could
not have foreseen the extent of the surge of footwear imports resulting from the liberalisation
programmes mentioned by the European Communities.
8.49 Article XIX:1( a) of GATT on "Emergency Safeguard Measures" reads:
"If, as a result of unforeseen developments and of the effect of the obligations incurred
by a Member under this Agreement, including tariff concession s, any product is being
imported into the territory of that contract ing party in such increased quantities and
under such conditions as to cause or threaten serious injury to domestic producers in
that territory of like or directly competitiv e 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 con cession."  (emphasis added).
Article 2.1 of the WTO Agreement in turn provides:
"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 beingimported 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 like or directly competitive products." (footnote
omitted).
8.50 While it is true that the Safeguards Agreement by and large incorporates and further develops
in greater detail the conditions for the imposition of safeguard measures provided for in Article XIX
of GATT, there is at least one difference.  The condition in Article XIX that safeguard measures may
not be imposed unless the increased imports alleged to cause or threaten serious injury are a result of
unforeseen developments and of the effect of the obligations incurred by a Member does not appear in
the Safeguards Agreement.
8.51 We note that the parties and third parties have addressed in some detail the questions (i)
whether the provisions of the Safeguards Agreement prevail over the "unforeseen developments"
criterion of Article XIX of GATT because they are in conflict with one another, (ii) whether all the
requirements of Article XIX (including the criterion of "unforeseen developments") are subsumed by
the provisions of the Safeguards Agreement,
460 and (iii) whether the requirements of Article XIX of
GATT and the Safeguards Agreement have to be complied with on a cumulative basis.  The parties
seem to agree that, since the entry into force of the WTO agreements, safeguard measures can nolonger be imposed through the exclusive application of Article XIX of GATT in and of itself.
                                                     
459 G/SG/N/8/ARG/1, Exhibit EC-16, p.3.
460 Third party submission by the United States, see descriptive part, section VI.C.1.(d).WT/DS121/R
Page 147
8.52 We start our analysis by examining whether any provision of the new Safeguards Agreement
addressed the relationship between the Safeguards Agreement and Article XIX of GATT.  In this
respect we note that Article 1 of the Safeguards Agreement provides:
"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
1994".
Article 11.1(a) of the Safeguards Agreement on the "Prohibition and Elimination of Certain
Measures" in turn requires that:
"[a] Member shall not take or seek any emergency action on imports of particular
products as set forth in Article XIX of GATT 1994 unless such action conforms with
the provisions of that Article applied in accordance with this Agreement."
8.53 In the light of these provisions, we need to interpret the phrases "provisions of … Article
[XIX] applied in accordance with this [Safeguards] Agreement", "application of safeguard measures",i.e., "those provided for in Article XIX of GATT ".  In accordance with the "customary rules of
interpretation of public international law" referred to in Article 3.2 of the DSU, i.e., Articles 31 and 32
of the Vienna Convention on the Law of Treaties (VCLT), we deem it appropriate to approach these
questions in the light of the ordinary meaning, the context and the object and purpose of the
Safeguards Agreement, Article XIX of GATT and, to the extent relevant, the General Interpretative
Note to Annex 1A of the WTO Agreement.
8.54 The ordinary meaning of the term application can be described as "bringing of a general or
figurative statement, a theory, principle, etc., to be ar upon a matter"; "[the] applicability in a particular
case", "relevance", "the bringing of something to be ar practically in a matter", "put into practical
operation".
461  These descriptions of the ordinary meaning of application imply that bringing the
theory or principle, i.e., safeguard measures in the meaning of Article XIX, into practical operation,
requires compliance with and implementation of the detailed rules and procedures of the Safeguard
Agreement when introducing or maintaining safeguard measures.
8.55 We note in this respect that Article 1 of the Safeguards Agreement does not refer to the
application of Article XIX as such.  Rather, it refers to the application of safeguard measures, whichare then defined as those measures provided for in  Article XIX.  However, Article 11 makes clear that
"such [emergency] action" has to conform with Article XIX "applied in accordance with this
[Safeguards] Agreement".  In our view, this indicates that the application of safeguard measures in the
meaning of Article XIX requires - since the entry into force of the Safeguards Agreement -
conformity with the requirements and conditions of the latter agreement.  Although all the provisionsof Article XIX of GATT continue to legally co-exist with the Safeguards Agreement in the framework
of the single undertaking of the Uruguay Round agreements, any implementation of safeguard
measures in the meaning of Article XIX presupposes the application of and thus compliance with the
provisions of the Safeguards Agreement.
8.56 To put it differently, we believe that the choice of the word application  appears to imply that
rules for the imposition of safeguard measures provided for in Article XIX of GATT and the rules for
the imposition of safeguard measures deriving from the Safeguards Agreement have to be read inconjunction and have become intrinsically linked, if not inseparable from one another since the entry
into force of the WTO Agreement.  While the Safeguards Agreement does not supersede or replace
Article XIX, which continues to remain in for ce as part of the GATT, the original conditions
contained in Article XIX have to be read in the light of the subsequently negotiated and much more
                                                     
461 The New Shorter Oxford English Dictionary on Historical Principles, Oxford (1993) p.100.WT/DS121/R
Page 148
specific provisions of the Safeguards Agreement.  Those provisions of the Safeguards Agreement
place the original rule of Article XIX within the entire package of the new WTO legal system and
make it operational in practice.
8.57 In this regard, we recall that the Brazil - Desiccated Coconut  case focused on the relationship
between Article VI of GATT and the Agreement on Subsidies and Countervailing Measures (SCM
Agreement) as bases for the imposition of countervailing duties.  In other words, that case concerneda situation which is analogous to the present dispute.  In Brazil - Desiccated Coconut ,
462 the Appellate
Body noted that
"the relationship between the GATT of 1994 and the other goods agreements in
Annex 1A is complex and must be examined on a case-by-case basis.  Although the
provisions of the GATT of 1947 were incorporated into, and became part of the
GATT 1994, they are not the sum total of the rights and obligations of WTO
Members concerning a particular matter .  For example with respect to subsidies on
agricultural products, Articles III, VI, XVI of the GATT 1994 alone do not represent
the total rights and obligations of WTO Members.  The Agreement on Agriculture
and the SCM Agreement reflect the latest statement of WTO Members as to their
rights and obligations  concerning agricultural subsidies.463" (emphasis added).
The Appellate Body in Brazil - Desiccated Coconut  also endorsed the panel's statement that:
"the SCM Agreements464 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."465 (emphasis added).
8.58 Given the reasoning developed by the panel and the Appellate Body in the Brazil - Desiccated
Coconut  case, it is our view that Article XIX of GATT and the Safeguards Agreement must a fortiori
be read as representing an  inseparable package of rights and disciplines which have to be considered
in conjunction.  Therefore, we conclude that Ar ticle XIX of GATT cannot be understood to represent
the total rights and obligations of WTO Members,  but that rather the Safeguards Agreement as
applying the disciplines of Article XIX of GATT, reflects the latest statement of WTO Members
concerning their rights and obligations concerning safeguards.  Thus the Safeguards Agreement
should be understood as defining, clarifying, and in some cases modifying  the whole package of rights
and obligations of Members with respect to safeguard measures as they currently exist.  By the same
token, and in the light of the principle of effective treaty interpretation, the express omission  of the
criterion of unforeseen developments in the new agreement (which otherwise transposes, reflects and
refines in great detail the essential conditions for the imposition of safeguard measures provided for in
Article XIX of GATT) must, in our view, have meaning.
8.59 We find support for this interpretation of Articles 1 and 11 of the Safeguards Agreement also
in the immediate context of these provisions.  Article 10 defines the temporal delimitation of the
applicability of Article XIX of GATT 1947 and th e new Safeguards Agreement, providing that:
                                                     
462 Appellate Body Report on Brazil - Measures Affecting Desiccated Coconut , AB-1996-4,
WT/DS22/AB/R, adopted on 20 March 1997, p. 14.
463 Panel Report on Brazil - Measures Affecting Desiccated Coconut , WT/DS22/R, adopted on 20
March 1997, para. 227.
464 The plural means the Tokyo Round Subsidies Agreement and the Uruguay Round SCM Agreement.
465 Panel Report on Brazil - Desiccated Coconut , para. 246.WT/DS121/R
Page 149
"Members shall terminate all safeguard measures taken pursuant to Article XIX of
GATT 1947 that were in existence on the date of entry into force of the WTO
Agreement not later than eight years after the date on which they were first applied or
five years after the date of entry into force of the WTO Agreement, whichever comes
later."
8.60 This provision read in conjunction with Articles 1 and 11 of the Safeguards Agreement
reinforces, in our view, the interpretation that safeguard measures under Article XIX of GATT -
which is identical in wording with Article XIX of GATT 1947 - cannot be applied , i.e., made
operational or put into practice, unless they are in conformity , i.e., in compliance with the
requirements and conditions of the Safeguards Agreement.
8.61 Concerning the object and purpose of the Safeguards Agreement, we note that its preamble
recognises as the object of the Safeguards Agreement "the need to clarify  and reinforce  the disciplines
of GATT, and specifically those of its Article XIX (Emergency Action on Imports of ParticularProducts)," as well as the purpose: "to re-establish multilateral control  over safeguards and eliminate
measures that escape such control,"
466 and that, therefore, "a comprehensive agreement , applicable to
all Members and based on the basic principles of GATT, is called for".467
8.62 Accordingly, the object of the Safeguards Ag reement is to "clarify and reinforce" the
disciplines of Article XIX.468  It is the very point of a new agreement clarifying existing disciplines
that it implies some degree of refinement or modification, such as in this case, in respect of the
express omission of the unforeseen developments  criterion.
8.63 The preamble further reflects as one of the primary purposes of the Safeguards Agreement the
need to "re-establish multilateral control over safeguards and eliminate measures that escape such
control".  This recital highlights the wide-ranging lack of discipline on safeguard measures in the pre-Uruguay Round international trade relations.  Such a re-establishment of multilateral control implies a
new balance of rights and obligations that in some  cases modifies the whole package of rights and
obligations resulting from the Uruguay Round negotiations.  On the one hand, new, clearer and more
stringent conditions for the imposition of safeguard measures apply and explicit prohibitions of grey-
area measures are provided for in order to contain acts of circumvention.  On the other hand, there areprovisions that allow for more flexible conditions, such as Article 8.3 of the Safeguards Agreement,
which provides for an explicit derogation postponing the right of affected Members to suspend
equivalent concessions after the imposition of a safeguard measure.  The express omission of the
unforeseen development criterion in the new Safeguards Agreement would arguably fit in the latter
category.
8.64 One could argue that such an interpretation of the purpose of the Safeguards Agreement,
particularly with respect to the omission of the criterion of unforeseen developments, simply reflects
the state-of-the-art in dispute settlement practice concerning safeguard measures with respect to this
criterion since the Hatters Fur case of 1951.
469  The members of the Working Party (except for the
United States) in that case agreed from a general perspective:
                                                     
466 Recital 2.
467 Recital 4.
468 The term clarify  may be understood as meaning "make clear or plain to the understanding, remove
complexity, ambiguity or obscurity, remove ignorance, misconception or error from, become transparent"  TheNew Shorter Oxford English Dictionary on Historical Principles, Oxford (1993) p. 411.
469 Working Party Report on  Withdrawal by the United States of  a Tariff Concession under Article XIX
of the GATT , GATT/CP/106, adopted on 22 October 1951.WT/DS121/R
Page 150
"that the term 'unforeseen developments' should be interpreted to mean developments
occurring after the negotiation of the relevant tariff concession which it would not be
reasonable to expect that the negotiators of the country making the concession could
and should have foreseen at the time when the concession was negotiated."
However, that same Working Party concluded with respect to the particular case before it that:
"the fact that hat styles had changed did not constitute an 'unforeseen development'
within the meaning of Article XIX, but that the effects of the special circumstances of
this case, and particularly the degree to which the change in fashion affected the
competitive situation, could not have reasonably be expected to have been foreseen
by the US authorities in 1947 and that the condition of Article XIX that the increase
in imports must be due to unforeseen developments and to the effect of the tariff
concessions can therefore be considered to have been fulfilled."
8.65 It is probably fair to say that the interpretation of 'unforeseen developments' in that case made
it easier for user governments of safeguard measures to meet this condition. Therefore, it has been
argued that the Hatters Fur  case essentially read the unforeseen developments condition out of the
text of Article XIX:1(a) of GATT 1947.470  While this statement has some explanatory value, it is of
course not entirely accurate from a legal perspective since dispute settlement practice cannot add to or
diminish the rights and obligations of the signatories of an international treaty.  It would be wrong toproceed from the assumption that a single working party report from the early years of GATT 1947
could have a legal impact upon the wording of Article XIX of GATT.  This principle was true under
GATT 1947 and has been explicitly embodied in the framework of the WTO agreements, e.g., in
Article 19.2 of the DSU.  Therefore, one cannot assume that the prevailing practice of non-
enforcement of the unforeseen developments condition in safeguard investigations in the decadessince the adoption of the Hatters Fur  Working Party report could have had the effect of modifying the
rights and obligations of Contracting Parties to the GATT 1947 or changing the text of GATT as it
forms part of the WTO agreements.
8.66 It would be unrealistic to assume that the practice of non-enforcement of the unforeseen
developments condition was unknown when the new Safeguards Agreement was negotiated duringthe Uruguay Round.  If it had been the object and purpose of the Safeguards Agreement to clarify and
reinforce the disciplines of Article XIX and to re-establish multilateral control over safeguard
measures also with respect to the unforeseen developments condition, the need for clear rules, detailed
definitions and refined procedures regarding this condition would have been of particular importance.
To put it differently, if the reinforcement of the unforeseen developments condition had been one ofthe objectives of the new Safeguards Agreement, one would expect to find detailed provisions
concerning it in the new agreement, rather than an express omission of that criterion.  In this regard,
we recall that the fourth recital of the preamble to the Safeguards Agreement recognises the purpose
to create:
"a comprehensive agreement, applicable to all Members and based on the basic
principles of GATT 1994 …".
8.67 It appears that the negotiators intended the new Safeguard Agreement to comprehensively
cover the field of the application of safeguard measures and deliberately chose not to include the
unforeseen developments criterion in that new comprehensive agreement.  As a result, since we must
give meaning to the fact that the new Safeguards Agreement does not in so many words make a single
reference to the unforeseen developments condition, conformity with the explicit requirements and
conditions embodied in the Safeguards Agreement must  be sufficient for the application of safeguard
measures within the meaning of Article XIX of GATT.
                                                     
470 Jackson, John H., World Trade and the Law of GATT, Indianapolis (1969), pp. 560 et seq .WT/DS121/R
Page 151
8.68 In arriving at this conclusion, we wish to emphasise that the issue before this Panel is not
really whether the criterion of unforeseen developments of Article XIX is in outright conflict471 - in
the sense of being mutually exclusive or mutually inconsistent, quod non, with Article 2.1 or any
other provision of the Safeguards Agreement.  In this respect, we recall the statement of the Indonesia
- Automobiles  panel that in international law there is a presumption against conflict.472  Nevertheless,
if we were to assume that a conflict exists, the General Interpretative Note to Annex 1A to theAgreement Establishing the WTO would resolve the issue in the sense that the provisions of the
Safeguards Agreement would prevail over Article XIX of GATT to the extent of that conflict.
473
8.69 In the light of these considerations, it is our conclusion that safeguard investigations
conducted and safeguard measures imposed after the entry into force of the WTO agreements which
meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of
GATT.  Therefore, we see no basis to address the EC's claims under Article XIX of GATT separately
and in isolation from those under the Safeguards Agreement.
E. CLAIMS UNDER THE SAFEGUARDS AGREEMENT
8.70 In the following sections we discuss the claims under Articles 2, 4, 5, 6 and 12 of the
Safeguards Agreement.  In examining the claims under Articles 2 and 4, we will discuss, inter alia :
(i) whether Article 2 (and the footnote to Artic le 2.1) permit including MERCOSUR imports in the
investigation, while imposing the safeguard meas ure exclusively against non-MERCOSUR imports,
(ii) the scope of the domestic industry and the products covered by the investigation, (iii) the
appropriate standard of review by this Panel, (iv) whether there were imports in increased quantities
in absolute or relative terms, (v) the review of Argentina's injury analysis, and (vi) the review of
Argentina's causation analysis.
8.71 We will then address (i) the claim concerning the application of the safeguard measures
within the meaning of Article 5, (ii) the imposition of provisional safeguard measures within the
meaning of Article 6 and (iii) the claims concerning the notification requirements foreseen in Article
12.
1. The imposition of safeguard measures in the case of a customs union
8.72 One of the EC's core allegations against Arge ntina's safeguard investigation is that the
Argentine authorities conducted an analysis of imports , injury and causation on the basis of statistics for
all imports, i.e., from MERCOSUR countries as well as from third countries, and then applied the
                                                     
471 The most recent Appellate Body report to address the concept of " conflict " is the Guatemala -
Cement  case.  However, in the Guatemala - Cement  case the Appellate Body dealt with the question of the
relationship between the special or additional dispute settlement provisions of the Anti-dumping Agreement ascontained in Annex 1A to the WTO Agreement  and the DSU as incorporated in Annex 2 to the WTO Agreement ,
whereas the present dispute concerns the relationship between the substantive provisions of an Annex 1A
agreement and the GATT 1994.
472 The Panel on Indonesia - Certain Measures Affecting the Automobiles Industry  (WT/DS54/R,
WT/DS55/R, WT/DS59/R, WT/DS64/R), adopted on 23 July 1998, para. 14.28:  "… In international law for aconflict to exist between two treaties, three conditions ha ve to be satisfied.  First, the treaties concerned must
have the same parties.  Second, the treaties must cover the same substantive subject-matter.  Were it otherwise,
there would be no possibility for conflict.  Third, the provisions must conflict, in the sense that the provisions
must impose mutually exclusive obligations. … The presum ption against conflict is especially reinforced in
cases where separate agreements are concluded between the same parties, since it can be presumed that they are
meant to be consistent with themselves, failing evidence to the contrary."
473 General Interpretive Note:  "In the event of conflict  between a provision of the GATT 1994 and a
provision of another agreement in Annex 1A to the Agreement Establishing the WTO …, the provisions of the
other agreement shall prevail  to the extent of the conflict."WT/DS121/R
Page 152
safeguard measure only against imports from non-MERCOSUR third countries.  The European
Communities does not in principle challenge the exclusion of MERCOSUR imports from the
application of the safeguard measure, provided, however, that MERCOSUR imports also are excluded
from the "increased imports", "serious injury" a nd "causality" analyses.  The European Communities
contends that Argentina cannot, consistently w ith the Safeguards Agreement, include MERCOSUR
imports in the injury and causation analyses and th en exclude these imports from application of the
resulting safeguard measures.474
8.73 Argentina responds that the European Communitie s suggests a methodology for the injury and
causation analyses in the case of a customs uni on which reads obligations into the Safeguards
Agreement that it does not explicitly contain.  In Argentina's view, public international law allows a
sovereign country to adopt one of several possible inte rpretations within the lati tude that the wording of
a treaty provision permits.  Argentina relies in its ar gumentation concerning the interpretation of treaty
law on the Appellate Body Reports in the European Communities - Computer Equipment475 case and the
India - Patents  case.476
8.74 In particular, Argentina takes the position that Articles 2 and 4 of the Safeguards Agreement
only refer to the concept of " imports " without any further limitation or cl arification and that the footnote
to Article 2 emphasises the lack of a common unders tanding concerning the application of safeguard
measures in the case of a customs union.  Arge ntina reads the third sentence of the footnote477 to mean
that only the " conditions " existing within that member State of  the customs union should matter for the
safeguard investigation.  For Argentina this implie s that all imports from intra- and extra-regional
sources may be taken into consideration when asse ssing the "conditions in that member State" because
the footnote does not explicitly prohibit the inclusi on of imports from within the customs union in the
injury or causation analyses.
8.75 In considering issues relating to the imposition of safeguard measures in the case of a customs
union, in the dispute before us the essential question is whether Argentina was permitted under the
Safeguards Agreement to take MERCOSUR imports into account in the analysis of injury factors and
of a causal link between increased imports and the alleged (threat of) serious injury, and was at the
same time permitted to exclude MERCOSUR countries from the application of the safeguard measureimposed.
                                                     
