WORLD TRADE
ORGANIZATIONWT/DS166/AB/R
22 December 2000
(00-5593)
Original: English
UNITED STATES – DEFINITIVE SAFEGUARD MEASURES
ON IMPORTS OF WHEAT GLUTEN FROM THE
EUROPEAN COMMUNITIES
AB-2000-10
Report of the Appellate BodyWT/DS166/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of the Participants  and the Third Particip ants ..........................................................4
A. Claims of Error by the United States – Appellant ..........................................................4
1. Article 4.2(b) of the  Agreement on Safeguards ................................................4
2. Article 2.1 of the  Agreement on Safeguards ....................................................5
3. Articles 8 and 12 of the  Agreement on Safeguards ..........................................5
B. Arguments of the European Communities – Appellee ....................................................6
1. Article 4.2(b) of the  Agreement on Safeguards ................................................6
2. Article 2.1 of the  Agreement on Safeguards ....................................................7
3. Articles 8 and 12 of the  Agreement on Safeguards ..........................................8
C. Claims of Error by the European Communities – Appellant .........................................8
1. Article 4.2(a) of the  Agreement on Safeguards ................................................8
2. Article 11 of the DSU........................................................................................93. Judicial Economy ............................................................................................10
D. Arguments of the United States – Appellee ..................................................................11
1. Article 4.2(a) of the  Agreement on Safeguards ..............................................11
2. Article 11 of the DSU......................................................................................12
3. Judicial Economy ............................................................................................13
E. Arguments of the Third Participants ............................................................................13
1. Australia ..........................................................................................................13
2. Canada.............................................................................................................14
3. New Zealand....................................................................................................14
III. Issues Raised in this Appeal ............................................................................................... ......15
IV. Article 4.2(a) of the  Agreement on Safeguards ........................................................................17
V. Article 4.2(b) of the  Agreement on Safeguards .......................................................................21
VI. Article 2.1 of the  Agreement on Safeguards ............................................................................32
VII. Articles 8 and 12 of the  Agreement on Safeguards ..................................................................34
A. Article 12.1 of the  Agreement on Safeguards ..............................................................34
1. Notification pursuant to Article 12.1(a) ..........................................................36
2. Notification pursuant to Article 12.1(b) ..........................................................37
3. Notification pursuant to Article 12.1(c) ..........................................................38
B. Article 12.3 of the  Agreement on Safeguards ..............................................................41
C. Article 8.1 of the  Agreement on Safeguards ................................................................44
VIII. Article 11 of the DSU ..................................................................................................... ..........45
A. USITC's Treatment of "Productivity" ...........................................................................47
B. USITC's Treatment of "Profits and Losses" .................................................................48
C. USITC'
S Treatment of the Protein Content of Wheat ...................................................51
D. Failure to Draw the Appropriate Inferences ................................................................52
IX. Judicial Economy............................................................................................................ ..........55
X. Findings and Conclusions..................................................................................................... ....58WT/DS166/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Definitive Safeguard
Measures on Imports of Wheat Gluten fromthe European Communities
United States,  Appellant/Appellee
European Communities,  Appellant/Appellee
Australia,  Third Participant
Canada,  Third Participant
New Zealand,  Third ParticipantAB-2000-10
Present:Lacarte-Muró,  Presiding Member
Abi-Saab,  MemberTaniguchi,  Member
I. Introduction
1. The United States and the European Communities appeal certain issues of law and legal
interpretations in the Panel Report,  United States – Definitive Safeguard Measures on Imports of
Wheat Gluten from the European Communities  (the "Panel Report").1  The Panel was established to
consider a complaint by the European Communities with respect to a definitive safeguard measureimposed by the United States on certain imports of wheat gluten.
2. On 1 October 1997, the United States International Trade Commission (the "USITC")
initiated a safeguard investigation into certain imports of wheat gluten.
2  By Proclamation of the
President of the United States, dated 30 May 1998, the United States imposed a definitive safeguard
measure, in the form of a quantitative restriction on imports of wheat gluten, effective as of
1 June 1998.3  Products from Canada, a partner with the United States in the North American Free-
Trade Agreement ("NAFTA"), and certain other countries were excluded from the application of thesafeguard measure.
4  The United States notified the initiation of the investigation, the determination of
                                                     
1WT/DS166/R, 31 July 2000.
2Panel Report, para. 2.2.
3"Proclamation 7103 of 30 May 1998 – To Facilitate Positive Adjustment to Competition From Imports
of Wheat Gluten", United States Federal Register, 3 June 1998 (Volume 63, Number 106), pp. 30359-30360;
Panel Report, para. 2.7.
4Ibid., para. 2.8.WT/DS166/AB/R
Page 2
serious injury, and the decision to apply the safeguard measure to the Committee on Safeguards.5  The
factual aspects of this dispute are set out in greater detail in the Panel Report.6
3. The Panel considered claims by the European Communities that, in imposing the safeguard
measure on imports of wheat gluten, the United States acted inconsistently with Articles I and XIX ofthe  General Agreement on Tariffs and Trade 1994  (the "GATT 1994"), and with Articles 2.1, 4, 5, 8,
and 12 of the  Agreement on Safeguards .
7
4. In its Report, circulated to Members of the World Trade Organization (the "WTO") on
31 July 2000, the Panel concluded that:
… the United States has not acted inconsistently with Articles 2.1 and
4 of the Agreement on Safeguards or with Article XIX:1(a) of the
GATT 1994 in:
(i) redacting certain confidential information from the
published USITC Report; or
(ii) determining the existence of imports in "increased
quantities" and serious injury.8
…
… the definitive safeguard measure imposed by the United States on
certain imports of wheat gluten based on the United States
investigation and determination is inconsistent with Articles 2.1 and 4of the Agreement on Safeguards in that:
(i) the causation analysis applied by the USITC did not
ensure that injury caused by other factors was not attributed to
imports; and
(ii) imports from Canada (a NAFTA partner) were
excluded from the application of the measure after imports
from all sources were included in the investigation for the
purposes of determining serious injury caused by increased
imports (following a separate inquiry concerning whether
imports from Canada accounted for a "substantial share" oftotal imports and whether they "contributed importantly" to the
"serious injury" caused by total imports).
9
…
                                                     
5Panel Report, paras. 2.3, 2.5 – 2.7.
6Ibid., paras. 2.1 – 2.10.
7In its request for the establishment of a panel (WT/DS166/3, 4 June 1999), the European Communities
also claimed that the United States had acted  inconsistently with Article 4.2 of the  Agreement on Agriculture .
The Panel found that the European Communities had "abandoned" this claim:  Ibid., para. 8.221.
8Ibid., para. 9.1.
9Ibid. , para. 9.2.WT/DS166/AB/R
Page 3
… the United States failed to notify immediately the initiation of the
investigation under Article 12.1(a) and the finding of serious injury
under Article 12.1(b) SA.  We further conclude that, in notifying its
decision to take the measure after the measure was implemented, the
United States did not make timely notification under Article 12.1(c).
For the same reason, the United States violated the obligation ofArticle 12.3 SA to provide adequate opportunity for prior
consultations on the measure.  Hence, the United States also violated
its obligation under Article 8.1 SA to endeavour to maintain a
substantially equivalent level of concessions and other obligations to
that existing under GATT 1994 between it and the exporting
Members which would be affected by such a measure, in accordance
with Article 12.3 SA.
10
5. Having found the United States' safeguard measure to be inconsistent with Articles 2.1 and
4.2 of the  Agreement on Safeguards , the Panel did not deem it necessary to examine the claims of the
European Communities under Article XIX of the GATT 1994, and, in addition, under Article I of theGATT 1994 and Article 5 of the  Agreement on Safeguards .
11
6. The Panel recommended that the Dispute Settle ment Body ("DSB") request the United States
to bring its measure into conformity with the  Agreement on Safeguards .12
7. On 26 September 2000, the United States notified the DSB of its intention to appeal certain
issues of law covered in the Panel Report and certain legal interpretations developed by the Panel,pursuant to paragraph 4 of Article 16 of the  Understanding on Rules and Procedures Governing the
Settlement of Disputes  (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the
Working Procedures for Appellate Review  (the " Working Procedures ").  On 6 October 2000, the
United States filed its appellant's submission.
13  On 11 October  2000, the European Communities
filed an other appellant's submission.14  On 23 October 2000, the European Communities and the
United States each filed an appellee's submission.15  On the same day, Australia, Canada, and
New Zealand each filed a third participant's submission.16
8. The oral hearing in the appeal was held on 3 November 2000.  The participants and third
participants presented oral arguments and responded to questions put to them by the Members of theDivision hearing the appeal.
                                                     
10Panel Report, para. 9.3.
11Ibid. , para. 8.220.
12Ibid. , para. 9.5.
13Pursuant to Rule 21 of the  Working Procedures .
14Pursuant to Rule 23(1) of the  Working Procedures .
15Pursuant to Rules 22 and 23(3) of the  Working Procedures .
16Pursuant to Rule 24 of the  Working Procedures .WT/DS166/AB/R
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II. Arguments of the Participants and the Third Participants
A. Claims of Error by the United States – Appellant
1. Article 4.2(b) of the  Agreement on Safeguards
9. The United States argues, on appeal, that the Panel erred in finding the United States'
causation analysis to be inconsistent with Article 4.2(b) of the  Agreement on Safeguards .  For the
United States, the meaning of the word "cause", used in Article XIX:1(a) of the GATT 1994 andArticles 2.1, 4.2(a) and 4.2(b) of the  Agreement on Safeguards , is "to bring about a result, whether
alone or in combination with other factors – not 't o cause on its own.'  The plain meaning of 'causal
link' in Article 4.2(b), first sentence, is consistent with this understanding of 'to cause.'
 " 17  The United
States believes that the legal standard applied by the USITC satisfies this requirement.
10. The United States also maintains that the Pa nel did not examine adequately the meaning of
the expression "under such conditions" in Article XIX:1(a) of the GATT 1994.  Rather than attempt toisolate the causal effects of increased imports, the competent authorities should examine the effects ofimports against the background of "the totality of attendant circumstances and existing state of affairsthat lead imports to cause serious injury", "including factors that may have rendered a domesticindustry more (or less) susceptible to injury."
 18  The United States adds that the need to consider the
industry as a whole is supported by the fact that "serious injury" refers to an industry's overall
condition, rather than to some subset of inju ry attributable solely to increased imports.
11. Thus, in the United States' view, Article 4.2 does not require the isolation of imports, which
the United States contends would, in any event, involve "subjective" speculation.19  I n  i t s  v i e w ,
Article 4.2(b) requires the competent authorities to examine other causes of injury to ensure that theireffects do not sever the causal link found to exist, after examining the totality of the circumstances,between increased imports and serious injury.
20  The United States asserts that the negotiating history
of the  Agreement on Safeguards   bears out this reading of Article 4.2(b).
                                                     
17United States' appellant's submission, para. 54.
18Ibid. , paras. 59 and 60.
19Ibid., para. 73.
20Ibid. , para. 82.WT/DS166/AB/R
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2. Article 2.1 of the  Agreement on Safeguards
12. The United States requests the Appellate Body to reverse the Panel's finding that the
exclusion of Canadian products from the safeguard measure on wheat gluten is inconsistent withArticles 2.1 and 4.2 of the  Agreement on Safeguards.
13. In the view of the United States, the Panel's finding that, under Articles 2.1 and 4.2 of the
Agreement on Safeguards , "there is an implied symmetry with respect to the product that falls within
the scope of a safeguard  investigation  and the product that falls within the scope of the  application
of the safeguard measure"
 21 (emphasis in original), is inconsistent with the text of the  Agreement on
Safeguards .  Article 9.1 of the  Agreement on Safeguards   requires that imports from developing
countries be excluded from the application of a safeguard measure, but does not provide for theexclusion of such imports from the investigation, or require any finding that the imports subject to the
measure, "in and of themselves," cause serious injury.  Furthermore, in  Argentina – Safeguard
Measures on Imports of Footwear  ("Argentina – Footwear Safeguards "), the Appellate Body found
that "Articles 2.1 and 4.1(c) … do not resolve the matter of the scope of  application  of a safeguard
measure."
 22 (emphasis in original)  The United States stresses that  Argentina – Footwear Safeguards  
is distinguishable from this case because the USITC specifically examined the contribution of
Canadian imports to the serious injury sustained by the industry and found that these imports played
no significant role in that injury.  The United St ates alleges that the Panel ignored legal provisions
pertinent to the exclusion from safeguard measures of imports from partner countries in a free-tradearea, namely Article XXIV of the GATT 1994 and footnote 1 of the  Agreement on Safeguards .  The
United States also contends that the Panel failed to respect the requirement in Article 12.7 of the DSUto set out a "basic rationale" for its treatment of footnote 1.
3. Articles 8 and 12 of the  Agreement on Safeguards
14. The United States requests the Appellate Body to reverse the Panel's findings regarding
notification and consultation.  The United States contends that its notifications under Article 12.1,
subparagraphs (a), (b) and (c) were submitted "immediately" because they provided the required
information at a time that allowed Members to review them through the Committee on Safeguards,and allowed interested Members to request consultations.  The United States also believes that itcomplied with Article 12.3 by providing full information on its serious injury finding and the natureof the proposed measure, and by conducting consultations before the final decision.
                                                     
21Panel Report, para. 8.167.
22Appellate Body Report, WT/DS121/AB/R, adopted 12 January 2000, para. 112.WT/DS166/AB/R
Page 6
15. The United States argues that, while the Panel correctly recognized that Articles 8.1, 12.1,
12.2 and 12.3 are interrelated, it failed to recognize that Members may employ a variety of proceduresto comply with the obligations imposed under thes e provisions.  For example, Article 12.2 envisions a
process whereby Members may submit pertinent information in the Article 12.1(b) notification, in theArticle 12.1(c) notification, or in both.  There is no requirement that an Article 12.1(c) notification befiled before consultations, as long as prior notifications supplied the necessary information.  Similarly,there is no requirement to conduct consultations after the issuance of the decision to apply a safeguard
measure, as long as sufficient information was available to conduct consultations at a stage in the
process where those consultations would have meaning.  Through its notifications, the United Statessupplied all of the information specified in Article 12.2, including all relevant details of the proposedmeasure.  The United States considers that this  information was sufficient to allow for adequate
consultations under Article 12.3.
B. Arguments of the European Communities – Appellee
1. Article 4.2(b) of the  Agreement on Safeguards
16. The European Communities argues that the Pane l correctly concluded that the United States
applied a test of causation that is not consistent with Article 4.2(b) of the  Agreement on Safeguards .
The European Communities considers that the Panel di d not need to consider explicitly the meaning
of the term "to cause" in interpreting Article 4.2(b),  since the conclusions it reached on the meaning of
Article 4.2(b) are consistent with the ordinary meaning of the terms "to cause", "have caused" and"the causal link", as these terms are used in Article XIX:1(a) of the GATT 1994, and in Articles 2.1,4.1(a) and 4.1(b) of the  Agreement on Safeguards .  The European Communities adds that the Panel
correctly found that the term "under such conditions" in Article XIX:1(a) of the GATT 1994 andArticle 2.1 of the  Agreement on Safeguards  refers to the conditions of competition between imported
and domestic products rather than, as the United States seems to allege, to the "other relevant factors"that have a bearing on the situation of the industry under Articles 4.2(a) and 4.2(b) of the  Agreement
on Safeguards .
17. The European Communities contends that the Pane l correctly recognized that Article 4.2(b) of
the  Agreement on Safeguards  requires that increased imports  per se  cause serious injury.  As the
Appellate Body found in  Argentina – Footwear Safeguards , Article 4.2(b) sets out a causation
analysis that is separate from, and subsequent t o, the injury analysis to be undertaken pursuant to
Article 4.2(a).
23  Article 4.2(b) ensures that, when a Member is considering whether to suspend fair
trade, it may do so  if,  and only if ,  the imports are shown to cause serious injury.  The practical effect
                                                     
23Appellate Body Report, supra , footnote 22, para. 145.WT/DS166/AB/R
Page 7
of the United States' interpretation of Article 4.2(b), however, would allow a safeguard measure to be
imposed whenever there is serious injury and imports caused  any  injury.  The European
Communities submits that this cannot be the case, and adds that its own interpretation ofArticle 4.2(b) is consistent with the object and purpose of the  Agreement on Safeguards , with the
exceptional nature of safeguard measures, and with the negotiating history of the   Agreement on
Safeguards .
18. Lastly, the European Communities submits that, even if the causation standard used by the
United States could somehow be considered to be  in conformity with Article 4.2(b) of the  Agreement
on Safeguards , the United States in this case nevertheless acted inconsistently with that Article
because the USITC undertook no examination whatsoever to ensure that injury caused by otherfactors was not attributed to imports.
2. Article 2.1 of the  Agreement on Safeguards
19. As regards the Panel's findings on the exclusion of wheat gluten imports from Canada from
the application of the safeguard measure, the European Communities submits that the Panel correctlyinterpreted Articles 2.1 and 4.2 of the  Agreement on Safeguards  as containing a "symmetry" implied
by the terms "a product", "such product" and "the product concerned" in those provisions.  Contrary to
the argument of the United States, Article 9.1 of the  Agreement on Safeguards  is not inconsistent
with the existence of such an "implied symmet ry", but is rather the exception to the  Agreement on
Safeguards  that proves the rule.  The European Communities asserts that the Panel properly
recognized that, as in  Argentina – Footwear Safeguards ,  the United States could not exclude imports
from Canada on the basis of a  global  investigation concerning injury and causation that included
imports of wheat gluten  from all sources .  The European Communities highlights that the Panel made
a factual finding that the United States had not demonstrated that imports were causing serious injuryafter the exclusion of imports from Canada and that, as a legal matter, the subsequent causationanalysis applied by the USITC regarding imports from Canada did not satisfy the requirements of the
Agreement on Safeguards .
20. The European Communities adds that Article XXIV of the GATT 1994 is not relevant in this
case and that, in any event, the United States has failed to establish that it has satisfied the conditionslaid down by the Appellate Body in  Turkey – Restrictions on Imports of Textile and Clothing
Products  for the use of Article XXIV as a defence.
24  Lastly, the European Communities considers
that the Panel set out sufficient reasons for its conclusion that footnote 1 of the  Agreement on
Safeguards  did not affect its conclusions in this case.
                                                     
