WORLD TRADE
ORGANIZATIONWT/DS161/R
WT/DS169/R
31 July 2000
(00-3025)
Original:  English
KOREA - MEASURES AFFECTING IMPORTS OF FRESH,
CHILLED AND FROZEN BEEF
Report of the Panel
The report of the Panel on Korea - Measures Affec ting Imports of Fresh, Chilled and Frozen Beef is
being circulated to all Members, pursuant to the DSU.  The report is being circulated as anunrestricted document from 31 July 2000 pursuant to the Procedures for the Circulation and
Derestriction of WTO Documents (W T/L/160/Rev.1).  Members are reminded that in accordance with
the DSU only parties to the dispute may appeal a panel report.  An appeal shall be limited to issues of
law covered in the Panel report and legal interpretations developed by the Panel.  There shall be no ex
parte  communications with the Panel or Appellate Body concerning matters under consideration by
the Panel or Appellate Body.
Note by the Secretariat:  This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60
days after the date of its circulation unless a party to the dispute decides to a ppeal or the DSB decides by
consensus not to adopt the report.  If the Panel Report is appealed to the Appellate Body, it shall not beconsidered for adoption by the DSB until after the completion of the appeal.  Information on the current statusof the Panel Report is available from the WTO Secretariat.WT/DS161/R
WT/DS169/R
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Table of Contents
LIST OF ABBREVIATIONS OF PANEL AND A PPELLATE BODY REPORTS REFERRED TO IN
THE TEXT OF THE REPORT ......................................................................................................... ................ V
I. INTRODUCTION................................................................................................................. .......................1
1. Terms of reference........................................................................................................... ......................1
2. Panel composition............................................................................................................ .....................1
II. FACTUAL ASPECTS ............................................................................................................. ....................3
1. Product coverage of  the dispute.............................................................................................. ..............3
2. Korea's Schedule of Concessions.............................................................................................. ............3
3. Records of Underst anding ..................................................................................................... ................3
4. The Korean regulatory regime for beef........................................................................................ .........4
5. Measures affecting the importation,  distribution and sale of beef ........................................................4
(i) Measures applied to b eef imported by the LPMO ............................................................................... .........4
(ii) The National Livestock Cooperatives Federation (NLCF) ...................................................................... .....5
(iii) Measures applied to beef imported under the SBS system.................................................................... ........5
6. Mark-ups ..................................................................................................................... ..........................6
7. Measures applied to the retail sale of imported beef ......................................................................... ...6
8. Domestic support measures to  the Korean beef industry......................................................................7
9. Previous dis pute settlement.................................................................................................. .................7
10. Import liberalization programme............................................................................................. .............7
III. PRELIMINARY REQUEST FOR RULINGS  ON TERMS OF  REFERENCE................................8
IV. MAIN ARG UMENTS .............................................................................................................. .............12
A. G ENERAL ............................................................................................................................... ...................12
B. CLAIMS TO A "TRANSITIONAL PERIOD " .....................................................................................................13
1. Remaining restrictions ....................................................................................................... .................13
(i) Transitional period......................................................................................................... .............................14
(ii) BOP Comm ittee report ....................................................................................................... ........................16
(iii) The Records of Understanding .............................................................................................. .....................20
(iv) Quarterly bilateral consultations .......................................................................................... .......................24
(v) Prior panel reports......................................................................................................... ..............................24
(vi) Article 26 of the Vienna  Convention (good faith) ........................................................................... ...........26
C. CLAIMS UNDER ARTICLE XI :1 OF GATT .....................................................................................................27
1. No prohibitions or restrictions… on the importation of any product...................................................27
2. Measures imposed on retail sale of imported beef............................................................................. .28
3. LPMO tendering opportunities ................................................................................................. ..........29
4. Measures with respect to the discharge of  imported beef in the wholesale market ............................30
5. Measures applied thr ough the SBS regime ...................................................................................... ...35
6. Burden and stand ard of proof ................................................................................................. ............36
D. CLAIMS UNDER ARTICLE III :4 OF GATT ......................................................................................................41
1. "Like product"............................................................................................................... ......................41
2. Measures with respect to retail sale of imported beef........................................................................ .41
3. LPMO tendering opportunities ................................................................................................. ..........50
4. Measures with respect to the discharge of  imported beef in the wholesale market ............................50
5. Other measures applyi ng to imported beef ..................................................................................... ....52
6. Measures applied thr ough the SBS regime ...................................................................................... ...52
7. Burden and stand ard of proof ................................................................................................. ............55
E. CLAIMS UNDER ARTICLE XX (D) OF GATT ..................................................................................................57
F. CLAIMS UNDER ARTICLE II OF GATT ..........................................................................................................68
1. LPMO tendering opportunities ................................................................................................. ..........68
2. Application of a ma rk-up on SBS imports...................................................................................... .....70
G. CLAIMS UNDER ARTICLE III :2 OF GATT ......................................................................................................73
H. CLAIMS UNDER ARTICLE XVII OF GATT .....................................................................................................74
1. LPMO tendering opportunities ................................................................................................. ..........74
2. Measures with respect to th e allocation of imported beef  in the wholesale market............................74WT/DS161/R
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I. CLAIMS UNDER THE AGREEMENT ON LICENSING PROCEDURES .................................................................77
J. CLAIMS UNDER THE AGREEMENT ON AGRICULTURE .................................................................................84
1. Article 4.2 of the Agreement on Agriculture .................................................................................. .....84
2. Article 6 of the Agreement on Agriculture .................................................................................... ......85
(i) De Minimis .................................................................................................................. ...............................85
(ii) 1997 ....................................................................................................................... .....................................85
(iii) Eligible production ....................................................................................................... ..............................86
(iv) Applied administered price and fixed external reference price .............................................................. .....91
(v) 1998 ........................................................................................................................ ....................................93
(vi) Annex 3 of the Agreement on Agriculture.................................................................................... ..............97
(vii) Total AMS-Current Total AMS............................................................................................... .................100
V. SUMMARY OF THE ARGUMENTS PRESENTED BY THIRD PARTIES....................................104
A. ARGUMENTS SUBMITTED BY CANADA .....................................................................................................104
1. Article III of GATT.......................................................................................................... ..................104
2. Article II of GATT ........................................................................................................... ..................105
3. Article XI of GATT and Article 4.2 of the Agreement on Agriculture ...............................................106
B. ARGUMENTS SUBMITTED BY NEW ZEALAND ...........................................................................................107
1. Article III of GATT.......................................................................................................... ..................108
2. Article XX of GATT ........................................................................................................... ................110
3. Article II of GATT ........................................................................................................... ..................111
4. Article XVII of GATT ......................................................................................................... ...............111
5. Agreement on Agricultu re - domestic support .................................................................................. 112
(i) The fixed external reference price for beef ................................................................................. ..............112
(ii) The eligible production of beef............................................................................................ .....................114
(iii) The AMS calculation for beef.............................................................................................. .....................116
6. Conclusion ................................................................................................................... .....................118
VI. INTERIM REVIEW.............................................................................................................. ..............119
VII. FINDINGS ................................................................................................................... ........................124
A. G ENERAL CONSIDERATIONS ...................................................................................................................124
1. Brief description of the beef import regime in Korea........................................................................1 24
2. Brief description of the claims .............................................................................................. ............124
3. Methodology followe d by the Panel............................................................................................ ......125
B. K OREA 'S DEFENCE THAT "THE REMAINING RESTRICTIONS " SHOULD BENEFIT FROM A TRANSITION PERIOD
AS ESTABLISHED IN ITS SCHEDULE LX ............................................................................................................125
1. Legal Status of  Note 6( e) to Korea's Schedule LX ...........................................................................1 26
(a) Arguments of the Parties .................................................................................................... ...........................126
(b) Relevant jurisprudence on the WTO Schedules................................................................................. ............127
(c) The Panel's assessment ...................................................................................................... ............................127
2. Scope and interpretation of the term  "the remaining restrictions" ...................................................128
(a) Negotiating history and circumstances that led to the inclusion of the words "According to the results of the
1989 consultation with BOP Committee and the Uruguay Round multilateral trade negotiation, the remaining
restrictions" in Note 6(e) of Korea's Schedule................................................................................. ........................131
(i) The 1989 GATT Committee on Balance-of-Payments Restrictions Consultations ..................................131(ii) The 1989 Panel Reports..................................................................................................... .......................132
(iii) The Records of Understanding .............................................................................................. ...................134
The 1990 Records of Understanding Between Korea and Australia; and Korea and the United States ........134
The July 1993 Records of Understanding Between Korea and Australia; and Korea and the United States 134
The December 1993 Record of Understanding Between Korea and the United States ..................................135
(b) Material to be consulted in order to interpret Note 6(e) of Korea's Schedule ................................................ 136
(c) Determination of the measures which qualify as "remaining restrictions" ....................................................1 36
(i) Measures challenged......................................................................................................... ........................136
(ii) Disputed measures that were in place in 1989 or originate in the ROUs and which therefore constitute"remaining restrictions" within the meaning of Note 6(e) ....................................................................... ...........138
(iii) Disputed Measures not associated with the administration of the beef quota as of 1989 and not envisaged
in the ROUs.................................................................................................................... ....................................142
(iv) Summary of the Panel's Conclusions with Respect to the Measures in Dispute and Note 6(e) of Korea'sSchedule ....................................................................................................................... ......................................145
C. C LAIMS AGAINST THE DUAL RETAIL SYSTEM AND RELATED MEASURES .................................................147
1. General claims and de fence of the parties .................................................................................... ....147
2. Article III:4 of GATT and the dual retail system............................................................................. ..147WT/DS161/R
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(a) Like product determination.................................................................................................. ..........................148
(b) Law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation,distribution, or use........................................................................................................... ........................................148
(c) Less favourable treatment................................................................................................... ...........................148
(i) Arguments of the parties.................................................................................................... .......................148
(ii) The relevant GATT/WTO jurisprudence ........................................................................................ ..........149
(iii) The Panel's assessment .................................................................................................... .........................151
(d) Conclu sion.................................................................................................................. ...................................153
3. Article III:4 and the requirement to display a special sign...............................................................153
(a) The arguments of the parties................................................................................................ ..........................153
(b) The Panel' s assessment ...................................................................................................... ............................153
4. Korea's defence based on Article XX(d) of GATT.............................................................................15 3
(a) Arguments of the parties.................................................................................................... ............................153
(b) Article XX(d) of GATT and the GATT/WTO jurisprudence ........................................................................ 155
(c) The Panel's assessment ...................................................................................................... ............................156
(i) "… secure compliance with GATT consistent regulation" ....................................................................... 156
(ii) "necessary to prevent misrepresent ation as to the or igin of beef".......................................................... ...158
(iii) Conclusion on Korea's Article XX defence .................................................................................. ............161
5. Conclusion on the WTO compatibility of  the dual retail system for beef..........................................161
D. C LAIMS AGAINST THE (LPMO) DISTRIBUTION SYSTEM AT THE WHOLESALE LEVEL ...............................161
1. General Arguments of the Parties............................................................................................. ........161
2. The Panel's Assessment....................................................................................................... ..............162
(a) Restrictions on supply of beef from the wholesale market to specialized imported-beef stores – the dual retail
system......................................................................................................................... .............................................162
(b) Sales of imported beef through the wholesale market can allegedly onl y be on a cas h basis ........................162
(c) Record-keeping requirements ................................................................................................. .......................163
E. C LAIMS AGAINST THE SBS SYSTEM .......................................................................................................163
1. General description of th e claims of the Parties............................................................................. ..163
2. The Panel's assessment in the light of Note 6(e) ............................................................................. ..164
3. Examination of two specific me asures of the SBS system .................................................................164
(a) Prohibition on cross-trading between end-users .............................................................................. ..............164
(i) Arguments of the Parties.................................................................................................... .......................164
(ii) The Panel's assessment ..................................................................................................... ........................164
(b) Additional labelling requirements........................................................................................... .......................165
(i) Arguments of the Parties.................................................................................................... .......................165
(ii) The Panel's assessment ..................................................................................................... ........................166
F. C LAIMS AGAINST THE LPMO' S MINIMUM WHOLESALE PRICE , THE REFUSAL OR DELAYS IN CALLING FOR
TENDERS AND THE DISCHARGE PRACTICES IN 1997-1998 ................................................................................166
1. General Arguments of the Parties............................................................................................. ........166
2. Minimum wholesale price ...................................................................................................... ...........167
(a) Arguments of the Parties .................................................................................................... ...........................167
(b) Panel's assessment in light of Note 6(e).................................................................................... .....................167
3. The LPMO's daily and monthly discharge practices; the withholding of imported stocks; and the
refusal or delays in calling for import tenders................................................................................ ...........168
(a) Arguments of the parties and factua l determination made by the Panel ........................................................ 168
(i) Were the beef import quota s filled in 19 97 and 1998? ........................................................................ .....168
(ii) The LPMO's role in the non-filling of the import quota ..................................................................... ......170
(iii) The issue of the economic justifications for Korea to do so ............................................................... ......170
(iv) Conclusion................................................................................................................. ...............................173
(b) The WTO provisions and jurisprudence on restrictions imposed by state-trading enterprises.......................174
(i) Articles XI, the Ad Note to Articles XI, XII, XIII, XIV and XVIII and Article XVI of GATT ...............174(ii) Article 4.2 of the Agreement on Agriculture ................................................................................ ............177
(c) The Panel's assessment ...................................................................................................... ............................178
G. C LAIM WITH REGARD TO THE GRASS /GRAIN FED BEEF DISTINCTION .......................................................179
1. Arguments of the parties ..................................................................................................... ..............179
2. Factual determination by the Panel........................................................................................... .......179
3. The WTO provisions  and jurisprudence......................................................................................... ...180
4. The Panel's assessment ....................................................................................................... ..............181
H. CLAIM THAT KOREA 'S IMPORT LICENSING SYSTEM PER SE  VIOLATES VARIOUS PROVISIONS OF THE WTO
AGREEMENT ............................................................................................................................... .....................181
I. C LAIMS AGAINST THE ALLEGED EXCESSIVE DOMESTIC SUPPORT TO KOREA 'S CATTLE INDUSTRY ..........182
1. Korea's request for a preliminary ruling on the Panel's terms of reference and lack of specificity asconcerns claims relating to domestic s upport of the US and Australian claims........................................182WT/DS161/R
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(a) Arguments of the Parties .................................................................................................... ...........................182
(b) WTO provisions and jurispr udence on terms of reference...................................................................... .......183
(c) The Panel's Assessment ...................................................................................................... ...........................185
(i) The Measures at Issue....................................................................................................... ........................186
(ii) The claims under Articles 3, 6 and 7 of the Agreemen t on Agriculture....................................................186
(iii) Korea's prejudice ......................................................................................................... .............................191
(iv) Conclusion................................................................................................................. ...............................191
2. Claims that Korea's domestic support for beef exceed ed the 10 per cent de minimis and led to a Total
Current AMS for 1997 and 1998 which exceeded Kore a's scheduled annual commitment levels.............191
(a) Arguments of the Parties .................................................................................................... ...........................191
(b) The Panel' s assessment ...................................................................................................... ............................192
(i) Korea's scheduled commitment levels of domestic support..................................................................... .192
(ii) Domestic support for the beef  industry in 19 97 and 1998 .................................................................... ....193
Market-price support ............................................................................................................................... ......194
"Fixed External Reference Price (FERP)" ........................................................................................ .............195
"Eligible/actual production" ................................................................................................... .......................196
"Total value of production" .................................................................................................... .......................196
Product specific programmes ........................................................................................................................197
(iii) Recalculation of the aggregate measurement of s upport for beef in 1997 and 1998 and of the Current Total
AMS ............................................................................................................................ ......................................197
(c) Conclusion.................................................................................................................. ...................................199
VIII. CONCLUSIONS A ND RECOMMENDAT IONS.............................................................................200
ANNEX 1........................................................................................................................ ...................................202
1990 RECORDS OF UNDERSTANDI NG*................................................................................................. 202
ANNEX 2........................................................................................................................ ...................................206
JULY 1993 RECO RDS OF UNDERS TANDING* ......................................................................................206
ANNEX 3........................................................................................................................ ...................................216
DECEMBER 1993 RECORD  OF UNDERS TANDING...............................................................................216
ANNEX 4........................................................................................................................ ...................................220
(Korea's Exhibit 45)........................................................................................................... ............................220
ANNEX 5........................................................................................................................ ...................................225
(Korea Exhibit 27)............................................................................................................. ............................225
ANNEX 6........................................................................................................................ ...................................226
(Australia, 1st Submission, pa ragraph 3.6).................................................................................................... .226
ANNEX 7........................................................................................................................ ...................................227
(Korea Exhibit 19)............................................................................................................. ............................227
ANNEX 8........................................................................................................................ ...................................228
(Korea Exhibit 39)............................................................................................................. ............................228
ANNEX 9........................................................................................................................ ...................................229
(US Exhibit 60)................................................................................................................ ..............................229
ANNEX 10....................................................................................................................... ..................................230
(New Zealand, Annex 7, Table 13)............................................................................................... .................230
ANNEX 11....................................................................................................................... ..................................231
(Korea Exhibit 35)............................................................................................................. ............................231
ANNEX 12....................................................................................................................... ..................................232
Australia Attachment 17........................................................................................................ ........................232WT/DS161/R
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LIST OF ABBREVIATIONS OF PANEL AND APPELLATE BODY REPORTS REFERRED
TO IN THE TEXT OF THE REPORT
Argentina – Textiles(AB)  - Appellate Body report on Argentina - Measures Affecting Imports
of Footwear, Textiles, Apparel and Other Items , adopted 22 April 1998, WT/DS56/AB/R;
Canada - FIRA  - Panel report on  Canada - Administration of th e Foreign Investment Review
Act, BISD 30S/140, adopted 7 February 1984 ;
Canada- Marketing Agencies (1988)  - Panel report on Canada - Import, Distribution and
Sale of Certain Alcoholic Drinks by  Provincial Marketing Agencies, BISD 35S/137, adopted
22 March 1988;Canada - Marketing Agencies (1992) - Panel report on Canada - Import, Distribution and
Sale of Certain Alcoholic Drinks by  Provincial Marketing Agencies, BISD 39S/27, adopted
18 February 1992;Canada - Periodicals  - Panel report on Canada - Certain Measures Concerning Periodicals,
WT/DS31/R, adopted 30 July 1997;Canada - Dairy  - Panel report on Canada - Measures Affecting the Importation of Milk and
Exportation of Dairy Products , WT/DS103/R (US), WT/DS113/R (New Zealand) , adopted
22 October 1999;Canada - Dairy(AB)  - Appellate Body report on Canada - Measures Affecting the
Importation of Milk and Exportation of Dairy Products , WT/DS103/AB/R, adopted 22
October 1999;
EEC - Processed Fruits and Vegetables   - Panel report on  EEC – Programme of Minimum
Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables,
BISD 25S/68, adopted 18 October 1978;EEC - Beef  - Panel report on EEC - Imports of Beef from Canada, BISD 28S/92, adopted 10
March 1981 ;
EEC- Imports from Hong Kong, - Panel report on  EEC – Quantitative Restrictions against
Imports of Certain Products from Hong Kong , BISD 30S/129, adopted 12 July 1983;
EEC - Oilseeds  - Panel report on EEC - Payments and Subsidies Paid to Processors and
Producers of Oilseeds and Related Animal -Feed Proteins, BISD 37S/86 (US), adopted 25
January 1990;EEC - Parts and Components - Panel report on EEC - Regulation on Imports of Parts and
Components,  BISD 37S/132, adopted 16 May 1990;
EC - Bananas III  – Panel report on  European Communities - Regime for the Importation,
Sale and Distribution of Bananas, WT/DS27/R(Ecuador, Guatemala, Honduras, Mexico, and
United States), adopted 25 September 1997;EC - Bananas III (AB) - Appellate Body Report on European Communities - Regime for the
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September
1997;EC – Hormones (AB) –  Appellate Body report on European Communities – Measures
Affecting Meat and Meat Products, WT/DS26/AB/R- WT/DS48/AB /R, adopted 13 February
1998;EC - Computer Equipment  (AB)
 - Appellate Body report on European Communities/United
Kingdom/Ireland - Customs Classification of  Certain Computer Equipment (AB),
WT/DS62/AB/R (US), WT/DS67/AB/R (US), WT/DS68/AB/R (US), adopted 22 June 1998;WT/DS161/R
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EC - Poultry - Panel report on  European Communities - Importation of Certain Poultry
Products , WT/DS69/R (Brazil) , adopted 23 July 1998;
EC – Poultry(AB) – Appellate Body report on  European Communities - Importation of
Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 1998;
India - Quantitative Restrictions - Panel report on  India - Quantitative Restrictions on
Imports of Agricultural, Textile and Industrial Products, WT/DS90/R (US ), adopted 22
September 1999;
Indonesia – Automobiles – Panel report on Certain Measures Affecting the Automobile
Industry , WT/DS54 (EC); WT/DS55 (Japan), WT/D S59 (US), WT/DS64 (Japan), adopted 23
July 1998;
Italian Agricultural Machinery  - Panel report on Italy - Discrimination against Imported
Agricultural Machinery, BISD 7S/60, adopted 23 October 1958;
Japan - Agricultural Products  - Panel report on Japan - Restrictions on Imports of Certain
Agricultural Products, BISD 35S/163, adopted 2 February 1988;
Japan –Semi-conductors , Panel report on  Japan - Trade in Semi-conductors,  BISD 35S/116,
adopted 4 May 1988;Japan - Leather  – Panel report on Japanese Measures on Imports of Leather , BISD 31S/94,
adopted 15 May 1994;Japan - Alcoholic Beverages - Panel report on  Japan - Taxes on Alcoholic Beverages .
WT/DS8/R (EC);  WT/DS10/R (Canada);  WT/DS11/R (US), adopted 1 November 1996;
Japan - Alcoholic Beverages (AB) - Appellate Body report on Japan – Taxes on Alcoholic
Beverages , WT/DS8,10,11/AB/R, adopted on 1 November 1996;
Japan - Film – Panel report on Japan - Measures Affecting Consumer Photographic Film
and Paper,  WT/DS/44/R (US), adopted 22 June 1998;
Japan - Varietal Testing(AB) -  Appellate Body report on  Japan - Measures Affecting
Agricultural Products, WT/DS76/AB/R, adopted 19 March 1999;
Korea - Beef  - Panel report on Republic of Korea - Restrictions on Imports of Beef , BISD
36S/202 (Australia) 36S/268 (US) , adopted on 7 November 1989;
Korea - Alcoholic Beverages (EC)  - Panel report on Korea - Taxes on Alcoholic Beverages,
WT/DS75/R (EC) , adopted on 17 February 1999;
Korea - Alcoholic Beverages(US)  - Panel report on Korea - Taxes on Alcoholic Beverages,
WT/DS84/R (US), adopted on 17 February 1999;Korea - Safeguards  - Appellate Body report on Korea - Definitive Safeguard Measure on
Imports of Certain Dairy Products, WT/DS/98/AB/R,  adopted 12 January 2000;
Spain - Sale of Soybean Oil  - Panel report on 
Spain – Measures concerning the Domestic
Sale of Soybean Oil, L/5142, not adopted;
US - Hawaiian Regulations   -  Consultations on United States - Hawaiian Regulations
Affecting Imported Eg gs; L/411, 28 September 1955, no report;
US - Superfund  - Panel report on  US – Taxes on Petroleum and Certain Imported Substances
(Canada, EEC, Mexico), BISD 34S/136, adopted 17 June 1987;WT/DS161/R
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US - Sugar Head Note - Panel report on United States - Restrictions on Imports of Sugar ,
BISD 36S/331, adopted 22 June 1989;US - Section 337  – Panel report on United States - Section 337 of the Tariff Act of 1930,
BISD 36S/345, adopted 7 November 1989;US - Malt Beverages  - Panel report on United States - Measures Affecting Alcoholic and
Malt Beverages, BISD 39S/206, adopted 19 June 1992;
US - Gasoline  - Panel report on  United States - Standards for Reformulated and
Conventional Gasoline, WT/DS2/R (Venezuela); WT/DS4 /R (Brazil), adopted 20 May 1996;
US – Gasoline (AB)  – Appellate Body report on  United States - Standards for Reformulated
and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996;
US- Shirts and Blouses (AB)  – Appellate Body report on United States - Measure Affecting
Imports of  Woven Wool Shirts and Blouses,  WT/DS33/AB/R, adopted 23 March 1997;
US - Shrimp (AB) – Appellate Body report on  United States - Import Prohibition of Shrimp
and Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998;
US-Section 301  - Panel report on United States –Sections 301-310 of the Trade Act of 1974,
WT/DS152/R (EC), adopted 27 January 2000;US-FISC (AB)  – Appellate Body report on  United States – Tax Treatment for Foreign Sales
Corporations, WT/DS108/AB/R, adopted on 20 March 2000 .WT/DS161/R
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I. INTRODUCTION
1. On 1 February 1999, the United States requested consultations with the Republic of Korea
("Korea") pursuant to Article 4 of the Understanding on Rules and Procedures governing the
Settlement of Disputes ("DSU"), Article XXII of the General Agreement on Tariffs and Trade 1994
(GATT 1994), Article 19 of the Agreement on Agriculture  and Article 6 of the Agreement on Import
Licensing Procedures , with respect inter alia  to Korea's import measures on fresh, chilled, and frozen
beef as well as its internal sale on the Korean market.  Australia requested consultations with Korea
on the same matter on 13 April 1999.
2. Consultations between the United States and Korea were held on 11 and 12 March 1999 and
joined by Australia, Canada and New Zealand.  Consultations between Australia and Korea were held
28 May 1999 and were joined by Canada, New Zealand and the United States.  As the above-mentioned consultations did not result in a mutually satisfactory solution of the matter, the United
States, in a communication dated 15 April 1999, requested the establishment of a panel with standard
terms of reference as set out in Article 7 of the DSU (WT/DS161/5).  Australia, in a communication
dated 12 July 1999, requested the establishment of a panel with standard terms of reference as set out
in Article 7.1 of the DSU (WT/DS169/5).
3. At its meeting on 25 May 1999 the Dispute Set tlement Body (DSB) established a panel in
accordance with the request made by the United States in document WT/DS161/5.  At its meeting of
26 July 1999, the DSB agreed to Australia's request for the establishment of a panel (WT/DS/169/5)
in the same matter.  It also agreed, as provided for in Article 9 of the DSU in respect of multiple
Complainants, that the Panel established on 26 May 1999 to examine the complaint by the UnitedStates will also examine Australia's complaint.  Australia
1, Canada, New Zealand and the United
States2 reserved their third party rights to make a submission and to be heard by the Panel in
accordance with Article 10 of the DSU
1. Terms of reference
4. The following terms of reference applied to the work of the Panel:
"To examine, in the light of the relevant provisions of the covered agreements cited by the
United States in document WT/DS161/5 and by Australia in document WT/DS/169/5, the
matter referred to the DSB by the United States and Australia in those documents and to make
such findings as will assist the DSB in making the recommendations or in giving the rulings
provided for in those agreements".
2. Panel composition
5. The parties to the dispute agreed on 4 August 19993 to the following composition of the
Panel:
Chairperson: Lars Anell
Members: Paul Demaret
Alan Matthews
6. The Panel met with the parties on 13 and 14 December 1999 and on 16 February 2000 and
with third parties on 14 December 1999.
                                                     
1 In the case requested by the United States.
2 In the case requested by Australia.
3 Date of the formal agreement by the panellists to serve.WT/DS161/R
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7. The Panel submitted its interim report to the parties of the dispute on 10 May 2000 and the
final report on 15 June 2000.WT/DS161/R
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II. FACTUAL ASPECTS
1. Product coverage of the dispute
8. The case before the Panel concerned measures maintained by Korea on imports of beef of the
following tariff description4:  02.01-10: meat of bovine animals (fresh or chilled/carcasses and half-
carcasses);  02.01-20: meat of bovine animals (fresh or chilled/cuts with bone in);  02.01-30: meat of
bovine animals (fresh or chilled/boneless);  02.02-10: meat of bovine animals (frozen/carcasses and
half-carcasses):  02.02-20: meat of bovine animal s (frozen/cuts with bone in);  02.02-30: meat of
bovine animals (frozen/boneless);
2. Korea's Schedule of Concessions
9. Korea's Schedule of tariff concessions (LX) provides for the entry of fresh, chilled and frozen
beef with market access opportunities rising from 123,000 tonnes in 1995 to 225.000 tonnes in 2000.The bound tariff will be reduced from 44.5 per cent to 40 per cent in 2004.  Korea's Schedule also
provides  that it shall "eliminate or bring into conformity with GATT provisions all remaining
restrictions" on a range of specific products, including fresh, chilled and frozen bovine meat imports,
from 1 January 2001.
3. Records of Understanding
5
10. Korea held consultations on beef with the United States, Australia and New Zealand, which
resulted in the conclusion of separate bilateral "Records of Understanding" in 1990 and 1993. These
Records were intended to implement the findings of the 1989 Korea - Beef  panel (see paragraph 28).
The Record of Understanding signed in March 1 990 (L/6697) established base quota levels, which
increased progressively over the period 1990-1992 to 66,000 metric tons.  It also provided for theestablishment of a "Simultaneous Buy/Sell" ("SBS") system to allow for an initial seven per cent of
the quota to be entered by entities other than the Livestock Products Marketing Organization
(LPMO)
6.  The Record of Understanding also provides that the SBS portion shall increase to 70 per
cent by 2000.  The three bilateral Records of Unde rstanding signed in July 1993 (L/7270) between
Korea on the one side, and Australia, New Zealand and the United States, respectively, on the other,specified  quota amounts  to be imported on a customs cleared basis for 1993-1995. These Records of
Understanding also contained provisions intended to  expand the scope of the SBS system.  In the July
1993 Record of Understanding, Korea and the exporting countries agreed on the base amount of the
beef quota covering the period '93-'95, the framew ork for the SBS system and the SBS mark-up.  In
that document, Korea also reaffirmed its commitm ent to eliminate its remaining restrictions or
otherwise bring them into conformity with GATT provisions.
11. The Korea/United States 1 July 1993 Record of Understanding was modified in December of
that year to the effect of extending the timetable for elimination of the quota to 31 December 2000.
This timetable was ultimately made a part of Korea's WTO Schedule of Concessions. In the
December 1993 Record of Understanding between Korea and the United States quota amounts, mark-
up, and the SBS quota share were agreed upon for the period 1993 - 2000, as well as the annual tariff
for the period 1995 to 2004.  The December 1993 Record of Understanding also provides that all
                                                     
4 Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations
Done at Marrakesh on 15 April 1994 - Schedule LX, Republic of Korea, pages 12147, 12150, 12215.
5 The Records of Understanding are annexed.
6 The SBS System is defined in Section II of the July 1993 Record of Understanding between Korea
and Australia as "the system through which suppliers of beef imported into the Republic of Korea conduct
business directly with super-groups, end-users or customers." See also, Records of Understanding with theUnited States and with New Zealand.  The Management Guideline for Imported Beef  contains the same
definition.WT/DS161/R
WT/DS169/R
Page 4
balance of payments restrictions on beef shall expire no later than December 2000, and that there shall
be no quota, no mark-up, and no LPMO involvement in 2001.
4. The Korean regulatory regime for beef
12. The Government of Korea operates a stabilization system for domestic beef producers
pursuant to the Act on Distribution and Price Stabilization of Agricultural and Fishery Products
which authorises measures to ensure the "smooth distribution of and maintenance of appropriate
prices for agricultural and fishery products"7 and the Livestock Act,  under which the Minister of
Agriculture and Forestry is required to establish and implement comprehensive livestock industry
development plans and policies regarding:  (i)  the improvement and production of livestock breeds
(ii)  structural improvement of the livestock industry;  (iii)  balancing demand and supply of livestock
and livestock products;  (iv)  stabilization of livestock and livestock product prices and enhancementof the livestock and livestock product distribution system;  (v) stable supply of livestock feeds,
treatment and utilisation of livestock excrement; livestock sanitation, etc.
8
13. The import, distribution and sale of imported beef is regulated to give effect to the
Government's stabilization policies.  Article 25 of the Livestock Act  provides that, in circumstances
where it is deemed particularly necessary for consumer protection, the prevention of illegaldistribution and the control of imported livestock pr oducts, the Minister of Agriculture and Forestry
(MAF) retains certain powers in relation to the regulation and restriction of the quantity, timing, price,
usage and sales methods for imported beef.
9  Until 1 October 1999, these requirements were
elaborated through the Regulations Concerning Sales of Imported Beef, Operational Guidelines for
Beef Imported under the SBS System , Guidelines Concerning Registration and Operation of
Specialized Imported Beef Stores and Imported Beef Dealer Designation and Product Supply
Guidelines.  On 1 October 1999 they were replaced by the Management Guideline for Imported Beef,
which contain the same essential measures as the former regulations.
5. Measures affecting the importation, distribution and sale of beef
14. Import authority within the annual quota is divided between the Livestock Products
Marketing Organization (LPMO) on the one hand, and the Simultaneous Buy and Sell  (SBS) system
on the other.
(i) Measures applied to beef imported by the LPMO
15. The LPMO is a notified state trading agency for beef.  The LPMO was established in 1988,
and has, since its creation, been exclusively authorized by Korea to administer beef imports.  In this
role, it performs a variety of functions.  The LPMO is the importer of a substantial share of the beef
quota.  The share imported by the LPMO has been  progressively reduced and the LPMO currently
imports 30 per cent of the beef quota.  It also invites tenders and sells the imported beef at auction.  In
addition, LPMO exercises authority delegated from  MAF to license imports made through the SBS
system and to allocate quota share among the SBS quota holders.  It imports its share of the annual
quota through a tendering system.10  The import, distribution and sale of beef imported by LPMO are
regulated by the Government through the Management Guideline for Imported Beef mentioned above.
Prior to this, the LPMO system was regulated through the Regulations on Imported Beef  and the
Imported Beef Dealer Designation and Product Supply Guidelines.
                                                     
7 Act on Distribution and Price Stabilization of Agricultural and Fishery Products Article 1.
8 Livestock Act (revised 1999), Article 3(1).
9 Ibid,  Article 25.
10 G/STR/N/4/KOR.WT/DS161/R
WT/DS169/R
Page 5
16. Article 3 of the Management Guideline for Imported Beef  notes that beef is imported by the
LPMO to stabilize demand and supply in the market.  The objective of the LPMO is "to protect both
producers and consumers through the stabilizat ion of demand-supply and price of livestock
products".11
17. The LPMO derives its authority to import from Article 53 of the Foreign Trade Act12  and
Article 24 of the Livestock Act .  It imports beef at world market prices through a tender system and
distributes it either by auction to wholesalers or directly to processors or the military.  From 1988 to
1991, the LPMO was purchasing 100 per cent of the Korean beef import quota.  Its share of the quota
has been reduced over time.  Currently the LPMO imports 30 per cent of the total beef import quota.
18. The LPMO determines an annual purchase and distribution plan for the coming year taking
into account current and forecast levels of domestic beef demand, production and pricing.  The LPMOsets a minimum acceptable auction price
13 for each cut and brand of imported beef on a daily basis,
(ii) The National Livestock Cooperatives Federation (NLCF)
19. The NLCF handles the storage and domestic auctions at the wholesale market on behalf of the
LPMO. Under government regulations, the NLCF also  been controls the discharge of beef on behalf
of LPMO, including establishment and implementa tion of regional and purchaser-based sales plans
and discretion to decide daily discharging volumes in consideration of price movements of domestic
beef/cattle.14
20. Most beef imported by the LPMO, other than that consigned inter alia  for processing and
packaging, is in principle required to be traded on a livestock wholesale market or at an auction office
in areas without a wholesale market.15  Sales participants at an imported beef wholesale market may
only supply imported beef to specialized imported beef stores.16 Imported beef is required, in
principle, to be supplied on a cash payment basis.17
(iii) Measures applied to beef imported under the SBS system
21. Since 1 October 1999, chapter 3 of the Management Guideline for Imported Beef, which
regulates imports of beef under the SBS system, replaces those in the Operational Guidelines for
Imported Beef.  According to the 1993 Record of Understanding between the United States and
Korea, the SBS system, is a system through which suppliers of beef imported into Korea carry out
business directly with entities called "super-groups", end users, or customers.  A super-group is
defined as an organization or association of end users which has the right to import beef under the
SBS system and, as appropriate, allocate SBS sub-shares among its affiliated end users.  Twelve
"super-groups" are currently entitled to import beef.18   With the gradual increase of quota share, the
number of super-groups has been increasing to meet the various usage of imported beef and market
                                                     
11 L.P.M.O,  Foreword, page 1.
12 Foreign Trade Act.
13 Ibid, Article 11.1.
14 Regulations Concerning Imported Beef , Articles 4, 6(1), 6(2), 9(2).
15 Ibid,  Article 5.
16 Ibid,  Article 15.2.
17 See also Annex 4 .
18 The super-groups are as follows: National Livestock Cooperatives Federation (NLCF);  Korea Cold
Storage Company (KCSC);  Korea Tourist Supply Centre (KTSC);  Korea Restaurant Supply Centre (KRSC);
Korea Meat Industries Association (KMIA);  Korea Super Chain stores Association (KOSCA);  Korean
Federation of Meat Purveyors (KFMP);  Livestock Cooperative Trading and Marketing (LCTM):  Korea MeatPackers Association (KMPA);  Woo Joo Industrial Company Ltd;  Korea Imported Meat DistributorsAssociation (KIMDA); Korea Meat Processing Industry Cooperatives (KMPIC).WT/DS161/R
WT/DS169/R
Page 6
demand. Each super-group has a defined set of end users. To import beef through the SBS system an
end user must be a member of a super-group.19  An end-user can only belong to one super-group.
Restrictions are imposed on cross-trading.20
22. Before the beginning of each fiscal year, the LPMO allocates to each super-group the annual
quota that each may import under the SBS system.21  Each super-group sets up quarterly purchase and
sales plans for each end user or customer and report these to the LPMO by 15 January of each year.22
End users and customers negotiate and contract with the exporter on cut, price, delivery, conditions ofsale, etc, within the quarterly allocated amount;
23  Super-groups seek import approval on behalf of end
users under a licensing system pursuant to Article 24 of the Livestock Act and administered by the
LPMO.24 Where the allocated amount is not purchased during the quarter, the super-group must
withdraw the shortfall and reallocate this to it s end users or customers in the following quarter.25
Quota allocation amongst end users of a super-group is done on forecast demand.  When an end user
does not meet its demand forecast, the resulting quota shortfall remains unused for the current period.
Any reallocation of the shortfall takes effect the following period.
23. Each super-group must obtain information on the amount of any expected shortfall in its
imports and report it to the LPMO President by 5 October of each year.26  The LPMO must then
reallocate this shortfall to other super-groups in the same proportion as the initial allocation. The
regulations also impose record-keeping, reporting and labelling requirements on super-groups and
their end-users which are administered by the LPMO.27
6. Mark-ups
24. The Korean government requires that a mark-up be applied to all SBS imports.  The mark-up
is imposed pursuant to Article 25 of the Management Guideline for Imported Beef.  The mark-up
calculation is based on the difference between the duty-paid CIF price of beef and the weighted
average wholesale price for all imported boneless grain-fed beef cuts purchased and distributed by the
LPMO.  It is calculated on both a weekly and monthly basis.
25. The mark-up was phased out on 31 December 1999 in accordance with the terms of the
December 1993 Record of Understanding between Korea and the United States.  The maximum rate
was 100 per cent in 1993, 60 per cent in 1996, 40 per cent in 1997, 20 per cent in 1998 and 10 per
cent in 1999.  The mark-up was paid into a fund, the stated purpose of which is to provide support to
the domestic livestock industry pursuant to Article 34 of the Livestock Act .
7. Measures applied to the retail sale of imported beef
26. The Government of Korea regulates retail outlets through the Management Guidelines for
Imported Beef which came into effect on 1 October 1999 and prior to that date through the Guidelines
Concerning Registration and Operation of  Specialized Imported Beef Stores.  The Management
Guideline for Imported Beef specifies that imported beef (except for pre-packed imported beef) may
only be sold in specialized imported-beef shops.28   It also specifies that large-scale distributors
                                                     
19 Management Guideline for Imported Beef , Article 26.4.
20 Idem .
21 Ibid, Article 22.1.
22 Ibid, Article 22.2.
23 Ibid, Article 23.1.
24 Ibid, Article 23.3.
25 Ibid, Article 22.4.
26 Ibid, Article 22.5.
27 Articles 27.3, 27.4, and 28.1 of the Management Guideline for Imported Beef.
28 Management Guideline for Imported Beef , Article 15.WT/DS161/R
WT/DS169/R
Page 7
(department stores, supermarkets, etc) must provide a separate sales area for imported beef.29  Stores
selling imported beef must display a "Specialized Imported Beef Store" sign to distinguish them from
domestic meat sellers.
8. Domestic support measures to the Korean beef industry
27. Korea notified its domestic support arrangements to the WTO Committee on Agriculture in
1995, 1996, 1997 and 1998.30  In each year, the reported level of total domestic support (Current Total
AMS) has been below its total AMS commitment level.31  The bulk of the support has been directed
to rice production.  Over the four years notified by Korea, the reported domestic support level for beef
has increased from 1.12 billion won in 1995, to 23.59 billion won in 1996, and 195.27 billion won in
1997.
9. Previous dispute settlement
28. In 1988, Australia, New Zealand and the United States requested GATT panel proceedings
relating to Korea's import measures for beef which they claimed were inconsistent with Articles XI,
II, and subsidiary, with X and XIII.  Korea justified its import restrictions under Article XVIII:B.  The
panel found that inter alia  that Korea's "import measures and restrictions, introduced in 1984/85 and
amended in 1988, were not consistent with the provisions of Article XI and were not taken forbalance-of-payments reasons.  The panel did not find it necessary to examine the Korean measures
under Articles II, X or XIII since any inconsistency with these Articles would normally disappear
once the Article XI inconsistency had been eliminated.  In the reports
32 of the panel circulated on
24 May 1989 the panel recommended that:
Korea eliminate or otherwise bring into conf ormity with the provisions of the General
Agreement the import measures on beef introduced in 1984/85 and amended in 1988; and,
Korea hold consultations with Australia, New Zealand and the United States and other
interested contracting parties to work out a timetable for the removal of import restrictions on
beef justified since 1967 by Korea for balance-of-payments reasons.
10. Import liberalization programme
29. On 26 April 1994, in compliance with the results of the 1989 consultations with the BOP
Committee and the Uruguay Round negotiations, Korea submitted an import liberalization
programme concerning 150 products, including beef, in which Korea notified that all the remaining
restrictions on beef will be eliminated or brought  into conformity with the provisions of the GATT
from 1 January 2001.
                                                     
29 Ibid, Article 9.5.
30 G/AG/N/KOR/7; G/AG/N/KOR/14; G/AG/N/KOR/18; G/AG/N/KOR/24 .
31 Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations
Done at Marrakesh on 15 April 1994 - Schedule LX, Republic of Korea: Part IV - Agricultural Products:Commitments Limiting Subsidization,  page 13049 and supporting tables provided in G/AG/AGST/KOR.
32 L/6504, 36S/202;  L/6505, 36S/234;  and L/6503, 36S/268.WT/DS161/R
WT/DS169/R
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III. PRELIMINARY REQUEST FOR RULINGS ON TERMS OF REFERENCE
30. Korea  submitted that the Complainants' arguments that Korea has not fulfilled its
commitments under the Agreement on Agriculture  should be rejected.  Korea noted that the request
for the establishment of the Panel by the United States identifies the disputed measure as follows:  "Atthe same time, Korea has increased the level of its do mestic support for its cattle industry to the point
that the total domestic support provided by Korea exceeds its Aggregate Measurement of Support
(AMS) under the Agreement on Agriculture ."
33  In the opinion of Korea, the disputed measures before
the Panel are accordingly limited to the Korean measures of domestic support for its cattle industry.
The data and calculation methods used in Korea's Schedule LX Part IV, or in broad terms Korea's
Schedule LX by itself, are not mentioned as disputed measures.  Accordingly, the arguments now
raised in respect thereof are outside the terms of reference of the Panel.
31. The legal basis identified by both the United States and Australia in their requests for the
establishment of the Panel is limited to Articles 3, 4, 6 and 7 of the Agreement on Agriculture34.
Korea requests that the Panel limit its examination to these articles.  The Panel, therefore, should not
allow the Complainants to now bring arguments which are based mainly on Annex 3 of the
Agreement on Agriculture , because Annex 3 was not identified as a legal basis on which the
Complainants wished this dispute to be examined.
32. With regard to claims under Articles 3, 4, 6 and 7, the lack of specification on what precise
claims would be raised under these Articles, leads, according to Korea, to the conclusion that none of
these claims are properly before the Panel.  At most, by reference to the measure identified, one could
expect that the Complainants would raise claims that Korea may not have included all its domesticsupport measures to its cattle industry in its AMS calculations.  Korea has been prejudiced in its right
of defense due to the lack of proper identification and failure to present the problem clearly with
regard to the claims relating to the Agreement on Agriculture  in the request for the establishment of
the Panel, because Korea was not in a position to understand what claims the Complainants actually
intended to bring and actually brought before the Panel.  Therefore, Korea could not adequatelyprepare its defense in this case from the moment the decision was taken to establish a panel.
Furthermore, Korea argued that the Complainants, following the third party submission of
New Zealand, started to borrow heavily from the cl aims of New Zealand and introduced new claims,
which are clearly outside the terms of reference of the Panel.
33. Australia  considered that the Panel is required by its terms of reference to consider whether
Korea has met its obligations under Articles 3, 6 and 7 of the  Agreement on Agriculture .  In order to
do so, the Panel must consider both Annex 3 of the Agreement on Agriculture , including Korea's
calculation of its AMS on beef and its Total AMS, as well as Part IV of Korea's Schedule.  Australia
was, therefore, of the opinion that the Panel should reject outright the claims in paragraphs 30-32
because they have been raised without justification in Korea's second written submission, contrary to
the rules of procedure proposed by the Panel and agreed to by all of the parties, including Korea.
Specifically, in raising its claim at this time Korea is acting contrary to paragraph (e) of the rules of
procedure for this Panel, which states that "any requests for preliminary rulings shall be included in a
party's first written submission to the Panel.  If the respondent requests any such ruling, the
complaining parties shall submit their responses to su ch request prior to the first substantive meeting
                                                     
33 Request for the establishment of a panel by the United States, WT/DS161/5(16 April 1999); the
request for the establishment of a panel by Australia (WT/DS169/5, 15 July 1999) contains nearly identicallanguage and states : "Korea has also increased the level of dom estic support for its cattle industry in amounts
which result in the total domestic support provided by Korea exceeding its Aggregate Measurement of Support
(AMS) under the Agreement on Agricul ture."
34 Request for the establishment of a panel by the United States, WT/DS161/5 (16 April 1999);  request
for the establishment of a panel by Australia, WT/DS169/5, (15 July 1999).WT/DS161/R
WT/DS169/R
Page 9
of the Panel at a time to be determined in light of the request.  Exceptions to this procedure will be
granted upon a showing of good cause."
34. Australia argued that Korea has advanced no reas ons at all to justify raising these issues now,
rather than at the beginning of these proceedings.  The claims relating to the Agreement on
Agriculture  were included in Australia's request for establishment of a panel and were developed in
Australia's first written submission.  Korea had the opportunity in its first written submission to raise
the issue of adequacy of the panel request, but it did not do so.  Australia submitted that the Panel
cannot act contrary to its own rules of procedure and contends that in the absence of any Korean claim
or argument as to good cause, the Panel is not permitted to examine Korea's claims.
35. If the Panel decides to permit Korea to make its claim, Australia submitted that Korea has not
met its burden of proof in showing a deficiency in Australia's request for a panel.  Australia hasidentified the measure at issue and has listed the specific provisions of the Agreement on Agriculture
alleged to have been violated.  It does not have to do any more than that.  As the Appellate Body
noted in EC-Bananas III,  there is a significant difference between the claims identified in the request
for establishment of a panel, and the arguments supporting those claims which are set out in the
submissions of the parties.
35
36. Korea has advanced no legal argument in support of its claim, Australia continued, that in
examining Korea's obligations under Article 6, the Panel is prevented from considering either
Annex 3 or Part IV of Korea's Schedule.  Korea has not mentioned or argued an inconsistency with
Article 6.2 of the DSU.  Korea has neither claimed prejudice, nor provided proof of it.  Korea did not
raise the Korea - Safeguards  case or any other legal argument to support its claims in either of its
written submissions.  Australia, therefore, submitted that Korea has failed to meet its burden of proof
and that its claims of a deficiency in Australia's pa nel request must, therefore, be rejected.  It would be
an abuse of due process to permit Korea to use th e opening statement of the final meeting with the
Panel to make good its failure to raise or argue this preliminary issue in its written submissions.
Furthermore, as the Appellate Body in Japan - Varietal Testing(AB)   made clear, the Panel is not
entitled to make determinations or provide legal arguments on behalf of a party who has failed itself
to make a prima facie  claim.36
37. Australia argued that the key principle to emerge from Korea – Safeguards (AB)  was that a
request for establishment of a panel must be sufficiently specific so as not to prejudice the ability of a
responding party to defend itself.  However, the Appe llate Body also made it clear that it is Korea that
bears the burden of proof in claiming prejudice.  Korea did not claim prejudice at the time the request
for a panel was made, or in its first or second written submissions, or at the first Panel meeting, or inits responses to factual questions from the Panel relating to its calculations of domestic support.
38. There is no basis for Korea to claim that it did not understand the claims being made or that it
was not accorded an opportunity to respond to these claims.  Quite the contrary, Korea responded to
Australia's claims regarding Article 6, and through Article 6, to Annex 3 and Part IV of its Schedule,
in its first written submission.  In that submissi on, Korea stated 'the AMS for cattle in 1997 did not
exceed 10 per cent of the total value of cattle production and Korea's 1997 Current Total AMS did not
exceed its reduction commitment level specified in Schedule LX.  Korea cannot now be claiming that
it did not understand the claims being made against it when it responded to these very same claims in
its first written submission, and it did so without any apparent confusion as to the claims being made
or the arguments being put.
                                                     