474 MERCOSUR imports accounted, e.g., in 1991 only for 1.90 million pairs of 8.86 million total
imports (i.e., 21.4 per cent) and in 1995, for ro ughly one fourth of total imports, i.e., 5.83 of 19.84 million pairs.
However, in 1996 MERCOSUR supplied the largest percentage (55.7 per cent) of total imports of 13.47 million
pairs, i.e., 7.5 million pairs (as opposed to 5.97 million pairs from third countries).
475 "The purpose of treaty interpretation under Article 31 of the Vienna Convention  is to ascertain the
common  intentions of the parties.  These common  intentions cannot be ascertained on the basis of the subjective
and unilaterally determined "expectations" of one of the parties to a treaty."  Appellate Body Report on
European Communities - Customs Classification of Certain Computer Equipment , (WT/DS62, 67, 68/AB/R),
para. 84.
476 The Appellate Body also affirmed "The duty of a treaty interpreter is to examine the words of the
treaty to determine the intentions of the parties. This should be done in accordance with the principles of treaty
interpretation set out in Article 31 of the Vienna Convention .  But these principles of interpretation neither
require nor condone the imputation into a treaty of word s that are not there or the importation into a treaty of
concepts that were not intended. " Appellate Body Report on  India - Patent Protection for Pharmaceuticals and
Agricultural Chemical Products , (WT/DS/50/AB/R), para 45.
477 i.e., where a safeguard "is applied on behalf of a customs union's member State, all requirements for
the determination of serious injury shall be based on the conditions existing in that member State and the measureshall be limited to that state".WT/DS121/R
Page 153
(a) Article 2 and the footnote to Article 2.1
8.76 We note that Article 2 of the Safeguards Agreement sets out the basic requirements for the
application of safeguard measures:
"Article 2
Conditions
1. A Member1 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 like or directly competitive
products.
2. Safeguard measures shall be applied to a product being imported irrespective of
its source."
Footnote 1 to Article 2.1 of the Safeguards Agreement provides that:
"A customs union may apply a safeguard measure as a single unit or on behalf of a
member State.  When a customs union applies a safeguard measure as a single unit,
all the requirements for the determination of serious injury or threat thereof under this
Agreement shall be based on the conditions existing in the customs union as a whole.
When a safeguard measure is applied on behalf of a member State, all the
requirements for the determination of serious injury or threat thereof shall be based
on the conditions existing in that member State and the measure shall be limited to
that member State.   Nothing in this Agreement prejudges the interpretation of the
relationship between Article XIX and paragraph 8 of Article XXIV of GATT
1994.(emphasis added)."
8.77 We address first Argentina’s argument concerning the footnote to Article 2.1, specifically that
the footnote emphasises the lack of understanding among Members regarding the application of
safeguard measures in the case of a customs union, and that the footnote’s reference to “conditions inthat member State and the measure shall be limited to that member State” does not explicitly prohibit
the inclusion in the injury or causation analyses of imports from within a customs union.   We
consider this argument in accordance with the ordinary meaning of Article 2 and its footnote, as well
as their context and in the light of their object and purpose.
8.78 According to the ordinary meaning of the text of the footnote to Article 2.1, in the case of
measures imposed by a customs union there are two options for imposing safeguard measures, i.e., (i)
as a single unit or (ii) on behalf of a member State.  In the latter case, when a safeguard measure is
imposed on behalf of a member State, the footnote's third sentence sets out two conditions, i.e., (i) "all
requirements for the determination of serious injury or threat thereof shall be based on the conditions
existing in that member State" and (ii) "the measure shall be limited to that member State".
8.79 Accordingly, the footnote also offers two options for conducting safeguard investigations  in
the case of measures to be applied by a customs union, i.e., (i) on a customs union-wide basis, or (ii)on a member State-specific basis. This dispute clearly centres around the second option.  Argentina
correctly points out that, as a result, the requirements for determining increased imports, serious injury
and causation should be based on the "conditions existing in that member State".  We agree with
Argentina that this phrase would not appear to prevent the investigating authority of that member
State from including imports from other member States of the customs union in question in its injuryWT/DS121/R
Page 154
and causation analyses.  Thus the second option certainly permits Argentina to take imports from all
sources, including those from within MERCOSUR, into consideration in its safeguard investigation.
8.80 The EC's argument is rather that if a safe guard measure is imposed only on imports from non-
MERCOSUR sources, injury and causation analys es should be limited to non-MERCOSUR imports,
too.  In other words, in the EC's view, there should be a parallelism between, on the one hand, the
investigation  leading to and, on the other hand, the application  of safeguard measures.
8.81 Thus, the next question is whether the ordinary meaning of the text of the footnote provides
any guidance regarding to whom478 a safeguard measure may be applied.  We note that the first part of
the footnote's third sentence ties the  "conditions existing in that member State" to the examination of
the "requirements" for the determination of serious injury or the threat thereof.  Therefore, the first
part of the footnote's third sentence addresses explicitly only by whom, and on the basis of which
conditions , safeguard measures may be imposed, but not to whom  such measures may be applied.
Thus, the first part of this sentence leaves this question open.
8.82 The last phrase of the footnote's third sentence provides that "the measure shall be limited to
that member State".  In our view, the requirement to limit the measure “to that member State” makes
it clear that, based on a member-State-specific investigation, the customs union may impose safeguard
measures only on behalf of that member State, but  not as if the causation of serious injury had been
established for the entire customs union.  In that case, the provisions of the footnote's second sentencewould apply.  In other words, the last phrase of the footnote’s third sentence means that the only
market that can be protected by a safeguard measure is the market that was the subject of the
underlying investigation.  Hence, this phrase concerns only by whom , and not to whom  a safeguard
measure may be imposed.  Therefore, this provision as well leaves open the question of whether there
is a requirement to impose such safeguard measures either (i) against all sources of supply includingthe other member States of a customs union, or (ii) exclusively against third-country suppliers.
8.83 Thus, based on the analysis of the ordinary meaning of the text of the footnote to Article 2.1,
we conclude that that footnote does not concern to whom  but rather by whom  a safeguard measure
may be applied.  Therefore, the ordinary meaning of that footnote does not clarify the question of
whether the safeguard measure must be applied to all imports or may be applied solely to importsfrom third countries.
8.84 We next consider whether the context of the footnote indicates that a Member would be
permitted to include imports from within a customs union in its injury and causation analyses while
excluding such imports from the application of the safeguard measure.  The immediate context of
Article 2.1 and the footnote thereto is Article 2.2 which provides that "[s]afeguard measures shall beapplied to a product being imported irrespective of its source," i.e., on the basis of the most-favoured-
nation treatment principle.  The ordinary meaning of Article 2.2 would appear to imply that, as a
result of a member-State-specific investigation, safeguard measures have to be imposed on a non-
discriminatory basis against products from all sources of supply, regardless of whether they originate
from within or from outside of the customs union.  Ar gentina has submitted that footnote 1 to Article
2.1 should be interpreted also to derogate from Article 2.2 and that, accordingly, customs unions
should be deemed exempted from that MFN requireme nt.  However, we are mindful of the fact that
the footnote was inserted after the word "Member" in the first paragraph of Article 2.  It therefore
clearly refers solely to the question of who can impose a measure, and not to the supplier countries
that might be affected by it.  For the footnote to have a broader meaning, the drafters would have had
to place it after the title of Article 2, or in both paragraphs of that article.  The fact that they did not do
so must have meaning and has to be taken into account in our interpretation.
                                                     
478 For ease of discussion, we use the term "to whom" to mean "to imports from which sources of
supply".WT/DS121/R
Page 155
8.85 We do not, therefore, share Argentina's view th at the relationship between Article 2.2 and the
footnote to Article 2.1 is one of a general provision and an exception.  Consequently, we conclude
that the footnote does not derogate from the MFN principle embodied in Article 2.2.  In this regard,
we note that where the Safeguards Agreement provides for an exception it does so in clear and
explicit terms.  For example, Article 9 exempts, subject to certain thresholds and limitations, imports
from developing country Members from the imposition of safeguard measures where the injury andcausation fully reflect the effects of those imports from developing countries.
479
8.86 If a customs union imposes safeguard measures based on a customs-union-wide investigation
as a single unit against third countries (the situation captured by the footnote's second sentence), the
measure would necessarily be imposed only on third country suppliers, as all other suppliers would be
part of the domestic industry.  By contrast, in the situation captured by the footnote's third sentence,
where the investigation was limited to one member State, and where it was determined that serious
injury or threat thereof was caused by imports from intra-regional as well as extra-regional sources,we see nothing that would prevent a customs union from imposing a safeguard measure on imports
from all of those sources in accordance with Article 2.2, i.e., not only imports from third countries,
but also intra-regional imports from the other member States of the customs union.
8.87 This result supports the interpretation that the two options offered by the footnote to Article
2.1 read in conjunction with Article 2.2 imply a parallelism  between the scope of a safeguard
investigation  and the scope of the  application of safeguard measures.  Thus, in the light of the context
of the footnote to Article 2.1, a member-state-specific investigation in which serious injury or threat
thereof is found based on imports from all sources could only lead to the imposition of safeguard
measures on a MFN-basis against all sources of intra-regional as well as extra-regional supply of a
customs union.  By the same token, a customs-union-wide investigation could only lead to theapplication of safeguard measures to all sources of extra-regional supply and could not justify the
application of safeguard measures against some or all sources of intra-regional supply, as these would
be part of the domestic industry in that context.
8.88 Finally, we consider these provisions in the light of the object and purpose of the Safeguards
Agreement.  We recall that the preamble to the Agreement
480 recognises, inter alia , as the object of
the Safeguards Agreement the need to clarify and reinforce the disciplines of GATT (including those
of Article XIX).  It also underscores that it is the purpose of that agreement to re-establish multilateral
control over safeguards and to eliminate measures that escape such control.  In our view, in order to
give this object and purpose meaning, a strict interpretation and implementation of the disciplines
provided for in the Safeguard Agreement is needed.  Otherwise, the reinforcement of disciplines, re-
establishment of multilateral control and elimination of so-called "grey-area" measures could not be
achieved.  The preamble481 further recognises that a "comprehensive agreement, applicable to all
Members and based on the basic principles of GATT, is called for".  We believe that these "basic
principles" also include the most-favoured nation principle which, pursuant to Article 2.2, governs the
imposition of safeguard measures on products from all sources of supply.
8.89 If we were to follow Argentina's position regarding the interpretation of Article 2 and the
footnote to Article 2.1, in our view, the objectives of reinforcing disciplines concerning safeguardmeasures, re-establishing multilateral control and eliminating measures that escape such control may
not be met for the following reasons.  If, on the one hand, on the basis of an investigation taking into
account third-country imports that cause (or threaten) serious injury to the domestic industry in the
                                                     
479 The exception of Article 9 is a qualified one.  It only applies to developing country Members whose
share in the importing Member's market does not exceed 3 per cent, provided that such developing countryMembers collectively account for not more than 9 per cent of the total imports of the product concerned.
480 Recital 2.
481 Recital 4.WT/DS121/R
Page 156
customs union in its entirety, a customs union decided to impose safeguard measures as a single unit,
in accordance with the footnote's second sentence, such an investigation would lead to the imposition
of safeguard measures against third-country imports only.  If, on the other hand, a national safeguard
authority were to conduct a member-State-specific investigation, taking into account serious injury
caused or threatened by imports from other member  States of a customs union as well as third-country
imports, but the Members of the customs union had agreed not to apply safeguard measures amongstthemselves, under Argentina's methodology such an investigation again would lead to the imposition
of essentially identical safeguard measures against third-country imports only.  We are not persuaded
that, given the Safeguards Agreement's detailed rules on, e.g., increased imports, serious injury,
causation and level of permissible safeguard measures, two substantially different safeguard
investigations, i.e., one customs-union-wide and the other member-State-specific, could properly yield
essentially the same outcome, i.e., the imposition of safeguard measures exclusively against third-
country imports.
8.90 We believe that our reading of Articles 2.1 and the footnote thereto in conjunction with
Article 2.2 and the object and purpose of the Safeguards Agreement gives meaning to all the parts of
these provisions and does not reduce any of them to redundancy or inutility.
8.91 Thus, in applying Article 31 of the Vienna Convention we have interpreted Article 2 (and
footnote to Article 2.1) in the light of their ordinary meaning, their context, and the object andpurpose of the Safeguards Agreement, with a view to determining the scope and the nature of the
obligations pertaining to the use of safeguard measures in the case of a customs union.  On the basis
of this analysis, we conclude that a member-state-specific investigation that finds serious injury or
threat thereof caused by imports from all sources cannot serve as a basis for imposing a safeguard
measure on imports only from third-country sources of supply.
8.92 We arrive at this conclusion regarding Article 2 and the footnote to Article 2.1 without having
considered yet the possible implications of Article XXIV of GATT.  We will turn to these issues next.
(b) Article XXIV of GATT
8.93 Argentina emphasises that the last sentence of the footnote to Article 2.1 explicitly states that an
agreed understanding on the relationship between Articles XIX and XXIV of GATT does not exist.
Argentina claims that it could not impose safegu ard measures against imports from other MERCOSUR
countries because Article XXIV of GATT as well as  secondary MERCOSUR legislation prohibit it from
doing so.  With respect to Article XXIV of GATT, Argentina emphasises that Article XIX of GATT is
not listed in Article XXIV:8(a)(i) or (b) of GATT among the exceptions from the requirement to
abolish all duties and other restrictive regulations of commerce on substantially all trade between theconstituent territories of a customs union or a free-trade area.  Therefore, it is, in Argentina's view,
incompatible with the purpose of Article XXIV:8 of GATT to impose safeguard measures within the
MERCOSUR customs union.
8.94 The European Communities contends that Article XXIV:8 of GATT does not prohibit the
maintenance of the possibility to impose safeguard measures within customs unions or free-trade
areas, either during the transitional period leading to their formation, or after their completion.  The
European Communities argues that safeguard measures are an exceptional emergency instrument of atemporary nature and are limited to a specific product, and that safeguard measures do not as such
affect the establishment and the nature of a customs union or a free-trade area.  Article XXIV of
GATT permits the members of a customs union or free-trade area to decide whether, when applying a
safeguard measure pursuant to Article XIX of GATT 1994 and the Agreement on Safeguards, to
exempt other members of the customs union  or free-trade area from the measure.
8.95 We recall in this regard that the last sentence of the footnote to Article 2.1 provides that:WT/DS121/R
Page 157
"Nothing in the [Safeguards] Agreement prejudges the interpretation of the
relationship between Article XIX and para graph 8 of the Article XXIV of GATT
1994."
8.96 In addressing this issue we note that Article XXIV:8482 of GATT on "Customs Unions and
Free-Trade Areas” defines that, for purposes of GATT, a customs union shall be understood to mean
the substitution of a single customs territory for two or more customs territories.  Articles
XXIV:8(a)(i)(ii) and (b) provide th at - within the group of customs territories forming a customs union
or a free-trade area - duties and other restrictive regula tions of commerce are to be eliminated (except for
those permitted under Articles XI, XII, XIV, XV and XX) with respect to substantially all trade
between the constituent territories.  These excep tions from the prohibition of "other restrictive
regulations of commerce" do not include Article XIX.   Practice of the Contracting Parties to the GATT
of 1947 and of WTO Members is inconclusive on the issue of the imposition or maintenance of
safeguard measures between the constituent territories of a customs union of a free-trade area.  It is amatter of fact that many agreements establishing free-trade areas or customs unions allow for the
possibility to impose safeguard measures on intr a-regional trade, while few regional integration
agreements explicitly prohibit the imposition of intr a-regional safeguard measures once the formation of
such an integration area is completed.
8.97 Although the list of exceptions in Article XXIV:8 of GATT clearly does not include Article
XIX, in our view, that paragraph itself does not necessarily prohibit the imposition of safeguard
measures between the constituent territories of a customs union or free-trade area during their
formation or after their completion. A frequently advanced justification for the maintenance or
introduction of safeguards clauses within regional inte gration areas is the argument that the obligation of
Article XXIV:8 to eliminate all duties and othe r restrictions of commerce applies only to " substantially
all" but not necessarily to " all" trade between the constituent territories.  It could be argued that for all
practical purposes the application of safeguard measures to particular categories of like or directly
competitive products is unlikely to affect a trade volume that could put the liberalisation of
"substantially all trade" between the constituent territories of a customs union into question.  But the
persuasiveness of this argument depends mainly on the extent to which safeguard measures are actually
imposed.  Thus we do not exclude the possibility that extensive use of safeguard measures within
regional integration areas for prolonged periods co uld run counter to the requirement to liberalise
"substantially all trade" within a regional integration area.  In our view, the express omission of Article
XIX of GATT from the lists of exceptions in Article XXIV:8 of GATT read in combination with the
requirement to eliminate all duties or other restrictions of commerce on "substantially all trade" withina customs union, leaves both options open, i.e., abolition of the possibility to impose safeguard
measure between the member States of a customs union as well as the maintenance thereof.
                                                     
482 "For the purposes of this Agreement:
(a) A customs union shall be understood to mean the substitution of a single customs
territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except, where
necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect tosubstantially all the trade between the constituent territories of the union or at least with respect to substantiallyall the trade in products originating in such territories, and,
(ii) subject to the provisions of paragraph 9, substantially the same duties and
other regulations of commerce are applied by each of the members of the union to the trade of territories not
included in the union;
(b) A free-trade area shall be understood to mean a group of two or more customs
territories in which the duties and other restrictive regulations of commerce (except, where necessary, thosepermitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between
the constituent territories in products originating in such territories."WT/DS121/R
Page 158
8.98 In the alternative, even if one were to presume that the maintenance of intra-regional
safeguards clauses between the member States of customs unions or free-trade areas is difficult to
reconcile with the wording of Article XXIV:8 of  GATT (i.e., the omission of Article XIX from the
exemption list), we recall that Article XXIV of GATT does not require the immediate completion of a
customs union or free-trade area with full integration of intra-regional trade and immediate
compliance with all the requirements foreseen in Article XXIV of GATT.  For a "reasonable period"of normally not more than ten years,
483 interim agreements leading to the gradual  formation of a
customs union or a free-trade area are permissible under Article XXIV.  In the case of the
MERCOSUR treaty, the temporary lack of full integration of "substantially all trade" due to the
maintenance of intra-regional safeguards clauses would still be justifiable with this  transitional status
of the customs union.  Accordingly, pending the completion of integration within MERCOSUR, the
requirements of Article XXIV would not force Argentina to apply safeguard measures exclusively
against third countries.
8.99 There is also no doubt in our minds that the letter and spirit of Article XXIV:8 of GATT
permit member States of a customs union to agree on the elimination of the possibility to impose
safeguard measures between the constituent territories.  The Safeguards Agreement as well leaves
each Member free to agree with other Members in the framework of a customs union to renounce the
possibility to impose safeguard measures between the constituent territories with a view to completingthe substitution of a single customs territory for two or more customs territories as envisaged by
Article XXIV:8 of GATT.  However, even if we accept the common understanding of the parties that
the imposition of safeguard measures between member States of MERCOSUR is prohibited,
484
Argentina and MERCOSUR are not left without recourse.  Indeed, where a customs union such asMERCOSUR has elected as a matter of policy not to use safeguard measures internally, that customsunion retains the option of imposing safeguard measures by the customs union as a single unit.
Therefore, our interpretation of Article XXIV, read in conjunction with Article 2 and the footnote to
Article 2.1 would by no means deprive a customs union of its right to impose safeguard measures as a
single unit.
8.100  Argentina further submits that it is US practice under the escape clause of Section 202 of the
US Trade Act of 1974 to make injury determinations on the basis of global imports, while it is possible,
according to Article 802 of NAFTA, to exclude, su bject to certain conditions, imports from other
NAFTA-countries from the applicat ion of safeguard measures.
485  We note that it is not within our
terms of reference to make any determinations con cerning the consistency or inconsistency with WTO
law of the safeguard provisions of  NAFTA, or of individual safegu ard determinations based thereon.
We recall, however, that MERCOSUR is a customs union, whereas NAFTA is a free-trade agreement,
and that the footnote to Article 2.1 of the Safeguards Agreement concerns only regional integration in
the form of a customs union.  In these circumstances, we consider that arguments concerning Chapter
8 of the NAFTA Treaty in general and the Wheat Gluten  case in particular have no bearing on the
present dispute.
8.101  In the light of these considerations, we do not agree with the argument that in the case before
us Argentina is prevented by Article XXIV:8 of GATT from applying safeguard measures to allsources of supply, i.e., third countries as well as other member States of MERCOSUR.
8.102  Therefore, in the light of Article 2 of the Safeguards Agreement and Article XXIV of GATT,
we conclude that in the case of a customs union the imposition of a safeguard measure only on third-
country sources of supply cannot be justified on the basis of a member-state-specific investigation that
finds serious injury or threat thereof caused by imports from all sources of supply from within andoutside a customs union.
                                                     
483 Understanding on Article XXIV of GATT 1994, para. 3.
484 EC answer to question 1 by the Panel, see descriptive part, para. 5.132 .
485 Argentina mentions specifically the Wheat Gluten  case, see descriptive part, para. 5.97.WT/DS121/R
Page 159
8.103  We continue our analysis of the EC's claims because, without fully considering Argentina's
investigation, it would not be possible to ascertain whether it provides the legal basis for the
imposition of a safeguard measure.  In the following sections we thus examine whether the safeguard
investigation has established the essential conditions under the Safeguards Agreement for imposing a
safeguard measure, i.e., (i) imports in such increased  quantities, (ii) serious injury or threat thereof
and (iii) the existence of a causal link between thes e two criteria, even if imports from all sources of
supply are taken into account.
2. Background to the investigation
(a) The domestic industry
8.104  Argentina's report on its investigation indicates that the Argentine footwear industry is
composed of a large number of large, medium and small manufacturers.486  According to Argentina,
three principal manufacturers account for 35 per cent of domestic production while the other 65 per
cent is spread over some 1,500 footwear makers.  Widespread use of subcontracting in certain stagesof production is typical of Argentina's footwear industry.  There are also licensing or supply
agreements or contracts with foreign firms to pr oduce footwear with international marks for the
domestic market.
8.105  The Argentine domestic industry, represented by the Chamber of the Footwear Industry
(Cámara de la Industria del Calzado or "CIC"), lodged a request for a safeguard investigation on 26October 1996 pursuant to the provisions of the Decree 1059/96 which implements the WTO
Safeguards Agreement in the Argentine legal system.  The Chamber for the Production of and
International Trade in Footwear and Related Products (Cámara de Producción y Comercio
Internacional de Calzado y Afines or "CAPCICA") which represents the producer-importers and
importers opposed the request for the application of safeguard measures.
487
8.106  We recall that Argentina submits that the CIC represents more than 71 per cent of the
domestic footwear industry.488 We also note that the European Communities has not contested these
figures and that it has not questioned that the petiti oners in Argentina's safeguard investigation represent
a major proportion  of the domestic footwear industry489 in the meaning of Article 4.1(c) of the
Safeguards Agreement.490
8.107  For purposes of information collection through questionnaires, the National Foreign Trade
Commission (Comisión Nacional del Comercio Exte rior or "CNCE") divided the domestic industry
into three categories according to the number of workers employed, i.e., (a) large companies (more
than 100 workers), (b) medium-sized companie s (between 41 and 100 workers) and (c) small
companies (fewer than 41 workers).  Importers were classified into categories according to the valueof their imports,
491 i.e., (a) large importers (more than US$1,000,000), and (b) medium-sized and
                                                     
486 G/SG/N/8/ARG/1, p.12 et seq .
487 G/SG/N/8/ARG/1, p.3;  Nike Argentina S.A. and RBK Argentina S.A. also came forward in their
capacity as importers.
488 The CIC noted that, together with its equivalents in the provinces of Córdoba and Santa Fé, it makes
up the Argentine Federation of the Footwear and Related Products Industry (Federación Argentina de la
Industria del Calzado y Afines, FAICA), thus representing 85 per cent of the domestic industry.
489 The other association at issue, i.e., CAPCICA, represents importers or producer-importers.
490 Article 4.1(c):   "… a 'domestic industry' shall be understood to mean the producers as a whole of the
like or directly competitive products operating within a Member's territory, or whose collective output of theseproducts constitutes a major proportion  of the total domestic production of those products." (emphasis added).
491 During the period from January to November 1996, the period for which at that point importers had
information available.  (See, G/SG/N/8/ARG/1, p. 6).WT/DS121/R
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small (between US$100,000 and US$1,000,000).  Sixty questionnaires were returned by national
producers492 and 69 by importers.493  Argentina indicates that the results were verified by the CNCE.
(b) The footwear products
8.108  Argentina's safeguard investigation, as well as the provisional and definitive safeguard
measures covered footwear products categorised in  the following tariff headings of the MERCOSUR
Common Tariff Nomenclature: 6401.10.00, 6401.91.00, 6401.92.00, 6401.99.00, 6402.12.00,6402.19.00, 6402.20.00, 6402.30.00, 6402.91.00, 6402.99.00, 6403.12.00, 6403.19.00, 6403.20.00,
6403.30.00, 6403.40.00, 6403.51.00, 6403.59.00, 6403.91.00, 6403.99.00, 6404.11.00, 6404.19.00,
6404.20.00, 6405.10.10, 6405.10.20, 6405.10.90, 6405.20.00, 6405.90.00.  For the description of
these tariff lines, see Annex [I], infra .
8.109  The weighted average tariff level
494 for these product categories in 1995 was 28 per cent for
footwear from non-MERCOSUR third countries,495 and 12 per cent for footwear from within
MERCOSUR countries.496
8.110  In the investigation, the Chamber of the Footwear Industry (CIC) argued "that there is only
one product, namely footwear" because of a high degree of substitutability, in terms of both supply
and demand, which would tend to confirm the need to analyse the sector as a whole.497  On the supply
side, the producers argued that any producer coul d, if necessary, vary the type of footwear it
manufactured and that the Argentine industry, ta ken as a whole, produced almost every kind of
footwear.
8.111  The importers, however, argued that brand na me and product image are the most important
characteristics, at least for "high- tech" performance sport footwear.  Thus, the importers argued, there
were no domestically manufactured products at all whic h could be deemed "like or directly competitive"
to imported brand-name performance footwear, e.g ., Nike or Reebok footwear (except for the
production of local subsidiaries).  In the alternativ e, the importers suggested that the CNCE break down
footwear products on the basis of the customs no menclature into very narrow product categories.
8.112  The CNCE, in its data collection, took account of the fact that in the highly heterogeneous
footwear market certain series of types of foot wear "were more or less homogeneous from the
standpoint of competitive conditions, this is to say, for which within each group there was greatersubstitutability of both supply and demand than between products from different groups", noting as
well that there was evidence of a certain degree of specialisation in different types of footwear by the
enterprises that made up the industry.  Thus the CNCE recognised the usefulness to break down the
market for the purposes of the investigation:  "Eve n within a unitary investigation it was necessary to
establish the extent to which different segments of the industry may be affected by imports".  The fivecategories with respect to which the CNCE collected data were:   
(i) performance sportswear;
(ii) non-performance sportswear;
                                                     