24Appellate Body Report, WT/DS34/AB/R, adopted 19 November 1999.WT/DS166/AB/R
Page 8
3. Articles 8 and 12 of the  Agreement on Safeguards
21. The European Communities urges the Appellate Body to uphold the findings of the Panel that
the United States did not act consistently with Articles 8 and 12 of the  Agreement on Safeguards.
According to the European Communities, the Panel rightly interpreted Article 12 as requiring that allof the procedural steps, findings and decisions set out therein must be made at a date that allows otherMembers to request consultations, to seek additional information, and to hold meaningful discussions.The United States failed to notify each event listed in Article 12.1 of the  Agreement on Safeguards   in
a timely manner.  In addition, the notification made by the United States under Article 12.1(b) was not
a notification of a "proposed measure" because its title (and therefore its legal basis) was"Article 12.1(b) notification upon making a finding of serious injury or threat thereof " and itcontained only non-binding recommendations of the USITC.  Articles 8 and 12.3 of the  Agreement
on Safeguards  impose a heavy burden regarding consultations and negotiations on a Member
proposing to alter unilaterally the balance of negotiated concessions.  The European Communitiesemphasizes that, in this case, the United States acted inconsistently with these provisions because itfailed to offer any meaningful opportunity for consultations.
C. Claims of Error by the European Communities – Appellant
1. Article 4.2(a) of the  Agreement on Safeguards
22. The European Communities challenges the Panel's interpretation of Articles 4.2(a) and 4.2(b)
of the  Agreement on Safeguards  and, in particular, its finding that, in a safeguards investigation, the
competent authorities are only required to evaluate factors that are " clearly  raised … as relevant by
the interested parties".25 (emphasis in original)  The European  Communities, therefore, requests the
Appellate Body to find that the Panel erred in its interpretation of the substantive requirements ofArticles 4.2(a) and 4.2(b) of the  Agreement on Safeguards   and to declare, on the basis of the
uncontested facts and clear record in the Panel Report, that the United States violated Articles 4.2(a)and 4.2(b) of the  Agreement on Safeguards   because the USITC Report contained no analysis of the
protein content of wheat.  According to the European Communities, this is the single, most important,
factor determining the price of wheat gluten.
23. In the view of the European Communities, the or dinary meaning of Article 4.2(a) is that the
competent authorities must gather, search, inquire into, generate and examine systematically  all  the
relevant facts that are available – not only those presented to them by interested parties.  It would bedifficult for the competent authorities to fulfill their obligation under Article 4.2(b) to ensure that
                                                     
25Panel Report, para. 8.69.WT/DS166/AB/R
Page 9
imports, taken alone, have caused serious injury, if those authorities were only obliged to evaluate
"other factors" raised by interested parties.  The European Communities considers that Articles 4.2(c)and 3.1 of the  Agreement on Safeguards   provide additional context to support its conclusion that the
competent authorities are under an obligation to investigate  all  relevant factors, and notes that such a
conclusion accords with the findings of a recent panel in the context of anti-dumping.
26
2. Article 11 of the DSU
24. The European Communities argues that the Panel erred in its interpretation and application of
Article 11 of the DSU.  The Appellate Body has established that, pursuant to Article 11 of the DSU,
the Panel was obliged to examine  all  the relevant facts and evidence, and to assess whether the
USITC provided a reasoned or adequate explanation of how the facts supported the determinationsthat were made.  The Panel, however, applied an inappropriate standard of deference, and failed toprovide an adequate and reasonable explanation for its findings.  The European Communities assertsthat the "Panel failed in this case to make an 'objective' factual and legal assessment of all relevantevidence, because it failed to provide an adequate and reasonable explanation for its findings".
27  The
European Communities provides several specific illustrations of the lack of a "sufficient basis" for thefindings made.
25. First, the European Communities contends that the Panel erred in endorsing the USITC
treatment of "productivity" when the Panel's assessment was based on "data" that could not beverified, and on "statements" made by the competent authorities whose "acts" were under review.  Inthe view of the European Communities, the Panel should have concluded that the United States failedto evaluate overall industry productivity as required by Article 4.2(a) of the  Agreement on
Safeguards .
26. Second, the European Communities argues that the Panel violated Article 11 of the DSU in its
review of the USITC determinations on profits and lo sses.  The Panel did not review the financial data
nor the allocation methodologies allegedly used by the producers, as these were all part of the
confidential information that the United States declined to submit to the Panel.  The Panel's
assessment was not "objective" because it was based on "indications" given by the USITC and"clarifications" added by the United States, as well as on the Panel's refusal to "doubt the veracity" ofthe USITC findings or to "call into question" the sc rutiny given by the USITC to data that the Panel
                                                     
26Panel report,  Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy
Steel and H-Beams from Poland , WT/DS122/R, circulated 28 September 2000, para. 7.236.  Thailand has
appealed certain issues of law and legal interpretations in that panel report, WT/DS122/4, 23 October 2000.
27European Communities' other appellant's submission, para. 25.WT/DS166/AB/R
Page 10
never received.28  The European Communities emphasizes that if the Panel had correctly assessed the
facts, it would have reached the conclusion that the USITC had not adequately analysed "profits andlosses" in accordance with Article 4.2(a) of the  Agreement on Safeguards .
27. Third, the European Communities alleges that the Panel erred in not finding that the USITC
Report was deficient because, in its causation analysis, the USITC failed to consider the proteincontent of wheat as a "relevant factor", even though the European Communities' exporters submittedevidence of the relevance of this factor to the USITC, the USITC itself acknowledged the importance
of the protein content of wheat, and the Panel had evidence before it of the high correlation between
the protein content of wheat and the price of wheat gluten.
28. The European Communities alleges finally that the Panel acted inconsistently with its
obligations under Article 11 of the DSU in failing to draw adverse inferences from the refusal of theUnited States to provide the Panel with information redacted from the USITC Report and otherinformation requested by the European Commun ities and the Panel.  The European Communities
requests the Appellate Body to reverse the findings that resulted from such errors, in particular, the
Panel's findings that the United States acted consistently with Articles 2.1 and 4 of the  Agreement on
Safeguards   in redacting certain confidential informa tion from the USITC Report, and in determining
the existence of imports in "increased quantities" and serious injury.  For the European Communities,
the Panel erred in according significance to the argument of the United States that Article 3.2 of theAgreement on Safeguards   allows it to withhold information from the Panel.  The Panel's failure to
obtain the information withheld by the United States on the basis of its allegedly confidential nature,coupled with its failure to draw the necessary advers e inferences from the refusal of the United States,
amounted to an error of law.
3. Judicial Economy
29. The European Communities asks the Appellate Body to reverse the Panel's exercise of
judicial economy in declining to rule on the claim made under Article XIX:1(a) of the GATT 1994.
The European Communities argues, on the basis of the Appellate Body Reports in  Argentina –
Footwear Safeguards  and  Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products  ("Korea – Dairy Safeguard ") 29, that a safeguard investigation must include an investigation
of  "unforeseen developments".  In this case, the USITC Report contains no analysis or demonstrationof "unforeseen developments".  The European Communities concludes that the Panel erred indeclining to rule on the Article XIX:1(a) claim, and that the Appellate Body should itself rule on that
                                                     
28European Communities' other appellant's submission, para. 65.
29Appellate Body Report, WT/DS98/AB/R, adopted 12 January 2000.WT/DS166/AB/R
Page 11
claim, because, in this case – in contrast to  Argentina – Footwear Safeguards  – the Panel found that
the United States' determinations of imports in "increased quantities" and "serious injury" were  not 
inconsistent with Articles 2.1 and 4.2 of the  Agreement on Safeguards .
30. The European Communities also requests the Appellate Body to reverse the Panel's exercise
of judicial economy in declining to rule on the claims made under Article I of the GATT 1994 andArticle 5.1 of the  Agreement on Safeguards , and to go on to determine, on the basis of the
uncontested facts in the record, that the United States acted inconsistently with these provisions.  The
Panel's failure to rule on the claim under Article 5.1 of the  Agreement on Safeguards   means that the
United States "could simply repeat the serious injury determination and … proceed to apply themeasure in the same way."
 30
D. Arguments of the United States – Appellee
1. Article 4.2(a) of the  Agreement on Safeguards
31. The United States urges the Appellate Body to reject the European Communities' appeal on
the factors that the competent authorities must asse ss in their safeguard investigation.  According to
the United States, the Panel correctly determined th at the only information pertinent to a panel's
assessment of whether the competent authorities adequately evaluated relevant factors under
Article 4.2 of the  Agreement on Safeguards   is information those authorities considered in the course
of their investigation.  The European Communities, in contrast, argues that the Panel should haverelied on information that was not before the USITC.  However, the  Agreement on Safeguards 
assigns the task of carrying out investigations to co mpetent authorities.  Thus, for the United States, a
panel examining the "facts of the case" under Article 11 of the DSU must examine and assess whatthe competent authorities did in the course of  their  investigation, not seek to establish additional
facts on whether increased imports may or may not have caused serious injury to the domesticindustry.
32. According to the United States, the position of the European Communities would undermine
the investigative process set out in the  Agreement on Safeguards, including important procedural
protections built into that Agreement.  The United States accepts that, in some cases, a panel will needto assess whether the competent authorities failed to  discharge their responsibilities to investigate and
to make determinations based on objective ev idence.  In this case, however, the European
Communities seeks to present a panel with information that it, and its wheat gluten producers, failed
                                                     
30European Communities' other appellant's submission, para. 108.WT/DS166/AB/R
Page 12
to present to the USITC.  The United States adds that it is not clear that the USITC could itself have
obtained the information that the European Communities presented to the Panel.
2. Article 11 of the DSU
33. The United States argues that the Panel acted in accordance with Article 11 of the DSU.  In
the view of the United States, the nature of the examination that a panel must conduct in order tomake an objective assessment of the matter before it depends on the nature of the legal obligation atissue.  A panel reviewing a matter arising under Article 4 of the  Agreement on Safeguards   must
assess whether the competent authorities have, in  their  investigation, evaluated the relevant objective
factors, demonstrated a causal link between increased imports and serious injury on the basis ofobjective evidence, and made a detailed analysis demonstrating the relevance of the factors examined.The only information pertinent to such an asse ssment is information the competent authorities
considered in the course of their investigation and not, as the European Communities argues,information that was not before these authorities.
34. The United States contests the European Communities' claim that the Panel erred in finding
that it had a sufficient basis to conduct an objective assessment.  For the United States, this argumentinvolves factual findings of the Panel and is thus outside the scope of appellate review.  In any event,
the United States argues that the Panel properly found that the USITC Report provides adequate,
reasoned and reasonable explanations with respect to productivity and profits and losses.  The UnitedStates contends that the Panel's findings with respect to the USITC consideration of productivityshould be upheld because they were based on data and statements contained in the USITC Reportregarding worker productivity and industry capital investment.  Thus, the Panel correctly found that itis clear from the USITC Report that the USITC examined productivity as required by Article 4.2(a) ofthe  Agreement on Safeguards .  Similarly, as regards profits and losses, the USITC reviewed the
allocation methodologies used by domestic producers and found them to be appropriate, and, beforethe Panel, the United States clarified and elaborated on the methodologies examined.  In the view of
the United States, the Panel was not required itself to verify the allocation of profits and losses as part
of its objective assessment.
35. The United States further contends that, in its arguments on the protein content of wheat, the
European Communities ignores the fact that the US ITC fully examined trends in demand, including
the possible impact of changes in the protein content.  The USITC was only required to evaluate thosefactors enumerated in Article 4.2(a) of the  Agreement on Safeguards   as well as any other relevant
factors " clearly  raised" by interested parties.  The competent authorities are not obliged to "guess"
 31
                                                     
31United States' appellee's submission, para. 90.WT/DS166/AB/R
Page 13
the relevance of factors not raised by the interested parties, particularly when, as here, the interested
parties have clearly argued the relevance of some factors but not of others.  The United Statescautions that the ability of competent authorities to conduct investigations would be undermined if
one Member could rely on the failure of its exporters to inform the competent authorities of a relevantfactor in order to argue that another Member acted inconsistently with the  Agreement on Safeguards .
36. The United States considers that the Panel act ed within its discretion in declining to draw
adverse inferences against the United States.  The Appellate Body Report in  Canada – Measures
Affecting the Export of Civilian Aircraft   ("Canada – Aircraft
  ") 32 does not apply in this case, since the
United States did not refuse to provide information.  Rather, the USITC was obliged, underArticle 3.2 of the  Agreement on Safeguards , not to disclose confidential business information
provided to it by interested parties.  The United States also points out that the European Communities
has not explained why an inference should have been drawn that the information requested waswithheld  because  it was adverse to the United States' position in this case.
3. Judicial Economy
37. The United States submits that the Appellate Body should reject the European Communities'
claims under Article XIX:1(a) of the GATT 1994, as well as under Article I of the GATT 1994 and
Article 5 of the  Agreement on Safeguards .  The United States argues that the Appellate Body cannot
examine either of these claims because they both involve factual matters upon which the Panel madeno findings, and the relevant facts are disputed.  The United States adds that, under Article XIX:1(a)of the GATT 1994, the USITC was not required to conduct a separate investigation and make aspecific finding that the surge of wheat gluten impor ts resulted from "unforeseen developments".  The
United States also submits that it acted consistently with Article 5.1 and 5.2(a) of the  Agreement on
Safeguards   in the application of its safeguard measure.
E. Arguments of the Third Participants
1. Australia
38. At the oral hearing, Australia recorded its agreement with the Panel's conclusions regarding
the causation requirement set out in the  Agreement on Safeguards , in particular the Panel's statement
that "Article 4.2(a) and (b) SA require that increased imports  per se  are causing serious injury." 33
Australia considers that the approach proposed by the United States would effectively write the
causation requirement out of the  Agreement on Safeguards  and undermine the effectiveness of the
                                                     
32Appellate Body Report, WT/DS70/AB/R, adopted 20 August 1999.
33Panel Report, para. 8.143.WT/DS166/AB/R
Page 14
rules set out in that Agreement.  Australia also  urges the Appellate Body to dismiss the European
Communities' appeal regarding the Panel's exercise of judicial economy in respect of the claims underArticle 5 of the  Agreement on Safeguards  and Article I of the GATT 1994.  Australia submits that,
as a matter of law, the Appellate Body should not consider this issue unless it is necessary to resolvethe dispute.  However, in Australia's view, ther e are insufficient factual findings to allow the
Appellate Body to resolve the issue.
2. Canada
39. Canada maintains that the Panel erred in concluding that the United States did not act
consistently with Articles 2.1 and 4.2 of the  Agreement on Safeguards  by excluding imports of wheat
gluten from Canada from the scope of its safeguard measure.  Canada notes that, in  Argentina –
Footwear Safeguards , the Appellate Body said that Articles 2.1 and 4.1(c) "do not resolve the matter
of the scope of  application  of a safeguard measure." 34  For Canada, it follows that, if the scope of
application  of a safeguard measure cannot be resolved with Article 2.1, then, logically, there can be
no general rule of "symmetry" in that provision.  The non-application of a safeguard measure toimports from a free-trade area partner is not inconsistent with Article 2.2 of the  Agreement on
Safeguards  when – as in this case – a separate investigation determines that such imports are not
contributing importantly to the serious injury.  Such an approach ensures consistency between the
scope of the measure and the products causing the serious injury, and gives the last sentence offootnote 1 to the  Agreement on Safeguards  a meaning consistent with Article XXIV of the
GATT 1994.  In this regard, Canada adds that the Panel should have examined the relevance ofArticles XIX and XXIV of the GATT 1994.
40. As regards the appeal by the European Communities on the Panel's failure to draw adverse
inferences from the refusal of the United States to provide certain requested information, Canadarecalls that in  Canada – Aircraft , the Appellate Body recognized that there are circumstances in
which a refusal to provide information may be justified.  Thus, Canada concludes, panels should
exercise extreme prudence in drawing adverse inferences from a refusal to provide documents.
3. New Zealand
41. New Zealand submits that the Panel correctly found that the causation analysis applied by the
USITC was inconsistent with Article 4.2(b) of the  Agreement on Safeguards .  For New Zealand,
Article 4.2(b) requires a direct causal link between increased imports and serious injury.  The secondsentence of Article 4.2(b) requires that, when there are multiple causes of serious injury, injury due to
                                                     