35 At paragraph 141.
36 Paragraphs 118-131.WT/DS161/R
WT/DS169/R
Page 10
39. In response to Korea's claim that Australia introduced new claims borrowed from the third
party submission of New Zealand, Australia said that Korea was confusing claims with arguments.
The Appellate Body had been very clear that Australia is not required to set out detailed arguments in
its panel request.  Australia raised no new claims in either its first or second written submissionswhich were not contained in its request for establishment of a panel.  Furthermore, Australia included
a range of arguments relating to Annex 3 in its first written submission.  Nor did Australia "borrow"
any new claims from New Zealand.  New Zealand used arguments relating to Annex 3 in support of
the claims already made by Australia and the United States that Korea's increased domestic support
for beef had resulted in Korea's Total Aggregate Measure of Support for 1997 being over its permitted
amount for that year.  The most that could be said was that Australia supported the arguments of
New Zealand in relation to Annex 3, but there is not prohibition in the DSU against that.
40. In case the Panel determines that it should consider the substance of Korea's claims, Australia
submitted that a textual analysis of Article 6 makes it clear that if Article 6 is to have any meaning,
the Panel must consider Annex 3 and Part IV of Korea's Schedule.  Australia submitted that Annex 3
and Part IV of Korea's Schedule are so intrinsic to a panel's interpretation of Korea's obligations under
Article 6 as to obviate any need to mention them specifically in a panel request.  The fact that Koreahas already responded to the substance of Australia's claims supports this view.  It is not possible to
make a determination about a Member's consistency with these obligations without reference to the
formulations contained in Annex 3, because Annex 3 contains the methodology required to determine
the AMS for specific products as well as the Total AMS.  It is also not possible to decide whether
Korea has met its obligations under these Articles without reference to the reduction commitmentscontained in its Schedule.
41. The Panel is required by its terms of reference to consider whether Korea has met its
obligations under Articles 3, 6 and 7 of the  Agreement on Agriculture .  In order to do so, the Panel
must consider both Annex 3 of the Agreement on Agriculture , including Korea's calculation of its
AMS on beef and its Total AMS, as well as Part IV of Korea's Schedule.
42. The United States  contended that Korea's arguments in paragraphs 30-32 are misguided. The
scope of a panel's terms of reference has been considered in a number of Appellate Body reports.  The
beginning point is Article 7 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes  (the DSU ), which describes the standard terms of reference and directs that "[p]anels shall
address the relevant provisions in any covered agr eement or agreements cited by the parties to the
dispute".
43. This issue has arisen most frequently in the context of arguments that the complaining party
has not satisfactorily explained its claims as required by Article 6.2 of the DSU.  The Appellate Body
recently rejected an argument made by Korea in Korea – Safeguards (AB) that is similar to the one
now made by Korea.  There, the Appellate Body re-emphasized that "claims, not detailed arguments,
are what need to be set out with sufficient clarity…"  Indeed, in EC – Bananas III (AB) , the Appellate
Body agreed with the panel's conclusion that "the listing of the articles to the agreements claimed tohave been violated satisfied the minimum requirements of Article 6.2 of the DSU" in view of the
circumstances of that case and, in particular, the lack of any demonstrated prejudice to the defending
party.
44. The approach described above was adopted by the Appellate Body in at least three separate
disputes:  those relating to EC – Bananas III(AB) , Korea – Safeguards (AB) , and EC - Computer
Equipment(AB).   In each instance, the Appellate Body examined the written panel request to
determine whether the requirement contained in Article 6.2 for explication of the claim was satisfied
and whether there was any indication that a defending Member had been prejudiced by lack of notice
regarding the nature of the claim.  In the cited cases, the Appellate Body found that no prejudice hadWT/DS161/R
WT/DS169/R
Page 11
been shown and the descriptions of the claims, thus, were adequate to satisfy the purpose of
Article 6.2 of the DSU.
45. The US description of its claim regarding Korea's domestic support obligations under the
Agreement on Agriculture is plainly set forth in its request for the establishment of a panel.  In
pertinent part, the US request states: " … Korea has increased the level of domestic support for its
cattle industry to the point that the total domestic support provided by Korea exceeds its Aggregate
Measurement of Support (AMS) under the Agreement on Agriculture .  The United States then
concluded that it considered Korea's support measures to be inconsistent with Articles 3, 6 and 7 of
the Agreement.  The US claim, thus, plainly included a contention that Korea was not in compliance
with its domestic support commitments as set forth in Articles 3, 6, and 7 of the Agreement  on
Agriculture  and that this situation resulted from increases in the level of support provided to Korea's
cattle industry.  Korea has never claimed, and does not now allege, that it ever has been uncertain
about or without adequate notice of the nature of the US claims regarding Korea's AMS obligations.
46. Apparently, Korea's argument is based on the fact that the United States did not expressly
identify Annex 3 as one of the legal bases for its claims.  However, even a cursory reading of Articles
6 and 7 of the Agreement on Agriculture  reveals that the commitments there incorporated include a
requirement that the applicable AMS be computed in conformity with the provisions of Annex 3.
Korea could not possibly have been misled by the US panel request because the references in
Article 6.1, for example, to "Total Aggregate Me asurement of Support" and "Annual and Final Bound
Commitment Levels" require consideration of the definitions set forth in Article 1 as well as the
computation methodology contained in Annex 3.  In fact, the definition of AMS set forth in Article 1
directs that AMS shall be "calculated in accordance with the provisions of Annex 3 of this Agreement
…." 
47. Moreover, the United States continued, Annex 3 itself is entitled "Domestic Support:
Calculation of Aggregate Measurement of Support" and contains provisions essential to the AMS
computation.  As a result, there is no question but that the Panel is compelled to consider Annex 3 inresolving the US claims under Article 6 of the Agreement.  The United States specifically stated that
its claim involved the calculation of the AMS under the Agreement on Agriculture .  Annex 3 is so
intrinsic to the calculation of the AMS that any analysis that ignores that provision could not possibly
result in a construction of Article 6 which would be consistent with customary rules of interpretation
under Article 3.2 of the DSU.WT/DS161/R
WT/DS169/R
Page 12
IV. MAIN ARGUMENTS37
A. GENERAL
48. The complaint examined by the Panel is re lated to Korea's measures governing the
importation and marketing of fresh, chilled and frozen beef in Korea, falling within HS codes 0201-10, 0201-20, 0201-30, 0202-10, 0202-20 and 0202-30.
49. Australia  requested the Panel to find that:
(a) the requirements imposed on the retail sale of imported beef operate as a quantitative
restriction and discriminate against imported product contrary to Articles III and XI;
(b) the tendering process adopted by LPMO for the import of beef results in quantitative
restrictions being applied to grass-fed beef, contrary to Articles II:1, III:4, XI:1 and
XVII;
(c) the discharge procedures for LPMO beef restrict the distribution of imported beef into
the market in a manner which constitutes a quantitative restriction, imposes non-tariff
measures made effective through state trading enterprises and discriminates against
imported beef in a manner contrary to Articles III, XI and XVII of GATT and
Article 4.2 of the Agreement on Agriculture ;
(d) restrictions on sales of beef imported by the LPMO, including cash payment and
record-keeping requirements, discriminate against imported beef contrary to
Article III:4;
(e) Korea applies a mark-up on beef imported under the SBS system which is not applied
to domestic beef and is inconsistent with Korea's obligations under Article II or III;
(f) the SBS system applies limitations on the import and distribution of imported beef,
and imposes labelling, reporting and record-keeping requirements, that discriminate
against imported product contrary to Articles XI and III;  and
(g) in 1997, Korea provided domestic support to its beef industry at levels which
exceeded de minimis  and which, therefore, were required to be included in its
calculations of its Current Total Aggreg ate Measurement of Support (AMS). This
resulted in Korea's Current Total AMS for 1997 being in excess of its reduction
commitments for that year, contrary to Articles 3.6 and 7 of the Agreement on
Agriculture .
50. Australia further requested the Panel to recommend to the DSB that Korea bring its measures
affecting the import of fresh, chilled and frozen beef into conformity with its obligations under the
GATT 1994 and the Agreement on Agriculture .
51. The United States  requested the Panel to find that:
(a) Korea's requirement that imported beef be sold only in specialized imported beef
stores and its laws and regulations restricting the resale and distribution of imported
                                                     
37 This section contains the main arguments by the parties as summarized and understood by the Panel.
If not otherwise stated, the footnotes in this section are those of the parties.  Note that Article numbers refer tothe General Agreement on Tariffs and Trade 1994 if not otherwise stated.WT/DS161/R
WT/DS169/R
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beef by SBS super-groups, as well as by retailers, customers, and end-users is
inconsistent with its obligations under Article III:4;
(b) Korea's discretionary import regime, including, but not limited to, laws and
regulations prohibiting the import of beef by any entity other than the super-groupsand the LPMO, as well as the LPMO's establishment of minimum import prices and
delay of both invitations to tender as well as quota allocations is inconsistent with its
obligations under Article XI:1of GATT, Article 4.2 of the Agreement on Agriculture ,
and Articles 1 and 3 of the Agreement on Import Licensing Procedures ;
(c) Korea's imposition of other duties or charges in the form of a mark-up not provided
for in Schedule LX is inconsistent with its obligations under Article II:1;  and
(d) Korea has failed to fulfill its reduction commitment for domestic support and the
level of domestic support provided and is thus inconsistent with Korea's obligations
under Articles 3, 6, and 7 of the Agreement on Agriculture .
52. The United States further requested the Panel to recommend that Korea bring its measures
into conformity with its ob ligations under the GATT 1994, the Agreement on Agriculture  and the
Agreement on Import Licensing Procedures.
B. 
CLAIMS TO A "TRANSITIONAL PERIOD "
1. Remaining restrictions
53. Korea  stated that its  Schedule of Concessions provides for a transition period until 1
January 2001 to eliminate or bring into conformity with the provisions of the GATT all remaining
restrictions on beef.  The claims raised by Australia and the United States are, therefore, inadmissibleand contrary to Article II:1 of GATT 1994, Article 3:2 of the Understanding on Rules and Procedures
governing the Settlement of Disputes (DSU) and Article 26 of the Vienna Convention .  Korea,
therefore, requested that the Panel rejects all arguments and claims made by Australia and the United
States.
54. Korea submitted that the restrictions alleged by the Complainants were already in existence at
the time of the conclusion of the Uruguay Round and hence constitute "remaining restrictions" within
the meaning of Note 6 of Korea's Schedule LX.  The term "remaining restrictions" should be
interpreted in accordance with its ordinary meaning pursuant to Article 31 of the Vienna Convention.
The ordinary meaning of the words suggests that the "remaining restrictions" are otherwise not in
conformity with the provisions of the GATT.  There would be no need to provide that they should be
eliminated or be brought into conformity with the provisions of the GATT by 1 January 2001 if they
were.  Indeed, if the remaining restrictions were in conformity, it would make no sense to provide thatthey should be eliminated or brought into conformity with GATT provisions.  The only qualification
is that they are "remaining" at the time of the conclusion of the Uruguay Round agreement.
55. Should the Panel, nevertheless, consider that the ordinary meaning and scope of the term
"remaining restrictions" is not clear, then Korea submitted that the Panel, in accordance with the
recent Appellate Body ruling in Canada – Dairy (AB), should refer to the preparatory work of the
treaty in accordance with Article 32 of the Vienna Convention [supplementary means of
interpretation].  In the view of Korea, the December 1993 Record of Understanding concluded with
the United States constitutes the preparatory work of the Uruguay Round agreements, and makes it
clear that the remaining restrictions cover all restrictions which were in existence for balance-of-
payments reasons at the time of conclusion of the Uruguay Round.  No specific measures wereenumerated as constituting remaining restrictions in Note 6 of Korea's Schedule LX, but KoreaWT/DS161/R
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considered that the language of Note 6 should be interpreted as Korea's commitment, in broad terms,
to full liberalization of its beef import regime by the end of the year 2000.  Therefore, even if any of
the remaining restrictions are inconsistent with the provisions of the GATT, which Korea disputes,
they would nevertheless be covered by the transitional period until 1 January, 2001.
56. Korea argued that the interpretation by Australia of the term "remaining restrictions" (see
paragraph 83) in Note 6 of Korea's Schedule of Concessions contravenes the foregoing principles set
forth by the Appellate Body (see paragraph 54).  In the opinion of Korea, the interpretation advocated
by Australia first of all contravenes Article 31 of the Vienna Convention which requires interpretation
in accordance with the ordinary meaning to be give n to the terms.  Since Note 6 of Korea's Schedule
refers to remaining  restrictions , it is evident that more than one restriction was meant .  Furthermore,
Australia's interpretation of Note 6 as referring only to GATT inconsistent restrictions contained inthe Schedule itself, in particular the quota, would deprive Note 6 of any effet utile.  Indeed, Korea's
Schedule LX Section I-B: Tariff Quota already explicitly provides for the quota to be eliminated by
the end of the year 2000 .
57. An interpretation in accordance with the ordinary  meaning of the terms used in Note 6, Korea
submitted, leads to the conclusion that all restrictions (limitations placed on actions) which existed atthe end of the Uruguay Round and which were GATT inconsistent should be eliminated or brought
into conformity with GATT by 1 January 2001.  Indeed, if a cut-off date other than the conclusion of
the Uruguay Round had been intended, it would have been so specified in Note 6 .  No other cut-off
date is mentioned or implied by Note 6 and the Complainants have provided no evidence from the
negotiating history showing that another cut-off date was meant .  Therefore, in accordance with the
ordinary meaning of the term "remaining,"  the restrictions at issue are those remaining at the time of
conclusion of the Uruguay Round contained in Note 6 .  The phrase preceding the words "remaining
restrictions," that reads "According to the results of the 1989 consultation with GATT/BOP
Committee and the Uruguay Round multilateral trade negotiation " cannot be construed as implying
that a 1989 cut-off date was meant .  This phrase clarifies the negotiating background of the
transitional period and grammatically does not qualify the term "remaining restrictions".  To interpret
this phrase as implying a 1989 cut-off date would be inconsistent with the ordinary meaning of the
phrase "and the Uruguay Round multilateral trade negotiation" and deprive it of any effet utile .
(i) Transitional period
58. In Korea 's view, the operative consequence of Note 6 is that even if the Panel finds that
certain "remaining restrictions" are inconsistent with GATT, no violation of Korea's obligations can
be established at this point in time precisely for the reason that Korea still benefits from a transitionalperiod until 1 January 2001.  Hence, the claims brought by the United States and Australia with regard
to the alleged GATT incompatibility of certain "remaining restrictions" are irrelevant at this point in
time for all practical and legal purposes and, accordingly, Korea requests that the Panel dismiss these
claims.
59. Korea objected to the Complainants' attempt to  bring before the Panel and actively discuss,
the issue of what the Korean measures on imported beef will exactly be on and after 1 January 2001.
The possible future measures by Korea with regard to imported beef are outside the terms of reference
of the Panel .  Korea has still one year's time to review its current system and conform to the
obligations contained in Note 6.  For this reason, Korea also objected to the Complainants' attempt to
prompt Korea to prematurely examine and decide which remaining restrictions are inconsistent withGATT and which remaining restrictions will be eliminated .  Korea requests that the Panel limit its
examination of the measures challenged within its terms of reference.
60. The Complaining parties submitted that the Appellate Body in  EC – Poultry(AB) outlined
the approach that should be taken in relation to the interpretation of a Member's obligations under theWT/DS161/R
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WTO Agreements.  It found that Members' Schedule s are annexed to the Marrakesh Protocol to the
General Agreement on Tariffs and Trade 1994 and are integral parts of the GATT 1994.  As such,
they form part of the multilateral obligations under the WTO Agreement.  The Appellate Body also
noted that bilateral agreements are not "covered ag reements" within the meaning of Articles 1 and 2
of the DSU.  Nor are they part of the multilateral obligations accepted by Members pursuant to the
WTO Agreement.  The Appellate Body concluded th at it is Members' Schedules which contain the
relevant obligations of a Member under the WTO Agreement and it is the Schedules which form the
legal basis for a dispute and which must be interpreted in accordance with "customary rules of
interpretation of public international law" under Article 3:2 of the DSU.  Consistent with Article 31 of
the Vienna Convention , the term remaining restrictions  in Note 6 must, therefore, firstly be
interpreted according to its ordinary meaning in cont ext and in light of the purpose of a Schedule and
the commitments and obligations contained therein.
61. Referring to the text of Korea's note 6, Australia  agreed with Korea, that the term  remaining
restrictions  in the Note must be interpreted in light of the phrase "shall be removed or brought into
conformity with GATT provisions".  Australia agreed that it is only logically possible for the term
remaining restrictions  to refer to restrictions which are inconsistent with GATT provisions.  In this
respect, Australia agreed with Korea's statement in paragraph 54 that the ordinary meaning of the
words suggests that the "remaining restrictions " are otherwise not in conformity with GATT
provisions.  Therefore, Note 6 only applies to those measures at issue in this dispute which are
inconsistent with the provisions of the GATT.  However, Korea also claims that, with the exception of
the mark-up on SBS imports, none of the measures at issue in this dispute are in fact inconsistent withthe provisions of the GATT.
62. Hence, Australia continued, Korea has claimed that the following measures are consistent
with the GATT 1994 for reasons other than their coverage under Note 6:
- Dual retail system
- Discrimination against grass-fed beef- Restrictions applied through the SBS system
- Quantitative restrictions arising from minimum prices for imports and withholding 
imported beef from the market
- Domestic support for agriculture
63. Australia further submitted that Korea appears to suggest that the consistency or otherwise of
the remaining restrictions on imported beef is a unilateral determination for Korea to make after
1 January 2001 (see paragraph 80).  Australia would be very concerned if Korea were suggesting that,
having taken advantage of a transition period to remove remaining restrictions, it then reserves to
itself the right to determine whether in fact any of these restrictions are inconsistent.  Australia would
also be very concerned if Korea were suggesting that Australia would be required, after
1 January 2001, to once again challenge the WTO consistency of Korean measures before a disputesettlement panel, should it disagree with Korea's determination of which remaining measures are
inconsistent.  Australia does not accept that Korea can claim on the one hand that Australia agreed to
allow it a transition period to remove inconsistent restrictions and on the other hand reserve for itself
the unilateral right to determine, ex post facto , whether the restrictions in question are in fact
inconsistent.
64. Australia contended that Korea cannot have it both ways. Either Korea argues that the
measures in this dispute are inconsistent, were agreed to be so at the time of the signing of the
Uruguay Round, are therefore covered by a transition period until 1 January 2001 and will be
removed or brought into conformity on that date; or Korea submits that none of the measures are
inconsistent, in which case they cannot, by definition, be covered by Note 6.WT/DS161/R
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65. With respect to Australia's contention that Korea is trying to have it both ways
(paragraph 64), Korea  submitted that it has almost one full year left to examine and bring its
remaining restrictions into conformity with its ob ligations. Korea considered that by bringing this
dispute prematurely, the Complainants have improperly sought a ruling by the Panel on measureswhich are covered by the transitional period.  Korea contended that it is not trying to maintain an
"unspecified range of measures" during the transition period.
66. The United States  was of the opinion that the disputed measures are not "remaining
restrictions".  Korea appears to claim that virtually all of the measures challenged by the United States
in this dispute are "remaining restrictions" within the meaning of Note 6 to its Schedule and that such
measures are, therefore, "grandfathered" at least for a transition period expiring on
31 December 2000.  The United States considered that the reference to "remaining restrictions" relatesonly to balance-of-payments restrictions imposed prior to 1989.  Therefore, the Panel does not even
need to reach Korea's "grandfathered" argument since none of the challenged measures are included
within the scope of the term "remaining restrictions."
67. Referring to an Appellate Body statement
38 and to Korea's Schedule39, the United States
submitted that the nature of a "remaining restriction"  can only be determined in reference to a point in
time or some other comparative reference.  The words in Korea's Schedule, however, are ambiguous
to the extent that they identify both the 1989 BOP Committee consultations and the Uruguay Round
negotiations as possible reference points.  Reco urse to supplemental means of interpretation,
consistent with Article 32 of the Vienna Convention, is, therefore, justified to that extent.40  For this
purpose, examination of the 1989 GATT/BOP Committee proceedings, as well as any pertinentUruguay Round negotiations, is appropriate as each is mentioned in the quoted excerpt from Korea's
Schedule.  A review of those proceedings and negotiations also will reveal whether the parties
intended the term " remaining restrictions" to have  a special meaning as provided in Article 31.4 of
the Vienna Convention .
68. The United States contended that the more recent actions of the LPMO, including excessive
delays in tendering for imports, withholding quota share from allocation, and failing to reallocate
unused quota until late in the year are all questions of implementation that did not begin to occur until
late in 1997.  Thus, none of these "restrictions" could be encompassed within the scope of the term
"remaining restrictions" appearing in Korea's schedule.  Similarly, the national treatment violations
that the United States has identified are not commonl y referred to as "restrictions".  In fact, the term
"restriction" does not appear anywhere in the text of GATT Article III.  Accordingly, Korea has no
basis to assert that the term "remaining restrictions' encompasses any measure that would constitute aviolation of Article III of the GATT.
(ii) BOP Committee report
69. The United States submitted that an examination of the 1989 GATT panel report shows that
the phrase "remaining restrictions" originated in the 1987 report of the Balance-of-Payments
Committee.
41  As reflected in the panel report42, the BOP Committee found that "the current situation
and outlook for the balance of payments was such that import restrictions could no longer be justified
                                                     
38 US Shrimp (AB) , paragraph 114.
39 "According to the results of the 1989 consulta tions with GATT/BOP Committee and the Uruguay
Round multilateral trade negotiation, the remaining restrictions on the items marked as '*Note 6(a)', '*Note 6(b)','*Note 6(c)', '*Note 6(d)', '*Note 6(e) in column 5 of Section I-A of part I of this Schedule shall be eliminated or
brought into conformity with GATT provisions from dates specified as follows: … Note 6(e): January 1, 2001".
40 Canada – Dairy,  paragraph 132.
41 BOP/R/171.
42 Korea - Beef , paragraph 122.WT/DS161/R
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under Article XVIII:B".43  The Committee then concluded that "Korea would be able in the meantime
to establish a timetable for the phasing-out of balance-of-payments restrictions and that Korea could
consider alternative GATT justification for any rema ining measures, thus obviating the need for such
consultations".44  The 1987 BOP Committee report, thus, establishes the missing temporal reference
for the terms "remaining restrictions" contained in Korea 's Schedule.  "Remaining restrictions", in the
words of the Committee, are those measures that as balance-of-payments restrictions are to be phased-
out since balance-of-payments restrictions are no longer justified.  Any import restriction instituted by
Korea after the Council's adoption of the BOP Committee report would necessarily be without
balance-of-payments justification and, as a result, would not be a "remaining restriction".
70. Any doubt that the use of the term "remaining restrictions" was limited solely to GATT
inconsistent quantitative restrictions existing at the time of the BOP Committee reports in 1987 and1989, the United States continued, can be resolved through consideration of the BOP Committee's
summary of its 23 October 1989 consultation with Korea.
45  After acknowledging Korea's
commitment to disinvoke Article XVIII:B, the Committee reported that "Korea was encouraged, in
the light of established precedents, to develop, in consultation with other contracting parties, an
orderly programme of liberalization which would phase-out remaining restrictions  in a reasonably
short time."46  (emphasis added)  Obviously, the BOP Committee's reference to remaining restrictions
could only mean restrictions still existing at that time.  Certainly the Committee's use of that term
could not contemplate new measures that had not yet been introduced.
71. Any uncertainty regarding the meaning of the term, the United States continued, is also
dispelled by the manner in which the term "restrictions" was used by Korean officials meeting withthe BOP Committee during 1989.  In a Korean written statement, dated 27 June 1989, submitted to
the BOP Committee, the responsible Korean official stated:
However, I do not foreclose the possibility of discussing disinvocation of
Article XVIII:B, provided that the Balance-of-Payments Committee:
(1) recognizes Korea's need for and agrees to a grace period
sufficiently long enough for further liberalization and phase-out of
the restrictions presently under BOP cover after its disinvocation,
(emphasis added)
47
72. The exact nature of the measures maintained by Korea at the time of the loss of BOP
coverage can be best determined by consulting the 1989 GATT panel report concluding the disputebetween the United States, Australia, New Zealand and Korea concerning Korea's then existing
import measures. The 1989 panel considered four major issues: (1) whether Korea's maintenance of
various restrictions on imported beef were justified by its balance-of-payments situation; (2) whether
Korea's 1985-1987 ban and, after 1987, its quota on imported beef were inconsistent with
Article XI:1; (3) whether the LPMO's capture of quota rents through the imposition of an importsurcharge, a so-called "mark-up", was a violation of Article II:4; and (4) whether the LPMO's state-
conferred monopoly constituted a separate import restriction within the meaning of Article XI:1.
Korea fails to identify anywhere in the panel report any discussion of the measures challenged in the
current dispute.  For example, the panel did not consider whether Korea's dual retail sales regime is
consistent with Korea's international obligations since Korea did not institute its retail system until
                                                     
43 BOP/R/ 171, paragraph 22.
44 Ibid, paragraph 23.
45 BOP/R/183/Add. 1, October 1989.  
46 Ibid, paragraph 7.
47 BOP/R/183/Add.1.WT/DS161/R
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1990 when the Guidelines Concerning Registration and Operation of Specialized Imported Beef
Stores were first issued.
73. Similarly, Korea cannot point to any discussion of the limitations imposed on participants in
the SBS system, such as the prohibition on most cross-trading48 and the use constraints established for
imported beef.  This is because the SBS system is a creature of the 1990 and 1993 Records of
Understanding and, thus, is later in time than the GATT panel and the measures considered by that
panel.  The same situation exists regarding the various LPMO measures, including minimum
acceptable bid or award prices at wholesale auctions, delay of tenders, and withholding of quota
allocations.  Once again, Korea introduced each of these measures after the GATT dispute and,
therefore, such measures cannot constitute "remaining restrictions" as that term was used by the BOP
Committee.  According to the United States, the parties adopted the Committee's usage of the term inthe Records of Understanding that they negotiated and the term ultimately was used with the same
meaning in Korea's Schedule.
74. The United States submitted further that Korea's current measures such as the dual retail sale
regime and limitations on cross-trading, which are shown below to be inconsistent with Article III:4,
cannot be considered to be "restrictions" as that term is used in the GATT.  Moreover, since the BOPCommittee's discussion of "restrictions" was entirely in the context of which restrictions could no
longer be justified under Article XVIII for balance-of-payments purposes, the term must be
interpreted in light of its meaning in the GATT's balance-of-payments provisions.  The GATT
consistently uses the word "restriction" to refer only to quantitative restrictions on importation, not to
any internal measures governed by Article III or to any price-based measure on importation governedby Article II.  Article XVIII:9, in particular, permits certain contracting parties to "control the general
level of [their] imports by restricting the quantity or value of merchandise permitted to be imported "
for balance-of-payments reasons, as an exception to the prohibition on quantitative restrictions in
Article XI.  Nothing in Article XVIII:9 permits a c ontracting party to take measures inconsistent with
Article II or Article III.
75. The Korean Schedule commitment at issue was negotiated against the background of Korea's
obligations under Article XVIII.  The only reading of "remaining restrictions" that is true to this
context is one that includes only quantitative restrictions on importation and not measures regulated
by Articles II and III.  For instance, of the measures at issue in this case, the segregation of
distribution channels for imported beef and the mark-up are clearly not "restrictions" and, therefore,
by definition cannot be "remaining restrictions."
76. Australia  submitted that, on the basis of the words "According to the results of the 1989
Consultation with GATT/BOP Committee and the Uruguay Round negotiations" in Note 6, the
remaining restrictions  must, in addition to being GATT-inconsistent, be quantitative in nature and
have been applied for BOP purposes.  Korea applied a range of quantitative restrictions on a range of
products for BOP purposes, which were required to be removed once Korea had disinvoked
Article XVIII:B on 1 January 1990 in accordance with the BOP Committee conclusions of 1989.
49  As
a result of the 1989 BOP Committee consultations, Korea began a programme of removing
quantitative restrictions on a range of products, one of which was beef.  The reference in Note 6 to the
BOP consultations, therefore, limits the restrictions covered by a transition period to those maintained
earlier for BOP purposes, all of which were quantitative in nature.
77. The 1989 BOP Committee conclusions also contain the timetable for removal of measures
maintained for BOP purposes.  Three phases each of three years (1989-1991, 1992-94, 1995-97) were
                                                     
48 The term "cross trading" is intended to refer to commercial activity between and among the super-
groups or between and among their customers and end-users.
49 See BOP/R/183/Add.1, 27 October 1989, paragraph 12.WT/DS161/R
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agreed for the phase-out of restrictions.  The final phase-out date for the removal of these quantitative
measures on beef was originally agreed by the BOP committee to be 1 July 1997.  In the context of
the Uruguay Round, the phase-out date was extended until 1 January 2001 for the measures which had
been maintained on beef.  However, while the phase-out date for the quantitative restrictionsmaintained for BOP purposes, i.e. the quota, was extended in the course of the Uruguay Round
negotiations, there was no extension of a transition period to any new measures, applied for whatever
reason.  In the opinion of Australia, Korea has produced no evidence to show otherwise.
78. The United States  submitted that the dual retail system is not a "remaining restriction" as it
did not exist at the time of the 1987 BOP Committee report or the adoption of the 1989 GATT panel
reports
50 and could not be a measure taken for balance-of-payments purposes as it is not a
"restriction".  Likewise, Korea's argument that the current mark-up is a "remaining restriction" isdifficult to comprehend.  First, the 1989 panel ruled that the mark-up existing at the time of the
dispute was not a violation of Article II:4 because it was imposed by an entity, the LPMO, which at
the time possessed a monopoly on imports.  Given the panel's ruling, there would have been no reason
for treating the mark-up as a "remaining restriction"  that was required to be eliminated due to any
GATT inconsistency.  Further, as indicated above, (paragraph 70 ) only quantitative restrictions wereauthorized measures for Article XVIII balance-of-payments purposes.
79. Korea's treatment of the current mark-up under the terms of the December 1993 Records of
Understanding with the United States also belies Korea's contention that the mark-up was intended to
be considered a "remaining restriction".  As Korea concedes, Korea's Schedule provides for the
elimination of all "remaining restrictions" by 1 January 2001.  However, the December 1993 Recordof Understanding requires that the mark-up be reduced to zero commencing on 1 January 2000.  US
exporters confirm that no mark-up has been imposed on imported beef in calendar year 2000. Korea
has not explained why the mark-up has been eliminated already if it is a "remaining restriction" within
the meaning of its Schedule and according to the terms of its Schedule is not required to be withdrawn
until the beginning of 2001.
80. Korea  submitted that 1 January 2001 is the deadline by which the phasing-out of remaining
restrictions should be completed.  It is up to Ko rea to decide which remaining restrictions should be
eliminated or brought into conformity at which point in time during the transitional period.  In
response to the arguments in paragraph 79 with respect to the mark-up, Korea submitted further that it
simply followed the agreed timetable for its elimination under the December 1993 Record of
Understanding with the United States and execu ted the Record of Understanding in good faith,
notwithstanding the current dispute brought by the Complainants.  This in no way contradicts Korea'sposition that it benefits from a transitional period under its Schedule LX.
81. Note 6 of Korea's Schedule of Concessions, Korea continued, is in full conformity with
Article 4.2 of the Agreement on Agriculture , and more specifically with footnote 1 which makes it
clear that Members may maintain import measures for balance-of-payments reasons.  According to
the 1989 BOP Committee report, Korea's import restrictions for balance-of-payments purposes weresupposed to end by 31 December 1997.  However, as Note 6 of Korea's Schedule of Concessions
makes it plain, WTO Members, including the Complainants in this dispute, agreed during the
Uruguay Round to defer elimination of such restrictions to 1 January 2001.  Referring to the Appellate
Body report on Canada - Dairy
51, Korea submitted that its Schedule of concessions is an integral part
of the GATT.  (See also arguments in paragraph 299 et sequitur .)
                                                     
50 The dual retail regime was first introduced in January 1990, approximately two months after
adoption of the GATT panel and BOP Committee reports.
51 At paragraphs131 and 133.WT/DS161/R
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82. Australia  submitted that to give the term remaining restrictions  the broad meaning demanded
by Korea, i.e. an unspecified list of any and all GATT-inconsistent restrictions existing at the time of
the Uruguay Round, would be to undermine the binding nature of Schedule commitments and the
certainty of Members in understanding the exact nature of the commitments which are agreed duringtrade negotiations.  Australia also considered that Korea's proposed interpretation of Note 6 is
contrary to the object and purpose of the GATT, which is "directed to the substantial reduction of
tariffs and other barriers to trade and to the elimin ation of discriminatory treatment in international
commerce".
52
83. On this basis, Australia submitted that the  remaining restrictions  referred to in Note 6 can
only be those contained in the Schedule itself, so that other Members can easily identify the
restrictions to which the transition period applied.  This would also be consistent with Members'understanding that the restrictions were only those previously maintained for BOP purposes.
However, none of the measures at issue in this dispute are contained in Korea's Schedule and,
therefore, cannot be covered by Note 6.  Australia considered that this interpretation is both
unambiguous and does not produce a result which is either manifestly absurd or unreasonable.
Indeed, to come to any other conclusion would lead to a manifestly unreasonable result, since it would
obligate all Members to agree to a transition period for an unlimited and unspecified range of
restrictions until January 2001 as a result of bilateral arrangements to which they were not party and
which were not notified to them.  This would be contrary to the principles espoused in the US - Sugar
Head Note case and would undermine the certainty provided by Members' Schedules about their
commitments.
84. If the Panel considers that ambiguity exists as to the scope of measures covered by the
transition period in Note 6, Australia submitted that none of the evidence adduced by Korea supports
its claim that the measures in dispute are remaining restrictions  within the meaning of Note 6.  There
is nothing in the preparatory work of the treaty, the circumstances of its conclusion, or the historical
background, that supports Korea's interpretation of its commitments on beef.  In fact, quite thereverse.  The historical record proves that the term  remaining restrictions   has a much more limited
application than claimed by Korea.
85. The notifications to the GATT referred to by Korea, Australia continued, do not provide any
insight into the scope of restrictions for which Korea claims coverage through its Schedule.  Korea's
notification L/7449 of 29 April 1994, notes only that the "remaining restrictions" on the 150 items
shall be eliminated or be brought into conformity with GATT provisions for the dates specified".
There is no guidance on the range of restrictions applying to beef that are covered by this statement.It, therefore, adds nothing to the Schedule itself.
86. Australia also noted that the 1989 panel found that Korea was obliged to bring into
conformity quantitative restrictions maintained on beef for balance of payments purposes.  The panel's
findings were limited to these quantitative restrictions and were based on the findings of the 1987
BOP consultations on Korea which found that there was no longer any justification for Korea tomaintain import restrictions for BOP purposes.  None of the measures at issue in the current dispute
were adjudicated in the previous panel.  Certainly, measures which violated the national treatment
provisions of GATT were not maintained for BOP reasons, did not exist at the time of the earlier
dispute and were not part of the negotiated outcome of that dispute.
(iii) The Records of Understanding
87. Korea  emphasized its view that the December 1993 Record of Understanding concluded with
the United States constitutes the preparatory work of the Uruguay Round agreements for the purposes
                                                     
52 See Preamble to the GATT 1994.WT/DS161/R
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of Article 32 of the Vienna Convention  (see paragraph 55) and which was indeed consolidated into
Korea's Schedule of Concessions, and makes it clear that the remaining restrictions cover all
restrictions which were in existence for balance-of-payments reasons at the time of the conclusion of
the Uruguay Round.  Note 6 of Korea's Schedule LX does not list specific measures as remainingrestrictions, but should be interpreted as Korea's co mmitment, in broad terms, to full liberalization of
its beef import regime by the end of the year 2000.  Consequently, even if it were assumed, for the
sake of argument, that any remaining restrictions are inconsistent with the provisions of the GATT,
they would still be covered by the transitional period until 1 January 2001.
88. Australia  disagreed with Korea's assertion that the restrictions at issue in this dispute have
been implemented by Korea in accordance with the Records of Understanding concluded with
interested parties following the 1989 GATT panel.  Australia submitted that its Records ofUnderstanding with Korea, signed in 1990 and 1993, ar e only relevant to the extent that they reflect
the negotiated outcome of the 1989 panel and are not, therefore, works preparatory to the WTO
Agreements.  Australia's 1993 Records of Understanding with Korea expired in 1995 and was not
renewed in the context of the Uruguay Round.  Fu rthermore, the Records of Understanding were
attempts to give effect to the findings of the panel in the 1989 case and must be read in that context.
89. Australia, therefore, did not accept that the existence of now-expired Records of
Understanding can be held to represent Australia's agreement that the measures in dispute in this case
are covered by the transition period in Note 6.  The Record of Understanding to which Korea refers as
being signed in December 1993 was a bilateral agreement between the United States and Korea.  This
agreement cannot be "read into" Korea's Schedule or even be used to interpret the intentions ofAustralia, or indeed those of any WTO Member, other than the parties involved.  Australia cannot be
held to have agreed to the terms of a bilateral agreement to which it was not a party and which was
not notified to the then GATT CONTRACTING PARTIES, let alone to have agreed that the terms of
that agreement were incorporated into Korea's Sc hedule without this being made specific in the
Schedule itself.  Korea has produced no evidence to support its claim that Australia should be boundby the terms of Korea's December 1993 Record of Understanding with the United States.
90. Schedules are multilateral in character, Australia continued, and subject to the basic principles
of MFN.  In Australia's view, the multilateral natu re of Schedules would be undermined if bilateral
arrangements, particularly those not notified to ot her Members, and which may contain elements both
inconsistent with WTO rules and prejudicial to the interests of other Members, could diminish the
commitments specified in a Member's Schedule, to  the detriment of all other Members.  In this
respect, Australia takes issue with Korea's reliance on the findings of the Appellate Body in  Canada-
Dairy  (see paragraph 54) to support its view that its December 1993 Records of Understanding with
the United States should be interpreted to permit Korea a transition period for measures existing at the
time of the Uruguay Round.  While Australia does not disagree with the approach to interpretation,
the facts of that case can be distinguished from the current situation.  In  Canada - Dairy  the
Appellate Body considered the failure of Canada and the United States to reach agreement onimprovements to existing conditions for cross-border trade of milk in the context of interpreting
Canada's Schedule commitments and the intentions of the parties at the time the commitments were
entered into.  On this basis, the Appellate Body  overturned the panel's interpretation of Canada's
Schedule commitments, given that the panel's interpretation would have increased Canada's
obligations in relation to that cross-border trade ev en though it was clear that the parties had not so
agreed.  This is a different proposition altogether from binding all other WTO Members to the terms
of a bilateral agreement which, according to Korea, reduces Korea's Schedule commitments and
permits it to act in a manner detrimental to the interests of all other WTO Members without their
knowledge, let alone their agreement.
91. Australia further submitted that, to the extent that the Panel might consider any of Australia's
Records of Understanding with Korea relevant to determining Australia's intentions, its Records ofWT/DS161/R
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Understanding could only be relevant to the extent that they contain explicit reference to the measures
at issue in this dispute.  However, the Records of Understanding do not contain reference to any such
measures except the mark-up on SBS imports.  This is because the Records of Understanding were
intended to give effect to the 1989 panel on quantitative restrictions maintained for balance ofpayment purposes as mentioned in paragraph 88.  None of the measures in dispute in this case were,
in the opinion of Australia, maintained for BOP reasons.
92. Australia and the United States  contended that none of the measures challenged by the
Complainants, with the exception of the SBS mark-up, are addressed anywhere in the various Records
of Understanding.  They are entirely silent regarding a dual retail sales regime and separate, and more
onerous, requirements for the operation of specialized import stores.  Indeed, the July 1993 Records
of Understanding specifies that Korea shall not impose any unnecessary obstacles to trade.  Thus, noprovision in the Records of Understanding  sp eaks to prohibitions on commercial transactions
between end-users and customers for imported beef or limitations on the use of imported beef by
those end-users and customers.  Similarly, the Records of Understanding 
contain no reference to
delays in LPMO tendering or delayed allocation of SBS quota sub-shares.  All of those measures were
imposed by Korea without prior consultation with the Complainants.  There is no reference in any ofthe Records of Understanding to measures on reta il sale, limits on grass-fed beef, manipulation of
volumes and prices at wholesale, restrictions on end users and usage imposed through the SBS
system, and other limitations on the wholesale sale of imported beef in either Korea's Schedule or in
its Records of Understanding.
93. Australia  added that Korea has no basis to argue that Australia "agreed" to these measures or
agreed that they be covered by a transition period.  Australia noted that the Records of Understanding
specifically state that both parties reserve their GATT rights.  Clearly, the parties agreed that disputes
were to be resolved through the WTO dispute settlement mechanism.  The fact that Australia has not
previously opposed Korea's measures in no way indicates its acceptance that those measures fall
within the scope of Note 6 in Korea's Schedule.  Nor does it prejudice Australia's right to challengethese measures at any time in the WTO.  A breach of WTO obligations does not become valid
because of a lack of challenge or because of the expiration of time.
53
94. The United States  was of the view that the history of the Records of Understanding entered
into by the United States and Korea demonstrates that two contentions central to Korea's arguments in
this case are factually untenable.  First, the terms of the three Records of Understanding make it
abundantly clear that the restrictions that Korea promised to eliminate in the Records of
Understanding and then in its WTO Schedule are those associated with the 1989 BOPs report and
dispute.  Thus, any later-in-time measures imposed by  Korea, namely those that are the subject of the
present dispute, cannot be encompassed by the term "remaining restrictions" as that term was used,
first, in the BOP Committee Report, then later, in  the Records of Understanding, and still later, in
Korea's WTO Schedule.
95. In response, Korea submitted that Section IV B2(e) of the July 1993 Record of
Understanding makes it plain that the Complainants were well aware of the fact that a system of
separation of sales outlets was in operation when the Record of Understanding was negotiated.  The
mentioned paragraph states that "Also beginning January 1, 1995, any butcher shops that are or
become registered dealers of imported beef shall have the right to participate…" (emphasis added).
In Section IV C6(a) of the same Record of Understanding, Korea continued, it is stated that "Beefimported…must be distributed and sold through legal channels …" (emphasis added).  Korea
submitted that it is clear from these excerpts that the negotiators were fully aware of the existence of
the system of separation of sales outlets at the time of negotiating the Record of Understanding
leading up to the Uruguay Round.
                                                     
53 EEC- Imports from Hong Kong , paragraph 28;  Japan - Leather , paragraph 45.WT/DS161/R
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96. The United States  submitted that Korea's contention that the term "remaining restrictions"
encompasses most, if not all, of the measures challenged by the United States is refuted by language
used in each of the three Records of Understanding negotiated between the United States and Korea.
The Panel need only to consult Korea's notification of the 1990 and July 1993 Records ofUnderstanding to satisfy itself that "remaining rest rictions" could only have been intended to refer to
the restrictions on market access for imported beef that Korea had in place in November 1989, when
the BOP Committee and GATT panel reports were adopted.  That the term "remaining restrictions"
was used in the same manner, and with the same meaning, both in the BOP Committee Reports, and
then in each of the Records of Understanding, is strong evidence that Korea and the United States
intended the term, when incorporated in Korea's Sche dule, to have the same meaning as when used in
the Records of Understanding, and not a different meaning.
97. Each of the Records of Understanding containe d references to "remaining restrictions" or
"restrictions on beef" taken for balance-of- payment purposes.
54  Since there was no justification for
continuing BOP restrictions, let alone introducing new BOP-based restrictions, after the finding of the
1987 BOP Committee, the reference to remaining BOP restrictions can mean only those BOP
restrictions still in effect at the time the Committee report was issued in 1987, or at the very latest, the1989 date of adoption of the Committee's report.  Therefore, in the view of the United States, any
measure introduced after that date was by necessity without BOP justification and could not constitute
a "remaining restriction" for BOP purposes.
98. Korea in its communication of 4 July 1990, transmitting the 1990 Records of Understanding
to the GATT Council, the United States continued, st ated that Korea had held consultations with the
three contracting parties to the 1989 dispute in accordance with the recommendations in the panel
reports (L/6503, L/6504 and L/6505) adopted on November 7, 1989.  More importantly, Korea
reaffirmed in that communication its "undertaking to eliminate its remaining import restrictions on
beef or otherwise bring them into conformity with GATT provisions." That the reference to
"remaining restrictions" in Korea's WTO Schedule is intended to mean the same "restrictions" in placeat the end of the 1989 dispute is made clear from consideration of the July and December Records of
Understanding.  The July 1993 Record of Understanding contained a reaffirmation by Korea of its
commitment to eliminate its "remaining import restrictions on beef."  Again, the discussion of these
restrictions took place in the context of implementation of the recommendations of the GATT panel
report.  Thus, there can be no confusion about the nature of the commitment that Korea declared to
undertake: it was the elimination of the GATT inconsistent import restrictions found by the 1989
panel.
99. The December 1993 Record of Understanding, unlike those that preceded it, was not limited
to trade in beef, but also contained provisions relating to pork, poultry, dairy, and citrus.  The purpose
of the provisions governing beef were primarily to  extend forward in time the terms of the July 1993
Record of Understanding.  The December Record of  Understanding provides for continuation of the
beef quota through the year 2000, (ultimately made part of Korea's WTO Schedule of Concessions) aswell as for increases in the quota, and identifies the relevant percentage of the quota to be assigned to
the SBS system in each remaining year of the quota , together with the applicable maximum amount of
                                                     
54 In paragraph 2.1 of Korea's notification of the 1990 Record of Understanding to the Council, L/6697,
Korea stated that it "reaffirms its undertaking to eliminate its remaining import restrictions on beef . . ."  Article
V of the July 1993 Record of Understanding with the United States reads as follows: "With regard to beef, theROKG reaffirms its undertaking to eliminate is remaining import restrictions or otherwise bring them into
conformity with GATT provisions as provided in the conclusion of the report on the GATT Balance of
Payments Committee on consultations with the Republic of Korea adopted by the GATT Council on7 November 1989."  The December 1993 Record of Understanding simply states that "All balance-of-paymentsrestrictions on beef shall expire no later than December 31, 2000."WT/DS161/R
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the mark-up.  In all other respects the July 1993 Record of Understanding was left unchanged.55
Finally, the December Record of Understanding reiterated the same passage contained in the previous
Record of Understanding and committed Korea to elimination of " all balance -of-payments
restrictions on beef "  and required that to be accomplished by "no later than December 31, 2000."
100. The United States noted that it did not participate in the formulation of the challenged
measures.  Korea's argument that the challenged measures were implemented at the request of the
United States and other countries exporting beef to Korea cannot withstand scrutiny.  The three
Records of Understanding  between the United States and Korea were all concluded after the adoption
of the 1989 panel report.  In the view of the United States, the Records of Understanding were
intended to provide a transition for Korea from a situation in which imported beef was banned toward
a liberalized market where commercial forces would determine the quantity of beef imported.  Anexamination of the Records of Understanding reveals that Korea was not willing to accept a quick
progression to an open market and an incremental approach was necessary.
56
101. While the United States did press Korea to develop a market-oriented regime for imported
beef and, in doing so, requested that Korea estab lish the SBS system as a bridge between the LPMO's
monopoly control of imported beef and a market driven  by commercial forces, the United States was
by no means a partner in developing the specific regulatory provisions governing the operation of the
SBS system.  Likewise, the United States had no role in developing the LPMO's daily operating
procedures, including the manner in which the LPMO conducts its wholesale auctions or the timing of
its opening of tenders.57  In fact, in quarterly meetings with Korea, the United States was forced
repeatedly to seek Korea's implementation of the market liberalizing reforms that already had beennegotiated.
(iv) Quarterly bilateral consultations
102. Australia  submitted that Korea's claims regarding Australia's participation in bilateral
quarterly consultations (see paragraph 105) in relation to the beef trade are of no relevance, and
cannot be held as proof of Australia's agreement to the measures at issue in this dispute or to anytransition period for Korea in relation to these measures.  If any relevance is to be ascribed to the
bilateral quarterly consultations, it is the dissatisfaction of the Australian government with the range
of measures adopted by Korea which Australia argued were not envisaged when the bilateral
agreements were reached.  Australia, in good faith, agreed to a transition period to permit Korea to
move towards liberalization through the use of a time-limited quota.  This cannot, however,  be
interpreted as an agreement by Australia to the measures challenged in this dispute.  It is because
Korea failed to adequately address Australia's concerns about these measures in a bilateral contextthat Australia now find itself before a WTO dispute settlement panel.
(v) Prior panel reports
103. The United States  emphasized that regardless of the meaning given to the term "remaining
restrictions" there is no legal basis for concluding  that  a Member may unilaterally limit or reduce its
                                                     
55 More specifically, the last paragraph of the December 1993 Record of Understanding stipulates that
"The current July 15, 1993 Record of Understanding (L/7270) shall continue to apply except as modified toincorporate the provisions of the new understanding."
56 Thus, the 1993 Record of Understanding provided for annual increases in the quota quantity, for a
gradual increase in the number of super-groups participating through the SBS system, and for incrementalincreases in the proportion of the quota share dedicated to the SBS system, where customers and end-users
could contract with foreign shippers relatively free from interference by the LPMO.
57 Although the July 1993 Records of Understanding specified when unused SBS quota would be
reallocated among the various super-groups, the Records of Understanding did not direct either when or how
allocation of quota increases would be made to new super-groups.WT/DS161/R
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GATT 1994, or other WTO, obligations by providing in its Schedule for a supposed right to restrict
imports.  Thus, Korea's contention that it possesses the right to continue until 1 January 2001, all
WTO inconsistent restrictions on imports of beef which were in place at the time of the conclusion of
the Uruguay Round negotiations is entirely without foundation.
104. The United States referred to the US – Sugar Head Note  case ,58 which considered whether
import restrictions provided for in US Schedule XX were consistent with the obligations contained in
Article XI:1.  In finding that the US restrictions were inconsistent with the requirements of Article XI,
the panel examined the issue in light of the wording of  Article II.  Based on the text of that Article, the
panel found that Article II "permits contracting parties to qualify the obligation to exempt products
from ordinary customs duties in excess of the levels specified in the Schedule, not however to qualify
their obligations under other Articles of the General Agreement."59  The panel concluded that " …
Article II gives contracting parties the possibility to incorporate into the legal framework of the
General Agreement commitments additional to those already contained in the General Agreement and
to qualify such additional commitments, not how ever to reduce their commitments under other
provisions of that Agreement."60  Korea's assertion that the Schedule LX reference to "remaining
restrictions" exempts Korea from all of its obligations relating to beef under GATT 1994 is, therefore,untenable.  In recent disputes involving EC – Bananas III (AB)  and EC – Poultry (AB), the Appellate
Body reiterated the legal conclusions reached by the US - Sugar Head Note panel.
105. Referring to the United States' arguments in paragraph 103, Korea  replied that it does not
contend that it may "unilaterally"  exempt itself from specific GATT obligations .  Korea merely
referred to the existence of a transitional period in its Schedule of Concessions, which is based onmultilateral negotiations and agreement between WTO Members in the Uruguay Round, explicitly
referred to and confirmed by the language of Note 6.  Second, none of the cases cited by the United
States as legal authority dealt with the issue of whether a Schedule of Concessions can contain a
transitional period and a phasing-in of GATT obligations .  All the cited cases dealt with the issue of
whether a provision in a Schedule of Concessions could allow GATT/WTO Members to violatecertain GATT provisions on a permanent basis.  Note 6 contains an obligation for Korea to eliminate
or bring its remaining restrictions into conformity with GATT by 1 January 2001.  The agreed
transitional period has to be seen against the background of prior BOP restrictions, the previous
GATT panel reports, the ensuing Records of Understanding and quarterly consultations which shape
the transition to bring Korea's measures into conformity with GATT and the full liberalization of beef
imports by 1 January 2001.
106. Hence, Korea continued, the issues contained in the cited panel and Appellate Body reports
and Korea's Schedule of Concessions refer to two factually different situations: the former contains a
prohibition to permanently deviate from the obligations of the GATT through agreements reflected in
the Schedule of Concessions, whereas the latter cont ains a temporary provision which will expire on a
set date. Korea, fully respecting its obligations under the GATT/WTO, did not diminish its obligations
by indicating in its Schedule of Concessions that it will bring its measures into conformity within adefined transitional period.  In other words, Korea did not add a right through its Schedule of
Concessions: it accepted an unambiguous obligation to fully liberalize a previously protected market
within a specified time period.
107. Australia and the  United States  also referred to the EC – Poultry (AB) in which the
Appellate Body dismissed Brazil's claim that a concession contained in the European Communities'Schedule establishing a tariff-rate quota for poultry need not be administered consistently with
Articles I and XIII.  Brazil had argued that the terms of a bilateral agreement between the European
                                                     