492 24 by large and medium-sized companies and 36 by small companies in simplified multiple-choice
format.
493 Acta No. 338 de la CNCE, Determinación Final de la Existencia de Daño de la CNCE, Exhibit
ARG-2, p.5.
494 G/SG/N/8/ARG/1, p.9.
495 At a tariff headings level, five headings corresponded to 20 per cent, 3 to 28 per cent and the other
17 to 29 per cent.
496 The duty rates were 0 per cent for 13 headings, which in 1995, represented 39 per cent of the total
imports from Brazil, Paraguay and Uruguay, the other 61 per cent paid duty at 20 per cent.
497 G/SG/N/8/ARG/1, p.10.WT/DS121/R
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(iii) exclusively women's footwear;
(iv) town and/or casual footwear;
(v) other.498
8.113  Eventually, however, the CNCE concluded that th ere was a single category of like or directly
competitive products – all footwear (excluding ski boots) – due to a sufficient degree of substitutability
among products on the supply499 and the demand500 side.
8.114  The European Communities does not challenge this determination of "like or directly
competitive products" as such.  The European Co mmunities argues, rather, that, having adopted an
approach of product segmentation for purposes of data collection, Argentina was obliged to follow it
consistently through its injury analysis and to prove serious injury in all segments in which safeguards
were to be imposed.
8.115  Argentina responds that the CNCE used in the product segmentation approach for purposes of
collecting pertinent information and then conducted the injury analysis for the footwear industry in its
entirety.  Consequently, there was no need for a disaggregated consideration of all the different injury
factors with respect to the five product categories.
8.116  We address the issue of whether Argentina should have conducted its injury and causation
analysis on an aggregated or on an disaggregated basis, infra , in section E.4.(a).  Given the absence of
a challenge by the European Communities to Argentina’s determination of the like or directlycompetitive product, we do not need to address whether this determination met the requirement of
Article 2.1 in the sense that there was a sufficient degree of competition between the product groups
across the range of footwear products at issue in this dispute.
501
3. Standard of review
(a) No de novo  review
8.117  Before considering the specifics of the claims concerning Argentina's injury and causation
findings, we must consider the standard of review  that we will apply.  In our view, we have no
mandate to conduct a de novo  review of the safeguard investigation conducted by the national
authority.  Rather, we must determine whether Argentina has abided by its multilateral obligations
                                                     
498 i.e., all other footwear not included in the previous categories such as espadrilles, work boots, gum
boots, slippers, sea boots, riding boots, fishing boots, and men's and unisex sandals.
499 "On the demand side, the Commission concluded that there is a broad range of footwear types,
prices, qualities, uses and marks which although not in  strong competition at the various extremes, do create
competition between adjacent groups; therefore, although  the definition of footwear as a 'protective foot
covering' is a simplification, it acquires great significance when the substitutability between different kinds of
footwear is taken into account".  (G/SG/N/8/ARG/1, page 11).
500 "On the supply side, the Commission concluded that the concept of a 'footwear industry' is also
significant, since although it is well known that manufacturers specialize in different segments of the market,they share various critical factors that make possibl e the reallocation of resources, re-specialization and
significant competitive shifts.  Thus, it is easy to reallocate labour between different product lines, and this also
applies to much of the equipment and many of the raw materials."  (G/SG/N/8/ARG/1, page 11).
501 We note that the question whether foreign products are "like or directly competitive" for purposes of
WTO law has to be made on a case-specific and provision-specific basis.  In this regard we consider as relevantthe demand-side and supply-side criteria relied on by Argentina, e.g., physical or technical descriptions,consumer use, perception of consumers and manufact urers, production process, production plants and
workforce, commercial marks, quality, commercial channels, substitutability between different kinds of
footwear, possibility of reallocation of resources, re-specialization and significant competitive shifts.WT/DS121/R
Page 162
under the Agreement on Safeguards, as we discuss in paras. 8.205-8.207, in reaching its affirmative
finding of injury and causation in the footwear investigation.
8.118  This approach is consistent with the reports of panels reviewing national investigations in the
context of the Tokyo Round Agreement on Implementation of Article VI of GATT  ("Anti-dumping
Agreement ") and the Tokyo Round Agreement on Interpretation and Application of Articles VI, XVI
and XXIII of GATT  ("Subsidies Agreement ") and the WTO Agreement on Textiles and Clothing
("ATC").  The panel on New Zealand - Imports of Electrical Transformers from Finland502 panel took
the view that, while the responsibility to make an an ti-dumping determination rested in the first place
with the authorities of th e importing country, such determinations were subject to scrutiny by a panel if
they were challenged by another country.503  The panel on United States - Anti-dumping Duties on
Import of Salmon from Norway  concluded that it should not engage in a de novo  review of the
evidence examined by the national investigating authority.504
8.119  The panel on United States - Underwear505 followed this approach by noting, however, that it
did not see its
"review as a substitute for the proceedings conducted by national investigating
authorities or by the Textiles Monitoring Body (TMB).  Rather … the Panel's function
should be to assess objectively the review conducted by the national investigating
authority, in this case the CITA.  We draw par ticular 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.506  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 cases dealing with anti-dumping and/or
subsidies/countervailing duties, to review the consistency of a determination by anational investigating authority imposing a restriction under the relevant provisions of
the relevant WTO legal instruments, in this case the ATC. …"
507  (emphasis added).
Accordingly, the panel on  United States - Underwear  decided,
"in accordance with Article 11 of the DSU, to make an objective assessment of the
Statement issued by the US authorities … 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. …  an objective assessment would entail an examination
of whether the CITA had examined all releva nt facts before it (including facts which
might detract from an affirmative determina tion 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 determina tion made, and, consequently, whether the
                                                     
502 Panel Report on New Zealand - Imports of Electrical Transformers from Finland , adopted on 18
July 1985, BISD 32S/55.
503 Panel Report on  New Zealand - Transformers .
504 Panel Report on United States - Imposition of Anti-dumping Duties on Imports of Fresh and Chilled
Atlantic Salmon from Norway , ADP/87, dated 30 November 1992, para. 494, p. 186f.
505Panel Report on  United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear ,
adopted on 25 February 1997 (WT/DS24/R).
506 See, inter alia , Korea - Anti-dumping Duties on Imports of Polyacetal Resins from the United
States , adopted on 27 April 1993, BISD 40S/205;  United States - Imposition of Anti-dumping duties on Imports
of Fresh and Chilled Atlantic Salmon from Norway , adopted on 27 April 1994;  United States - Initiation of a
Countervailing Duty Investigation into Softwood Lumber Products from Canada , adopted on 3 June 1987, BISD
34S/194.
507United States - Underwear , op.cit ., para. 7.12.WT/DS121/R
Page 163
determination made was consistent with the international obligations of the United
States."508
8.120  The panel on United States - Shirts and Blouses  also stated that
"This is not to say that the Panel inte rprets the ATC as imposing on the importing
Member any specific method either for collecting data or for considering and weighing
all the relevant economic factors upon which the importing Member will decidewhether there is need for a safeguard restra int.  The relative importance of particular
factors including those listed in Article 6.3 of the ATC is for each Member to assess in
the light of the circumstances of each case."
509
8.121  These past GATT and WTO panel reports make it clear that panels examining national
investigations in the context of the application of anti-dumping and countervailing duties, as well as
safeguards under the ATC, have refrained from engaging in a de novo  review of the evidence
examined by the national authority.
(b) Consideration of "all relevant factors"
8.122  Argentina argues that the requirement of Article 4.2(a) to evaluate "all relevant factors of an
objective and quantifiable nature having a bearing on the industry" implies an obligation to evaluate
factors only to the extent that they are relevant , but not an obligation to examine each and every
factor.  In this respect, Argentina contests the reliance on past precedents in cases involving thereview of a determination made by a national authority (e.g.,  United States - Underwear, United
States - Shirts and Blouses, New Zealand - Transf ormers, United States - Antidumping Duties on
Salmon from Norway ) under the Tokyo Round Agreements on Anti-dumping as well as Subsidies and
the WTO Agreement on Textiles and Clothing (ATC) on the grounds that these cases did not concern
the review of safeguard investigations under the Safeguards Agreement.  The European Communitiescontends that Article 4.2(a) implies a requirement for the national authority to investigate at the least
all factors listed in that article.
8.123  We note, first, that the text of Article 4.2(a) of the Safeguards Agreement explicitly requires
the evaluation of "all relevant factors", in particular  those listed in that article.  Second, Article 6.4 of
the ATC
510 contains no such express requirement and recognises that "none of these factors … can
necessarily give decisive guidance.  Nonetheless, the panels on United States - Underwear  and United
States - Shirts and Blouses  ruled that each and every injury factor mentioned in Article 6.4 of the ATC
has to be considered by the national authority.  With  regard to the obligation to evaluate "all relevant
factors" we consider these past panel reports relevant.  Consequently, in accordance with the text of
the Safeguards Agreement and past practice, we consider that an evaluation of all factors listed inArticle 4.2(a) is required.
8.124  In the light of the fact that the parties agree that de novo  review is not appropriate, and appear
also to generally share our view of the appropriate standard of review,
511 we, too, will not engage in a
                                                     
508United States - Underwear , op.cit ., para. 7.13.
509 Panel Report on  United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from
India , 6 June 1997, WT/DS33/R, para. 7.52.
510 Article 6.4 of the ATC:  "… The Member or Members to whom serious damage, or actual threat
thereof … is attributed, shall be determined on the basi s of a sharp and substantial increase in imports, actual or
imminent, from such a Member or Members individually, and on the basis of the level of imports as comparedwith imports from other commercial transaction ; none of these factors, either alone or combined with other
factors, can necessarily give decisive guidance . …".
511 For the EC’s view, see, descriptive part, para. 5.136 - 5.140.  For Argentina’s view, see, descriptive
part, para. 5.141.- 5.143WT/DS121/R
Page 164
de novo  review of the evidence examined by the national authorities of Argentina.  Therefore, our
review will be limited to an objective assessment, pursuant to Article 11 of the DSU, of whether the
domestic authority has considered all relevant facts, including an examination of each factor listed in
Article 4.2(a), of whether the published report on the investigation contains adequate explanation of
how the facts support the determination made, and consequently of whether the determination made is
consistent with Argentina’s obligations under the Sa feguards Agreement.  We note that this was the
standard of review applied by the Panel in  United States – Underwear , with which we agree.
(c) Argentina's report on the “detailed analysis of the case” setting forth its “findings and
reasoned conclusions"
8.125  During the course of these proceedings, Argentina submitted to the Panel an exhibit
containing the entire 10,000-plus page record of its investigation. Argentina indicated that it
considered this documentation of fundamental importance to the Panel’s reaching a decision
regarding the consistency of the determination with the WTO rules.  Argentina states that without the
complete record of the investigation, the Panel would not have at its disposal all of the pertinent
elements on which to decide the dispute.  Argentin a also submitted a list indicating those portions of
the entire record which it considers to be of particular relevance for this dispute.
8.126  In our view, under the above standard of review as applied to the facts of this particular
dispute, it is the published “detailed analysis of the case under investigation” and the published“report setting forth [the] findings and reasoned conclusions”, provided for respectively in Article
4.2(c) and Article 3.1, rather than the full record of the investigation
512, that must be the focus of our
                                                     
512 In response to a request from the EC at the second substantive meeting to identify the most relevant
pages of the investigation record that had not previously been submitted to the Panel, Argentina submitted anannotated list of pages pertaining to specific issues or factors.  We note that the pages of the record identified inthat list contain essentially raw data, either in uncomp iled or compiled form.  In keeping with our standard of
review, we find these pages of secondary relevance to our consideration of Argentina’s injury and causationanalysis  and explanation  in its investigation.
Argentina identified the following pages of the entire investigation record as relevant for particular issues:
Increased imports : Act 338, p. 5329; Informe técnico previo a la determinación final, Anexo 5,
Cuadros 15-21, pp. 5477-5490; información de los productores respecto a las importaciones, pp. 44-48;aranceles y preferencias correspondientes, pp. 173-177; información sobre importaciones fuente INDEC, pp.250-251; información de las cámaras sectoriales sobre el indice de agresión de las importaciones, pp. 401-411;Acta 266 e Informe técnico previo a la apertura de la investigación, pp. 602-607;  presentación de la demandante
con posterioridad a la Audencia Pública, pp. 5176-5179;
Employment :  Technical Report , p. 5639; presentación de l sector respecto al cierre de empresas, pp.
197-226 (or 193-223); idem  respecto a despidos y suspensiones de personal, pp. 414-418;  Acta 266 e informe
técnico previo a la apertura de la investigación, pp. 569-592;  Anexo estadístico del informe técnico previo a laapertura de la investigación, pp. 629-701;  presentación de la unión de trabajadores posterior a la Audencia
Pública, pp. 5148-5168;  informe técnico previo a la determinación final, Anexo 2, Cuadro 17, p. 5583, (pp.
5564-5583);  Anexo 3, Cuadros 45-47, , pp. 5638-5640, pp. 5641-5643;  presentación de la Cámara deimportadores con cifras de desempleo, pp. 5073-5075;
Imports relative to domestic production and consumption :  Informe técnico previo a la apertura de la
investigación, pp. 574-575;  respuestas a los formularios de las encuestas a productores, pp. 1176-2920;sistemizada en el informe técnico previo a la determinación final, Anexo 2, pp. 5578-5584, Anexo 3, pp. 5585-
5646, Anexo 4, pp. 5647-5716;  respuestas de los importadores, pp. 1197-2721, pp. 4586-4651;  información de
la Cámara peticionante sobre el consume aparente, pp. 4803-4804;  información de la CAPCICA sobre elconsume aparente, pp. 5064-5067;  informe técnico previo a la determinación final, pp. 5498-5507;
Sales :  información de los productores, pp. 1176-2920, sistemizada en el informe técnico previo a la
determinación final, Anexo 2, pp. 5578-5584;  información verificada, en fojas varias de pp. 4421 à 5017;Informe técnico previo a la determinación final, Anexo 3, pp. 5585-5646, Anexo 4, pp. 5647-5716;  Acta 266 e
Informe técnico previo a la apertura de la investigación, ,  pp. 592-601, 629-701;  Informe técnico previo a la
determinación final, Anexo 3, pp. 5603-5611, 5321-5323, Acta 338, pp. 5344-5346;
Profits and losses :  Acta 266 e informe técnico previo a la apertura de la investigación, pp. 592-601,
660-671, Cuadros 28-29, pp. 669-670, Gráfico 5, p.668;  información de los productores, pp. 1176-2920;WT/DS121/R
Page 165
review. This is because the European Communities does not challenge the data generated and relied
upon in the investigation as such, but rather Argentina’s analysis and interpretation of those data.  If
the European Communities had claimed that Argentina’s compilation of the data for one or another
injury factor were incorrect, it might have been necessary for us to consider the raw information (e.g.,
questionnaire responses) from which those data were compiled.  However, because the European
Communities accepts the aggregated data as presented by Argentina in its various documents
concerning the results of the investigation, but challenges rather the reasoning based thereon,
consideration of the underlying raw information is of secondary importance. If we were to conduct
our own assessment of the underlying evidence as contained in the entire record of Argentina's
investigation, we believe that we would effectively be engaging in a de novo  review, which we and
both parties agree would be inappropriate.  Nonetheless, we have reviewed and taken note  of those
portions of the entire record of the investigation which Argentina has identified in the above-
mentioned list as being the most relevant for, inter alia , the injury and causation analyses.
8.127  In considering which document or documents constitute the published report(s) referred to in
Article 3.1 and Article 4.2(c), we recall that annexed to its first submission, Argentina submitted
among other documents both Act 338 and the “Technical Report Prior to the Final Determination”
(“Technical Report”) of the investigation prepared by the CNCE.  We further recall that we sought
clarification from Argentina, in a written question, concerning which of the documents submitted tothe Panel constituted the published report referred to in Article 3.1 of the Agreement.  Argentina
replied that Act 338 is the published report of the CNCE’s findings regarding serious injury, and that
it incorporates by reference the Technical Report.  According to Argentina, the Technical Report
provides a detailed summary of all of the factual data gathered during the investigation.
513 Argentina
further stated that all interested parties had access to the complete record of the investigation exceptthe information therein designated as confidential, and were provided with additional information in
connection with the hearings held during the investigation.  Argentina also stated in response to a
question from the Panel that Act 338 addresses the relevance of each factor considered (as required
under Article 4.2(c)), on the basis of the detailed information contained in the Technical Report.
8.128  We conclude from the foregoing that Act 338 constitutes both the published report “setting
forth [the] findings and reasoned conclusions reached on all pertinent issues of fact and law” referred
to in Article 3.1 of the Safeguards Agreement, and the published document containing the “detailed
analysis of the case under investigation” and the “demonstration of the relevance of the factors
examined” referred to in Article 4.2(c).  Thus, we will base our review in the first instance on Act
338.  We note, however, that Act 338 is based on and summarises information that is set forth in moredetail in the Technical Report.  Thus, while Act 338 is the most relevant document, the Technical
Report also forms an integral part of the record of the investigation and is closely related to Act 338.
4. Claims under Articles 2 and 4 of the Agreement on Safeguards regarding Argentina’s
investigation, and findings of serious inju ry, threat of serious injury and causation
8.129  The European Communities raises a number of  claims under Articles 2 and 4 concerning
Argentina’s investigation and findings of serious injury, threat of serious injury and causation.  In
particular, the European Communities argues that the investigation was flawed in a number of waysthat violate these articles, and that the findings of serious injury, threat and causation also violated
these articles.
                                                                                                                                                                    
verificaciones realizadas por el CNCE a la inform ación precedente, en fojas varias de pp. 4421 à 5017;
sistemizada en el informe técnico previo a la determinación final, Anexos 2, pp. 5578-5584, Anexo 3, pp. 5585-5646, Anexo 4, pp. 5647-5716; balances de las empresea s, pp. 464, 560, 2886, 4222-4223, 5060, 5082; Acta
338, pp. 5326-5327, 5465-5474, Anexo 2, pp. 5582-5583, Anexo 3, pp. 5631-5633;
513 See descriptive part, para. 5.251.WT/DS121/R
Page 166
8.130  In examining the claims under Articles 2 and 4, we address first the product segmentation in
Argentina's investigation.
8.131  With respect to the existence of increased imports, we address (i) increases in absolute terms;
(ii) increases relative to domestic production; (iii) end-point-to-end-point comparison of imports; and
(iv) the selection of the relevant investigation period.
8.132  Regarding the existence of serious injury, we examine (i) Argentina's consideration of the
injury factors production, sales, productivity, capacity utilisation, profits/losses and employment; (ii)
Argentina's consideration of other injury indicators such as stocks, costs, domestic prices, investment
and exports; (iii) whether all injury factors listed in the Safeguards Agreement were considered in the
investigation, and (iv) whether the findings and conclusions of the investigation are supported by the
evidence.
8.133  As to the existence of a causal link between increases in imports and serious injury, we
consider (i) whether there was a coincidence of trends in the relevant data, (ii) whether importsoccurred "under such conditions" as to cause serious injury, and (iii) whether factors other than
increased imports caused or threatened to cause serious injury.
8.134  In a final section, we summarise our considerations and conclusions and make a finding
concerning Articles 2 and 4.
(a) Product segments
8.135  Regarding Argentina's segmentation of footwear into five product groups in its investigation
(performance sports footwear, non-performance sports footwear, exclusively women’s footwear, town
and/or casual footwear, and other) (paras. 8 .112), the European Communities argues that having
adopted this segmented approach, Argentina was obliged to follow it consistently through its injury
analysis and to prove serious injury in all segments in which safeguards were to be imposed.  TheEuropean Communities claims that "serious injury" was not proven in any of the selected five
segments, and that Argentina merely used data of one or another sector as it considered appropriate
for its purpose.  The European Communities argues in particular that factors relating to import trends,
market share, profits and losses and employment we re not investigated for each market segment.  At
the same time, however, the European Communities states that it does not challenge Argentina'sdefinition of a single category of like or directly competitive products, namely all footwear.
8.136  Argentina responds that the European Communities is confusing the CNCE's injury analysis
of the whole of the footwear industry with the product categories that the CNCE used in the
questionnaires for purposes of collecting per tinent information.  In Argentina's view, a single  "like or
directly competitive" product and a single  national industry are at issue in this case because there is
sufficient elasticity of substitution on the supply and demand sides between all different segments of
one single footwear market.  Therefore, Argentina argues, the CNCE conducted an injury analysis
regarding the footwear industry in its entirety.  Consequently, there was no need for a disaggregated
consideration of all the different injury factors with respect to the five product categories.
8.137  We disagree with the European Communities that Argentina was required to conduct its injury
and causation analysis on a disaggregated basis.  In our view, since in this case the definition of the
like or directly competitive product is not challenged, it is this definition that controls the definition ofthe “domestic industry” in the sense of Article 4.1(c) as well as the manner in which the data must be
analysed in an investigation.  While Argentina could have considered the data on a disaggregated
basis (and in fact did so in some instances), in our view, it was not required to do so.  Rather, given
the undisputed definition of the like or directly competitive product as all footwear, Argentina wasWT/DS121/R
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required at a minimum to consider each injury factor with respect to all footwear.514  B y  t h e  s a m e
token the European Communities, having accepted Argentina’s aggregate like product definition, has
no basis to insist on a disaggregated analysis in which injury and causation must be proven with
respect to each individual product segment.515  Thus, in our review of the injury finding, we will
consider the analysis and conclusions pertaining to the footwear industry in its entirety.
(b) Are there “increased” imports in the sense of Article 2.1 and Article 4.2(a) of the Agreement?
8.138  The Agreement on Safeguards requires an increase in imports as a basic prerequisite for the
application of a safeguard measure.  The relevant provisions are in Articles 2.1 and 4.2(a).
8.139  Article 2.1, which sets forth the conditions for the application of a safeguard measure, reads
as follows:
"A Member (footnote omitted) 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."
8.140  Article 4.2 sets forth the operational requirements for determining whether the conditions
identified in Article 2.1 exist.  Regarding increased imports, Article 4.2(a) requires in relevant partthat:
"[I]n the investigation to determine whether increased imports have caused or are
threatening to cause serious injury to a domestic industry under the terms of this
Agreement, the competent authorities shall evaluate…the rate and amount of the
increase in imports of the product concerned in absolute and relative terms…"
8.141  Thus, to determine whether imports have increased in "such quantities" for purposes of
applying a safeguard measure, these two provisions require an analysis of the rate and amount of the
increase in imports, in absolute terms and as a percentage of domestic production.
8.142  As discussed in detail in the following sections, the European Communities claims that there
was neither an absolute nor a relative increase in imports, and that Argentina therefore violatedArticles 2.1 and 4.2(a).
516  The European Communities argues in this context not only that the analysis
of imports was incorrect as it included MERCOSU R imports, but also that regardless of whether
MERCOSUR imports are included or excluded, no increase in imports occurred.
8.143  Argentina maintains that there was both an ab solute and a relative increase in imports, and
that the requirements of Articles 2.1 and 4.2(a) therefore were satisfied.
                                                     