34Appellate Body Report, supra , footnote 22, para. 112.WT/DS166/AB/R
Page 15
other factors should not be counted towards, or attributed to, the injury caused by increased imports.
For New Zealand, the causation analysis applied by the USITC is inconsistent with this standardbecause it allows injury caused by other factors to be imputed to increased imports, and licenses theUSITC to ignore other factors contributing to serious injury, as long as the contribution of anyindividual such factor is less important than the contribution of increased imports.
42. As regards the exclusion of imports from Canada from the safeguard measure, New Zealand
accepts that a member of a free-trade area may exclude its free-trade area partners from the
application of safeguard measures, but insists that where a member of a free-trade area does so, it
must, under the terms of the  Agreement on Safeguards , ensure that the imports to which the safeguard
measure is applied are the same imports that cause serious injury.  New Zealand agrees with the Panelthat, in this case, the United States failed to respect this requirement of "symmetry".
43. New Zealand argues that the Panel wrongly applied the standard of review set out in
Article 11 of the DSU by excluding from its consideration evidence that would or should have beenknown to the competent authorities but was not specifically presented to the USITC by interestedparties.  New Zealand also submits that the Panel correctly interpreted Article 12 of the  Agreement on
Safeguards  and concluded that the United States failed to comply with the notification and
consultation requirements set out in that provision.  In New Zealand's view, a notification under
Article 12.1(c) of that Agreement must contain in formation concerning the proposed measure and be
made at such time as to provide adequate opportunity for prior consultations.
III. Issues Raised in this Appeal
44. This appeal raises the following issues:
(a) whether the Panel erred in finding, in paragraph 8.69 of the Panel Report, that, under
Article 4.2(a) of the  Agreement on Safeguards , competent authorities are required to
evaluate only the "relevant factors" listed in Article 4.2(a) of that Agreement as wellas any other "factors" which were " clearly   raised before [the competent authorities]
as relevant by the interested parties in the domestic investigation";
(b) whether the Panel erred in interpreting Article 4.2(b) of the  Agreement on
Safeguards  to mean that increased imports "alone", "in and of themselves", or
"per se ", must be capable of causing "serious injury";WT/DS166/AB/R
Page 16
(c) whether the Panel erred in finding, in paragraph 8.182 of the Panel Report, that the
United States acted inconsistently with Articles 2.1 and 4.2 of the  Agreement on
Safeguards , by excluding imports from Canada from the application of the safeguard
measure, after conducting an investigation embracing imports from all sources,including Canada, to determine whether increased imports of wheat gluten werecausing or threatening to cause serious injury to the United States industry, and aftersubsequently conducting a separate examination of the importance of imports from
Canada to the situation of the domestic industry;
(d) whether the Panel erred in its interpretation and application of Articles 8 and 12 of the
Agreement on Safeguards , in particular, by finding that:
(i) the United States acted inconsistently with its obligations to make
"immediate" notification under Article 12.1 of the  Agreement on Safeguards ;
(ii) the United States acted inconsistently with Article 12.3 of the  Agreement on
Safeguards   by failing to provide an adequate opportunity for consultations
on the measure prior to its implementation;  and
(iii) the United States acted inconsistently with Article 8.1 of the  Agreement on
Safeguards ;
(e) whether the Panel erred in its interpretation and application of Article 11 of the DSU,
in particular:
(i) in its finding on the USITC's treatment of "productivity" in paragraph 8.46 of
the Panel Report;
(ii) in its finding on the USITC's treatment of "profits and losses" in
paragraph 8.66 of the Panel Report;
(iii) by failing to examine the arguments made by the European Communities
concerning the overall relationship between the protein content of wheat and
the price of wheat gluten;  and
(iv) by declining to draw "adverse" infe rences from the refusal of the United
States to provide certain allegedly confidential information requested from itby the Panel under Article 13.1 of the DSU;  andWT/DS166/AB/R
Page 17
(f) whether the Panel erred in its exercise of judicial economy, in paragraph 8.220 of the
Panel Report, in not examining the claims of the European Communities underArticle XIX:1(a) of the GATT 1994, and also under Article 5 of the  Agreement on
Safeguards  and Article I of the GATT 1994.
IV. Article 4.2(a) of the  Agreement on Safeguards
45. Before the Panel, the European Communities argued that the USITC failed to evaluate "all
relevant factors", as required by Article 4.2(a) of the  Agreement on Safeguards , because the USITC
did not examine the relationship between the protein content of wheat and the price of wheat gluten.
According to the European Communities, this relationship is the "single, most important, factordetermining the price of wheat gluten".
35
46. The Panel stated that Article 4.2(a) of the  Agreement on Safeguards  "requires a
demonstration that the competent authorities evaluated 'all relevant factors' enumerated inArticle 4.2(a) as well as other relevant factors."
 36  The Panel added:
We read this requirement in Article 4.2(a) SA as mandating that the
investigating authorities evaluate those "factors" enumerated in
Article 4.2(a) SA as well as any other relevant "factors" -- in the sense
of factors that are  clearly  raised before them as relevant by the
interested parties in the domestic investigation.37 (underlining added)
47. The Panel observed that the USITC "considered all the factors expressly enumerated in
Article 4.2(a) SA".38  The Panel also noted that the parties "do not dispute that the USITC [also]
considered wages, inventories and price." 39  However, the Panel found that the USITC was not
required to examine the relationship between the protein content of wheat and the price of wheat
gluten, as regards "the post-1994 segment of the period of investigation", because this issue was not"clearly raised" before the USITC by the interested parties.
40
48. On appeal, the European Communities argues that the Panel erred in interpreting
Article 4.2(a) of the  Agreement on Safeguards   to mean that the competent authorities need only
evaluate the "relevant factors" listed in Article 4.2(a), as well as any other "factors" which were"clearly   raised before them as relevant by the in terested parties".  According to the European
                                                     
35European Communities' other appellant's submission, para. 88.
36Panel Report, para. 8.69.
37Ibid.
38Ibid. , para. 8.41.
39Ibid.
40Ibid. , para. 8.125.WT/DS166/AB/R
Page 18
Communities, the competent authorities should investig ate "all the relevant facts that are available –
and not only those presented to them – in order to conduct an assessment of the facts as a whole."  41
(underlining in original)
49. The relevant part of Article 4.2(a) of the  Agreement on Safeguards   reads:
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 this Agreement, the competent authorities shall evaluate all
relevant factors of an objec tive and quantifiable nature having a
bearing on the situati on 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 increasedimports, changes in the level of sales, production, productivity, capacity
utilization, profits and losses, and employment. (emphasis added)
50. We have already had occasion to observe that:
… Article 4.2(a) of the Agreement on Safeguards  requires a
demonstration that the competent authorities evaluated, at a minimum,
each of the factors listed in Article 4.2(a) as well as  all other factors
that are relevant  to the situation of the industry concerned .
 42
(emphasis added)
51. In this appeal, we are asked to address further the scope of the competent authorities'
obligation, under Article 4.2(a), to evaluate " all  relevant factors". (emphasis added)  The word "all"
has a broad meaning which, if read alone, would suggest that the scope of the obligation on thecompetent authorities to evaluate "relevant factors" is without limits or exceptions.
43  However, the
word cannot, of course, be read in isolation.  As the European Communities acknowledges 44, the text
of Article 4.2(a) itself imposes certain explicit qualifications on the obligation to evaluate "all relevant
factors" as it states that competent authorities need only evaluate factors which are "objective andquantifiable" and which "[have] a bearing on the situation of that industry".
52. The obligation to evaluate "relevant factors" must also be interpreted in light of the duty of
the competent authorities to conduct an "investigation" under the  Agreement on Safeguards .  The
competent authorities must base their evaluation of th e relevance, if any, of a factor on evidence that
is "objective and quantifiable".  The competent auth orities will, in principle, obtain this evidence
                                                     
41European Communities' other appellant's submission, para. 80.
42Appellate Body Report,  Argentina – Footwear Safeguards, supra , footnote 22, para. 136.
43The New Shorter Oxford English Dictionary , (Brown, ed.) (Clarendon Press, 1993), Vol. I, p. 52,
indicates that, when the word "all" is used as an adjective preceding a noun in the plural form (as in "all …
factors"), it means "The entire number of;  the individual constituents of, without exception."
44European Communities' other appellant's submission, para. 79.WT/DS166/AB/R
Page 19
during the investigation they must conduct, under Article 3.1, into the situation of the domestic
industry.  The scope of the obligation to evaluate "all relevant factors" is, therefore, related to thescope of the obligation of competent authorities to conduct an investigation.
53. We turn, therefore, for context, to Article 3.1 of  Agreement on Safeguards , which is entitled
"Investigation ".  Article 3.1 provides that "A Member may apply a safeguard measure only following
an  investigation  by the competent authorities of that Member …". (emphasis added)  The ordinary
meaning of the word "investigation" suggests that the competent authorities should carry out a
"systematic inquiry" or a "careful study" into the matter before them.
45  The word, therefore, suggests
a proper degree of activity on the part of the competent authorities because authorities charged withconducting an inquiry or a study – to use the treaty language, an "investigation" – must actively seekout pertinent information.
54. The nature of the "investigation" required by the  Agreement on Safeguards  is elaborated
further in the remainder of Article 3.1, which sets forth certain investigative steps that the competentauthorities " shall include " in order to seek out pertinent information. (emphasis added)  The focus of
the investigative steps mentioned in Article 3.1 is on "interested parties", who must be notified of theinvestigation, and who must be given an opportunity to submit "evidence", as well as their "views", to
the competent authorities.  The interested parties are also to be given an opportunity to "respond to the
presentations of other parties".  The  Agreement on Safeguards , therefore, envisages that the interested
parties play a central role in the investigation and that they will be a primary source of information forthe competent authorities.
55. However, in our view, that does  not  mean that the competent authorities may limit their
evaluation of "all relevant factors", under Article 4.2(a) of the  Agreement on Safeguards , to the
factors which the interested parties have raised as relevant.  The competent authorities must, in everycase, carry out a full investigation to enable them to conduct a proper evaluation of all of the relevantfactors expressly mentioned in Article 4.2(a) of the  Agreement on Safeguards .
46  Moreover,
Article 4.2(a) requires the competent authorities – and  not the interested parties  – to evaluate fully
the relevance, if any, of "other factors".  If the competent authorities consider that a particular "other
factor" may be relevant to the situation of the domestic industry, under Article 4.2(a), their duties ofinvestigation and evaluation preclude them from remaining passive in the face of possible short-comings in the evidence submitted, and views expres sed, by the interested parties.  In such cases,
where the competent authorities do not have sufficient information before them to evaluate thepossible relevance of such an "other factor", they must investigate fully that "other factor", so that
                                                     
45The New Shorter Oxford English Dictionary,  supra , footnote 43, Vol. I, p. 1410.
46Appellate Body Report,  Argentina – Footwear Safeguards , supra , footnote 22, para. 136.WT/DS166/AB/R
Page 20
they can fulfill their obligations of evaluation under Article 4.2(a).  In that respect, we note that the
competent authorities' "investigation" under Article 3.1 is  not limited  to the investigative steps
mentioned in that provision, but must simply " include " these steps.  Therefore, the competent
authorities must undertake additional investigative st eps, when the circumstances so require, in order
to fulfill their obligation to evaluate all relevant factors.
56. Thus, we disagree with the Panel's finding th at the competent authorities need only examine
"other factors" which were " clearly  raised before them as relevant by the interested parties in the
domestic investigation." 47 (emphasis added)  However, as is clear from the preceding paragraph of
this Report, we also reject the European Commun ities' argument that the competent authorities have
an open-ended and unlimited duty to investigate all available facts that might possibly be relevant.48
57. In order to complete the Panel's analysis, we now examine the European Communities' claim
that the USITC should have examined the overall relationship between the protein content of wheatand the price of wheat gluten as a "relevant factor", under Article 4.2(a) of the  Agreement on
Safeguards.   We note that this overall relationship was not "evaluated" by the USITC as a "relevant
other factor" under Article 4.2(a) of the  Agreement on Safeguards .  However, the USITC Report is
not silent on the importance of the protein content of wheat.  The USITC stated that:
… Demand for wheat gluten is closely tied to the protein content of
each year's wheat crop .  Should the quantity and quality of protein
naturally occurring in the wheat supply be low, then bakers
consume more wheat gluten  to supplement the lack of protein in the
wheat. … 
49 (emphasis added)
The USITC also noted that "when the  protein level in wheat is high ,  less wheat gluten is demanded
to add to the baking flour." 50 (emphasis added)  The USITC observed that a steep rise, in 1994, in the
demand for, and price of, wheat gluten "resulted at least in part from a weather-related deficiency inprotein content in the wheat crops of the major producing countries, including the United States,during 1993."
 51
58. In our view, the USITC clearly acknowledged that the protein content of wheat has an
important influence on the demand for, and the price of, wheat gluten.  However, the evidence ofrecord indicates that it is only when the protein content of wheat is  unusually  high or low that this
                                                     
47Panel Report, para. 8.69.
48See, supra , para. 48, for a summary of the European Communities' argument.
49USITC Report, p. II-9.
50Ibid. , p. I-23.
51Ibid. , pp. I-22 and I-23.WT/DS166/AB/R
Page 21
factor merits "evaluation" as a "relevant factor" b ecause it is only in that situation that the protein
content of wheat has a noteworthy effect on fluctuations in the demand for, and price of, wheat gluten.The only year of the investigative period in which the protein content of wheat was unusually high orlow was in 1993, and this resulted in increased demand and higher prices for wheat gluten solely in1994.  There is no evidence to suggest that during 1996 and 1997, when the surge in importsoccurred
 52, the protein content of wheat was unusual to such a degree that this factor had a noteworthy
effect on fluctuations in the price of wheat gluten.  It follows that there is no reason to conclude that
the USITC was required to "evaluate" the protein content of wheat as a particular "relevant factor"
under Article 4.2(a) of the  Agreement on Safeguards   in 1996 and 1997.
59. Accordingly, albeit for different reasons, we upho ld the Panel's finding that the United States
has not acted inconsistently with Articles 4.2(a) and 4.2(b) of the  Agreement on Safeguards  by not
examining the overall relationship between the protein content of wheat and the price of wheat glutenwith respect to the post-1994 segment of the period of investigation.
53
V. Article 4.2(b) of the  Agreement on Safeguards
60. In addressing causation, the Panel described the issue before it as:
… whether … the USITC satisfied the requirements in Article
4.2(b) SA to demonstrate the cau sal link between the increased
imports and the serious injury, and not to attribute to imports injury
caused by other factors.54
61. The Panel observed that Article 4.2(b) of the  Agreement on Safeguards   "contains an explicit
textual link to Article 4.2(a)" of that Agreement.  Reading these two provisions together, the Panelopined:
                                                     
52USITC Report, p. I-23.
53Panel Report, para. 8.127.
54Ibid. , para. 8.136.WT/DS166/AB/R
Page 22
… Article 4.2(a) and (b) require a Member:  (i) to demonstrate the
existence of the causal link between increased imports and  serious
injury;  and (ii) not to attribute injury being caused by other factors to
the domestic industry at the same time to increased imports.  We
consider that, read together, these two propositions require that a
Member demonstrate that the increased imports, under the conditions
extant in the marketplace, in and of themselves , cause  serious  injury.
This is not to say that the imports must be the sole causal factor
present in a situation of serious injury.  There may be multiple factors
present in a situation of serious injury to a domestic industry.
However, the increased imports must be sufficient, in and of
themselves, to cause injury which achieves the threshold of "serious"
as defined in the Agreement.55 (underlining added)
62. The Panel reiterated this interpretation in other ways.  It stated that:
… where a number of factors, one of which is increased imports, are
sufficient  collectively  to cause a "significant overall impairment of
the position of the domestic industry", but increased imports alone are
not causing injury that achieves the threshold of "serious" within the
meaning of Article 4.1(a) of the Agreement, the conditions forimposing a safeguard measure are not satisfied.
56 (underlining added)
63. The Panel concluded that "Article 4.2(a) and (b) SA require that increased imports  per se  are
causing serious injury." 57
64. The United States argues, on appeal, that the Panel erred in interpreting Article 4.2(b) to mean
that increased imports must be sufficient, in and of themselves, to cause injury that is "serious".  Itcontends that the word "cause" means "to bring about a result, whether alone or in combination withother factors – not 'to cause on its own.'  The plain meaning of 'causal link' in Article 4.2(b), firstsentence, is consistent with this understanding of 'to cause'.
 " 58  According to the United States, the
last sentence of Article 4.2(b) is intended to ensure that other factors do not negate the causal linkfound to exist, after examining the totality of the circumstances, between increased imports and
serious injury.
59
65. The issue of causation plays a central role in any safeguards investigation.  In that respect,
Article 4.2(b) of the  Agreement on Safeguards   provides as follows:
                                                     