58Page 331.
59 Ibid, paragraph 5.2.
60 Id., paragraph 5.3.WT/DS161/R
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Communities and Brazil following the EEC - Oilseeds  dispute, accorded Brazil the entire tariff-rate
quota for poultry.  The Appellate Body, citing the US Sugar Head Note case, rejected Brazil's
argument.  In doing so, the Appellate Body  emphasized the following finding from the EC – Bananas
III(AB)  dispute:  "… a Member may yield rights but not diminish its obligations and … [that
principle] is equally valid for the market access concessions and commitments for agricultural
products contained in the Schedules annexed to the GATT 1994."61  The Appellate Body then
observed that "a Member may yield or waive some of its own rights and grant benefits to other
Members, but that it cannot unilaterally diminish its own obligations."62  These legal conclusions
refute Korea's argument that it is entitled to continue WTO inconsistent measures relating to beef until
the year 2001.
(vi) Article 26 of the Vienna Convention (good faith)
108. Korea  submitted that by bringing the current dispute, the Complainants are denying the
binding force of their agreement to Korea's Schedule of Concessions and are not acting in good faith.
As such, they violate Article 26 of the Vienna Convention which stipulates the principle of pacta sunt
servanda  - a basic principle of public international law.  The claims brought by the Complainants
should necessarily fail for the reasons stated in paragraph 54 alone.  But Korea also considered thatnone of the claims has any merit.
109. In response to Korea' arguments in paragraph 108, Australia  contended that it is not clear to
Australia that Article 26 of the Vienna Convention  adds anything to the provisions of interpretation
required to be applied by the Panel under Article 3:2 of the DSU, which explicitly incorporates the
rules of interpretation of customary international law.  Australia noted, however, that the Panel islimited by its terms of reference to consideration of the measures against the provisions of the WTO
Agreements.  Australia rejected Korean allegations of a lack of good faith on Australia's behalf and
submitted that Korea has not met its burden of proof in making such a claim.  Australia also rejected
any links made by Korea between considerations of good faith and the admissibility of Australia's
claims at this time.  Korea's allegations, however, do highlight Australia's fundamental disagreementwith Korea about its commitments rather than any lack of good faith.
110. To the extent that the notion of good faith has any relevance at all, Australia continued, it
would only pertain to those measures that Korea concedes are GATT-inconsistent restrictions.  Only
then could Korea conceivably attempt to argue that the claims in this dispute have been brought
prematurely.  However, with the exception of its claims about the mark-up on SBS imports, Korea has
made no such concession, indeed defending the GATT consistency of every other measure.
111. Australia noted that good faith is a matter requiring reciprocity.  In the course of this dispute
Korea has asserted that it alone has the right to unilaterally determine which of the remaining
restrictions on imported beef it will remove on 1 January 2001.  And although Korea has declared that
it will remove or bring into conformity any remainin g inconsistent restrictions, it has argued to the
Panel the GATT-consistency of the majority of its measures.  Australia is also concerned about
reports it has received about measures proposed by Korea to limit the effect of the end of the quota ondomestic beef.  These measures include maintaining the dual retail system and increasing the level of
financial support to domestic beef stores, the introduction of a mark-up on LPMO quota sales, the
introduction of country-of-origin labelling in restau rants as well as the banning of two current SBS
groups, NLCF and LCTM, from the imported beef trade.  Australia can but conclude that, if there is
any question of good faith in this dispute, it does not rest with Australia.
                                                     
61 EC – Poultry (AB) , paragraph 98.
62 Id.WT/DS161/R
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112. The United States  submitted that, contrary to Korea's claims in this regard, it has acted in
good faith in this dispute.  The United States has shown in paragraphs 100 et sequitur  and 107 that the
underlying basis for Korea's claims of bad faith are entirely groundless.  Accordingly, Korea's request
that the Panel find the US challenge to Korea's measures to be inadmissible must be rejected.
C. CLAIMS UNDER ARTICLE XI :1 OF GATT
1. No prohibitions or restrictions…on the importation of any product
113. Referring to the text of Article XI:163, Australia  argued that panels have interpreted the scope
of Article XI:1 broadly, providing for a general ban on import or export restrictions or prohibitions.
The panel in Japan – Trade in Semi-conductors  considered the wording of Article XI:1 to be
comprehensive; it applies "to all measures instit uted or maintained by a Member prohibiting or
restricting the importation, exportation, or sale for export of products other than measures that take theform of duties, taxes or other charges.
64  Similarly, the panel in India – Quantitative Restrictions
considered that the scope of the term "restriction" was also broad, as seen in its ordinary meaning
which is "a limitation on action, a limiting condition or regulation".65  The scope of the term
"restriction" has most recently been defined by the Appellate Body as "a limitation on action, a
limiting condition or regulation".66  Restrictions applied on the entry of grass-fed beef through the
tender process are, in the opinion of Australia, qu antitative import restrictions within the meaning of
Article XI:1.  For a four-month period in 1999 all cuts of grass-fed beef, which is predominantly
supplied by Australia, were arbitrarily excluded from the thirty per cent of the market controlled by
the LPMO.
114. In some circumstances, Australia continued, a measure affecting imported product (for
example, availability of end-points of sale) has the practical effect of restricting importation of the
product itself, and is, therefore, covered by Article XI:1.  This is supported by the fact that
Article XI:1 uses the broad term "restrictions" on importation, rather than "laws, regulations or
measures on importation".  The reference to "whether made effective through quotas, import or export
licences or other measures" indicates that the measure itself need not be directed at importation orapply at the point of import (such as import licences or quotas).  It is sufficient that it has an effect on
importation.  Given that "restriction" has a broad scope, Article XI:1 applies to any measure which
has the  practical  effect of restricting imports. Furthermore, restrictions at the point of distribution
may have the practical effect of a quantitative restriction where they restrict the imported products
end-points of sale.
115. Australia referred to the panel on Canada – Alcoholic Drinks  which considered that
limitations on the points of sale available to imported beer were restrictions within the meaning ofArticle XI.
67  Restrictions on distribution were within the meaning of "other measures" under
Article XI:1, even though such measures might be examined also under Article III:4.  Here, the
restrictions, although related to distribution, were on importation.  This was cited by the panel in
India – Quantitative Restrictions  which examined inter alia  an Indian measure in which import
licences were available only to "actual users".  The panel considered that the "actual user" conditionwas a restriction on imports because it precluded imports of products for resale by intermediaries, i.e.
                                                     
63 "No prohibitions or restrictions other than duties, taxes or other charges, whether made effective
through quotas, import or export licences or other measures, shall be instituted or maintained by any contractingparty on the importation of any product of the territory of any other contracting party or on the exportation orsale for export of any product destined for the territory of any other contracting party."
64 Paragraph 104.
65 Paragraph 5.128.
66 India – Quantitative Restrictions (AB) , paragraph 5.128.
67 Paragraph 4.24.WT/DS161/R
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distribution to consumers who are unable to import directly for their own immediate use is restricted.
It operated as a restriction on imports within the meaning of Article XI.68
116. In addition to maintaining a quota, the United States  argued, Korea maintains quantitative
restrictions consisting of import licensing requirements ("import recommendations") and sales anddistribution constraints on imported beef.  These re strictions are set forth in the Livestock Industry
Act, the Final Livestock Act, as well as MAF's implementing Guidelines and Regulations.  Korea also
identified several of the restrictions that are the subject of this dispute in its 21 November 1996 reply
to the questionnaire on import licensing procedures from the Committee on Import Licensing
Procedures.
69  Measures associated with the administration of the beef quota were also notified to the
Committee on Agriculture.70  These restrictions constitute continuing violations of one of the most
fundamental rules of the world trading system, i.e. Article XI:1.
117. The United States submitted that the measures  that are the subject of this dispute are
"restrictions other than duties, taxes or charges" as defined in Article XI:1.  Under the WTO, the panel
in EC – Bananas III  acknowledged that "Past GATT panel reports support giving the term 'restriction'
[in Article XI:1] an expansive interpretation.71  Referring to the GATT 1950 working party report on a
"Notification by Haiti under Article XVIII"72, to the 1950 report on "The Use of Quantitative
Restrictions for Protective and other Commercial Purposes" which was approved unanimously by the
CONTRACTING PARTIES under Article XXV73 and which refers to import licensing as an import
restriction74, to the 1978 panel in EEC –Processed Fruits and Vegetables  which found that a non-
automatic licensing system denying licences for imports below certain minimum prices was a
"restriction" within the meaning of Article XI,75 to the panel in  Japan –Semi-Conductors  which found
that "this wording [of Article XI:1] was comprehensive; it applied to all measures instituted or
maintained by a contracting party prohibiting or restricting the importation, exportation or sale for
export of products other than measures that take the form of duties, taxes or other charges76, as well as
to the panel on India – Quantitative Restrictions,77 which concluded that a non-automatic licensing
system in India operates as a restriction on imports within the meaning of Article XI:1, the UnitedStates contended that Korea's import "recommendation" system is, like India's licensing regime, a
discretionary system and as such an import restrict ion that is inconsistent with Korea's obligations
under Article XI:1.
2. Measures imposed on retail sale of imported beef
118. In the present case, Australia  argued, Korea restricts the sale of imported beef to specialized
imported beef stores.  This prevents domestic butcher shops from purchasing imported beef and limits
the end points of sale for imported beef.  The sale of imported beef is limited to only 5,000 stores,compared with the other 48,000 outlets which would be available if the restriction did not apply.
While the restriction is related to the distribution of imported beef, it has the effect of a restriction on
the importation of beef within the meaning of Article XI:1.
                                                     
68Paragraph 5.141-5.143.
69 See G/LIC/N/3/KOR/1.
70 See G/AG/N/KOR/1, 31 May 1995.
71 Paragraph 7.154, citing panel report on  Japan - Semiconductors , paragraphs 104-105;  panel report
on  EEC - Processed Fruits and Vegetables , paragraph 4.9.
72 BISD Vol. I, page 46, Article XVIII:12. GATT/CP.5/25, adopted on 27 November 1950, BISD
Vol. II/87.
73 GATT/CP.5/33, adopted on 3 April 1950, republished as "The Use of Quantitative Restrictions for
Protective and other Commercial Purposes," Sales No. GATT/1950-3.
74 Id., page 7, paragraphs 5-7.
75Paragraph 4.9.
76 Paragraph 104.
77 WT/DS90/R, adopted 26 September 1999, paragraph 5.19-5.130.WT/DS161/R
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119. Korea  submitted that Australia's argument concerning separate retail stores for imported and
domestic beef (see in particular paragraphs 114, 115 and 118) is fundamentally flawed in several
respects .  The separate sales outlets system, which is designed to prevent the fraudulent practice of
passing off imported beef as domestic beef, applies the same restrictions both to stores sellingdomestic beef and to specialized stores selling imported beef .  Domestic beef stores are equally
prohibited from selling imported beef .  The separate sales outlets system does not, therefore,
disadvantage imported product and cannot be considered a restriction on the importation of beef.
More importantly, there are no restrictions relating to the number of imported beef stores which may
operate at any given time, or with respect to their geographic location .  Regarding the Complainants'
arguments in, for instance paragraphs 118 and 175 with respect to the small number of imported-beef
shops, Korea admitted that the number of imported beef stores is at the present time smaller than thenumber of domestic beef stores.  However, this is a consequence the quota on beef products .  The
supply of imported beef is, therefore, insufficient to support further imported beef stores at the present
time.  Following the liberalization of Korea's beef sector on 1 January 2001, imported and domestic
beef stores and beef product will compete freely in the market, and the number of either domestic or
imported beef stores will be determined in accordance with market demand .  The separate sales
outlets system is the result of purely internal anti-fraud measures and is in no way related to the
importation of products .  Therefore, Article XI:1 does not apply to this measure .  Since the same
restrictions are applied to both domestic and imported beef stores, it is meaningless to refer to a
"restriction on importation" within the meaning of Article XI:1.
120. The separate sales outlets system applied by Korea, Korea continued, bears no resemblance to
the type of "restrictions" examined by the panels in Canada - Marketing Agencies and India -
Quantitative Restrictions, cited by Australia .  In the Canada - Marketing Agencies  case, the limitation
on the points of sale available to imported beer applied solely to imported product, while domestic
product was not similarly constrained   In the present case, as the same rule applies to both domestic
and imported beef stores, there can be no claim that a limitation on the points of sale is being appliedto the imported product compared with domestic product.
121. Similarly, the restriction at issue in  India - Quantitative Restrictions, the "actual user"
condition, precluded imports of products for sale by intermediaries while no such restriction applied
to domestic product .  The measure thereby restricted the importation of the relevant products by
foreclosing an avenue of distribution solely for imported products, restricting the points of distribution
compared with domestic product.  While Korea does maintain a quota on beef, no restrictions of any
kind are applied at the retail level with respect to the number of imported beef stores, their location, orany other restriction .
3. LPMO tendering opportunities
122. Australia  submitted that the restrictions applied on the entry of grass-fed beef through the
LPMO tender processes were quantitative restrictions within the meaning of Article XI:1.  The LPMO
has used its tender processes to exclude grass-fed beef from the market:  in the period from June toSeptember 1999, the LPMO held three tenders from  which grass-fed beef was excluded.  Although
Korea claimed that this exclusion was on the basis of reduced demand, its own figures showed that
sales of grass-fed beef had increased by over three times sales in the same period in 1998 (when the
LPMO did purchase grass-fed beef)
78.  Prior to the exclusion of grass-fed beef in the 1999 tenders,
grass-fed beef had generally secured approximately 50 per cent of each tender.
123. Korea  submitted that the complaints raised by Australia with respect to grass-fed beef have
no basis under Article XI:1.  All tenders are open to all supplying countries and perfectly origin
neutral.  Australian exporters are free to participate both in tenders for grass-fed and grain-fed beef.
                                                     
78 122,000 MTs in May/June 1998 compared with 372,000 MTs in May/June 1999.WT/DS161/R
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The distinction between grass-fed and grain-fed beef does not by itself constitute discriminatory
treatment or an infringement of MFN principles.  As long as Korea does not discriminate on the basis
of origin of the products obtained, in violation of the MFN principle, Korea is not obliged to affect its
purchases of beef according to sub-groupings of various beef types.  The LPMO consistentlypurchases its full quota amount, according to an open bidding procedure and according to origin-
neutral criteria.  It cannot, therefore, be claimed that Korea applies quantitative restrictions with
respect to beef (beyond that resulting from the quota).  Australia has not adduced any evidence that
Australian products have been discriminated against based on their origin.  On the contrary, total
purchases from Australia (by the LPMO) in the first six months of 1999 represented a 44 per cent
share of all purchases which is much higher than their previous shares of 33.3 per cent in 1997 and of
30 per cent in 1998.  These data do not suggest any de facto  discrimination of Australian products.
Hence, Korea submitted that the claims of Australia with respect to this issue are unfounded and the
question of import restrictions contrary to Article XI:1 does not arise.   CF paragraph 324.
(Cf also paragraphs 287-289 and 346.)
124. Australia  and the United States  submitted that panels have found that restrictions on points
of sale and distribution are quantitative restrictions  within the meaning of Article XI:1.  Therefore,
measures which restrict the number  of points of import will also fall within Article XI:1.  In  India –
Quantitative Restrictions , the panel found that an "Actual User" condition which denied a licence for
imports by intermediaries constituted an import restriction within the meaning of Article XI.  In
considering the scope of the prohibition under Article XI:1, the panel drew on earlier panel reports,
noting that a minimum import price system had been considered to be a restriction within the meaningof Article XI:1, as had limitations on points of sale available to imported beer because they had
imposed "limitation on action, a limiting condition or regulation". The panel found that, applied to the
"Actual User" condition, they led to the conclusion that it is a restriction on imports because it
precludes imports of products for resale by intermediaries, i.e. distribution to consumers, who are
unable to import directly for their own immediate use.  Based on the foregoing, the Complainantsargued, the procedures of the LPMO, itself a state-trading enterprise, restrict imports by inter alia
withholding quota allocations and delaying any invitations to tender, and, thus, are inconsistent with
Article XI:1.
125. Referring to the arguments by the Complaining parties that some of Korea's measures on beef
are a violation of both Article. III :4 and Article XI, Korea  was of the view that there is a clear
dividing line between the two provisions.  The form er deals with internal measures, that is measures
applicable to products after  they have been cleared through customs, whereas the latter deals with
border measures, namely QRs.  Hence, it is logica lly impossible for a domestic measure to be 'caught'
simultaneously by the two provisions.  For a violation of Article XI to be established, the
Complaining  parties need to show that a gove rnment-induced QR restricts imports of foreign
products independently of the manner in which domestic like products are treated. With respect to the
argument by the Complainants that the LPMO delayed invitations to tender, Korea noted that theLPMO has consistently filled its quota share, even during the height of the crisis in 1997 and 1998.  In
addition, Korea contended that the Complainants' assertion that Korea delayed quota allocations to
super-groups is inaccurate.  At the beginning of 1999, Korea explained, part of the quota was reserved
for three new super-groups which started participating in the SBS system.  The quota was allocated by
14 June 1999, i.e. once the quantities required by these super-groups were established.  None of thesuper-groups had exhausted their initial quota by that time and, according to Korea, no negative
effects on beef imports resulted from this circumstance.
4. Measures with respect to the discharge of  imported beef in the wholesale market
126. Australia  claimed that both the LPMO and the NLCF , pursuant to their obligations under the
Regulations Concerning the Sale of Imported Beef , have acted to withhold beef imported by theWT/DS161/R
WT/DS169/R
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LPMO from the wholesale market in order to stabilize demand and supply for domestic beef.  The
limitations are applied through the LPMO monthly sales plan, minimum wholesale prices and the
daily discharge practices of the NLCF.  The result of the discharge system has been to artificially
constrict the supply of imported beef and constrain imports to the extent that in 1998 and the first halfof 1999 there was substantial under-filling of the LPMO beef quota.  The cumulative effect of these
pricing and distribution measures has been a significant increase in LPMO stocks of imported beef
during the last two years.
79  In turn, these rising stock levels have led to delayed tenders and reduced
imports by the LPMO.80  Shipping delays have also been necessary in relation to the 1999 quota, with
delivery dates extending into 2000.
127. Australia  and the United States  submitted that the LPMO sets a minimum acceptable
auction price on a daily basis for each cut and brand of beef and that the NLCF periodically withholdsimported product from the market.  Australia produced charts showing demand, sales and acceptable
bid prices for a range of brands and cuts of beef which, Australia submitted, proved the operation of a
minimum price.  Whilst auction participants do not know this price, the previous day's acceptable
price is, according to the Complainants, a good guide.  It is well understood in the trade that bids
below the minimum price will not be accepted.  Such measures are taken to stabilize the price ofdomestic beef, with prices being set for imports that are contingent on the price of competing
domestic product.  The price of imported beef in the wholesale market is, therefore, decided by
reference to the price of its domestic competition.  A press release issued by the MAF on
22 July 1999, reflects this policy.
81  The Complainants argued that the minimum price has been set at
levels which have considerably dampened demand for imported beef but which have ensured thatimported beef prices have stayed sufficiently high so that domestic product could remain competitive.
The minimum price has generally been too high to attract the interest of end users and as a result
distribution of imported beef has been considerably less than stocks actually held.  These measures
have the effect of quantitative restrictions on imported beef contrary to Article XI:1.  Australia
claimed that these measures are also contrary to Article 4.2 of the Agreement on Agriculture .
128. Australia  did not accept that minimum pricing was the result of Korea's financial crisis in late
1997/early 1998 or of losses incurred by the LPMO during that period arising from the currency
crisis.  Australia's calculations, based on data provided by the LPMO relating to import prices,
shipping dates and exchange rate fluctuations, show that there were several months in 1998 where the
LPMO did not sustain losses resulting from the difference between the import price and the minimum
wholesale price.  Except for beef purchased in  Korea's final tender in 1997, none of Korea's 1997
purchases of beef were affected by the currency crisis.  The currency crisis hit Korea inNovember 1997, reached its peak in December 1997 and January 1998 and began to improve by July
1998.  However, the last tender for beef in 1997 was held on 21 October 1997 and was for a quantity
of 9361 tonnes.  While most of this last tender purchase would have arrived in Korea during the
currency crisis, all other 1997 tenders were purchased and customs cleared by the time the currency
crisis hit.  Furthermore, no more imported beef entered Korea until July 1998, when the exchange ratewas recovering .  Australia, therefore, submitted that LPMO had stocks on hand which were purchased
at pre-currency crisis levels and which entered Korea before the currency crisis hit.  Korea would
have been able to sell, without loss, from these stocks.  Australia hence argued that the only
                                                     
79 In October 1997, the LPMO had an estimated 28,000 tonnes of imported beef in stock. By the end of
1998 LPMO had accrued stocks of 67,934 tonnes of imported beef, more than the LPMO's entire quotaallocation for 1999.  As at July 1999, these stocks had fallen only slightly to 61,524 tonnes, notwithstandingrising demand in the market for imported beef.
80 In 1998 40,237 tonnes (53.8 per cent), of a total 1998 quota of 74,800 tonnes, was not permitted to
enter Korea until 1999.  As a consequence, 1999 imports have been affected.  As at 22 October 1999, the LPMO
will have purchased 35,099 tonnes out of a total quota for 1999 of 61,800 tonnes i.e. 56.8 per cent of its annual
quota amount.
81 "MAF to raise unlimited supply of imported beef to stabilize extraordinary cattle prices", Ministry of
Agriculture and Forestry press release, 22 July 1999.WT/DS161/R
WT/DS169/R
Page 32
explanation for the high minimum prices of importe d beef at that time was that LPMO was acting to
protect the competitiveness of domestic beef vis-ä-vis  imported beef.
129. Australia also noted that minimum prices have continued to be imposed throughout 1999,
regardless of the recovery in the Korean economy, stabilization of exchange rates and rising levels ofdemand for beef.  The cumulative effect of the pricing and distribution measures has been to
significantly increase LPMO stocks of imported beef, leading directly to tender and shipment delays
in 1998 and 1999, causing imports to fall to amount s considerably less than the LPMO quota share in
those years.  The persistence of minimum pricing in 1999 will also have an impact on LPMO imports
for 2000, given that significant amounts purchased in 1999 are not actually permitted to enter Korea
until late 2000.  (See also paragraphs 205-206 below.)
130. Korea  responded that Korea has never established, nor employed, minimum import prices.
The LPMO initiates international tenders, and the tenders are awarded on a purely commercial basis,
in ascending order from the lowest bid received.  All participants in the tender process therefore
compete on the basis of price, and are awarded purely on the basis of the competitiveness of the offers
submitted.  The procedures employed by the LPMO, therefore, bear no resemblance to a system of
minimum import prices.  With respect to imports effected through the SBS system, contracts arenegotiated and concluded between members and suppliers on an entirely commercial basis, without
any government interference or scrutiny with respect to price.
131. The LPMO will, however, as a trading entity  operating under commercial considerations,
seek to ensure that the imported beef product is not sold at a loss at the wholesale auction.  For this
reason, while no rigid minimum price is set, basic target prices are set for the sales at wholesaleauction.  Target prices are established by the LPMO  and are used by the NLCF as a guideline during
wholesale auctions to avoid the sale of imported be ef below a certain price level.  However, these
target prices are not inflexible and the establishment of target prices does not mean that bids falling
below the target price will never be accepted.  Despite the severe market situation prevailing in 1998,
Korea continued to exert its best efforts to sell the maximum amount of imported beef possible.  Tothis end, Korea resorted to selling below the established target price.  The target prices are closely
linked to import prices (c.i.f. plus tariff plus sales cost).  During the financial crisis, Korea argued, the
LPMO would have made losses on the imports of  beef and that therefore it was justified in
maintaining the  target price at a level preventing losses on sales of imported beef (see Annex 4).
132. The Complaining parties  responded that the LPMO had not sold imported beef below the
minimum price during the financial crisis and as a consequence, stocks of imported beef rose rapidly.
Australia contended that if the target price is not reached, the beef is not sold.  The LPMO did notmake any attempt to run down its stocks during either 1998 or 1999, which would possibly have been
the most commercially viable option.  Instead, LPMO continued to withhold imported beef from the
market by setting an artificially high minimum price, based on domestic beef prices. As a result,
stocks of imported beef rose to nearly 61,000 t onnes by mid-1999."  They added, amongst other
things, that the high level the LPMO sales costs may explain Korea's assessment of the LPMO'slosses.
82
133. Australia  and the United States  contended that various discharge procedures adopted by the
LPMO represent "restrictions" which fall within the purview of Article XI:1.  They referred to the
ad note  to Articles XI, XII, XIII, XIV and XVIII, which states that the term 'import restrictions' in
these Articles covers restrictions made effective through state trading operations.  They also referredto the panel in Japan - Agricultural Products which  firmly rejected Japan's argument that Article XI:1
did not apply to import restrictions made effective through state trading.  Likewise, in the 1988 panel
                                                     
82 The United States contended that the 32- 40 per cent sales costs of the LPMO are in striking contrast
with the 2-3 per cent cost that the super-groups are allowed to charge by the MAF.WT/DS161/R
WT/DS169/R
Page 33
report on Canada - Marketing Agencies (1988) , the panel observed that the ad note  provided that
throughout these Articles "the terms 'import restrictions' and 'export restrictions' include restrictions
made effective though state-trading operations".
134. The United States  also referred to the Haitian import restrictions mentioned above
(paragraph 117) which were maintained through a t obacco monopoly, as well as to the working party
on the Italian Restrictions Affecting Imports from th e United States and Certain Other Contracting
Parties , which states that  "Insofar as the State-trading operation had the effect of restricting imports,
the Italian authorities fully recognized that, by virtue of the interpretative notes  ad Articles XI, XII,
etc. in Annex I to the General Agreement, it cons tituted an import restriction within the purview of
Article XI."83  Furthermore, in the 1989 panel report on the US complaint concerning Korea - Beef ,
that panel found that the Korean import restrictions, administered through a state trading entity,violated Article XI.
84
135. Australia  submitted that Members should not be able to avoid their obligations by
establishing state trading enterprises to carry out functions which have the effect of influencing the
level of imports beyond an established concession such as a tariff or a quota.  The issue is not whether
the state trading operation is a monopoly but the effect on trade.85  The panel in Japan - Film
acknowledged "a risk that WTO obligations could be evaded through a Member's delegation of quasi-
governmental authority to private bodies."  The value of concessions would be undermined if
governments, through the activities of state trading enterprises, whether or not they are monopolies,
could avoid the requirements of Article XI:1.  In the case of the release of beef imported and
distributed under the LPMO system, Australia continued, it is artificial to make a distinction betweenrestrictions imposed by import monopolies and those carried out by state trading enterprises that have
as their stated objective the stabilization of domestic beef and cattle prices.  It is with this purpose in
mind that the LPMO has established monthly sales plans and minimum wholesale prices for imported
beef and the NLCF has withheld daily discharge vo lumes of imported beef onto the wholesale market.
The effect has been a rise in stocks of imported beef, restricting, in the view of Australia, the LPMO'simports beyond the limits imposed by the quota.
136. The United States  submitted that in its notification to the Committee on State Trading
Enterprises, Korea identifies the LPMO as the entity appointed by MAF to administer the import
regime for beef.
86  Moreover, MAF has delegated extens ive powers to the LPMO to administer
Korea's licensing regime for imported beef while retaining control over the LPMO's functions in this
regard.  The LPMO not only possesses the exclusive right to import a substantial portion of the beef
quota, but also exercises considerable control over the use of the remaining portion of the quotathrough its authority to allocate quota shares to the SBS super-groups and to approve their import
requests.
87  In this latter role, the LPMO not only delayed the initiation of tenders for imports until
approximately mid-year in 1998, it also severely limited the invitation of tendering in 1999, so that as
of June 1999, less than 9,451 metric tonnes had been imported by the LPMO out of a 1999 quota
share of 61,800 metric tonnes.  In addition, the LPMO has withheld allocation of quota share to thesuper-groups and placed pressure on them to reduce the quantity of imported beef for which they seek
import approvals.
                                                     
83 Report of the working party under Article XXII:2 on Italian Restrictions Affecting Imports from the
United States and Certain other Contracting Parties , L/1468, adopted on 16 May 1961, BISD 10S/117, 119,
paragraph 7.
84 Paragraphs 113, 115.
85 See Korea - Beef , paragraph 115.
86 See G/STR/N/4/KOR, 10 December 1998.
87 See page 7 of G/STR/N/4/KOR, 10 December 1998.WT/DS161/R
WT/DS169/R
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137. Korea submitted that the arguments advanced by the Complainants with respect to the
discharge procedures of the LPMO in no way establish a violation of Korea's obligations under
Article XI:1.   Korea stressed that it is under no obligation to actively take steps to import its entire
quota amount, regardless of the prevailing market conditions .  Despite this, Korea has consistently
exerted its best efforts to ensure that the quota is fully absorbed, even under the very difficult
circumstances surrounding the financial crisis .  The LPMO has without fail purchased its entire quota
amount on an annual basis.
138. The severe financial crisis affecting Korea in 1998, from which Korea is still in the process of
recovery, resulted in a substantial negative impact on Korean demand for beef and the Korean beef
market .  Slumping demand in Korea, as well as currency fluctuations which lessened the price
differential between imported and domestic beef, had a depressing effect on demand for importedproduct .  Under these exceptional circumstances, the LPMO, operating on the basis of commercial
considerations, was forced to temporarily delay the initiation of tenders for imports between the end
of October 1997 and end of May 1998 .  Korea argued that the LPMO did not call for tenders during
this period because of stagnant beef sales due to decreased demand.  Korea added that the reason for
the release volumes being less than domestic demand is that bid prices for the bulk of imported beefwere lower than the minimum auction prices.  The developments which necessitated this move were
entirely market-driven and outside the control of the LPMO .  In addition, the LPMO accelerated the
beef-purchasing schedule to fill its quota share despite enormous losses amounting to 37.4 billion won
in 1998.  In view of the fact that the LPMO fu lly absorbed the 1998 quota, the actions undertaken by
the LPMO can in no way constitute a restriction on imports in violation of Article XI:1.
139. The additional allegation advanced by the United States (paragraph 136) that Korea "withheld
allocation of quota share to the super-groups"  is factually inaccurate.  Korea explained that the
LPMO allocates the quota share for itself and for each SBS super-group for every fiscal year.  Korea
does not intervene in the quota allocation process, however, as the total quota amount and the share
for the SBS super-groups are pre-determined in  accordance with the Uruguay Round commitments
and the Records of Understanding.
88  In 1999, in order to allocate quotas to any newly designated
super-groups, 32,000 tonnes out of the entire 206,000 tonnes of quotas were reserved, a quantity
which was allocated to the existing and new super-groups in April 1999.  Therefore, contrary to the
assertions of the United States, the LPMO did not restrict imports in violation of Article XI:1 by
withholding the allocation of quota share to the super-groups.
140. Australia  and the  United States replied that Korea's own data shows that the LPMO did not
make losses consistently throughout 1998.  Furthermore, minimum prices for imports in the wholesalemarket continue to be applied, despite the recovery in the economy and improvements in exchange
rates.  In any event, Australia has shown that minimum prices for imports and manipulation of
volumes permitted to be sold have resulted in additional quantitative restrictions being applied to
imported beef.  These restrictions have led directly to the substantial under-filling of the LPMO quota
in 1998 and 1999 and will also affect the quota fill for 2000.
89
141. Australia  added that it did not take issue with the se verity of the financial crisis in Korea in
1997/1998 Australia, like many other countries, was quick to offer extensive financial assistance to
Korea during this period.  However, Australia submitted that the economic crisis is irrelevant to the
issues in dispute in this case, i.e. the measures taken by Korea which discriminate against imported
beef and limit the benefit of the quota conferred by its Schedule.  The majority of the measures atissue predate the financial crisis. They form part of the regulatory framework for imported beef which
has as its fundamental policy goal the protection of domestic beef. That some of these measures may
                                                     
88 LPMO Public Notice No. 217.
89 Tables submitted by Australia shows that the LPMO quota was under-filled on customs cleared basis
by 8,234 tonnes in 1997, by 47,839 tonnes in 1998 and by 39,479 tonnes in 1999.WT/DS161/R
WT/DS169/R
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have had an even greater impact on imported beef at a time of economic upheaval in Korea is
immaterial, except to the extent that they highlight the deleterious effect of the measures on the
competitiveness of  imported beef in times of economic downturn.  Australia submitted that it is not
acceptable that imported beef should have been made to bear the brunt of the financial crisis in orderto protect domestic beef from the full impact of the downturn.
5. Measures applied through the SBS regime
142. Australia  submitted that restriction of imports under the SBS system to specific super-groups
and end users also falls within the scope of Article XI:1.  The system imposes limitations on action,
limiting conditions or regulations.  The effect of these restrictions is to exclude from the SBS system
any user or potential user which is either not a member of an SBS super group or not a defined user
under the regulations.  The restrictions imposed through the SBS system thus have the effect ofquantitative restrictions contrary to Article XI:1.  The effect of the measures which limit the range of
end-users, restrict end-users to membership of only one super group and forbid cross trading is to
limit the amount of beef that could otherwise enter the market under the existing quota.  Australia
considered that it has adduced proof that the system of end-user and usage restrictions as well as the
system of quota and sub-quota allocation operate to re strict the opportunities provided by the quota
contrary to Article XI:1.  In the opinion of Australia, Korea has not rebutted these claims, except by
reference to the financial crisis (see paragraph 138) which, in the view of Australia, is not pertinent to
these measures. The measures at issue predate the financial crisis, exist in addition to the quota and
limit the quota opportunity Korea is obliged to prov ide.  According to Australia, the super-groups
themselves have noted the limiting effects of the measures and requested the Korean government toremove them.
143. The United States  argued that Articles 5 and 6 of the Operational Guidelines for Imported
Beef Under the SBS System , which exclude all wholesalers, retailers, and end-users, other than a small
number of super-groups, from eligibility for import licences is also a "restriction" on imports within
the meaning of Article XI.
90  GATT panels91 have found that a denial of licences for imports below
certain minimum import prices constitutes an import restriction within the meaning of Article XI:1.
For the same reasons, Korea's confinement of import approvals to super-groups is an Article XI:1
restriction on imported beef because Korea's measure precludes beef from being licensed for import
by any other participants in the marketing and distribution of imported beef, and thereby diminishes
import opportunities for beef in the same manner that a minimum price requirement does.  Therefore,
Korea's limitations on the eligibility to import also cons titutes a "restriction" that violates Article XI:1.
144. In conclusion, the United States submitted, the restrictions that Korea imposes on importation
of beef (i.e. granting import licences only on a discretionary basis, confining import licences to super-
groups, prohibiting and penalizing any cross-trading in imported beef between and among the super-
groups and their customers and end-users) the LPMO's delay in both inviting tenders from foreign
beef exporters and in allocating quota share to  the super-groups, and LPMO's establishment of
minimum bid prices for imports at auction, each constitute a quantitative restriction within themeaning of Article XI:1 as construed in the various panel reports referred to.  Therefore, such
measures are inconsistent with Korea's WTO obligations.  Any restriction on imports other than
duties, taxes or other charges violates Article XI:1; the fact that Korea's import regime combines
several separate restrictions on imported beef underlines the flagrant character of the violation in this
case.
                                                     
90 This restriction is also contained in the October 1999 Guidelines for Handling Imported Beef.  See
Articles 2 and 19.
91 EEC - Processed Fruits and Vegetables, paragraph 4.9.  Canada - Marketing Agencies ,
paragraphs 5.28-5.31WT/DS161/R
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145. Australia  submitted that the allocation by super-groups to their end-users is done on the basis
of forecast demand and not actual demand of end-users.  Where an end-user fails to meet its demand
forecast, the resulting quota shortfall remains unused  for the current period.  Any reallocation of the
shortfall only takes effect the following period and there is no guarantee that all of the surplus will betaken up.  The system gives rise to a possible situation where end-users, who want to import more
beef, are restricted at the same time as the quotas of other end-users go unfilled.  Australia considered
that this lack of flexibility operates as a quantitative restriction on imported beef.  The same applies,
Australia continued, to the allocation of the quota to super-groups.  While any shortfall may be
reallocated to other super-groups later in the quota allocation, this is not done on the basis of
individual demand, but in the same ratio as the initial allocation.  There is no guarantee, therefore, that
the full reallocation will be taken up.  Moreover, reallocation so late in the season also prevents anyshortfall from being taken up.
92  The system of fixed quotas for super-groups and end-users and the
prevention of cross-trading between super-groups and end-users, therefore, constitutes, according to
Australia, a quantitative restriction on imports of beef.
6. Burden and standard of proof
146. Korea  considered that Australia and the United States have failed to establish a  prima facie
case that any of the measures at issue violate Article XI:1.  Indeed, no such violation exists as the
targeted Korean measures merely implement a lega lly valid quota on beef, in full compliance with its
commitments under the GATT 1994.  A quota is, by definition, a quantitative restriction.  In addition,
in order to effectively enforce the quota, it is necessary to use various measures such as import
licences, allocation of quota shares etc.  The undisputed fact in this case, Korea argued, is that Koreacurrently maintains a legally valid quota on imports of beef.  Therefore, the quantitative restriction on
beef falls outside the scope of Article XI:1.  In  addition, since a quota cannot be enforced without
implementing measures, these must also fall outside Article XI:1, provided that they do not, in and of
themselves, create an additional, separate quantitative restriction which acts to intensify the quota
effect by further limiting imports.  Against this background, an examination is required as to what theComplainants must prove in order to establish a violation of Article XI:1.
147. First, since Korea is under no obligation to allow imports of beef above the quota level, a
restriction (other than duties, taxes or charges) on importation for the purposes of Article XI:1 must in
this context be taken to mean a separate, identifiable restriction which limits imports below the quota
level.  Korea is not required, under the GATT, to guarantee that the level of imports will in all cases
reach the maximum quota level.  Whether or not the quota is filled will depend on market factors,
such as the competitiveness of the industries export ing to Korea, consumer preferences, patterns of
consumption and fluctuations of currencies etc.  The mere fact that a quota is not fully utilized does
not, therefore, establish a violation of Article XI:1.  On the other hand, if the quota is filled, this must
be considered as a strong indication that Korea does not make effective additional restrictions to
further constrain imports in violation of Article XI:1.
148. Furthermore, Korea added, Article XI:1 refers to prohibitions or restrictions which are "made
effective" through quotas, import and export licences or other measures.  The words "made effective"
in this sentence indicates the results-oriented nature of this provision.  Therefore, the Complainants
must establish that a separately identifiable prohibition or restriction on imports exists and that such a
restriction is actually having the effect of limiting imports to a level below the quota level.  Since non-
                                                     
92 In 1998, 112,200 tonnes was allocated among the SBS super-groups (60 per cent of Korea's
minimum access requirement).  Of this amount, only 69,933 tonnes or 62.3 per cent was actually taken up.
Among the various super-groups, KMPA, LCTM and KMIA used up 99.8 per cent, 99.3 per cent and 97.0 per
cent of their allocations, respectively.  However, KTSC, KFMP and KRSC used up only 33.0 per cent, 26.0 percent and 14.8 per cent of their allocation.  This suggests that super-groups with excess demand were preventedfrom purchasing additional imports whilst other super-groups had unused quotas.WT/DS161/R
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fulfilment of the quota can be due to a multitude of market factors which have nothing to do with any
restrictive measures maintained by Korea, the provis ions of Article XI:1 in the context of this case
require that the Complainants establish a clear causal relationship between the measures, separately
identifiable, which are alleged to be restrictions on imports on the one hand, and the non-fulfilment ofthe full quota amount on the other hand.
149. On the one hand, Korea continued, Article XI:1 is formulated broadly to apply to "measures"
other than duties, taxes or charges which prohibit or restrict importation.  On the other hand, the
requirement to demonstrate a clear causal link and that restrictions are manifestly having their desired
effect stems from the need to balance the sovereign rights of Members under this provision.  If any
measure maintained by a Member could be attacked merely by reference to allegations that such a
measure could, theoretically, result in restrictions on the importation of goods, this would result inundue interference in the sovereign rights of Members.
150. Korea noted, as shown in paragraphs 146-149 above, that the quota maintained by Korea is
legal (and thereby the measures implementing the q uota, subject to the limitations outlined above).
Moreover, the quota and the measures which serve to implement this quantitative restriction can not
be considered as being based on an exception to GATT rules.  The burden of proof does not,therefore, lie with Korea to establish the conformity of any targeted measures under Article XI:1.  Nor
are the targeted measures to be subject to a stricter necessity test, such as under the general exceptions
to GATT obligations detailed under Article XX.  On the contrary, the burden of proof for establishing
each of the elements outlined above lies with the Complainants.  With respect to burden of proof
issues, GATT/WTO panels have consistently followed the approach of various international tribunals,and the vast majority of developed legal systems, in requiring that the party making an allegation
bears the burden of proving that allegation.  Only when a  prima facie  case has been established does
the burden shift to the other party.  In this regard, Korea referred to the Appellate Body report on  US –
Shirts and Blouses (AB) which provides:
"… the issue in this case is which party has the burden of demonstrating that there has, or has
not been, an infringement of the obligation […].  In addressing this issue, we find it difficult,
indeed, to see how any system of judicial settlement could work if it incorporated the
proposition that the mere assertion of a claim might amount to proof.  It is, thus, hardly
surprising that various international tribunals, including the International Court of Justice,
have generally and consistently accepted and applied the rule that the party who asserts a fact,
whether the claimant or the respondent, is responsible for providing proof thereof."
93
151. In the opinion of Korea, the Complainants' fall short of meeting this burden of proof.  Each of
the Complainants' allegations are mere unsubstantiated assertions and based on inaccurate
characterizations of the measures and systems mentioned.
152. However, even if it were conceded, for the sake of argument, that any of the measures and
systems criticized by the Complainants had any restrictive effect whatsoever, their arguments must berejected because they have failed to provide prima facie  evidence (i)  establishing that a separately
identifiable restriction or prohibition exists beyond the implementation of the quota itself; (ii)  that
such restriction has intensified the effect of the quota by restricting imports to a level below the quota
level; and (iii)  that any non-fulfilment of the quota has been actually caused by restrictive measures
or systems (as opposed to other factors) and that the restrictions have thereby been "made effective"within the meaning of Article XI:1.
153. In the view of Korea, the Complainants do not properly explain how any of the alleged
restrictions constitute restrictions in addition to  those imposed for the purposes of implementing the
                                                     
93 See pages 13-14.WT/DS161/R
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legally valid quota.  In support of their argument concerning the nature of a "restriction" on
importation in the context of Article XI:1, the Complainants cite cases which, without exception, dealt
with a situation where there was no legal quota in place and are, therefore, not relevant.  In such a
situation, measures which constitute quantitative restrictions must be evaluated differently than in thepresent case.  This failure must lead to the conclu sion that the Complainants have not identified any
separate "restriction" within the meaning of Article XI:1 in addition to the quota.
154. Furthermore, the Complainants have failed to establish, in the opinion of Korea, a causal link
between any alleged restrictions on importation on the one hand, and reduced imports below the quota
level on the other hand.  There has, therefore, been no showing that any alleged restrictions (beyond
the legal quota) were "made effective" through, quotas, import and export licences or other measures.
Specifically, in their arguments concerning the decrease in imports, particularly in 1998 (see, forinstance, paragraph 136 and footnote 92), the Complainants virtually ignore the effects of the severe
and widespread financial crisis in Korea and much of Asia.  While this crisis commanded the focus of
the world's financial media and trading partners, it is barely mentioned by the Complainants', much
less analyzed in terms of breaking the causal link between any alleged restrictions and decreased
imports from these countries.  Korea considered that none of the measures cited by  the Complainantsconstitute restrictions on importation contrary to Article XI:1.  Korea requested the Panel to reject the
Complainants' claims under Article XI:1 in view of the lack of evidence with regard to the factors
required to establish a prima facie  case of violation of Article XI:1.
155. Australia  replied that it has proven each of its claims through factual evidence and legal
argument and has made a  prima facie  case in relation to each of the measures.  The burden of proof,
therefore, transfers to Korea to disprove Australia's  prima facie  case.  Korea has made several
assertions about Australia's failure to meet its burden of proof but has not adduced either alternative
factual evidence or persuasive legal arguments, including by reference to the findings of previous
panels and the Appellate Body, to substantiate its assertions.  Australia submitted that Korea has not
disproved Australia's  prima facie  case.  Australia further considered that Korea's specific claims
about Australia's burden of proof under Articles III (see paragraphs  226-229) and XI are legally
incorrect.  Australia was of the view that it has shown that the exclusion of imported beef from the
existing retail infrastructure for domestic beef has the effect of a quantitative restriction on imported
beef additional to the current quota.  Australia has also argued that a number of other measures are
inconsistent with Article XI:1.  Australia rejected Korea's attempt to expand the burden of proof under
Article XI:1 to include proof of injury (see paragraphs 232-233).  Australia contended that
Article XI:1 only requires Australia to prove that there are prohibitions or restrictions in place onimports.  Australia is not required to prove the trade effect of these measures by reference to the effect
of that measure on another existing quantitative restriction.  A plain reading of Article XI:1 indicates
that Australia needs to prove the existence of prohibitions or restrictions made effective through
quotas, import or export licences or other measures.  Australia considered that it has proven that a
range of measures, additional to the current quota, which meet the requirements of Article XI:1.  Theexistence of a quota does not permit Korea to impose additional quantitative restrictions.
156. When the quota is taken into account, Korea submitted, none of the measures complained of
constitute restrictions contrary to Article XI:1 in  addition to the quota legally maintained by Korea.
The undisputed fact in this case is that, with the exception of the extraordinary conditions prevailing
in 1998, Korea has consistently and fully absorbed the applicable annual quota amount for importedbeef.  In Korea's view, this fact is irreconcilabl e with the Complainants' allegation that the Korean
import regime for beef involves additional restrictions beyond the legal quota, in violation of
Article XI:1 .  Nearly all of the measures which the Complainants allege to be inconsistent with this
provision are inherent to the basic architecture of the Korean beef import regime. If the Korean beef
import regime inherently involves restrictions on the importation of beef in addition to the quota, thenit would logically be expected that Korea would consistently have failed to absorb the full quota since
the inception of the import regime.  This is not the case, which, in Korea's view, is a conclusiveWT/DS161/R
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indication that the Korean beef import regime does not restrict the importation of beef in addition to,
or beyond, the quota level.
157. The Complainants  submitted that previous GATT panel reports have concluded that a
showing of  "trade effects" is not a requisite element of a violation under Article XI:1, as proposed byKorea.  Thus, the panel in EEC - Oilseeds
94 observed that the "CONTRACTING PARTIES have
consistently interpreted the basic provisions of the General Agreement on restrictive trade measures as
provisions establishing conditions of competition.  Thus, they decided that an import quota constitutes
an import restriction within the meaning of Article XI:1 whether or not it actually impeded imports."
Similarly, the 1984 Report of the panel on  Japan - Leather  found that restrictions on imports of
leather constituted a prima facie  case of nullification and impairment.  The panel concluded that " …
the existence of a quantitative restriction should be presumed to cause nullification or impairment notonly because of any effect it had had on the volume of trade but also for other reasons e.g. it would
lead to increased transaction costs and would cr eate uncertainties which could affect investment
plans".
95  The Complainants, therefore, are not required to show actual trade impact. (See also
paragraphs 232-235)
158. The key principles underpinning the rejection of a trade effects test, Australia  argued, and the
interpretive approach to Articles III and XI, were recently reiterated by the panel in US-Section 301   
The panel noted the importance, when determining whether a measure is in violation of the covered
agreements, of taking into consideration the chilling effect on economic activity of a particular
measure.96 The panel noted the findings in US - Superfund which reached its findings through
consideration of the effect of measures on the relative competitive opportunities between imported
and domestic products. The panel in that case stated that: "Both Articles [GATT Articles III and XI]are not only to protect current trade but also to crea te the predictability needed  to plan future trade."
(See also paragraphs 232-233. )
159. Australia submitted further that the range of restrictions applied by Korea to imported beef,
including separation of retail sale, imposition of minimum prices, discrimination against grass-fed
beef, end-user and usage limits and other distribution restrictions, as well as reporting, record-keepingand labelling requirements, have a negative impact on economic activity and investment in the
imported beef trade. They will continue to do so for as long as they are maintained by the Korean
government. (See also paragraphs 201, 232 and 233.)
160. The United States  submitted that claims under Articles III:4 and XI:1 do not require a
showing of economic harm.  In the view of the Unit ed States, any proposition that the burden of proof
is increased beyond what it would otherwise be in circumstances when a quota exists is contrary to
GATT jurisprudence because its adoption would re ward Members who maintain trade distorting
practices.  The United States considered that there is no minimum impact requirement under
Article XI:1.  However, if there were such a requirement, it is clear that the minimum auction prices
set by the NLCF and the LPMO and the six month in terruption in tender invitations are two examples
of measures that had identifiable adverse effects on quota fill and, thus, on US beef exports to Korea.
(See also paragraphs 234-235.)
161. Without prejudice to the fact that no showing of trade damage is required for a finding of
violation of Article XI:1, the United States noted the following information for the Panel.  Korea's
claim that its measure mandating the separate retail sale of imported beef does not have an adverse
effect on the number of outlets selling imported beef and, thereby, on beef imports, disregards the
limited number of special imported beef stores when compared to the total number of retail beef
                                                     