514 Or, to the extent that Argentina relied on data for particular product segments as the basis for
conclusions pertaining to the entire industry, it was re quired to explain how its analysis regarding those
segments related to or was representative of the industry as a whole.
515 We note that in any case, only if serious injury or a threat thereof exists with respect to the product
market segments accounting for the bulk of the industry’s output will injury be evident with respect to the
industry as a whole.  The European Communities appears to acknowledge this, in indicating that the share of agiven product category of the total industry is relevant for the injury analysis of the entire industry. Seedescriptive part, note 201.
516 The European Communities also argues that Argentina's evaluation of "increased imports", because
it compared end-points of the investigation period and did not consider intervening trends, violated Article
4.2(c)'s requirement that the "relevance" of those trends be explained.  See descriptive part, para. 5.155.WT/DS121/R
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(i) Imports in absolute terms
8.144  The data on the absolute levels of imports relied upon by Argentina in its investigation, and
relied upon by both parties in their arguments before the Panel, are set forth in the table below.  We
note that both parties accept the accuracy of these data.
Total Imports of Footwear into Argentina, 1991-1996
Quantity
(million pairs)Value
(US$ millions)
1991 8.86 44.41
1992 16.63 110.87
1993 21.78 128.76
1994 19.84 141.48
1995 15.07 114.22
1996 13.47 116.61
8.145  The parties disagree on whether these data show an increase in the absolute level of imports
consistent with the Agreement's requirement.  In its investigation, and in its arguments before the
Panel, Argentina compares the 1991 level of Argentina’s total imports of footwear (8.86 million pairs)
to the 1995 level (15.07 million pairs), and also compares the 1991 value of total imports (US$44.41
million) to the 1995 value (US$114.22 million).  On this basis, Argentina concludes that there has
been an absolute increase in imports, and that  the Agreement’s requirement for increased imports
therefore has been satisfied. In Resolution 987/97 applying the definitive safeguard measure,
Argentina also refers to the level of imports in 1996, stating in the fourth recital of the resolution that
imports “increased during the period 1991-1996”.
8.146  The European Communities argues, in part, that Argentina’s analysis, which is based on an
end-point-to-end-point comparison, fails to satisfy the Agreement’s requirement of increased imports
because it ignores intervening, declining trends over the period considered. The European
Communities argues that there must be an increasing trend (in its first submission, the European
Communities argues a “sharply” increasing trend) at the time the safeguard measure is imposed, citing
the Agreement’s language that the “product is being imported  … in such increased quantities…”.  For
the European Communities, therefore, the existence of a sustained downward trend over the mostrecent years of the period of investigation is fatal to Argentina’s conclusion that there was an increase
in imports.  In this regard, the European Commun ities argues specifically that the level of imports
began to decline in 1994 and that this decline continued steadily through 1996, the latest period for
which data were gathered in Argentina’s investigation.  Thus, for the European Communities,
Argentina’s finding of an absolute increase in imports violates Article 2.1.
8.147  In connection with these arguments, the European Communities also appears in its first
submission to criticise the five-year period of inve stigation chosen by Argentina, arguing regarding
Argentina’s comparison of 1995 to 1991 import levels that “the nature of safeguards as ‘emergency’
measures makes clear that their use is not appropriate in the case of a long-term increase in
imports”.
517  In its first oral statement,518 the European Communities clarifies its argument on this
point, stating that while the European Communities does not contest the fact that an investigation is
carried out over a five year period, figures relating to a period five years in the past are of only limited
                                                     
517 See descriptive part, para. 5.149.
518 See descriptive part, para. 5.197.WT/DS121/R
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relevance, and the increase of the imports still has to be relevant at the time the decision is made to
apply the measure.519
8.148  Argentina’s response is two-fold.  First, Argentina argues that that the Spanish version of
Article 2.1's requirement for increased imports is in the past tense (i.e., " han aumentado ").  Thus, it
appears that for Argentina, a past increase in imports, whenever during the period of investigation it
takes place, satisfies the Agreement's requirement of increased imports, even where there is anintervening decline. Second, Argentina argues that th e Agreement also is silent with regard to how,
specifically, an increase in imports is to be measured, thus permitting an end-point-to-end-point
comparison, and that it also is silent with regard to how long and how recent a period of investigation
must be.  Regarding the latter point, Argentina argues that its domestic legislation requires the
investigation period to be defined as the most recent five full calendar years prior to the date of the
filing of the petition for a safeguard measure.  For Argentina, over the 1991-1995 investigation period
thus established, an end-point-to- end-point comparison of the import data shows an increase, and thus
the Agreement's requirement of increased imports is satisfied.  In addition, Argentina explains that
1991 was particularly relevant, as this was the year in which Argentina’s market opening started to
take effect.
(ii) Imports Relative to Domestic Production
8.149  Act 338
520, in which the findings and conclusions of Argentina’s injury investigation were
published (and which also constituted Argentina’s notification under Article 12.1(c)), briefly
addresses the question of whether imports increased relative to domestic production.  No data table is
provided in this respect in Act 338, however.
8.150  The Panel, seeking clarification, asked Argentina to identify where in the record of the
investigation the analysis of imports relative to domestic production could be found, and also askedArgentina to clarify which production figures (total production, or total own production
521, and
whether inclusive or exclusive of exports) had been used for this analysis.  Argentina replied that total
production, including exports, should be used and was used for this purpose, and referred the Panel to
sheets 5429 et. seq. of the Technical Report, which Argentina states explain the estimation of
production in pairs and pesos.  In the tables in those pages (in particular sheets 5501 and 5505) ratiosof imports to domestic production are calculated by volume and value, and a footnote to these ratios
indicates that they are calculated not on the basis of production for the domestic market (shown in the
table), but rather total production (not shown in the table).  These ratios are referred to in the text of
Section VIII.2 of Act 338.
8.151  The following are the ratios of imports to domestic production taken from sheets 5501 and
5505 of the Technical Report:
Total imports/production
                                                     
519 As indicated above, we note that the European Communities also argues, regarding the question of
an absolute increase in imports, that imports from MERCOSUR countries were solely responsible for anyincrease in imports, and that the imports to whic h the measure applies (i.e., non-MERCOSUR countries)
declined over the relevant period.  Argentina responds that under the Agreement, a determination regarding
increased imports can only be based on total imports, and that there is no possibility under the Agreement for
considering only a portion of the imports.   We address the general question of MERCOSUR in section E.1.,supra , and the question of the treatment of MERCOSUR imports in the investigation in section E.4.d.iv, infra .
In this section, we confine our consideration to total imports.
520 WTO document G/SG/N/8/ARG/1 (Exhibit EC-16).
521 “Own production” as used by Argentina, refers to total production exclusive of production under
contract and for joint ventures.WT/DS121/R
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by volume by value
1991 12% 11%
1992 22% 24%
1993 33% 34%
1994 28% 36%
1995 25% 34%
1996 19% 28%
On the basis of these data, Argentina argues that imports increased relative to domestic production
between 1991 and 1995 (on the basis of an  end-point-to-end-point comparison).522
(iii) Evaluation by the Panel
8.152  Before evaluating whether Argentina’s finding of increased imports was in accordance with
the requirements of Article 2.1 and 4.2(a), we note, first, that both parties have referred to data onboth the quantity and the value of imports in connection with this requirement.  The Agreement is
clear that it is the data on import quantities both in absolute terms and relative to (the quantity of)
domestic production that are relevant in this context, in that the Agreement refers to imports “in such
increased quantities ” (emphasis added).  Therefore, our evaluation will focus on the data on import
quantities
523.
a. End-point-to-end-point comparison
8.153  In order to address the European Communities’ argument that an end-point-to-end-point
analysis does not satisfy the requirements of the Agreement (para. 8.146), we consider first
Argentina's argument that because imports in 1995 were higher than those in 1991, in both absolute
and relative terms, the Agreement's requirement of an increase in imports is satisfied.  With respect to
the absolute import volumes, while there was as Argentina points out an end-point-to-end-point
increase between 1991 and 1995 in total imports, ther e also was, as the European Communities points
out, a decrease in 1994 and 1995, which continued in 1996.  Thus, during the most recent two years of
the 1991-1995 investigation period as defined by Argentina, as well as in the following year, total
imports declined in absolute terms.
8.154  Given these mixed trends in the data, we note that the choice of base year has a decisive
influence on whether an end-point-to-end-point co mparison shows an increase or a decrease.  In
particular, if the base year is taken as 1992 rather than 1991, total imports declined even based on an
end-point-to-end-point comparison for 1992-1995 and 1 992-1996.  Thus, only if 1991 is the base year
is any absolute increase in total import volume apparent.
8.155  The trend in the ratio of imports to domestic production is quite similar.  That is, this ratio
increased in 1992 and 1993, compared to 1991, then fell steadily in 1994, 1995 and 1996.  We notethat the declines in the ratio of imports to production since 1993 were continuous.  While the 1995
ratio was considerably higher than the 1991 ratio, a comparison of 1992 and 1995 shows only a 3
percentage point increase, and a comparison of 1992 and 1996 shows a decline.  This is explained by
the steady declines in imports starting in 1994 which nearly halved the ratio of imports to production
between 1993 and 1996.  In fact, the 1996 ratio was lower than in any preceding year of the periodexcept  1991. Thus, as with the absolute volume data, the outcome of an end-point-to-end-point
comparison very much depends on which years are used as the end points, as even a one-year shift
can reverse the result.
                                                     
522 See, e.g., descriptive part, para. 5.159.
523 We note that the trends in the data on import values generally confirm those on import quantities.WT/DS121/R
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8.156  We believe that in assessing whether an end-point-to-end-point increase in imports satisfies
the increased imports requirement of Article 2.1, the sensitivity of the comparison to the specific years
used as the end-points is important as it might confirm or reverse the apparent initial conclusion.  If
changing the starting-point and/or ending-point of the investigation period by just one year means that
the comparison shows a decline in imports rather than an increase, this necessarily signifies an
intervening decrease in imports at least equal to the initial increase, thus calling into question the
conclusion that there are increased imports.
8.157  In other words, if an increase in imports in fact  is present, this should be evident both in an
end-point-to-end-point comparison and in an analysis of intervening trends over the period.  That is,
the two analyses should be mutually reinforcing.  Where as here their results diverge, this at least
raises doubts as to whether imports have increased in the sense of Article 2.1.
8.158  We note as well that both parties appear to consider relevant the question of whether any
reversal of an increase in imports during the period considered is “temporary”. In particular, theEuropean Communities notes the US statement
524 that there may be reasons why imports may show a
decreasing trend, including the timing of shipments, seasonality of the product, or importer concerns
about the investigation.  The European Communities ag rees with the United States that in deciding
whether the requirements of Article 2.1 are satisfied, the relevance of such trends, as well as possible
others, should be carefully considered (see note 141).  Thus it appears that for the EuropeanCommunities, a “temporary” decrease in imports during the course of an investigation would not
necessarily invalidate a finding of increased imports.  Similarly, Argentina argues that it should not be
impossible to make an injury and causation finding when an increase in imports has “ temporarily
stopped”
525 (emphasis added).
8.159  We too believe that the question of whether any decline in imports is “temporary” is relevant
in assessing whether the “increased imports” requirement of Article 2.1 has been met.  In this context,
we recall Article 4.2(a)’s requirement that “the rate and amount of the increase in imports” be
evaluated.526  In our view this constitutes a requirement that the intervening trends  of imports over the
period of investigation be analysed.  We note that the term “rate” connotes both speed and direction,
and thus intervening trends (up or down) must be fully taken into consideration.  Where these trends
are mixed over a period of investigation, this may be decisive in determining whether an increase in
imports in the sense of Article 2.1 has occurred.  In practical terms, we consider that the best way to
assess the significance of any such mixed trends in imports is by evaluating whether any downturn in
imports is simply temporary, or instead reflects a longer-term change.
8.160  Applying this approach to imports during the investigation period defined by Argentina, we
note that total imports of footwear into Argentina declined continuously after 1993.  In particular, the
absolute volume of imports declined by 9 per cent between 1993 and 1994, and by 24 percent
between 1994 and 1995, for a cumulative decline of 31 per cent between 1993 and 1995.   Similarly,
the ratio of imports to domestic production in 1994 was 5 percentage points lower than in 1993, and
the ratio in 1995 was 3 percentage points lower than in 1994 (a cumulative reduction of 8 percentage
points between 1993 and 1995).  The data for 1996 (which Argentina collected and analysed, but
which it did not treat formally as within the peri od of investigation) confirm the declining trend in
                                                     
524 See descriptive part, para. 6.39.
525 See descriptive part, para. 5.163.
526 We recognise that Article 4.2(a) makes this re ference in the specific context of the causation
analysis, which in our view is inseparable from the requirement of imports in “ such increased quantities”
(emphasis added).  Thus, we consider that in the context of both the requirement that imports have increased,and the analysis to determine whether these imports ha ve caused or threaten to cause serious injury, the
Agreement requires consideration not just of data for the end-points of an investigation period, but for the
entirety of that period.WT/DS121/R
Page 172
imports.  In particular, the 1996 import volume was 11 percent below the 1995 level, and the ratio of
imports to production was 6 percentage points lower than in 1995.527 Thus, between 1993 and 1996,
the absolute volume of imports declined by 38 percent, and the ratio of imports to production was
nearly halved, from 33 per cent to 19 per cent.  Declines of this magnitude, taking place consistently
over the most recent three years of the period for which data were collected can only be seen as a
long-term change; such declines cannot be characterised as “temporary” reversals of an overallincrease in imports.
8.161  In this context, we recall that the Agreement requires not just an increase (i.e., any increase)
in imports, but an increase in "such…quantities" as to cause or threaten to cause serious injury.  The
Agreement provides no numerical guidance as to how th is is to be judged, nor in our view could it do
so.  But this does not mean that this requirement is meaningless.  To the contrary, we believe that it
means that the increase in imports must be judged in its full context, in particular with regard to its
"rate and amount" as required by Article 4.2(a).  Thus, considering the changes in import levels overthe entire period of investigation, as discussed above, seems unavoidable when making a
determination of whether there has been an increase in imports “in such quantities” in the sense of
Article 2.1.
8.162  We are thus unpersuaded that Argentina’s en d-point-to-end-point comparison for the period
1991-1995 is sufficient demonstration of “increased imports” in the sense of the Agreement.  Where,as here, the volume of imports has declined continuously and significantly during each of the most
recent years of the period, more than a “temporary” reversal of an increase has taken place (as
reflected as well in the sensitivity of the outcome of the comparison to a one-year shift of its start or
end year).  In this regard, we recall the quite restrictive nature of the safeguard remedy, which is
justified by the purpose of that remedy, namely to address urgent situations where a domestic industryneeds temporary “breathing room” to adjust to altered conditions of competition brought about by
increased imports.  We cannot reconcile this purpose with a situation in which the increasing trend in
imports reversed several years before the investigation began.
8.163  Finally, we note the statements concerning imports in the Preliminary Report of the Under
Secretary of Foreign Trade concerning the decision to open the investigation and to apply aprovisional safeguard measure
528.  In particular, regarding imports, that Resolution refers exclusively
to an anticipated  increase in imports following the removal of the DIEMs on footwear.  Section seven
and the conclusions of the Preliminary Report state that:
                                                     
527 Regarding the period examined by Argentina, Argentina argues that “complete” data were not
available for 1996 at the time it initiated the investigation, which led it to use 1995 as the end-point of its periodof investigation, and to count backward five full years as is, according to Argentina, required by its domestic
law.  We note, however, that data for 1996 were requested and collected in the CNCE’s questionnaires, and are
referred to throughout Act 338 and the Technical Report, demonstrating that in fact these data were fully
available.  See footnote 540, infra , for details on the availability of 1996 data.
528 Exhibit ARG-1 at Section 7, and section on "Conclusions".WT/DS121/R
Page 173
"Act 266 of 10 December 1996 found that the petitioners' allegations that the absolute
increase in imports of footwear would ha ve caused serious injury to the domestic
industry correspond to the evidence presented when imports are estimated  under the
hypothesis of elimination of the DIEMS; thus, the Commission finds preliminarily
that there exists in the petition and in the report clear evidence that the potential
increase in imports threatens to cause serious injury, justifying the opening of aninvestigation.
…
Regarding the circumstances necessary to make possible the application of
provisional safeguard measures, these would be recreated  only in the absence of the
DIEMs." (emphasis added.)
We note that the import data considered in making this assessment covered the same products and
period as those used in Argentina’s definitive finding (i.e., total imports of footwear during 1991-1995)
529.
8.164  In sum, we find highly significant that the absolute volume of footwear imports and the ratio
of those imports to domestic production, increased only until 1993, i.e., during the first two years of
the period for which Argentina collected data, and declined continuously thereafter.  We also findsignificant that these decreases were of such a magnitude that a one-year change in base year of the
data series on the volume of imports transforms the increase relied upon by Argentina into a decline,
and that the resolution applying the provisional measure refers only to anticipated increases in
imports, showing that at that time, no increase in imports was present.  For these reasons, we find that
Argentina’s investigation of footwear did not demonstrate increased imports in “such … quantities” inabsolute or relative terms, as required by Article 2.1 and Article 4.2(a) of the Agreement.
8.165  We are not persuaded, however, by the argument advanced by the European Communities in
its first submission that only a “sharply increasing”  trend in imports at the end of the investigation
period can satisfy this requirement.  In our view, each situation is different, and the Agreement
certainly does not identify a unique pattern of importation that satisfies the “increased imports”requirement.  Depending on the particular case, there might indeed be a temporary  downturn in
imports during an investigation period which would nevertheless not invalidate a finding of increased
imports.
b. Relevant period
8.166   We note the EC's criticisms of the period covered by the import data in the investigation,
both that it was too long and that it ended too far in  the past, and Argentina's response, in part, that the
Agreement is silent regarding the investigation period, and that the Spanish text " han aumentado " is
in the past tense, connoting a past increase in imports.
530  We agree with Argentina that the Agreement
                                                     
529 We note as well that Act 338, at folio 5350 (Exhibit EC-16 at 37), also refers to and confirms the
decreases in imports starting in 1993, attributing these decreases to the DIEMs.
530 In this context, we note that unlike the Spanish text, the English text of Article 2.1 authorizes the
application of safeguard measures only where the product at issue " is being imported  in such increased
quantities  … so as to cause or threaten to cause serious  injury" which would seem to indicate that, whatever the
starting-point of an investigation period, it has to end no later than the very recent past.   The French textconveys the same meaning as it is in the present tense "ce produit est importé  sur son territorire en quantités
tellement accrues".  The Spanish text is more ambiguous, as the phrase "que las importaciones de ese productoen su territorio han aumentado  en tal cantidad" unequivocally means that imports have increased in the past, but
it does not clearly imply that imports which have started to  increase in the past necessarily also have to continue
to increase at least through the recent past.WT/DS121/R
Page 174
is silent regarding the period of investigation, and we also consider that it can be quite useful to an
investigating authority to have five years of historic al data to refer to in making its determinations.
Nevertheless, we find problematic that Argentina, where it collected data for 1996, did not take them
into account in its assessment of whether there were increased imports; as discussed above, the
decline in imports in 1996 confirms the more than temporary nature of the decline in imports after
1993.
(c) Serious injury
8.167  In keeping with the standard of review enun ciated in section E.3. (paras 8.117 - 8.121) above,
we view our task in considering Argentina's serious injury analysis and determination as, in the first
instance, to consider whether all injury factors list ed in Article 4.2(a) - i.e., production, changes in the
level of sales, productivity, capacity utilisation, profits and losses, and employment - have been
considered by Argentina's national authorities, and whether an analysis of the data pertaining to those
factors has been carried out.  Second, we must evaluate the reasoning set forth by Argentina in itsfindings and conclusions to determine whether they were adequately explained and are supported by
the evidence.
8.168  In its investigation, Argentina found that the domestic footwear industry was both seriously
injured and threatened with serious injury caused by increased imports.  In reaching this finding,
Argentina primarily relied upon a comparison of data for 1991 and 1995, although it collected andanalysed data for 1996 as well.  We will consider first Argentina’s analyses of serious injury and
causation, and then separately consider Argentina’s analysis of threat of serious injury.  In considering
the injury analysis, we will consider in turn Arge ntina’s analysis of each factor identified in the
Agreement, as well as any additional factors examined by Argentina.
(i) Production
8.169  Argentina, on the basis of a comparison of data for 1995 and 1991, concluded in its
investigation that production declined, constituti ng evidence of serious injury to the domestic
industry.  Argentina considered data both for so-called “own production” (i.e., excluding production
under contract and for joint ventures) and for own production plus production under contract and for
joint ventures.  Argentina notes that the data were estimated for the industry as a whole on the basis ofmacroeconomic statistics.  Argentina also states, as indicated in Act 338, that there was a 7.7 per cent
increase in the value of production between 1991 and 1995, which Argentina states was the result of a
"change in product mix following a decision to concentrate on products with a higher unit value".
8.170  The European Communities disagrees that production declined, in view of Act 338's
indication that the value of production did not decrease, but increased by 7.7 percent, between 1991and 1995.  The European Communities asserts that Argentina "discarded" this positive figure by
stating that the industry shifted production to hi gher-unit-value products.  The European Communities
argues that Argentina was unable to explain in response to a Panel question on this point how this
                                                                                                                                                                    