55Panel Report, para. 8.138.
56Ibid., para. 8.139.
57Ibid. , para. 8.143.
58United States appellant's submission, para. 54.
59Ibid. , para. 82.WT/DS166/AB/R
Page 23
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 the domestic
industry at the same time, such injury shall not be attributed to
increased imports . (emphasis added)
66. In essence, the Panel has read Article 4.2(b) of the  Agreement on Safeguards   as establishing
that increased imports must make a particular contribution to causing the serious injury sustained bythe domestic industry.  The level of the contribution the Panel requires is that increased imports,looked at " alone "
 60, "in and of themselves " 61, or " per se " 62, must be capable of causing injury that is
"serious".  It seems to us that the Panel arrived at this interpretation through the following steps ofreasoning:  first, under the first sentence of Article 4.2(b), there must be a "causal link" betweenincreased imports and serious injury;  second, the non-"attribution" language of the last sentence ofArticle 4.2(b) means that the effects caused by increased imports must be  distinguished  from  the
effects caused by other factors;  third, the effects caused by other factors must, therefore, be  excluded
totally from the determination of serious injury so as to ensure that these effects are not "attributed" to
the increased imports;  fourth, the effects caused by increased imports  alone , excluding the effects
caused by other factors, must, therefore, be capable of causing serious injury.
63
67. We begin our reasoning with the first sentence of Article 4.2(b).  That sentence provides that
a determination "shall not be made unless [the] investigation demonstrates … the existence of  the
causal link  between increased imports … and serious injury or threat thereof." (emphasis added)
Thus, the requirement for a determination, under Article 4.2(a), is that "the causal link" exists.  Theword "causal" means "relating to a cause or caus es", while the word "cause", in turn, denotes a
relationship between, at least, two elements, whereb y the first element has, in some way, "brought
about", "produced" or "induced" the existence of the second element.
64  The word "link " indicates
simply that increased imports have played a part in, or contributed to, bringing about serious injury sothat there is a causal "connection"
 65 or "nexus" between these two elements.  Taking these words
together, the term "the causal link" denotes, in our view, a relationship of cause and effect such thatincreased imports contribute to "bringing about", "producing" or "inducing" the serious injury.
                                                     
60Panel Report, para. 8.139.
61Ibid. , para. 8.138.
62Ibid. , para. 8.143.
63We base our understanding of the Panel's reasoning on paragraphs 8.138, 8.139, 8.140 and 8.143 of
the Panel Report.
64The New Shorter Oxford English Dictionary , supra , footnote 43, Vol. I, pp. 355 and 356.
65Ibid. , p. 1598.WT/DS166/AB/R
Page 24
Although that contribution must be sufficiently clear as to establish the existence of "the causal link"
required, the language in the first sentence of Article 4.2(b) does  not  suggest that increased imports
be  the sole cause of the serious injury, or that " other   factors" causing injury must be excluded from
the determination of serious injury.  To the cont rary, the language of Article 4.2(b), as a whole,
suggests that "the causal link" between increased imports and serious injury may exist,  even though
other factors are also contributing, "at the same time", to the situation of the domestic industry .
68. It is precisely because there may be several factors, besides increased imports, contributing
simultaneously to the situation of the domestic industry that the last sentence of Article 4.2(b) states
that competent authorities "shall not … attribute" to increased imports injury caused by other factors.The opening clause of that sentence indicates, to us, that this sentence provides rules that apply when"increased imports" and certain "other factors" are, together, "causing injury" to the domestic industry"at the same time".  The last clause of the sentence stipulates that, in that situation, the injury caused
by other factors "shall not be  attributed  to increased imports". (emphasis added)  Synonyms for the
word "attribute" include "assign" or "ascribe".
66  Under the last sentence of Article 4.2(b), we are
concerned with the proper "attribution", in this sense, of "injury" caused to the domestic industry by"factors other than increased imports".  Clearly, the process of attributing "injury", envisaged by this
sentence, can only be made following a separation of the "injury" that must then be properly
"attributed".  What is important in this process is separating or distinguishing the  effects  caused by
the different factors in bringing about the "injury".
69. Article 4.2(b) presupposes, therefore, as a first step in the competent authorities' examination
of causation, that the injurious effects caused to the domestic industry by increased imports aredistinguished from  the injurious effects caused by other factors.  The competent authorities can then,
as a second step in their examination, attribute to increased imports, on the one hand, and, byimplication, to other relevant factors, on the other hand, "injury" caused by all of these differentfactors, including increased imports.  Through th is two stage process, the competent authorities
comply with Article 4.2(b) by ensuring that an y injury to the domestic industry that was  actually
caused by factors other than increased imports is not "attributed" to increased imports and is,therefore, not treated as if it were injury caused by increased imports, when it is not.  In this way, thecompetent authorities determine, as a final step, whether "the causal link" exists between increased
imports and serious injury, and whether this causal link involves a genuine and substantialrelationship of cause and effect between these two elements, as required by the  Agreement on
Safeguards .
67
                                                     
66The New Shorter Oxford English Dictionary , supra , footnote 43, Vol. I, p. 145.
67See, supra , para. 67.WT/DS166/AB/R
Page 25
70. The need to ensure a proper attribution of "injury" under Article 4.2(b) indicates that
competent authorities must take account, in their de termination, of the effects of increased imports  as
distinguished from  the effects of other factors.  However, the need to distinguish between the effects
caused by increased imports and the effects caused by other factors does  not  necessarily imply, as
the Panel said, that increased imports  on their own  must be capable of causing serious injury, nor
that injury caused by other factors must be  excluded  from the determination of serious injury.
71. We consider that Article 4.2(a) of the  Agreement on Safeguards , which is explicitly referred
to in Article 4.2(b), indicates that "other factors" have to be taken into account in the competent
authorities' determination of serious injury.  Article 4.2(a) sets forth the factors which the competentauthorities " shall evaluate " in "determin[ing] whether increased imports have caused or are
threatening to cause serious injury to a domestic industry…".  Under that provision, the competentauthorities must evaluate "all relevant factors … having a  bearing  on the situation of [the] industry".
(emphasis added)  In evaluating the relevance of a particular factor, the competent authorities must,therefore, assess the "bearing", or the "influence" or "effect"
 68 that factor has on the overall situation
of the domestic industry, against the background of all the other relevant factors.
72. The use of the word "all" in the phrase "all relevant factors" in Article 4.2(a) indicates that the
effects of  any  factor may be relevant to the competent authorities' determination, irrespective of
whether the particular factor relates to imports specifically or to the domestic industry more generally.This conclusion is borne out by the list of factors which Article 4.2(a) stipulates are, "in particular",relevant to the determination.  This list includes factors that relate  both  to imports specifically  and 
to the overall situation of the domestic industry more generally.  The language of the provision doesnot distinguish between, or attach special importance or  preference to, any of the listed factors.  In our
view, therefore, Article 4.2(a) of the  Agreement on Safeguards   suggests that all these factors are to
be  included   in the determination and that the contribution of each relevant factor is to be counted in
the determination of serious injury according to its "bearing" or effect on the situation of the domestic
industry.  Thus, we consider that Article 4.2(a) do es not support the Panel's conclusion that some of
the "relevant factors" – those related exclusively to increased imports – should be counted towards anaffirmative determination of serious injury, while others – those not related to increased imports –should be excluded from that determination.
69
73. We believe that Articles 4.2(a) and 4.2(b) of the  Agreement on Safeguards   must be given a
mutually consistent interpretation, particularly in light of the explicit textual connection between these
two provisions.  According to the opening clause of  Article 4.2(b) – "The determination referred to in
                                                     
68The New Shorter Oxford English Dictionary , supra , footnote 43, Vol. I, pp. 199.
69See, supra , para. 66, for our summary of the Panel's reasoning.WT/DS166/AB/R
Page 26
subparagraph (a) shall not be made unless…" –  both  provisions lay down rules governing a  single
determination, made under Article 4.2(a).  In our view, it would contradict the requirement inArticle 4.2(a) to evaluate – and, thereby, include in the determination – the "bearing" or effect  all  the
relevant factors have on the domestic industry, if those same  effects, caused by those same  factors,
were, with the exception of increased imports, to be excluded under Article 4.2(b), as the Panelsuggested.
74. We note, in addition, that our understanding of the factors to be taken into account under
Articles 4.2(a) and 4.2(b) is borne out by the definition of "serious injury" given in Article 4.1(a).
The term "serious injury" is defined as "a significant  overall   impairment in the position of a domestic
industry". (emphasis added)  The breadth of this term al so suggests that all factors relevant to the overall
situation of the industry should be included in  the competent authorities' determination.
75. We are further fortified in our interpretation of Articles 4.2(a) and 4.2(b) of the  Agreement on
Safeguards   by our reading of Article 2.1 of that Agreement.  That provision reads:
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)
76. Article 2.1 reflects closely the "basic principles"
 70 in Article XIX:1(a) of the GATT 1994 and
also sets forth "the conditions for imposing a safeguard measure" 71, including those relating to
causation.  The rules on causation, which are elaborated further in the remainder of the  Agreement on
Safeguards , therefore, find their roots in Article 2.1.  According to that provision, a safeguard
measure may be applied if a "product is being imported … in such increased quantities  … and under
such conditions  as to cause  …" serious injury.  Thus, under Article 2.1, the causation analysis
embraces two elements:  the first relating to increased "imports" specifically and the second to the"conditions" under which imports are occurring.
77. Each of these two elements is, in our view, elaborated further in Article 4.2(a).  While
Article 2.1 requires account to be taken of the "increased quantities" of imports, both in "absolute"terms and "relative to domestic production", Article 4.2(a) states, correspondingly, that "the rate and
                                                     
70Preamble to the  Agreement on Safeguards .
71Appellate Body Report,  Argentina – Footwear Safeguards, supra , footnote 22, para. 112.WT/DS166/AB/R
Page 27
amount of the increase in imports of the product concerned in absolute and relative terms, [and] the
share of the domestic market taken by increased imports" are relevant.
78. As for the second element under Article 2.1, we see it as a complement to the first.  While the
first element refers to increased imports specific ally, the second relates more generally to the
"conditions" in the marketplace for the product concerned that may influence the domestic industry.Thus, the phrase "under such conditions" refers generally to the prevailing "conditions", in themarketplace for the product concerned, when the increase in imports occurs.  Interpreted in this way,
the phrase "under such conditions" is a shorthand reference to the remaining factors listed in
Article 4.2(a), which relate to the overall state of the domestic industry and the domestic market, aswell as to other factors "having a bearing on the situation of [the] industry".  The phrase "under suchconditions", therefore, supports the view that, under Articles 4.2(a) and 4.2(b) of the  Agreement on
Safeguards , the competent authorities should determine whether the increase in imports, not alone,
but in conjunction with the other relevant factors, cause serious injury.
72
79. For these reasons, we agree with the first and second steps we identified in the Panel's
reasoning;  however, we see no support in the text of the  Agreement on Safeguards   for the third and
fourth steps of the Panel's reasoning.73  Therefore, in conclusion, we reverse the Panel's interpretation
of Article 4.2(b) of the  Agreement on Safeguards  that increased imports "alone", "in and of
themselves", or " per se  ", must be capable of causing injury that is "serious".74  And we also reverse
the Panel's conclusions on the issue of causation, summarized in paragraph 8.154 of the Panel Report,as these conclusions are based on an erroneous interpretation of Article 4.2(b).
80. As we have reversed the Panel's conclusions regarding causation, we believe that we should
now complete the legal analysis on this issue on the basis of the factual findings of the Panel and theundisputed facts in the Panel record.  We note that the Panel narrated the findings of the USITC onfour potential factors, other than increased imports, for their bearing on the situation of the domesticindustry.  These were the effects of:  "co-product markets", "rising input costs", "importation of wheat
gluten by United States domestic producers" and "capacity utilization".
75  Of these four factors, the
Panel made most mention of the last, capacity utilization.
                                                     
72We do not, of course, exclude the possibility that "serious injury" could be caused by the effects of
increased imports  alone .
73Supra , para. 66.
74Panel Report, paras. 8.138, 8.139 and 8.143.
75Ibid. , paras. 8.147 – 8.150.WT/DS166/AB/R
Page 28
81. The uncontested facts of record relating to the capacity utilization of the domestic industry are
as follows.76  During the period of investigation, 1 July 1993 to 30 June 1997, the average available
capacity of United States' producers of wheat gluten rose by a little over 68 percent, with 55 percentof that increase being available by 30 June 1995.  Total United States' consumption of wheat glutenrose, during the period of investigation, by 17.8 percent.  The amount of wheat gluten produced byUnited States' producers rose by 12 percent during the first three years of the investigative period,before declining to a closing level that was 96 percent of the starting level.  In the face of the increase
in average capacity and the decrease in production, United States' capacity utilization levels fell from
78.3 percent, in 1993, to 44.5 percent, in 1997.  During the investigative period, the volume ofimports increased by nearly 38 percent, with the market share of imports rising from 51.4 percent to60.2 percent.
82. In evaluating increased capacity and capacity utilization levels as "other possible causes of
injury", the USITC said:
… The domestic wheat gluten market is very competitive.  Producers
have ample excess capacity to meet higher demand.  Also, wheat
gluten is a commodity product that sells primarily on the basis of
price, and wheat gluten from different sources is highly
interchangeable.  One new domestic producer, Heartland, entered the
market in 1996.  In addition, the domestic industry added substantial
new capacity early in the period of investigation.  This increasedcapacity was added in anticipation of continued strong growth in
domestic demand and consumption.  Industry projections of continued
growth in demand and consumption were largely correct, as apparent
consumption increased nearly 18 percent between 1993 and 1997.  As
indicated above, but for the increase in imports, the industry would
have operated at 61 percent of capacity in 1997, which is much closer
to the level at which the industry operated early in the investigative
period when it operated reasonably profitably .  We therefore conclude
that neither domestic competition nor increased domestic capacity was
a more important cause of serious injury than increased imports.
77
(emphasis added)
83. In considering this same issue, the Panel note d certain "assertions" of the United States that
the increase in the production capacity of the domestic industry "had a role" in the serious injurysuffered by the industry.
78  The Panel then stated:
                                                     
76All the relevant figures are derived from Table C-1, pp. C-3 and C-4, of the USITC Report.
77USITC Report, p. I-17.
78Panel Report, para. 8.151.WT/DS166/AB/R
Page 29
… To us, these assertions constitute an admission by the United States
that at least one factor other than increased imports also contributed to
the serious injury experienced by the domestic industry.  However, we
see no indication in the USITC Report  that imports were not also held
responsible for the injury caused by this factor.79
84. We note that the USITC placed particular emphasis on the fact that, "but for the increase in
imports", the domestic industry would have operated, in 1997, at nearly 61 percent of availablecapacity.
80  The USITC emphasizes this fact because, it says, at that rate of capacity utilization, the
domestic industry would have been operating "much closer" to rates attained "early in theinvestigative period", when the industry was reasonably profitable.
81  The USITC, therefore, makes an
explicit link between the profitability of the domestic industry and the rate of capacity  utilization.We also note that, in arriving at the hypothetical figure of 61 percent capacity utilization, the USITC
made certain assumptions which it explained in a footnote to the USITC Report.
82  These assumptions
were:  first, that total United States' consumption was constant at 1997 levels, representing an18 percent increase over 1993 levels;  second, that the volume of imports was constant throughout theinvestigative period at 128,337,000 tonnes;  and, third, that United States' domestic productionsatisfied " all  of the [18 percent] increase in [United States'] consumption".
83  (emphasis added)  We
observe that, by assuming that domestic producers would supply  all  of the 18 percent increase in
consumption, the USITC also assumed a hypothetical market share for imports that  fell  from 51.4
percent to 43.6 percent.
85. At the oral hearing, we asked the participants, the United States and the European
Communities, to comment on two additional scenarios, based  exclusively  on the data contained in
the USITC Report, that explore further the importance of increases in average capacity and rates ofcapacity utilization to the situation of the domestic industry.  Under the first scenario, the participantsboth confirmed that the rate of capacity utilization of the domestic industry would have been 74.8percent  if the average capacity of the domestic industry had remained constant throughout the
investigative period and had not increased by 68 percent .
84  At a rate of 74.8 percent, capacity
utilization would have fallen by only 3.5 percent from  the 1993 rate of 78.3 percent.  In other words,
but for the increase in available capacity and  despite the increase in imports , capacity utilization rates
                                                     