94 Paragraph 150, referring to Japan - Leather .
95 Paragraphs 47-48, 53, 55.
96 See analysis from paragraphs 7.71-7.86.WT/DS161/R
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outlets in Korea.  Korea also ignores the effect that the dual retail regime has had in
disproportionately concentrating imported beef sales in the restaurant sector.  Moreover, the decline in
the last three years in the number of specialized imported beef stores suggests that the additional costs
of maintaining stores to sell only imported beef is taking its toll even as that situation was aggravatedby the financial crisis of 1998.  No doubt, the situation of the imported beef stores was also
aggravated by the LPMO's refusal to tender and the maintenance of high minimum bid prices for
imported beef.
162. It is clear from the foregoing, the United States continued, that without the existing
restrictions on the retail sale of imported beef and Korea's other trade restricting measures, a far larger
distribution base could have been established for imported beef in anticipation of the end of the quota
next year.  Korea's policies have precluded the pursuit of such marketing strategies, and have enabledthe Korean beef industry to keep a stranglehold on retail distribution, especially on the traditional
butcher shops that account for approximately 90 per cent of all retail outlets for beef.  If any proof of
trade effects were necessary, the rapid decline in the volume of imported beef in 1998 and the
decrease in the number of imported beef stores would be sufficient.
163. However, the issue that this Panel must consider is the denial of competitive opportunity to
imported beef.  The amount of damage done by Korea's discriminatory treatment of imported beef
need not be quantified;  nor need this Panel quantify the effect of Korea's violations of Article XI:1.
Indeed, the loss of potential competitive opportunities is sufficient to establish that a measure is
inconsistent with either Article III:4 or XI:1.  N onetheless, in this dispute, the United States has
shown not only that Korea's measures relating to imported beef may result in competitivedisadvantages, but that Korea's measures have actually had that effect.
164. Korea  responded that the legal and factual circumstances pertaining to the Korean beef
market must be fully examined in order for the Pane l to  reach a correct interpretation of Article III:4
and Article XI:1.  Throughout these proceedings, the Complainants have in effect argued that the
analysis of, in particular, Article III:4 and Article XI:1, can and should be separated from the analysisof the legal quota maintained by Korea.  Korea submitted that this cannot be done.  Korea also noted
that it shares the concerns expressed by Canada in its third party submission with respect to the
Complainants' erroneous application of Article XI:1 in  the context of this case.  None of the case law
cited by the Complainants with respect to these two provisions have dealt with the specific legal and
factual circumstances which are present in the current dispute.
165. In a case where a legal quota is maintained by a Member, Korea continued, the term
"restriction" in Article XI:1 cannot be interpreted in the same way as was done in the cases cited bythe Complainants.  In the present case, Korea maintains a legal quota on beef and Korea has acquired
a negotiated right not to permit market access for imported beef above the agreed quota level.  In
addition, the quota has consistently been fully absorbed with the exception of the crisis year.  Under
these circumstances, it is completely nonsensical for the Complainants to argue that the cited Korean
measures restrict imports within the meaning of Article XI:1 because the maximum of theirentitlement with respect to market access has been utilized.
166. Korea submitted that this is the reason why panels have not required a showing of actual trade
effects in cases where no legal quota was applied.  In these cases, a GATT-inconsistent quantitative
restriction would virtually always have potential, if not actual, trade effects and therefore there is a
restriction within the meaning of Article XI:1 sinc e it is a restriction in relation to an otherwise
limitless entitlement negotiated under the GATT.  It is on this basis that the presumption of
nullification or impairment has been made.  On the other hand, where a legal quota exists and is being
filled, this must be taken as overwhelming, if not conclusive, proof that no restriction within the
meaning of Article XI:1 can be alleged.  If the quota is being filled, it is clear that it cannot be claimed
that actual competitive opportunities have been lost since there is no entitlement to further marketWT/DS161/R
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access.  Equally, however, it is impossible to claim a loss of even potential competitive opportunities
when the quota is being filled for precisely the same reason.  In the opinion of Korea, this is a crucial
difference between the present case and the cases cited by the Complainants.
167. Therefore, Korea argued, the Complainants' claims that any of the alleged measures constitute
restrictions on importation within the meaning of Article XI:1 must be rejected.  Contrary to the
Complainants' assertions, they have not established a prima facie  case that Korea maintains any
separately identifiable restrictions in addition to the quota.  In addition, the measures have
conclusively been shown to permit market access for beef in Korea up to the quota level to which
Korea is committed.  Since virtually all the measures complained of were in force both during the
years when the quota was filled, and in the exceptional year 1998 when it was not, it cannot logically
be argued that it is these measures that are responsible for the exceptional drop in imports in 1998 andit is, therefore, impossible to claim that these measures restrict imports beyond the quota.  Hence, the
Complainants' arguments under Article XI:1 with respect to, among others, the separation of sales
outlets, the operation of the SBS system including quota allocations, the alleged restrictions on cross-
trading in the SBS system, and the operating and auctioning procedures of the LPMO, must
conclusively be rejected.
D. 
CLAIMS UNDER ARTICLE III :4 OF GATT
1. "Like product"
168. Australia  and the United States  submitted that there are four requisite elements to any
finding that a measure is inconsistent with Article III:4:  (i) a law, regulation or requirement must be
involved;  (ii) the law, regulation or requirement must affect the internal sale, purchase,transportation, distribution, or use of the product;  (iii) the imported product must be like the domestic
product; and (iv) the imported product is accorded less favorable treatment than the like domestic
product.
97  Article III:4 not only covers laws, regulations and requirements expressly stated to apply to
internal sale or purchase, but also those which affect  conditions of sale or purchase.98
169. The Complainants  submitted that an examination of the properties and characteristics, end-
uses, consumer tastes as well as habits and tariff classification show that Korean beef and imported
beef are "like products". In terms of physical characteristics (such as appearance and taste) and end-
uses, Korean beef and imported beef is very similar if not identical.  Indeed, Korea has justified
separate distribution of imported beef on the basis of a perceived need to prevent cheaper imported
beef from being fraudulently sold as more expensive Korean beef, because consumers are not able to
tell the difference.  The Complainants considered that imported and domestic beef are "like products"
for the purposes of Article III:4.
170. Korea  has not contested that imported and Korean beef are like products
2. Measures with respect to retail sale of imported beef
171. Australia  submitted, that the purpose of Article III "is to ensure that internal measures 'not be
applied to imported or domestic products so as to afford protection to domestic production".  Toward
                                                     
97 See US - Gasoline , paragraph 6.5.  There is no requirement under Article III:4 that the regulation
affords protection to a domestic industry.  The Appellate Body in EC - Bananas III (AB) found that unlike
Article III:2 which refers to Article III:1 by specific re ference, Article III:1 does not comprise a part of the
context of Article III:4.  Therefore, the Appellate Body concluded that "a determination of whether there is a
violation of Article III:4 does not require a separate cons ideration of whether a measure 'afford[s] protection to
domestic production."  See   paragraph 216.
98 L/833, adopted 23 October 1958, 7S/60, 64 paragraphs 11-13. See also Japan - Alcoholic Beverages
(AB), page 18;  US - Section 337, paragraph 5.13;  US - Gasoline, paragraph 6.10.WT/DS161/R
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this end, Article III and various panel and Appellate Body reports99 indicate that treatment no less
favourable requires equality of competitive conditions  for imported products in respect of laws,
regulations and requirements affecting internal sale.100  Where a benefit is conferred on domestic
products, this must also be extended to imported products.  Conversely, where a charge orrequirement is imposed, this must cover both imported and domestic products.
172. Australia  submitted that the panel report in US - Section 337 emphasised that Article III:4 is
concerned with the effective equality of opportunities in the application of laws, regulations and
requirements.  The application of formally identical legal provisions, may, in some cases have the
practical effect of according less favourable treatment to imported products.
101  The application  of the
separate system results in imported beef having significantly fewer sales outlets, and therefore notably
fewer sales and marketing opportunities, than domestic beef.  Imported beef, Australia argued, istherefore subject to a competitive disadvantage vis-à-vis  domestic beef.
102  The requirement to
establish separate sales establishments for imported beef, and the associated costs of doing so, have
limited the competitive opportunities available to imported beef compared to those afforded to
domestic beef.  Put simply, the regulation separating the sale of imported beef from that of domestic
beef denies to imported beef the opportunity to be sold in over 40,000 existing meat retail outletsthrough which the majority of beef in Korea is sold.  Imported beef has been completely excluded
from this retail infrastructure.  The system imposes additional costs on the sale of imported beef by
requiring that any existing meat retailer seek permission for, and open, new premises.  The costs
associated with the establishment of separate establishments reduces the competitive opportunities
afforded to imported beef. The fact that all imported beef stores must carry a sign identifying them as
such exacerbates the discrimination against imported beef.
173. Australia was of the view that the limitation on end points of sale and the separate display
requirements in larger outlets discriminates against imported beef because it also has the effect of
emphasising any perception of quality differences between domestic and imported product.  There is a
Korean perception that local Hanwoo beef is superior to imported product which is not based on anobjective evaluation of quality.
103  This perception is exacerbated by the separation of domestic and
imported beef, either in separate shops or in separate cabinets and have a negative effect on the
marketability of imported beef.  The limited availability of imported beef relative to domestic beef
aggravates this problem.  This has the further effect of forcing lower prices for imported beef, to
compensate for perceived differences in quality (see also the panel report in the US - Gasoline case.)
174. Australia did not accept Korea's claim that the separate retail sale of imported beef arises
merely because of the existence of a quota. Nor does Australia agree with Korea's subsequent claimthat the burden of proof in relation to Article III, in situations where a legal quota exists, requires
Australia to prove that the internal measure has affected the filling of the quota.  Australia rejects this
claim on the basis that it would remove Korea's national treatment obligations under which Korea is
required to provide equality of competitive opportunities for imported products once they have come
across the border.
                                                     
99 US - Section 337(AB), paragraphs 5.11 and 5.13.  US – Gasoline(AB),  paragraph 6.10. Japan -
Alcoholic Beverages (AB),  page 16.   Japan – Film(AB) paragraph 10.379.
100 Japan – Alcoholic Beverages (AB)  page 18;  Italian Agricultural Machinery,  paragraphs 11-13;
Canada - FIRA , paragraphs 5.7-5.11 ;  Canada - Marketing Agencies (1992),  paragraph 5.5;  and  US - Malt
Beverages , paragraphs 5.30-5.33.
101 Paragraph 5.11.
102 See also Canada - Marketing Agencies (1992) , paragraph 5.5-5.6.
103 [In [the][a] sensory analysis conducted in 1995, 688 Korean consumers were asked to taste beef
samples from Korea, Australia, USA and New Zealand. The consumers identified three groups of beef on the
basis of eating quality, not country of origin. "Sensory Analysis of Beef by Korean Consumers" op. cit pages74-79.  Nonetheless, the survey also identified a consumer  preference for eating beef id entified as Korean.  Ibid,
page 88.WT/DS161/R
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175. The United States  submitted that Korea's restrictions on the sale, distribution and use that
apply exclusively to imported beef draw an impermissible distinction based on the origin of the beef.
This distinction, which results in a Korean-imposed handicap on the competitiveness of imported
beef, is inconsistent with both the intent and letter of Article III:4.  A succession of panels hasconcluded that the intent of Article III:4 is "to provide equal conditions of competition once goods
had been cleared through the customs".
104  The Korean laws and regulations preclude such equal
conditions of competition.  By requiring imported beef to be sold in stores that cannot sell Korean
beef, Korea denies imported beef the opportunity to sell in the vast majority of meat stores.  Imported
beef may be sold in approximately 5,000 stores, whereas there are approximately 45,000 stores where
Korean beef may be sold.  This disparity of opportunity cannot be ignored or minimized.  The result is
that imported beef is excluded from thousands of  stores where Korean consumers shop for meat.
176. Korea's restrictions on the sale, distribution, and use of imported beef, the United States
continued, are equally inconsistent with the requirements of Article III:4.  Korea imposes these
restrictions only on imported beef.  Korean beef confronts no similar limitations on its distribution,
use, and sale.  Korean beef when sold to certain classes of customers the United States continued, is
not confined to specific uses by those purchasers.  There are no restraints on the resale of Korean beefakin to those imposed on imports.  Whereas cross-trading of imported beef is forbidden, Korean beef
may be freely sold without constraints by traders and distributors.  This differentiation in distribution
and sales opportunities denies imported beef the more favorable treatment accorded to the domestic
product and, thus, is inconsistent with Korea's obligations under Article III:4.
177. The United States further contended that the information submitted by Korea shows that the
number of imported beef stores declined between 1994 and 1998 from 6,088 to 5,498 stores; a decline
of approximately 10 per cent.  During this same period the volume of imported beef permitted under
the quota increased from 106,000 to 187,000 metric tonnes.  In recent years, there is, thus, no
evidentiary support for Korea's assertion that the number of imported beef stores is a function of the
quota quantity.
178. In very similar circumstances, United States continued, other panels have found that the
exclusion of imported products from particular channels of distribution constituted discrimination,
resulting in less favorable treatment for imports.  In the 1992 panel report on Canada - Marketing
Agencies (1992),
105 the panel examined restrictions imposed by provincial liquor authorities on access
for imported beer to points of sale.  The panel concluded that by excluding imported beer from points
of sale where domestic beer could be sold, importe d beer was denied certain competitive opportunities
enjoyed by domestic beer.  A similar result was reached in the panel on US - Malt Beverages,  where
the panel concluded that a state exemption of domestic wine from a prohibition on the sale of wine
resulted in less favorable treatment for imports where imported wine was banned.  Korea's
requirement that imported beef be sold in separate sales facilities denies competitive opportunities to
imported beef.  Like Canada's previous exclusion of  imported beer from certain points of sale, Korea's
exclusion of imported beef from most beef sales sites, constitutes a measure that is inconsistent withthe obligations for national treatment under Article III:4.
                                                     
104 Italian Agricultural Machinery , paragraphs 11-13;  US - Section 337, paragraphs 5.11-5.13  Canada
- FIRA , paragraph 6.6.
105 Paragraph 5.5:  The panel recalled:
… that the CONTRACTING PARTIES had decided in a number of previous cases that the requirement
of Article III:4 to accord imported products treatment no less favorable than that accorded to domestic products
was a requirement to accord imported products competit ive opportunities no less favourable than those accorded
to domestic products.  The Panel found that, by allowing the access of domestic bear to points of sale notavailable to imported beef, Canada accorded domestic b eer competitive opportunities denied to imported beer.WT/DS161/R
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179. According to Korea , the Complainants have not been able to identify which "law, regulation,
or requirement" led to discriminatory results as concerns the separate sales outlets.  Korea emphasized
that the same regulation applies to domestic beef stores and, therefore, Korea's system of separating
sales outlets treats both imported and domestic beef on equal footing.  Hence, Korea can only surmisethat what the Complainants argue is a case of de facto  discrimination.  Korea submitted that under
these circumstances, what matters is determining which precise fact causes the less favourable
treatment.  There is no discrimination between domestic and imported beef stores as to the opening
and operation of the stores.  Nor are there any additional costs or requirements involved in setting up
an imported beef store as compared with a domestic store.  An owner of a domestic beef store may
change his store to one selling imported beef by submitting a notification to the authority and
changing the sign.  Likewise, an owner of an imported beef store may also change his store to oneselling domestic beef by notifying the authority and changing the sign.  The decision on whether to
sell either domestic beef or imported beef depends entirely on the owner himself.  It is, therefore,
entirely baseless to imply that the number of imported beef stores in operation compared with that of
domestic beef stores can constitute evidence, much less proof, of discrimination against imported
beef.
180. The Complaining parties responded that the distinction between de facto  and de jure
discrimination being applied by Korea was a distraction from the question of equality of competitive
conditions.  The application of the separate system, applied by law under Article 15 of the
Management Guideline for Imported Beef , results in imported beef having significantly fewer sales
outlets than Korean beef, and therefore significantly fewer sales and marketing opportunities, thanKorean beef.
181. Korea  submitted that the standard of review with respect to de jure or de facto  discrimination
cannot be the same.  A careful delineation of what th e Complainants need to prove in this respect is
required, after which a clear, uninterrupted causal link between the regulatory intervention by Korea
and the alleged discrimination must be established.  As concerns less favourable treatment, Koreaconsidered that the Complainants' argument in this respect falls far short of the threshold required to
discharge their burden of proof.  The number of sales outlets selling imported beef is smaller than the
number of sales outlets selling domestic beef simply because there is a legal quota in place which
limits the overall quantity of imported beef sold in Korea.  Presumably, the number of sales outlets
will be much higher once the quota is removed by 1 January 2001.  This is one more reason why
Korea suggests that the Complainants' claim is at this stage inadmissible: the picture of the beef
market in Korea is right now skewed because of the existence of the quota.  The decision to open
either type of outlet, Korea continued, rests entirely with private operators.  In presence of the legal
quota, more private operators tend to opt for sales outlets selling domestic beef.  However, the
regulatory requirements do not prejudge decisions by the private operators.  It is the existence of the
quota that has influenced these decisions so far.  Korea submitted that in the absence of an element of
causality between the regulatory intervention and the decision of private operators to opt for eithertype of outlet, it is not possible for the Complainants to discharge their burden of proof under
Article III:4.  Such actions by private parties are not attributable to Korea;  the Japan - Film  case
lends full support to this proposition.
182. Referring to the Complainants arguments in paragraphs 177-178 concerning separate sales
outlets for imported beef, Korea submitted that the US and Australian claims in this respect must berejected.  The separation of stores under Korean law selling imported and domestic beef does not
contravene Article III:4 to the extent that the relevant legislation imposes identical regulatory
requirements as far as the  opening and the functioning of such stores is concerned.  GATT, and moreWT/DS161/R
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recently WTO, panels have made it clear that the purpose of Article III is to ensure that WTO
Members do not add to the consolidated border protection through internal measures 106.
183. Korea submitted further that the Complainants' arguments with respect to separation of sales
outlets rest on the assertion that if imported beef cannot be sold in certain domestic stores, this willper se  result in less favourable treatment.  The fundamental aspect overlooked by the Complainants,
however, is that the treatment afforded imported beef is inherently neutral because the same
restriction applies to stores selling domestic beef.  This is not comparable to the measures examined in
Canada - Marketing Agencies (1992) .  In that case, the restriction on points of sale was exclusively
applied to imported product.  Likewise, in US - Malt Beverages , the measure at issue prohibited the
sale of imported wine in circumstances where domestic wine was specifically exempted.  It is obvious
that in such circumstances, less favourable treatment for the imported product will result.  These casesin no way approximate the present Korean situation, as there is no question of allowing special
privileges or rules for domestic stores or product which do not equally apply to stores selling imported
product.  The Complainants' referral to the above-mentioned cases in the context of this dispute is,
therefore, misleading.
184. Apart from the limitations inherent in the current legal quota system in terms of available
quantities of imported beef, the stores selling imported beef are not subject to any less favourable
treatment than that which applies to selling domestic beef.  The imported beef stores and domestic
beef stores operate under equal conditions in all fundamental aspects of business operations such as
retail pricing, operating hours, advertisement as we ll as with regard to safety inspections involving
marking of origin, grading, price display, and taxe s.  Korea thus contended that the Complainants'
claim regarding separation of sales outlets must be rejected.  The separation of stores under Korean
law selling imported and domestic beef does not contravene Article III:4 to the extent that the relevant
legislation imposes identical regulatory requirements as far as the opening and functioning of such
stores is concerned.
185. Referring to the text of Article III:1
107, Korea argued that the logical conclusion with respect
to the scope of Article III is to ensure that the only form of permissible protection in the GATT/WTO
system is that of legalized (i.e. negotiated and agreed upon) border protection.  What is prohibited
under Article III:4 is discriminatory treatment between domestic and imported like products which
affords less favourable treatment to imported products than that accorded to like products of national
origin.  Korea was of the opinion that the 1989 panel report on US - Section 337  perfectly captures
this point:
"… The words 'treatment no less favourable' in paragraph 4 call for effective equality of
opportunities for imported products in respect of the application of laws, regulations and
requirements affecting the internal sale, purchase, transportation, distribution or use of
products.  This clearly sets a minimum permissi ble standard as a basis.  On the one hand,
contracting parties may apply to imported products different formal legal requirements if
doing so would accord imported products more favourable treatment.  On the other hand, italso has to be recognized that there may be cas es where application of formally identical legal
provisions would in practice accord less favourable treatment to imported products and a
contracting party might thus have to apply different legal provisions to imported products to
                                                     
106 For a recent expression of this interpretation of Article III, see the panel report Japan - Alcoholic
Beverages , upheld in this respect by the Appellate Body.
107 "The contracting parties recognize that internal taxes and other internal charges, and laws,
regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution
or use of products, and internal quantitative regulations requiring the mixture, processing or use of products inspecified amounts or proportions, should not be applied to imported or domestic products so as to affordprotection to domestic production".WT/DS161/R
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ensure that the treatment accorded to them is in fact no less favourable.  For these reasons, the
mere fact that imported products are subject under Section 337 to legal provisions that are
different from those applying to products of national origin is in itself not conclusive in
establishing inconsistency with Article III:4.  In such cases, it has to be assessed whether ornot such differences in the legal provisions applicable do or do not accord to imported
products less favourable treatment."
108
186. Korea also noted that Article XVII of GATS (which was enacted after the mentioned
jurisprudence and has arguably been influenced by it) makes this point clear in its second paragraph
concerning the national treatment obligation.
187. The United States considered that Article III:4 has been interpreted consistently by
GATT/WTO panels as "establishing the obligation to accord imported products competitive
opportunities no less favorable than those accorded domestic products."109  The United States
contended that the MAF regulations deny such op portunities to US beef.  The requirement for
separate retail marketing channels for imported beef and the imposition of restrictions on the
distribution and sale of imported beef, put importe d beef at a competitive disadvantage to Korean
beef.  In similar circumstances, the panel in US - Section 337110 concluded with respect to Article III:4
that:  "Given that the underlying objective is to guar antee equality of treatment, it is incumbent on the
contracting party applying differential treatment to show that, in spite of such differences, the no less
favourable treatment standard of Article III is met."  Korea cannot fulfill this burden and, as a
consequence, these measures violate the national treatment provisions .
188. Australia  responded that the requirement to sell imported and domestic beef in separate
stores is a matter of government regulation, not a private undertaking.  The Korean government
requires an existing domestic beef seller to open new and separate premises and undergo new
licensing procedures if it wishes to sell imported beef.  The regulation also removes from the retailer
the power to sell the like products in the same store if they so desire.  Australia emphasised that whenKorea introduced the dual retail system, imported and domestic beef were not on the same
competitive footing.  When the regulation was introduced in 1990, there was an existing infrastructure
for the sale of beef.  However, given the longstanding import restrictions that existed on foreign beef
until 1988, the majority of beef sold in Korea at that time was domestic beef.  The introduction of
separate requirements, therefore, removed imported beef from the existing retail infrastructure,
including the small butcher shops through which the majority of beef was, and continues to be, sold in
Korea.
189. In response to the US arguments in paragraph 177, Korea  submitted that the figures
contained in the table referred to by the United States (see footnote 111) show that the number of
stores steadily grew during the period of 1994-1996, with a slight decrease in 1997.  It was only in
1998 that the number of stores decreased substantially.  Furthermore, Korea considered that, for the
purpose of determining the effect of the system of separation of sales outlets on the number of stores,the relevant figure is the quantity of beef available for sale at the retail level, not the quota amount.
Korea has provided such figures.  The figures show that in 1998 there was a substantial decrease in
the volume of beef sold at the retail level.  If ther e is anything that can be derived from these figures,
it is that the decrease in beef consumption in Korea during the period from late 1997 to 1998 was due
to the financial crisis.
                                                     
108 See paragraph 5.11.
109 See, e.g. US - Section 337 , paragraph 5.11; Canada - Marketing Agencies (1992)  at 75 and the panel
report in the same styled case in Canada - Marketing Agencies (1988) , at 90;  Italian Agricultural Machinery ,
paragraphs 11-13 ("the intention of the drafters of the Agreement was clearly to treat the imported products inthe same way as the like products once they have been cleared through customs.")
110 Paragraph 5.11.WT/DS161/R
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190. Korea considered that it has conclusively re futed the claims regarding price comparisons as
unfounded.  First, it is common knowledge in Korea that imported beef is generally cheaper than its
domestic counterpart.  Second, imported beef stores have precisely the same tools at their disposal as
domestic beef stores to market, advertise and promote their products and indicate any competitiveadvantages such as price.  In addition, consumer s will compare prices between domestic and imported
beef stores in precisely the same way as they compare prices between different domestic outlets
selling beef, by shopping around.  Finally, Korea ar gued that the Complainants must show how the
system of separation of sales outlets results in "less favorable treatment" in the presence of undisputed
evidence suggesting that for years the quota has been fully absorbed through a system of separation of
sales outlets which remained virtually unchanged for a period of nine years.
191. Referring to the United States arguments in paragraph 175 above, Korea submitted that the
fact that there are more stores selling domestic rather than imported beef does not constitute
discrimination and does not engage the responsibility of Korea.  To penalize Korea in this respect
would amount to penalizing the legal beef QR since the limited volume of imported beef circulating
in the Korean market (a government choice which is perfectly consistent with Korea's WTO
obligations) explains the number of stores selling imported beef in the Korean market.  Korea furthersubmitted that the two cases referred to by the United States in paragraph 178 are irrelevant to this
case since they both deal with issues of regulatory diversity:  in both cases, there was a regulatory
requirement which distinguished between domestic and imported products.  In the Canadian case,
imported beer had no access to some points of sale.  In the US case, domestic wine was exempted
from a prohibition on the sale of wine.  This is not the case here.  Imported beef can be sold anywherein Korea.  There are no differential regulatory requirements applied to imported beef.  It all depends
on the decision of private operators to opt for a store selling either domestic or imported beef.
192. Moreover, historically  the number of stores  has proven not to be a problem when it comes to
absorbing the QR, in place for almost ten years now.  It is the negotiated outcome of a previous
dispute settlement between the present Complainants and Korea and part of Korea's commitmentsunder the Uruguay Round agreements.  The number of stores selling imported beef has evolved freely
over the years since the introduction of the QR, as shown in the data below.
111  Until 1997, the QR
was fully used,  1998 being the first year in which the QR was not absorbed.  The reason for this has
nothing to do with the number of stores selling im ported beef but rather with the well-known financial
crisis that hit Korea in 1997 which led to a sizeable reduction of the demand in the market:  overall
beef consumption dropped by 4.5 per cent.
193. Imported beef obviously could not escape the reduction in demand, Korea continued,
particularly since domestic beef prices collapsed to historical lows.  The wholesale price difference
between imported and domestic beef narrowed from 1.74 in 1995 to 1.39 in 1998.  In addition, the
price of the feed, which relies heavily on the price of imported raw materials, became untenably high
and forced farmers to release their cattle irrespective of the falling prices.  Another significant factor
is that in view of the severe economic recession, demand in the restaurant sector which used toconsume about 44.3 per cent of the total imported beef amount plummeted.  Korea concluded that the
number of stores which operate under identical regulatory conditions is irrelevant when it comes to
explaining the reasons why the beef quota was not filled in 1998.
                                                     
111 Number of foreign beef stores:
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
Number 2,193 4,178 4,472 4,838 6,088 7,713 7,569 7,026 5,498
Source: MAFWT/DS161/R
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194. Australia  responded that while quota levels have been rising, the number of imported beef
stores have been falling, indicating that it was not the existence of a quota that was the cause of the
relatively small number of imported beef stores.  Australia stated that it was surprising that the
number of imported beef outlets had not grown significantly in the early 1990s, given that the markethad known that imported beef quotas would grow steadily until 2000 and that the quota would be
removed from 1 January 2001. The additional costs associated with establishing an imported beef
shop, the limited range of products that may be sold and the uncertainty of price and availability of
imported beef have all mitigated against the growth of imported-beef shops over the past decade.
195. Korea  submitted that the US and Australian arguments, if accepted, would amount to
constructing the WTO as an instrument advocating de-regulation.  This, in the view of Korea, is not
the function of the WTO, which is simply an in strument outlawing discrimination between domestic
and imported products.  It does not put into question the regulatory function of Members to the extent
that this has not been transferred at the international level. Under Article III, WTO Members only
transferred to the international level their discretion to discriminate between domestic and imported
products.  They retain full authority to regulate as long as imported products are not treated less
favourably than domestic ones.
196. In the present case, Korea considered that it regulated in a non-discriminatory manner:  under
identical conditions, traders are free to choose whether they will open a store selling domestic or
imported beef.  What counts, however, from a legal perspective is that whatever store they choose to
open they will face an identical regulatory burden (or lack of it).  Consequently, the Korean
legislation affecting sale, offer for sale, etc. of beef does not reserve less favourable treatment forimported products and thus does not constitute a violation of Article III:4.  Article XX is the best
proof that this is the case.  WTO Members can continue to pursue their regulatory objectives to the
extent that their actions are not in conflict with their GATT/WTO obligations.
197. Australia  responded that it was not claiming that Korea must de-regulate
 - only that its
internal regulations for imported beef meet the requirem ents of Article III:4 - that is, that they provide
for equality of competitive opportunities for imported beef vis-à-vis  domestic beef.
198. Referring to the panel on US - Hawaiian Regulations112 as well as to the 1956 working party
report on  "Certificates of Origin, Marks of Origin, Consular Formalities "113, Australia remarked that
the requirement to display the sign "Specialized Imported Beef Store" clearly goes beyond the
indication of origin on products.  GATT history indicates that a restriction of this type is contrary to
Article III:4.  This sign also has the effect of emphasising any negative perceptions about the quality
of imported beef.
199. Korea  responded that a specialized store must install a signboard indicating that it is a
"specialized store of imported beef", as provided in Article 9 of the Management Guideline for
Imported Beef.  All stores in Korea choose their ow n trade name to promote their business by putting
up a signboard.  Hence, installing a signboard itself does not impose any additional financial burden
on the person who intends to open a specialized store.  The only trivial difference would be that thegovernment has made it an obligation for stores selling imported beef.  This requirement is inspired
by the need to adequately inform the consumers that the store sells imported beef, thus preventing
fraudulent practices.
200. The allegations made by the Complainants that such signboards may have negative
promotional effects cannot be taken seriously.  The effect of the indication on a signboard dependsentirely on the consumer's perception of domestic and imported beef, and there is no allegation made
                                                     
112 L/411/add.1;  SR.10/13, 1955.
113 Paragraph 13.WT/DS161/R
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by the Complainants that Korea has restricted in  any way the promotion or advertising of imported
beef in Korea.  The perception of the signboard can be highly positive if Korean consumers consider
imported beef to be inexpensive and of high quality.  Thus, Korea considers that the requirement to
install a signboard to indicate a specialized store selling imported beef cannot be deemed as being bydefinition less favourable treatment in circumstances where advertisements and promotion of
imported beef (such as its price, quality, etc.) are freely allowed.
201. In Australia 's view, it is irrelevant to the issue of equality of competitive opportunities that
packaged imported beef is permitted to be sold in domestic beef stores, particularly given the
declining importance of such sales.
114  Australia furthermore submitted that the separation of retail
sale should be seen as an effort to protect domestic beef from the impact of import competition. Korea
has pursued a policy of systematic separation of the market as a means of creating a permanentdistinction in the minds of traders and consumers between domestic and imported beef, despite the
fact that they are like and competitive products.  In doing so it sends misleading signals to the market
that ultimately distorts the competitive relationship between imported and domestic beef.
202. As imported and domestic beef are "like products" for the purposes of Articles III, Australia
argued, there is no justification for the further differentiation applied to imported product betweengrass-fed and grain-fed product, particularly since no such distinction is applied to domestic product.
Nor does Korea's tariff schedule contain such a distinction.  Nor is making a distinction between
grass-fed and grain-fed  beef a reliable indicator of quality, which is more accurately measured on the
basis of such indicators as marbling, texture, meat colour, fat colour and maturing level.  Indeed, these
are the indicators applied by Korea to domestic beef to grade quality.
203. While applied through the tender system, Australia contended, the separation of grass-fed and
grain-fed beef is a law, regulation or requirement affecting internal sale.  In particular, the association
of a quality differential between grass-fed (general beef) and grain-fed (high quality beef), has a
negative impact on the internal sale of grass-fed beef among consumers who have been encouraged to
associate grass-fed beef with a product of lesser quality than grain-fed beef.
204. The distinction between grass-fed and grain-fed, Australia continued, and the association by
the Korean government and the LPMO of relative differences in quality between them, is a distinction
applied only to imported beef.  This distinction has allowed the LPMO to exclude grass-fed beef, the
majority of which is supplied by Australia, from the tender on three occasions in 1999.  No similar
limitations are applied to sales of domestic beef because no such grass/grain-fed distinction exists for
domestic beef.  Less favourable treatment is also accorded to imported grass-fed beef because of the
                                                     
114 The sale of imported packaged beef as a proportion of total imported beef sales since 1991 is as
follows:
Year Total Packaged
SalesTotal Sales % of total sales
1990 41,587 82,064 51
1991 55,802 124,741 45
1992 52,240 127,314 41
1993 36,988 103,373 36
1994 26,556 122,537 22
1995 27,203 146,495 19
1996 15,801 149,204 11
1997 14,612 134,225 11
1998 10,501 85,416 12
1999* 7,341 130,000 7
*As at 30 November.
Source:  MAF, LPMO Yearbooks, NLCF.WT/DS161/R
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association drawn between grass-fed beef and beef of "general" or lesser quality.  This has created an
arbitrary distinction in the minds of consumers that has adversely affected imports, sales and prices of
grass-fed beef in both the LPMO and SBS systems.
3. LPMO tendering opportunities
(For arguments under this section see paragraphs 122-125.  Cf. also paragraphs 287-292 and 346.)
4. Measures with respect to the discharge of  imported beef in the wholesale market
205. Australia  submitted that pricing of imported product in order to protect and stabilise
domestic prices is contrary to Article III:4.  The sale of imported beef in Korea is, according to
Australia, manipulated by the LPMO and the NLCF with the aim of protecting the competitiveness of
domestic product.  These organizations have both taken measures to raise the price of imported beef
which is decided by reference to the price of its domestic competition.  This results in less favourabletreatment for imported beef contrary to Article III:4.  In establishing a case that minimum prices are
applied to imports, Australia argued, it is not necessary to point to an officially published minimum
price for imported beef.  Minimum pricing can also be established from an analysis of the discharge
procedures operated by the LPMO and the NLCF in accordance with the Regulations Concerning
Sales of Imported Beef and an assessment of whether this measure, in its application, has the effect of
a minimum price for imported beef, contrary to Article III:4.
206. Referring to price charts for imported beef, which indicate the maintenance of daily minimum
prices for imported beef, as well as to the acknow ledgement in the MAF press release of 22 July 1999
and the Yonhap News article relating to reductions in the minimum price, Australia argued that these
reinforce the view that there is a minimum wholesale price for imported beef which is manipulated inrelation to the state of domestic cattle and beef prices.  In Canada - Marketing Agencies,  the panel
concluded that the maintenance by an import and sales monopoly of a minimum price for an imported
product at a level at which a directly competing, higher- priced domestic product was supplied, was
inconsistent with Article III:4.  While the panel in that case was considering the practices of import
and sales monopolies, the critical principle to emerge from its analysis, according to Australia, is thatthe setting of minimum prices for imports in relation to the price of competing domestic product,
rather than by suppliers' prices, would be contrary to Article III:4.  Australia claimed that the
discharge system for LPMO beef does precisely this by making decisions on prices of imported beef
on the basis of the price of domestic product. (See also paragraph 128 above)
207. Korea  contended that the price of imported beef is decided by reference to the price of its
domestic competition which would seem to be evidence of normal commercial behaviour rather than
constituting treatment less favorable within the m eaning of Article III:4.  Any commercial enterprise
will normally set its prices by reference to the prices of competing products. (See also paragraphs 130
and 131 above.)
208. Referring to the 1984 panel report in Canada - FIRA 
115and to the 1992 panel report in US -
Malt Beverages116, Australia  contended that in relation to the wholesale requirement for imported
beef under the LPMO system, less favourable treatm ent arises since beef imported by LPMO must be
sold through a wholesale market (all of which are run by NLCF), or processed and packaged, i.e.
producers of imported beef are denied the opportunity to choose their preferred method of marketing.
No such limitation on marketing is applied to domestic producers.  Moreover, the obligation to
purchase LPMO beef through a wholesale market also imposes an additional distribution level for
                                                     
115 Paragraph 5.10.
116 Paragraphs 5.30-5.33.WT/DS161/R
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imported beef which gives rise to additional transaction and distribution costs (eg. middle-men
charges) to which producers of domestic beef are not subject.
209. The United States  was of the opinion that, consistent with Article 31 of the Vienna
Convention , the terms "laws, regulations and restrictions" under Article III:4 are to be given their
ordinary meaning in their context and in the light of the treaty's object and purpose.117  Korea's laws,
regulations, and guidelines relating to the importation, sale and distribution of imported beef clearly
are encompassed in the ordinary meaning of those terms, as used in Article III:4.  The titles that Korea
has given to the various legal documents restricting activities regarding the importation and
distribution of imported beef also reinforces their categorization as "laws, regulations and
requirements.  The United States submitted that Korea's restrictions, therefore, constitute "laws,
regulations and restrictions affecting the internal sale,   " of imported beef within the meaning ofArticle III:4.  This is confirmed by consideration of how other panels have construed the term
"affecting" for purposes of Article III:4.
118  Korea's laws and regulations adversely modify conditions
of competition.  Therefore, these measures constitute laws or regulations  affecting  their internal sale,
purchase, distribution and use for purposes of Article III:4.
210. Furthermore, the United States continued, Korea's laws, regulations and guidelines
specifically govern and confine the precise manner in which imported beef is sold in Korea, as well as
its distribution and use.  Korea restricts the sale of imported beef to specialized stores.  In addition,
Korea imposes tight limitations on the use of imported beef by end-users and customers, confining its
use to designated purposes within each custom er/end-user class.  In addition, Korea severely
circumscribes the distribution channels for importe d beef.  Cross-trading among super-groups or the
members of super-groups is prohibited, and violations are punished with loss of quota sub-share and
exclusion from further participation in the SBS system.
211. Referring in particular to the United States' arguments in paragraph 209-210, K orea
responded that the LPMO and the twelve super-gr oups buy the quota amount and then distribute the
products.  This system is in place as a result of the US insistence to establish a system moreresponsive to market needs.  The Records of Unde rstanding is the best evidence of this statement.
Subsequently, Korea agreed during the Uruguay Round to remove all remaining restrictions by
1 January 2001.  Hence, the claim by the United States in this respect is illegitimately invoked at this
point in time, since Korea can lawfully maintain the existing system until the end of 2000.  Moreover,
the US claim suffers from a number of inaccuracies :  First, it is not true that super-groups do not
trade with each other.  Following government intervention to this effect, any super-group which has
exhausted its share can request reallocation of the quota.  In 1998, there was a request for reallocationof the quota three times and the requests were granted.  Consequently, the US allegation in this
respect must be rejected.
212. Second, it is not true, Korea submitted, that stores selling imported beef cannot cross-trade.
Indeed, the opposite is true.  Stores belonging to different super-groups can, and often do, cross-trade.
The LPMO/super-group structure is there to administ er the QR.  Korea has to ensure somehow that
the QR will be properly administered.  In a demonstration of good faith, Korea did not establish the
system in a unilateral manner but after consultations with interested parties, i.e. the United States.
Korea  explained that paragraph 14.5.5 of the former Imported Beef Sales Regulations prohibited the
specialized stores from reselling or supplying imported beef to other specialized stores or domestic
butchers.  The revised Management Guideline for Imported Beef, however, prohibit only the resale of
                                                     
117 The Appellate Body has declared that the Vienna Convention  "has attained the status of a rule of
customary or general international law.  As such, it forms part of the 'customary rules of interpretation of public
international law' which the Appellate Body has been directed, by Article 3(2) of the DSU, to apply in seekingto clarify the provisions of the General Agreement  ..." (footnotes omitted)  US - Gasoline , page 16.
118 Italian Agricultural Machinery, paragraphs 11-13;  US - Section 337  paragraph 5.11.WT/DS161/R
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imported beef by a specialized store to their counterparts selling domestic beef.  Therefore, cross-
trading between specialized stores is allowed.  A comparable structure does not exist with respect to
domestic beef because there is nothing like a QR for domestic beef.  Korea did not take this measure
in the context of Article XX(g).  Only in that cas e would it have to ensure a comparable system for
domestic products.  Hence, in Korea's view, it is impossible to establish a violation of Article III:4.
5. Other measures applying to imported beef
213. Australia  argued that the requirement for cash-only sales, which is not applied to domestic
beef, discriminates against imported product by restricting the marketing possibilities and therefore
the competitive opportunities available to imported beef vis-à-vis  domestic beef.119   The availability
of credit is a factor in encouraging sales.  As such, a requirement that imported beef be sold on a cash
payment basis affords it less favourable treatment as no such requirement applies to domestic beef.While the regulations give rise to the possibility of credit sales of imported beef, it is subject to
administrative discretion as to duration, limits and availability ("when deemed inevitable").  There is
no requirement that this discretion be exercised to permit credit sales in individual cases.  In judging
whether a measure is contrary to Article III:4, it is not relevant whether it applies across-the-board or
on an ad hoc  basis.
120
214. Korea  responded that the LPMO's sales of imported beef through the wholesale market shall
in principle be on a cash basis.  This requirement , however, is also applied to the NLCF sales of
domestic beef to domestic beef stores.   Both imported and domestic beef stores sell their products
mostly on a cash basis except where a credit relationship is formed between the traders or when the
trader has secured a mortgage bond.
215. Australia retorted that purchasers of domestic product are not limited to the NLCF markets to
purchase their beef.  On the other hand, beef imported by the LPMO is only permitted to be sold
through these wholesale markets, unless processed and packaged.121
6. Measures applied through the SBS regime
216. Australia  submitted that the SBS system restricts the marketing of imported beef by limiting
the range of end-users eligible to make purchases through the system.  Korea imposes no such
controls on domestic beef.  Purchasers of domestic beef are not required to join an industry
association to purchase beef.  They, therefore, do not have to meet the additional costs associated with
such membership.  Furthermore, the fact that an  end-user may only import through the super-group to
which it belongs, is only entitled to membership of one super-group, may only use imported beef for
the uses permitted for that super-group and is forbidden from cross-trading, impose restrictions on the
distribution of imported beef that are not applied to its domestic competition.  The SBS system also
excludes any user or potential user which is not a defined end user or customer under the regulations.
No such restrictions exist on 'users' of domestic beef.  For these reasons, the restrictions on end-users
in the SBS system are contrary to Article III:4.  The effect of these restrictions, both individually and
cumulatively, Australia claimed, is to restrict the competitive opportunities available for imported
beef.
217. Australia noted that previous panels have found inequality of competitive conditions when the
possibility of purchasing imported product directly from a foreign producer is excluded,122 or when
                                                     
119 Management Guideline for Imported Beef , Article 13;  Regulations Concerning Sales of Imported
Beef, Article 11.
120 Canada - FIRA , paragraph 5.5;  US - Gasoline , paragraph 6.14, citing US - Section 337.
121 Article 15.2, Management Guideline for Imported Beef.
122 Canada - FIRA , paragraph 5.10.WT/DS161/R
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imported products have to be sold only through in-state wholesalers.123  or when requirements result
in imported product having access to fewer points of sale.124  Logically, requirements that result in
imported product having access to fewer end-users than domestic beef would, therefore, also fall
within the ambit of Article III:4 (For arguments by Korea and the United States see alsoparagraphs 209-211.)
218. Australia also considered that the requirement of super-group membership imposes additional
costs on the purchase of beef, such as membership fees, and other expenses related to the operation of
the super-group as a "middleman" for imported beef purchases by end users, additional costs that are
not imposed on domestic beef.  In the case of NLCF, there is further discrimination against imported
beef arising from the operation of Article 21 of the NLCF's SBS Operation Guidelines.  Australia
noted that  Article 21 states that the NLCF may adjust prices of imported beef "considering the
domestic livestock product price trends and the wholesale market prices".  Given that NLCF beef may
be priced other than according to commercial considerations (i.e. to protect domestic beef
production), beef imported through the NLCF super-group is subject to less favourable treatment than
domestic beef.
219. Korea  submitted that, as concerns the claim that the system constitutes a violation of
Article III:4, since contrary to what is the case with respect to domestic beef, imported beef has to be
sold through specialized organizations;  and the claim that the system constitutes a violation of
Article III:4, because end-users or customers cannot belong to more than one super-group;  and that
the system constitutes a violation of Article III:4, since it distinguishes between grain- and grass-fed
beef only with respect to imported beef, Korea consid ered that these claims are inadmissible, since it
is impossible to establish comparability between domestic and imported beef in these respects: there
is no quota for domestic beef.  Korea further noted that there are no costs or other requirements
associated with becoming an SBS member.
220. Australia and the  United States submitted that the SBS system imposes labelling, reporting
and record-keeping requirements, that discriminate against imported product contrary to Article III.The effect of these restrictions is to limit the amount of imported beef which might be imported in the
absence of such restrictions.
125  The Management Guideline for Imported Beef and the Operational
Guidelines for Beef Imported under the SBS System  are, in the opinion of Australia, laws, regulations
and requirements which directly govern the internal sale, offering for sale, purchase, transportation,
distribution or use of domestic or imported beef.  The requirement to report all monthly sales and
importation to the LPMO President and the obligation to record all purchases and sales and retain
such records for at least two years imposes compliance costs on end users and super-groups in termsof time and expense, which in turn has an impact on prices for imported beef.  No similar
requirements apply to distributors of domestic beef, hence according domestic product more
favourable treatment.
221. Australia  contended that the supervisory powers of the LPMO have been used to apply
restrictive labelling requirements on imported beef.  These conditions were agreed between theLPMO and the super-groups and require imported cartons to be labelled with a 10 cm x 5 cm label
exclusively in the Korean language showing comm odity name, contract number and importer's name.
The new requirements apply to all imported product contracted from 1 October 1999 and is
                                                     
123 US - Malt Beverages,  paragraphs 5.30-5.33.
124 Canada - Marketing Agencies(II) , paragraph 5.6.
125  For example, in 1998, a quota of 112 200 tonnes of imported beef was allocated among the SBS
super-groups (60 per cent of Korea's total quota amount).  Of this, only 69 933 tonnes or 62.3 per cent wasactually taken up but Korea was not prep ared at that time to eliminate re strictions on end users in order to
encourage uptake of the full quota amount.WT/DS161/R
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compulsory.126  This labelling requirement has been applied in addition to the existing Korean country
of origin labelling requirements that apply to both domestic and imported product.127
222. Australia considered that the new and additional labelling requirement for imported beef is
inconsistent with Korea's obligations under Article III:4 .  The requirement leads to less favourabletreatment for imported product than for like product of national origin and affects the internal sale of
the imported product.  The requirement imposes an unnecessary, impractical and expensive measure
imposed only on imported product, thereby artificially reducing the competitive ability of the
imported product.  The measure is unnecessary because current labelling of Australian product clearly
identifies the origin and product.  It is, therefore, unclear what benefit the new requirement adds.  The
measure is impractical because the contract number and super-group may be unknown at the time the
product is packed by the producer.  The measure, therefore, requires re-labelling either prior toshipment or in Korea.  Whether re-labelled in Korea or Australia, there will be additional costs for the
re-labelling, which will serve to make the imported product less competitive, regardless of whether
the cost is borne by the super-group or the Australian exporter.
223. Korea responded that stores selling imported beef are no longer required to keep records of
sales under the Management Guideline for Imported Beef .  The former Guidelines on Notification and
Operation of specialized store 5(d) specified that th e "Specialized Store" shall keep the records related
to the supply of imported beef for not less than 2 years.  This was to maximize protection against
deceptive sale practices by ascertaining through records that no imported beef was sold as domestic
Hanwoo beef.  However this obligation has been eliminated.  As concerns labelling, Korea continued,
all imported livestock products including beef are re quired to be marked with, among other things, the
name of the product, importer, the address of the importer, production date, and shelf life.  These are
necessary to facilitate the importation of these products and are also used for custom clearance
purposes as well as distribution.  The domestic beef traders must also mark the name of the products,
producer, shelf life, and the production date.  These requirements aim to protect public health and to
establish sound distribution processes.  There is no discrimination between imported beef anddomestic beef.
224. Australia  rejected Korea's claims with respect to record-keeping, reporting and labelling  that
these measures are now no longer in place or apply equally to domestic beef.  In the opinion of
Australia, Korea has not rebutted Australia's claims that limitations on end-users and usage
unreasonably restrict and discriminate against imported beef.  Australia acknowledges the apparent
abolition of some cross trading prohibitions since December 1999
128, but notes that access to imported
beef is still dependent on SBS membership, end-users are still limited to membership of only one typeof super-group and restrictions on usage remain.  Quota allocation processes within this restrictive
framework also have a negative effect on commercial trade of imported product.  The largest
proportion of the quota continues to be awarded to the state trading agencies LPMO and NLCF or
their affiliates, all of which are dominated by domestic producers. There are also supervisory powers
exercised by law over the super-groups with consequent obligations imposed in terms of reporting,record-keeping and labelling.
225. Australia further submitted that it makes no sense for Korea to claim that treatment of
domestic and imported beef in the SBS system is permitted to be discriminatory because there is no
quota for domestic beef.  Korea does not substantiate its claim that super-groups can trade with each
other.  Government re-allocation of quota amounts is not the same thing as commercial trade between
                                                     