Nonetheless, we do not share Argentina’s view that in the light of the ambiguous meaning of the
Spanish version of Article 2.1 of the Safeguards Agreement, WTO Members whose official language is Spanish
should on that basis enjoy a greater latitude in choosing and analysing investigation periods for purposes of
safeguard investigations.  In this regard, we recall that Article 33.1 of the Vienna Convention on the Law ofTreaties recognizes that treaties authenticated in severa l languages are equally authoritative in each of these
languages, while Article 33.3 provides that the terms of a treaty are presumed to have the same meaning in eachauthentic text.  Where treaty texts in different languages disclose differences in meaning which the general ruleson treaty interpretation do not remove, the meaning which best reconciles the texts, having regard to the object
and purpose of the treaty should be adopted pursuant to Article 33.4 of the Vienna Convention.  In this regard,
we would note that the object and purpose of the Agreement (i.e., emergency action to prevent or remedyserious injury caused by increased imports) would seem to imply rapid action with respect to an ongoing (or atleast quite recent) situation.WT/DS121/R
Page 175
move toward higher-valued products was indicative of serious injury.  The European Communities
also questions the representativeness of the sample reflected in the questionnaire responses.
8.171  We note that, as shown below, the data provided in the questionnaire responses accounted for
only one-third to one-half of the total estimated level of production.
Production
(volume in million pairs; value in million US dollars)
Estimated data for industry as a
wholeQuestionnaire
data
Total production Own production
Volume Value Volume
1991 71.4 861 29.14
1992 76.9 1,036 29.29
1993 65.1 914 26.44
1994 70.3 1,001 28.80
1995 60.8 927 22.61
1996 70.7 1,097 22.07
8.172  Regarding the estimated data on total production volume, we note that on the basis of an end-
point-to-end-point comparison, total production declined between 1991 and 1995 (by 14.8 percent),
between 1991 and 1996 (by only one percent), and between 1992 and 1996 (by 8 percent).  We also
note, however, the mixed trends over the period, in particular the significant decrease between 1994and 1995, followed by the rebound between 1995 and 1996 to slightly more than the 1994 level.
Regarding the value of production, we note the 7.7 percent increase between 1991 and 1995, as well
as the further increase in 1996.
8.173  The questionnaire data on the volume of own production (which represent no more than 40
percent of estimated data for the industry) show somewhat different trends.  Namely, except for 1994,
these data show declines throughout the period of investigation.  No questionnaire data are available
on the value of production.
(ii)  Sales
8.174  Regarding sales, the European Communities argues that the industry's total sales were stable.
The European Communities points as well to increases in the sales of women's and town and casual
footwear, in spite of which, the European Communities argues, the safeguard measure was applied
with respect to these categories.
8.175  Although Argentina submitted to the Panel estimated sales volume and value for the industry
as a whole (used in the investigation to calculate apparent consumption – see below), its analysis of
the injury factor "sales", as reflected in the discussion in Act 338 and the Technical Report, relies on
the data for the sample of large and medium-siz ed companies from which it collected data through
questionnaires.   For "sales", Argentina used data on sales of own production for the domestic market,i.e., exclusive of exports, and exclusive of contract and joint venture production/sales.
8.176  The text of Act 338 states that domestic sales volume as reflected in questionnaire responses
for large and medium-sized firms declined 27 perc ent by volume and 15 percent by value betweenWT/DS121/R
Page 176
1991 and 1995.  The text of Act 338 further indicates that volume declined in 1992, 1993, 1995 and
1996, and that value showed "a similar decline" except for 1992 when value increased by 13 percent.
8.177  The data on sales from questionnaire responses, below, are as they appear in Act 338, except
those for 1996 which are taken from the Technical Report. (We note that although the text of Act 338
refers to 1996 data, the relevant data tables of Act 338 end in 1995.) The estimated data for the
industry as a whole, below, were provided by Argentina in its 21 December 1998 response to Panelquestion 36.  In that question, the Panel asked Argentina to provide inter alia questionnaire data as
well as estimated data for the industry as a whole on the quantity and value of sales.  The estimated
data also appear in the Technical Report, at folios 5501 and 5505, where they are identified as
“production destined for the domestic market”, and are used in the calculation of apparent domestic
consumption and import penetration.  In addition, data identified as “sales for domestic market – own
production” in tables on pages 50 and 53 (pairs), and 59 and 62 (pesos) of Argentina’s notification of
a finding of serious injury and causation (Exhibit EC-16) (Technical Report, folios 5501-5503 and5505-5507, Exhibit ARG-3), which are broken out betw een performance sports footwear and other
footwear, reconcile with the estimated data for the entire industry, shown below
531.
Own production for domestic sales
(volume in million pairs; value in million dollars)
Questionnaire data Data estimated for entire industry
Volume Value Volume Value
1991 26.82 345.30 65.3    824.8
1992 27.21 410.45 74.0 1,010.2
1993 25.30 395.94 62.6    883.2
1994 25.58 433.39 66.6    967.0
1995 20.46 324.70 56.2    858.6
1996 19.63 311.52 67.3 1,048.6
8.178  We note first of all that the percentage changes in the sales data cited in the text of Act 338 do
not correspond in all cases to those calculated from the above questionnaire data, although that text
indicates that it is based on those data.  Specifically, the 1991-1995 decrease in sales volume was 24
percent rather than 27 percent, while that in value was 6 percent rather than 13 percent.  Sales volume
increased in 1992 rather than decreasing, and sales value increased in both 1992 and 1994, rather thanjust in 1994.  Moreover, the 1992 increase in value was 19 percent, not 13 percent.
8.179  The trends in the estimated data on own production for domestic sales differ from those in the
questionnaire data.  There is an increase between 1991 and 1996 in volume (3.1 per cent), and a
decrease between 1992 and 1996 (9.1 per cent), and between 1991 and 1995 (13.9 per cent).  Again,
the trends are mixed over the period, and again there is a decrease between 1994 and 1995, followedby an increase between 1995 and 1996.  On a value basis, there are increases between 1991 and 1995,
1991 and 1996, 1992 and 1996, and 1995 and 1996.
8.180  As in the case of production, the data estimated for the industry as a whole on own production
for domestic sales are twice to three times higher than those compiled from questionnaire responses,
and show different trends, as well.  In response to a question from the Panel regarding how thequestionnaire data were reconciled by Argentina with the higher figures that it estimated for the
industry as a whole, Argentina stated that it conduct ed a detailed analysis of a sample of footwear-
producing enterprises representing 50 percent of domestic production, and that the estimate for the
                                                     
531 The value data reconcile exactly except for 1996, where they differ by $1.6 million, and the quantity
data reconcile closely.WT/DS121/R
Page 177
industry as a whole was made for calculating apparent consumption and import market share.
Argentina further stated that the CNCE also gathered qualitative information from small firms.
Argentina did not respond regarding the reconciliation of the differences in the two sets of data532.
8.181  Argentina, which as indicated had presented the estimated data, above, to the Panel as sales
data in response to a question, and had discussed them as such in response to a follow-up question, at
the interim review stage criticised the Panel for iden tifying them as sales data.  Specifically, in its
interim review comments, Argentina argued for the first time that the data are production data rather
than sales data, that as such they are not comparable to the sales data derived from the questionnaire
responses, and that the CNCE did not claim th em to be comparable. Given Argentina’s own
representation to the Panel of these data as sales data throughout the proceedings, this criticism at the
interim review stage of the Panel’s use of these data is surprising, particularly given that these data
reconcile to data labelled as “sales” in tables in  the record of the investigation, as indicated above.
Argentina’s belated criticism thus raises questions about the data used in the investigation, and inparticular calls into question the representativeness of the sales data from questionnaire responses that
were relied upon by Argentina in its analysis of sales.
(iii) Productivity
8.182  The European Communities argues that this factor is not specifically addressed "in a separate
heading in its investigation", but that the "Centro de Estudios para la Producción", in a study
submitted to the Panel by the European Commun ities
533, found an increase in productivity in the
footwear industry of 24 to 29 per cent between 1991 and 1996.  We note that neither Act 338 nor the
Technical Report makes specific reference to the injury factor productivity.  A data series on
percentage changes in productivity from the Institu te for Industrial Development of the Argentine
Industrial Union is included in the Final Report of the Under Secretary of Foreign Trade,534 but no
discussion or analysis of productivity appears in that report.
8.183  In answer to a Panel question regarding where in the record of the investigation an analysis of
productivity can be found, Argentina stated only th at the information on employment and production
gathered in the questionnaire responses showed no  increase in productivity between 1991 and 1995.
At the interim review stage, however, Argentina pointed to a contradictory representation by the
domestic industry (i.e., the petitioner, the CIC), reflected in Act 338, that productivity had increased
due to investments in new equipment:
 “…these investments had made possible the transformation of the sector with
improvements in productivity and product quality to enable it to compete on thedomestic and foreign markets.  It is important to note, however, that according to the
CIC, these investments were basically directed towards improving productivity and
the quality of domestic footwear.”
535
(iv) Capacity Utilisation
8.184  Regarding capacity utilisation, the European Communities notes that installed capacity
increased over the period of investigation, and that Argentina seemed not to have provided statistics
on capacity utilisation.
                                                     
532 Argentina’s 15 February 1999 response to Panel question 3.
533 Exhibit EC-29.
534 Exhibit ARG-5.
535 Exhibit EC-16, Section VI.6, at 18.WT/DS121/R
Page 178
8.185  We note that Act 338 refers to representations by the petitioners to the CNCE regarding
declines in capacity utilisation, but does not indicate whether these data were evaluated by the CNCE
during the course of the investigation.536  Act 338 does discuss the data gathered by the CNCE on
installed capacity for various segments of the industry, which indicate among other things an increase
between 1991 and 1995, and a further increase in 1996, in capacity to produce performance sports
footwear.  (Act 338's discussion on capacity utilisation and installed capacity is repeated in theTechnical Report.)  However, we note that the data on the industry's total capacity do not appear to
have been aggregated or considered in the inves tigation; the relevant table of the Technical Report
containing capacity data shows the data broken out by market segment, but not in total for all
segments.  The data on installed capacity, as set forth in the Technical Report, are as follows:
Installed Capacity
(thousand pairs)
Performance
sportsNon-
performance
sportsWomen's Town and
casualOther
1991 14,813 15,280 294    857 12,797
1992 15,317 15,513 340 1,266 12,753
1993 17,368 15,747 628 2,096  2,966
1994 17,038 14,649 725 2,277  3,028
1995 18,675 15,309 801 1,874  2,945
1996 19,799 15,192 448 2,205  2,945
There is no corresponding table in Act 338 or the Technical Report, however, concerning the
utilisation  of installed capacity.
8.186  We note that Argentina attaches as an exhibit to its first submission a graph showing changes
in capacity utilisation for the industry as a whole between 1991 and 1995.  In the text of that
submission, Argentina states that to examine capacity utilisation, it is necessary to analyse production
and capacity, and in this regard refers to data obtained in questionnaire responses.  The submission
goes on to state that "on the basis of the analysis of the installed capacity and production figures"(presumably from the questionnaire data), "the CNCE  reached the conclusion" that capacity utilisation
had decreased between 1991 and 1995.  In answer to a Panel question, Argentina provided a data
series on capacity utilisation.  In answer to a further Panel question regarding where in the record of
the investigation these data and the analysis on capacity utilisation could be found, Argentina
indicated that the data were derived from the data tables in the Technical Report on capacity andproduction.
(v) Profits and losses
8.187  The European Communities argues that the evidence gathered in the investigation concerning
profit-and-loss was insufficient to demonstrate serious injury or threat, and that the methodology was
questionable because it was based on global financial data for the responding companies, and becausedifferent subsets of companies were used for different indicators.  The European Communities argues
that although Act 338 refers to sales below breakeve n point, the profit-and-loss data contained therein
do not show any losses.
8.188  Act 338 discusses and contains data on a range of financial indicators, including gross
margin/sales; operating profit(loss)/sales; net margin/sales; net margin/assets; net margin/equity;
                                                     
536 Exhibit EC-16, Section VI.6, at 17.WT/DS121/R
Page 179
average cost of commercial and financial debt; interest coverage; current ratio; acid test ratio; and
total indebtedness, inter alia . The data and discussion in Act 338 on these financial indicators also
appear in the Technical Report.  A summary of the data from Act 338 and the Technical Report on
financial indicators is set forth below:
Accounting Data
Total enterprises Exclusively footwear mfg.
1991 1995 1991 1995
Gross margin/sales
  mean
  median32%
30%27%
26%48%
48%27%
26%
Operating profit (loss) sales
  mean
  median14%
12%4%
6%26%
26%10%
10%
Net margin/sales
  mean
  median15%
13%1%
4%24%
24%6%
6%
Net margin/assets
  mean
  median18%
13%3%
4%33%
33%13%
13%
Net margin/equity
  mean
  median27%
25%2%
6%57%
57%23%
23%
Average cost of commercial
and financial debt
  mean
  median9% (1993)
8% (1993)14%
12%4% (1993)
5% (1993)6%
8%
Interest coverage
(times interest earned)
  mean
  median3.92 (1993)
4.02 (1993)3.10
0.684.32 (1993)
4.32 (1993)3.64
3.64
Current ratio
  mean
  median727%
190%178%
183%190%
190%225%
250%
Acid test ratio
  mean  median446%
 95%107%
 89%118%
118%141%
129%
Total indebtedness
  mean
  median70%
74%136%
80%74%
74%91%
72%WT/DS121/R
Page 180
Sales/Breakeven Point for Footwear Operations of Multi-Product Firms
(questionnaire data)
1991 19.80%
1992 33.70%
1993 6.57%
1994 8.42%
1995 -34.16%
1996 -24.51%
8.189  Argentina indicates that the data on various profit margins (gross profit, operating profit and
net profit) were taken from the accounting statements of six large and six medium-sized companies
responding to questionnaires.  Four of the medium-s ized companies produced only footwear, and their
accounting data were broken out separately.  In response to a question from the Panel at the secondmeeting, Argentina indicated orally, with resp ect to the responding companies producing other
products along with footwear (i.e., the “multi-pr oduct” companies), that footwear accounted for at
least 70 percent of each of those companies' total operations. Argentina also indicates that it gathered
through questionnaires financial data specifically on the footwear operations of ten responding
companies,  from which it calculated a "break-even poi nt", that is, the "point at which average income
on sales covers the variable costs of the pairs sold and the fixed costs of the pairs produced."
8.190  We note that the profit-and-loss data above show that the operating profit of the footwear-
only enterprises declined from 26 percent to 10 percent of sales between 1991 and 1995, while the net
profit of these companies, declined from 24 percent to 6 percent.  We also note that both groups of
companies remained profitable at the end of the investigation period.  By contrast, the breakevenanalysis for footwear operations shows that sale s revenue was 34.2 percent below the breakeven point
in 1995 and 24.5 percent below breakeven in 1996, down from 19.8 percent above breakeven in 1991.
In response to a Panel question regarding the substantial differences between these two sets of data,
Argentina responded in part that both data series, in spite of differences in how they were calculated,
show negative trends.
(vi) Employment
8.191  The European Communities argues that the data on employment show relative stability,
contrary to Argentina's characterisation that employment declined over the period of investigation.  In
support of this argument, the European Communitie s notes Act 338's reference to a five percent
decline in employment between 1991 and 1995 base d on questionnaires; the European Communities
refers as well to employment data contained in the document from the Centro de Estudios Para la
Produccion
537.
8.192  Argentina states that Act 338, on the basis of questionnaire responses, indicates a 5 percent
decline in employment between 1991 and 1995.  Act 338 also indicates that the petitioner, CIC,
argued that employment in the footwear indu stry had declined from 42,317 to 27,896 between 1991
and 1995, or by 34 per cent.  The questionnaire data set forth in Act 338 are show in the table below.
                                                     
537 Exhibit EC-29WT/DS121/R
Page 181
Total Number of Employees of Responding Companies
(questionnaire data)
Operations
Related to footwear
productionTotal
1991 10,797 13,995
1992 11,493 15,338
1993 11,258 14,863
1994 11,040 14,468
1995 10,237 13,160
1996 10,098 12,818
1991-1995 -5% -5%
8.193  The panel asked Argentina where in the record of the investigation it had discussed and
reconciled the very different levels and trends in the data from the CIC and the questionnaireresponses.  Argentina replied that the questionnaires had provided a "representative sample" of
enterprises, which had "confirmed the downward trend in employment", a trend that also was
confirmed by the Final Report of the Under Secretary of Foreign Trade
538 which showed a 21 percent
decline based on information from the Industrial Development Institute of the Argentine Industrial
Union. Furthermore, although Act 338 indicates that the questionnaires showed a 5 per cent decline in
employment, Argentina stated in answer to a Panel question that the questionnaire data show a 13 per
cent decline.  At the second meeting of the Panel, Argentina indicated that the 13 percent decline wasthe decline in employment for firms that reported data for both 1991 and 1995.  The five percent
decline represented the decline in employment for all firms reporting in 1991 and all firms reporting
in 1995, whether or not those individual firms reported data in both years.  Argentina accounts for the
difference by indicating that some new firms en tered the footwear industry between 1991 and 1995.
In Argentina’s view, the 13 percent decline is the more representative figure, because it comes from aconsistent sample of companies.
(vii) Other injury indicators considered
a. Stocks (inventories)
8.194  The data collected in the questionnaires are presented separately for the five product
segments. The data show increases in inventories between 1991 and 1995 and 1996 for all productlines except women's shoes (which is a very small part of the total). The reasons for the inventory
build-up are presented separately, and are reviewed in the Technical Report firm by firm.  Most of the
firms indicate that an increase in imports was the cause.  A footnote to this section of the report
indicates that the sample of companies responding varied considerably from year to year, rendering
non-representative a comparison of data for different years.
8.195  The European Communities makes no specific argument with respect to this factor.
b. Costs
8.196  Argentina indicates that on average, producers responding to the questionnaire reported
increased costs over the period (a mean increase of 17 per cent and a median increase of 12 percent).
A variety of domestic and imported input materials whose costs had increased are identified in Act338.
                                                     
538 Exhibit ARG-5.WT/DS121/R
Page 182
8.197  The European Communities makes no specific argument with respect to this factor.
c. Domestic prices
8.198  In Act 338 Argentina noted wholesale and retail price index data published in INDEC, which
in general show increases between 1991 and 1995.  Ar gentina attributed these increases to increased
costs and to the change in product mix, noting that indices have difficulty reflecting product mix
changes, and thus must be used with caution.  There does not appear to be any other data specificallyregarding domestic producers’ prices in Argentina’s reports concerning the investigation.
8.199  The European Communities argues that domestic price is often one of the more significant
indicators to establish whether a given sector has suffered damage as a consequence of imports.
According to the European Communities, the offici al statistics cited in Act 338 regarding domestic
prices show no reduction in price between 1991 and 1995, and show an increase between 1991 and
1996.  Despite these trends, the European Communities maintains, Argentina found it necessary to
impose safeguard measures.
d. Investment
8.200  Significant levels of investment were reported during the period investigated, although on a
year-to-year basis they showed a somewhat declinin g trend.  Act 338 indicates that in the early part of
the period, investment was in new machines, then subsequently in marks and plants; and that the CIC
stated in the petition that the investment ha d been to improve competitiveness through new
technology, closing inefficient plants and developing new product lines.
8.201  The European Communities argues that Argentina in Act 338 notes the industry's substantive
efforts to improve productivity, and specifically indicates that 168 million pesos were invested during
1991-1995, with a further 17 million pesos in 1996.  For the European Commun ities, these positive
statements hardly support an impression of an industry which suffers "significant overall impairment",but on the contrary an optimistic industry.
8.202  Argentina disagrees with the European Communities that the investments made in the sector
were an indicator of good health.  According to Argentina, the change in consumer patterns made it
necessary to change the domestic product mix in order to adapt to the new conditions, and this called
for investments, particularly in machinery, equipment and tooling, both domestic and imported, thatwere independent from the economic results and represented the only way of remaining in the market.
e. Exports
8.203  The following data on exports (from questionnaire responses from medium and large
companies; and compiled by CNCE from official statistics from INDEC) were compiled during the
investigation:WT/DS121/R
Page 183
Exports
(in thousands of pairs)
Own production (Questionnaire data) INDEC Data
Total Mercosur Other Total
1991 199 124 75 N/A
1992 1,461 730 731 2,670
1993 2,158 1,592 567 3,470
1994 2,472 1,713 758 3,040
1995 2,913 2,360 553 4,510
1996 3,148 2,791 358 3,240
Act 338 emphasises specifically the growth in exports to Mercosur countries, and notes the fluctuating
trend in exports to other destinations.  Act 338 draws no conclusion about exports.
8.204  The European Communities makes no specific arguments regarding Argentina's exports of
footwear.
(viii) Evaluation by the Panel
8.205  Articles 4.2(a) and (b), and 4.2(c) which includes by cross-reference Article 3, respectively
set forth the Agreement’s requirements concerning the investigation regarding serious injury and
concerning the report(s) containing the investigation's results. Article 4.2(a) requires that during the
investigation, the competent authority shall “evaluate all relevant factors of an objective and
quantifiable nature”. It appears that to satisfy this requirement, the authority should first conduct an
appraisal of the data, including confirmation or verification of their accuracy and representativeness.
Second, Article 4.2(a) and (b) require full analysis and evaluation of those data, and 4.2(c) includingby cross-reference Article 3, requires written presentation of a detailed analysis of the case, including
the findings and reasoned conclusions reached on all pertinent issues of fact and law, and a
demonstration of the relevance of the factors examined.
8.206  In the light of these requirements, we must consider, first, whether all injury factors listed in
the Agreement were considered by Argentina, as the text of Article 4.2(a) of the Agreement (“allrelevant factors….including …changes in the level of sales, production, productivity, capacity
utilisation, profits and losses, and employment”) is unambiguous that at a minimum each of the
factors listed, in addition to all other factors that are “relevant”, must be considered (see paras. 8.122
8.124).
8.207  Second, in accordance with Articles 4.2(c)/3 and 4.2(a) and (b), we must consider whether
Argentina’s findings and conclusions, as set forth in the reports containing the results of the
investigation, are supported by the evidence, i.e., whether the explanations and discussion in the
reports convincingly demonstrate the link between the investigation’s findings and conclusions and
the evidence relied upon.
a. Consideration in the investigation of th e injury factors listed in the Agreement
8.208   Turning to the first question, we note as discussed above that the analysis by the CNCE
includes consideration of the following factors:  sales, production, profits and losses and employment.
8.209  Regarding capacity utilisation , in the investigation the data on installed capacity appear to
have been collected and discussed only on a disaggregated basis by market segment; the discussion in
the texts of Act 338 and the Technical Report also refers to changes in installed capacity (but notWT/DS121/R
Page 184
capacity utilisation) on a firm-by-firm basis for ten firms responding to the questionnaire.  The only
reference to capacity utilisation in Act 338 and the Technical Report is to a representation by the
petitioners.  There is no indication in those texts that this representation was either confirmed or relied
upon by CNCE, nor is there any discussion or explanat ion of how the information for individual firms
was related to the situation of the industry as a whole.  In addition, Argentina’s submissions in this
dispute, which present calculations of capacity utilisation based on questionnaire responses, showdifferent rates of capacity utilisation from those submitted by the petitioners quoted in Act 338 and
the Technical Report, confirming that the CNCE did not rely on the petitioners’ representations
regarding capacity utilisation.
8.210  Thus, although Argentina’s submissions in this dispute contain data and discussion of this
factor, there is no evidence that it was fully considered in the injury investigation.  To the contrary, it
appears that this analysis was conducted specifically for this dispute settlement proceeding.
8.211  The situation with respect to productivity  is similar. As noted above, while the Final Report of
the Under Secretary of Foreign Trade
539 contains an index of changes in the productivity of the
Argentine footwear industry from the Institute of Industrial Development of the Argentine Industrial
Union, there is no analysis of changes in productivity either in this document or in the text of Act 338
or the Technical Report.  Moreover, given that this document postdates the completion of the CNCE’s
investigation and the forwarding of its conclusions, it is clear that the statistical information containedtherein was not considered by the CNCE in reaching its finding of serious injury.  Further, regarding
the representation by the petitioners that productivity increased, there is no indication in the Technical
Report that this was confirmed or relied upon by the CNCE.   In fact, Argentina’s answer to a Panel
question indicates that the employment and production data show no increase in productivity.
b. Whether the findings and conclusions of the investigation are supported by the evidence
8.212  Moving to the second question, i.e., whether the findings and conclusions of the investigation
are supported by the evidence, we find a number of aspects of the investigation to be problematic. Our
primary concerns are (1) the treatment of the data for 1996; (2) the almost exclusive reliance on end-
point-to-end-point analysis; and (3) the lack of apparent support in the evidence considered andreasoning applied for various of the conclusions related to injury, in part due to unreconciled
differences in some of the data series relied upon.
i. Treatment of 1996 data
8.213  Regarding the treatment of the 1996 data, we note that although these data were gathered
during the normal course of the investigation
540, in most instances Argentina’s evaluation and
                                                     