79Panel Report, para. 8.151.
80USITC Report, p. I-17.
81Ibid.  In 1993, the industry operated at 78.3 percent of capacity.  In 1994 and 1995 the rates of
capacity utilization were 67.4 percent and 56.2 percent, respectively.  (USITC Report, Table C-1, p. C-4)  TheUSITC said, at page I-28 of its Report, that the domestic industry was profitable in the period from 1993 – 1995.
82Footnote 51, p. I-12, USITC Report.
83Ibid.
84In examining this scenario, all other figures are assumed to be as they were in 1997.WT/DS166/AB/R
Page 30
would have remained extremely close to the 1993 rates which allowed the domestic industry to
operate profitably.85
86. Under the second scenario, both participants confirmed that the rate of capacity utilization of
the domestic industry would have been 54.2 percent if the United States' producers, and importers,had held, throughout the entire investigation period, a  constant  market share, by quantity, equal to
their respective market shares in 1993.  Thus, instead of United States producers supplying  all  of
the 18 percent increase in total consumption, as the USITC assumed in reaching its figure of 61
percent, under this scenario, the increase in tota l consumption was shared between United States'
producers and importers according to their respective 1993 market shares.
86  In other words, we
assume that the percentage increase in the volume of imports is 17.8 percent, the same as thepercentage increase in total United States' consumption, and not 38 percent, the figure by whichimports actually increased.  In that event, the capacity utilization of the domestic industry would havebeen, as we said, 54.2 percent.  Thus, even if imports had done no more than hold their position on themarket, and had increased by less than half of the actual increase, the rate of capacity utilizationwould have fallen significantly and would have been just about 10 percent higher than the levelsactually attained in 1997.
87. Although the United States confirmed, at the oral hearing, our understanding of the rates of
capacity utilization in these two additional scenarios, it  argued that these figures were irrelevant to the
role of increased capacity and capacity utilization as possible other causes.  According to the UnitedStates, the increases in capacity were largely in place by 30 June 1995, when the surge in importsstarted to occur.  The increase in capacity is, therefore, simply a background circumstance and is not arelevant "other factor" causing injury "at the same time" as increased imports, under Article 4.2(b) ofthe  Agreement on Safeguards .
88. We note that average available capacity in the domestic industry continued to increase
between 30 June 1995 and 30 June 1997, albeit at a slower rate than between 30 June 1993 and
30 June 1995.
87  Thus, increases in capacity  were  occurring at the same time as imports were
increasing.  However, in any event, the relevance of an "other factor", under Article 4.2(b), dependson whether that "other factor" was, or was not, "causing injury" "at the same time" as increasedimports.  Therefore, the possible relevance of the increases in capacity added during the period of
                                                     
85The USITC noted, in the passage quoted above, that the domestic industry was reasonably profitable
at the levels of capacity utilization attained "early in the investigative period" ( supra , para. 82).
86In examining this scenario, all other figures are assumed to be as they were in 1997.
87Average available capacity was:  162,856,000 pounds on 30 June 1993;  253,712,000 pounds on
30 June 1995 (an increase of 55.8%);  and, 273,895,000 pounds on 30 June 1997 (a total increase of 68.2%).(USITC Report, Table C-1, p. C-4)WT/DS166/AB/R
Page 31
investigation does not depend on the moment in time when the increases in capacity occurred, but on
when the effects of those increases are felt, and whether they are "causing injury" "at the same time"as increased imports.  Thus, we do not accept the United States' position that the data in the USITCReport on increases in capacity and on capacity utilization are not relevant under Article 4.2(b) of theAgreement on Safeguards .
89. In our view, the two scenarios described above of fer a revealing view of the data before the
USITC.  The first scenario shows that, but for the increase in average capacity, the rate of capacity
utilization of the domestic industry would have been only slightly lower in 1997 than it was in 1993;
the second scenario shows that, even if the increas e in imports had been significantly lower than it
actually was, the rate of capacity utilization would, nonetheless, have been significantly lower in 1997than it was in 1993.
90. The data before the USITC, therefore, suggest that the increases in average available capacity
in the domestic industry  may  have been very important to the overall situation of the domestic
industry in 1997.  We do not suggest that the increase in capacity utilization was  the sole  cause of
the serious injury sustained by the domestic industry.  Nor do we suggest that the increase in importshad  no  relevance to the situation of the domestic industry.  Rather, we submit that the data relied
upon by the USITC indicate that the relationship between the increases in average capacity, the
increases in imports and the overall situation of the domestic industry was far more complex thansuggested by the text of the USITC Report.  On this  issue, the USITC simply observed that "but for the
increase in imports, the [domestic] industry would have operated at 61 percent of capacity in 1997,
which is much closer to the level at which the industry operated early in the investigative period whenit operated reasonably profitably."
 88
91. We are not satisfied, in light of the data that was before the USITC, that the USITC
adequately evaluated the complexities of this issue and, in particular, whether the increases in averagecapacity, during the investigative period, were causing injury to the domestic industry at the same
time as increased imports.  Under Article 4.2(b) of the  Agreement on Safeguards , it is essential for the
competent authorities to examine whether factor s other than increased imports are simultaneously
causing injury.  If the competent authorities do not conduct this examination, they cannot ensure thatinjury caused by other factors is not "attributed" to in creased imports.  It follows, in this case, that the
USITC has  not  demonstrated adequately, as required by Article 4.2(b), that any injury caused to the
domestic industry by increases in average capacity ha s not been "attributed" to increased imports and, in
                                                     
88USITC Report, p. I-17.WT/DS166/AB/R
Page 32
consequence, the USITC could not establish the exis tence of "the causal link" Article 4.2(b) requires
between increased imports and serious injury.
92. Accordingly, we find that the United States acted inconsistently with its obligations under
Article 4.2(b) of the  Agreement on Safeguards .
VI. Article 2.1 of the  Agreement on Safeguards
93. Before the Panel, the European Communities cl aimed that the United States' treatment of
imports of wheat gluten from Canada, its partner in the North American Free Trade Agreement
("NAFTA"), was inconsistent with Articles 2.1 and 4.2 of the  Agreement on Safeguards 89.  On this
issue, the Panel concluded that:
… in this case, the United States has acted inconsistently with
Articles 2.1 and 4.2 SA by excluding imports from Canada from the
application of the safeguard measure (following a separate and
subsequent inquiry concerning whether imports from Canada
accounted for a "substantial share" of total imports and whether they
"contributed importantly" to the "serious injury" caused by totalimports) after including imports  from all sources  in its investigation
of "increased imports" of wheat gluten into its territory and the
consequent effects of such imports on its domestic wheat gluten
industry.
90  (emphasis in original)
94. On appeal, the United States challenges the Panel's interpretation of Articles 2.1 and 4.2 of
the  Agreement on Safeguards,  and argues that the Panel failed to take sufficient account of the fact
that, in this case, following its determination th at imports from all sources were causing serious
injury, the USITC conducted a "separate and subsequent examination"  91, as part of the same
investigation, concerning Canadian imports alon e.  In that examination, the USITC found that,
although "imports from Canada account for a substantial share of total imports", those imports were"not contributing importantly to the serious injury caused by imports".
92  On the basis of this
examination, the USITC recommended that imports from Canada be excluded from any safeguard
measure adopted.93  The United States considers that, for these reasons, it was justified in excluding
imports of wheat gluten from Canada from the scope of application of the safeguard measure.  TheUnited States adds that the Panel erred in failing to  assess the legal relevance of footnote 1 to the
Agreement on Safeguards   and Article XXIV of the GATT 1994 to this issue.
                                                     
89Panel Report, paras. 8.155 and 8.156.
90Ibid., para. 8.182.
91Ibid. , para. 8.161.
92USITC Report, p. I-19.
93Ibid. , p. I-29.WT/DS166/AB/R
Page 33
95. In considering the appeal of the United States on this point, we turn first to  Article 2.1 of the
Agreement on Safeguards , which provides that a safeguard measure may only be applied when "such
increased quantities" of a " product   [are]  being imported   into its territory … under such conditions as
to cause or threaten to cause serious injury to the domestic industry".  As we have said, this provision,as elaborated in Article 4 of the  Agreement on Safeguards , sets forth the  conditions  for imposing a
safeguard measure.
94  Article 2.2 of the  Agreement on Safeguards , which provides that a safeguard
measure "shall be applied to a  product being imported   irrespective of its source", sets forth the rules
on the  application  of a safeguard measure.95
96. The same phrase – "product … being imported" – appears in  both  these paragraphs of
Article 2.  In view of the identity of the language  in the two provisions, and in the absence of any
contrary indication in the context, we believe that it is appropriate to ascribe the  same   meaning to
this phrase in both Articles 2.1 and 2.2.  To include imports from all sources in the determination thatincreased imports are causing serious injury, and then to exclude imports from one source from theapplication of the measure, would be to give the phrase "product being imported" a  different
meaning in Articles 2.1 and 2.2 of the  Agreement on Safeguards .  In Article 2.1, the phrase would
embrace imports from  all  sources whereas, in Article 2.2, it would exclude imports from certain
sources.  This would be incongruous and unwarrant ed.  In the usual course, therefore, the imports
included in the determinations made under Articles 2.1 and 4.2 should correspond to the importsincluded in the application of the measure, under Article 2.2.
96
97. In the present case, the United States asserts that the exclusion of imports from Canada from
the scope of the safeguard measure was justified because, following its investigation based on importsfrom  all  sources, the USITC conducted an additional inquiry specifically focused on imports from
Canada.  The United States claims, in effect, that the scope of its initial investigation,  together with
its subsequent and additional inquiry   into imports from Canada, did correspond with the scope of
application of its safeguard measure.
98. In our view, however, although the USITC exam ined the importance of imports from Canada
separately, it did not make any explicit determination relating to increased imports,  excluding imports
from Canada .  In other words, although the safeguard measure was applied to imports from all
                                                     
94See, supra,  para. 76;  Appellate Body Report,  Argentina – Footwear Safeguards, supra , footnote 22,
para. 112.
95Ibid.
96The United States relies on Article 9.1 of the  Agreement on Safeguards  in support of its argument
that the scope of the serious injury investigation need not correspond exactly to the scope of application of asafeguard measure.  Article 9.1 is an exception to the general rules set out in the  Agreement on Safeguards   that
applies only to developing country Members.  We do not consider that it is of relevance to this appeal.WT/DS166/AB/R
Page 34
sources, excluding  Canada, the USITC did not establish explicitly that imports from these  same
sources, excluding Canada, satisfied the conditions for the application of a safeguard measure, as setout in Article 2.1 and elaborated in Article 4.2 of the  Agreement on Safeguards .  Thus, we find that
the separate examination of imports from Canada carried out by the USITC in this case was not asufficient basis for the safeguard measure ultimately applied by the United States.
99. Lastly, we note that the United States has argued that the Panel erred in failing to address
Article XXIV of the GATT 1994, and in failing to set out a "basic rationale" for finding that
footnote 1 to the  Agreement on Safeguards   did not affect its reasoning on this issue.  In this case, the
Panel determined that this dispute does not raise the issue of whether, as a general principle, amember of a free-trade area can exclude imports from other members of that free-trade area from theapplication of a safeguard measure.
97  The Panel also found that it could rule on the claim of the
European Communities without having recourse to Article XXIV or footnote 1 to the  Agreement on
Safeguards .98  We see no error in this approach, and make no findings on these arguments.
100. We, therefore, uphold the Panel's finding, in paragraph 8.182 of the Panel Report, that the
United States acted inconsistently with its obligations under Articles 2.1 and 4.2 of the  Agreement on
Safeguards .
VII. Articles 8 and 12 of the  Agreement on Safeguards
101. The United States appeals the Panel's findings that the United States acted inconsistently with
Articles 12.1(a), 12.1(b), 12.1(c), 12.3 and Article 8.1 of the  Agreement on Safeguards .  The United
States contends that the Panel misinterpreted the requirement of "immediate" notification set forth inArticle 12.1, erred in its analysis of the relationship between the various obligations set forth inArticles 12.1, 12.2, and 12.3 of the  Agreement on Safeguards , and wrongly entwined the separate
obligations set out in these provisions.
A. Article 12.1 of the  Agreement on Safeguards
102. Article 12.1 of the  Agreement on Safeguards  provides:
                                                     
97Panel Report, 8.183.
98Ibid. , para. 8.181.WT/DS166/AB/R
Page 35
A Member shall immediately notify the Committee on
Safeguards upon:
(a) initiating an investigator y 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.
Thus, Article 12.1 of the  Agreement on Safeguards  sets out three separate obligations to make
notification to the Committee on Safeguards, each of which is triggered "upon" the occurrence of an
event specified in one of the three subparagraphs.  The chapeau to Article 12.1 stipulates that thenotifications must be made " immediately  … upon" the occurrence of the triggering events.  (emphasis
added)
103. Before turning to the United States' appeal of the Panel's findings under each subparagraph of
Article 12.1, we begin with the meaning of the word "immediately" in Article 12.1, since it governstimeliness under all three of these subparagraphs.  The Panel found that the obligation to notify"immediately" precludes a Member from "unduly delayi ng the notification of the decisions or findings
mentioned in Article 12.1(a) through (c) SA".
99
104. The United States argues, however, that "immediately" means "without any delay that would
interfere with Members' ability to review the measure through the Safeguards Committee or wouldleave a Member insufficient time to decide whether to request consultations."
 100
105. As regards the meaning of the word "immediately" in the chapeau to Article 12.1, we agree
with the Panel that the ordinary meaning of the word "implies a certain urgency".101 The degree of
urgency or immediacy required depends on a case-by-case assessment, account being taken of theadministrative difficulties involved in preparing the notification, and also of the character of theinformation supplied.  As previous panels have recognized, relevant factors in this regard may includethe complexity of the notification and the need for translation into one of the WTO's officiallanguages.
102  Clearly, however, the amount of time taken to prepare the notification must, in all cases,
be kept to a minimum, as the underlying obligation is to notify "immediately".
                                                     
99Panel Report, para. 8.194.
100United States' appellant's submission, para. 208.
101Panel Report, para. 8.193.
102Panel report, para. 7.128,  Korea – Dairy Safeguard , WT/DS98/R, adopted, 12 January 2000, as
modified by the Appellate Body Report, supra , footnote 29, quoted in para. 8.193 of the Panel Report.WT/DS166/AB/R
Page 36
106. "Immediate" notification is that which allows the Committee on Safeguards, and Members,
the  fullest possible period  to reflect upon and react to an ongoing safeguard investigation.  Anything
less than "immediate" notification curtails this period.  We do not, therefore, agree with the UnitedStates that the requirement of " immediate " notification is satisfied as long as the Committee on
Safeguards and Members of the WTO have  sufficient  time to review that notification.  In our view,
whether a Member has made an "immediate" notification does not depend on evidence as to how theCommittee on Safeguards and individual Members of the WTO actually use that notification.   Nor
can the requirement of "immediate" notification depend on an  ex post facto  assessment of whether
individual Members suffered actual prejudice through an insufficiency in the notification period.
107. With this meaning of "immediately" in mind, we turn to the timeliness of the notifications
made by the United States under subparagraphs (a) through (c) of Article 12.1.
1. Notification pursuant to Article 12.1(a)
108. The United States appeals the Panel's finding that the United States did not notify its initiation
of a safeguard investigation "immediately", as required by Article 12.1(a) of the  Agreement on
Safeguards .103
109. The Panel found that the United States initiated a safeguards investigation regarding imports
of wheat gluten on 1 October 1997, and notified the Committee of Safeguards on 17 October 1997
(that is, 16 days later).104  The Panel noted the "minimal" information contained in that notification,
and held that the United States had not acted consistently with its obligation under Article 12.1(a) tonotify its initiation of a safeguard investigation "immediately".
105
110. On appeal, the United States argues that the notification was submitted "immediately"
because it was sufficiently prompt as to allow Members concerned to review the notification and toexercise fully their rights under the  Agreement on Safeguards .  The United States does not argue that
there were any particular reasons that a period of 16 days was needed to make this notification.
111. We recall our analysis of the word "immediately".
106  In this case, the United States'
notification under Article 12.1(a) consisted of a single page form attaching a notice from the USITC
that it had initiated a safeguard investigation concerning wheat gluten.  The USITC notice was
                                                     
103Panel Report, para. 8.197.
104Ibid. , para. 8.191;  G/SG/N/6/USA/4.
105Ibid. , para. 8.196.
106Supra,  paras. 103-106 .WT/DS166/AB/R
Page 37
published in the United States Federal Register on 1 October 1997.107  That same document was not
notified to the Committee on Safeguards until 17 October 1997.
112. In these circumstances, we see no basis for concluding that the Panel erred in finding that a
notification period of 16 days was not "immediate".  We, therefore, uphold the Panel's finding that theUnited States' notification of its investigation of a safeguard measure did not satisfy the requirement of
"immediate" notification under Article 12.1(a) of the  Agreement on Safeguards .
 108
2. Notification pursuant to Article 12.1(b)
113. The United States appeals the Panel's finding that the United States did not notify its
determination of serious injury "immediately", as required by Article 12.1(b) of the  Agreement on
Safeguards .
114. The Panel found that the USITC made a determination of serious injury caused by increased
imports on 15 January 1998, and that the United States notified the Committee on Safeguards of this
determination in a communication dated 11 February 1998 (that is, 26 days later).109  In view of the
26-day time-period taken by the United States to make its notification under Article 12.1(b), the Panelconcluded that the United States had not satisfied the requirement to notify its finding of seriousinjury "immediately".
110
115. On appeal, the United States makes the same arguments with respect to this finding as it made
with respect to the Panel's finding under Article 12.1(a), namely that the notification was submitted"immediately" because it was sufficiently prompt as to allow Members concerned to review thenotification and to exercise fully their rights under the  Agreement on Safeguards .  Once again, the
United States does not offer any particular justification for the time-period of 26 days.
116. We recall again our analysis of the word "immediately".
111  We also note that the
11 February 1998 notification submitted by the United States consisted, in its entirety, of a singlepage in which the United States indicated that the USITC Report would follow at a later date.
112  In
these circumstances, we see no basis for concluding that the Panel erred in finding that notification in
                                                     