126 Note from KMIA to Supplier's Agents informing them of Buyer Identification Label requested in
relation to the Strengthening of Imported Beef Inspection.
127 Agricultural Product Country of Origin Labeling Guidelines, Ministry of Agriculture and Forestry
Notice 1997-79 of 5 January 1998.
128 "Guideline for Handling Imported Beef", 3 December 1999, Article 26(1).WT/DS161/R
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super-groups.  In relation to the use of super-groups themselves as the sole channel for import, it is
not sufficient for Korea to argue that this provides effective economies of scale and that small-scale
retailers prefer to use super-groups.  This is a commercial proposition and, if true, need not be
enforced through compulsory regulation
7. Burden and standard of proof
226. Korea  considered that it was up to the Complainants to show that the Korean measure at hand
amount to a violation of Article III:4.  Korea was of the view that the Appellate Body report on US
Shirts and Blouses (AB) confirms this:
"… the issue in this case is which party has the burden of demonstrating that there has, or has
not been, an infringement of the obligation assumed under … .  In addressing this issue, we
find it difficult, indeed, to see how any system of judicial settlement could work if itincorporated the proposition that the mere assertion of a claim might amount to proof.  It is,
thus, hardly surprising that various international tribunals, including the International Court of
Justice, have generally and consistently accepted and applied the rule that the party who
asserts a fact, whether the claimant or the respondent, is responsible for providing proof
thereof."
129
227. The burden of proof would shift to Korea only if the Complainants "adduce evidence
sufficient to raise a presumption that what is claimed is true".130  Korea was of the opinion that the
Complainants have not done so in this case.  Kor ea submitted that its quantitative restriction (QR) on
imports of beef has an impact on trade in beef between the Complainants and Korea, since it restrictsthe amount of foreign beef into the Korean market to the level permitted under the QR.  The resulting
injury cannot, however, be challenged under WTO law, since the QR is legal and indeed is not
challenged in the present dispute.  The Complainants, in order to discharge their burden of proof, need
to demonstrate how the system of separation of stores selling beef prejudices their rights under the
GATT independently  of the injury resulting from the very existence of the Korean quota.
228. Theoretically, Korea argued, two situations could be imagined:  the first is where the QR has
been fully absorbed.  In such a scenario, the Complainants would have to demonstrate that the WTO
law has been violated and that, consequently, their rights under the WTO Agreement are prejudiced,
i.e. the Complainants would have to demonstrate th at the Korean QR would not only have to be fully
filled but to be filled in a particular manner.  Korea considered that this would be absurd, firstly
because when a QR is negotiated there is no obligation to import the full amount.  Rather, it gives the
right to the importing Member not to import beyond the set threshold.  Even if there were anobligation to fully absorb the QR, it would be an obligation of result and not an obligation of conduct
(cf. paragraph 232).  This would mean that the QR must be absorbed independently of the means
used.  If nothing has been negotiated relating to the manner in which the QR must be absorbed, it is
not up to the international adjudicating body to add to the existing obligations.  As the Appellate Body
has reminded us, echoing the standing jurisprudence of the International Court of Justice, nopresumptions limiting the scope of national sovereignty is permissible in the realm of public
international law.  Hence, Korea argued, the only possible conclusion in this respect is that in case the
QR is absorbed, the claim that the WTO Agreement has been violated, and as a result the
Complainants' rights have been prejudiced, has to be rejected.
229. The second situation is where the QR has not been not fully absorbed.  In this case, Korea
submitted, the Complainants would have to show that the Korean regulation imposing on traders the
obligation to sell domestic respectively imported beef in separate stores is the very reason why the QR
                                                     
129 At pages 13-14.
130 Idem at page 14.WT/DS161/R
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has not been absorbed.  The Complainants would find themselves in an awkward position since the
same number of stores in some years suffices and in some years does not suffice to ensure that the QR
is fully absorbed.  Hence the causal link between the number of outlets and the absorption of the QR
cannot be established.
230. Australia  did not agree with Korea's interpretation of what is required to prove an
inconsistency under Articles III and XI:1 when a quota exists.  If Korea's argument that its measures
are permitted because of the existence of a quota were to prevail, it would be manifest to a finding
that any and all measures taken with the existence of a quota are ipso  facto  WTO consistent.  This
interpretation would render Articles III, XI and XIII redundant, contrary to the rules of interpretation
contained in the Vienna Convention.  Australia considered that Korea is wrong in its assertion of
Australia's burden of proof in relation to Article III:4.  Australia submitted that it is not required todemonstrate that the measures claimed to be inconsistent with Article III:4 prejudice Australia's rights
in relation to the filling or otherwise of an existing  quota.  The existence and/or filling of the quota is
immaterial to a finding of consistency in relation to Article III.  To find otherwise would be to limit
the operation of the national treatment provision in instances where a quota exists.  Neither Article III
itself, nor any other provision of the GATT 1994, expl icitly makes such an allowance, nor implicitly
permits such an interpretation.
231. Korea  contended, as stated in paragraphs 164-167, that the injury resulting from the very
existence of the quota to US and Australian beef exporters should not be attributed to the Korean
regulation requiring that, in principle, foreign and domestic beef should be sold through separate
stores.  The Complainants must show injury resulting from this regulatory requirement independent ofthe protection afforded to domestic production through the negotiation and conclusion of the quota for
beef currently legitimately applied by Korea.
232. Australia  submitted that Korea is attempting to read a trade effects test into Article III.  The
Appellate body has rejected such a test.  The essence of Article III:4 is equality of competitive
conditions.  Australia submitted that the competitive opportunities afforded to domestic beef havebeen denied to imported product and that Korea is therefore in breach of its obligations under
Article III . The existence or filling of a quota has absolutely no bearing on this fact.  No trade effects,
or proof of injury test, Australia continued, can be read into either Article III or XI.  Previous panels
have been explicit on this point, in relation to both Articles.  In making out a case with respect to
Article III:4 Australia considered that it is not required to show actual proof of injury, as claimed by
Korea.  In particular, Australia is not required to show injury through under-filling of the quota.
Australia rejected Korea's claim (see paragraph 228) that Article III is an obligation of result ratherthan conduct.  The Korean argument in this case seeks to insert a trade effects test into Article III.  If
the Panel were to accept Korea's argument, the national treatment provision would not apply in cases
where a quota exists.  This is clearly not the aim of Article III which requires non-discrimination once
goods have come across the border.  Australia is required to show inequality in competitive
conditions.  Australia has so shown, and Korea has not provided evidence to rebut this.
233. The panel in Korea - Alcoholic Beverages , endorsed by the Appellate Body, Australia
continued, was explicit in its finding that "a focus on the quantitative extent of competition instead of
the nature of it, could result in a type of trade effects test being written into Article III cases".  The
panel stated that, if a particular degree of compet ition had to be shown in quantitative terms, that
would be similar to requiring proof that a tax measure has a particular impact on trade.  It consideredsuch an approach akin to a "type of trad e effects test" and rejected the argument.
131  The Appellate
Body had previously found against inserting a trade effects test into Article III in  Japan - Alcoholic
Beverages .  The Appellate Body found that "it is irrelevant that the trade effects of the tax differential
between imported and domestic products, as reflected in the volumes of imports, are insignificant or
                                                     
131 See at paragraph 10.42;  and AB report at paragraphs 129-131.WT/DS161/R
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even non-existent; Article III protects expectations , not of any particular trade volume, but rather of
the equal competitive relationship between imported and domestic products".132 (Emphasis added.)
(See also paragraphs 157-159 above).
234. While the United States  submitted that its competitive opportunities in the Korean market
have been prejudiced by the Korean requirement that imported beef be segregated for sale, as well as
by the other limitations imposed only on imported beef, proof of actual trade damage is no more
required by Article III:4 than by Article XI.  Korea fails to point to any textual support for the
existence of the alleged requirement.  For the last 50 years, since the  Brazilian Internal Taxes  case,133
Article III has been interpreted as requiring no trade impact of the measures in question.  Indeed, the
GATT expressly rejected an injury test of the sort argued by Korea, when the GATT 1947 Council
expressly rejected the mistaken panel report of 1981 on Spain –Sale of Soybean Oil.
235. Furthermore, the United States continued, GATT panels have consistently concluded that the
pertinent criterion under Article III:4 is whether Members "provide equal conditions of competition"
once goods are cleared through customs.  (The relevant cases are cited in footnote 97.)  The panel in
the US - Section 337 dispute, for example, clearly rejected the position that Korea espouses.  The
panel concluded that:
"Article III would not serve this purpose if the United States interpretation [referring to the
US defense advanced in the Section 337  dispute] were adopted, since a law, regulation or
requirement could then only be challenged in GATT after the event as a means of rectifying
less favourable treatment of imported products rather than as a means of forestalling it …
[The panel] noted that this approach is in accordance with previous practice of theCONTRACTING PARTIES in applying Article III, which has been to base their decisions on
the distinctions made by the laws, regulations or requirements themselves and on their
potential  impact, rather than on the actual  consequences for specific imported products."
[emphasis added; footnotes omitted]
134
See also arguments in paragraphs 157-158 and 160 -163.
236. Korea  reiterated that the Complainants have not met their burden of proof with respect to any
of the claims raised under Article III and Article XI.  Korea emphasized that the injury resulting from
the existence of the QR itself cannot be challenged under WTO law because the legality of the QR is
not in dispute. Korea argued that the Complainants have failed to establish a prima facie  case that
their rights have been prejudiced independently  of the injury resulting from the legal QR.
E. CLAIMS UNDER ARTICLE XX (D) OF GATT
237. Korea  explained that the "specialized store" system for imported beef was established in
order to protect consumers from widespread deceptive practices of selling imported beef as domestic
products.  The majority of beef stores in Korea are operated in the form of small-scale butcher shops
where all meat is stored in one huge freezer and sold in slices.  It is extremely difficult for consumers
to distinguish domestic beef from imported beef at sight, nor is there any practical techniquedeveloped for easy distinction between the two.  Un der such circumstances, the considerable price
difference between the imported and the domestic beef would easily raise the incentives for the
owners of the butcher shops to engage in fraudulent practices,  which the Korean Government found
                                                     
132 At page 17.
133 Working party on Brazilian Internal Taxes, Vol. II, pages 184-185, paragraph 13-16.
134 Paragraph 5.13.WT/DS161/R
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were extremely difficult to detect and sanction.135  Thus, the system of separate sales outlets was
introduced as the only practical solution to effectively deal with the problem of widespread fraudulent
sales practices.  Government intervention is limited to imposing identical regulatory requirements for
both categories of stores in full compliance with Article III:4.  Indeed, the same restrictions apply todomestic beef stores (they cannot sell imported beef), as to imported beef stores (they cannot sell
domestic beef).
238. Korea submitted that, were the Panel to reject its arguments presented in the context of
Article III:4 above  and rule that sales of domestic and imported beef through separate stores constitute
discriminatory treatment against imported goods, and thus a possible violation of Article III:4 is
established, its legislation is justifiable through recourse to Article XX(d).  Referring to the text of
Article XX(d)
136, Korea argued that sales of domestic and imported beef through separate stores is
necessary to counteract fraudulent practices.  Except for the exceptional circumstances surrounding
the financial crisis in 1997, the price of domestic be ef is substantially higher than that for imported
beef.  Beef is sold either pre-packaged or fresh.  With respect to the first category, it is easy to impose
labeling requirements indicating the origin of the beef;  with respect to the latter it is impossible.
Moreover, traders have a strong incentive to sell all beef as domestic beef  since by doing so they can
profit from the higher sales price.  Such are the fr audulent practices that the Korean regulation aims at
counteracting.  Korea submitted  that Article XX(d) provides the appropriate legal framework to
justify the regulation regarding separation of stores selling beef.
239. Korea contended that the leading GATT137 case in the area of Article XX(d) is the US -
Section 337 , which report essentially made two points:  on the one hand it interpreted what kind of
measures are deemed to be necessary for the achievement of a regulatory objective at the national
level, and on the other that the level of enforcement sought by the national regulatory objective cannot
be put into question by a panel.  The Appellate Body report on  US – Shrimp(AB)  where the Appellate
Body, contrary to what used to be the case before , recognized the sovereign right of the United States
to pursue its own environmental policy, made this point clear.
240. Regulatory diversity, Korea continued, to the extent that it is applied in a non-discriminatory
manner, is not put into question in the WTO system.  The WTO, and Article XX more specifically,
support a pure necessity test whereby the adjudicating bodies put into question neither the invocation
of the national regulatory objective sought,  nor the desirable  level of enforcement;  they can  only put
into question the means used to reach the objective sought.  Hence, the question that panels must
answer when reviewing the compatibility of a national legislation with Article XX is  whether the
national mechanisms aimed at realizing the said objective are applied in a non-discriminatory mannerand whether the option sought is necessary.
                                                     
135 According to Korea, a Marketing Association confirmed, in the late 1980's that 28 per cent of
imported beef transacted at general butcher shops had been faked and sold as Hanwoo. In 1990,  the Report ofthe Proceedings of the National Assembly's Committee on Agriculture, Forestry and Fisheries found thatfraudulent beef sales had taken place in 604 cases.
136 "Subject to the requirement that such measures are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination betw een countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption
or enforcement by any contracting party of measures:
(d)  necessary to secure compliance with laws or regulations which are not inconsistent with theprovisions of this Agreement, including those relating to customs enforcement, the enforcement ofmonopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade
marks and copyrights, and the prevention of deceptive practices."
137 According to Japan - Alcoholic Beverages (AB) , the GATT panel reports provide very meaningful
guidance on the interpretation of the relevant provision and should be taken into account by subsequent panelsdealing with the same issue.WT/DS161/R
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241. Korea noted that the term "necessary" in Arti cle XX has traditionally been interpreted as
meaning that WTO Members must always, when intervening either in the context of Article XX(b) or
Article XX(d), use the least restrictive among the available options. Korea considered that this
interpretation is at best not very helpful since national authorities are not always in a position to knowex ante  whether the least restrictive option can guarantee the level of enforcement sought.  Referring
to the panel report on US - Section 337 
138, Korea submitted that, although it is difficult to quantify
legal inconsistency, the panel most likely had in mind that in case various options are reasonably
available to a domestic authority and all of them are inconsistent with the WTO obligations of the
Member concerned, the latter must choose the one that causes the least burden possible to non
discriminatory trade flows.
242. Korea noted that so far GATT/WTO case law has not explored the link between regulatory
diversity, on the one hand, and the necessity requirement, on the other.  Korea submitted that there is
a correlation between the two in the sense that were a regulatory objective to be sought in a very strict
manner, the choice of instruments would consequently be influenced.  Since the level  of protection
sought cannot be put into question, the choice of instrument  will have to be appreciated in the same
context.
243. Korea furthermore noted that the judgement by the adjudicating body whether the instrument
chosen is the necessary instrument will be done by reference to the instruments "reasonably  available"
to the Member at hand.  This term provides the link to local circumstances.  The situation (financial,
health, environment, education, etc.) is not the same throughout the globe.  There is nothing objective
about setting regulatory targets and pursuing them.  This is precisely the reality captured by the term'reasonably available' in the cited panel report.  Second, such regulatory choices are the outcome of a
democratic process, reflecting the sovereign will of the electorate.  To the extent that they do not
constitute a clear-cut case of violation of international obligations,  they should not be light-heartedly
overturned.
244. Korea explained that the Korean Government allows stores selling domestic beef to also sell
pre-packed imported beef since in this case the risk of fraudulent practices is reduced.  With respect to
sales of fresh beef, however, the situation is not the same.  The Korean Government found it
impossible to come up with any other means that would enable it to reach the objective sought.
Continuous policing of the shops is not an option in  view of the substantial costs involved, since only
an around the clock policing of all shops selling beef could help reach this objective (see also
paragraph 249).
245. On the other hand, compulsory pre-packaging for all imported beef is not an option either.
since such a requirement could easily amount to a violation of Article III.4, constituting a  de jure
discriminatory treatment against imported products, thus affording protection to domestic production.
Hence, the measure would have to be justified unde r Article XX(d).  Such a measure however, is far
more restrictive than the option chosen in this case, since it would impose considerable adjustment
costs to foreign producers and at the same time place the imported product at a disadvantage. Whereasdomestic beef would be sold either fresh or pre-packaged, imported beef would be sold only in pre-
packaged form.  Hence, consumers would be in a position to choose from a much wider range of
domestic products.  The Korean policy choice is aimed at guaranteeing that no such competitive
                                                     
138 "It was clear to the Panel that a contracting party cannot justify a measure inconsistent with another
GATT provision as 'necessary' in terms of Article XX(d) if an alternative measure which it could reasonably be
expected to employ and which is not inconsistent with other GATT provisions is available to it.  By the same
token, in cases where a measure consistent with other GATT provisions is not reasonably available, acontracting party is bound to use, among the measures reasonably available to it, that which entails the leastdegree of inconsistency with other GATT provisions."WT/DS161/R
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disadvantage would result for imported beef a nd that the whole regulatory framework would be
drafted in such a manner so as to ensure that it will strictly serve its assigned purpose.
246. Hence, Korea continued, the most feasible idea was to establish a dual distribution system
whereby, under identical conditions, private operators can set up a retail store for sales of eitherdomestic or imported beef.  In such a manner, without imposing any additional burden on sales of
imported beef, the Korean Government can be sure that the risk of fraudulent practices is significantly
and effectively reduced since the Government can better guarantee, by supervising the distribution
channel, that stores selling imported beef will only be buying imported beef whereas stores selling
domestic beef will only be buying domestic beef.
247. To complement the system, Korea continued, the Government requests that stores selling
imported beef indicate that they sell such beef.  The sign should inform consumers that imported beefis being sold and accordingly they should expect to get cheaper prices than for domestic beef which
has been traditionally more expensive.  Without this regulatory requirement, these stores would have
the incentive to 'cheat'.  Stores selling domestic be ef do not have such an incentive since they already
paid a high price to buy the expensive domestic beef.  But for the existence of the sign requirement,
therefore, only one category of stores has an incentive to cheat and has recourse to fraudulentpractices.
248. As the Appellate Body in its report on US – Shrimp(AB) made it plain, once a national
legislation has passed the test of a particular sub-paragraph of Article XX, it must also be found to
comply with the chapeau of that Article, in the sense that it must be applied in an even-handed
manner.  Korea submitted that its measures indeed comply with the requirement of even-handedness.Not only identical requirements apply for the opening of stores selling imported and domestic beef,
but the Korean government ensures that this is the case in practice.  Indeed, there has never been a
claim that the Korean Government does not follow the letter of its legislation and the Complainants
have not claimed that such is the case.
249. Korea did consider other alternatives to prevent these fraudulent deceptive practices such as
more strict country of origin marking requirement and mandatory pre-packing requirement for all
beef.  However, these alternatives were not adopted.  A labeling requirement, no matter how strictly
enforced, could not do the trick since consumers, in general, demand that they be able to purchase
fresh slices cut from unpacked chunks.  The nature of the products and the commonplace retailing
practice prevalent in Korea do not allow for any other method but separation of sales outlets system to
distinguish the two products.  Moreover, it woul d be virtually impossible for the law enforcement
agency to gather sufficient evidence in the absence of the system of separation of sales outlets, since
the stores would have at their disposal the packages, boxes, and other items used for both imported
and domestic beef.
250. With respect to the "secure compliance with la ws or regulations which are not inconsistent
with the provisions of this Agreement" element of Article XX(d), Korea submitted that the law sought
to be enforced through the system of separation of outlets is the " Unfair Competition Prevention and
Business Secret Protection Act ."  The Unfair Competition Act  purports to address anti-competitive
acts (fraudulent practices).  The purpose of the Act, as stated in Article 1, is to "maintain the order of
sound transactions by preventing unfair competitive acts."  In paragraph 1 of Article 2 of the Act, the
term "unfair competitive acts" is defined as follows:
"(1) Act misleading the public to understand the place of origin of any goods either by
falsely marking that place on any commercial document or communication, in said goods or
any advertisement thereof or in any manner of misleading the general public, or by selling,
distributing, importing or exporting goods bearing such mark;WT/DS161/R
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(2) Act making a mark misleading people to understand as if any goods were produced or
processed in an area other than that where said goods are produced, manufactured or
processed, on any commercial document or  communication, in said goods or any
advertisement thereof, or in any manner of misleading the general public, or act selling,
distributing, importing or exporting goods bearing such mark."
251. Korea was, furthermore, of the opinion that the system of separation of sales outlets is in full
conformity with Article XX(d).  Korea reiterated that on the one hand, the system as such, if found to
be discriminatory by the Panel, is justified through recourse to Article XX(d) as the necessary means
to enforce the Unfair Competition Act;  and that on the other, the only observable regulatory diversity
between sales outlets selling domestic and imported beef, the sign requirement, is justified throughrecourse to Article XX(d) since it is necessary to enforce the Act which is aimed at combating
fraudulent practices.
252. Its objective, Korea continued, is to avoid fraudulent practices (what has been translated as
"unfair competitive acts " in Articles 1 and 2 of the Act) in the context of beef sales.  To this end the
Unfair Competition Act was enacted.  The "prevention of deceptive practices" is specificallymentioned in Article XX(d) as one of the ar ea where GATT-inconsistency is presumed to be
established.  Furthermore, Article IX(6) of GATT provides that " The Contracting Parties shall co-
operate with each other with a view to preventi ng the use of trade names in such manner as to
misrepresent the true origin of the product. "
253. Korea pointed out that the enforcement of the obligation sought under the Act is the
prevention of sales of "falsely marked" goods.  With in the framework of this Act, the term "marking"
covers all incidents of representations related to the country of origin of the product being sold.
Hence, the term includes all representations made by a butcher shop as it relates to the country of
origin of the beef sold, including, but not limited to, the sign posted in front of a "chunk" of beef as
well as all verbal representations made by the shop operator.  Korea noted that the marking of theplace of origin is normally done through labeling on the product itself.  In the case of beef sold in
Korea, however, some are packaged along with proper labeling and others are sold un-packaged in
"chunks."  With respect to packaged beef a workable country of origin mechanism is in place and,
therefore, there is no need for these products to be sold separately.  However, the majority of imported
beef is sold un-packaged and in these situations the "normal" way of marking is not practicable and an
alternative was therefore necessary in the form of separation of sales outlets combined with the sign
requirement.
254. The separation of sales outlets, Korea continued, does not have a mere indirect incidence on
Korea's stated objective of eliminating fraudulent practices.  On the contrary, there is an uninterrupted
causal link between the measure and the objective sought.  Korea noted that it carefully considered
which traders have an incentive to cheat in view of the price differential between imported and
domestic beef.  This is only the case with respect to traders who purchase imported beef and then sellit as domestic beef.  Traders that purchase imported beef and sell it as such do not profit from
fraudulent practices.
255. However, if Korea only checks the supplies without checking whether what is sold
corresponds with what is purchased, the risk for fraudulent practices remains.  This is why Korea
came up with the requirement to on the one hand separate sales outlets, and on the other require onlythose that sell imported beef to signal the origin of the beef sold.  Korea is of the opinion that it's
intervention is the least restrictive to achieve the stated objective, because, by virtue of the separation
of outlets, Korea will have to examine only supplies to outlets selling domestic beef (since only such
outlets have an incentive to cheat).  On the other hand, by imposing the signalling requirement to
outlets selling imported beef, the incentive to cheat is removed, since they would incur losses if theypurchased domestic beef.  It is therefore obvious, Korea argued, that the separation of outlets does notWT/DS161/R
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simply share the same objectives with the Korean Unfair Competition Act .  It is the enforcement
mechanism of the said Act.
256. Korea further explained that when beef imports into Korea resumed in August 1988, imported
beef was permitted to be sold in butcher shops toge ther with domestic beef (hereafter referred to as
the "simultaneous sales system").  In response to deceptive practices, the Korean Government
introduced in March 1989 the specialized sales outlets system for imported beef, in addition to the
simultaneous sales system but the deceptive practices still continued.  As the magnitude of the
fraudulent behaviour was being uncovered and publicized, this controversy evolved into a major
social issue.139  Accordingly, with a view to preventing such deceptive practices, the Korean
Government decided in 1990 to eliminate the simultaneous sales system, which was found to be the
major source of deceptive sales practices, thereby integrating the imported beef sales into one system- the specialized sales outlets system for imported beef - which has remained virtually unchanged.
257. In response to Australia's argument that no measures are in place to prevent the fraudulent
substitution of different grades of domestic beef, Korea noted that this argument fails to take into
account that it is relatively easy to distinguish by sight between lower and higher grades of domestic
beef.  As concerns the prevention of fraudulent substitution in restaurants, Korea submitted that arestaurant is a service industry selling the skill of the chef, ambience of the venue and convenience of
location as well as quality of food.  The price of beef is a mere fraction of what one pays at a
restaurant.  No solid argument can result from comparing a beef store with a restaurant.  Besides,
restaurants do not usually indicate whether they are using imported or domestic beef as ingredients in
their prepared meals.
140  Hence the type of fraud found in beef stores is not committed.  In conclusion,
the separation of sales outlets can also be fully justified under Article XX(d).
258. The separation of sales outlets system, Korea continued is not necessary in the case of meat
from domestic dairy cows since Korea has already developed a reliable testing method for
distinguishing meat from domestic dairy cows from domestic beef, "Hanwoo."  Furthermore, in
Korea's view, the amount of dairy cow meat sold at the retail level is quite negligible and does notwarrant any special consideration.
141
259. New Zealand's suggestion that audit trails could be used as the means to prevent deception,
Korea continued, ignores Korea's underdeveloped distribution system.  Audit trails are not a feasible
option at the present time.  In addition, few merchants in practice maintain comprehensive and
accurate book records.  New Zealand also argues that deceptive practices can be prevented by
imposing stricter penalties.  Article 18(3) of the Unfair Competition Act  provides that a person " who
commits an unfair competitive act may be subject to imprisonment for a period of up to three years ora maximum fine of thirty million won. "  These penalties are not to be regarded lightly.  Korea,
therefore, sees no merit in the argument that even stricter penalties would have any measurable impact
on the situation.  The problem is not the level of penalties but rather the fact that the penalties are in
practice not effective due to the difficulties of inve stigating and gathering sufficient evidence to apply
the laws.
                                                     
139 Refer to articles from the Korea Herald, Chosun Daily and the Dong-A Daily.
140 Korea also stated that an important portion of imported beef (about 45 per cent) is also sold in the
restaurant sector.  Cf. paragraph 193.
141 According to Korea, beef imported in 1990 amounted to 84,000 MT in excess of the 58,000 MT
quota for that year while according to MAF statistics, Korean beef production amounted to 95,000 MT of which
about 42 per cent came from dairy cattle.  In 1991, imports of beef amounted to 124,000 MT and domestic beef
amounted to 98,000 MT, of which 42 per cent came from dairy cattle.  In 1998, total consumption in Korea
amounted to 345,000 MT of which 91,000 MT was imported, and about 254,000 MT came from domesticproduction.  According to statistics by the NLCF, dairy cattle represented, in 1998, 18.25 per cent of totalKorean slaughter (head).WT/DS161/R
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260. In view of the foregoing, Korea submitted th at it has met the "necessity" requirement of
Article XX(d) since the system of separation of sales outlets provide for a least restrictive method of
complying with the Unfair Competition Act .  Under this system, the Korean Government, without
imposing any additional burden on sales of imported beef, can ensure that the risk for fraudulentpractices is significantly and effectively reduced.
261. Australia  and the United States , addressing Korea's claim that the separate retail sale of
imported beef can be justified under Article XX(d), submitted that the burden of proof in making this
claim rests with Korea.  The Complainants considered that Korea has failed to discharge this burden.
First, Korea has not shown which law or regulation, otherwise consistent with GATT 1994, that it is
seeking compliance with.  Secondly, Korea has not demonstrated that the measures actually secure
compliance with these laws or regulations.  Thirdly, Korea has failed to show that the measures arenecessary to secure compliance.  And finally, Korea has not proven that the measures meet the
requirements of the chapeau of Article XX.
262. A measure cannot be said to be necessary  to ensure the prevention of deceptive practices,
Australia  continued, unless it actually goes some way towards achieving that end  in effect. In
consultations with Australia on 28 May 1999, Korea conceded that it was difficult to quantify thenumber of specialized beef shops.  When asked how it enforced its retail requirements if it did not
know where the stores were, Korea stated that the central Government did not administer the
enforcement of regulations.  This was the responsibility of municipal governments which are under no
obligation to report to the central Government.  Furt hermore, Korea admits that it is unable to enforce
the requirements in supermarkets, where beef is required to be sold in separate display cabinets.Australia submitted that a measure cannot be necessary where it cannot be enforced and that there is
no basis to Korea's claim that the regulation "strictly serve its assigned purpose" (see paragraph 245).
The Korean measures are also not "necessary" where there are alternative measures reasonably
available which prevent fraudulent substitution of imported and domestic beef and which are less
trade restrictive.  Korea admits that no regulations exist to prevent substitutions in restaurants.Restaurants are able to sell both domestic and imported beef.  Separate distribution arrangements do
not exist for imported and domestic pork or chicken.  Nor, as detailed by the United States in
paragraph 273, are separate distribution arrangements in place for a range of other products for which
Korea claims there is a danger of substitution between like imported and domestic products.  Finally,
there are no measures in place to prevent the fraudulent substitution of different grades of domestic
beef, even though this is reported to be a significant problem.
263. Australia considered that it was pertinent that while record-keeping requirements were
imposed on imported beef stores, similar record-keeping requirements are not imposed on domestic
beef stores. Australia questioned how Korea could ascertain the sources of supply for domestic-beef
shops, and hence the existence of fraud, when no records are kept and when, as Korea argues, it is
physically impossible to tell the difference between imported and domestic beef.  Australia argued
that it was difficult to understand how Korea is able  to state with any certainty that the fraudulent sale
of imported beef as domestic beef is a persistent problem when it is unable to prove the existence of
fraud in the first place.
264. Australia submitted that Korea's claim that separation of domestic and imported product is
only required for beef, and not for other products, because of the existence of a large number of tests
to prove the physical difference between all other imported products and their domestic equivalents,were not convincing.  Australia questioned why Korea did not separate the retail sale of these
products before such tests existed, why beef was not separated in restaurants and why different types
of domestic beef were not sold separately prior to the apparent discovery of DNA testing in 1998.
Australia also submitted that, on the basis of advice from Australia's peak scientific research
organization, it had serious doubts about the accuracy of DNA testing for cattle to classify individualbeasts into a particular breedWT/DS161/R
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265. Australia referred to US - Malt Beverages , in which case the panel found that the United
States had failed to meet its burden of proving that wholesaler and common carrier requirements in
various states were the only reasonable measure available to secure enforcement of state excise laws.
The fact that not all fifty states maintained these measures indicated that alternative  measures for the
enforcement of state excise laws existed.142  Australia also submitted that in cases where there is no
discernible difference in the product, i.e . if the products are identical in physical characteristics and
have the same end uses, it is not necessary to put measures in place to distinguish between the
products.  These products are directly competitive and should be permitted to compete against each
other in the market place on the basis of a variety of factors such as price, quality, consumer
preferences etc.
266. Australia also submitted that Korea had failed to show a link between the dual retail system,
including the signage requirements, and the enforcement of the prohibition against "falsely marking
the place of origin of a product" in the Korean Unfair Competition Act .  It was not clear how the dual
retail system is related to the enforcement of laws  relating to false marking of origin or how such a
system was necessary to secure compliance with these laws.
267. Since the price differential between domestic and imported beef is largely a result of actions
by the Korean government through the delivery of substantial market price support and protection of
domestic beef from market driven competition, Australia also submitted that by maintaining separate
retail sales, Korea is actually exacerbating the price differential between domestic and imported beef,
and therefore increasing the likelihood of fraud.  Australia did not agree with Korea's argument that
the separate retail arrangements do not impose an additional burden on imported beef (seeparagraph 246).  The regulations prohibit the sale of imported beef from the majority of beef retail
establishments in the country and impose additional compliance costs in relation to setting up new
premises, or separate areas in supermarkets, as well as signage requirements.  These are not
insignificant and seriously affect the competitive opportunities afforded to imported beef.
268. The United States  considered that Korea has not satisfied any of the requirements cited in
paragraph 261 for the application of Article XX(d).  Korea has not even specifically identified which
of its laws or regulations are intended to be advanced through segregation of imported beef at the
retail level.  Furthermore, Korea has not shown the retail sale restriction to be necessary to secure
compliance with any of its laws, including those relating to the prevention of deceptive practices.
Without a reasonable showing that fraud is a real, and not an imagined, issue and that other measures
would be inadequate to secure compliance with Korea's laws, Korea cannot demonstrate such
measures to be necessary.  Korea, therefore, cannot avail itself of Article XX(d) to insulate GATTinconsistent measures from challenge.
269. Korea has not met its burden of showing the requisite elements for Article XX(d) to apply,
continued the United States.  First and most fundamentally, the retail restrictions are not measures
which fall within the scope of subparagraph (d) of Article XX.  The panel in EEC - Parts and
Components  found that Article XX(d) covers only measures necessary to the enforcement of
obligations under laws or regulations consistent with the General Agreement.  In the opinion of the
United States, the regulations relating to separate retail distribution channels do not serve to enforce
any Korean laws relating to fair trading or deceptive practices.  At best, the segregated distribution of
imports serves the same objectives as these unfair competition statutes, but this is far from being
necessary to the enforcement of such laws.
270. The proof necessary to meet the requirement of Article XX(d) in this regard was addressed by
a panel in Canada - Periodicals .  In that dispute, Canada asserted that a prohibition on imported
magazines containing domestic advertising was required to secure compliance with a tax measure that
                                                     
142 Paragraphs 5.43 and 5.52.WT/DS161/R
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limited deductions to expenses incurred in advertising in domestic magazines.  The panel concluded
that although the ban on imported magazines might have the incidental consequence of ensuring that
the tax deduction was not abused, and, therefore, the ban might have a common objective with the tax
measure, that alone was insufficient to establish that the import ban was meant to secure compliance
with tax legislation.  The panel observed that any other construction of the requirement in
Article XX(d) that the measure "secure compliance with laws and regulations" would lead to a
situation where "[w]henever the objective of a law consistent with the General Agreement cannot be
attained by enforcing the obligations under that la w, the imposition of further obligations inconsistent
with the General Agreement could then be justified under Article XX(d) on grounds that this secures
compliance with the objective of that law".
271. The United States further submitted that the situation in the present matter, for the purposes of
the application of Article XX(d), is the same as that before the panels in the Canada – Periodicals  and
in the EEC - Parts and Components  disputes.  Although Korea argues that the segregated sale of
imported beef is meant to secure compliance with the provisions of the Unfair Competition Act , Korea
has not shown how the retail restrictions do that.  At most, the segregation of retail sales outlets may
reduce the opportunities to misrepresent the identity of beef, but Korea has not shown that even this isachieved by the retail measures.  The most that can be said is that the measures segregating the retail
sale of imported and domestic beef may possess, in part, a common objective with the Unfair
Competition Act .
272. Even if the Panel were to conclude, the United States continued, that the retail restrictions are
"to secure compliance" with Korea's fair trading laws, Korea has not demonstrated that they are"necessary" for this purpose.  Allegations concerning fraudulent practices do not relate to current
activity, but instead are dependent on concerns regarding fraud allegedly occurring at the time that the
dual regime was implemented in 1990.  Korea has not indicated that any information exists that
suggests that any fraudulent conduct persists, or that any fraud that does exist is at such levels as to
warrant the draconian measures that Korea has instituted.
273. In addition, the United States submitted, there are a range of alternative measures that would
make the maintenance of separate retail channels unnecessary in the event that any fraud is
sufficiently prevalent to justify Korea's measures.  Th at this is the case is evident from the fact that
Korea has not elected to replicate the separate retail store requirement in other areas in which fraud of
the same alleged nature is evidently occurring.  In a Korean Fair Trade Commission announcement
appearing on 19 August, 1999 in the Korean Economic Daily, it was reported that an investigation of
21 importing agencies involving 61 agricultural products, including oranges and milk, was underway.Yet, no product other than beef is subject to a requirement that separate stores be maintained.  Korea
has alleged fraud in connection with imported products as varied as sesame seeds, pork, rice and
garlic, all of which are said to be less expensive than their Korean counterparts and subject to
misrepresentation as Korean products.  But no separate stores have been required for the sale of such
products, indicating that Korea has found alternative ways of addressing any fraud.
274. In the case of these other products, Korea has relied on investigations and prosecutions to
address instances of fraud that appear to be, if anything, much more widespread than any involving
imported beef.  Korea has not indicated why such measures are not equally effective in the case of
beef for any fraud that might exist.  Indeed, if Article XX(d) permitted Members to discriminate
against imported products whenever they are sold at a lower price than a domestic counterpart,Article III:4 would no longer provide any meaningful national treatment protection.
275. The United States submitted that while Korea claims that this Panel should not interfere with
the allegedly democratic process that led to the institution of the dual retail sale regime, the United
States noted that the regulations prohibiting sale of imported beef in Korean beef stores were issued in
January 1990 without benefit of legislative authority.  Thus, the regulations were simply the result ofWT/DS161/R
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administrative action.  This oversight was not corrected until the enactment of the Revised Livestock
Act in 1999, approximately nine years after the regulations were first promulgated.
276. Replying to the US arguments in paragraph 273, Korea  explained that with the exception of
rice and potato flakes, all products mentioned by the United States in its statement contain certainphysical characteristics which would allow Korean experts to distinguish the imported products from
those of domestic origin.  With respect to rice, the standard retail practice is to sell in its original
packaging (i.e. unlike beef, rice retailing does not entail displaying portions outside of its original
packaging).  As for potato flakes, garlic and safflower seed, the imported volume and the total
consumption simply do not warrant any special treatment.  Furthermore, for products such as sesame
seed, garlic and safflower seed, Korea has already developed a technical means of differentiating
imported from domestically grown products.  Beef is different from all the products mentioned by theUnited States in that it is hardly distinguishable by sight, nor is there technology to distinguish
imported beef from domestic beef.  Moreover, the import volume and the proportion it represents of
general food consumption is too large to consider the issue of consumer protection lightly.
143
277. With reference to the US assertion that, because Korea does not maintain separate sales
outlets for a wide range of other products where fraudulent practices allegedly occur, the Koreanmeasure with respect to beef cannot be "necessary" within the meaning of Article XX(d), Korea
referred to the Appellate Body reports in the US – Shrimp (AB)  and US – Gasoline (AB)  cases that the
analysis of a measure under Article XX must be made strictly on a case-by-case basis.  The Panel is
not called upon in this case to examine any measure as it relates to any product other than beef.
Indeed, to do so would clearly fall outside the terms of reference of the Panel.  It is thereforeirrelevant what measures are or are not applied to other products.  To draw any valid conclusions with
respect to regulatory measures affecting these other products, and their relation to Article XX, the
same comprehensive assessment would need to be made for each product on a case-by-case basis.
Since this would fall outside the terms of reference of the Panel, it is clear that any consideration of
other products, and measures affecting those products, must be disregarded entirely.
278. Australia  submitted that ultimate availability of the Article XX exception is subject to the
compliance by the invoking Member with the requirements of the chapeau.
144  Notwithstanding that a
measure falls within the list of exceptions, it must still satisfy the requirement that it was "not applied
in a manner which would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on international trade."  The
Appellate Body in  US – Gasoline(AB)  stated that "the chapeau by its express terms addresses, not so
much the questioned measure or its specific contents as such, but rather the manner in which thatmeasure is applied".
145  The Appellate Body in US – Shrimp (AB)  also emphasised the application  of a
measure for Article XX.
279. The policy goal of a measure at issue, Australia continued, cannot provide its justification
under the chapeau of Article XX.  The legitimacy of the declared policy objective of the measure, the
relationship of that objective with the measure itself, and its general design and structure, areexamined under paragraphs (a)-(j).  If the measure is not held provisionally justified under an
exception, it cannot be ultimately justified under the chapeau.  On the other hand, it does not follow
from the fact that a measure falls within the terms of an exception that the measure will also comply
with the requirements of the chapeau.
146
                                                     
143 Imported beef sold in retail shops range between 10 – 11 per cent of Korean beef consumption.
Total beef imported amounted to 26 per cent of beef consumption in 1998.
144 US – Shrimp, paragraph 157.
145 Page 22.
146 US – Shrimp (AB) , paragraph 149.WT/DS161/R
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280. The terms "arbitrary or unjustifiable discrimination" and "disguised restriction on
international trade" can be read side-by-side.  The fundamental theme is to be found in the purpose
and object of avoiding abuse or illegitimate use of the exceptions to substantive rules available in
Article XX.147  Australia submitted that the potential for deceptive practices arises out of Korean
government measures which create or exacerbate the price differential between domestic and
imported beef, i.e. domestic price support, and lack of competition arising from separate retail sale. In
the opinion of Australia, Article XX is not intended to justify such measures.  Furthermore, the retail
separation of imported and domestic beef constitutes "arbitrary or unjustifiable discrimination" and a
"disguised restriction on international trade" in the context of Article XX because it affords protection
to domestic production, is applied only to imported beef, and not to other imports, and is applied only
between imported and domestic beef while not being applied to different types of domestic beef,where large price differentials also prevail.
281. Australia argued that Korea must have known that separating only imported and domestic
beef sales, while imposing no equivalent separation requirements on different types of domestic beef,
would have a disproportionate effect on imported product.  In not dealing with the same apparent
problem in the same way, Korea has arbitrarily and unjustifiably discriminated against imported beef.It has done so to protect domestic beef from the full impact of import competition, contrary to the
chapeau of Article XX
282. The United States  submitted that Korea has not satisfied the requirements of the chapeau as it
appears that Korea has eschewed the application of the same requirement for separate stores to
address a problem involving fraud related exclusively to Korean beef.  Press reports indicate thatsome of the worst cases of fraud involve retailers mis-labelling and selling meat from Korean dairy
cows as Hanwoo beef.  Estimates indicate that almost 50 per cent of the Korean beef sampled in 1998
was mis-identified as being Hanwoo, when it was a much inferior grade from dairy cows.
Furthermore, contrary to Korea's assertion that dairy beef sales are negligible, meat from dairy
animals constitute approximately 10 to 15 per cent of total beef consumption .  By not requiring
separate stores for the sale of beef from Korean dairy cows, Korea has elected to apply one set of
measures to address an alleged problem of fraud with respect to imports, while rejecting the same
approach for fraud affecting a domestic product.  Such action is unjustifiable discrimination within the
meaning of the chapeau of Article XX.  Moreover, wi thin the context of the chapeau of Article XX it
makes no difference whether the unjustifiable discrimination is prescribed by the measure or the result
of its application.
148
283. Indeed, in the US - Gasoline  case (AB)149, the Appellate Body de scribed the showing that
must be made by a Member wishing to avail itself of the protection of Article XX:  "In order that the
justifying protection of Article XX may be extended to it, the measure at issue must not only come
under one or another of the particular exceptions - paragraphs (a) to (j) - listed under Article XX;  it
must also satisfy the requirement imposed by the opening clauses of Article XX.  The analysis is, in
other words, two-tiered:  first, provisional justification by reason of characterization of the measureunder XX(g); second further appraisal of the same measure under the introductory clauses of
Article XX."
150
                                                     
147 US – Gasoline (AB)  page 25.
148 In US – Shrimp (AB) , paragraph 160, the Appellate Body made the following observation:  "We
note, preliminarily, that the application of a measure ma y be characterized as amounting to an abuse or misuse
of an exception of Article XX not only when the detailed operating provisions of the measure prescribe the
arbitrary or unjustifiable activity, but also when a measure,  otherwise fair and just on its face, is actually applied
in an arbitrary and unjustifiable manner."
149 See above.
150 See also US – Shrimp (AB) , paragraph 118.WT/DS161/R
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284. The United States referred to the  US – Gasoline (AB)  case, in which the Appellate Body
stated that the purpose and object of the introductory clauses of Article XX is generally the prevention
of abuse of the Article XX exceptions:
... The chapeau is animated by the principle that while the exceptions of Article XX may be
invoked as a matter of legal right, they should no t be so applied as to frustrate or defeat the
legal obligations of the holder of the right under the substantive rules of the General
Agreement .  If those exceptions are not to be abused or misused, in other words, the measures
falling within the particular exceptions must be applied reasonably, with due regard both to
the legal duties of the party claiming the exception and the legal rights of the other parties
concerned.151
285. In the opinion of the United States, Korea has failed to satisfy either the requirements of
paragraph (d) of Article XX or the criteria contained in the chapeau.  Therefore, Korea's reliance on
Article XX to insulate its dual retail sale regime from challenge under Article III:4 must fail.  Any
other result would constitute an abuse of the exception contained in Article XX (d).
286. Korea  rejected the argument advanced by the United States that it is inconsistent for Korea
not to impose the same measure with respect to meat from Korean dairy cows.  Korea argued that the
separation of sales outlets is not necessary in the case of meat from dairy cows since Korea has
already developed a reliable testing method for distinguishing between meat from dairy cows from
domestic beef, "Hanwoo."  Furthermore, the amount of  dairy cow meat sold at retail level is quite
negligible and does not warrant special consideration.  Korea, therefore, argued that the system ofseparation of sales outlets and the accompanying requirement to indicate the origin of beef imposed
only on imported beef are in full conformity with the requirements contained in the chapeau of
Article XX.  Korea reiterated its contention that the system of separation of sales outlets is in full
compliance with Article XX(d) of GATT.  Korea further noted that, were the Panel to reject Korea's
arguments in this respect, the separation of sales outlets is a "remaining restriction" within the
meaning of Note 6 in Korea's Schedule of Concessions.
F. 
CLAIMS UNDER ARTICLE II OF GATT
1. LPMO tendering opportunities
(See also paragraphs 122-125.)
287. Australia  submitted that the tendering process adopted by the LPMO for the import of beef
results in quantitative restrictions being applied to grass-fed beef, contrary to Article II.  Furthermore,
LPMO imposes a quality distinction between grass-fed and grain-fed beef which further discriminatesagainst grass-fed product and limits the sales of high quality grass-fed beef in the Korean market.  The
Korean tender mix system has the effect of imposing limits on the volume of the grass-fed beef that
Australia is permitted to export to Korea. This is less favourable treatment of Australia than that
provided for in Korea's Schedule contrary to Article II.  Australia noted that Korea's Schedule of
Concessions includes tariff bindings on all beef imported within the tariff quota of 43.6 per cent,reducing to 41.6 per cent by 2000.  The tariff currently applied to imports of beef is 42 per cent.
Korea has made no qualification in its schedules under column 7 "other terms and conditions" and no
reference to either grain-fed or grass-fed beef.
288. In allocating the LPMO quota between grain-fed and grass-fed beef, Korea is, according to
Australia, imposing a condition that within the quota individual limits apply to grass- and grain-fedbeef, respectively.  Under Article II, any other "ter ms, conditions or qualifications" with respect to the
                                                     
151 US - Gasoline  (AB),  page 22;  US – Shrimp (AB) , paragraph 118.WT/DS161/R
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quota must be set forth in Korea's Schedule.  Given that Korea made no such qualification, the
administration of the LPMO quota is less favourable than that provided for in its Schedule.  Further,
by imposing a quality differential between the tw o, the tendering system undermines the concession
for beef provided in Korea's Schedule.
289. Panels have interpreted Article II as not only requiring no less favourable treatment in the
Schedule, but also no less favourable treatment for each  exporting country.  The 1981 panel report on
EEC - Beef  examined the EEC's tariff quota for high quality grain-fed beef.  A footnote to the
concession provided that "entry under this subheading is subject to conditions to be determined by the
competent authorities".  Its administration was through certificates of authenticity.  The sole issuing
authority for such certificates was the US Department of Agriculture.  The panel found:
"The words, 'terms, conditions or qualifications ' in paragraph 1(b) of Article II could not be
interpreted to mean that countries could explicitly or by the manner in which a concession
was administered actually limit a given concession to the products of a particular country.
The Panel further found that the fact that in Annex II there was only one certifying agency for
the meat in question and that this agency only certified meat of United States origin  in effect
prevented access of high quality meat from other countries."  [Emphasis added.]
"Consequently, the Panel concluded that the manner in which the EEC concession on high
quality beef was implemented accorded less favourable tr eatment to Canada than that
provided for in the relevant EEC Schedule, thus being inconsistent with the provisions of
paragraph 1 of Article II of the General Agreement."  [Emphasis added.]152
290. Australia rejected the evidence provided by Korea which shows an increase in grass-fed
imports by LPMO in 1999 (see paragraph 323).  Australia considered that those figures are incorrect.
Australia can show, based on information provided by the LPMO in the last three years, that total
purchases of grass-fed beef by the LPMO in 1999 have fallen to approximately 15,000 tonnes, downfrom 44,000 tonnes in 1997 because information for 1999 was based on customs-cleared, not
purchase data and because for all years Korea attributed purchases to the LPMO which had actually
been made by both the LPMO and super-groups.  This is a drop of nearly 60 per cent.  As a
consequence of LPMO discrimination against grass-fed beef, Australia has seen its share of LPMO
tenders fall from 47.7 per cent in 1998 to 20.4 per cent in 1999, a fall of more than half.  On the other
hand, in the SBS sector of the market, where a range of cuts and grades of grass-fed beef are
purchased, Australia's market share has risen.
291. Korea has not rebutted Australia's claim that the distinction imposed by Korea between grass-
fed and grain-fed beef provides less favourable treatment than that contained in its Schedule, contrary
to Article II.  Australia assumes that Korea therefore accepts those claims.  Moreover, Korea has not
rebutted Australia' claim in paragraph 287.  Origin neutrality is not at issue since Australia is not
claiming a violation of Article I.  Furthermore, the grass-fed / grain-fed distinction is not a measure ofcustomer demand but a distortion imposed by the Korean government contrary to its Schedule
commitments.
292. Korea  submitted that the LPMO operates its tendering procedures on the basis of commercial
considerations.  The LPMO consistently purchases its full quota amount, according to an open
bidding procedure and according to origin-neutral criteria.  The LPMO purchases on the basis ofconsumer demands and preferences and Korea applies no regulatory measure which discriminates
against grass-fed beef.  Korea is under no obligation to affect its purchases of beef according to sub-
groupings of various beef types.  Therefore, for the purposes of the present dispute, the distinction
                                                     