539 Exhibit ARG-5.
540 As noted above, the questionnaires sent by the CNCE requested data on the period 1991-1996.  In
its interim review comments, Argentina stated, particularly regarding the financial data, that the 1996 data wereincomplete and therefore would skew any trend analysis.  A review of the Technical Report shows that data for1996 are contained in essentially all of the tables included in the Technical Report concerning the situation of
the Argentine industry; and the Technical Report does not indicate any problem of incompleteness of the 1996
data or lack of comparability with the data for the earlier years.  Although, as Argentina points out, and asexplained below, the tables on the financial data show that, for certain indicators, the sample size in 1996 wassmaller than in some of the earlier years, these data are included in all of the graphs on financial ratios, with nodisclaimers as to their reliability or  comparability, and some of the 1996 data also are referred to in the
Technical Report’s discussions, again with no disclaimers.  The details of the periods covered by the data in the
Technical Report are as follows:
Body of Technical Report (folios 5353-5523):  Except where specifically indicated otherwise, all tables
and graphs contain 1996 data, with no indication of any issues of incompleteness or lack of comparability --Tables 1-5 – undated company-specific qualitative information including on the conduct of the investigation, asWT/DS121/R
Page 185
conclusions regarding the different injury factors were based only on data through 1995.  We recall
here Article 4.2(a)’s requirement that “all relevant factors” must be considered.  In our view, in the
context of a safeguard investigation, the most relevant  information is certainly the most recent .  We
must emphasise here that we do not find that an investigating authority must continuously update the
data in its investigation.  Such a requirement would be unnecessarily burdensome and difficult to
administer.  Rather we believe that in requiring consideration of all “relevant” information, theAgreement requires consideration of the most recent information available at the time the
investigation is conducted. Where, as here, such data are available, we believe that they must be fully
taken into consideration in the investigation; in the absence of adequate explanation by the
investigating authority, they cannot simply be disregarded.
8.214  In this regard, while of course the data for 1995 are highly relevant in the context of
Argentina’s investigation, the data for 1996 are as well.  We note in particular that the data for 1996
for some injury factors -- notably estimated data on production and sales (or production for thedomestic market) -- show upturns from the 1995 levels.  We do not consider that such upturns would
necessarily foreclose the possibility that serious injury could be found.  Nevertheless, their existence
certainly would put an extra demand on the invest igating authority to explain why, despite the
apparent improvement, serious injury was still pr esent or imminent.  Argentina, while acknowledging
                                                                                                                                                                    
well as undated information on tariff classification and on the DIEMs; Tables 6 and 7 (and accompanying
graphs) – comparison of value added in footwear sector with other economic indicators; Tables 8-11 -- financial
data for 1991 and 1995 only (extracted from 1991-1996 data series contained in Annex 4 – see below); Table 12– breakeven analysis (table contains 1996 data, which text refers to and uses, with no indication of any lack ofcomparability with earlier years’ data); Tables 13-15 – import and export and trade balance data; Tables 16-18 –imports by country of origin; Table 19 – ranking of importers; Tables 20a-c and 21a-c – apparent consumption
and import market share.
 Annex 2 (folios 5578-5584)  – qualitative information from small enterprises covering the period
1991-1996, inclusive.
Annex 3 (folios 5585-5646) – questionnaire data from medium and large enterprises.  Except where
specifically noted, all tables and graphs contain 1996 data:  Tables 1-11 – undated qualitative information on
plant locations, types of shoes produced, etc.; Tables 12-15 – own production; Table 16 – contractor and joint
venture production; Table 18 – total production; Tables 18.I-III, 19.I-III, 20.I-III – domestic sales of own
production; Table 21 – undated qualitative information on firms’ exporting activity; Tables 22-30 and 31.a-c –exports of own production; Tables 32-34 – inventories (notes indicate variability in sample size over the period,not affecting 1996 data); Tables 35a-b, 36a-b, 37a-b – purchases of inputs; Tables 38-40 set forth 1991-1995end-point-to-end-point percent changes in costs and prices and in use of different input materials;  Tables 41-43
– installed capacity (notes indicate variability in sample  size over the period, not affecting 1996 data); Tables
44a-b – investment; Tables 45-47 – employment (notes indicate variability in sample size over the period, not
affecting 1996 data); Tables 48-50 – total salaries (notes  indicate variability in sample size over the period, not
affecting 1996 data); Tables 51-52 – undated qualitative information on materials and technology of footwear
imported by producers.
Annex 4 (folios 5647-5716) – equity and financial situation of medium and large enterprises:  All
tables and charts contain 1996 data.  The tables indicate the number of firms responding in each year, and for
most indicators show a smaller number of responses in 1996 than in most other years surveyed.  Neither the
methodological notes in Annex 4 (folio 5648), nor the text in the body of the Technical Report concerning thefinancial data (folios 5465-5474) as noted above, makes any reference to a lack of comparability of the 1996financial data with data for the other years. The graphs in Annex 4 also all cover the period 1991-1996, againwith no disclaimer concerning the 1996 data.
Annex 5 (folios 5717-5749) – INDEC data on exports and imports:   All tables and charts contain 1996
data.
Note that the question of 1996 data is not relevant for Annex 1 (folios 5524–5577), which concerns the
international footwear industry, i.e., in countries other th an Argentina, and which draws its statistical data from a
study entitled “World Footwear Markets 1997” conducted by SATRA, a British footwear technology centre (seefolio 5408, footnote 23).  Nor is this issue relevant for Annex 6 (folios 5750-5823), which summarises the
parties’ arguments in the investigation and contains no statistical data.WT/DS121/R
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that such upturns took place, has not provided the necessary explanation and context to demonstrate
that upturns in 1996 would not affect the conclusions reached on the basis of 1991-1995 data.
8.215  In this context, we note Argentina’s argument that its domestic safeguard legislation required
the period of investigation to be 1991-1995 (i.e., the five full calendar years preceding the date on
which the petition was filed).  As a factual matter, the only reference that we find in the law541 to any
time period is in the section outlining the requirements for safeguard petitions , which specifies that
any petition  for a safeguard measure must contain import statistics  covering the most recent five full
calendar years prior to the submission of the petition.  (The law is silent regarding the period to be
covered by the data for the remaining injury factors to  be included in a petition.)  While a basis of five
years of historical data in a petition clearly can be useful to an authority in deciding whether to initiate
an investigation, this certainly does not and should not preclude the analysis of additional and more
recent available information in the investigation.
8.216  Regarding the investigation’s almost exclusive reliance on end-point-to-end-point
comparisons in its analysis of the changes in the situation of the industry, we have the same concerns
as were noted above with regard to the “increased imports” analysis.  Here we note in particular that if
intervening trends are not systematically consider ed and factored into the analysis, the competent
authorities are not fulfilling Article 4.2(a)'s requirement to analyse "all relevant factors", and in
addition, the situation of the domestic industry is not ascertained in full.  For example, the situation ofan industry whose production drops drastically in on e year, but then recovers steadily thereafter,
although to a level still somewhat below the starting level, arguably would be quite different from the
situation of an industry whose production drops cont inuously over an extende d period.  An end-point-
to-end-point analysis might be quite similar in th e two cases, whereas consideration of the year-to-
year changes and trends might lead to entirely opposite conclusions.
8.217  We believe that consideration of changes over the course of the investigation period in the
various injury factors is indispensable for determining whether an industry is seriously injured or
imminently threatened with serious injury.  An end-point-to-end-poi nt comparison, without
consideration of intervening trends, is very unlikely to provide a full evaluation of all relevant factors
as required
542.
ii. Differences in data
8.218  We have certain concerns over how the data were analysed in the investigation.  While we
acknowledge the challenging task of gathering comp rehensive information due to the scope of the
product definition, in a number of cases, the data relied on show discrepancies which were not
explained or reconciled in Act 338 or the Technical Report, and in addition no explanations wereoffered regarding why one set of data was used in preference to another.  In the absence of such
explanations, the findings and conclusions reached on the basis of such data are not "reasoned" in the
sense of Article  3.1/4.2(c), and therefore are not supported by the evidence.
8.219  Regarding the lack of explanation over the derivation and representativeness of, and the
differences between, the multiple data series on some of the factors, we note that for a number of
factors, the CNCE developed multiple data series.  Some of these were based on questionnaire
responses compiled by the CNCE, some were esti mated by the CNCE from macroeconomic, census
or other published data, and some represented different methods for calculating similar indicators (for
example, in the case of employment and profit and loss data).  We recognise and appreciate the
CNCE’s efforts to conduct a thorough investigation and to consider as much data in as many forms as
possible.  What we find problematic, however, is that the CNCE’s findings fail to make clear in some
                                                     
541 WTO document G/SG/N/1/ARG/3, submitted as Exhibit EC-10.
542 We note that our concerns over the near-exclusive use of an end-point-to-end-point analysis are
heightened by the treatment of 1996 data  as set forth in the preceding section.WT/DS121/R
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cases the basis on which the different data series were developed, which ones are the most
representative and how the sometimes significant differences between them can be reconciled.
8.220  For example, on employment, Act 338 refers to a representation by the petitioners that
employment declined by 34 percent between 1991 and 1995, but also indicates that questionnaire
results reflected a 5 percent decline.  In response to a Panel question, Argentina stated that the
questionnaire data showed a 13 percent decline, and referred as well to employment data from theArgentine Industrial Union showing a 21 percent decline.  Upon questioning by the Panel as to how
these different data could be reconciled, Argentina replied that all of the data showed declines, and
only then provided the explanation noted above as to the different compositions of the questionnaire
responses included in the calculations of the 5 percent and 13 percent declines.
8.221  We must take issue with Argentina's failure to explain or to put into context these figures.  In
determining whether serious injury exists or is threatened, we believe that the size of a decline is
indeed important, and that there must be sufficient explanation (as required under Article 4.2(c)) ofthe "relevance" of the decline.  That is, there should be a full explanation of why one set of data is
more representative and reliable than the others, and why, for example, an employment decline of a
given percentage supports a finding of serious injury or threat to the particular industry being
considered.
8.222  The data presented on production and sales (or production for the domestic market) present
similar issues.  As noted, the CNCE gathered data on these injury factors through questionnaire
responses, and then used these data in some, but not all, contexts.  Rather, the CNCE used as well its
own estimates of total data for the industry as a whole.  Although the questionnaire data accounted for
only 40 percent or less of the estimates for the industry as a whole, there is no systematic explanation
reconciling these estimates to the questionnaire responses, particularly where their trends diverge.Nor is there an explanation in Act 338 or the Technical Report of why the questionnaire data are used
in one context and the estimated data in another.  In response to a question from the Panel on this
point, Argentina stated that the estimated data we re used to calculate apparent consumption and
import market share. We do not find this to provide sufficient explanation or reconciliation of the
different data sets.  First, it was provided only in response to a Panel question, and did not form partof the CNCE's analysis and report on the investigation.  Second, this response does not reflect the fact
that in Act 338 it is the estimated data that are used in the discussion of changes in production.
Moreover, regarding the questionnaire data on sales, we recall the unexplained discrepancies between
the percentage changes referred to in the text of Act 338 and those that are calculated from the data
tables on which the text relies.  Such discrepanc ies further call into question the conclusions drawn
from the data.
8.223  We note that similar issues surround the data on various financial indicators. Argentina has
explained that the data on gross profitability, operating profitability and net profitability were derived
from the accounting statements of the reporting firms, and that four of these companies produced only
footwear while the other eight produced other products as well.  Also according to Argentina,
footwear accounted for at least 70 percent of the multi-product firms' operations.  While the data from
accounting statements show that for both sets of companies, gross profits, operating profits and net
profits all declined as a percentage of sales between 1991 and 1995, we note that footwear-only
companies performed better than the multi-product firms during this period.  In particular, the 1995
profitability ratios were higher for the footwear-only companies than for the multi-product firms.  We
also note that for both groups of companies, all measures of profitability remained positive in 1995.
8.224  The "break-even" analysis performed by Argentina on the basis of questionnaire data
exclusively for footwear operations of multi-product firms shows that sales fell short of the break-
even point by approximately 34 percent in 1995, whereas in 1991 sales had exceeded break-even by
20 percent. We note that footwear accounted for the large majority of the operations of the firmsWT/DS121/R
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providing financial data, and that breakeven analysis is another method for calculating net profit543;
and although there were downward trends in both se ts of data, the significant divergence between the
results of the net profit analysis based on accounting data for all firms and the results of the breakeven
analysis for the subset of multi-product firms raises questions.
iii. Conclusions unsupported by data
8.225  Our concern regarding conclusions unsupported by reasoning and/or statistical evidence is
partly based on the problems outlined above.  That is, where several sets of data are identified, but
their differences are not explained or reconciled (as is the case, for example, with employment and
profit and loss data), the conclusion drawn is not in our view properly supported by the evidence.
More generally, it is not sufficient to only present data (whether in one or several series), and then
state a conclusion.  Rather, there is a need for a reasoned explanation linking  the data to the
conclusion.
8.226  We note this problem inter alia in connection with production.  Act 338 and the Technical
Report indicate that the data on production estimated for the industry as a whole support a finding of
serious injury, noting that production volume declined between 1991 and 1995.  These documents
also point out, however, that the value of production increased.  The explanation provided for the
increase in value is that domestic producers had chosen to shift toward production of higher-valuedfootwear.  Similarly, Act 338's references to domestic producers' prices indicate an increasing price
trend, which Act 338 attributes to the same shift in product mix.  While Act 338's implication clearly
is that such a shift is evidence of serious injury, Argentina does not explain this counterintuitive
proposition.  Thus, while it is not impossible that such a shift might occur in the context of serious
injury, if so it requires a detailed explanation based on objective factual evidence.  We find neithersuch an explanation nor such evidence in the materials cited by Argentina in connection with the
analysis of production in the investigation.
8.227  Another example of this problem is with respect to the data on sales.  As discussed, although
during the panel proceedings Argentina identified to the Panel certain data in the record as estimated
sales data for the industry as a whole, at the inte rim review stage Argentina criticised the Panel for
having relied on these data as such.  Whether these are sales data in the strict sense or data on
production destined for the domestic market, we note that they were used by Argentina in its
investigation at a minimum as a proxy for industry-wide sales (i.e., as the domestic industry’s
contribution to domestic consumption), and they are more than twice the level of the sales data from
the questionnaires, and show different trends, includin g in 1996.  If as Argentina argued at the interim
review stage, these data are simply not comparable to the questionnaire data on sales, then it is not
clear on what basis the representativeness of the questionnaire data could have been judged during the
investigation.  This calls into the question the reliability of the CNCE’s conclusions as to sales trends
for the industry as a whole.  We note in this re gard in addition that Argentina’s criticism of the
Panel’s use of the industry-wide data refers in part to the fact that as production data, they would
include inventories.  While this may be the case, we note that there appear to be no consistent data in
the record regarding inventories which could have been used by Argentina to adjust the data on
production destined for the domestic market.  In fact, the Technical Report states concerning the data
on inventories that the sample of responding comp anies varied considerably from year to year,
rendering non-representative a comparison of inventory data for different years
544.
                                                     
543 The breakeven point is the point at which net profit exactly equals zero, i.e., where sales revenues
exactly cover fixed and variable costs.  See, e.g., C. Horngren and G. Sundem, Introduction to Management
Accounting, 7th ed., Prentice-Hall, 1987, p. 30-43.
544 Exhibit ARG-3, folio 5453, footnote 36.WT/DS121/R
Page 189
(d) Causation
8.228  We consider next Argentina’s finding that increased imports had caused serious injury to the
domestic industry.  In keeping with our standard of review, we will base our judgement on whether
this finding was adequately explained and supported by the evidence of record in the investigation.  In
this regard, we recall the relevant provisions of the Safeguards Agreement, namely subparagraphs (a -
c) of Article 4.2:
"2.(a) In the investigation to determine whether increased imports have caused or
are threatening to cause serious injury to a domestic industry under the terms of the
Agreement, the competent authorities shall evaluate all relevant factors of an
objective and quantifiable nature having a bearing on the situation of that industry, in
particular, the rate and amount of the increase in imports of the product concerned in
absolute and relative terms, the share of the domestic market taken by increased
imports, changes in the level of sales production, productivity, capacity utilisation,profits and losses and employment.
(b) The determination referred to in subparagraph (a) shall not be made unless
this investigation demonstrates, on the basis of objective evidence, the existence of
the causal link between increased imports of the product concerned and serious injury
or threat thereof.  When factors other than increased imports are causing injury to thedomestic industry at the same time, such injury shall not be attributed to increased
imports.
(c) The competent authorities shall publish 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."
8.229  Applying our standard of review, we will consider whether Argentina's causation analysis
meets these requirements on the basis of (i) whether an upward trend in imports coincides with
downward trends in the injury factors, and if not,  whether a reasoned explanation is provided as to
why nevertheless the data show causation; (ii) whether the conditions of competition in the Argentine
footwear market between imported and domestic footwear as analysed demonstrate, on the basis ofobjective evidence, a causal link of the imports to any injury; and (iii) whether other relevant factors
have been analysed and whether it is established that injury caused by factors other than imports has
not been attributed to imports.
(i) Summary of parties' arguments
8.230  The European Communities argues that Argentina’s analysis of causation is inadequate.  The
European Communities cites a number of passages from the notification of the decision to apply a
safeguard measure (which are repeated in Act 338’s findings on imports and causation), describing
the changes in imports levels and market share between 1991 and 1995, and the conclusion that
imports increased during that period.  The European Communities cites additional passages from the
notification of the decision to apply a safeguard measur e, (which also are repeated in Act 338) on “the
effects of imports on domestic production”, in particular the conclusion that domestic production
declined between 1991 and 1995, and was “replaced by imports, essentially cheap imports”.  In theEC’s view, these passages constitute Argentina’s analysis of causation.
8.231  Argentina also indicates that the analysis and basis for its conclusion that there was a causal
link is contained in the same passages cited by the European Communities from the notification of the
decision to apply a safeguard measure/Act 338.  In this regard, Argentina argues that it “correlated”
the increase in imports with increases in import market share, declines in domestic production andWT/DS121/R
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employment, increases in domestic production costs, declines in profitability, etc.  In addition, in
response to a question from the Panel, Argentina states that the causal relationship “is developed
throughout the 10,000 pages making up the file”, and “arises logically” from the interaction between
“the rapid growth of imports and the deteriorating employment situation in the footwear industry
which led to the replacement of domestic production by imports”.  In other words, Argentina argues,
the causal relationship “emerges from the analysis of each one of the relevant parts of the file” of theinvestigation.  In addition Argentina argues that the CNCE determined that the contribution of the
footwear industry to GDP fell between 1992 and 1993, showing a relative deterioration in that
industry compared with production in the economy as a whole, and that this deterioration was
correlated with the faster growth of footwear imports than total imports between 1991 and 1992
545.
8.232  The passages from the notification/Act 338 cited by both parties as the relevant ones
concerning imports are as follows:
"(a) Imports:  the increase in imports, both in absolute terms and relative to domestic
production, is of the kind covered by the Agreement on Safeguards.  There is an
increase such as to cause significant impairment to the domestic industry.  This
conclusion is based on the following facts:
- The c.i.f. value of imports increased by 157 per cent between 1991 and 1995,
and by 163 per cent between 1991 and 1996 (Section VII.1).
- The quantity of pairs imported increased by 70 per cent between 1991 and
1995, and by 52 per cent between 1991 and 1996 (Section VII.1).
- The domestic market share of imports also increased substantially.  For all
types of footwear, the share of imports in apparent consumption, measured at
current prices (pesos), increased from 10 per cent in 1991 to 27 per cent in1995, while measured in numbers of pairs it rose from 12 per cent in 1991 to
21 per cent in 1995, reaching a peak of  25 per cent in 1997 (Section VIII.1
and VIII.2).
- The growth of imports was greater in the performance sports shoe segment
than for other types of footwear (Section VIII.2).
- Owing to their lower price, imports exerted strong pressure on the industry,
significantly affecting results (Section XIII.1).
- The international picture shows a strong growth of imports of footwear and
major restructuring processes, together with many cases of government action
to restrict such imports (Section IX).
Thus, an absolute growth of imports between 1991 and 1995 has been found to exist.
Furthermore, this increase has also taken place relative to domestic production and the domestic
market."
8.233  The passages from the notification/Act 338 cited by both parties as the relevant ones
concerning the effects of imports are the following:
                                                     
545 Exhibit ARG-3, Tables 6 and 7 (folios 5431 and 5432), Charts 7 and 8 (folios 5434 and 5435), and
Exhibit EC-16 (Act 338), Table 1.WT/DS121/R
Page 191
"(b) Effects of imports on domestic production:  increased imports are causing serious
injury to the domestic industry and there is a further threat of injury in the absence of
safeguard measures, according to the factual findings of the investigation:
- During the period under investigation, the volume of output declined
both overall and for the domestic market.  The decline was greaterfor the sample of enterprises survey ed than for estimated total output
based on macroeconomic statistics (Section VI.1).
- The performance of production measured at current prices was different from
that of production in physical terms, showing a growth of 7.7 per cent
between 1991 and 1995.  This is accounted for by the fact that the industry
shifted production to higher unit-value products in response to demand factors
and the need to compete in the international footwear trade within theconstraints of the Argentine rules of the game (Section VI.1).
- This decline in output was replaced by imports, essentially cheap imports, as
the investigation shows a growth in apparent consumption, both in current
pesos and in pairs, with the sole exception of the latter estimate for the year
1995, which showed a significant drop due to the economic recession (SectionXIII.1).
- Production for the domestic market declined proportionally more than total
output, as exports increased significantly over the period 1991-1995 (Section
VI.2 and VI.3).
- Although the effect of the special minimum import duties (DIEMs) began in
1994 and increased between 1995 and 1996, the industry's condition has
deteriorated, with a demonstrated reduction in employment, rising inventories
and worsening of the economic and financial situation of companies (Section
VI)."
546
8.234  In the view of the European Communities, most of the explanations of causal link contained in
the above passages are in reality simple juxtapositions of statements about increased imports and
injury, and thus are not sufficient to satisfy the requirements of Article 4.2.  The European
Communities recalls the statement of the Panel in  Brazil – Milk Powder  that it was not sufficient for
an authority to refer to the evidence it considered and then state its conclusion, but rather that “[i]t was
incumbent upon the investigating authorities to prov ide a reasoned opinion explaining how such facts
and arguments had led to their finding”.547
8.235  The European Communities further argues that only in the statements in Act 338 concerning
the prices of imports is there any reference to the relationship between the situation of the domestic
industry and the imports, but in the EC’s view, these statements are unsupported by any evidence
because no analysis of the price of imports was conducted during the investigation.  The statements
referred to by the European Communities in this regard are:
                                                     