107United States Federal Register, 1 October  1997 (Volume 62, Number 190), pp. 51488-51489.
108Panel Report, para. 8.197.
109G/SG/N/8/USA/2.
110Panel Report, para. 8.199.
111Supra,  paras. 103-106 .
112G/SG/N/8/USA/2.  Panel Report ., para. 8.191.  The USITC Report was sent to the President of the
United States on 18 March 1998, and forwarded, along with a revised Article 12.1(b) notification, to theCommittee on Safeguards on 24 March 1998. G/SG/N/8/USA/2/Rev.1.WT/DS166/AB/R
Page 38
a period of 26 days was not "immediate".  We, therefore, uphold the Panel's finding that the notification
made by the United States on 11 February 1998 di d not satisfy the requirement of "immediate"
notification under Article 12.1(b) of the  Agreement on Safeguards . 113
3. Notification pursuant to Article 12.1(c)
117. The United States also appeals the Panel's finding that the United States did not notify its
decision to apply a safeguard measure "immediately", as required by Article 12.1(c) of the  Agreement
on Safeguards .
118. The Panel found that, on 30 May 1998, the President of the United States decided to apply,
effective 1 June 1998, a safeguard measure on imports of wheat gluten and that, on  4 June 1998 (that
is, 5 days after the decision was taken), the United States notified the Committee on Safeguards of the
decision to apply a safeguard measure.114  In assessing the timeliness of this notification, the Panel
concluded that:
… the United States notification of this decision  after the measure
had been implemented , violated the United States obligation under
Article 12 SA to make timely notification under Article 12.1 (c) SA of
its decision to apply a measure.115 (emphasis added)
119. The United States appeals this finding on the ground that the Panel erred by interpreting
Article 12.1(c) of the  Agreement on Safeguards   as requiring notification of a "decision to apply or
extend a safeguard measure"  prior to  implementation of that decision.
120. In examining the ordinary meaning of Article 12.1(c), we observe that the relevant triggering
event is the " taking " of a decision.  To us, Article 12.1(c) is focused upon whether a "decision" has
occurred , or has been "taken", and not on whether that decision has been  given  effect .  On the face of
the text, the timeliness of a notification under Article 12.1(c) depends only on whether the notificationwas immediate.
121. The Panel considered that Article 12.2 of the  Agreement on Safeguards , which, in its opening
clause, specifically refers to notifications made pursuant to Articles 12.1(b) and 12.1(c), providesrelevant context in determining the timeliness of notifications under Article 12.1(c).  Article 12.2provides:
                                                     
113Panel Report, para. 8.199.
114G/SG/N/10/USA/2 and G/SG/N/11/USA/2.
115Panel Report, para. 8.207.WT/DS166/AB/R
Page 39
In making the notifications referred to in paragraphs 1(b)
and 1(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 date of introduction,
expected duration and timetable for progressive liberalization. …
(emphasis added)
122. The Panel deduced from this provision that a notification under Article 12.1(c) must be of a
"proposed measure" and its "proposed date of introduction", and, on that basis, concluded that anotification under Article 12.1(c) must be made  before  implementation of the "proposed" safeguard
measure.
116
123. Article 12.2 is related to, and complements, Article 12.1 of the Agreement on Safeguards .
Whereas Article 12.1 sets forth  when   notifications must be made during an investigation,
Article 12.2 clarifies  what  detailed information must be contained in the notifications under
Articles 12.1(b) and 12.1(c).  We do not, however, see the content requirements of Article 12.2 asprescribing  when  the notification under 12.1(c) must take place.  Rather, in our view, timeliness
under 12.1(c) is determined by whether a decision to apply or extend a safeguard measure is notified"immediately".  A   separate   question arises as to whether notifications made by the Member satisfy
the content requirements of Article 12.2.  Answering this separate question requires examination ofwhether, in its notifications under  either   Article 12.1(b)  or  Article 12.1(c), the Member proposing
to apply a safeguard measure has notified "all pertinent information", including the "mandatory
components"
 117 specifically enumerated in Article 12.2.
124. Thus, the obligations set forth under Articles 12.1(b), 12.1(c) and 12.2 relate to different
aspects of the notification process.  Although related, these obligations are discrete.  A Member couldnotify "all pertinent information" in its Articles 12.1(b) and 12.1(c) notifications, and thereby satisfyArticle 12.2, but still act inconsistently with Article 12.1 because the relevant notifications were notmade "immediately".  Similarly, a Member could satisfy the Article 12.1 requirement of "immediate"notification, but act inconsistently with Article 12.2 if the content of its notifications was deficient.
125. In our view, in finding that the United States acted inconsistently with Article 12.1(c)  solely
because  the decision to apply a safeguard measure was notified after that decision had been
implemented, the Panel confused the separate obligations imposed on Members pursuant to
Article 12.1(c) and Article 12.2 and, thereby, added another layer to the timeliness requirements in
                                                     
116Panel Report, paras. 8.202, 8.205 and 8.206.
117Appellate Body Report,  Korea – Dairy Safeguard, supra , footnote 29, para. 107.WT/DS166/AB/R
Page 40
Article 12.1(c).  Instead of insisting on "immediate" notification, as stipulated by Article 12.1(c), the
Panel required notification to be made  both  "immediately"  and  before implementation of the
safeguard measure.  We see no basis in Article 12.1(c) for this conclusion.
126. In consequence, we reverse the Panel's finding that:
… the United States notification of this decision after the measure had
been implemented, violated the United States obligation under
Article 12 SA to make timely notification under Article 12.1 (c) SA of
its decision to apply a measure.118
127. Although we have reversed the Panel's finding on this issue, we believe that we should
complete the legal analysis on the basis of the factual findings of the Panel or the undisputed facts inthe Panel record.
119  In examining the timeliness of the United States' notification under
Article 12.1(c), we recall that the United States made the notification to the Committee on Safeguardsin a communication dated 4 June 1998, or 5 days after the President of the United States had "takenthe decision" to apply the safeguard measure.  Al though the Panel did not reach the issue of whether
the 4 June notification had been submitted "immediately", it nevertheless stated:
We note in passing that the delay of 5 days between the decision to
apply a safeguard measure and the notification thereof might well
satisfy the requirement of immediate notification of Article 12.1
SA.
120
128. In response to questioning at the oral hearing, the European Communities also accepted that a
delay of 5 days "could have been" consistent with the obligation of "immediate" notification underArticle 12.1(c).
129. We believe that notification within 5 days was, in this case, consistent with the requirement of
"immediacy" contained in Article 12.1(c) of the  Agreement on Safeguards .  In this regard, we
consider it relevant that notification was made the day after the decision of the President of the United
                                                     
118Panel Report, para. 8.207.
119For example, in Appellate Body Report,  United States – Standards for Reformulated and
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3, at 18 ff;  Appellate Body
Report,  Canada – Certain Measures Concerning Periodicals,  WT/DS31/AB/R, adopted 30 July 1997,
DSR 1997:I, 449, at 468 ff;  Appellate Body Report,  European Communities – Measures Affecting the
Importation of Certain Poultry Products ("European Communities – Poultry "), WT/DS69/AB/R, adopted
23 July 1998, paras. 154 ff;  Appellate Body Report,  United States – Import Prohibition of Certain Shrimp and
Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, paras. 123 ff; and, Appellate Body
Report,  Australia – Measures Affecting Importation of Salmon  ("Australia – Salmon "), WT/DS18/AB/R,
adopted 6 November 1998, paras. 117 ff.
120Panel Report, para. 8.207.WT/DS166/AB/R
Page 41
States was published in the United States Federal Register 121, and during the course of the fourth
working day following the taking of the decision.122
130. In sum, as regards the findings made by the Panel under Article 12.1 of the  Agreement on
Safeguards , we uphold the Panel's findings, in paragraphs 8.197 and 8.199 of the Panel Report, that
the United States did not satisfy the requirements of immediate notification set out in Articles 12.1(a)and 12.1(b);  and we reverse the Panel's finding, in paragraph 8.207 of the Panel Report, that theUnited States failed to make timely notification under Article 12.1(c) of the  Agreement on
Safeguards  of its decision to apply a safeguard measure.
B. Article 12.3 of the  Agreement on Safeguards
131. The United States further appeals the Panel's findings that the United States acted
inconsistently with Article 12.3 of the  Agreement on Safeguards .  Article 12.3 provides:
A Member proposing to apply or extend a safeguard measure shall
provide adequate opportunity for prior consultations with those
Members having a substantial interest as exporters of the productconcerned, with a view to, inter alia , reviewing the information
provided under paragraph 2, exchanging views on the measure and
reaching an understanding on ways to achieve the objective set out in
paragraph 1 of  Article 8.
132. As regards the consistency of the actions taken by the United States with Article 12.3, the
Panel stated:
We found above that the United States did not provide a timely
notification under Article 12.1 (c) SA of its proposed final measure
since the United States notified its decision to apply a measure three
days after the measure had been implemented.  For the same reason,
we find that the United States violated the obligation of Article 12.3SA to provide adequate opportunity for prior consultations on the
measure.
123  (emphasis added)
133. It is clear from the above excerpt that the Panel's conclusion that the United States acted
inconsistently with Article 12.3 flowed directly (" for the same reason") from its finding that the
United States acted inconsistently with Article 12.1(c ).  In the previous section, we determined that
the Panel erred in concluding that the United States acted inconsistently with Article 12.1(c) of the
                                                     
121United States Federal Register, 3 June 1998 (Volume 63, Number 106), pp. 30363-30364.
122The decision to apply the measure was taken by the United States President on 30 May, 1998, a
Saturday.  The measure came into effect on Monday, 1 June, and notification was made on the following
Thursday, 4 June 1998.
123Panel Report, para. 8.219.WT/DS166/AB/R
Page 42
Agreement on Safeguards .  Since we have found that the Panel erred in its interpretation of
Article 12.1(c), we also believe that the Panel erred in concluding that the United States had " [f]or the
same reason  … violated the obligation of Article 12.3 SA".
134. The Panel, however, revisited the issue of the adequacy of consultations under Article 12.3 as
part of its evaluation of the European Communities' claim under Article 8.1 of the  Agreement on
Safeguards .  The Panel found that:
While the parties have confirmed that consultations did take place on
the basis of the United States notifications under Article 12.1(b)
concerning the USITC's finding of serious injury and the USITC's
recommendations on remedy, no consultations were held on the finalproposed measure as approved by the United States President on
30 May 1998. Therefore, the Panel considers that, while consultations
may have been held on the basis of the notifications made by the
United States under Article 12.1(b) SA, the United States did not
provide "an adequate opportunity for prior consultations" on this finalproposed measure, within the meaning of Article 12.3 SA.
124
135. On appeal, the United States argues that it complied with Article 12.3 because, in its
notifications under Article 12.1(b) of the  Agreement on Safeguards , the United States supplied all the
information required by Article 12.2 of that Agreement.  As a result, the United States contends that,prior to consultations, the European Communities knew the precise product under consideration, theevidence of serious injury caused by increased imports, and all relevant details relating to theproposed measure.  The United States concludes, therefore, that it provided the EuropeanCommunities with an "adequate opportunity for prior consultations", as required by Article 12.3 ofthe  Agreement on Safeguards .
136. We note, first, that Article 12.3 requires a Member proposing to apply a safeguard measure to
provide an "adequate opportunity for prior consultations" with Members with a substantial interest in
exporting the product concerned.  Article 12.3 states that an "adequate opportunity" for consultations
is to be provided "with a view to":  reviewing the information furnished pursuant to Article 12.2;exchanging views on the measure;  and reaching  an understanding with exporting Members on an
equivalent level of concessions.  In view of these objectives, we consider that Article 12.3 requires aMember proposing to apply a safeguard measure to provide exporting Members with sufficientinformation and time to allow for the possibility, th rough consultations, for a meaningful exchange on
the issues identified.  To us, it follows from the text of Article 12.3 itself that information on the
proposed   measure must be provided in  advance   of the consultations, so that the consultations can
adequately address that measure.  Moreover, the reference, in Article 12.3, to "the information
                                                     
124Panel Report, para. 8.217.WT/DS166/AB/R
Page 43
provided under" Article 12.2, indicates that Article 12.2 identifies the information that is needed to
enable meaningful consultations to occur under Article 12.3.  Among the list of "mandatorycomponents"
 125 regarding information identified in Article 12.2 are:  a precise description of the
proposed  measure, and its  proposed   date of introduction.
137. Thus, in our view, an exporting Member will not have an "adequate opportunity" under
Article 12.3 to negotiate overall equivalent concessions through consultations unless, prior to thoseconsultations, it has obtained,  inter alia , sufficiently detailed information on the form of the proposed
measure, including the nature of the remedy.
138. With these considerations in mind, we examine whether, in this case, the Panel erred in
finding that the United States did not provide the European Communities with an "adequateopportunity for prior consultations" on the proposed safeguard measure, as required by Article 12.3 ofthe  Agreement on Safeguards .
139. The Panel found that the United States and the European Communities held consultations on
24 April 1998 and 22 May 1998
 126, and that these consultations were held  on the basis of the
information provided by the United States in its notifications under Article 12.1(b) 127, that is, on the
basis of the information contained in the USITC Report.  The Panel also found, as a matter of fact,
that no consultations were held on the final measure that was approved by the United States President
on 30 May 1998.128
140. We note that the USITC Report set out a number of "recommendations" to the President of
the United States, including:
… that, within the overall quantitativ e restriction, the President allocate
separate quantitative restrictions for the European Union, Australia, and
"all other" non-excluded countries, taking into account thedisproportional growth and impact of  imports of wheat gluten from the
European Union …
129
141. We note that the recommendations made by the USITC did  not  include specific numerical
quota shares for the individual exporting Members concerned, and the recommendations imply,without providing details, that the individual quota shares could be less favourable to imports from the
                                                     
125Appellate Body Report,  Korea – Dairy Safeguard, supra , footnote 29, para. 107.
126Panel Report, para. 8.218.
127Ibid. , para. 8.217.
128Ibid.
129USITC Report, p. I-3.  See, also, USITC Report, p. I-29.WT/DS166/AB/R
Page 44
European Communities.  We consider that these "recommendations" did not allow the European
Communities to assess accurately the likely impact of the measure being contemplated, nor to consult
adequately on overall equivalent concessions with the United States.
142. Accordingly, we see no error in the Panel's c onclusion that the United States' notifications
under Article 12.1(b) did not provide a description of the measure under consideration sufficientlyprecise as to allow the European Communities to conduct meaningful consultations with the United
States, as required by Article 12.3 of the  Agreement on Safeguards .
 130
143. We, therefore, uphold the Panel's finding that the United States did not comply with its
obligation under Article 12.3 of the  Agreement on Safeguards  to provide an adequate opportunity for
prior consultations on the proposed safeguard measure.
C. Article 8.1 of the Agreement on Safeguards
144. The United States also appeals the Panel's fi nding that it acted inconsistently with its
obligations under Article 8.1 of the  Agreement on Safeguards .131  Article 8.1 provides:
A Member proposing to apply a safeguard measure or seeking an
extension of a safeguard measure shall endeavour to maintain a
substantially equivalent level of concessions and other obligations to
that existing under GATT 1994 between it and the exporting Members
which would be affected by such a measure, in accordance with the
provisions of paragraph 3 of Article 12.  To achieve this objective, the
Members concerned may agree on any adequate means of tradecompensation for the adverse effects of the measure on their trade.
145. Article 8.1 imposes an obligation on Members to "endeavour to maintain" equivalent
concessions with affected exporting Members.  The efforts made by a Member to this end must be "in
accordance with the provisions of
 " Article 12.3 of the  Agreement on Safeguards .
146. In view of this explicit link between Articles 8.1 and 12.3 of the  Agreement on Safeguards , a
Member cannot, in our view, "endeavour to maintain" an adequate balance of concessions unless ithas, as a first step, provided an adequate opportunity for prior consultations on a proposed measure.We have upheld the Panel's findings that the United States did not provide an adequate opportunityfor consultations, as required by Article 12.3 of the  Agreement on Safeguards .  For the same reasons,
                                                     