152 EEC - Beef , at page 99, paragraphs 4.5-4.6.WT/DS161/R
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between grass-fed and grain-fed beef is artificial and the question of discriminatory or less favorable
treatment with respect to grass-fed beef does not arise.
2. Application of a mark-up on SBS imports
293. Australia submitted that Korea applies a mark-up on beef imported under the SBS system
which is not included in its Schedule of Concessions or applied to domestic beef, and hence no
"qualification or reservation" which would permit Korea to impose the mark-up.  The mark-up
constitutes "other duties or charges of any kind imposed on or in connection with the importation" of
beef.  That Korea has no Schedule coverage for the imposition of the mark-up on imported beef is
indicated by the fact that a mark-up on other products is shown in the Korean Schedule.  The
imposition of the mark-up on beef imported through the SBS system, therefore, constitutes less
favourable treatment than that provided in the Korean  Schedule and is inconsistent with Article II:1(a)
and (b).  Korea cannot claim a justification for the mark-up on the basis of a Record of Understanding
with Australia that expired in 1995, or a Record of  Understanding with the United States to which
Australia is not a signatory, nor on the basis of a schedule which contains neither reference to the
mark-up, or indeed to any of the Record's of Understanding.  Australia also noted that Korea appears
to have introduced a mark-up on purchases of the LPMO quota in 2000, which the Koreangovernment is proposing to auction.  The mark-up is an unspecified amount and is payable to the
Livestock Development Fund.
294. The United States  submitted that Korea collects a mark-up on beef imported both through the
SBS system and by the LPMO.  In the opinion of the United States, these mark-ups are in each
instance inconsistent with Korea's obligations under Article II:1.  One of the fundamental objectivesof the GATT 1994 is "the substa ntial reduction of tariffs."
153  To ensure that tariff concessions, once
made, have the full force and effect intended, Article II directs that the duty rates set forth in bindings
are maximum limits that may not be exceeded.  Specifically, Article II:1(a) requires that "[e]ach
contracting party shall accord to the commerce of other contracting parties treatment no less favorable
than that provided in … the appropriate Schedule."  Moreover, Article II:1(b) provides that productssubject to a schedule of concessions are "exempt from ordinary customs duties in excess of those set
forth and provided for therein."  Similarly, Article II:1(b) directs in pertinent part that "Such products
shall also be exempt from all other duties or charges of any kind imposed on or in connection with
importation in excess of those imposed at the time of this Agreement".  The United States also
referred to the Appellate Body's interpretation of the requirements of the first sentence of
Article II:1(b) in its report in  Argentine - Textiles as pertinent to the construction of the second
sentence.
295. Article 31 of the Vienna Convention, the United States continued, provides that treaty terms
are to be given their ordinary meaning in their context and in light of the object and purpose of the
treaty.  The mark-up is certainly a "charge" within  the meaning of Article II:1(b), particularly as
Article II:1(b) expressly includes "charges of any kind".  Korea's mark-up is a liability to pay money
to Korea's Livestock Development Fund.  Furthermore, the mark-up is a charge imposed at the time ofimportation.  Indeed, entries of imported beef may not leave Korean Customs until the mark-up is
paid.
154  Korea's Schedule makes no provision for the imposition of any duty or charge on imports of
beef other than the bound rate of duty, which is currently 42 per cent and will decline to 40 per cent
on 1 January 2004.  The mark-ups levied since 1993 have been applied in addition to the bound rates
in Korea's Schedule.155  As Korea did not identify any other charges or other duties in its Schedule as
                                                     
153 Preamble to the GATT 1994, paragraph 3.  Panels should address issues in light of the underlying
purposes of the GATT 1994.   See US – Sugar Head Note,  paragraph 5.2-5.3.
154 Operational Guidelines for Imported Beef Under the SBS System, 26 December 1997, Article 9;
Guidelines for Handling Imported Beef, 1 October 1999, Article 25 .
155 Korea had bound the rate for beef at 20 per cent in the Tokyo Round of Negotiations.WT/DS161/R
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applicable to imported beef, there is no justification for the mark-up.  By collecting a mark-up on all
imported beef in addition to the ordinary duty provided for in its Schedule, Korea violates Article II:1
by imposing "other duties or charges" that exceed its bound tariff rate.
296. A tariff binding in a Member's Schedule provides an upper limit on the amount of duty that
may be imposed.  The application of customs duties or other charges in excess of those provided for
in a Member's Schedule, inconsistent with the second sentence of Article II:1(b), constitutes "less
favorable" treatment under the provisions of Article II:1(a).  As the Appellate Body has concluded,
"[a] basic object and purpose of the GATT 1994, as reflected in Article II, is to preserve the value of
tariff concessions negotiated by a Member with its trading partners, and bound in that Member's
Schedule.  Once a tariff concession is agreed and bound in a Member's Schedule, a reduction in its
value by the imposition of duties in excess of the bound tariff rate would upset the balance ofconcessions among Members.
156  This conclusion is no less valid with respect to "other charges" and
the commitment set forth in the second sentence of Article II:1(b).
297. In this connection it is also relevant that the WTO Understanding on the Interpretation of
Article II:1(b) of the General Agreement on Tariffs and Trade 1994 provides that:
the nature and level of any "other duties or charges" levied on bound tariff items, as
referred to in that provision, shall be recorded in the Schedules of concessions
annexed to GATT 1994 against the tariff item to which they apply.
298. Since Korea did not reflect the mark-up charged on imported beef in its Schedule as either an
other duty or charge, its imposition is contrary to Article II:1(b).
299. Korea  replied that 'Schedule LX-Republic of Korea NOTE to PART I: MOST FAVOURED
NATION TARIFF Section I:  Agricultural Products' c ontains an item 6 which  provides:  'According
to the results of the 1989 consultation with GATT/BOP Committee and the Uruguay Round
multilateral trade negotiation, the remaining restrictions on the items marked as '*Note 6(a)',
'*Note 6(b)', '*Note 6(c)', '*Note 6(d)', or '*Note  6(e)' in column 5 of Section I-A of Part I of this
schedule shall be eliminated or brought into conformity with GATT provisions from the dates
specified as follows:  *Note 6(a): 1995; *Note 6( b): 1 Jan. 1996; *Note 6(c): 1 Jul 1996; *Note 6(d):
1 Jul. 1997; *Note 6(e): 1 Jan. 2001.'
300. Korea explained that the products at issue in the current dispute (02.01 and 02.02) are marked
with the Note 6(e), thus meaning that the "remaini ng restrictions" shall be eliminated or be brought
into conformity with GATT provisions from 1 January 2001.  Item 6 of the Note, Korea continued,
does not enumerate which "remaining restrictions" are meant.  However, the plain meaning of thewords suggests that the "remaining restrictions" at issue are not necessarily in conformity with the
provisions of the GATT.  Otherwise there would be no need to provide that they should be eliminated
or be brought into conformity with GATT provisions by 1 January 2001.
301. It is not disputed by the Complainants, Korea continued, that at the time of conclusion of the
Uruguay Round, a mark-up on imported beef of 95 per cent was applied in 1994.  Hence, this mark-upwas at that time a 'remaining  restriction '.  Korea, therefore, submitted that this mark-up would only
need to be eliminated or be brought of into conformity with GATT provisions by 1 January 2001 for
the products at issue in the current dispute.  Consequently, Korea submitted, its Schedule LX clearly
allowed it to maintain "remaining restrictions" on beef until 1 January 2001.  Maintaining the mark-up
(which was phased out on 1 January 2000) cannot be considered a violation of its obligations underArticle II.  In addition, "Note 6(e)" is clearly indicated in Korea's Schedule with regard to tariff item
numbers 0201 and 0202 subject to this dispute.
                                                     
156 Argentina – Textiles (AB),  paragraph 47.WT/DS161/R
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302. This, Korea submitted, thus clarifies that, among others, the "mark-up" is one of the
"remaining" restrictions referred to in Note 6 of Korea's Schedule which existed at the time of
conclusion of the Uruguay Round.  This Annex also clarifies that the United States was very well
aware of the existence of this mark-up and its intended phase-out schedule at the time of negotiationof the Uruguay Round.  At the same time, it should be noted that nothing in this Annex suggests that
it intends to exhaustively list all remaining restrict ions in existence at the time of conclusion of the
Uruguay Round.  Korea considered that it has strictly observed the phase-out schedule of the mark-up
as agreed in the December 1993 Record of Understa nding with the United States, according to which
Korea have until 1 January 2001 to eliminate or br ing into conformity with GATT the remaining
restrictions.  Accordingly, Korea is not in violation of its obligations under Article II:1.  Furthermore,
Korea submitted, the claims brought by the United States and Australia with regard to this issue arecontrary to Article 26 of the Vienna Convention  (see paragraph 108).
303. For the sake of argument, Korea continued, to demonstrate that the mark-up was one of the
"remaining restrictions" existing at the time of the conclusion of the Uruguay Round, should the Panel
consider that this issue is not clear and further interpretation is necessary, Korea referred to Japan -
Alcoholic Beverages (AB) , in which case the Appellate Body held that there can be no doubt that
Article 32 of the Vienna Convention has attained the status of customary rules of interpretation of
public international law
157 and can be applied according to Article 3.2 of the DSU.  Article 32 of the
Vienna Convention stipulates that recourse may be had to supplementary means of interpretation,
including the preparatory work of a treaty and the circumstances of its conclusion, in order to confirm
the meaning resulting from the application of Ar ticle 31, or to determine the meaning when the
interpretation according to Article 31 (a) leaves the meaning ambiguous or obscure; or (b) leads to a
result which is manifestly absurd or unreasonable.
304. Korea submitted that the preparatory works of the treaty and the circumstances of its
conclusion with regard to Note 6 of Part I of Schedule LX can be found in two Records of
Understanding between the United States and Korea158  The December 1993 Record of Understanding
contains an Annex entitled "Beef" which states that: "The current July 15, 1993 Record of
Understanding (L/7270) shall continue to apply excep t as modified to incorporate the provisions of
the new understanding."  The United States seems to acknowledge the amendment of the 15 July 1993
Record of Understanding by the Annex in the December 1993 Record of Understanding containing
the new timetable.  The United States further seems to acknowledge that: " This timetable was
ultimately made a part of Korea's WTO Schedule of Concessions".  The United States therefore seems
to accept the existence of a certain linkage between the Annex attached to the December 1993 Recordof Understanding and Korea's WTO Schedule of Concessions.
305. The schedule for the phase-out of the mark-up on beef in the Annex to the December 1993
Record of Understanding is as follows:
1993 – 100;  1994 – 95;  1995 – 70;  1996 – 60;  1997 – 40;  1998 – 20;  1999 – 10;  2000 – 0.
306. Korea has submitted a document provided by the official of the United States Department of
Agriculture on 24 February 1994 which leaves no doubt that there was a clear agreement on the
application of a mark-up on beef by Korea in the Uruguay Round
159.  The application of a mark-up
was, therefore, consistent with Korea's obligations under Article II:1 and not contrary to Article III:2.
                                                     
157  Japan - Alcoholic Beverages (AB),   at 10.
158 Record of Understanding between the Government of the Republic of Korea and the Government of
the United States of America on market access for beef initialed on 26  June 1993;  and Record of
Understanding between Korea and the United States on agricultural market access in the Uruguay Roundinitialed on 13 December 1993.
159 "Talking Points", annexed to Korea's oral statement at first Panel meeting in December 1999.WT/DS161/R
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Furthermore, Korea implemented its December 1993 Record of Understanding obligations in good
faith and has since 1 January 2000 eliminated the mark-up in accordance with the schedule agreed in
the December 1993 Record of Understanding.
307. The United States retorted that the parties to the Records of Understanding expressly
preserved all of their WTO rights, which includes the right conferred by Article II to be free from
additional charges not provided for in the importing country's schedule.  Korea never provided for the
mark-up in its Schedule; nor did Korea refer to the Records of Understanding therein.  Second, the
bilateral agreement is not one of the Agreements annexed to the Marrakesh Protocol to the General
Agreement on Tariffs and Trade 1994, is not otherwise annexed to the WTO Agreement, and is not a
"covered agreement" listed in Appendix 1 of the Dispute Settlement Understanding.  Thus, it does not
create rights or obligations under the WTO; nor is it enforceable either by the United States or Koreain proceedings under the DSU.
308. In response to Korea's arguments in paragraph 306, the United States submitted that the
"talking points" annexed to Korea's 13 December 1999 oral statement underscore that the mark-up on
beef was viewed as a quid pro quo  granted to Korea in the 1993 Record of Understanding in exchange
for market opening undertakings, including a minimum access commitment.  The mark-up wasscheduled to end as specified in the Record of Understanding on 31 December 1999, unlike the
"remaining restrictions" referenced in Korea's Schedule which must be terminated by 1 January 2001.
Consistent with the US position, the penultimate "talking point" questions whether mark-ups are
consistent with Korea's bilateral and multilateral obligations and suggests that Korea review this
subject before submitting its country Schedule.
G. 
CLAIMS UNDER ARTICLE III :2 OF GATT
309. Australia  contended that alternatively to being inconsistent with Article II (see paragraph 293
above), the mark-up constitutes an internal tax or other internal charge on SBS imported beef.  Given
that domestic beef is not subject to a similar charge, the mark-up infringes Article III:2.  Australia
referred to the report of the Appellate Body in Japan - Alcoholic Beverages (AB)  as providing
guidance on the interpretation of Article III:2, first sentence.  The words of the first sentence require
an examination of the conformity of an internal tax measure with Article III by determining, first,
whether the taxed imported and domestic products are "like" and, second, whether the taxes applied to
the imported product are "in excess of " those applied to the like domestic products.  If the answer is
"yes" to both questions, then the measure is inconsistent with Article III:2, first sentence.  In
accordance with Article 3.8 of the DSU, such a violation is  prima facie  presumed to nullify or impair
benefits under Article XXIII.160  Australia submitted that it has already been established that domestic
and imported beef are like products (see paragraphs 168-170).
310. Australia claimed that the mark-up imposed on SBS imports constitutes an internal charge for
the purposes of Article III:2.  The question of the applicability of Article III to mark-ups was
considered by the panel in Canada - Marketing Agencies.  The panel was of the view that Article III:2
applied to mark-ups levied by Canadian Provincial Liquor Boards because they constituted internalgovernmental charges borne by products.
161  Australia observed that no mark-up or any equivalent
charge is applied to domestic beef.  This fact was confirmed by Korea in its consultations with
Australia on 28 May 1999.
311. Korea  reiterated that since in accordance with its Schedule of Concessions agreed to by the
United States and Australia, Korea benefits from a transition phase until 1 January 2001 to eliminateor bring into conformity all remaining restrictions  with regard to beef, which includes the mark-up,
                                                     
160 Page 19.
161 Paragraph 5.24.WT/DS161/R
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there can be no violation of Article III:2 as argued by Australia.  If the DSB were to rule that the
mark-up violates Article III:2 and it would need to be eliminated or brought into conformity with
GATT provisions before 1 January 2001, the DSB would impose upon Korea an additional obligation
beyond its obligations under Article II:1, reducing its rights to a transition phase as provided for in itsSchedule of Concessions.  Such a DSB ruling would violate Article 3.2 of the DSU which provides in
relevant part that:  "Recommendations and rulings of the DSB cannot add to or diminish the rights
and obligations provided in the covered agreements" (see also paragraphs 299-302).
H. 
CLAIMS UNDER ARTICLE XVII OF GATT
1. LPMO tendering opportunities
(For arguments under this section, see paragraphs122-125.  (Cf. also 287-289.)
2. Measures with respect to the allocation of  imported beef in the wholesale market
312. Australia  submitted that the tender process operated by LPMO, as well as the discharge
procedures operated by LPMO and NLCF, are cont rary to Article XVII.  A claim of infringement
under Article XVII:1(a) and (b) requires proving two elements:  (1) the body or organization falls
within the definition of a state trading enterprise;  (2) it acts in a manner inconsistent with the generalprinciples of non-discriminatory treatment.  Article  XVII:1(c) requires evidence that an enterprise has
been prevented from acting in accordance with the principles of non-discrimination, including
behaving in accordance with commercial considerations.
313. Australia submitted further that manipulation of the kind described in paragraphs 205-206
above is also contrary to the obligation contained in Article XVII:1(a) which requires LPMO andNLCF to conduct their business in a non-discriminatory fashion, on the basis of normal commercial
considerations.  The fact that these measures are required by law to be carried out by LPMO and
NLCF also results in a breach of Korea's obligations under Article XVII:1(c).  Australia argued that
LPMO has favoured some supplier countries over others, and domestic producers over producers of
imported products on the basis of beef production methods and an arbitrary quality distinctionbetween grain-fed and grass-fed beef.  It has done so as part of its beef stabilization policies.  Such
policies are inconsistent with the applicati on of commercial considerations required by
Article XVII:1(a).
314. Article XVII:1(a) applies to a "State enterprise ", or "any enterprise" that has been granted
"formally or in effect, exclusive or special privileges".  The Interpretative note to paragraph 1 extends
this to "Marketing Boards" which are engaged in purchasing or selling.  The 1960 final report of the
panel on Notification of State Trading Enterprises,  (paragraph 8 of L/1146, dated 24 May 1960)
considered that Article XVII and the Interpretative Notes provided sufficient guidance on which
enterprises were covered.  Australia pointed out that both the LPMO and the NLCF are notified as
state trading enterprises.  The LPMO is notified as a state trading enterprise in relation to beef.  Its
purpose is stated as to stabilize domestic livestock markets.  Its exclusive rights or privileges are
stated to be: "authorization to purchase foreign beef used to stabilize domestic beef market, andconduct the tasks of approval and post-import management of the beef quota purchase allocated to
private companies under the SBS system".
162  The NLCF has been granted exclusive or special
privileges to control the discharge of beef on behalf of the LPMO, including establishment and
implementation of regional and purchaser-based sales plans, discretion to decide daily discharging
                                                     
162 G/STR/N/4/KOR, Working Party on State Enterprises, 10 December 1998, page 6.WT/DS161/R
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volumes, and to adjust auction volumes in consideration of price movements of domestic
beef/cattle.163
315. Furthermore, Australia continued, Article XVII:1(a) requires a state trading enterprise to act
in a manner consistent with the "general principles of non-discriminatory treatment".  Whatconstitutes "non-discriminatory treatment" is not de fined.  Article 3.2 of the DSU stipulates that
provisions of the covered agreements be interpreted in accordance with the customary rules of
interpretation of public international law.  The Appellate Body in the  US – Gasoline (AB)  case took
this to mean that the WTO Agreements, including Ar ticle XVII , are to be interpreted in accordance
with Articles 31 and 32 of the Vienna Convention.
 164
316. Australia submitted that the purpose and object of the GATT is increasing freedom in trade
through the removal of barriers to trade as expressed in the preamble.  The "elimination ofdiscriminatory treatment in international commerce" refers to the GATT's fundamental principle of
non-discrimination.
165  Hence, Article XVII must be read according to this object and purpose.  Under
Article XVII, each Member undertakes that its state trading enterprises shall, with respect to its
purchases or sales involving either imports or exports, act in a non-discriminatory manner and make
such purchases or sales solely in accordance with commercial considerations.  Article XVIIrecognises that state trading enterprises have the potential for distorting international trade through
explicit or implicit subsidy policies or artificial pricing strategies.  Australia referred to the panel in
the Japan - Film case which acknowledged "a risk that WTO obligations could be evaded through a
Member's delegation of quasi-governmental authority to private bodies."
166
317. This also goes towards the security and predictability of concessions under the WTO system.
In this context, Australia also referred to EC - Computer Equipment (AB)  which agreed with the panel
that the security and predictability of "the reciprocal and mutually advantageous arrangements
directed to the substantial reduction of tariffs and other barriers to trade" is an object and purpose of
the WTO Agreement, generally, as well as of the GATT 1994.167  The value of concessions would be
undermined if countries could avoid the national treatment requirement of Article III through theactivities of state trading enterprises,.
318. Finally, the interpretative note provides:  "Throughout Articles XI, XII, XIII, XIV and XVIII,
the terms "import restrictions" or "export restrictions" include restrictions made effective through
state-trading operations."  This indicates, in the opinion of Australia, that the prescriptions applying to
state trading enterprises are not limited to the MFN treatment in Article I.  As concerns the "general
principles of non-discriminatory treatment" in Article XVII:1(a), Australia submitted that the term
must be read in the context of paragraph 1 of the Understanding on the Interpretation of Article XVII.This provides a working definition of state trading enterprises as:
"Governmental and non-governmental enterprises, including marketing boards, which have
been granted exclusive or special rights or privileges, including statutory or constitutional
powers, in the exercise of which they influence through their purchases or sales the level or
direction of imports or exports ."
319. This working definition captures the object and purpose of the provisions on state trading
enterprises, i.e. regulate their activities where they influence the level or direction of imports or
                                                     
163 Regulations Concerning Imported Beef , Articles 4, 6(1), 6(2), 9(2).
164 Page 17.
165 In The Regulation of International Trade , Rutledge, 1995, page 26, Trebilcock and Howse states
this principle as embracing both MFN and national treatment.
166 Paragraph 10.328.
167Paragraph 82.WT/DS161/R
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exports .  Discriminating between different exporting countries is only one way in which the level or
direction of imports is influenced.  Composition and levels of imports can also be influenced by
discrimination between imported and domestic g oods.  Excluding national treatment would void
Article XVII of much of its scope as revealed in the working definition.  The term must also be readin the context of Article XVII:1(b).  This refers inter alia  to affording the enterprises of other
Members adequate opportunity, in accordance with customary business practice, to compete for
participation in such purchases or sales.  Such opportunity would be rendered illusory where state
trading enterprises discriminate against imported goods in a way which restricts imports eg. by
imposing restrictions on cuts and types of  beef permitted to enter the market.  Moreover, "having due
regard to the other provisions of this Agreement" implies that Article III is relevant to an
Article XVII:1(a) examination.
320. Paragraph (b), Australia continued, provides that the provisions of (a) "shall be understood to
require" inter alia  commercial considerations.  Paragraph (b) therefore defines  the application of (a).
The wording "shall be understood to require" supports this.  An entity infringes the general principles
of non-discriminatory treatment where it fails to act on commercial considerations, or afford
importers adequate opportunity to compete.  Infringement of MFN occurs, in the opinion of Australia,when the LPMO favours the imports of one member over those of another on the basis of an arbitrary
distinction applied between the types of beef produced by different members.  The statement "having
due regard to the other provisions of this Agreem ent" suggests that the requirements are not limited to
those specified in paragraph (b).  State trading enterprises must also comply with the other provisions
of GATT, for example Article III.  Likewise, infringement of non-discrimination can be implied whenrequirements are imposed on imported product that are not imposed on domestic product and are
applied for reasons inconsistent with commercial considerations.  Article XVII does not provide a
definition of "commercial considerations but essentially, Australia contended, "commercial" connotes
buying and selling for financial gain or profit.
321. Referring to Article XVII, Australia considered further that by creating a distinction between
grass-fed and grain-fed beef and by excluding grass-fed beef from the three tenders in 1999, the
LPMO has limited the supply of imported grass-fed beef at a time when sales of grass-fed beef were
growing significantly.  The basis of the distinction is the policy of using imported beef to assist in the
stabilization of the prices of domestic cattle and beef.  Both the LPMO and the NLCF have acted to
withhold release of beef imported by the LPMO on to the wholesale market, either by supplying under
demand or by setting minimum prices for imports.  This has the effect of artificially restricting the
supply of imported beef.  Article 1 of the Regulations Concerning Sales of Imported Beef  refer to the
stabilization of the prices of cattle and beef in Korea.  By engaging in beef price stabilization, neither
the NLCF nor the LPMO are operating on the basis of commercial considerations.
322. In conclusion and referring to Article XVII:1(c) , Australia submitted that the actions by the
LPMO/NLCF are governed by laws imposed by the Go vernment of Korea, as part of its polices to
protect domestic beef.  The discharge procedures adopted by LPMO and NLCF are in accordancewith the requirements imposed by the Regulation Concerning Sales of Imported Beef, pursuant to the
Minister of Agriculture and Forestry's powers under Article 25 of the Livestock Act.  The regulations
impose upon both the LPMO and the NLCF the obligatio n of acting to stabilize the prices of domestic
beef.  In doing so, both organizations are therefore required by the Government of Korea to take
measures which are discriminatory towards imported beef and are inconsistent with commercialconsiderations.
323. Referring in particular to paragraph 321 above, Korea  replied that the distinction between
grass-fed and grain-fed beef does not by itself constitute discriminatory treatment or an infringement
of MFN principles.  Korea explained that all tenders are open to all supplying countries and perfectly
origin neutral.  Australian exporters are free to participate both in tenders for grass-fed and grain-fedbeef and Australia has not adduced any evidence that Australian products have been discriminatedWT/DS161/R
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against based on their origin.  If Australia's producers are operating on a commercial basis, they can
be expected to adjust to the customers' demand, rather than expecting the customer to change its
demand based on their supply.  Second, Korea continued, Australia's allegation that in excluding
grass-fed beef from the three tenders in 1999, LPMO has constricted the supply of imported grass-fedbeef at a time when sales of such beef were growing significantly, appears unfounded.  Korea referred
to the following purchase figures (customs cleared) by the LPMO
Year Australia Canada New Zealand United States Total
MT % MT % MT % MT % MT %
1997 50,567 33.3 5,097 3.3 13,093 8.6 83,232 54.8 151,989 100
1998 21,209 30 3,391 5 2,185 3 43,160 62 69,945 100
1999* 33,152 44 2,827 3,7 3,770 5 35,535 47,2 75,284 100
*first 6 months
324. Korea reiterated that it was clear from the above data that total purchases from Australia in
the first 6 months of 1999 represented a 44 per cent share of all purchases which is much higher than
their previous shares of 33.3 per cent in 1997 and of 30 per cent in 1998.  Therefore, these data do not
suggest any de facto  discrimination of Australian products. (Cf paragraph 123.)
325.  Furthermore, Korea considered that Australia's allegation that by engaging in beef price
stabilization, LPMO is not operating on the basis of commercial considerations and that price
stabilization and stability for consumers/producers is an extraneous consideration that goes beyond
engaging in buying and selling for financial gain is not substantiated by any prima facie  evidence
demonstrating the alleged inherent conflict between price stabilization and commercial considerations
in the LPMO operations.  Korea is of the opinion that the two policies are not inherently
contradictory.  Indeed, it makes perfect commercial sense to sell more products when there is ashortage and market prices are high, while selling less products at a moment when there is oversupply
and prices are low.  This is obviously a marketing strategy to maximize profits which at the same time
can have the effect of stabilizing prices (see also paragraph 207).
326. Australia  submitted that Article XVII incorporates an obligation for state trading enterprises
to abide by the national treatment principle.  In creating a distinction between grass-fed and grain-fedbeef for imported product, but not for domestic product, this principle has been breached by the
LPMO in its tendering processes.  The quality diff erential applied between the two for the purposes of
stabilising domestic beef prices is also contrary to commercial principles.
327. Korea has not addressed the Article XVII claims made by Australia in respect of these
measures (minimum prices, withholding beef from market by NLCF) except to claim that LPMO'spolicies of stabilising domestic beef prices is not inherently in conflict with commercial consideration.
Australia rejected this argument.  When imported beef is priced, not on the basis of profitability, but
with the aim of protecting domestic beef prices, which may or may not be a profitable exercise, the
requirements of Article XVII have been breached.  Australia also rejected Korea's claim that the
pricing of imported product in reference to the price of domestic product is evidence of normal
commercial behaviour.  It is not normal commercial behaviour to artificially raise the price of
imported product to improve the sale potential of competing domestic product.  The reverse is true.Australia referred the Panel to the findings of the panel on Canada - Marketing Agencies. (See also
arguments in paragraph 292.)
I. 
CLAIMS UNDER THE AGREEMENT ON LICENSING PROCEDURES
328. Korea's import licensing regime for imported beef is based on the issuance of import
recommendations by the LPMO, and is, in the view of the United States , totally discretionary and,WT/DS161/R
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therefore, constitutes a non-automatic licensing procedure for purposes of the Licensing Agreement .
Approval is not  granted in all cases;  no import recommendation is accorded by right.  Indeed,
Article 24 of the Final Livestock Act  provides that the criteria for import recommendations, i.e.  import
licences, shall be established by the MAF.  The Act specifies no criteria for issuing licences.Moreover, the licensing procedures are administered in such a manner as to have restrictive effects on
the imports in question.  Only the LPMO and th e super-groups are eligible to apply for import
recommendations.
168  No actual user or reseller of imported beef, unless a super-group, is permitted to
import beef directly or to obtain an import approval.
329. These restrictions are in addition to the resale  and use limitations that apply to customers and
end-users of the respective super-groups.  The United States submitted further that the LPMO, as
administrator of the licence approval and SBS system, has delayed quota allocations, postponed theinvitation of tenders, and discouraged licence approval requests which have resulted in additional
impediments to the entry and sale of imported beef.  Each of these licensing procedures is inconsistent
with the requirements contained in the Licensing Agreement .
169  Specifically, Article 3.2 provides that
"Non-automatic licensing shall not have trade-restrictive or –distortive effects on imports additional to
those caused by the imposition of the restrictions."
330. Article 3.1 defines non-automatic import licensing procedures as import licensing not falling
within the definition contained in Article 2.1.  Article 2.1 in turn defines "automatic import licensing"
as "import licensing where approval of the application is granted in all cases, and  which is in
accordance with the requirements of paragraph 2(a)."  In the case of Korea, no party can automatically
import beef.  Moreover, only the LPMO and the super-groups can import beef through discretionarylicensing.  From the foregoing, the United States argued, it follows that Korea's regime is a non-
automatic licensing system and that, therefore, it is subject to the obligations contained in Article 3 of
the Licensing Agreement .  The obligation encompassed in Article 3.2 reflects the Licensing
Agreement's  objectives that the flow of international trade not be "impeded by the inappropriate use of
import licensing procedures" and that "licensing procedures should be no more administrativelyburdensome than absolutely necessary to administer the relevant measure."
170
331. The United States considered that Korea's discretionary licensing approval regime has trade
restrictive effects additional to those created by the approval regime itself, by inter alia imposing
severe limitations on the scope of importers' busine ss activities, i.e. confining an individual super-
groups' import authority to importation on behalf of a designated set of customers, as well as
restrictions on the use and resale of imported beef by the importers' customers.171  The effect of these
restrictions can be seen in the substantial decline in the volume of beef imported during 1998.  Korea'simports of beef fell from 166,092 to 92,026 metric tonnes (product weight basis) between 1997 and
1998.  Thus, just 49 per cent of the available quota was imported in 1998, whereas such imports had
comprised fully 99 per cent in 1997.  Imports of beef declined vis-à-vis  Korean beef both in terms of
relative quantities shipped and market share as a result of the LPMO's administrative procedures.
Thus, whereas production of Korean beef increased by 12 per cent from 236,527 to 264,074 metrictonnes (boneless weight basis) between 1997 and 1998, imports of beef declined by 45 per cent from
166,092 to 92,026 metric tonnes (product weight basis) .  As a percentage of Korean consumption,
imported beef also decreased from 46 to 27 per cent over the same period, while Korean producers
increased their market share from 54 to 73 per cent of domestic consumption.
                                                     
168 Guidelines for Handling Imported Beef, Articles 2.3, 11, 26 December 1999.
169 The Appellate Body found in EC - Bananas III(AB)  (paragraphs 193-194) that import licensing
procedures for the administration of tariff quotas are subject to the Licensing Agreement  and to the obligations
thereby established.
170 Preamble, Licensing Agreement , paragraphs 8 and 9.
171 Operational Guidelines for Imported Beef under the SBS System, Article 12; Guidelines for
Handling Imported Beef, 1 October 1999, Article 27.WT/DS161/R
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332. The United States submitted that the low volume of beef imported by the LPMO during the
first five months of 1999, less than 10 per cent of its quota,172 suggests that the LPMO was again
refraining from inviting tenders for beef.  In addition, the LPMO withheld over 32,000 metric tonnes,
or approximately 22 per cent, of the SBS quota, refusing to allocate it until well into the secondcalendar quarter of 1999.  This action meant that no import licences could be sought for that quota
amount, a situation compounded by what the United States understood was active interference in the
import approval process.  Trade sources reported that the LPMO requested and obtained a reduction
of 30 per cent in the import recommendation requests that were made by the super-groups in
January 1999.  These trade disruptive licensing procedures, viewed cumulatively, had precisely the
trade restrictive effect that Article 3.2 of the Licensing Agreement  is intended to forestall.  The
LPMO's licensing procedures during 1998 and 1999, thus , constitute a violation of Article 3.2 of the
Agreement.
333. While the financial crisis that affected much of Asia, including Korea, during 1998
contributed to this decline, the United States was of the view that a substantial portion of this decrease
can be attributed to the LPMO operating procedures during 1998 and the first half of 1999, and the
restrictions on access to import licences under Korea's regime for importation of beef.  Because theLPMO in 1998 still directly controlled 40 per cent of the import quota for beef, its failure to initiate
tenders for imported beef until approximately mid-year altogether precluded any possibility that its
portion of the quota would be filled that year.  Because of the LPMO's role as both importer and
administrator of Korea's licensing system, its failure to initiate tenders for imports of beef is, in the
opinion of the United States, the equivalent of a refusal to issue import licences, as no import approvalfor beef within the LPMO's quota share can occur without an invitation for tenders for beef imports.
.In addition, by refusing to reallocate quota share among the super-groups, or to qualify any other
entities as super-groups eligible to import beef, the LPMO also reduced the ability of the private
sector to utilize its quota share.
334. Replying to the United States arguments in paragraphs 328-333 above, Korea  submitted that
it does not operate a 'discretionary licensing system' contrary to the Licensing Agreement .  The cases
cited by the United States in support of its allegations are, according to Korea, not relevant in the
present situation since in all of the cases cited, without exception, there was no legally valid quota or
quantitative restriction in place in the importing Member country.  The Korean licensing procedures
have not had "trade-distortive effects on imports additional to those caused by the imposition of the
restriction."  Korea reiterated that it applies and administers a quota on beef products, the legality of
which is not in dispute.  To this end, Korea maintains an import licensing regime which is designed toenable full allocation of the quota and which is in full compliance with Article 3, including
Article 3.2.  Article 3 recognizes the necessity of non-automatic import licensing procedures as a
means of administering restrictions such as quotas  and, subject to compliance with the provisions of
Article 3 (as well as those of Article 1), recognizes the legality of such procedures.  Korea submitted
that both the legal and factual arguments advanced by the United States are fundamentally flawed andseriously mischaracterize the import system maintain ed by Korea.  The first mistake in the United
States' reasoning is that it appears to equate the mere existence of a non-automatic licensing regime
with a violation of Article XI:1.  This implication is erroneous.  Article 3 expressly recognizes the
legality of discretionary licensing systems, subjec t to compliance with the applicable provisions of
that Agreement.
335. Article 3.2, Korea continued, foresees and sanctions the use of non-automatic licensing
procedures in the context of administering an otherwise WTO-consistent restriction .  As regards
Article XI:1 of GATT, the question of whether Korea's licensing system with respect to enforcing the
                                                     
172 No other qualified importer, other than the producer-dominated NLCF, entered a comparatively
small percentage of its quota share.  Many of the super-groups had entered a third or more of their allocation byMay 1999.WT/DS161/R
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beef quota may be termed discretionary is entirely  irrelevant, to the extent that the Complainants
cannot establish that the licensing system operates as a separate restriction on the importation of beef
products additional to the legal quota, and acts to intensify the quota effect .  In the opinion of Korea,
neither of the Complainants has furnished any evidence that this is the case .  In particular, contrary to
the assertion by the United States that import approval by the LPMO is "not granted in all cases,"( see
paragraph 328) the LPMO has never refu sed to issue an import recommendation.
336. Moreover, the assertion by the United States that "[t]he licensing procedures are indeed
administered in such a manner as to have restrictive effects on the imports in question" (see paragraph
328) is inaccurate.  The so-called restriction of el igibility to apply for import recommendations to the
LPMO and super-groups is designed to ensure an ef ficient and transparent allocation of the available
quota and in no way constitutes a restriction within the meaning of Article XI:1 of GATT additionalto the restriction imposed in the form of the legal quantitative restriction.  The LPMO has consistently
purchased its entire allocated quota amount, including during the height of the financial crisis in 1998.
With respect to imports of allocated quota share through the SBS system, these imports are effected
on the basis of market factors and the import demands of the members of the various super-groups.
The import licensing system applied by Korea does not, therefore, in any way constitute a restrictionon importation in addition to the legal quantitative restriction applied by Korea.
337. Furthermore, Korea considered that the United States has not established any causal link
between Korean licensing procedures and US loss of market share.  The restrictions cited by the
United States relate to measures which implement the quota.  However, the alleged restrictions do not
fall within the scope of the Licensing Agreement .  Korea referred to the EC - Poultry  case, in which it
was clearly established that the complaining party must demonstrate not only trade distortive effects
beyond those caused by the imposition of the restriction within the meaning of Article 3.2, but also a
clear causal relationship between import licensing procedures maintained by a Member and any injury
suffered by the complaining Member.  The panel in the EC - Poultry  case held that the complaining
party had failed to establish that its fall in market share could be attributed to trade-distortive importlicensing procedures maintained by the respondent.
173
338. Similarly, the United States seeks to demonstrate the alleged trade distortive effects by
reference to the fall in overall import share during 1998 (see paragraph 331).  Korea reiterated that
this argument substantially underplays the crucial significance of the market conditions prevailing at
that time in the context of the Asian crisis.  Indeed, the decisive nature of this factor in leading to an
overall decreased import share can conclusively be demonstrated by the fact that, while Korea has
operated the same or similar licensing procedures for several years, a system which is recognized inthe US/Korea Record of Understanding, the quota has,  with few exceptions, been fully utilized.  In the
view of Korea, and referring to the EC - Poultry  case, the United States has not established a causal
link between import licensing procedures maintained by Korea and a fall in beef imports in 1998.
339. Furthermore, Korea submitted, the US allegations does not establish that the Korean licensing
regime has had "trade-restrictive or distortive effects on imports additional to those caused by theimposition of the restriction" within the meaning of Article 3.2 of the Agreement.  In the view of
Korea, the United States fails to recognize the distinction between import licensing  rules  on the one
hand, and import licensing  procedures  on the other hand.  While the latter is subject to the disciplines
of the Licensing Agreement , the former has consistently been held not to fall within the scope of the
Licensing Agreement .  Korea referred to EC - Bananas III(AB) , in which case the Appellate Body
stated that the Licensing Agreement  was concerned with the application and administration of import
                                                     
173 At paragraph 249.WT/DS161/R
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licensing procedures, and required that this application and administration be "neutral […] fair and
equitable."174 The Appellate Body went on to state that:
"As a matter of fact, none of the provisions of the Licensing Agreement concerns import
licensing rules, per se.  As is made clear by the title of the Licensing Agreement, it concernsimport licensing procedures.  The preamble of the Licensing Agreement indicates clearly that
this agreement relates to import licensing procedures and their administration, not to import
licensing rules.  Article 1.1 of the Licensing Agreement defines its scope as the administrative
procedures used for the operation of import licensing regimes".
175
340. Applying this principle to Article 1.3, the Appe llate Body considered the question of whether
the imposition of different licensing systems on like products when imported from different Memberswas prohibited under the Agreement.  The Appellate Body (overruling the panel) determined that such
a system was related to import licensing rules and not to procedures.  It was, therefore, concluded that
such a system was not precluded by the Licensing Agreement .  This principle was also applied in the
EC - Poultry  case where, the panel examined claims by Brazil that the EC allocated import licences on
the basis of, among others, export performance.  The panel, quoting from the EC - Bananas  III (AB)
Appellate Body report and applying the distinction between import rules and import procedures in the
context of Article 1.3, stated that:
"By its very terms, Article 1.3 of the Licensing Agreement clearly applies to the application
and administration of import licensing procedures, and requires that this application and
administration be 'neutral … fair and equitable'.  Article 1.3 of the Licensing Agreement doesnot require the import licensing rules, as such, to be neutral, fair and equitable.  Furthermore,
the context of Article 1.3 – including the preamble, Article 1.1 and, in particular, Article 1.2
of the Licensing Agreement – supports the conclusion that Article 1.3 does not apply to
import licensing rules."
176
With respect to the requirement under consideration in that case, the panel concluded that:
"In our view, the issue of licence entitlement based on export performance is clearly that of
rules, not that of application or administration of import licensing procedures.  Thus,
Article 1.3 is not applicable to this specific issue."177
341. The general provisions of Article 1 of the Licensing Agreement , Korea continued, shed light
on the type of procedures and administrative issues with which the Agreement is concerned.  Theseinclude the requirement to notify information concerning procedures for the submission of
applications, eligibility, the administrative bodies to be approached and the list of products subject to
the licensing requirement in order that traders and governments can become familiar with them
(Article 1.4(a));  the requirement that applicatio n forms or renewal forms should be as simple as
possible (Article 1.5); requirements on the minimum time for submitting applications (Article 1.6);the requirement that applications shall not be refused in cases where minor documentation errors have
occurred (Article 1.7),  etc.
342. In light of the cases cited above (paragraphs 339-340), Korea submitted that the only issue
before the Panel in this case is whether Korea' s licensing regime for the quota complied with the
administrative procedures set out in the Licensing Agreement .  In this regard, the United States has not
identified any procedures or administrative elements  of Korea's licensing regime that are in any way
                                                     
174Paragraph 197.
 175Ibid.
176 Op.cit. paragraph 197.
177 Paragraph 254.WT/DS161/R
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contrary to Article 3.2.  Moreover, the United States has not established that any of the alleged
measures or practices complained of constitute import licensing procedures within the meaning of the
Agreement, as opposed to, at most, import licensing rules.  Specifically, the system under which
licence entitlement occurs in the context of SBS su per-groups and the LPMO clearly relates to import
licensing rules and not procedures.  This element is, therefore, not subject to challenge under the
Licensing Agreement .  Similarly, the United States has not established how its allegations that
constraints are placed on the class of entities which can conduct business with each super-group relate
to import licensing procedures covered under the Agreement, or how such alleged procedures are
inconsistent with Article 3.2.
343. In addition, the United States provides an inaccurate characterization of the conduct and role
of the LPMO.  With regard to the allegation that the LPMO has delayed quota allocations andpostponed invitations of tenders (paragraph 333 above), Korea noted that the LPMO has consistently
procured the share of the quota attributable to the LPMO, even in the difficult circumstances
surrounding the Asian crisis and despite the very considerable foreign exchange losses incurred by the
LPMO.  While, at the height of this crisis, so me unavoidable delays occurred due to collapsing
demand and the inability to contain the build-up of beef stocks, this cannot be attributed to importlicensing procedures maintained by Korea.
344. The allegation by the United States that the LPMO discouraged licence approval requests
(paragraph 331 above), Korea continued, misrepresents the actual facts.  In the Records of
Understanding concluded with the United States, Korea has undertaken to progressively expand the
role of the SBS system by further increasing the number of super-groups under the system.  This wasdone at the specific request of the United States.  It was in furtherance of this objective that the LPMO
requested that the super-groups make appropriate adjustments to their import demands, so as to be
able to expand the number of participating super-groups.  Far from constituting an import licensing
procedure having additional trade-restrictive or distortive effects on imports, these actions were
undertaken with the specific objective of further liberalizing trade with respect to imported beef.  Forthese reasons, the arguments that Korea violated the Licensing Agreement  must be rejected.
345. The United States  retorted that Korea has not substantiated its contention that Korea's
licensing authority's delays in tendering for imports and allocation of quota share do not constitute
procedures under the Licensing Agreement .  The LPMO's decision not to tender for imported beef for
the six month period from November 1997 through April 1998 constitutes, in the opinion of the
United States, a procedure as that term is commonly construed.
178  On the same basis, the withholding
of quota allocation for four months at the beginning  of 1999 is also a licensing procedure for purposes
of the Licensing Agreement .  Korea's assertion that there is no causal link between these LPMO
procedures and the resulting distortion to trade (see paragraph 337 above) is likewise erroneous.  The
withholding of quota allocations for new super-groups when several of the super-groups already
possessing quota share were on track to fully utilize their distributed shares meant that the new super-
groups were denied an opportunity to participate in the market during a period when commercialactivity was recovering.  The delay in allocation meant that for the period of the delay Korea, in
essence, was maintaining the quota at the level se t for earlier years despite its Schedule commitment
to enlarge the quota on an annual basis.  This, according to the United States, resulted in trade
restrictions beyond those associated with the quota.
346. The delay in tendering, the United States continued, kept imports of beef out of the Korean
market until tenders resumed in May 1998.  It explains in part why the LPMO filled a far smaller
percentage of its quota share than some of the super-groups operating under the SBS system.  Three
of the super-groups, KMIA, LCTM, and KMPA, filled virtually 100 per cent of their quota in 1998.
In comparison, the LPMO's late tenders meant that , while the LPMO ultimately tendered for 100 per
                                                     
178 Cf. The New Shorter Oxford English Dictionary (1993 ed.).WT/DS161/R
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cent of its allotted quota during 1998, over 30 per cent of the beef for which tenders were invited did
not enter Korea until sometime in 1999.  The United  States submitted that the LPMO's tendering
procedures deteriorated further in 1999.  Thus, while it's quota share in 1999 is 61,800 MT, LPMO
did not tender for 30,000 MT of that total until late in November 1999, ensuring that most of thoseimports would not enter Korea until sometime in 2000.  The LPMO's delayed tendering cannot be
attributed to lack of market demand for beef imports since several of the super-groups will fill their
1999 quotas.
347. Korea's suggestion that the situation of beef im ports in the Korean market is similar to the
circumstances prevailing in the EC - Poultry case (see paragraph 340), is also unfounded in the
opinion of the United States.  Whereas imported beef entering Korea declined both in absolute terms
and as a percentage of total Korean beef consumption between 1997 and 1998, in the EC - Poultry
case Brazil's exports to the EC had remained stable as a percentage of the TRQ and had increased
overall.  Perhaps more importantly, the EC poultry TRQ was being fully filled.  In contrast, imports of
beef were held to just 45 per cent of the Korean quota in 1998.  Thus, there is no basis for a
determination here that trade in imported beef is not distorted within the meaning of Article 3.2 by
Korea's procedures in administering its beef quota.
348. Korea  responded that in the EC - Poultry case, Brazil made several claims with regard to
import licensing procedures maintained by the EC, including the failure to notify relevant procedures
to the Licensing Committee, frequent changes in licensing rules which allegedly made it difficult for
traders and governments to become familiar with such procedures, overall lack of transparency and
the issuance of licences in economic quantities.  Brazil argued that its market share had dropped inrecent years and alleged that this was due to the trade-distortive effects of the EC's import licensing
procedures, including those mentioned above.
349. The panel concluded that Brazil had failed to establish that its fall in market share could be
attributed to any trade-distortive import licensing procedures maintained by the EC.  The Panel noted
that:
"[T]he licenses issued to imports from Brazil are fully utilized, which strongly suggests that
any trade-distortive effects of the operation of the licensing rules have been overcome by
exporters.  […]  Therefore, we fail to understand the relevance of the decline in the
percentage share in total trade to a violation of the Licensing Agreement. "
179
The panel's findings in the EC - Poultry case on this point were upheld by the Appellate Body.
350. With reference to the United States arguments in paragraph 346, Korea submitted that these
substantially downplay the crucial significance of the market conditions prevailing at that time.  Korea
stressed again that, while it has operated the same or similar licensing procedures for several years,
the quota has, with few exceptions, been fully utilized.  The fall in the import share in 1998 is clearly
attributable to the severe economic crisis affecting Korea during this period.  In the opinion of Korea,
the United States has not established that any of the alleged measures or practices complained ofconstitute import licensing procedures within the meaning of the Agreement, as opposed to import
licensing rules.  Korea reiterated that the system governing licence eligibility in the context of SBS
super-groups and the LPMO clearly relates to import licensing rules and not procedures.  As such,
they are not subject to challenge under the Licensing Agreement .  For these reasons, the arguments
that Korea violated the Licensing Agreement must be rejected.
                                                     
179 EC - Poultry , at paragraph 249.WT/DS161/R
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J. CLAIMS UNDER THE AGREEMENT ON AGRICULTURE180
1. Article 4.2 of the Agreement on Agriculture
351. Australia  noted that Article 4.2 of the Agreement on Agriculture181 has not been the subject
of a detailed examination by a WTO panel or the Appellate Body.  However, in  India - Quantitative
Restrictions , the panel found that a range of Indian measures were quantitative restrictions which
violated Article XI:1 and Article 4.2 of the Agreement on Agriculture.182  The Appellate Body in EC -
Bananas III(AB)  also made some comments on the relationship between Article 4.2 and the provisions
of other multilateral trade agreements in Annex 1A to the WTO Agreement.183  The panel found that
the Agreement on Agriculture does not permit measures which are contrary to the obligations imposed
by GATT 1994, except where specifically provided.  The relationship between the provisions of the
GATT 1994 and of the Agreement on Agriculture is set out in Article 21.1 of the Agreement on
Agriculture .184
352. Article 4.2 expressly prohibits the maintenance, reversion or resort to measures of the kind
required to be converted to ordinary customs duties.  Footnote 1 of Article 4.2 provides an indicative
list of the kinds  of measures required to be converted into ordinary customs duties.  These include
quantitative import restrictions, variable import levies, minimum import prices, discretionary importlicensing, non-tariff measures maintained through state-trading enterprises, voluntary export
restraints, and similar border measures other than ordinary customs duties.
353. The provisions of the GATT 1994 apply to market access commitments concerning
agricultural products, except to the extent that the Agreement on Agriculture  contains specific
provisions dealing with the same matter.  Therefore, Australia argued, if a measure is a quantitativerestriction for the purposes of Article XI:1, then it is also a quantitative restriction in violation of
Article 4.2.  The approach of the panel in India - Quantitative Restrictions  reflects this view.  As
argued below (paragraph 354), the discharge system for beef imported by the LPMO is a quantitative
import restriction and is therefore in violation of Article 4.2 of the Agreement on Agriculture .
354. Footnote 1 of Article 4.2 also lists non-tariff measures maintained through state trading
enterprises as measures of the kind prohibited under Article 4.2.  In the view of Australia, the
discharge system for beef imported by the LPMO is also a non-tariff measure maintained through
state trading enterprises.  Furthermore, the maintenance of minimum wholesale prices for LPMO
imports and withholding of stocks from sale are non- tariff measures maintained by the LPMO and the
NLCF which artificially constrict the supply of imported beef into the market and, as a consequence,
restricts imports through delays in holding tenders and deferred shipping dates.  Australia added that
the measures referred to in paragraph 128 above are also contrary to Article 4.2 of the Agreement on
Agriculture  since they constitute both quantitative restrictions and non-tariff measures maintained by
state trading enterprises and are, therefore, measures of the kind expressly prohibited by Footnote 1 of
Article 4.2.
355. The Complainants noted that during the negotiation of the WTO Agreement on Agriculture ,
the participants in the Uruguay Round agreed to eliminate their non-tariff barriers to trade in
                                                     