546 See Exhibit EC-17, document  G/SG/N/10/ARG/1, G/SG/N/11/ARG/1 of 15 September 1997, pp. 2-
3. The same reasons are also given in the injury notification of 25 July 1997, Exhibit EC-16, documentG/SG/N/8/ARG/1, pp. 37 and 38. See also Exhibit EC-20, document G/SG/N/10/ARG/1/Suppl. 1,G/SG/N/11/ARG/1, Suppl. 1, p. 2.
547 Panel Report on Brazil – Imposition of Provisional and  Definitive Countervailing Duties on Milk
Powder and Certain Types of Milk from the EEC , adopted on 28 April 1994, BISD 41S/467, 550, para. 286.WT/DS121/R
Page 192
“Owing to their lower price, imports exerted strong pressure on the industry,
significantly affecting results”; and
“This decline in output was replaced by imports, essentially cheap imports”.
The European Communities submits that given the absence of an analysis of the prices of imports,
there is no basis to even start to examine whether import prices might have “‘exerted pressure’” on the
domestic industry.
8.236  Argentina maintains that it did conduct a price analysis in its investigation, but notes that
price indices and any sort of price series for footwear are not easily constructed and tend to be
unreliable given changes in styles and product mix over time.  Argentina also, in answer to a Panel
question concerning price analysis in the investigation, refers to “the growing share” of imports in the
market, and states that this had an impact on sales prices of domestic products, which according to
Argentina is reflected in the shortfall of revenue below the break-even point.  In answer to the samePanel question, Argentina also states that the CNCE “observed a decline in the price/cost ratio,
indicating that the prices of outside competitors were exerting pressure on domestic prices”.
(ii) Coincidence of trends
8.237  In making our assessment of the causation analysis and finding, we note in the first instance
that Article 4.2(a) requires the authority to consider the “rate" (i.e., direction and speed) and "amount”of the increase in imports and the share of the market taken by imports, as well as the “changes” in the
injury factors (sales, production, productivity, capacity utilisation, profits and losses, and
employment) in reaching a conclusion as to injury and causation.  As noted above we consider that
this language means that the trends  -- in both the injury factors and the imports -- matter as much as
their absolute levels.   In the particular context of a causation analysis, we also believe that thisprovision means that it is the relationship  between the movements in imports (volume and market
share) and the movements in injury factors that must be central to a causation analysis and
determination.
8.238  In practical terms, we believe therefore that this provision means that if causation is present,
an increase in imports normally should coincide w ith a decline in the relevant injury factors. While
such a coincidence by itself cannot prove  causation (because, inter alia , Article 3 requires an
explanation – i.e., “findings and reasoned conclusions”), its absence would create serious doubts as to
the existence of a causal link, and would require a very compelling analysis of why causation still is
present.
a. Market share of imports
8.239  We begin our assessment of the question of coincidence of trends by considering first the data
on the market share of imports.  Argentina maintains in Act 338 and its submissions (in part on the
basis of these data) that imports displaced domestic production.
8.240  The European Communities argues that the market share data do not support Argentina’s
determinations.  The European Communities notes th at Act 338 states both that the market share of
imports increased substantially, and that the market share of all footwear imports decreased in 1996.
The European Communities quotes Act 338 as stating that “’[t]he market share of imports increasedfrom 10 percent in 1991 to 20 percent in 1992, 26 percent in 1993, 27 percent in 1994 and 1995, and
23 percent in 1996’”.
8.241  Argentina calculates the market share of imports by first adding estimates of production for
the domestic market to imports to derive estimated apparent domestic consumption, then dividingWT/DS121/R
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imports by apparent consumption.  The market shares thus calculated, and referred to by Argentina in
this context in Act 338, are as follows:
Import Market Share
(in pairs) (in pesos)
1991 12% 10%
1992 18% 20%
1993 25% 26%
1994 23% 27%
1995 21% 27%
1996 16% 22%
As shown, the market share of imports, by volu me, increased on an end-point-to-end-point basis
between 1991 and 1995, and between 1991 and 1996, but decreased between 1992 and 1996.  The
market share by value, on an end-point-to-en d-point basis increased between 1991 and 1995, 1991
and 1996, and 1992 and 1996.
8.242  When examining the trends over the period, we note that the import market share by volume
and value largely track the data on the absolute volumes and values of imports. In particular, import
market share by volume decreased steadily between 1993 and 1996, during which period it was
reduced by one-third, from 25 per cent to 16 per cent.  A slightly different pattern is evident in the
data on market share by value: while the import market share by value in 1991 was lower than that by
volume (10 percent compared to 12 percent), beginning in 1992 this relationship was reversed.  Inaddition, while import market share by volume d eclined between 1993 and 1994 and further between
1994 and 1995, by value it increased slightly between 1993 and 1994, and remained constant through
1995.  The declines in market share by volume and value in 1996 were identical in absolute terms (5
percentage points), but the 1996 import market share in value terms (22 percent) was significantly
above that in volume terms (16 percent).
b. Situation in 1995
8.243  We note Argentina’s reliance, in both its report and its arguments before the Panel, on the
comparison of data for 1995 with that for 1991, both regarding imports and the situation of the
industry.  Thus, it appears that Argentina effectively bases its injury and causation analysis on the
relationship between imports and the situation of the domestic industry in 1995.  For the reasonsdiscussed above, we find such an end-point-to-end- point analysis to be insufficient.  Even on this
basis, however, we fail to see the expected coincidence of trends in imports and the four injury factors
that were fully analysed in the investigation (i.e., production, sales, employment, and profit-and-loss).
We note in particular that during 1995, production fell to its lowest level during the 1991-1995 period
relied on by Argentina
548; the volume and value of sales549 in 1995 declined sharply from their levels
during the preceding years (volume to its lowest level during the period); the data on employment also
show a decline in 1995 from their levels during the preceding years; and the data on profit-and-loss
and break-even also show a decline in 1995 from their 1991 levels550.  At the same time, however,
imports from all sources also dropped, continuing their multi-year decline and falling to their lowest
                                                     
548 Based on the data estimated by Argentina for the industry as a whole.
549 Based on the data (production destined for the domestic market) estimated by Argentina for the
industry as a whole, as well as on the data from questionnaire responses.
550 Moreover, as noted above, the financial data are equivocal, in that the profitability data show that
footwear-only companies outperformed multi-product companies, and in that the results of the break-evenanalysis for the subset of multi-product firms diverge significantly from the profit-and-loss data for total
operations of all firms.WT/DS121/R
Page 194
level of the period other than 1991.  In other words, these indicators of the health of the domestic
industry were declining when imports were declining.  This suggests that factors other than imports
were having an effect on the industry.
8.244  Theoretically it may be possible, even in the absence of coincidence in the most recent trends
in imports and injury factors, that a causal link exists.  Such a counterintuitive situation would
highlight the need for the authorities to investigat e the situation, and to convincingly explain such a
conclusion.
8.245  In this regard, we note that Argentina in several instances states that in spite of the decreases
in imports since 1993, imports remained high relative to their 1991 levels, and therefore continued to
cause injury to the domestic industry in spite of having declined.  For example, in Act 338, Argentina
states that:
"[a]lthough the minimum specific duties began to bite in 1994 and their effect
increased between 1995 and 1996, the industry's condition has continued todeteriorate…"
551
In its arguments before the Panel, Argentina states that:
“In spite of the effects of the DIEMs, which managed to keep imports below 1993
levels, the effects of imports continued to cause serious injury”; and
“The European Communities is mistaken in concluding that import levels no longer
caused injury following the application of the DIEMs.  The Commission simply
found that imports had decreased to a certain extent, but its complete analysis
confirms (paragraph 98)552 that the injury continued and that there was an additional
threat of injury in the absence of the DIEMs which were to be withdrawn”.
8.246  In our view, these statements do not provide the sort of detailed and reasoned explanation that
would be necessary to reconcile the consistently a nd significantly declining trend in imports with a
finding of current serious injury caused by increas ed imports.  Moreover, the latter two statements
were only made in the context of the Panel process, and are not found in the reports and other
documentation concerning the conclusions of the investigation.  We note as well the EC's argument
concerning the above quotes that they do not demonstrate the required causal link, but rather theopposite.  The European Communities states that the Agreement requires that increased imports cause
serious injury, and that it is impossible to conclude, while respecting the Agreement, that there was
serious injury caused by increased imports when in fact imports had decreased.  For the European
Communities, if it is true that there is injury, this simply proves that there must be some cause other
than increased imports.  We consider that there is no  convincing explanation of how, in spite of their
declining  trend, imports nevertheless were causing serious injury in 1995.
(iii) “Under such conditions”
8.247  We next address the EC’s claim regarding "under such conditions" in Article 2.1 of the
Agreement.  In the EC’s view, Argentina failed to meet its obligations under the Agreement by not
conducting a separate analysis related to this reference.  For the European Communities, the reference
to "under such conditions" in Article 2.1 refers especially (although not necessarily exclusively) to
                                                     
551 Exhibit EC-16, at 38.  In its interim review comments, Argentina stated that as of 1995, the market
share of imports was more than 20 per cent.
552 It is not clear to what the citation to “paragraph 98” in this passage refers.  Paragraph 98 of the
document in which this passage appears (Argentina’s first written submission), see descriptive part, para. 5.301refers not to the CNCE’s analysis of injury, but rather to tariff classification categories for footwear.WT/DS121/R
Page 195
price analysis.  The European Communities argues that it is through price that imports compete with
like or directly competitive domestic products, and that therefore a price analysis (i.e., a comparison
of imported to domestic prices) is required under the Agreement.  For the European Communities,
“under such conditions” thus constitutes a separa te analytical requirement from the injury and
causation analysis required under Article 4.2 (a) and (b).  That is, in the EC's view, there must be
affirmative findings of increased imports, injury, causation and imports “under such conditions” (i.e.,at such prices) before a safeguard measure is permitted.
8.248  Argentina responds that a price analysis is not legally required under the Agreement, as it is
not listed as one of the factors in Article 4.2(a).  For Argentina, the phrase “under such conditions”
connotes the characteristics of the imports (e.g., quantity, quality, composition, specific nature, end
use, degree of substitutability for domestic products, technology, consumer taste, influence of brand
names in marketing, and price), as well as the totality of the circumstances under which the increase
in imports has taken place.  In this respect, Argentina views the "rate and amount" of the increase inimports, and imports' share of the domestic market, as particularly relevant.  While Argentina
concedes that a price analysis may be relevant, and even necessary in a particular investigation, this
does not mean that it is per se legally required in every investigation.  In any case, Argentina argues,
the point is moot in the present dispute as Argentina did conduct a price analysis.
553
8.249  In our view, the phrase “under such conditions” does not constitute a specific legal
requirement for a price analysis, in the sense of an analysis separate and apart from the increased
import, injury and causation analyses provided for in Article 4.2.  We consider that Article 2.1 sets
forth the fundamental legal requirements (i.e., the conditions) for application of a safeguard measure,
and that Article 4.2 then further develops the operational aspects of these requirements.  We find no
textual support in the Safeguards Agreement for th e EC's argument that price analysis as such is
required.
8.250  We believe that the phrase “under such conditions” would indicate the need to analyse the
conditions of competition  between the imported product and the domestic like or directly competitive
products in the importing country's market .  That is, it is these “conditions of competition” in the
importing country's market that will determine whether increased imports cause or threaten to causeserious injury to the domestic industry.  The text of Article 2.1 supports this interpretation, as the
relevant phrase in its entirety reads “under such conditions as to cause  or threaten to cause serious
injury” (emphasis added).  Seen another way, for a safeguard measure to be permitted, the
investigation must demonstrate that conditions of competition in the importing country’s market are
such that the increased imports can and do cause or threaten to cause serious injury.  Article 4.2(a)
confirms this interpretation, in requiring that the competent authorities "evaluate all relevant factors of
an objective and quantifiable nature having a bearing  on the situation of that industry", which is
further reinforced by Article 4.2(b)'s requirement that the analysis be conducted on the basis of
"objective evidence".  In our view, these provisions give meaning to the phrase "under such
conditions", and support as well our view that for an analysis to demonstrate causation, it must
                                                     
553 In this regard, Argentina points to various references in Act 338 and the Technical Report to
domestic producers’ prices, to the difficulties (due to changes in product mix) in constructing multi-year priceindices or time-series for footwear, whether for product groups or individual products, and to the difficulties thatthe CNCE encountered in obtaining data on the prices of imports from importers.  In the latter regard, Act 338indicates that the CNCE found that the importers did not cooperate in providing the data requested by the
CNCE, and that therefore the CNCE concluded (as “best information”) that the price of imports must be below
that of the domestic products.  In answer to a question regarding whether the CNCE in its investigation hadconsidered any secondary sources of information (for ex ample, the average unit value of imports) to confirm its
conclusions regarding the prices of imports relative to domestic products, Argentina responded by providingsuch a comparison.  Argentina, although asked by the Panel, provided no citation to the record of the
investigation where this analysis could be found, and the Panel in reviewing that record finds no evidence that
any such analysis was performed during the investigation.WT/DS121/R
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address specifically the nature of the interaction between the imported and domestic products in the
domestic market of the importing country.  That is, we believe that the phrase "under such conditions"
in fact refers to the substance  of the causation analysis that must be performed under Article 4.2(a)
and (b).
8.251  We note in this regard that there are different ways in which products can compete.  Sales
price clearly is one of these, but it is certainly not the only one, and indeed may be irrelevant or onlymarginally relevant in any given case.  Other bases on which products may compete include physical
characteristics (e.g., technical standards or other performance-related aspects, appearance, style or
fashion), quality, service, delivery, technological developments consumer tastes, and other supply and
demand factors in the market.  In any given case, other factors that affect the conditions of
competition between the imported and domestic products may be relevant as well.  It is these sorts of
factors that must be analysed on the basis of objective evidence in a causation analysis to establish the
effect of the imports on the domestic industry.
8.252  Therefore, in the present dispute, while the phrase “under such conditions” does not require a
price analysis per se , it nevertheless has an implication for the nature and content of a causation
analysis, which may logically necessitate a price analysis in a given case.  Moreover, the absence of
an analysis of the conditions of competition in the domestic market for the product in question, in
which the interaction of the imported with the domestic product is explained in the report on theinvestigation (including inter alia  a price analysis where relevant), results in an incomplete analysis of
the causal link.
8.253  We note in this regard the passages cited in paras. 8.232-8.233, above which both parties
indicate constitute the relevant explanations in the published reports of the analysis of the causal link,
and which Argentina indicates also constitute the analysis of the “relevance” of each factor asrequired by the Agreement.  We also note Argentina’s implicit suggestion that it is for the Panel to
peruse the entire 10,000-page record of the investigation -- from which “arises” the causal link – to
find for itself the specific basis in fact for Argentina’s conclusion that that link exists.  As noted
above, however, if the Panel were to engage in such an exercise, this would constitute the very de
novo  review that neither party (nor we ourselves) considers to be within our mandate.  The language
of the Agreement is clear – it is the investigating authority that must conduct this analysis and publish
a report explaining it in detail.
8.254  We agree with the European Communities that the passages cited in paras. 8.232 - 8.233 are
essentially a juxtaposition of statistics on imports and injury factors.  Such a juxtaposition does not
constitute an analysis of the conditions of competition between the imports and the domestic product.Moreover, we note that the only references in those passages that seem to link imports to injury are
the statements concerning the prices of imports (i.e., the references to “cheap imports”).  As stated
above, in our view, the Safeguards Agreement does not require a price analysis per se .  However,
because the statements about the prices of imports relative to domestic products were central to
Argentina’s causation finding, the question of price is of particular importance to the analysis.  That
is, the allegedly low prices of imports, and their asserted effects on the domestic industry, appears to
have been the only "condition of competition" between imports and domestic products on whichArgentina's causation finding was based.  Thus, we will focus our assessment of this analysis
primarily on whether there is support in the record for Argentina's conclusions about import prices
and their effect on the domestic industry.
8.255  We recall the EC’s assertion that these statements about price are unsupported by any factual
evidence in the record of the investigation.  The European Communities states, first, that Argentina
relied upon best information available concerning import prices to draw an inference that imports
were cheaper than domestic products, on the basis of alleged non-cooperation by the importers.  The
European Communities asserts that the “non-cooperation” in question was the inability of the
importers to provide in their questionnaire responses the requested data on the basis of the fiveWT/DS121/R
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product categories used in the investigation, and states that they provided instead data on the basis of
tariff classifications.  The European Communities argues that nowhere does Argentina indicate that
the importers refused to provide data, and that given the eventual definition of the domestic industry
as that producing footwear as a whole, the lack of the import price data broken out as initially
requested was no longer relevant, and the submitted data therefore should have been used.  The
European Communities also argues that there is no evidence that in the investigation, Argentinaconducted the comparison of unit values of domestic and imported footwear that it provided in answer
to the specific question from the Panel.  Finally, the European Communities notes Argentina’s
statement
554 that the references to “cheap imports” had more to do with under-invoicing than with the
market price of the imports.   For the European Communities, a safeguard measure is not an
appropriate remedy for underinvoicing.
8.256  Argentina, while maintaining that it did conduct a price analysis, also states that price indices
and any sort of price series for footwear are either impossible to construct or unreliable given theeffects of changes in styles and product mix.  In answer to Panel questions, Argentina also confirms
that the product mix of the domestic industry shifted to higher-unit-value goods during the period of
investigation, as did the product mix of imports.
555
8.257  The shift in imports to higher-valued products is evident from the different trends between the
volume-based and value-based import market share data.556  In particular, the fact that the market
shares by value are higher in absolute terms, and show smaller declines in the latter part of the period
than in volume terms, implies that the average va lue of the imported footwear was increasing, which
would signify either that the product mix of imports  was shifting to higher-valued goods, or that the
price of imported footwear was increasing, or both.
8.258  In the light of the above data, the Panel asked Argentina to reconcile the apparent upward
trend in the unit value of imports with its conclusions in Act 338 that "cheap imports" had undercut
the price of the domestic product, thereby causing injury.  Argentina's response noted first that the
impossibility of competing with im ported goods owing to their low prices constitutes a negative factor
for domestic producers.  Argentina went on to acknowledge, however, a “change in the behaviour of
imports”, which Argentina attributes to the application of the DIEMs, specifically, that “the DIEMscause the value of imports to grow faster than the volume and at the same time change the
composition of those imports towards footwear with a higher unit value that are not affected by the
DIEMs.  Added to which, there is no longer any possibility of under-invoicing”.  When the Panel
asked how these trends demonstrate injury and causa tion, and how the shift in the imports to higher-
valued products could be reconciled with the statements about “cheap imports”, Argentina referred tothe Technical Report and the Preliminary Report of the Department of Foreign Trade, and indicated
that the shift in the composition of imports was attributable to the application of the DIEMs.
8.259  We can find no evidence in the record to support the statements that the imports were cheaper
than the domestic goods.  In particular, there is no evidence that any price comparisons of imported
and domestic footwear were made in the investigation, including on the basis of average unit values of
all imports and all domestic products.  Indeed, the answer provided by Argentina to the Panel’s
question on this point confirms this, as the source given for the comparison provided in that answer isthe pages in the Technical Report where the und erlying data for the comparison (but not the
comparison itself) are set forth. Without such price comparisons, there is no factual basis for the
statements regarding lower-priced imports.
                                                     
554 See para. 8.258, infra .
555 See descriptive part, note 181.
556 See paras. 8.241 - 8.242, supra .WT/DS121/R
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8.260   In this connection, we note in addition Argentina’s statements that the references to “cheap
imports” had mostly to do with a problem of customs valuation (underinvoicing), and that the
composition of imports shifted to higher-valued goods following the 1993 imposition of the DIEMs.
In our view, these statements are inconsistent with the implication of the causation finding that  as of
1995 , imports were undercutting domestic prices so as to cause the asserted serious injury to the
domestic industry.
8.261  Moreover, we find no basis in the investigation or  arguments of Argentina to indicate that any
such lower-priced imports had any injurious effect on the domestic industry.  In particular, the report
on the investigation contains no evidence to indicate that the effect of the prices of imported footwear
on domestic producers' prices, production, etc., was specifically analysed, in spite of the fact that the
causation finding was fundamentally based on price considerations. Rather, aggregate trends in broad
statistical indicators were compared and conclusory statements made (e.g., that "the decline in output
was replaced by imports, essentially cheap imports”.  This is not an analysis of the conditions ofcompetition that is called for by Articles 2 and 4.2.
557  (Indeed, as indicated above, the information on
the shift in the product mix of imports toward higher-valued goods at least on its face would appear
inconsistent with a finding of causation based on "cheap imports".)
8.262  Thus, in our view, Argentina in its investigation did not demonstrate either (i) that imports
were lower priced than comparable domestic goods, or (ii) that any such lower-priced imports had aninjurious effect on the domestic industry.
8.263  Further, regarding Article 4.2's requirement that the “relevance” of each factor be considered,
we note Argentina’s reference, in answer to a Panel question on this point, to the same pages in Act
338 and the Technical Report that it indicates contain the causation analysis.  We consider that these
statements are juxtapositions of data on imports and data on injury factors, rather than an analysis ofcausation.  As such, we do not consider that they constitute a demonstration of the “relevance” of
factors examined as required by Article 4.2.
                                                     
557 We note in this regard that there would seem to be a relationship between the depth of detail and
degree of specificity required in a causation analysis and the breadth and heterogeneity of the like or directly
competitive product definition.  Where as here a very broad product definition is used, within which there is
considerable heterogeneity, the analysis of the conditions of competition must go considerably beyond merestatistical comparisons for imports and the industry as a whole, as given their breadth, the statistics for theindustry and the imports as a whole will only show averages, and therefore will not be able to providesufficiently specific information on the locus of competition in the market.  With regard to the present case, wedo not disagree that a quite detailed investigation of the industry was conducted, in which a great deal of
statistical and other information was amassed.  What in our view was missing was a detailed analysis, on the
basis of objective evidence, of the imports and of how in concrete terms those imports caused the injury foundto exist in 1995.  In this regard, we note that Act 338 contains a section entitled "Conditions of competition
between the domestic products and imports".  This section does not contain such a detailed analysis, however,but rather summarizes questionnaire responses from domestic producers about their strategies for “fending offforeign competition”, and from importers and domestic producers concerning “the sales mix” of domestic
products and imports, including their overall views about quality and other issues concerning domestic and
imported footwear, with the importers stressing the benefits of imports.  This summary of subjective statementsby questionnaire respondents does not constitute an analysis of the "conditions of competition" by the authorityon the basis of objective evidence.WT/DS121/R
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(iv) Other factors
8.264  The third element of a causation analysis is the consideration of whether factors other than
increased imports are causing or threatening to cause serious injury to the domestic industry.  If so,
Article 4.2(b) requires that such injury not be attributed to increased imports.
8.265  The European Communities argues in this rega rd that Act 338 refers to several elements
which the European Communities views as “other fact ors" that in fact were responsible for any injury
suffered by the Argentine footwear industry.   These factors were (i) the “tequila effect”, i.e., the
domestic recession in Argentina brought on by the collapse of the Mexican peso; (ii) imports under
the Industrial Specialisation Regime;558 and (iii) imports from Mercosur countries.  The European
Communities claims that Argentina did not sufficiently examine these factors, and that it therefore
wrongly attributed injury caused by them to imports.
8.266   Argentina argues that it did examine the only other factor it considered relevant to the injury,
the tequila effect, and that it ensured that the injury caused by that factor was not attributed to theincreased imports.  Argentina does not specify explicitly how this was done in its investigation.  In its
arguments to the Panel, Argentina makes comparisons of the macroeconomic indicators (GDP) for the
footwear sector and for the economy as a whole, a nd concludes that the decline in footwear in 1995
was sharper than for the economy overall, implying that imports were responsible, beyond the effects
of the recession.
8.267  We recall that Article 4.2(b) requires that "[w]hen factors other than increased imports are
causing injury to the domestic industry at the same time, such injury shall not be attributed to
increased imports."  Thus, as part of the causation analysis, a sufficient consideration of "other
factors" operating in the market at the same time must be conducted, so that any injury caused by such
other factors can be identified and properly attributed.
a. The "tequila effect"
8.268  Regarding the so-called "tequila effect", we note that Act 338 and the Technical Report make
a number of references to the “tequila effect” as such as well as to the domestic recession in 1995.
For example, in its discussion of production, Act 338 
559 notes the decline in production in 1995, and
states that in that year, “domestic consumption was much affected by the recession (‘tequila effect’)”.Act 338 makes a similar reference to a “sharp drop” in consumption in 1995 in its discussion of the
effects of imports on domestic production.  Similarly, in discussing the trends in imports, Argentina
acknowledges that imports decreased in 1995, when “irrespective of any trade policy developments
[i.e., the DIEMs], the Argentine economy experienced a severe recession with negative effects on all
imports”.  We note further that Argentina, in an swer to a Panel question, states that during the
investigation the CNCE considered the possible impact of the tequila effect as a cause of injury to the
footwear industry, and that this analysis “verifie d that even in a context of depressed macroeconomic
conditions, imports in themselves continued to cause injury to domestic production”.  Argentina
makes a similar statement in its first written submission.
8.269  In our view, the comparison of the macroec onomic indicators for footwear and for the
economy as a whole is not a sufficient consideration of the potential injury from the “tequila effect” to
the domestic industry.  Particularly given Argentina’s several acknowledgements that the domesticrecession significantly depressed both imports and domestic consumption (and certainly thereby the
                                                     