130We note that, in so finding, we do not consider  it necessary to determine whether the United States
notified a "proposed measure" to the European Communities as required by Article 12.2 of the  Agreement on
Safeguards,  as the European Communities did not argue specifically that the United States had acted
inconsistently with Article 12.2.
131Panel Report, para. 8.219.WT/DS166/AB/R
Page 45
we also uphold the Panel's finding, in paragraph 8.219 of its Report, that the United States acted
inconsistently with its obligations under Article 8.1 of the  Agreement on Safeguards .
VIII.  Article 11 of the DSU
147. At the outset of its findings in this dispute, th e Panel articulated a standard of review that was
based on Article 11 of the DSU.132  The Panel said that it would not be appropriate for it to conduct a
de novo  review of the facts of the case, nor should it adopt a policy of "total deference" to the
findings of the USITC.133  Instead, the appropriate standard was an "objective assessment".
148. The European Communities agrees, as a general ma tter, with this articulation of the standard
of review.  However, it considers that the Panel fail ed properly to apply this standard of review.  The
European Communities makes a general assertion that the Panel failed to make an objectiveassessment "because [the Panel] failed to provide an adequate and reasonable explanation for itsfindings".
134  In addition, the European Communities asserts that:
[the] Panel’s failure to obtain the relevant information claimed to be
confidential by the US and its decline [sic] to draw the necessary
adverse inferences from the US’s refusal to submit the requested
information amount to an error of law that permeates several of the
Panel’s findings.135
For each of these arguments, the European Communities lists a series of paragraphs in the Panel
Report which it considers are tainted by these errors.136  Thereafter, the European Communities sets
forth detailed arguments relating to four specific issues under Article 11 of the DSU which weunderstand are intended to substantiate the general assertions made.  The four specific issues are:  the
treatment of "productivity" under Article 4.2(a) of the  Agreement on Safeguards ;  the treatment of
"profits and losses" under Article 4.2(a) of the Agreement;  the treatment of the protein content ofwheat under Article 4.2(a) of the Agreement;  and the treatment of confidential information.
149. We note that the European Communities' appeal, insofar as it relates to the findings of serious
injury, is limited to its arguments under Article 11 and the Panel's appreciation of the evidence.  Inaddressing these arguments, we will examine the four specific issues highlighted by the EuropeanCommunities to substantiate its more general assertions.  We underline that we are not called upon to
                                                     
132Panel Report, paras. 8.4 and 8.5.
133Ibid. , para. 8.5.
134European Communities' other appellant's submission, para. 25.
135Ibid. , para. 27.
136Ibid. , paras. 25 and 27.WT/DS166/AB/R
Page 46
examine whether the Panel has properly applied the exacting legal standard in the  Agreement on
Safeguards   relating to "serious injury".
150. Before turning to the European Communities specific arguments under Article 11 of the DSU,
we recall that, in previous appeals, we have emphasized that the role of the Appellate Body differsfrom the role of panels.  Under Article 17.6 of the DSU, appeals are "limited to  issues of law  covered
in the panel report and  legal  interpretations developed by the panel". (emphasis added)  By contrast,
we have previously stated that, under Article 11 of the DSU, panels are:
… charged with the mandate to determine the  facts  of the case and to
arrive at  factual findings .  In carrying out this mandate, a panel has
the duty to examine and consider all the evidence before it, not just the
evidence submitted by one or the other party, and to evaluate therelevance and probative force of each piece thereof.
 137 (emphasis
added)
151. We have also stated previously that, although the task of panels under Article 11 relates, in
part, to its assessment of the  facts, the question whether a panel has made an "objective assessment"
of the facts is a  legal  one, that may be the subject of an appeal.138 (emphasis added)  However, in
view of the distinction between the respective roles of the Appellate Body and panels, we have taken
care to emphasize that a panel's appreciation of the evidence falls, in principle, "within the  scope of
the panel's discretion as the trier of facts ".139 (emphasis added)  In assessing the panel's appreciation
of the evidence, we cannot base a finding of inconsistency under Article 11 simply on the conclusionthat we might have reached a different factual finding from the one the panel reached.  Rather, wemust be satisfied that the panel has exceeded the bounds of its discretion, as the trier of facts, in itsappreciation of the evidence.  As is clear from previous appeals, we will not interfere lightly with thepanel's exercise of its discretion.
140
                                                     
137Appellate Body Report,  Korea – Dairy Safeguard, supra , footnote 29, para. 137.
138Appellate Body Report,   EC Measures Concerning Meat and Meat Products (Hormones)
("European Communities – Hormones "), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, 135, at 183, para. 132.
139Appellate Body Report,  Korea – Taxes on Alcoholic Beverages  ("Korea – Alcoholic  Beverages "),
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, paras. 161 and 162.
140Appellate Body Report,  European Communities – Hormones , supra , footnote 138, at 183 – 188,
paras. 131 – 142;  Appellate Body Report,  European Communities – Poultry , supra , footnote 119, paras. 131 –
136;  Appellate Body Report,  Australia – Salmon , supra , footnote 119, paras. 262 – 267;  Appellate Body
Report,  Korea – Alcoholic Beverages , supra , footnote 139, paras. 159 – 165;  Appellate Body Report,  Japan –
Measures Affecting  Agricultural Products , WT/DS76/AB/R, adopted 19 March 1999, paras. 140 – 142;
Appellate Body Report,  India – Quantitative  Restrictions on Agricultural, Textile and Industrial Products ,
WT/DS90/AB/R, adopted 22 September 1999, paras. 149 and 151;  and, Appellate Body Report,  Korea – Dairy
Safeguard , supra , footnote 29, paras. 137 and 138.WT/DS166/AB/R
Page 47
A. USITC's Treatment of "Productivity"
152. Article 4.2(a) of the  Agreement on Safeguards   refers to "productivity" as one of the
enumerated "particular" relevant factors.  Before  the Panel, the European Communities claimed that
the USITC failed properly to evaluate "productivity", as required by Article 4.2(a).141  T h e  P a n e l
concluded, to the contrary, that "the data and statements pertaining to worker productivity, inconjunction with those on capital investments, in the overall context of the USITC Report, indicatethat the USITC  considered  industry productivity as required by Article 4.2(a)."
 142 (emphasis added)
153. As we understand it, the European Communities' appeal, on this point, is that the Panel erred,
under Article 11 of the DSU, because the evidence before the Panel was not sufficient to support theconclusion that the "USITC  considered  industry productivity as required by Article 4.2(a)."
 143
(emphasis added)  In that respect, we note that neither the European Communities nor the United
States appeals the Panel's interpretation of the word "productivity" 144 in Article 4.2(a) of the
Agreement on Safeguards .  Therefore, we do not address this question.  We also note that the
European Communities has not appealed the Panel's finding on the grounds that it erred ininterpreting and applying either Articles 3.1 or 4.2(c) of the  Agreement on Safeguards , which require
the competent authorities to provide, respectively, "reasoned conclusions", as well as a
"demonstration of the relevance of the factors examined".  Nor does the European Communities assert
that the Panel's treatment of "productivity" amounted to an error under Article 4.2(a) of theAgreement on Safeguards .  Instead, the European Communities' appeal on this point is confined to the
Panel's appreciation of the evidence under Article 11 of the DSU.
154. The European Communities submits that the Panel could not make an objective assessment of
whether the USITC had evaluated "productivity" because the Panel had before it no specificnumerical  data  on "productivity".
145  We recall that it is not part of our mandate to examine the facts
afresh.  Rather, we confine ourselves to determining whether the Panel has made an "objectiveassessment" of the facts under Article 11 of the DSU.
146
155. The Panel noted that the USITC had dealt expressly with "worker productivity" and "capital
investments".147  In that respect, the USITC Report stated that worker productivity was at its "lowest
                                                     
141Panel Report, para. 8.43.
142Ibid., para. 8.45.
143Ibid.
144Ibid. , para. 8.44.
145European Communities' other appellant's submission, para. 68.
146See  supra , paras. 150 and 151.
147Panel Report, para. 8.45.WT/DS166/AB/R
Page 48
level" during the investigative period in 1997 and that "unit labor costs almost doubled during the
period examined."148  It is also clear from the USITC Report that the domestic industry introduced
considerable new capacity during the investigative period, which implies significant capitalinvestment.
149  However, as the USITC noted, there "was a significant idling of productive facilities in
the industry over the period examined", evidenced by the fall in the rate of capacity utilization.150  We
agree with the Panel that the USITC could have provided a more comprehensive analysis of"productivity".
151  However, although the evidence the Panel relied on is limited in nature, there are,
in our view, insufficient grounds for concluding that the Panel erred, under Article 11 of the DSU, in
finding that the USITC had "considered industry productivity as required by Article 4.2(a)." 152   We,
therefore, decline the European Communities' appeal on this point.
B. USITC's Treatment of "Profits and Losses"
156. Article 4.2(a) of the  Agreement on Safeguards   refers to "profits and losses" as one of the
enumerated "particular" relevant factors.  Relying on our statement in  Argentina – Footwear
Safeguards , that Article 4.2 of the  Agreement on Safeguards   requires the competent authorities
"adequately [to] explain[ ] how the facts support[ ] the determinations that were made" 153, the
European Communities claimed, before the Panel,  that the United States acted inconsistently with
Article 4.2 because the "USITC [did] not provide an adequate explanation for the determination
made" with respect to profits and losses.154  One aspect of that claim related to the alleged failure of
the USITC to explain the methodology that it had applied to allocate profits among wheat gluten,
wheat starch, and derived products.  These products are all produced from a single raw material input,
wheat or wheat flour, using a single production line.  The allocation of costs and revenues amongthese co-products will, therefore, have an influence on the apparent profitability (or losses) made onproduction of any of the co-products.
                                                     
148USITC Report, p. I-14.
149Ibid., p. I-12.
150Ibid.
151Panel Report, para. 8.45.
152Ibid.
153Appellate Body Report, supra , footnote 22, para. 121.
154Panel Report, para. 8.47.WT/DS166/AB/R
Page 49
157. In addressing the issue of the appropriate methodology, the USITC stated:
The Commission received usable financial data on wheat
gluten operations from three of the four domestic producers of wheat
gluten, Midland, Manildra, and Heartland.  These three firmsaccounted for the substantial majority of domestic production of
wheat gluten.  Each of the companies produces wheat gluten and
wheat starch in a joint production process.  Each of the companies
also produces other by-products or related products, especially
alcohol.  We carefully considered the arguments made by respondentswith respect to the allocations made by domestic producers in
providing financial data on their wheat gluten operations.  Based on a
careful review of the allocation methodologies used by domestic
wheat gluten producers in responding to the Commission's
questionnaire, we find those allocations to be appropriate ."
 155
(emphasis added)
158. After referring to this statement, the Panel ob served that it had "asked the United States to
clarify the nature of the 'careful review' the USITC had performed and to clarify and elaborate uponthe 'allocation methodologies' referred to."
 156  The Panel set out, at length, the "clarifications"
provided by the United States and noted that the USITC "could have included … a more detailedexplanation as to how and why the USITC consid ered the allocations to be 'appropriate' …".
157
However, the Panel concluded that "the  USITC Report provides an adequate, reasoned and
reasonable explanation with respect to 'profits and losses'  and that the United States did not act
inconsistently with Article 4.2(a) of the Agreement on Safeguards in this regard." 158 (emphasis added)
In reaching this conclusion, the Panel relied on the statements in the USITC Report quoted above and
the "clarifications given by the United States".159
159. The European Communities argues, on appeal, that the Panel erred, under Article 11 of the
DSU, because it did not have sufficient facts before it to justify its conclusion on this issue.  In otherwords, the evidence did not provide an objective basis for the Panel's conclusion.  At the oral hearing,the European Communities drew particular attention to the fact that the USITC   itself gives only a
                                                     
155USITC Report, p. I-13.  Footnote 57, attached to this paragraph of the USITC Report, provides
"Report at II-20, 19-21 (supporting information on these pages of the report is confidential business
information)."
156Panel Report, para. 8.61.
157Ibid. , paras. 8.61, 8.62 and 8.64.
158Ibid. , para. 8.66.
159Ibid. , para. 8.65.WT/DS166/AB/R
Page 50
single sentence explanation to justify its conclusion that the allocation methodologies are
"appropriate".160
160. We recall that, under Article 3.1 of the  Agreement on Safeguards ,  the competent authorities
must "publish a  report " which provides "reasoned conclusions" on "all pertinent issues". (emphasis
added)  Under Article 4.2(c), that  report must also contain "a detailed analysis", including "a
demonstration of the relevance of the factors examined".  We observe that the Panel concluded, on theallocation methodologies, that it was "the  USITC Report
 " which "provides an adequate, reasoned and
reasonable explanation with respect to 'profits and losses' ".161 (emphasis added)  Support for this
conclusion must, therefore, be based on evidence drawn from the  USITC Report itself .  The only
evidence, in that Report, that the Panel had to suppo rt this conclusion was the statement by the USITC
that it had "carefully reviewed" and "considered" the allocation methodologies used by theproducers.
162  In reaching its conclusion that the  USITC Report  gave an adequate explanation, the
Panel placed considerable reliance on the "clarifications" given by the United States  in response to
the Panel's questions on "the nature of the 'careful review' the USITC had performed".163  T h e s e
subsequent clarifications obviously do  not  figure in the USITC Report.164
161. Although the Panel's conclusion on this issue was that the  USITC Report  contained an
adequate explanation of the allocation methodologies, the Panel's reasoning discloses that the Panel
clearly did not consider this to be the case.  The Panel did not feel able to rely solely or, even,
principally, on the explanation actually provided in the USITC Report and, instead, relied heavily onsupplementary information provided by the United States in response to the Panel's questions.Indeed, the most important part of the Panel's reasoning on this issue is based on those"clarifications".  We consider that the Panel's conclusion is at odds with its treatment and descriptionof the evidence supporting that conclusion.  We do not see how the Panel could conclude that theUSITC Report  did  provide an adequate explanation of the allocation methodologies, when it is clear
that the Panel itself saw such deficiencies in that Report that it placed extensive reliance on
"clarifications" that were not contained in the USITC Report.
                                                     
160In response to a question at the oral hearing the European Communities referred to the following
sentence from the USITC Report:  "Based on a careful review of the allocation methodologies used by domesticwheat gluten producers in responding to the Commission's questionnaire, we find those allocations to beappropriate" (USITC Report, p. I-13).
161Panel Report, para. 8.66.
162See the excerpt from the USITC Report, supra , para. 157.
163Panel Report, para. 8.61.
164In that respect, like the Panel, we note that the USITC could have described the nature of the "careful
review" of the allocation methodologies used - as the United States did in its "clarifications" – without
disclosing confidential  data  provided by the producers (see Panel Report, para. 8.64).WT/DS166/AB/R
Page 51
162. By reaching a conclusion regarding the USITC Report, which relied so heavily on
supplementary information provided by the United States during the Panel proceedings – information
not contained in the USITC Report – the Panel applied a standard of review which falls short of what
is required by Article 11 of the DSU.
163. As a result we conclude that the Panel acted inconsistently with Article 11 in finding, in
paragraph 8.66 of the Panel Report, that "the USITC Report provides an adequate, reasoned andreasonable explanation with respect to 'profits and losses'
 " and, therefore, we reverse this finding.
C. USITC's Treatment of the Protein Content of Wheat
164. Before the Panel, the European Communities ar gued that the USITC had failed to consider
the overall relationship between the protein content of wheat and the price of wheat gluten as a
particular "relevant factor" under Article 4.2(a) of the  Agreement on Safeguards . According to the
European Communities, this relationship is "the single, most important, factor determining the priceof wheat gluten".
165  The Panel examined the evidence cited by the European Communities in support
of its assertion that the issue of the protein content of wheat had been raised before the USITC.  ThePanel said:
… We have examined this evidence cited by the European
Community before us.  While this evidence demonstrates to us that the
issue of the effect of protein premiums on price during 1993-1994 was
certainly raised by the EU producer respondents as relevant before the
USITC, we find that the European Community has not demonstratedto us  as a matter of fact  that the EU producer respondents clearly
raised the broader issue of wheat protein premiums as a possible
relevant causal factor pertaining to the post-1994 segment of the
period of investigation which the European Community raises in these
Panel proceedings.
166  (emphasis added)
165. The European Communities alleges that, in making  this finding, the Panel failed to make an
objective assessment of the facts, as required by Article 11 of the DSU.  According to the EuropeanCommunities, the evidence before the Panel, in th e form of EC-Exhibit 10, demonstrated clearly the
importance of the relationship between the protein content of wheat and the price of wheat gluten.  In
light of this evidence, it says, the Panel should have found that the USITC was required to examinethis relationship as a relevant other factor, under Article 4.2(a) of the  Agreement on Safeguards .
                                                     
165European Communities' other appellant's submission, para. 88.
166Panel Report, para. 8.125.WT/DS166/AB/R
Page 52
166. We recall that we have already examined th e European Communities' appeal against the
Panel's finding that the competent authorities need  not examine "factors" that are neither listed in
Article 4.2(a) of the  Agreement on Safeguards   nor clearly raised before the competent authorities as
relevant by interested parties.167  In that section of our findings, we concluded that the competent
authorities may be required to evaluate "other factors" which were not "clearly raised" by theinterested parties.  However, we concluded that the evidence of record suggests that the overallrelationship between the protein content of wheat and the price of wheat gluten becomes a relevant
other factor, under Article 4.2(a), only when the protein content is  unusually  high or low.  We
concluded that, as the evidence indicates that the protein content of wheat was  not  unusually high or
low during the post-1994 period of investigation, when the surge in imports occurred, the USITC was not  required to "evaluate" the protein content of wheat as a particular relevant other factor under
Article 4.2(a).
168
167. It seems, to us, that this finding, under Article 4.2(a) of the  Agreement on Safeguards , also
resolves the European Communities' appeal under Article 11 regarding the protein content of wheat.The European Communities argues that the evidence be fore the Panel should have led the Panel to find
that the USITC  was  required to evaluate the overall relationship between the protein content of wheat
and the price of wheat gluten as a relevant other factor, under Article 4.2(a), during the post-1994
period of investigation.  However, contrary to the European Communities' arguments on this point,we have already found that the evidence of record does  not  indicate that the USITC was required to
"evaluate" that relationship as a relevant other factor for that period.  We, therefore, decline theEuropean Communities' appeal on this point.
D. Failure to Draw the Appropriate Inferences
168. The Panel requested that the United States supply it with certain factual information.
169  The
United States did not submit this information, maintaining that it was business confidentialinformation ("BCI") and that, under Article 3.2 of the  Agreement on Safeguards , it was entitled to
withhold the requested information.  The Panel prop osed to the parties two different procedures for
the protection of BCI.  The United States informed  the Panel that it could not submit the information
under either of these procedures, but would be willing to submit the information to the Panel only.The Panel ruled that it could not accept the information on that basis because, by denying theEuropean Communities access to the information, the Panel would have engaged in  ex parte
                                                     