180 Note:  when not otherwise stated, article numbers in this section refer to those of the Agreement on
Agriculture.
181 "Members shall not maintain, resort to, or revert to any measures of the kind which have been
required to be converted into  ordinary customs duties, except as otherwise provided for in Article 5 andAnnex 4".
182 Paragraph 5.241.
183 Paragraphs 154-157.
184 "The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the
WTO Agreement shall apply subject to the provisions of this Agreement".WT/DS161/R
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agricultural products and to replace them with tariffs, which would be subject to reduction over time.
The Complainants submitted further that Korea has kept in place a number of non-tariff measures that
by virtue of the footnote to Article 4.2 should have been eliminated.  These measures include Korea's
discretionary import approval system, its maintenance of other import restrictions including, but notlimited to, the LPMO's establishment of minimum bid prices for imported beef and MAF's
prohibitions on the sale and distribution of imported beef outside of the rigid channels of the SBS
system.  The United States  was of the view that Korea's continued maintenance of such measures is
inconsistent with Korea's obligations under Article 4.2 of the Agreement on Agriculture.
356. Korea  replied that the Complainants' arguments with respect to Article 4.2 of the Agreement
on Agriculture  contain the same mistakes presented in their arguments under Article XI:1 of GATT
1994.  For the reasons outlined above (see paragraphs 146-156 and 150-153) no prima facie  case of
violation has been established since no causality was demonstrated between the alleged additional
restrictions and the restrictions ensuing from the legal quota itself.  Korea submitted that Article 4.2
should be read in conjunction with Article 4.1 which recognizes explicitly that in the Schedules there
may be "other market access commitments as specified therein".  Korea reiterated that its
Schedule LX contains a note 6(e) for beef which provides that Korea benefits from a transition periodand is required to eliminate or bring into conformity all remaining restrictions on beef only by
1 January, 2001.
2. Article 6 of the Agreement on Agriculture
(i) De Minimis
357. Australia  submitted that in 1997, Korea provided domestic support to its beef industry which
exceeded the de minimis  levels and which therefore were required to be included in its calculations of
its Current Total Aggregate Measure of Support (AMS ).  This resulted in Korea's Current Total AMS
for 1997 being in excess of its reduction commitments for that year, contrary to Articles 3, 6 and 7 of
the Agreement on Agriculture .
358. The United States  argued that Korea's determination that the support it provided to its
domestic cattle industry in 1997 and 1998 was de minimis  is not consistent with the provisions of
Article 6.4.(a)(i) of the Agreement on Agriculture .  Korea's failure to include that support in its
Current Total AMS for 1997 and 1998 violated the requirements of Article 7.2.(a) of the Agreement
on Agriculture .  Finally, adding the amount of support Korea provided to the cattle industry into its
Current Total AMS for 1997 and 1998, Korea has exceeded its domestic support commitments under
the Agreement on Agriculture .
(ii) 1997
359. Australia noted  that Article 6.4 of the Agreement of Agriculture provides that "A member
shall not be required to include in the calculation of its Current Total AMS … product specific
domestic support which would otherwise be required to be included in a Member's calculation of its
Current AMS where such support does not exceed 5 per cent of that Member's total value of
production of a basic agricultural product during the relevant year" and that for developing countrymembers the de minimis  percentage under this paragraph shall be 10 per cent.
360. Australia  submitted that in each year that Korea has made domestic support notifications to
the WTO, it has claimed that product-specific support for beef was  de minimis,
185 i.e. not exceeding
                                                     
185 Article 6.3 provides:  "A Member shall be in compliance with its domestic support reduction
commitments in any year in which its domestic support in favour of agricultural producers expressed in terms ofWT/DS161/R
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10 per cent of the total value of beef production for that year, even though the notified level of support
for beef has increased substantially from 1.12 billion won in 1995 to 195.27 billion won in 1997 and
183.06 billion won in 1998.  For this reason, domestic support for beef has not been included in
calculations of the Current Total AMS.  However, calculations based on figures published by theOECD and the MAF show that for 1997, Kor ea's domestic support for beef was above the de minimis
level and should have been calculated as part of Korea's Total AMS.
361. Australia noted that Article 1 of the Agreement on Agriculture  defines "Aggregate
Measurement of Support" and " AMS" as the annual level of support, expressed in monetary terms,
provided for an agricultural product in favour of producers of the basic agricultural product or non-
product-specific support provided in favour of agricultural producers in general, other than support
provided under programmes that qualify as exempt  from reduction under Annex 2 to this Agreement,
which is:
(i) "with respect to support provided during the base period, specified in the relevant
tables of supporting material incorporated by reference in Part IV of a Member's
Schedule, and
(ii) with respect to support provided durin g any year of the implementation period and
thereafter, calculated in accordance with the provisions of Annex 3 of this Agreement
and taking into account the constituent data and methodology used in the tables of
supporting material incorporated by reference in Part IV of the Member's Schedule".
362. With respect to (i) above, Korea has specified no product-specific support for beef in its
tables of supporting materials contained in G/AG/AGST/KOR.  In relation to (ii) above, product
specific support in favour of producers of beef provided in 1997 must be calculated in accordance
with the provisions of Annex 3 which presents the methodology for calculating the AMS.  The AMS
is required to be calculated on a product-specific basis for each basic agricultural product receivingmarket price support, non-exempt direct payments  or any other subsidy not exempted from the
reduction commitment.  Market price support, such as that provided by Korea to its domestic beef
industry, Australia submitted, is to be calculated using the gap between a fixed external reference
price and the applied administered price multiplied by the quantity of production eligible to receive
the applied administrative price.
186 (Cf.  paragraph. 420.)
(iii) Eligible production
363. Australia submitted that in its Notification to the Committee on Agriculture for 1997, Korea
indicates that eligible production for price support measures for beef was 35,127 tonnes.  However, on
                                                                                                                                                                    
Current Total AMS does not exceed the corresponding annual or final bound commitment level specified in Part
IV of the Member's Schedule."
Article 6.4 provides:(a) "A Member shall not be required to include in the calculation of its Current total AMS and
shall not be required to reduce:
(i) product-specific domestic support which would otherwise be required to be included
in a Member's calculations of its current AMS where such support does not exceed 5 per cent of thatMember's total value of production of a basic agricultural product during the relevant year; and
(ii) non-product specific domestic support which would otherwise be required to be
included in a Member's calculation of its current AMS where such support does not exceed 5 per cent
of the value of that Member's total agricultural production.
(b) For developing country Members, the de minimis  percentage under this paragraph shall be 
10 per cent."
186 Annex 3.8, Agreement on Agriculture .WT/DS161/R
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the basis of Korea's own conversion rates, Australia submitted that eligible production was in fact
56,615 tonnes of beef based on the eligibility for support of 170,000 cattle in 1997.
364. Australia considered that Annex 3.8 of the Agreement on Agriculture  is unambiguous in its
reference to "eligible production" being the basis upon which to calculate levels of domestic support.The definition of "eligible" is "fit, suitable or qualified".
187  The calculation of the level of market
price support on actual purchases is clearly inconsistent with this requirement and results in a lower
level of support for beef than if all production "eligible" for the payment were included.  Thus, the
eligible production figure used by Korea in its notification should show the number of cattle (or
tonnage of beef) that was qualified and could possibly have been purchased under its support
programme for 1997.  It is not sufficient to show only what was  actually  purchased in that period.
On this basis Australia continued, market price support for beef in 1997 was 281.9 billion won, ratherthan the 194.2 billion won notified by Korea.  Adding the 1.09 billion won in other budgetary outlays
for beef notified by Korea in G/AG/N/KOR/18, this pushes Korea's total AMS for beef in 1997 to
282.9 billion won rather than the 195.27 billion won notified.
365. Australia  and the United States  noted that in 1997, the domestic support programme for beef
began on 26 January when the Korean government started to purchase cattle to prevent the falling ofcattle prices.  The programme continued throughout 1997 (340 days) with 500 head of 500 kg.
Hanwoo steers (cattle) at 2,400 thousand won per hea d, per day, eligible to be purchased by NLCF
and KCSC.  Under the most conservative approach, therefore, eligible production should be no less
than the quantities announced by MAF as eligible fo r daily procurement, which in this case would be
170,000 head of Hanwoo steers (500 head per day x 340 days).  This quantity, [170,000 head of500 kg. steers,] would yield 52.615 thousand tonnes  of beef, carcass basis, and not the 35,127 tonnes
announced by Korea in its notification to the Committee on Agriculture for 1997.
188  Therefore,
Korea's 1997 market price support should have been calculated as follows:
AAP
(1,000
won/tonnne)FERP
(1,000
won/tonnne)EP
(1,000 tonnes)Market Price
Support
(billion won)Quality Incentive
Programme
(billion won)TOTAL
Support for Beef
(billion won)
7,754 1,823 52.615 312.082 1.09 313.173
366. Australia  submitted that it cannot agree with Korea's claim that the words "quantity of
production eligible to receive the applied administered  price'' in Annex 3:8 can be interpreted to mean
actual procurement.  Presumably, if the drafters of the Agreement had intended actual procurement
rather than eligible production, they would have ch osen those words instead, since the words eligible
and actual have clearly different meanings.  Australia noted Korea's statement in paragraph 384 that
its market price support also extended to dairy and hybrid cattle.  Australia, therefore, assumed that
production eligible for support is even higher than that shown by Australia.  Nor does Australia accept
Korea's claim that its determination of eligible production is consistent with the methodology applied
in its tables of supporting materials incorporated by reference in Part IV of its Schedule.  The factremains, that domestic support programmes for beef do not appear in Korea 's supporting materials.
This being the case, the methodology provided in Annex 3 of the Agreement on Agriculture  must
apply.
367. Furthermore, the Complainants  concurred with the analysis provided by New Zealand on the
concept of eligible production in paragraph 479.
                                                     
187 Collins Concise Dictionary , William Collins and Son, page 403.
188 (170,000 x 500 kg. = 85 million kg. beef live basis, multiplied by 61.9 per cent = 52,615,000 kg. or
52.615 thousand tonnes beef.)WT/DS161/R
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368. In the opinion of Australia, Korea has not substantively rebutted the definition of "eligible
production" claimed by Australia.  Eligible production is not actual production as claimed by Korea.
Korea has failed to provide any alternative definition of the term "eligible production".  The fact that
Korea has always used actual production figures to calculating the base AMS is irrelevant given thespecific requirements of the Agreement on Agriculture .  Australia noted that Korea did not provide
product specific support for beef in the base period and consequently it can not be claimed that the
way that beef is calculated is consistent with the approach to base period calculations.  Australia
supported the views expressed by New Zealand that, in the absence of a calculation for product
specific support for beef in the base period, there is no "constituent data and methodology" for beef
contained in Korea's Schedule.  Hence, Annex 3 of the Agreement on Agriculture  needs to be the
starting point for determining the appropriate calculation method of the support level for beef.
369. The United States  submitted that Korea also has disregarded the prescriptions contained in
Annex 3 of the Agreement regarding the manner of calculation of current total AMS for beef.  Despite
the mandatory direction in paragraph 8 of Annex 3 that the calculation of domestic support be based
on total eligible production, Korea instead computed domestic support for beef based on actual
procurement.  Korea's approach, thus, also contravenes Annex 3.  Korea offers no reasons to justify itssubstantial departure from the methodology set forth in Annex 3 of the Agreement.
370. Eligible production means, the United States co ntinued, either total production or, in those
situations where a specific quantity is identified as subject to support, the entire amount so designated,
regardless of the quantity actually purchased.  This computational method is necessary because
market price support is meant to measure the eff ect of government policy on agricultural producers,
rather than the cost of the measure to government.  This method of calculating a subsidy's effect,
moreover, is consistent with the Appellate Body's finding under the Subsidies Agreement in the
Aircraft  dispute where the Appellate Body concluded that the existence of a subsidy benefit is
determined based on the benefit to the recipient, not the cost to the government.
371. Referring to the arguments in paragraph 363, 368 and 369, Korea  noted that the distinction
between "eligible"  and "actual"  production is somewhat imaginary in the case of Korea's measures .
The production which is "eligible"  is the production for which there is "actually"  money available to
receive the applied administered price .  Production which cannot "actually"  receive the administered
price is, in Korea's view, also not "eligible" to receive the administered price .  In simple terms, [for
example,] if Korea has a budgetary outlay which allows it to actually purchase 1,000 heads of live
cattle, it seems logical to conclude that 1,000 heads of live cattle were actually eligible .  It would be
absurd to hold that Korea should have reported all heads of live cattle in Korea in this calculation as
the eligible production on the basis of the fact that any cow in Korea could have been among those
1,000 heads of live cattle which could be actually purchased and, therefore, was theoretically
"eligible".  This would contravene the language in paragraph 8 of Annex 3 that it should be the
"quantity of production eligible to receive the applied administered price" , because not all live cattle
in Korea could actually receive the administered price .  The quantity of production which actually
received the applied administered price was obviously also the quantity of production which was
actually "eligible".  The term "applied administered price"  also indicates that it refers to money
actually spent and prices actually applied .  This is further confirmed by the material produced by the
GATT Secretariat during the Uruguay Round, quoted in  the submission by New Zealand as:  "For an
open-ended intervention or buy-in scheme, this [eligible production] may be total production.  If thescope of the measure is limited to a particular quantity, it is this limited quantity that should be
used."
189  Due to its limited budget, Korea continued, Korea does not apply an open-ended
intervention or buy-in scheme, but the scope of the measure is limited to particular quantities in
accordance with the limited budget available .  Accordingly, it is appropriate to refer to the limited
quantity which is actually eligible to receive the applied administered price.
                                                     
189 See paragraph 479.WT/DS161/R
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372. Australia  submitted that the calculation of whether an amount of product specific domestic
support is de minimis  is done by calculating the ratio of support to the total value of production of that
commodity.  While the total value of production for beef in 1997 is not shown by Korea in its
notifications, a 1997 figure is available from the OECD, which calculates the total value of domesticbeef production for that year at 1,886 billion won.
190   The OECD calculation is based on the carcass
weight equivalents for domestic beef production and farm gate prices, using MAF and NLCF
information.
373. Australia  further submitted that  the data used by Australia was sourced from the OECD.  The
OECD data is publicly available and is a transparent calculation of the value of production.  It should
also be noted that the OECD calculation is base d on data provided by Korea to the OECD.  Korea
indicates that the total value of production is "calculated based on actual sales prices of the live cattlesold by the producers at 80 livestock markets in  producing areas" (see paragraph 387).  However,
Korea has not provided either the methodology or any raw data to show how it reached this alternative
figure.  Korea further indicates that the "government official statistical data is calculated through a
precise statistical technique" (see paragraph 388).  Australia believes there is a clear burden of proof
on Korea to demonstrate why the data used by Australia and the United States is not the appropriatemethod to calculate the total value of production.
374. Referring to Korea's claims that there is no requirement to include the total value of
production in the Committee on Agriculture notifications (G/AG/2)( see paragraph 387), Australia
contended that the notification requirements under the Committee on Agriculture do not stem from
the binding obligations under the Agreement on Agriculture .  Rather, these notification requirements
were agreed to assist the Committee to undertake the review of implementation of commitments set
out in Article 18 of the Agreement on Agriculture .  Whether the notification requirements require total
value of production data to be included is not relevant.  Article 6.4 of the Agreement on Agriculture
provides for Members to be able to exclude from the AMS calculation support which is below de
minimis  levels.  In the case of Korea, a developing country, the de minimis  level is set at ten per cent
of the total value of production of a basic agricultural product for product specific support.  The right
of Members to claim that support is  de minimis  is not disputed, this is clearly the intention of
Article 6.4.  If, however, a Member claims that the support level is de minimis , there is a clear
obligation that the Member is required to provid e the necessary data to substantiate the claim.
Without this information other Members have no way of assessing the validity of claim.
375. The total value of beef production used in Korea's notification to the OECD for the
calculation of the producer subsidy equivalent (PSE) for beef is, in the opinion of the United States , a
more accurate measure for determining de minimis  status.  The value of production used by the OECD
is carcass weight equivalent at the farm gate level.  The OECD method is a well-established and
universally accepted method for calculation of total production value.  According to the OECD data,
Korea's 1997 value of beef and veal production was 1.886 billion won.  Using the formula in
Article 6.4.(a)(i) of the Agreement on Agriculture , dividing 1.886 billion won value of 1997 beef
production into the 313.173 billion won of support for beef results in a quotient of 16.61 per cent (cf.
paragraph 372).  Accordingly, had Korea implemented the provisions of Article 6.4.(a)(i) of the
Agreement on Agriculture , it would have determined that the support it provided to the cattle industry
in 1997 was not de minimis .
191  Under Article 7.2.(a) of the Agreement on Agriculture , that support
                                                     
190 OECD  Review of Agricultural Policies in Korea , 1999, pages 146, 148.
191 On a live animal basis, the calculation used to determine whether the support was de minimis  would
be as follows:
2.4 million won/head (AAP) - 543,456 w on/head (FERP) x 170,000 head  (EP) = 315. 6 billion won
(Market Price Support for Live Cattle) + 1.90 billion won Quality Incentive Program =316.7 billion won total support for cattle.  316.7 b illion won divided into 1.886 billion won (value of
production) = 16.79 per centWT/DS161/R
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should have been included in Korea's Current Total AMS calculations for that year, which would have
resulted in Korea failing to meet its reduction commitment for 1997.
376. The United States  considered that Korea had not included the total value of beef production
in its 1997 notifications.  The value of 2.105 billion won was eventually provided at the request of theUnited States and other countries.  However, this was the value for 1996 production.
192  It appears
likely that it is based on the average wholesale carcass price for beef.  Since Korea's price support
programme actually supports the price of live cattle, the appropriate total value of production should
be the farm gate price for cattle.  Use of carcass price at wholesale markets would overstate the value
by incorporating costs of slaughter, as well as any other value added.
377. Using its alternative figure for eligible production and the OECD figure for the total value of
production, Australia  submitted that domestic support for beef in 1997 was 15.47 per cent of the total
value of production.  For this reason, domestic support for beef should have been included in Korea's
calculations of its AMS for that year.  Australia noted that even using Korea's own figures for eligible
production and the OECD figure for the total value of production, domestic support for beef was
10.35 per cent of the value of total production and should likewise have been included in Korea's
Current Total AMS calculation for 1997.
378. As concerns the total value of production, Australia contended that it used the OECD figure
because the methodology is clear and is based on data provided by the Korean government itself.
Australia also used the OECD calculation in the absence of a reference to the total value of production
in Korea's domestic support notification to the WTO for 1997.  Australia acknowledges that Korea
has now supplied a figure which it considers represents the total value of production.  However,Korea has not provided either the methodology or any raw data to show how it reached this alternative
figure.
379. Australia contended that Korea's 1997 market price support should have been calculated as
follows:
1997 Calculation of Market Price Support for Beef
AB C D E F G
AAP (1)
(000 on/MT)FERP  (2)
(000 won/MT)EP (3)
(000 MT)MPS
(A-B)*C
billion wonOther
Support  (4)
billion wonValue of
Production (5)
billion wonSupport as a %
of production
Beef 7351.1 1,823.0 52,615 s 290.9 1.09 1,886.5 15.47
Notified by
Korea7,351.1 1,823.0 35,127 194.18 1.09 1,886.5 10.35
1.  Source: G/AG/N/KOR/18, supporting table DS:5.
2. MT = metric tonne.
3. Programme operated from 26 January to 31 December, 1997 with authority to purchase 500 head per day. (340 days x
500 head per day = 170,000 head). Converted to beef tonnage using carcass conversion rate of 61.9 per cent.
4. Source: G/AG/N/KOR/18, supporting table DS:7.
5. OECD Review of Agricultural Policies in Korea1999; Annex 7, pages 146-148.
                                                                                                                                                                    
Under Article 6.4(a)(i) of the Agreement , any quotient of 10 per cent or higher would not be de
minimis .
192 See 25 January 1999, Summary report, Meeting of 17 November 1998.WT/DS161/R
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(iv) Applied administered price and fixed external reference price
380. Australia contended that it's calculations did not factor in anomalies relating to Korea's
calculations of the applied administered price or the fixed external reference price raised by the
United States and New Zealand.  This is because the correction of these anomalies did not inAustralia's opinion materially affect the outcome - that Korea has exceeded de minimis  levels of
support for beef.  However, Australia considered that these are important issues for determination by
the Panel in its deliberations on the methodology that Korea is required to use to calculate its domestic
support for beef.  Australia considered that the Agreement on Agriculture , in particular Annex 3 of
that Agreement, provides the methodology which must be followed by Korea.  The result of Korea's
failure to calculate domestic support for beef correctly resulted in its subsequent failure to include this
support in its calculation of its total AMS for 1997.  When beef is included, Australia has shown thatKorea exceeded its total permitted support levels for 1997 by 191.2 billion Won.
381. The United States  submitted that when the beef AMS for 1997 (based on beef, not live cattle)
is included in Korea's Current Total AMS for that year, Korea exceeds the level of domestic support
contained in its Schedule (those identified in both data series in Column 2 of its Schedule).  As
explained in paragraph 420, the United States continued, Korea posited two distinct AMS amounts for1997:  2,028.65 billion won and 1,650.03 billion won.
193  Korea's Current Total AMS for 1997 was
1,936.95 billion won.194  Adding the 1997 beef AMS (313.17 billion won), which Korea omitted as de
minimis  to Korea's Current Total AMS for 1997, increases the latter to 2,250.12 billion won,
significantly more than either of the AMS figures set forth in Korea's Schedule for 1997.
Accordingly, Korea exceeded the level of domesti c support provided for in its reduction commitments
for 1997 and, thus, violated Articles 3.2. and 6.3 of the Agreement on Agriculture .
382. Korea did not use the 1986 to 1988 base years to calculate the FERP as required by
Annex 3.11 of the Agreement on Agriculture , the United States continued.  Further, Korea did not use
the 1986 to 1988 base period for calculating the AAP.  The United States submitted further that
Korea's calculations are incorrect for several reasons including the use of values for beef productionrather than cattle production and an erroneous amount for eligible production.  With regard to 1997, in
calculating the AAP of 7,351.10 thousand won per tonne of beef (presumably carcass basis), Korea
uses an average price per kilogram based on actual purchases.  Korea's programme called for the
purchase of live cattle at a price of 2,400 thousand won  per head for a 500 kg. steer.  However,
Annex 3, paragraph 7, of the Agreement on Agriculture  specifies that "The AMS shall be calculated as
close as practicable to the point of first sale of the basic agricultural product concerned."  Even if we
were to accept Korea's conversion of the live cattle procurement to a beef basis, the calculation is stillflawed, the United States continued.  According to MAF data, the conversion of live weight to carcass
basis for steers is 61.9 per cent.
195  Therefore, the AAP for 1997 should have been
7,754.4 thousand won per tonne.
383. The United States submitted that Korea's 1997 market price support should have been
calculated as follows:
                                                     
193 Schedule LX, Part IV, Section I at I-1 and Korea's notification, Table DS:1 at 1 (G/AG/N/KOR/18)
16 September 1998.
194 Korea’s notification, Table DS:1 at 3 (G/AG/N/KOR/18).
195 Conversion rate per "Major Statistics for Agriculture and Forestry", Republic of Korea Ministry of
Agriculture and Forestry, 1999, page 328. (2,400 thousand won/500 kg. steer = 4,800 thousand won per tonne
live basis; divided by 61.9 per cent = 7,754.4 thousand won per tonne carcass basis.)WT/DS161/R
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AAP
(1,000
won/tonne)FERP
(1,000
won/tonne)EP
(1,000 tonnes)Market Price
Support
(billion won)Quality Incentive
Programme
(billion won)TOTAL
Support for Beef
(billion won)
7,754 1,823 52.615 312.082 1.09 313.173
384. Concerning the Complainants arguments in paragraph 360  et sequitur  that Korea's domestic
support for beef in 1997 was not de minimis, Korea  submitted that it's calculation of the AMS for the
domestic cattle purchase programme for 1997 was correct.  Korea explained that it's cattle purchase
programme was based on actual purchases at the standard price of 2,400 thousand won per head for a
500 kg. steer.  The said programme was implemented not only for the Hanwoo but also for dairycattle and hybrid cattle of Cheju Island and an amount different from that for Hanwoo beef was
applied as well.  To calculate the market price support, the AAP and the FERP are computed on the
basis of carcass weight even though live cattle is purchased.  Korea's live cattle purchase programme
in 1997 was implemented as follows:
(i) Domestic cattle (live cattle):
88,891 head multiplied by average weight 564.1 kg. multiplied by 61.91 per cent (the
conversion of live weight to carcass basis for Hanwoo steers) = 31,043,528 kg.
(ii) Dairy cattle (carcass):
9,150 head multiplied by average weight 385.5 kg. = 3,527,838 kg.
(iii) Hybrid cattle of Cheju Island (live cattle):
1,500 head multiplied by average weight 639.4 kg. multiplied by 57.9 per cent (the
conversion of live weight to carcass) = 555,359 kg.
(i) plus (ii) plus (iii) equals 35,127 tonnes.
Korea accordingly purchased Hanwoo steers at a price of 4,800 thousand won per head, dairy cattle at
market prices and Cheju Island hybrid cattle at a price of 3,800 thousand won per head.  The total
amount required for the purchase programme was 258,221,547 thousand won.
385. Hence, the AAP is calculated as follows:
258,221,547 thousand won divided by 35,127 tonnes equals 7,351.1 thousand won/ton.
The external reference price of beef is 1,823 thousand won/ton and, therefore, the market price
support is calculated as follows:
(7,351.1 thousand won/ton-1,823 thousand wo n/ton) X 35,127 tonnes = 194.18 billion won.
If the 1.09 billion won for the Quality Improvement Programme is included, the AMS for cattle is
195.27 billion won.
386. As pointed out by the Complainants, Korea has been using actual purchase quantities, or the
actual eligible quantities, as eligible production for calculation of the market price support amount.
Korea noted that it also computed its Base AMS and annual reduction level, by using actual purchase
quantities in preparing Part IV of the Uruguay Round Schedule LX.  This Schedule has been reviewedWT/DS161/R
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by the Member countries.  Referring to Article 1(a)(ii) of the Agreement on Agriculture  which
specifies that the AMS shall be calculated in consideration of the " constituent data and methodology
used in the tables of supporting material incorporated by reference in Part IV of the Member's
Schedule ", Korea was of the view that it has adequately implemented its reduction commitment since
a method identical with that of the Schedule LX has been used.
387. With regard to the support amount, Korea continued, the WTO notification form did not
provide for the inclusion of the total value of production  Furthermore, Korea pointed out that the total
value of production is not calculated on the basis of the wholesale carcass price for beef, as the
Complainants argued (see paragraph (iii)376), but on the basis of the actual sales price of live cattle
sold by the producers at 80 livestock markets in producing areas.
388. Referring to the OECD figures presented by the Complainants (paragraphs 372 and 375 ),
according to which the 1997 value of Korean beef and veal production was 1,886 billion won, Korea
replied that the OECD values are provisionally estimated values.  In calculating the OECD values, the
production quantity was based on the weighted average of the carcasses of locally produced beef.  The
production price was the amount adjusted to convert the average price of beef traded in three
wholesale markets in Seoul to the price at the farm gate.  Accordingly, estimated values computed onthe basis of such assumptions are not as accurate as the government's official statistical data calculated
through a precise statistical technique.  Korea submitted that its 1997 value of cattle was
2,107 billion won.  Hence, the AMS for cattle in 1997 did not exceed 10 per cent of the total value of
cattle production and Korea's 1997 Current Total AMS did not exceed its reduction commitment level
specified in Schedule LX.
389. Another argument, Korea  contended, set forth in particular by New Zealand
196, is that Korea
should have based the fixed external reference price for beef on 1986 to 1988 c.i.f . unit values.  Korea
has based the fixed external reference price on the average c.i.f. unit values for beef imported in the
period 1989-1991, because Korea has used the 1989 to 1991 base period in its Schedule (with the
exception of rice for which 1993 has been used as the base period).  Again, in accordance with itsobligations under Article 1 (a)(ii) of the Agreement on Agriculture , Korea has taken into account the
methodology and data used in its Schedule to calculate its support in 1997 and 1998 on a comparable
and consistent basis.  Further, Korea pointed out th at since beef imports were prohibited for most of
the period 1986-1988 in Korea, no foreign beef was imported during that period.  Accordingly, it is
impossible for Korea to calculate the fixed external reference price on reliable and representative data
on c.i.f. unit values for the period 1986-1988.  Finally, because the applied administered price under
Korea's cattle purchase programme is calculated by converting live cattle to carcass, the administeredprice and fixed external reference price are at the same stage of processing and it is not necessary to
convert the fixed external reference price to live cattle as argued by New Zealand.
197
(v) 1998
390. Furthermore, Korea's Total AMS commitment for 1998, the United States submitted, appears
to be 1,951.70 billion won.198  Korea notified the Current Total AMS for 1998 as
1,562.77  billion won.199  Adding the correct amount of 919.2 billion won of beef support for 1998,
because, in the opinion of the United States, it is not de minimis , results in a Current Total AMS of
2,481.97 billion won.  In addition, Korea incorrectly calculated its rice AMS for 1998, understating
                                                     
196 See paragraphs 472-476.
197 See paragraph 476.  (It is also not clear to Kor ea why necessarily Korean slaughtering costs, rather
than slaughtering costs in the country of origin of the beef for which c.i.f. unit values are determined should be
used in this exercise by New Zealand).
198 1998 notification at Table DS:1, column 1.
199 Ibid at column 3.WT/DS161/R
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the rice AMS by approximately 280 billion won meaning that its Current Total AMS for 1998 should
be 2,761.97 billion won.  As in 1997, Korea's correct Current Total AMS for 1998 exceeds both of the
AMS reduction levels reflected in Schedule LX, Part IV.  Thus, for 1998, Korea violated the domestic
support reduction commitments contained in Articles 3.2 and 6.3 of the Agreement on Agriculture , as
well.
391. As concerns the year 1998, the United States argued that the price and animal eligibility
criteria for Korea's cattle procurement programme appear to have changed as follows:
- July 8: The procurement price is lowered to 1,900 thousand won per 500 kg. steer,
and size parameters changed to incl ude medium size (300-399 kg.) steers.
- July 16: Procurement price is reduced to 1,800 thousand won per 500 kg. steer.
- July 19: Eligibility is limited to "small-medium" (200-399 kg.) Hanwoo steers.- July 27: Eligibility is increased to 600 head per day of which 250 would be "half-
grown" animals (200-350 kg.), and 350 would be small-medium steers.
Under these parameters, 125,000 head of various size Hanwoo steers were eligible for Korea's
domestic support programme in 1998.  Market circumstances and Korea's modifications to theprogramme suggest that actual procurement may have been near the maximum eligible.
392. Moreover, the United States noted that Korea does not include in its notification of Current
AMS for 1998 several other beef support programmes that were implemented in that year.
200  These
programmes include a Calf Production Stabilization Programme implemented in certain parts of thecountry in June of 1998, and expanded to the entire country in August of 1998; the purchase of
breeding cows on Cheju Island, and support provided through the delay of loan repayments for up to
three years.
201  Up to 5,000 head of breeding cows were to be purchased on Cheju Island for
3,000 won per kilogramme, 570 billion won was spent for loan extensions, and 150 billion won was
spent for a supplemental livestock management fund.202  In addition, the United States continued,
according to the 1998 "Korea Livestock Yearbook" published by the Agriculture, Fisheries and
Livestock News, 8.6 billion won was budgeted for the calf production stabilization programme.
Though these may be incorrectly included in the "non-product specific support" supporting table of
Korea's 1998 notification, the extent of these programmes based on this information appears to be in
excess of what was reported.203  The United States considered, therefore, that the 183.06 billion won
that Korea notified to the WTO as domestic beef support in 1998 understates the actual value of
support provided.  An additional 737.5 billion won should have been reported, bringing total beefsupport to at least 919.2 billion won to account for the programmes listed above.
393. Furthermore, the United States continued, Korea did not include the total value of beef
production for 1998 in its domestic support notification.  Upon questioning by WTO Members, Korea
provided a value of production that Korea claimed to represent the 1997 value of production.
However, as with the previous year, the United States was of the opinion that this value is not for the
                                                     
200 These other programmes consisted of the following: Quality Improvement Subsidy (as notified):
1.4 billion won; Purchases of Cheju Island breeding cows:  7.5 billion won;  Calf production stabilization
programme:  8.6 billion won; loan extensions: 570.0 billion won;  Supplementary Livestock Management Fund:
150.0 billion won.  These additional programmes involved support equal to a total of 737.5 billion won.
201 See, "Calf Production Stabilization System to be in place on a trial basis", 30 June 1998, in
"Agriculture, Livestock and Fishery News", and "Government to compensate the Difference if the Price ofCalves Falls below 700,000 Korean won," Chosun Ilbo (12 August 1998), and MAF June 1998 Press Release.
June 1998 Press Release, News Articles dated 2 February 1998, 30 June 1998, and 2  A ugust  1998.
202 The loan deferment and supplemental livestock management fund probably also applied to livestock
other than cattle, so the cattle numbers may be overstated.  Until the Korean government is responsive to requestfor specific information, the amounts dedicated to cattle only remains unknown.
203 See 1998 notification at Supporting Table DS:9.WT/DS161/R
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correct time period, nor is it calculated correctly.  No OECD data for purposes of calculating Korea's
PSE for beef is as yet available for 1998.  The only known published value of Korean beef production
for 1998 was provided in a seminar sponsored by the Korean Meat Industry Association's Meat
Journal on 2 April 1999.  According to materials provided at the seminar, the value of Korean beefproduction in 1998 was 1.8106 billion won.
204   Using the formula in Article 6.4 (a)(i) of the
Agreement on Agriculture , dividing the 919.2 billion won of support for beef by the
1.8106 billion won value of 1998 beef205 production results in a quotient of 50.77 per cent or
51.92 per cent on a live cattle basis.  Therefore, (on the basis of the data provided at the Meat Journal
seminar), it appears that Korea's support to the beef industry was not de minimis in 1998, either.
Hence, Korea failed to meet its reduction commitment for domestic support for 1998.  The level of
support provided is thus inconsistent with Korea's obligations under the Agreement on Agriculture .
394. Korea's cattle purchase programme was implemented again in 1998 for Hanwoo, dairy cattle
and hybrid cattle of Cheju Island.  However, there were several changes in the cattle purchase
programme, as mentioned by the United States above (paragraph 391)  Until completion of the cattle
purchase programme on 31 August, 1998, Korea's cattle purchase programme in 1998 was
implemented as follows:
Total purchase quantity: 112,774 head or 35,899,193 kg.
(1) Hanwoo (live cattle): 98,941 head or 31,444,756 kg.
-  Large steer: 70,565 head multiplied by 589.29 kg./head multiplied by 61.9 per
cent (carcass rate) = 25,740,031 kg.
-  Medium steer: 19,925 head multiplied by 362.97 kg./head multiplied by 58.6 per
cent (carcass rate) = 4,238,056 kg.
-  Medium cow: 8,451 head multiplied by 296.16 kg./head multiplied by 58.6 per cent
(carcass rate) = 1,466,669 kg.
(2) Hanwoo (carcass): 9,601 head multiplied by 335.97 kg./head = 3,225,648 kg.(3) Dairy steer (carcass): 668 head multiplied by 308.84 kg./head = 202,965 kg.
(4) Hybrid cow: 3,564 head multiplied by 481.32 kg./head multiplied by 59.8 per cent
(carcass rate) = 025,824 kg.
Total purchase amount : 247,098,680 thousand won.
Accordingly, Korea submitted, the AAP is 6,883.2 thousand won/ton.  Therefore, the market price
support is calculated as follows: (6,883.2 thousand won/ton minus 1,823 thousand won/ton)
multiplied by 35,899 tonnes = 181.66 billion won.
395. Replying to the United States argument concerning the Calf Production Stabilization
Programme in 1998 (paragraph 392), Korea explained that 3 billion won was budgeted for thatprogramme in 1998 but the actual payments under the programme to individual farmers started only
in January 1999.  Therefore, in Korea's view, this programme should not be included in the
notification of 1998.  As concerns the United States  argument in respect of the Cheju Island breeding
cow procurement programme (paragraph 392), Korea asserted that such a programme was never
implemented in Korea.  The United States possibly mistook the purchase of the hybrid cattle of ChejuIsland in the above mentioned purchase programme as the breeding cow purchase programme.  Korea
has included the purchase of the hybrid cattle of Cheju Island in its AMS for cattle.
                                                     
204 The Meat Journal is published by Choon-Shil Hwang and was registered as a magazine on
3 December 1991.  The Journal’s address is: Meat Journal Building, fourth floor, 221-31, Soo ngnap- dong,
Songpah-ku, Seoul.  Home page: HTTP:/www.meat.co.kr.
205 This calculation uses the same value of beef production for both 1997 and 1998.WT/DS161/R
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396. As concerns the delay in loan repayments mentioned in paragraph 392, Korea stated that this
was only planned.  The actual amount of loan extensions for the purpose of relieving economic
hardships facing livestock farmers totaled 435.6 billion won out of the originally planned 570 billion
won.  The amount was 68 billion won under the Li vestock Development Fund, 41.2 billion won under
the special account fund for rural development and 326.4 billion won under livestock management
funds.  Since they were all loans, Korea included these in its AMS notification for 1998.  The
calculation of the AMS for the loans is (market interest rate on loan minus average interest rate on
loan) multiplied by loan amount multiplied by average loan period, and the result is 19.3 billion won.
Of the total loan extension amount, 14.5 billion won under the livestock management fund was
included as a non-product specific support in the notification.206  The remaining 4.8 billion won under
the livestock development fund and special accoun t fund for rural development was included as a
Green Box support in the same notification.207  Of the total amount of 150 billion won which was
originally planned to be spent by the Livestock Management Fund, 146 billion won was spent.
Moreover, this amount was for loan interest subsidy for livestock farming and this corresponded
virtually to loan extensions.  Therefore, the AMS for the loan is 6.5 billion won208, and is included as
a non-product specific support in the same notification.209  Finally, including the 1.4 billion won of
the Quality Incentive Programme in 1998, the AMS for cattle was 183.06 billion won.  Korea's 1998
total value of cattle production is 1,836 billion won.  Accordingly, Korea's 1998 AMS for cattle
represents 9.97 per cent which is de minimis .
397. The 183,06 billion won that Korea notified to the WTO, Korea continued, was the exact
amount and the argument of the United States that an additional 737.5 billion won should have beenreported is erroneous.  Further, referring to the arguments in paragraph 393, Korea explained that the
reason for Korea to provide 1997 data is because Korea's official statistics for total value of cattle
production require some time to be computed and the calculation method is based on accurate data
calculated on the basis of actual sales price of live cattle realized at the cattle source markets
throughout the country.  The data presented at the seminar mentioned by the United States is nothingbut an estimated value for reference announced by an individual.
398. In conclusion, Korea's 1998 AMS for cattle is 183.06 billion won which represents 9.97 per
cent of 1,836.1 billion won being the total value of cattle production for 1998 and such value is de
minimis .  Accordingly, Korea's 1998 Current Total AMS of 1,562.77 billion won does not exceed
1,951.7 billion won being the commitment level as provided in Schedule LX.
399. Regarding the issue of total value of production as a basis for compliance with the de minimis
percentage, Korea recalled the United States assert ion that it derived the total value from information
contained in the OECD data.  However, as Korea explained in paragraph 388, the data provided by
Korea on its total value of production come from the official statistics which Korea's statistical
authority has produced on the basis of farm gate prices identified with respect to 80 livestock markets
in producing areas across the country.  In contrast, Korea wishes to highlight that the OECD data are
only estimates that had been produced based on the prices prevailing in a limited number of wholesalemarkets in Seoul.
                                                     
206 Loan interest subsidy for livestock farming in Supporting Table DS:9, G/AG/N/KOR/24.
207 Infrastructural services and structural adjustment assistance provided through investment aid in
supporting table DS:1.
208 Market interest rate on loan-average concessional interest rate on loan) x loan amount x average
loan period.
209 Loan interest subsidy for Livestock Farming in Supporting Table DS:9.WT/DS161/R
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(vi) Annex 3 of the Agreement on Agriculture
400. The United States  submitted that Korea attempts to justify its violation of its reduction
commitments by arguing that its inclusion of an erroneous approach in its Schedule removes it from
challenge is untenable in light of paragraph 3 of the Marrakesh Protocol which provides:
The implementation of the concessions and commitments contained in the schedules
annexed to this Protocol shall, upon request, be subject to multilateral examination by
the Members.  This would be without prejudice to the rights and obligations of
Members under Agreements in Annex 1A of the WTO Agreement .  (emphasis added)
The Agreement on Agriculture  is one of the listed Agreements.  Korea's inclusion of an erroneous
methodology in its Schedule and supporting material cannot nullify the rights of other Members under
the Agreement or diminish Korea's obligations under the Agreement.
401. Furthermore, the United States was of the opinion that Korea exceeded the commitment level
for 1997, regardless of which base computation is used.  Based on the data supplied by Korea, it
appears that the eligible production for 1998 may be higher than reflected in the calculations the
United States has provided (see paragraphs 390-393).  The United States at that time had believed thatactual and eligible production for that year may have been the same.  Now it appears that dairy steer
and hybrid cows may have also been eligible for the support, which would increase the current total
AMS for beef.  Also, Korea has incorrectly computed the fixed external reference price by relying on
a price that is not specified at an equivalent stage of processing as that used for establishing the
applied administered price.  The resulting apples to oranges comparison distorts the result.  TheUnited States referred the Panel to the discussion of this issue made by New Zealand.
210
402. Korea , referring to the United States' arguments in 358, submitted that those does not really
contradict Korea's position .  Indeed, it is precisely the Agreement on Agriculture  itself which clearly
provides in Article 6.3 and Article 3.2 that compliance should be judged by reference to the
commitment levels specified in Part IV of a Member's Schedule, rather than the general calculationmethods set forth in Annex 3 of the Agreement on Agriculture .  As concerns the arguments in
paragraph 425, Korea submitted further that it is the United States rather than Korea which negates
the provisions of the Agreement on Agriculture.  Article 1(a) of the Agreement on Agriculture
explicitly defines, first, that for the base period it is the support " specified in the relevant tables of
supporting material incorporated by reference in Part IV of a Member's Schedule " which is decisive .
It is not disputed that the base periods used by Korea are clearly identified in the supporting Table 6
of Part IV of Korea's Schedule.
403. Second, Korea continued, with regard to the "support provided during any year",
Article 1(a)(ii) clearly contradicts the arguments by the Complainants that these should be based
exclusively on the Annex 3 methodology, but specifies that in addition to the provisions of Annex 3,
one should also take into account "the constituent data and methodology used in the tables of
supporting material incorporated by reference in Part IV of the Member's Schedule. "  If the
Agreement on Agriculture  intended to provide that only the methodology set forth in Annex 3 could
be considered and used, it would be inappropriate and superfluous to define in Article 1(a)(ii) the need
to take into account in addition the data and methodology used in the supporting tables .  Nor would
Annex 4 to the Agreement on Agriculture  exist which provides for alternative calculation methods
"where market price support as defined in Annex 3 exists but for which calculation of this component
of the AMS is not practicable ."  Korea submitted that the Agreement on Agriculture  also explicitly
recognizes the possibility of "differential and more favourable treatment"  for developing country
                                                     
210 See paragraphs 468-476.WT/DS161/R
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Members as embodied in their Schedule of Concessions, as well as the fact that there is scope for
"flexibility" to implement reduction commitments over a period of up to ten years.
404. Furthermore, the methodologies in Annex 3 are not the only methodologies to take into
account under the Agreement on Agriculture  because Article 1(a)(ii) mandates the need to take into
account in addition the data and methodology  used in the supporting tables in a Member's Schedule .
As a matter of data and methodology, Korea also used actual quantities of production in the
supporting tables in its Schedule.  Therefore, in accordance with its obligations under Article 1(a)(ii)
of the Agreement on Agriculture  with respect to calculation of support provided during any year of the
implementation period of its AMS reduction commitments, Korea takes into account the data and
methodology in its supporting tables by also using actual production figures .  Needless to say, to
fairly gauge compliance of Korea with its commitments, one should compare like with like and thereduction of total AMS based on actual quantities in Korea's Schedule should be judged with annual
AMS calculations based on the same use of actual quantities .  The arguments by the Complainants
that higher eligible quantities - potentially total beef production in Korea
211- should be used as eligible
quantities and then be compared with data based on actual quantities used in the Schedule of Korea,
must be rejected because it would result in an illogical and manifestly unfair comparison (see alsoarguments in paragraph (iv)389).
405. In conclusion, Korea submitted that the calculat ions for the annual support of beef in 1997
and 1998 have been made taking into account the data and methodology  used in its Schedule of
Concessions in accordance with Article 1(a)(ii) of the Agreement on Agriculture .  As already shown
in detail elsewhere, the support amounts for beef in 1997 and 1998 were de minimis  and therefore
were not required to be included in the total AMS calculation in accordance with Article 6 (4)(b) of
the Agreement on Agriculture .  The alternative estimated calculations presented by New Zealand fail
to take into account the data and methodologies used in Korea's Schedule of Concessions, in violation
of Article 1(a)(ii) of the Agreement on Agriculture .  The comparison provided by New Zealand of the
annual AMS in 1997 and 1998 with the reduction commitments in Korea's Schedule
212 is manifestly
inaccurate and unfair, because the 1997 and 1998 annual data have been calculated using completely
different data and methodologies from those used  to determine the Base AMS amount from which
Korea's reduction commitments have been derived.
406. Australia  submitted that Korea's claim that the reference to "constituent data and
methodology" in Article 1 of the Agreement on Agriculture  provides the justification for an alternative
methodology to that in Annex 3 was inconsistent with the rules of interpretation of public
international law.  According to Australia, Article 1 of the Agreement on Agriculture  is clear and
unambiguous that support in any given year shall be calculated in accordance with Annex 3, taking
into account the constituent data and methodology.  The reference to constituent data and
methodology does not remove the obligation to calculate support in accordance with Annex 3.
407. Australia submitted that the terms of Article 1 make sense if one understands that the
calculations of AMS are product specific.  In this respect, "constituent data and methodology" has animportant role to play in ensuring that the calculation of support on any given commodity is
calculated in subsequent years consistently with support calculated in the base period.  For products
where no support was included in the base period calculation, there is no constituent data or
methodology in the tables of supporting material  to a Member's Schedule.  Annex 3 calculations are
therefore mandatory.
408. The United States submitted that the language from the definition of AMS in Article 1 of the
Agreement on Agriculture  refutes Korea's contention that it is bound only by the AMS computation
                                                     
211 See paragraph 481.
212 See paragraph 483-485.WT/DS161/R
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reflected in its Schedule and the methodology contained in the supporting material referenced in the
Schedule.  Korea's construction of the Agreement on Agriculture's  AMS provisions would render
substantial portions of the text of the Agreement on Agriculture  meaningless.  As a consequence,
Korea's interpretative approach is contrary to customary rules of  treaty interpretation and must berejected.
409. Consideration of the specific language used in Article 1(a)(ii) requires, in the opinion of the
United States, the rejection of Korea's interpretation.  The provision explicitly directs that the AMS
calculation be made in the manner prescribed in Annex 3; no conditions or exceptions are provided
for.  The only additional guidance set forth is that the calculation also take into account the data and
methodology contained in the supporting tables.  This guidance cannot be construed to nullify the
express requirement that the AMS calculation be performed in accordance with the provisions ofAnnex 3.  Similarly, Korea's reliance on Article 1(a)(1) is, in the view of the United States, misplaced.
Again, Korea suggests that the language there set forth referencing the tables of supporting material
incorporated by reference in a Member's Schedule should be construed in isolation from the
remainder of the Agreement on Agriculture .  However, the customary rules of interpretation of public
international law as reflected in the Vienna Convention require that treaty terms be given their
ordinary meaning in their context and in light of the object and purpose of the treaty.  The other
provisions of the Agreement  on Agriculture  pertinent to the AMS computation are part of the context
of paragraph (a) of Article 1.
410. Since the term "base period" is not defined in Article 1(a)(i), and its ordinary meaning does
not assist in determining the specific period that is  intended to be captured, it is necessary to expand
the inquiry to consider other provisions in the Agreement on Agriculture  that provide the context for
the term.  The most pertinent provision in this regard is paragraph 5 of Annex 3 which directs that the
"AMS calculated as below for the base period shall constitute the base level for the implementation of
the reduction commitment on domestic support".  Paragraph 5 is important as it provides guidance not
only as to how the AMS base level will be computed, but also indicates what the relevant base periodis.  Thus, it is clear why Korea argues so strenuously for the Panel to disregard Annex 3.
411. Paragraphs 9 and 11 of the Annex specify, respectively, the United States continued, that the
base period to be used for the computation of the fixed external reference price and the fixed reference
price consists of the years 1986 to 1988.  As the United States explained in response to a Panel
question, it would be inappropriate to use a different base period for establishing the other elements of
the calculation of market price support.  Moreover, the historical background to this provision, as
contained in the Modalities , supports the US proposition that the base period for fixing the applied
administered price and eligible production must also be the years 1986-1988.
412. Korea's argument that it was free to select the base period that would provide the highest level
of domestic support throughout the implementation period, thus, flies in the face of the pertinent
provisions of the Agreement on Agriculture , interpreted in their context, and in light of the object of
the treaty.  Indeed, if the domestic support reduction commitments, a core aspect of the Agreement on
Agriculture, are not to be undermined, a common base period must be used by the Members.  Clearly,
a construction of the obligation that permitted Members to elect a base period that represents the
highest level of domestic support would defeat, in part, the purpose of those very reduction
commitments.
413. The third party submission of New Zealand provides, in the view of the Complainants , a
well reasoned explanation of issues associated with the calculation methodology and the consistency
of this methodology with Annex 3 of the Agreement on Agriculture .  The Complainants agreed with
the New Zealand views and believed these views are a useful adjunct to the points raised by Australia
and the United States.  The New Zealand submission also provides some alternative calculations
which provide a useful guide to the Panel as to the AMS level if an alternative calculation were used.WT/DS161/R
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(vii) Total AMS-Current Total AMS
414. Australia  considered that Korea cannot exclude support for beef either on the basis that it is
justified under Annex 2 or that support levels are 10 per cent or less of the total value of production as
permitted under Article 6.  For this reason, and consistent with Article 7.2(a) of the Agreement on
Agriculture , the domestic support for beef provided by Korea in 1997 must be included in its
calculation of its Current Total AMS for that year.  Australia noted that Korea's Total AMS
Commitment for 1997 was 2,028.65 billion won.  Its notified Current Total AMS for that year was
1,936.95 billion won.  Korea's Current Total AMS figures for 1997 include support for barley, maize,
rapeseed, rice and silk-worm.  For the reasons stated in paragraph 372, the support for beef must also
be included.  Australia submitted that the calculation of Korea's Current Total AMS for 1997
therefore should be as follows:
Commodity Current Total AMS
(billion Won)
Rice 1884.34
Barley 46.02
Maize 5.67
Rapeseed 0.91
Silk-worm 0.01
Beef 282.9
Total 2219.85
415. The United States  noted that Korea's most recent notifications with respect to its Current
Total AMS were G/AG/N/KOR/18 (16 Sept ember 1998) for 1997 and G/AG/N/KOR/24
(25 August 1999) for 1998 in which it classified, incorrectly in the opinion of the United States, thesupport provided to its cattle industry as de minimis, i.e.  it did not exceed 10 per cent of the total value
of cattle or beef production.  However, the United  States argued, an accurate accounting, which would
include the amount of support provided to the cattle industry, shows that in 1997 and 1998, Korea
failed to meet its commitments for reducing domestic subsidies.  In its 1997 and 1998 notifications
213,
Korea apparently used a formula based on the one in Annex 3.8. to the Agreement on Agriculture  to
calculate market price support.214  Hence, the 1997 and 1998 AMS for beef was reportedly
195.27 billion won and 183.06 billion won, respectively.215
416. The Complainants  submitted that it is not for Korea to determine its reduction commitments
under the Agreement on Agriculture  by unilaterally determining a different calculation to that required
explicitly by the Agreement on Agriculture .  Korea adopted a different methodology to that adopted
by other WTO Members in calculating an alternative commitment level for domestic support,
reflected in the column in parenthesis in Part IV, Section I of the Korean Schedule.  Korea cannot relyon this error to justify the consistency with the Agreement on Agriculture  of its later calculations and
its failure to meet its commitments.  The Complainants submitted further that the approach adopted by
Korea results in a lower level of AMS commitment, and in effect the AMS level for the years
                                                     