558 The Industrial Specialization Regime, which terminated in 1996, allowed footwear producers to
import duty-free a certain volume of footwear to round out their production lines, based on the volume of theirfootwear exports.
559 Exhibit EC-16, p.14.WT/DS121/R
Page 200
production and other performance indicators of the domestic industry), an analysis separating the
effects of the recession from those of imports would have been necessary.
b. The Industrial Specialisation Regime
8.270  Regarding the Industrial Specialisation Regime, Argentina argues that because imports under
this programme were never more than 10 percent of total imports in any one year, they were found to
be insignificant as a potential cause of injury.
8.271  Although we note that the consideration in Act 338 of the Industrial Specialisation Regime is
relatively cursory, the low volume of the imports under this programme supports Argentina's
conclusion regarding their insignificance as a potential cause of injury.
c. Imports from other MERCOSUR countries
8.272  As regards imports from other MERCOSUR countries, the European Communities argues
that even if it were correct to include the volu me of imports from MERCOSUR countries in total
imports, and even if Argentina had been able to show a causal link between these increased total
imports and serious injury, it would still have been necessary to examine whether and to what extent
the MERCOSUR imports had been causing injury and so  as not to attribute this injury to the third-
country imports given that any safeguard measur e would not apply to MERCOSUR imports.  In the
EC's view, MERCOSUR imports, which increased th roughout the investigation period and which
were exempted from the application of the safeguard measure, were responsible for any import-related injury to the Argentine footwear industry.
8.273  Argentina, while contesting that imports fr om MERCOSUR caused injury, nevertheless states
that the conditions of footwear imports had an  important MERCOSUR component that could not be
ignored. Act 338 states that it was appropriate to  consider the imports from MERCOSUR countries on
equal terms with other imports, as in the absence of the DIEMs or protective measures, there would
have been at least an equal flow of imports from the rest of the world into Argentina.
Import volumes:
560
(in million of pairs) 1991 1992 1993 1994 1995 1996
Total imports 8.86 16.63 21.78 19.84 15.07 13.47
MERCOSUR 1.90 3.97 5.08 5.83 4.99 7.50
Third countries 6.96 12.66 16.70 14.01 10.07 5.97
Import values:561
(million US$ c.i.f.) 1991 1992 1993 1994 1995 1996
Total imports 44.41 110.87 128.76 141.48 114.22 116.61
MERCOSUR 4.66 18.30 16.87 25.59 24.84 47.48
Third countries 39.75 92.58 111.89 115.89 89.39 69.09
8.274  We note that the import statistics in Act 338 and the Technical Report indicate that after 1993,
imports from MERCOSUR member countries were the so le source of growth in footwear imports into
Argentina.  While imports from MERCOSUR countri es increased steadily and significantly in every
year between 1991-1996 except 1995, imports from all other countries steadily declined after 1993.
                                                     
560 See document G/SG/N/8/ARG/1, submitted as Exhibit EC-16, p.21.
561 Ibid.WT/DS121/R
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As a result, by 1996, MERCOSUR countries accoun ted for one-half of total footwear imports, up
from less than one-fifth in 1991.
(v) Summary regarding the claims under Articles 2 and 4
8.275  As discussed above, we have considered all three major elements of Argentina's safeguard
investigation and determination – the existence of (i) increased imports, (ii) serious injury, and (iii) a
causal link - which the European Communities challe nges as inconsistent with the requirements of
Articles 2 and 4 of the Safeguards Agreement.
8.276  Regarding increased imports, we note that to meet Article 2 and 4's requirements regarding
increased imports, it is necessary to consider the trends in imports over the entire period of
investigation (rather than just comparing the end po ints), and that a decline in imports that is more
than only "temporary" calls into question a finding that imports have increased.  In this case,
Argentina did not adequately consider the intervenin g trends in imports, in particular the steady and
significant declines in imports beginning in 1994, as well as the sensitivity of the analysis to theparticular end points of the investigation period used.
8.277  Regarding the serious injury investigation and determination, we consider that Argentina did
not evaluate all of the listed factors (in particul ar, capacity utilisation and productivity); and that by
not considering the available data for 1996 in its investigation and determination (in spite of having
gathered those data along with data for 1991-1995 in its questionnaire), Argentina did not consider"all relevant factors…having a bearing on the situation of [the] industry" within the meaning of
Article 4.2(a), particularly in view of the fact that  in some cases the 1996 data showed upturns which
were not explained.  We also consider that an  end-point-to-end-point comparison does not meet
Article 4.2(a)'s requirement to consider all relevant factors especially where intervening trends in the
injury indicators would be highly relevant to determining whether an industry was experiencingserious injury.  In addition, we consider that because discrepancies in certain data series were not
addressed or explained, and because other assertions were not linked to the statistical data, some of
the conclusions drawn were not adequately supported by the evidence.
8.278  Regarding the existence of a causal link between increased imports and serious injury
suffered by the domestic industry, we consider that the investigation did not demonstrate acoincidence in trends in injury factors and imports ; that the conditions of competition between the
imports and the domestic product were not analysed or adequately explained (in particular price); and
that "other factors" identified by the CNCE in the investigation were not sufficiently evaluated, in
particular, the tequila effect.  Thus, in our view, Argentina’s findings and conclusions regarding
causation were not adequately explained and supported by the evidence.
8.279  For the foregoing reasons, we conclude that Argentina’s investigation did not demonstrate
that there were increased imports within the meanin g of Articles 2.1 and 4.2(a); that the investigation
did not evaluate all relevant factors of an objective and quantifiable nature having a bearing on the
situation of the domestic industry within the meaning of Article 4.2(a); that the investigation did not
demonstrate on the basis of objective evidence the existence of a causal link between increased
imports and serious injury within the meaning of Article 2.1 and 4.2(b); that the investigation did not
adequately take into account factors other than increased imports within the meaning of Article 4.2(b);and that the published report concerning the investigation did not set forth a complete analysis of the
case under investigation as well as a demonstration of the relevance of the factors examined within
the meaning of Article 4.2(c).
8.280  Therefore, we find that Argentina’s investigation and determinations of increased imports,
serious injury and causation are inconsistent with Articles 2 and 4 of the Safeguards Agreement.  AsWT/DS121/R
Page 202
such, we find that Argentina’s investigation provides no legal basis for the application of the
definitive safeguard measure at issue, or any safeguard measure.
(e) Threat of serious injury
8.281  The European Communities claims that Argentina's finding of threat of serious injury violates
Articles 4.1 and 4.2 of the Agreement, as it was based on a prognosis of what would happen if the
DIEMs were removed.  The European Communities submits that because Article 4.2(a) requires aninvestigation on the basis of "objective and quantifiable" information, a hypothetical analysis does not
satisfy this requirement.  In particular, the European Communities argues that there were no increased
imports, and that therefore the threat finding constituted a finding of threat of increased imports,
rather than a threat of serious injury.  For the European Communities, no threat finding can be made
absent actual increased imports.
8.282  The CNCE stated in its conclusions in Act 338 that it found in addition to serious injury a
threat of serious injury in the absence of the m easures additional to the Common External Tariff.  We
can find no specific reference to an analysis of threat, as such, either in Act 338 or in the Technical
Report, however.  In answer to a Panel question re garding the basis for Act 338's threat of serious
injury finding, Argentina indicated that the finding of threat had been the basis for the application of
the provisional measure.  Argentina stated that th e industry’s condition worsened during the course of
the investigation, leading to the decision to apply the definitive measure.  In response to a Panel
question regarding whether it is possible to simultaneously find present serious injury and threat
thereof, Argentina indicated that this is possible, as the concepts of serious injury and threat thereof,
in the meanings of Articles 4.1(a) and (b), respectively, are not mutually exclusive.
562
8.283  We recall that pursuant to Article 4.1(b):
"'threat of serious injury' shall be understood to mean serious injury that is clearly
imminent, in accordance with the provisions of paragraph 2.  A determination of the
existence of a threat of serious injury shall be based on facts and not merely on
allegation, conjecture or remote possibility;"
8.284  Thus, the question of threat, whether instead of or in addition to a finding of present serious
injury, must be explicitly examined in an invest igation and supported by the evidence in accordance
with Article 4.2(a-c).  Moreover, if only a threat of increased imports is present, rather than actual
increased imports, this is not sufficient. Article 2.1 requires an actual increase in imports as a basic
prerequisite for a finding of either threat of serious injury or serious injury.  A determination of the
existence of a threat of serious injury  due to a threat of increased imports  would amount to a
determination based on allegation or conjecture rather than one supported by facts as required byArticle 4.1(b).
8.285  Given that the question of threat as such was not adequately addressed or analysed in Act 338
or in the Technical Reports, we do not consider it necessary to rule on the question of whether it is
possible to make simultaneously findings of serious injury and threat of serious injury.  We further
note that, pursuant to paragraphs 1(b) and 2(a) of Article 4, any determination of threat must be
supported by specific evidence and adequate analysis.
8.286  For the foregoing reasons, we find that Argentina’s determination of the existence of a threat
of serious injury does not conform to the requirements of Articles 2 and 4 of the Agreement.
                                                     
562 See descriptive part, paras. 5.303.WT/DS121/R
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5. Claims regarding the application of safeguard measures (Article 5)
8.287  The European Communities also claims, in the ev ent the Panel should find that the analyses
by Argentina's national authorities of "increased imports", "serious injury" and "causation" were
consistent with the Safeguards Agreement, that Argentina violated Article 5.1.  The European
Communities alleges that Argentina did not demonstrate that safeguard measures were applied only
"to the extent necessary to prevent or remedy serious injury and to facilitate adjustment".
Specifically, the European Communities requests the Panel to find Argentina's provisional and
definitive measures based on the safeguard investigation subject to this dispute, however adapted or
adjusted in the meantime (including Resolutions 512/97, 1506/98 and 837/98), to be in violation of
Article 5.1.
8.288  Argentina contends that such claims amount to hypotheses about "future" measures and that
preventive adjudication is not the function of the dispute settlement system.  Argentina reiterates that
the modifications of the definitive safeguard measure are not within this Panel's terms of reference.Since Articles 3.7
563 and 19.564 of the DSU only require the withdrawal of measures that are WTO-
inconsistent, it is Argentina's position that measures that are not in existence at the time of a Panel's
establishment cannot be subject to dispute settlement because they only could  be inconsistent with the
WTO agreements.
8.289  In the light of our findings, supra , that the safeguard investigation and determination leading
to the imposition of the definitive safeguard measure is inconsistent with Articles 2 and 4 of the
Safeguards Agreement, and thus provide no legal basis for the application of a safeguard measure, we
do not consider it necessary to make findings on the European Communities' claims concerning
Argentina's alleged violations of Article 5.
6. Claims regarding the provisional safeguard measure (Article 6)
8.290  The European Communities has raised a claim that the provisional measure applied by
Argentina violated Article 6 of the Safeguards Agreement.  In particular, the European Communities
claims that the measure, which according to Argentina was applied on the basis of a finding of clear
evidence of a threat of serious injury, was in fact applied on the basis of a threat of increased imports.
The European Communities maintains that the resolu tion applying the measure makes this clear, in
that it refers to a threat of serious injury from fu ture increases in imports expected to result from the
removal of the DIEMs on footwear.  In the view of the European Communities, it is not a sufficient
basis for the application of a provisional measure to equate a threat of increased imports with a threat
of serious injury.  Rather, there must be an actual increase in imports and clear evidence of at least a
threat of serious injury for a provisional measure to be applied consistently with the Agreement onSafeguards.
8.291  Argentina argues that the increased imports requirement was satisfied at the time of the
decision to apply the provisional measure, and further maintains that the Panel should not rule on the
provisional measure as it had expired well before the commencement of this Panel proceeding.
8.292  In the light of our findings concerning the investigation and the definitive measure, we do not
find it necessary to make a finding concerning this claim.
                                                     
563 Article 3.7 of the DSU:  "[t]he aim of the dispute settlement mechanism is to secure a positive solution
to a dispute. … the first objective of dispute settlement mechanism is usually to secure the withdrawal of themeasures concerned if these are found to be inconsistent with the provisions of any of the covered agreements."
564 Article 19.1 of the DSU which provides "where a panel or the Appellate Body concludes that a
measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the
measures into conformity with that agreement."WT/DS121/R
Page 204
7. Claims regarding notification requirements (Article 12)
8.293  The European Communities’ claims under Article 12 have two main elements.  First, the
European Communities alleges that Argentina failed to notify “all pertinent information” relating to
its serious injury and causation findings, as required under Article 12.1(b).  Second, the European
Communities claims that by failing to notify Resolutions 512/98, 1506/98 and 837/98, which
modified the definitive  safeguard measure after its imposition, Argentina violated the notification
obligations of Article 12.1 and 12.2, as in the European Communities’ view these provisions require
notification of the safeguard measure as actually applied.
(a) The notification of "all pertinent information"
Articles 12.1 and 12.2 of the Safeguards Agreement read as follows:
"1. A Member shall immediately notify the Committee on Safeguards upon:
(a) initiating an investigatory process relating to serious injury or threat
thereof and the reasons for it;
(b) making a finding of serious injury or threat thereof caused by
increased imports; and
(c) taking a decision to apply or extend a safeguard measure.
2. In making the notifications referred to in paragraphs 1(b) and (c), the
Member proposing to apply or extend a safeguard measure shall provide the
Committee on Safeguards with all pertinent information, which shall include
evidence of serious injury or threat thereof caused by increased imports, precise
description of the product involved and the proposed measure, proposed data of
introduction, expected duration and timetable for progressive liberalisation.  In thecase of an extension of a measure, evidence that the industry concerned is adjusting
shall also be provided.  The Council for Trade in Goods or the Committee on
Safeguards may request such additional information as they may consider necessary
from the Member proposing to apply or extend the measure."
8.294  Regarding the first claim, the European Communities argues that Article 12.1(b) requires a
Member to notify “all pertinent information ” concerning its injury and causation finding.  In the
European Communities’ view, this constitutes a requirement to notify “all facts, investigated data, and
evaluations needed to establish ‘increased imports’, ‘serious injury or threat’ and ‘causal link’”.  The
European Communities challenges Argentina’s argument that “the relevant information for evaluating
compliance with Articles 2 and 4 cannot consist only of the information notified to the Committeeaccording to the approved formats”.  In the Europe an Communities' view, this argument implies that
information relevant to the determination of compliance with Article 4.2 could be missing from the
Article 12 notifications.  For the European Communities, Article 12 notifications should provide the
basis for other Members to “verify whether the conditions of Article 2 and 4 had been met”.
8.295  Argentina argues that the European Communities confuses the procedural requirements of
Article 12 concerning notification with the substantive requirements of Articles 2 and 4 for theapplication of a safeguard measure.  In Argentina’s view, if the European Communities’ arguments
were accepted, this would add the substantive requirements under Article 2.1 to the notification
obligations under Article 12, implying a double failure by Argentina to comply with the Agreement
and establishing a standard of notification that the Agreement does not provide for.  Argentina also
argues that if it were to follow the methodology proposed by the European Communities, it wouldhave to notify the entire 10,000-plus page record of the investigation.WT/DS121/R
Page 205
8.296  The European Communities disagrees with Argentina's argument that the European
Communities “confuses” the substantive and notification requirements of the Agreement,
acknowledging that these are separate obligations.  For the European Communities, this separateness
does not exclude the possibility, however, that a viol ation of one of these requirements can lead to the
violation of the other.  That is, the European Communities maintains, if a Member does not provide,
in its Article 12 notification, the evidence necessary to prove that the requirements of Articles 2 and 4have been fulfilled, then Article 12 automatically would be violated – in this case the violation of
Article 12 (in particular Article 12.2) would derive  from a violation of Articles 2 and 4.  For the
European Communities, Article 12 also could be violated without relying on Articles 2 and 4, for
example when a justified safeguard measure is taken without any (or insufficient) notification.  The
European Communities also disagrees that it has implied that the entire record of the investigation
should have been notified.  Rather, the European Communities argues, all “pertinent” information
from that record should have been notified.
8.297  We note that the European Communities’ arguments seem to imply that an insufficient
notification under Article 12 per se  implies or leads to a violation of Articles 2 and 4 (i.e., its
argument that it is the notifications that permit other Members to judge substantive compliance with
Articles 2 and 4).  The European Communities also seems to argue this point vice versa  (i.e., its
argument that the violation of Article 12 in this case was “derived from” the substantive violation ofArticles 2 and 4).  By this, we understand the European Communities to mean that adequate
notification under Article 12 is impossible where the substantive requirements of Articles 2 and 4
have not been satisfied.
8.298  In our view, the notification requirements of Article 12 are separate from, and in themselves
do not have implications for, the question of substantive compliance with Articles 2 and 4.  Similarly,we consider that the substantive requirements of Articles 2 and 4 do not have implications for the
question of compliance with Article 12.  Article 12 serves to provide transparency and information
concerning the safeguard-related actions taken by Members.  We note in this context that notification
under Article 12 is just the first step in a process of transparency that can include, inter alia , review by
the Committee as part of its surveillance functions (Article 13.1(f)), requests for additionalinformation by the Council for Trade in Goods or the Committee on Safeguards (Article 12.2), and/or
eventual bilateral consultations with affected Members if application of a measure is proposed
(Article 12.3).  In this regard, the important point is that the notifications be sufficiently descriptive of
the actions that have been taken or are proposed to be taken, and of the basis for those actions, that
Members with an interest in the matter can decide whether and how to pursue it further.
8.299  In this context, we recall the statement of the Panel in Guatemala - Cement   that
"… [a] key function of the notification requirements in the [Anti-dumping
Agreement] is to ensure that interested pa rties, including Members, are able to take
whatever steps they deem appropriate to defend their interests…."
565
8.300  Articles 12.2 and 12.3 in our view confirm that Members are not required to notify the full
detail of their investigations and findings.  Article 12.2 specifically provides for the possibility of
requests for further information by the Council for Trade in Goods or the Committee on Safeguards.Article 12.3 provides, inter alia , for consultations, upon request, with other Members, to review the
information contained in the notifications.  Thus, these provisions specifically create opportunities for
further information to be provided, upon request, concerning the details of the actions summarised in
the notifications.  Ultimately, should a violation of Articles 2 and 4 be alleged, it would be the more
detailed information from the record of the investigation, and in particular the published report(s) on
                                                     
565 Panel report on Guatemala – Anti-dumping Investigation regarding Portland Cement from Mexico
(WT/DS60/R), adopted on 25 November 1998, para. 7.42.WT/DS121/R
Page 206
the findings and reasoned conclusions of that investigation, that would form the basis for evaluation
of such an allegation.
8.301  We note that Argentina’s notification to the Committee on Safeguards, under Article 12.1(b),
in fact is the full text of Act 338, which Argentina indicates in response to a Panel question is the
published report on its serious injury finding (although it also refers to some portions of the
"Technical Report").  We find that by having notified this full text, Argentina certainly met therequirements, which we find to be rather descriptive, applicable to notifications under the Articles
12.1 and 12.2.  Therefore, we reject the European Communities’ claim that Argentina’s notification of
its finding of serious injury and causation was insufficient, and conclude that in this respect Argentina
has not violated Articles 12.1 and 12.2.
(b) Notification of subsequent modifications
8.302  We now turn to the second aspect of the European Communities’ claims regarding
notifications which is that Argentina should have notified under the Agreement on SafeguardsResolutions 512/98, 1506/98 and 837/98, which modify  the definitive safeguard measure.  In the
European Communities’ view, Members are obligated to notify safeguard measures as applied.  The
European Communities has argued that these resolutions have made the safeguard measure more
restrictive than it was when originally applied.  We note that the modifications of definitive safeguard
measures foreseen in the Agreement (namely early elimination or faster liberalisation potentiallyresulting from mid-term reviews under Article 7.4,
 566 and extension of measures beyond the initial
period of application under Article 7.567 and 7.4), all are subject to notification requirements under
Articles 12.5 and 12.1(c)/12.2, respectively.
8.303  In this context, we note that the only modifications of safeguard measures that Article 7.4
contemplates are those that reduce  its restrictiveness (i.e., to eliminate the measure or to increase their
pace of its liberalisation pursuant to a mid-term review).  The Agreement does not contemplate
modifications that increase  the restrictiveness of a measure, and thus contains no notification
requirement for such restrictive modifications.
8.304  We note that the modifications of the definitive safeguard measure made by Argentina are not
contemplated by Article 7, and t hus Article 12 does not foresee notification requirements with respect
to such modifications.  Any substantive  issues pertaining to these subsequent Resolutions would need
to be addressed under Article 7, but the European Communities made no such claim.  Where the
situation at issue is primarily one of substance, i.e., modification of a measure in a way not foreseen
by the Safeguards Agreement, we believe that we cannot address the alleged procedural violation
concerning notification arising therefrom, as no explicit procedural obligation is foreseen.  Therefore,we see no possibility for a ruling on this aspect of the European Communities’ claim under Article 12.
                                                     
566 Article 7.4:  "In order to facilitate adjustment in a situation where the expected duration of a
safeguard measure as notified under the provisions of paragraph 1 of Article 12 is over one year, the Member
applying the measure shall progressively liberalise it at regular intervals during the period of application.  If the
duration of the measure exceeds three years, the Member applying such a measure shall review the situation notlater than the mid-term of the measure and, if appropriate, withdraw it or increase the pace of liberalisation.  Ameasure extended under paragraph 2 shall not be more restrictive than it was at the end of the initial period, andshould continue to be liberalised."
567 Article 7.2:  "The period mentioned in paragraph 1 [the initial period of application] may be
extended provided that the competent authorities of the importing Member have determined, in conformity with
the procedures set out in Articles 2, 3 4 and 5, that the safeguard measure continues to be necessary to prevent or
remedy serious injury and that there is evidence that the industry is adjusting, and provided that the pertinentprovisions of Articles 8 and 12 are observed."WT/DS121/R
Page 207
(c) Concluding remark
8.305  We recall our findings that our terms of reference include the definitive safeguard measure in
its original legal form (i.e., Resolution 987/97) as well as in its subsequently modified form (i.e.,
Resolutions 512/98, 1506/98 and 837/98).  We further recall our findings that Argentina's safeguard
investigation and determination underlying the definitive safeguard measure are inconsistent with
Articles 2 and 4 of the Safeguards Agreement and thus cannot serve as a legal basis for any safeguardmeasure.  Given that the subsequent modifications  of the definitive safeguard measure are based on
the same safeguard investigation and determination, we are of the view that our findings of violations
of Articles 2 and 4 resolve the dispute with respect to these modifications as well.WT/DS121/R
Page 208
IX. CONCLUSIONS
9.1 The Panel concludes that for the reasons outlined in this Report the definitive safeguard
measure on footwear based on Argentina's investigation and determination is inconsistent with
Articles 2 and 4 of the Agreement on Safeguards.  We therefore conclude that there is nullification or
impairment of the benefits accruing to the European Communities under the Agreement on
Safeguards within the meaning of Article 3.8 of the DSU.
9.2 The Panel recommends that the Dispute Settlement Body request Argentina to bring its
measure into conformity with the Agreement on Safeguards.WT/DS121/R
Page 209
Annex I:
The safeguard investigation and measures referred to the following tariff headings:
6401 WATERPROOF FOOTWEAR OF RUBBER OR PLASTICS
6401.10.00 Footwear incorporating a protective metal toe-cap
6401.91.00 Other footwear, covering the knee
6401.92.00 Other footwear, covering the an kle, but not covering the knee
6401.99.00 Other
6402 FOOTWEAR OF RUBBER OR PLASTICS
6402.12.00 Ski and snowboard boots
6402.19.00 Other (sports)
6402.20.00 Footwear with uppers  of straps (thongs)
6402.30.00 Other footwear, incorporating a protective metal toe-cap
6402.91.00 Other, covering the ankle
6402.99.00 Other
6403 FOOTWEAR WITH LEATHER UPPERS
6403.12.00 Ski and snowboard boots
6403.19.00 Other (sports)
6403.20.00 Footwear with outer soles of  leather and uppers of straps
6403.30.00 Footwear made on a platform of wood
6403.40.00 Other footwear, incorporating a protective metal toe-cap
6403.51.00 Other footwear covering the ankle, with soles of leather
6403.59.00 Other, with soles of leather
6403.91.00 Other, covering the ankle, with  outer soles of rubber or plastics
6403.99.00 Other, with outer sole s of rubber or plastics
6404 FOOTWEAR WITH TEXTILE UPPERS
6404.11.00 Sports footwear with outer  soles of rubber or plastics
6404.19.00 Other, with outer sole s of rubber or plastics
6404.20.00 Footwear with outer  soles of leather
6405 OTHER FOOTWEAR
6405.10 With uppers of leather
6405.10.10 With soles of rubber or plastic s and uppers of composition leather
6405.10.20 With soles and uppers of composition leather
6405.10.90 Other
6405.20.00 With uppers of textile material
6405.90.00 Other
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