167Supra , Section IV, paras. 45 – 59.
168The details of our reasoning are set forth, supra , para. 58.
169Panel Report, para. 8.7.WT/DS166/AB/R
Page 53
communications with the United States.170  The Panel, however, stated that it was of the view that it
could dispose of the case on the basis of the factual record to which it had access.171
169. The European Communities argues that the "Panel should have drawn adverse inferences
from the US’s refusal to provide to the Panel th e redacted information from the published USITC
report and the other information identified by the EC." 172  The European Communities argues that the
Panel should have drawn inferences adverse to the United States with respect to a number of differentissues, in particular "productivity" and "profits and losses", where the Panel did not have access to
specific numerical data.  The European Communities notes that the Panel explicitly acknowledged
that having access to the BCI would "have facilitated [its] objective assessment of  the facts".
170. We begin by noting our strong agreement with the Panel that a "serious systemic issue" is
raised by the question of the procedures which should govern the protection of information requestedby a panel under Article 13.1 of the DSU and which is alleged by a Member to be "confidential".
173
We believe that these issues need to be addressed.
171. Next, we recall that we stated, in our original report in  Canada – Aircraft , that Members of
the WTO "are … under a  duty  and an  obligation  to 'respond promptly and fully' to requests made
by panels for information under Article 13.1 of the DSU." 174 (emphasis added)  In this case, despite
the fact that the Panel proposed to exercise its authority, under Article 12.1 of the DSU, to determine
its own procedures by adopting two different proc edures for the protection of business confidential
information, the United States declined to make available to the Panel, and representatives of theEuropean Communities, certain information requested by the Panel under Article 13.1 of the DSU.As the Appellate Body said in  Canada – Aircraft , the refusal by a Member to provide information
requested of it undermines seriously the ability of a panel to make an objective assessment of the factsand the matter, as required by Article 11 of the DSU.  Such a refusal also undermines the ability ofother Members of the WTO to seek the "prompt" and "satisfactory" resolution of disputes under theprocedures "for which they bargained in concluding the DSU."
 175  In this specific case, the Panel
acknowledged that having access to all of the information requested from the United States "would
                                                     
170Panel Report, para. 8.10.
171Ibid. , para. 8.12.
172European Communities' other appellant's submission, para. 38.
173Panel Report ., para. 8.11.
174Appellate Body Report, supra , footnote 32, para. 187.
175Ibid., para. 189.WT/DS166/AB/R
Page 54
have facilitated [an] objective assessment of the facts".176  We, therefore, deplore the conduct of the
United States.
172. However, we note that the role of the Appellate Body, on this issue, is limited to determining
whether the Panel has erred under Article 11 of the DSU.  In that respect, we recall that, in  Canada –
Aircraft , the Appellate Body observed that:
… The drawing of inferences is, in other words, an inherent and
unavoidable aspect of a panel's basic task of finding andcharacterizing the facts making up a dispute.
177
…
Clearly, in our view, the Panel had the legal authority and the
discretion  to draw inferences from the facts before it – including the
fact that Canada had refused to provide information sought by thePanel.
178  (emphasis added)
173. We, therefore, characterized the drawing of inferences as a "discretionary" task falling within
a panel's duties under Article 11 of the DSU.  In  Canada – Aircraft , which involved a similar factual
situation, the panel did not draw any inferences "adverse" to Canada's position.  On appeal, we heldthat there was no basis to find that the panel had improperly exercised its discretion since "the fullensemble  of the facts on the record" supported the panel's conclusion.
179
174. In its appeal, the European Communities places considerable emphasis on the failure of the
Panel to draw "adverse" inferences from the refu sal of the United States to provide information
requested by the Panel.  As we emphasized in  Canada – Aircraft , under Article 11 of the DSU, a
panel must draw inferences on the basis of  all of the facts of record  relevant to the particular
determination to be made.180  Where a party refuses to provide information requested by a panel under
Article 13.1 of the DSU, that refusal will be one of the relevant facts of record, and indeed animportant fact, to be taken into account in determining the appropriate inference to be drawn.However, if a panel were to ignore or disregard other relevant facts, it would fail to make an"objective assessment" under Article 11 of the DSU.  In this case, as the Panel observed, there  were  
other facts of record that the Panel was required to  include in its "objective assessment".  Accordingly,
we reject the European Communities' arguments to the extent that they suggest that the Panel erred in
                                                     
176Panel Report, para. 8.12.
177Appellate Body Report, supra , footnote 32, para. 198.
178Ibid. , para. 203.
179Ibid. , paras. 204 and 205.
180Ibid.WT/DS166/AB/R
Page 55
not drawing "adverse" inferences simply from the refusal of the United States to provide certain
information requested from it by the Panel under Article 13.1 of the DSU.
175. In reviewing the inferences the Panel drew from the facts of record, our task on appeal is not
to redo afresh the Panel's assessment of those facts, and decide for ourselves what inferences wewould draw from them.  Rather, we must determine whether the Panel improperly exercised itsdiscretion, under Article 11, by failing to draw certain inferences from the facts before it.  In asking usto conduct such a review, an appellant must indicate clearly the manner in which a panel has
improperly exercised its discretion.  Taking into account the full  ensemble  of the facts, the appellant
should, 
at least :  identify the facts on the record from which the Panel should have drawn inferences;
indicate the factual or legal inferences that the panel should have drawn from those facts;  and, finally,
explain why the failure of the panel to exercise its discretion by drawing these inferences amounts to
an error of law under Article 11 of the DSU.
176. In this appeal, the European Communities makes, what we regard to be, broad and general
statements that the Panel erred by not drawing "adverse" inferences from the facts.  Besides the fact
that the United States refused to provide certain information requested by the Panel under Article 13.1of the DSU, the European Communities does not identify, in any specific manner,  which facts
supported a particular inference.  Nor does the European Communities identify  what inferences  the
Panel should have drawn from those facts, other than  that the inferences should have been favourable
to the European Communities.  Besides the simple re fusal of the United States to provide information
requested by the Panel, which we have already addressed
181, the European Communities does not
offer any other specific reasons why the Panel's failure to exercise its discretion by drawing theinferences identified by the European Communities amounts to an error of law under Article 11 of the
DSU. Therefore, we decline this ground of appeal.
IX. Judicial Economy
177. Before the Panel, the European Communities made a claim under Article XIX:1(a) of the
GATT 1994 regarding "unforeseen developments", and also a claim under Article I of the GATT1994 and Article 5 of the  Agreement on Safeguards  regarding the nature of the remedy.  In a single
paragraph covering these two claims, the Panel stated:
                                                     
181Supra , para. 174.WT/DS166/AB/R
Page 56
… having determined that the measure at issue is inconsistent with
Articles 2.1 and 4.2 SA, and exercising the discretion implicit in the
principle of judicial economy, we do not deem it necessary to examine
whether the measure at issue is also inconsistent with Article XIX of
the GATT 1994 ("unforeseen developments") nor whether the form,
level and allocation of the inconsistent measure are in breach ofArticle 5 SA or Article I of the GATT 1994.
182
178. The European Communities appeals the Panel's findings on judicial economy.  The European
Communities asserts that the failure to make a finding regarding the claim on "unforeseendevelopments" means that there is a flaw in the Panel's findings, under Articles 2.1 and 4.2 of the
Agreement on Safeguards , concerning increased imports and serious injury.  The European
Communities also argues that, by failing to address the European Communities' claims under Article Iof the GATT 1994 and Article 5 of the  Agreement on Safeguards , "the Panel has not clarified
whether the US could simply repeat the serious injury determination and then still proceed to applythe measure in the same way."
 183
179. We begin by recalling certain of the statements that the Appellate Body has already made
regarding the exercise of judicial economy by panels.  In  United States – Shirts and Blouses , we
opined:
Given the explicit aim of dispute settlement that permeates the  DSU ,
we do not consider that Article 3.2 of the  DSU  is meant to encourage
either panels or the Appellate Body to "make law" by clarifying existingprovisions of the  WTO Agreement  outside the context of resolving a
particular dispute.  A panel need only address those claims which must
be addressed in order to resolve the matter in issue in the dispute .
184
(emphasis added)
180. However, the "discretion" that a panel enjoys to determine which claims it should address is
not without limits.185  In  Australia – Salmon , we stated that a "panel has to address those claims on
which a finding is necessary in order to enable the DSB to make sufficiently precise recommendationsand rulings so as to allow for prompt compliance by a Member with those recommendations andrulings …".
186
                                                     
182Panel Report, para. 8.220.
183European Communities' other appellant's submission, para. 108.
184Appellate Body Report,  United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses from India , WT/DS33/AB/R, adopted 23 May 1997, DSR 1997:I, 323, at 340.
185Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products , WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, at 35, para. 87.
186Appellate Body Report, Australia – Salmon , supra , footnote 119, para. 223.WT/DS166/AB/R
Page 57
181. In  Argentina – Footwear Safeguards , we were asked to address a claim on "unforeseen
developments" that the panel had not examined.  In that appeal, we upheld the panel's finding thatArgentina's investigation "was inconsistent with the requirements of Articles 2 and 4 of the Agreement
on Safeguards ."  We went on to state:
As a consequence, there is  no legal basis   for the safeguard measures
imposed by Argentina.  For this reason, we do not believe that it is
necessary to complete the analysis of the Panel relating to the claim
made by the European Communities under Article XIX of the
GATT 1994 by ruling on whether the Argentine authorities have, in
their investigation, demonstrated that the increased imports in this
case occurred "as a result of unforeseen developments and of theeffect of the obligations incurred by a Member under this Agreement,
including tariff concessions … ".
187
182. In short, we considered that since the safeguard measure at issue was inconsistent with
Articles 2 and 4 of the  Agreement on Safeguards , there was no need to go further and examine
whether, in addition, the measure was also inconsistent with Article XIX:1(a) of the GATT 1994.  Theinconsistency, as we said, deprived the measure of legal basis.
183. In our view, the same reasoning applies in this case.  The Panel found and we have upheld,
albeit for different reasons, that the measure is inconsistent with Articles 2.1 and 4.2 of the
 Agreement on Safeguards .  Thus, the Panel found, in effect, that the safeguard measure at issue in
this case, like the measure at issue in  Argentina – Footwear Safeguard , has no legal basis.  The
reasons for which the Panel found an inconsistency with Articles 2.1 and 4.2 of the  Agreement on
Safeguards   do not alter that conclusion.  The Panel was, therefore, entitled to decline to examine the
claim of the European Communities regarding "unfor eseen developments".  A finding on that issue
would not, in our view, have added anything to th e ability of the DSB to make sufficiently precise
recommendations and rulings in this dispute.  We, therefore, see no error in the Panel's exercise ofjudicial economy as regards the European Communities claim concerning "unforeseendevelopments".
184. The same reasoning also holds true for the European Communities' claim under Article I of the
GATT 1994 and Article 5 of the  Agreement on Safeguards .  As the Panel had found the measure to
be inconsistent with Articles 2.1 and 4.2 of the  Agreement on Safeguards , the Panel was within its
discretion in declining to examine these claims.  Once again, a finding on this claim would not have
added anything to the ability of the DSB to make sufficiently precise recommendations and rulings inthis dispute.
                                                     
187Appellate Body Report, supra , footnote 22, para. 98.WT/DS166/AB/R
Page 58
185. Finally, the European Communities asserts that, by failing to address these claims, "the Panel
has not clarified whether the US could simply repeat the serious injury determination and then stillproceed to apply the measure in the same way."
 188  It appears, to us, that this argument invites
speculation as to how the United States might im plement the recommendations and rulings of the
DSB.  As we said in our Report in  United States – Tax Treatment for "Foreign Sales Corporations" ,
"we do not consider that it is appropriate for us to speculate on the ways in which the United Statesmight choose to implement" the recommendations and rulings of the DSB.
189  We, therefore, see no
error in the Panel's exercise of judicial economy as regards the European Communities claim concerning
Article I of the GATT 1994 and Article 5 of the  Agreement on Safeguards .
186. For these reasons, we see no error in the Panel's exercise of judicial economy in paragraph
8.220 of the Panel Report.
X. Findings and Conclusions
187. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's conclusion, in paragraph 8.127 of the Panel Report, that the
United States has not acted inconsistently with its obligations under Articles 4.2(a)and 4.2(b) of the  Agreement on Safeguards , by declining to evaluate the overall
relationship between the protein content of wheat and the price of wheat gluten as a
"relevant factor" under Article 4.2(a) of that Agreement; but, in so doing, reverses thePanel's interpretation of Article 4.2(a) of the  Agreement on Safeguards , in paragraph
8.69 of the Panel Report, that the competent authorities are required to evaluate onlythe "relevant factors" listed in Article 4.2(a) of that Agreement as well as any other"factors" which were " clearly   raised before [the competent authorities] as relevant by
the interested parties in the domestic investigation";
(b) reverses the Panel's interpretation of Article 4.2(b) of the  Agreement on Safeguards
that increased imports "alone", "in and of themselves", or " per se ", must be capable of
causing "serious injury", as well as the Panel's conclusions on the issue of causation,
as summarized in paragraph 8.154 of the Panel Report; finds, nonetheless, that the
                                                     
188European Communities' other appellant's submission, para. 108.
189Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" ,
WT/DS108/AB/R, adopted 20 March 2000, para. 175.WT/DS166/AB/R
Page 59
United States acted inconsistently with its obligations under Article 4.2(b) of the
Agreement on Safeguards ;
(c) upholds the Panel's finding, in paragraph 8.182 of the Panel Report, that the United
States acted inconsistently with its obligations under Articles 2.1 and 4.2 of theAgreement on Safeguards , by excluding imports from Canada from the application of
the safeguard measure, after conducting an investigation embracing imports from allsources, including Canada, to determine whether increased imports of wheat gluten
were causing or threatening to cause serious injury to the United States industry, and
after subsequently conducting a separate examination of the importance of importsfrom Canada to the situation of the domestic industry;
(d) upholds the Panel's findings, in paragraphs 8.197 and 8.199 of the Panel Report, that
the United States acted inconsistently with its obligations under Articles 12.1(a) and12.1(b) of the  Agreement on Safeguards ;
(e) reverses the Panel's finding, in paragraph 8.207 of the Panel Report, that the United
States acted inconsistently with its obligations under Article 12.1(c) of the Agreement on Safeguards ; finds that the United States acted consistently with its
obligations under Article 12.1(c) of that Agreement to notify "immediately" its
decision to apply a safeguard measure;
(f) upholds the Panel's finding, in paragraph 8.219 of the Panel Report, that the United
States acted inconsistently with its obligations under Article 12.3 of the  Agreement
on Safeguards , and, in consequence, upholds the Panel's finding, in paragraph 8.219
of the Panel Report, that the United States acted inconsistently with its obligationsunder Article 8.1 of the Agreement on Safeguards ;
(g) finds that the Panel did not act inconsistently with Article 11 of the DSU:
(i) in concluding, in paragraph 8.45 of the Panel Report, that the USITC had
"considered industry productivity as required by Article 4.2(a)" of the
Agreement on Safeguards ;WT/DS166/AB/R
Page 60
(ii) in finding, in paragraph 8.127 of the Panel Report, that the USITC was not
required to evaluate the overall rela tionship between the protein content of
wheat and the price of wheat gluten as a "relevant factor", under Article 4.2(a)of the  Agreement on Safeguards , during the post-1994 period of
investigation;  and,
(iii) in declining to draw "adverse" inferences from the refusal of the United
States to provide certain allegedly confidential information requested from it
by the Panel under Article 13.1 of the DSU;
(h) finds that the Panel acted inconsistently with Article 11 of the DSU in finding, in
paragraph 8.66 of the Panel Report, that "the USITC Report  provides an adequate,
reasoned and reasonable explanation with respect to 'profits and losses'" and,therefore, reverses this finding;  and
(i) finds no error in the Panel's exercise of judicial economy, in paragraph 8.220 of the
Panel Report, in not examining the claims of the European Communities underArticle XIX:1(a) of the GATT 1994, and also under Article 5 of the  Agreement on
Safeguards  and Article I of the GATT 1994.
188. The Appellate Body  recommends  that the DSB request that the United States bring its
safeguard measure found in this Report, and in the Panel Report as modified by this Report, to beinconsistent with the  Agreement on Safeguards ,  into conformity with its obligations under that
Agreement.WT/DS166/AB/R
Page 61
Signed in the original at Geneva this 8th day of December 2000 by:
_________________________
Julio Lacarte-Muró
Presiding Member
_________________________ _________________________
Georges Michel Abi-Saab Yasuhei Taniguchi
Member Member