213 See Korea's 1997 and 1998 Notifications at Table DS:4 where beef is identified as de minimis.
214 Applied Administered Price (AAP) minus Fixed External Reference Price (FERP) multiplied by
Quantity of Production Eligible for Support (EP) equals Total Market Price Support for Beef.
215
AAP(1) FERP(1) EP(2) Market Price
Support
(3)Quality Incentive
Program
(3)TOTAL
Support for
Beef(3)
1997 7,351.1 1,823 35.127 194.18 1.09 195.27
1998 6,883.2 1,823 35.90 181.66 1.4 183.06
(1)  1000 won/tonne;  (2)  1000 tonnes;  (3 )  billion won.WT/DS161/R
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concerned is higher than for the base period used by Korea.  The base used by Korea is 1989-1991,
not the 1986-1988 period provided for in the Uruguay Round, reflected in the use of 1986-1988 in
Annex 3, paragraph 11 of the Agreement on Agriculture .
417. Korea  submitted that it is not correct that Korea's Schedule LX does not identify which of the
two sets of figures constitutes Korea's binding obligation.  Korea's Schedule LX clearly contains a
Note 1 stating that: "Refer to Note 1 of Supporting Table 6 about the numbers in parentheses." It
seems clear that the purpose of the supporting tables is to contain supporting material relating to
commitments  on agricultural products contained in Schedule LX-Korea (as explicitly stated below).
Supporting Table 6 again contains a Note 1 which states:
"The AMS for rice has been calculated based on 1993 market price support instead of 1989-
1991 average. The Final Bound Commitment level in 2004, however, is the level reduced by13.3% from the 1989-1991 average Base Total AMS ."
418. In the supporting table, the calculation method of the AMS reduction commitments, by use of
the 1993 market price support for rice, is explicitly explained and it is noted that the end-result of the
Final Bound Commitment level in 2004 results in the same level reduced by 13.3 per cent from the
1989-1991 average Base Total AMS.  The reference to this calculation method would be whollymeaningless if it was not clearly intended to base Korea's commitments on that basis.
419. Furthermore, Korea contended that the said calculation methods and annual commitment
levels of AMS had been reviewed and agreed upon by the Member countries in March 1994.
Article 6.3 very clearly refers to the commitment level specified in Part IV of a Member's schedule as
a basis for judging compliance, rather than the general calculation methods set forth in Annex 3 as theUnited States argued.  Article 3.2 of the Agreement on Agriculture  confirms this point.  The US
argument on this point must therefore be rejected.
420. The United States  submitted that Article 6.3 of the Agreement on Agriculture specifies when
a Member shall be considered in compliance with its domestic support obligations.  The commitment
levels in Member's Schedules were established in accordance with a Base Total AMS which, exceptfor support that is exempt, is the total amount of support (Total AMS) provided by a WTO Member to
its domestic agricultural producers from 1986 through 1988.
216  (For definition of "AMS" see
paragraph 361).217  Annex 3 of the Agreement on Agriculture  provides the methodology for
calculating the AMS, which is required to be computed on a product-specific basis for each basic
agricultural product receiving market price support, non-exempt direct payments or any other subsidy
not exempted from the reduction commitment.  Once the AMS was established, Members included in
their Schedules corresponding domestic support ceilings for each year of the implementation period,calculated on the applicable reduction formula for each Member.  Developing countries agreed to
reduce their domestic support in annual steps by 13 per cent.
421. Moreover, the United States noted that Korea provides, in Part IV of its Schedule, two
separate numbers with respect to the total current AMS for each year of the implementation period
(1995-2004).  These figures are set forth in two separate columns, the second of which is set off byparentheses.  An examination of the respective columns of expenditure amounts reveals, in the
opinion of the United States, that the first column approached conformity with the formulae contained
                                                     
216 See Annex 3 to the Agreement on Agriculture .
217 Support which is exempt from the base AMS includes support which (i) satisfies the requirements of
Annex 2 to the Agreement ("Green Box") because it has no or minimal trade-distorting effects or because it
limits domestic production ("Blue Box") or  (ii) is exempt from reduction by an Agreement on Agriculture
provision.  See Articles 1 (h) and 7.2.(a), Agreement on Agriculture .WT/DS161/R
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in Annex 3 to the Agreement on Agriculture,218 whereas the expenditure ceilings in the second column
did not.  In the second column, Korea has inflated the amount of the annual Current Total AMS by
basing the largest component of Korea's total AMS, that for rice, on a 1993 base year when domestic
support for rice peaked.219  Korea's methodology resulted in a Current Total AMS in 1995 that is
28 per cent higher than it would be using the procedure provided for in the Agreement on Agriculture .
This distortion is then carried throughout the implementation period in each succeeding year.  Korea
attempts to justify this approach, the United States continued, by suggesting that the final current total
AMS in the last year of the implementation period, 2004, is the same as if calculated consistently with
the Agreement on Agriculture (see paragraph 426) .220  Korea's alternative reduction commitment,
which is not in accordance with the requirements of Annex 3 of the Agreement on Agriculture, must
be rejected as inconsistent with Korea's obligations.
422. The untenable nature of Korea's AMS commitment, the United States argued, is underlined by
a comparison of Korea's Base Total AMS and the Current Total AMS reported by Korea in its
Schedule as an alternative approach.  Korea's Base Total AMS221  is 1,718.6 billion won.  This is less
than the expenditure level that Korea includes in the amounts in parentheses in column 2 of Korea's
Schedule for 1997 (2,028.65 billion won) and for 1998 (1,951.70 billion won).  Based on its
notifications to the Committee on Agriculture for 1997 and 1998, Korea appears to consider the AMS
levels included in the parentheses as its commitments.222
423. Korea has provided two inconsistent sets of support amounts for Current Total AMS in its
Schedule.223  Nowhere in its Schedule does Korea identify which of the sets constitutes Korea's
binding obligation.  Through its 1997 and 1998 notifications, Korea appears to be following the lessonerous "commitments" contained in the second column.  If this is indeed the case, Korea would be
ignoring the commitments in the firs t column of its Schedule which more closely coincide with the
methodology for establishing the Base Total AMS as reflected in the Agreement on Agriculture.   The
United States submitted that the parenthetical data in column 2 in Korea's Schedule represents an
admission by Korea that it is reducing its support based on criteria not found in the Agreement on
Agriculture.
424. It is a well-founded principle, the United States continued, that Korea is free to incorporate
into its Schedule "acts yielding rights", "additional commitments", and qualifications to those
additional commitments.  However, Korea cannot use its Schedule to "diminish … obligations … [or]
reduce … commitments under other provisions of that Agreement."
224  Korea cannot avoid its
domestic support reduction in this unilateral manner.  To accept Korea's position that it should be able
to fulfill its reduction commitments by complying with a reduction schedule based on a Base TotalAMS that represents a composite of those approaches most favorable to Korea, but none of which is
consistent with Annex 3 of the Agreement on Agriculture , would be to permit Korea to evade the
disciplines of the Agreement on Agriculture relating to domestic support levels.
425. The United States argued that by claiming that it possesses the freedom to choose whatever
base period best suits its interests, Korea effectively negates the provisions of the Agreement on
                                                     
218 Even the figures in Korea that most closely approximate the Annex 3 methodology suffer from such
defects as reliance on a time period other than the 1986-1988 period specified in paragraph 9 of the Annex.
219 See Note 1 of Supporting Table 6 and statistics provided there.
220 Note 1 to Supporting Table 6 states:  :The AMS for rice has been calculated based on 1993 market
price support instead of the 1989-1991 average.  The Final Bound Commitment level in 2004, however, is thelevel reduced by 13.3 per cent from the 1989-1991 average Base Total AMS.
221 (column 1, Schedule LX, Part IV, Section I).
222 See, 1997 and 1998 Notifications at Table DS:1, column 1.
223 See, column 2, "Annual and Final bound commitments level: 1995-2004", Schedule LX, Part IV,
Section I (Korea Schedule) at I-1.
224 US - Sugar Head Note at 342.WT/DS161/R
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Agriculture  relating to the manner in which the reducti on commitments were to be developed, as well
as the reduction commitment itself.  Korea's approach to the construction of its domestic support
commitments leads to the absurd result that for the first seven years of the implementation period
(from 1995 through 2001) the annual AMS levels claimed by Korea to be permitted under itsSchedule are higher than the base AMS computed using an approximation of the calculation
methodology set forth in the Agreement on Agriculture .  Korea's construction of its Schedule also
makes the first set of reduction commitments contained in its Schedule, and which are generally
computed in accordance with the requirements of  the Agreement on Agriculture  provisions,
completely meaningless, contrary to principles of treaty interpretation.
426. Korea also offers no explanation, the United States continued, for why it based the calculation
of the fixed external reference price for beef on a period other than 1986-1988 as paragraph 9 ofAnnex 3 requires, or failed to compute the fixed external reference price based on the farm-gate price,
which would be at an equivalent stage of processing to the cattle prices used by Korea for its applied
administered price.  Again, by electing a fixed external reference price that is inconsistent with the
methodology provided for in the Agreement on Agriculture , Korea distorted the calculation of
domestic support.  The fixed external price used by Korea is higher than would have resulted usingthe correct methodology.  The effect of Korea's departure from the prescribed methodology is a
narrowing of the difference between its applied ad ministered price and the fixed external reference
price and, consequently, an understatement of the amount of domestic support.
427. Referring to the United States' allegations in paragraph 421, Korea  submitted that it's
Schedule LX contains a Note 1 stating that: "Refer to Note 1 of Supporting Table 6 about the numbersin parentheses."  Korea submitted that the purpose of the supporting tables is to contain supporting
material relating to commitments  on agricultural products contained in Schedule LX-Korea.  The note
in Supporting Table 6 states:  "The AMS for rice has been calculated based on 1993 market price
support instead of 1989-1991 average.  The Final Bound Commitment level in 2004, however, is the
level reduced by 13.3 per cent from the 1989-1991 average Base Total AMS."  Therefore, it is evidentthat the numbers in parentheses constitute Kor ea's commitment levels on Total AMS reflecting the
exceptional calculation method for rice which is based upon the 1993 market price support.  In the
supporting table, the calculation method of the AMS reduction commitments, by use of the 1993
market price support for rice, is explained and it is noted that the end-result of the final bound
commitment level in 2004 results in the same level reduced by 13.3 per cent from the 1989-1991
average Base Total AMS.  The reference to this calculation method would be totally meaningless if it
was not clearly intended as a basis for Korea's commitments.
428. Korea, referring to the US - Gasoline  case
225, noted that the said calculation methods and
annual commitment levels of AMS had already been reviewed and agreed upon by the Member
countries in March 1994.  Moreover, Korea noted that Article 6.3 of the Agreement on Agriculture226
refers to the commitment level specified in Part IV of a Member's schedule as a basis for judging
compliance, rather than the general calculation me thods set forth in Annex 3, as the United States
argues.  Korea considered that Article 3.2 of the Agreement on Agriculture  confirms this point.227
                                                     
225 Page 23;  see also Japan - Alcoholic Beverages(AB),  at pages 12-13.
226 "A Member shall be in compliance with its domestic support reduction commitments in any year in
which its domestic support in favour of agricultural producers expressed in terms of Current Total AMS doesnot exceed the corresponding annual or final bound commitment level specified in Part IV of the Member's
Schedule ".  (Emphasis added.)
227 "Subject to the provisions of Article 6, a Member shall not provide support in favour of domestic
producers in excess of the commitment levels specified in Section I of Part IV of its Schedule ."  (Emphasis
added.)WT/DS161/R
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V. SUMMARY OF THE ARGUMENTS PRESENTED BY THIRD PARTIES
A. ARGUMENTS SUBMITTED BY CANADA
429. Canada submitted that certain measures undertaken by Korea with respect to the importation
of fresh, chilled and frozen beef are inconsistent with Korea's obligations under Articles II, III and XI
of GATT 1994 and Article 4 of the Agreement on Agriculture .  Amongst these measures are
restrictions on the retail sale of beef, the imposition of a mandatory mark-up on imports of beef and
certain aspects of Korea's system of distribution of imported beef.  In the view of Canada, it is
apparent that the common purpose and effect of all of these measures is to provide support and
protection to the Korea's domestic beef industry.
1. Article III of GATT
430. Canada claimed that the restriction of retail sales of imported beef to a limited number of
separate retail outlets compared to the significantly greater number of retail outlets available to
domestic beef is a violation of the national treatment principle, as embodied in Article III:4 of GATT
1994.  Previous GATT and WTO panels have interpreted this provision as "establishing the obligation
to accord to imported products competitive opportunities no less favourable than those accordeddomestic products."
228  In this regard, Article III:4 requires that imported products "shall be accorded
treatment no less favourable than that accorded to like products of national origin in respect of all
laws, regulations and requirements affecting their internal sale, offering for sale, purchase,
transportation, distribution or use."  Article III:4 applies where the following elements are satisfied:
(1) there must be a law, regulation or requirement;  (2) it must affect the internal sale, purchase,transportation, distribution or use of the product;  (3) the imported product and the domestic products
must be like products.  If these elements are satisfied, the measure must accord the imported product
treatment no less favourable than the like domestic product in order to comply with Article III:4.
431. First, the Korean measures restricting sales of imported beef to specialized outlets are without
question "laws, regulations or restrictions".  Second, these measures clearly "affect the internal sale,purchase, transportation, distribution or use" of imported beef.  Third, it is equally clear that imported
beef and domestic Korean beef are like products.  It is also evident that the measures in question
accord imported beef treatment that is less favourable than that accorded to the like domestic beef
product.  By restricting the retail outlets available to imported beef relative to domestic beef, the
effect is to deny the imported product "competitive opportunities" that are "no less favourable" than
those available to domestic beef.  In effect, by restricting the number of retail outlets at which
imported beef can be sold, the access to the Korean market available to imported beef is impairedrelative to the competing domestic product.  This is inconsistent with the obligation to provide "equal
conditions of competition" once imported goods have cleared customs.
432. Canada claimed further that, in addition to Korea's limitation on the retail sale of imported
beef to specialized retail outlets, a number of other measures and practices also appear to violate the
national treatment principles of Article III:4 of  GATT 1994:
(a) all beef imported by the LPMO, not sold directly by the LPMO to processors, must be
sold through wholesale markets.  Wholesale purchasers may then sell to specialized
stores for retail purposes.  Neither of these restrictions apply to sales of domestic
beef;
                                                     
228 US - Section 337,  at paragraph 5.11.WT/DS161/R
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(b) while regulations contemplate the possibility of sales of LPMO imported beef on a
credit basis, this is discretionary, a discretion that has not been exercised.  The
availability of sales on a credit basis provides greater commercial opportunities in the
marketplace.  Sales of domestic beef are not similarly restricted to a cash basis;
(c) in order to import beef under the Simultaneous Buy/Sell (SBS) system, end-users
must belong to one of a number of designated super-groups.  In addition to the
resulting imposition of a middleman, such super-group membership also results in
increased expenses through membership fees and other additional costs;  and
(d) in addition to country of origin requirements that apply to all beef, domestic and
imported, Korea has imposed new additional labelling requirements that apply only to
imported beef.  Boxes of imported beef must also display labels that indicatecommodity name, contract number and the super-group importer's name.  This
requires re-labelling in Korea, resulting in additional costs to imported beef.
433. Canada argued that each of these measures meets the requirements of Article III:4 of GATT
1994 as set out above with respect to retail sales.  In each case, obligations are imposed on imported
products that are not applicable to the like domestic products.  Hence, each measure constitutes aviolation of Korea's obligations under GATT 1994.
2. Article II of GATT
434. Canada submitted that Korea's imposition of a mark-up on imports of beef under the SBS
system is inconsistent with Korea's obligations under Article II:1 of GATT 1994.  In the alternative, it
is a violation of Article III:2 of GATT 1994.
435. Korea collects a mandatory mark-up on all beef imported under the SBS system.  This mark-
up is collected by Korean Customs and the product is not released from customs control until the
mark-up is paid.  On its face, the collection of this mark-up constitutes the imposition of a charge on
beef imports.  Article II.1 of GATT 1994 states th at on importation, products shall be subject only to
those "ordinary customs duties" and "other duties or charges of any kind imposed on or in connectionwith the importation" specifically provided for in a Member's Schedule.  The mark-up imposed by
Korean authorities  would appear to fall clearly with in the plain meaning of the word "charge":  i.e. "a
pecuniary burden; cost; a liability to pay money laid on a person or estate."
229  Its payment appears to
operate as a condition of import.  There is no reference to this mark-up as a "charge" in Korea 's
Schedule.
436. As a result, the imposition of the mark-up upon importation is inconsistent with Korea's
obligation under Article II.1(a) to provide "treatment no less favourable" to goods on importation thanprovided for in Korea's Schedule and in particular to be free of "all other duties or charges of any kind
imposed on or in connection with importation", pursuant to Article II.1(b).
437. In the alternative, the mark-up constitutes an  "internal tax or other internal charge" as
contemplated by Article III:2.  If it is an internal  tax or charge, then its application only to imported
beef and not to the like domestic product would constitute a violation of the national treatmentprinciple and would be inconsistent with Kore a's obligations under Article III:2 of GATT 1994.
                                                     
229 The New Shorter Oxford English Dictionary.WT/DS161/R
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3. Article XI of GATT and Article 4.2 of the Agreement on Agriculture
438. Canada submitted further that the following aspects of the Korean imported beef distribution
system, individually or taken together, restrict and distort access to the Korean market contrary to
Article XI of GATT 1994:
(a) arbitrary limitation of access to imported beef to "super-group" members;
(b) LPMO discourages potential applicants from seeking access to imported beef;
(c) resale of imported beef by end-users is not permitted;
(d) significant delays in invitations to foreign suppliers for LPMO allocation;
(e) inadequate reallocation of unused quota access;  and
(f) restrictions on retail sale outlets of imported beef.
439. In Canada's view, to the extent that any of the measures or practices noted above constitute
quantitative restrictions pursuant to Article XI:1 of GATT 1994, it follows that they must also be
quantitative restrictions maintained in violation of Article 4.2 of the Agreement on Agriculture .
440. Canada was concerned that the principles underlying Article XI:1, as they relate to
discretionary import licensing, not be misunderstood in their application to the facts of this case.  The
submissions of the United States and Australia may be read as suggesting that the mere use of adiscretionary import licensing system in allocating access to imports within a quota or a tariff quota,
by itself, constitutes a "restriction ... on ... importation" contrary to Article XI.  Canada believes that
the essential thrust of the submissions of the Complainants is that use of particular measures in the
operation  of a discretionary licensing system can constitute "restrictions" in the context of
Article XI:1, where those measures result in a li mitation on imports that would not otherwise exist.
441. Canada submitted that in support of their submissions on these points, both Complainants rely
on the recent panel report in India –Industrial Products .  The panel in the India case considered the
application of Article XI:1 to India's practices in its operation of its discretionary import licensing
system.
230   The panel found that the import licensing system maintained by India operated "as a
restriction on imports within the meaning of Article XI:1".231   In Canada's view, the factual
background of this finding is very significant.  Under the Indian licensing system, a range of products
had been added to a "Negative List of Imports" and such products could only be imported with a
licence.  These licences were issued on a discretionary basis.  There was no other quantitative
restriction or tariff quota associated with the licensing system.  In the absence of the discretionary
licensing system, there would be no restriction on imports.
442. In these circumstances, the discretionary licensing system was found to be, by itself, a
restriction on imports because the imposition of a discretionary licensing system, where licences areissued to some applicants but not to others, will necessarily provide some check on the potential flow
of imports where there are no other impediments such as a quota or tariff quota.  The result will be a
smaller quantum of imports than would otherwise have occurred.  (An automatic licensing system
would not provide such a check.)  On the other hand, where a quota or a tariff quota is in place, the
use of discretionary licensing to allocate access within the limits imposed by the quota or tariff quotaneed not result in any further lessening in the flow of trade already constricted by the imposition of
                                                     
230 India –Quantitative Restrictions , paragraphs 5.122-142.
231 Ibid., paragraph 5.131.WT/DS161/R
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the quota or tariff quota.  Indeed, in certain circumstances, discretionary licensing may be the most
effective means of enforcing other GATT requirements applicable to the administration of otherwise
lawful import restrictions (e.g., Article XIII:2).
443. Where a discretionary licensing system is implemented in conjunction with other restrictions,
such as a quota or tariff quota, the manner in which the discretionary licensing system is operated may
create additional restrictions to trade independent of those imposed by the quota or tariff quota.  Since
this issue was not considered in the India case, th at case does not provide authority for the proposition
that a discretionary licensing system, used in conjunction with a quantitative restriction or a tariff
quota, necessarily provides some additional level of restriction over and above the inherent restriction
on access created through the imposition of a quantitative restriction or a tariff quota.  Indeed, the
panel's decision clearly indicates that its conclusion that the Indian discretionary licensing system inquestion amounted to a "restriction" was reached "in the light of" the factual circumstances of that
particular case.
232
444. As suggested above, Canada would also note that the use of discretionary licensing in the
allocation of a quota or tariff quota for example, if properly conducted, may be less distorting to trade
patterns that the use of another type of licensing system such as "first-come, first-served".  Adiscretionary system should attempt to allocate access to a quota or a tariff quota based on replicating
as closely as possible the pattern of trade that would exist in the absence of such a restriction.  This
reflects the principles found in Article XIII of GATT 1994 with respect to allocation of quantitative
restrictions or tariff quotas between exporting countries.  In both cases, the purpose is to limit the
disruption to trade inherently created by the imposition of the quantitative restriction or the tariffquota.
445. More relevant to the circumstances of this case, the panel in the India case did go on to find
that by restricting issuance of licences to a limited class of ultimate end users ("Actual Users"), and
excluding all other potential importers such as wholesalers, traders and other "intermediaries", India
had created a restriction as contemplated in Article XI.
233   It is this finding that is the principle
authority cited by the Complainants in their submissions as support for their arguments that actions by
the Korean government in the operation of the Korean discretionary licensing system constitute
"restrictions" pursuant to Article XI.  Canada argued that the application of this principle in the case
of the Korean measures in question is appropriate.
B. ARGUMENTS SUBMITTED BY NEW ZEALAND
446. New Zealand was concerned that, despite the progress made to date, Korea continues to rely
on GATT-inconsistent trade restrictions to protect its domestic producers from the increased marketaccess for imported beef provided for in Korea's Schedule.  Korea has recently consolidated a number
of these trade restrictions in new legislation.  New Zealand considers that these measures are
inconsistent with Korea's obligations under the WTO, including Articles II, III and XVII of GATT
1994.  New Zealand's objective in joining in this dispute is to ensure that all illegal non-tariff
measures are removed, so that by the year 2001 when the last quantitative restrictions are phased out,Korea's beef market will be fully and effectively liberalized, thereby ensuring that New Zealand's
access to the Korean beef market is fair and equitable.
447. New Zealand was especially concerned over the following measures:
(a) retail restrictions on imported beef imposed by Korea;
                                                     
232 Ibid.,  paragraphs 5.130-131.
233 Ibid., paragraphs 5.141-143.WT/DS161/R
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(b) use of the LPMO tendering and grading system by Korea to discriminate against
imported grass-fed beef;  and
(c) maintenance by the LPMO of minimum auction prices for imported beef that are
contingent on the price of domestic product.
1. Article III of GATT
448. New Zealand considered that the restrictions imposed by Korea on imported beef at the retail
level constitute a violation of Article III:4 of GATT 1994.  Korea has in place a number of measures
which restrict the retail opportunities for imported beef.  These include a requirement that imported
beef may only be sold in specialised imported beef stores or in large-scale department stores or
supermarkets with separate sales areas for imported beef.234   Imported beef is effectively denied
access to the existing retail infrastructure for beef.  In order to sell imported beef, a meat retailer mustseek permission for, and establish a separate retail facility.  In 1998, there were only 5498 retail
outlets for imported beef
 compared with over 45,000 retail outlets for domestically produced beef.
449. These measures fall within the scope of Article III:4, being "laws, regulations and
requirements affecting [the] internal sale, offering for sale, purchase, transportation, distribution or
use" of imported beef.  The measures are mandatory, with penalties for violations in many cases.235
There can be no doubt that imported beef and domestically-produced beef are "like" products for the
purposes of Article III:4.236   Nor does Korea dispute that imported and domestic beef are "like"
products.
450. Korea's retail restrictions treat imported beef less favourably than domestic beef.  The phrase
"treatment no less favourable" in Article III:4 encapsulates the core intent of this provision of GATT:"to provide equal conditions of competition", or in other words to provide "effective equality of
opportunities" between domestic goods and imported goods once they are cleared through customs.
237  
Korea's retail restrictions do not offer equal conditions of competition or effective equality of
opportunities for imported beef.  Retail sale of imported beef in Korea is effectively confined to a
relatively small number of retail outlets - around one tenth of the number of the existing domestic beefretail outlets.  Korea has an extensive existing retail infrastructure for beef.  The retail restrictions
limit access to that infrastructure to domestic beef only.  The only way that imported beef can enter
the retail market is if shop-keepers are prepared to establish separate new retail facilities.  Only the
very largest existing retailers can sell imported beef under the same roof as domestic product, and
even then they may do so only if physically separate display units for imported product are set up.
The costs associated with the requirement of establishing separate retail facilities for imported beef
clearly limit the competitive opportunities vis-à-vis  domestic product.
451. Restricting access for imports to fewer points of sale than domestic products was considered
in Canada - Marketing Agencies .  In that case, the panel concluded that exclusion of imported beer
from points of sale where domestic beer could be sold represented a denial of competitive
opportunities for imported beer.  While in that case the panel did not consider it necessary to make a
                                                     
234 See Articles 15 and 9.5 of the Management Guideline for Imported Beef.    Prior to 1 October 1999,
these measures were contained in Articles 5C and 3A of the Guidelines Concerning Registration and Operation
of Specialized Imported Beef Stores.
235 See the table entitled "Criteria for Punishment for Violation" at page 15 of the Management
Guideline for Imported Beef  .
236 Japan - Alcoholic Beverages (AB) , at pages 19-22, summarises the approach to any examination of
the question of "like" products under Article III.
237 See Italian Agricultural Machinery,  paragraphs 11-13;  US - Section 337,  paragraphs 5.11-5.13;  US
- Gasoline , paragraph 6.10;  Japan - Alcoholic Beverages (AB) , page 16.WT/DS161/R
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finding under Article III:4 on this point, the panel ne vertheless "saw great force in the argument that
the restrictions on access to points of sale were covered by Article III:4".238
452. Korea's retail restrictions cannot be defended on the basis that they are merely the result of
there being a legitimate quantitative restriction in place at the border.  The quantitative restrictions inKorea's Schedule allow Korea to limit the quantity of imported beef entering its territory.  This cannot
be interpreted as an entitlement to then restrict the way in which those imports can be sold in the
domestic market.  Once imported beef is imported under the quota, there must be no less favourable
treatment than that accorded like domestic product.
453. Likewise, Korea's arguments that when the quota is filled, there can be no breach of
Article III are also invalid.  Just because the import quota is filled does not mean that imported beef
enjoys equally competitive opportunities in the domestic market.  Even when imports are at acompetitive disadvantage as a result of trade restrictions, they may still sell.  But it is the competitive
disadvantage itself that is relevant to the consideration of Article III:4.  In accordance with
Article III:4, imported beef must be allowed to realise its full competitive potential in the domestic
market.
239
454. In addition to the measures at the retail level, Korea also maintains other measures throughout
the distribution chain which treat imported beef less favourably than domestic product, and which are
therefore in breach of Article III:4.  These include:
(a) restriction of beef sold through the LPMO system primarily to wholesale markets;240
(b) controls on the marketing of beef imported through the SBS system, including
limitations on the range of consumers eligible to make purchases through thesystem;
241  and
(c) reporting, record-keeping, and labelling requirements that are imposed in respect of
imported beef.242
455. None of these restrictions apply to domestic beef.  New Zealand considered that such
measures limit the competitive opportunities for imported beef to the domestic market.  These
                                                     
238 Canada - Marketing Agencies , paragraphs 5.5-5.6.
239 In this regard, the panel in US - Section  337 (paragraph 5.13)  found that treatment no less favourable
requires an assessment of the potential impact rather than the actual consequences for competitive opportunities.
240 See Article 5 of the Management Guideline for Imported Beef (previously Article 3 of the
Regulations Concerning Sales of Imported Beef).
241 Article 26.4 of the Management Guideline for Imported Beef (formerly Articles 2 and 11 of the
Operational Guidelines for Imported Beef under the SBS System ) restricts access to imported beef under the
SBS system to a limited range of defined "end users".  "End users" are members of the SBS super-groupsspecified in Article 20 (formerly Article 4 of the Operational Guidelines ) . It is, therefore, not possible for
purchasers or groups of purchasers who are not "end users" to purchase imported beef through the SBS system.Purchasers of domestic beef do not have to be "end users", nor do they have to be members of super-groups.
Article 21 of the Management Guideline (Article 11 of the Operational Guidelines ) also provides that "end
users" may only use imported beef for the purposes specified in that provision.  The same restrictions do notapply to domestic beef.
242 At the wholesale level, Article 17 of the Management Guideline for Imported Beef (and formerly
Article 19 of the Regulations Concerning Sales of Imported Beef ) require wholesale markets, dealers and sales
agents to keep records for two years.  In the SBS system, monthly reporting and two year record keeping
requirements are required by Articles 27.3, 27.4 and 28.1 of the Management Guideline (and formerly by
Articles 12.3, 13 and 16.1 of the Operational Guidelines for Imported Beef under the SBS System ).  The
supervisory powers of Korean MAF and the LPMO have also been used to apply mandatory and restrictivelabelling requirements on imported beef.WT/DS161/R
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measures deny exporters of beef to Korea the opportunity to choose their preferred method of
marketing, and impose additional compliance costs on imports relative to like domestic product.  To
this end, the measures subject imported beef to treatm ent that is less favourable than that given to like
domestic product.  It follows that these measures also are inconsistent with Article III:4 of GATT1994.  Furthermore, like the retail restrictions, New Zealand also contended that these measures
cannot be justified under Article XX(d) of GATT 1994.
456. New Zealand submitted further that under Article 11.1 of the Management Guideline for
Imported Beef  (and formerly under Article 9.1 of the Regulations Concerning Sales of Imported
Beef), the LPMO is required to determine a mini mum price for imported beef sold at auction.  In
practice, the minimum price is set with reference to the price of the competing domestic product, and
is used by the LPMO as a means of influencing domestic market prices.  Rather than being able tocompete freely on the basis of its duty paid price at the border, imported beef prices are manipulated
by the LPMO using its mi nimum price-setting powers.
457. Domestic beef is not subject to minimum price controls.  Within the constraints of the highly
managed Korean domestic market, the price of domestic beef is able to respond to changes in supply
levels, consumer demand, prices of other competing protein sources, and so on.  Conversely, the priceof imported beef sold through LPMO auctions is maintained at a controlled minimum, and cannot
decrease in response to changes in other market c onditions unless the LPMO decides to re-fix a new
(lower) minimum price.
243   The minimum price auction system means that imported beef cannot enter
the Korean market on the basis of normal commercial considerations.  The large build-up of stocks of
imported beef in LPMO freezers is indicative of the fact that minimum price controls do inhibit theability of imported beef to respond to market signals.
458. The minimum price requirement is a law affecting the internal sale or offering for sale of
imported beef which accords treatment less favourable to that which is accorded like domestic
product, in contravention of Article III:4 of GATT.  The inability of imported beef sold through the
LPMO to respond to changing market conditions as a result of the operation of the minimum pricelaw means that imported beef does not enjoy "equal conditions of competition"
244  vis-à-vis  domestic
beef.  LPMO-imported beef is subjected to a comp etitive constraint which does not apply to domestic
beef.
2. Article XX of GATT
459. New Zealand considered further that Korea's retail restrictions cannot be justified as
"necessary to secure compliance with laws or regulations [...] relating to [...] the prevention of
deceptive practices" in accordance with Article XX(d) of GATT 1994.  The burden of proof is onKorea to show that its retail restrictions fall within the scope of Article XX(d).
245   New Zealand
contends that Korea has failed to discharge this burden.
460. Notwithstanding that Korea has failed to discharge this burden of proof, New Zealand further
contended that it is not possible for Korea to do so.  The retail restrictions are not measures that fall
within the scope of subparagraph (d) of Article XX.  The panel in EEC - Parts and Components found
that Article XX(d) covers only measures related to the enforcement  of obligations under laws or
                                                     
243 The price data presented by Australia demonstrates that minimum prices set by the LPMO often
remain fixed for long periods of time, despite large movements in demand for beef and price levels of domesticbeef.
244 See Italian Agricultural Machinery,  paragraphs 11-13.
245 The panel in US - Section 337 ( paragraph 5.27)  found that "...it is up to the contracting party seeking
to justify measures under Article XX(d) to demonstrate that those measures are 'necessary' within the meaningof that provision."WT/DS161/R
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regulations consistent with the General Agreement.246   The regulations relating to separate retail
distribution channels do not serve to enforce any Korean laws relating to fair trading or deceptive
practices.  Even if the retail restrictions are "to se cure compliance" with Korea's fair trading laws, they
are not " necessary " for this purpose.  There are a range of alternative measures that would be less
trade restrictive than the maintenance of separate retail channels. Measures such as the maintenance of
effective audit trails regarding country of origin, more comprehensive monitoring of the activities of
beef retailers, and stricter penalty provisions in Korea's fair trading laws would all be effective
measures that would be considerably less trade restrictive than the retail restrictions.
461. Should Korea's retail restrictions be found to fall within the scope of subparagraph (d) of
Article XX, contrary to New Zealand's assertion, then New Zealand contends that in any case, the
measures do not comply with the chapeau of Article XX.  The retail restrictions are applied in amanner which constitutes a means of arbitrary or unjustifiable discrimination between countries
where the same conditions prevail, or a disguised restriction on international trade.
247   Korea seeks to
rely on Article XX in order to "frustrate or defeat" its legal obligations under the substantive rules of
the GATT.248   Such reliance is therefore unjustified.
3. Article II of GATT
462. Through its import tendering system, the LPMO maintains an artificial distinction between
grain-fed and grass-fed beef.  In calling for tenders under the import quota set out in Korea's Schedule
of Concessions, the LPMO specifies either grain-fed or grass-fed beef.  It has called recently for
tenders of grain-fed beef only.  This practice effectively divides the import quota into two
subcategories, and discriminates against New Zealand, an exporter of grass-fed beef,249  vis-à-vis  other
exporters who produce primarily grain-fed beef.  There is no justification for the maintenance of such
a distinction.
463. New Zealand contended that the division of Korea's import quota for beef into two sub-
categories, and the resulting discrimination against exporters of grass-fed beef in filling the quota
represents "treatment less favourable" than that provided for in Korea's Schedule of Concessions, andthus contravenes Article II:1(a) of GATT 1994.  Korea's Schedule contains no "other terms or
conditions" that allow it to distinguish between grain-fed and grass-fed beef.  The maintenance of this
distinction has led Korea to administer its concession for beef in a way which grants the benefit of
that concession to the products of one group of countries (grain-fed beef exporters), at the expense of
others (grass-fed beef exporters, including New Zealand).  This has had the effect of preventing
access of high quality grass-fed beef from New Zealand to the Korean market under the quota.  This
restriction also inhibits New Zealand's ability to develop the market for its grass-fed beef in Korea.
4. Article XVII of GATT
464. New Zealand also contended that the LPMO, a state trading enterprise notified to the WTO as
such by Korea, has not acted in a manner consistent with the general principles of non-discriminatory
treatment prescribed in GATT 1994.  Korea has accordingly contravened Article XVII:1(a) of that
Agreement.
                                                     
246 L/6657, adopted on 16 May 1990, 37S/132, 195-197, paragraphs 5.14-5.18.
247 Paragraphs 146 et seq of the Appellate Body Report in US – Shrimp (AB)  refer in respect of any
examination of the chapeau of Article XX.
248 See US – Gasoline,  page 22.
249 New Zealand is an exporter of predominantly grass-fed beef.  Only 2 per cent of New Zealand beef
exports are grain-fed, and this product is supplied exclusively to niche markets in Japan.WT/DS161/R
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465. By distinguishing between grass-fed and grain-fed beef in the tendering for imported beef
under the quota, the LPMO has made purchases that are not solely in accordance with commercial
considerations.  The LPMO has favoured some supplier countries over others on the basis of a
distinction between beef production methods which is not related to commercial considerations.  Suchpractices are accordingly discriminatory treatment which is not based on commercial considerations,
and is a contravention of Article XVII:1(a).
5. Agreement on Agriculture  - domestic support
466. New Zealand submitted that the Korean Government significantly increased the amount of
domestic support it provided to its beef producers in 1997 and 1998.  While Korea notified increased
levels of support for beef to the WTO Committee on Agriculture, the notifications did not account for
all the support provided and the calculations were not in conformity with the methodology set out in
the Agreement on Agriculture.  As a result, Korea incorrectly excluded beef from the calculation of its
Current Total Aggregate Measurements of Support (AMS) in 1997 and 1998.  Had it included beef
support in the Current Total AMS, Korea would have exceeded the annual reduction commitment set
out in its Schedule for 1997.
467. New Zealand was especially concerned over the incorrect calculation of market price support
for beef by Korea through the use of incorrect eligible production  levels.  In the same market price
support calculation, New Zealand was also concerned over the use of a fixed external reference price
which differs in terms of its stage of processing from that of the applied administered price .
(i) The fixed external reference price for beef
468. According to paragraph 8 of Annex 3 of the Agreement on Agriculture, the calculation of
market price support involves the subtraction of a fixed external reference price from an applied
administered price with the result multiplied by eligible production (minus associated fees or levies).
Korea's applied administered price for beef was, as set out in the Korean MAF press statement of
27 January 1997, 2,400 thousand won per 500 kg. Hanwoo steer for the remainder of the 1997
calendar year.
469. It appears, as stated by Korea, that "the said programme was implemented not only for the
Hanwoo but also for [dairy] cattle and hybrid cattle of Cheju Island and an amount different from that
for Hanwoo beef was applied as well …".  As a result, Korea has apparently used a weighted average
applied administered price encompassing the different categories.
250   In doing so, Korea has also
converted the base unit for the calculations from a per head  basis to a per kilogram carcass weight
basis .  While there is a change in measurement unit, it does not affect the stage of processing of the
applied administered price.  That stage of processing represents live animals for the bulk of theprogramme.
251   This is consistent with paragraph 7 of Annex 3 of the Agreement on Agriculture
which specifies that the "AMS shall be calculated as close as practicable to the point of first sale of
the basic agricultural product concerned".  However, the fixed external reference price Korea has used
is not specified at an equivalent stage of processing.
470. Article 1(a)(ii) of the Agreement on Agriculture  is applicable when a Current AMS is being
calculated, i.e. an AMS for any year during the implementation of the Agreement on Agriculture  and
thereafter.  It provides that the AMS means "with re spect to support provided during any year of the
                                                     
250 While a weighted average is a logical approach for aggregating a number of different beef
categories, New Zealand contends that the weighting should have been calculated on the basis of eligible
production rather than actual purchases for the reasons discussed below.
251 Purchases designated "carcass" accounted for only 10 per cent of total purchases in 1997 and 1998
according Korea.WT/DS161/R
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implementation period and thereafter, [support] calculated in accordance with the provisions of
Annex 3 of this Agreement and taking into accoun t the constituent data and methodology used in the
tables of supporting material incorporated by reference in Part IV of the Member's Schedule".
471. However, in the case of Korean beef, as there was no applied administered price used to
support beef in the Uruguay Round base period, no market price support calculation was undertaken
and consequently no fixed external reference price for beef is included in G/AGST/KOR which is
then to be taken account of.  Annex 3 of the Agreement on Agriculture  must, therefore, be used to
determine how the fixed external reference price is derived.  Paragraph 9 of Annex 3 provides:  "The
fixed external reference price shall be based on the years 1986 to 1988 and shall generally be the
average f.o.b. unit value for the basic agricultural product concerned in a net exporting country and
the average c.i.f. unit value for the basic agricultural product concerned in a net importing country inthe base period.  The fixed reference price may be adjusted for quality differences as necessary."
472. Korea is a net beef importing Member thus the c.i.f. unit value represents the correct starting
point.  New Zealand submits that the reference to "the average c.i.f. unit value for the basic
agricultural product concerned …" (emphasis added) requires that the applied administered price and
the fixed external reference price must both be for the "basic agricultural product".  This is reinforcedby Annex 3 paragraph 7, which provides that the AMS "shall be calculated as close as practicable to
the point of first sale of the basic agricultural product concerned".  Since the AMS is calculated by
reference to the applied administered price and the fixed external reference price, both of these
calculations must be at the same stage of processing.  In other words, the fixed external reference
price must be at (or converted to) the same stage in the processing chain as the applied administered
price for the basic agricultural product concerned – in this case live animals.  As live cattle destined
for consumption as meat (as opposed to breeding) are not widely traded, New Zealand contends that
the correct approach in this instance would have been for Korea to convert its fixed external reference
price to the point of first sale – the level of its ap plied administered price.  Korea failed to do so and
has thus over-estimated the fixed external reference price for beef.
473. The principle of comparing like with like is also  made clear in the context of Annex 3 by the
WTO Secretariat's technical note for acceding countries which states with reference  to the calculation
of market price support:  "This price [an external re ference price, e.g. an estimate of the world price
such as the c.i.f. price or f.o.b. price] should be adjusted to a similar stage of processing as the
administered price".
252   In the sense that there is no "constituent data and methodology"253  provided
by Korea on beef in its AGST tables, the Secretariat's advice on Annex 3 for acceding countries is
particularly relevant in this case.
474. In its calculations, Korea is effectively comparing live animals in carcass weight equivalents
(the administered price), with meat (the external reference price).  In terms of the Harmonised
System, this is comparing products in 0102 (live bovine animals) with 0201-0202 (meat of bovine
animals, fresh, chilled or frozen).
475. In order to have a rational calculation of the effect of Korea's beef price support, the fixed
external reference price must be converted to the same stage in the processing chain254 as the applied
administered price.  C.i.f. unit values are generally considered to correspond most closely to
domestically produced products at the wholesale level and much of the difference between wholesale
                                                     
252 Accession to the World Trade Organization:  Info rmation to be Provided on Domestic Support and
Export Subsidies in Agriculture:  Technical No te by the Secretariat, WT/ACC/4, paragraph 15.
253 As provided in Article 1(a)(ii) of the Agreement on Agriculture.
254 The different stages of processing of some agricultural products represent only a minor change in
some cases, but for many livestock products such as beef, the products are very different - live animals versus aslaughtered, processed and often further prepared product.WT/DS161/R
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and the point of first sale (farm gate) prices represents processing costs.  In the case of beef, this
indicates that slaughtering costs should be deducted  from the c.i.f. unit value in order to reflect the
same stage of processing as Korea's applied administered price which is measured in carcass weight
equivalents of live animals.
476. New Zealand has calculated the external reference price at the appropriate stage of processing
based on Korean slaughtering costs from information from the Korean MAF.255  The fixed external
reference price thus calculated is 1,514 won per kilogram carcass weight.
(ii) The eligible production of beef
477. New Zealand submitted further that Korea has also used an incorrect figure for the quantity of
eligible production  in its calculation of market price support.  Market price support can exist through
a variety of means, but in all cases it results in transfers from consumers to producers which providesupport to those producers.  Often state purchases will be used in order to maintain the government-
set prices of products, effectively ensuring the transfers from consumers to producers.  But the actual
quantity of purchases is not relevant in the calculation of market price support.  The language of
Annex 3 makes it clear that it is the quantity of production which is eligible  to receive the applied
administered price which is relevant.
478. In situations where governments only enter the mark et as "buyers of last resort", i.e. in order
to take "excess" product off the market to ensure farmers receive the price set by governments,
government purchases may be minimal or even zero.  But agricultural producers are "eligible" to
receive the government-set price for all of their production because, in order to secure supplies,
consumers must be prepared to match or better the government-set price.
                                                     
255 As the price support measure (applied administered price) was specified at the point of first sale on
the basis of carcass weight equivalents of live animals, the fixed external reference price should have beenconverted to the same basis.  This can be achieved by  deducting those costs necessary to transform beef from
the live animal to a carcass, i.e. the slaughtering costs.
Table 1 - Fixed external reference price for beef at point of first sale
Item Description Years Value
(won/kg)
(a) c.i.f. unit values 1989
1990
1991
Average1,784
1,828
1,858
1,823
(b) Slaughtering costs 1989
19901991
Average  287
  305  337  310
(c) c.i.f. at point of first sale equivalent 1989
1990
1991
Average1,497
1,523
1,521
1,514
Source:
(a) Answers by Korea in the Committee on Agriculture, G/AG/R/13, page 37.
(b) Korea MAF as reported by OECD in "Electronic Data Product on Producer and Consumer SubsidyEquivalent (PSE/CSE)", Statistics on Diskette, (revised annually), Table 2.7, referred to in OECD,
Agricultural Policies in OECD Countries: Monitoring and Evaluation.
(c) The figures in (c) are those in (a) less those in (b), in other words c.i.f. unit values less slaughteringcosts.  (Slaughtering costs appear to have been estimated as representing a consistent 4.6 per cent of the
Korean wholesale price for beef in each year).WT/DS161/R
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479. The ordinary meaning of "eligible" is also at odds with Korea's use of actual purchases of
beef.  The meaning of eligible is "fit, suitable or qualified".  It is not related to the more restricted
amount implied by actual  purchases.  This is also confirmed by material produced by the GATT
Secretariat during the Uruguay Round in order to  assist in the preparation of Uruguay Round
participants' initial lists of specific binding commitments.256   These initial lists eventually became the
basis for Korea's (and others') domestic support reduction commitments.  In that note, the Secretariat
clarified that: "For an open-ended intervention or buy-in scheme, this [eligible production] may be
total production.  If the scope of the measure is limited to a particular quantity, it is this limited
quantity that should be used".257   There is no reference in the explanatory note to the actual  quantity
bought-in – in fact, unless a measure was limited to a particular quantity, it is clear the presumption
was that eligible production would equal total production.  The note did not "interpret" the text, butgave "further clarification where possible."
258
480. In the case of Korea's beef support, the measure was apparently limited to a particular
quantity.  In 1997, for example, that quantity was 500 head per day of Hanwoo cattle above 500 kg.
within the 27 January to 31 December 1997 period (340 days).  A total of 170,000 head of Hanwoo
cattle were thus eligible in the 1997 calendar year as used by Korea for its domestic supportcommitments.  In carcass weight terms, this amounts to 52,615 tonnes for Hanwoo cattle alone.
259  
But, as stated by Korea "the said programme was implemented not only for the Hanwoo but also for
[dairy] cattle and hybrid cattle of Cheju Island … as well ."  
481. The fact that Korea notified a total figure of 35,127 tonnes in 1997 is clear evidence that
eligible production, and thus market price support, has been underestimated.  Indeed, given that thepurchase programme covered such a wide category of beef cattle, there would be justification in
assuming that, in fact, eligible production should equal total beef production.  Consumers had to
compete with the government-set price to buy stock – this is what resulted in a transfer from
consumers to producers rather than the actual purchases made by the government – and this affected
all production.  Total beef production in 1997 was around 237,000 tonnes.
260
482. For 1998, the situation was more complex.  There were several changes in the cattle purchase
programme.  Nevertheless, New Zealand has attempted to estimate the 1998 eligible production level
for Hanwoo beef (only) on the basis of information provided in Korean press releases.261  T h e
                                                     
256 "Explanatory notes on the formats for the establishment of lists of specific binding commitments
under the agriculture reform programme", Informal technical note by the [GATT] Secretariat, 27 January, 1992.While the note was prepared in relation to the "Draft Final Act Embodying the Results of the Uruguay Round"(MTN.TNC/W/FA), the language concerning the calculation of market price support is identical in that
document and the Agreement on Agriculture.
257 Ibid, page 21.
258 Ibid,  paragraph 2.  It went on to say "It does not constitute a basis for evaluating or assessing
specific binding commitments by any participants".
259 170,000 head at 500 kg.(0.5 tonne) per head multiplied by the conversion coefficient of 61.9 per
cent, i.e. ((170,000*0.5)*.619) = 52,625 tonnes carcass weight equivalent.  The conversion coefficient is the one
used by Korea.
260 [Korean] MAF, Statistical Yearbook of Agriculture and Forestry (1998) and MAI (1998) as reported
in the MAF web site http://152.99.166.2/english/maf_03_12.html.
261 Korea generally specified its price support programme in terms of a maximum number of Hanwoo
animals which would be eligible for purchase each day - sometimes in particular weight ranges.  By calculatingthe number of days each of the variations applied to, it is possible to estimate the total number of Hanwoo
animals eligible for purchase and the carcass weight equivalent of those animals.  The following tables present
this information. The quantities of dairy and hybrid cattle of Cheju Island are not included below becausedetailed information is not available.WT/DS161/R
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resultant figure is 35,328 tonnes for Hanwoo beef alone.  New Zealand's calculation comes out
marginally lower than the total beef figure of 35,899 tonnes given by Korea for 1998.  This simply
reflects an under-estimation resulting from a lack of data on the eligible number of dairy steers and
hybrid cows.
(iii) The AMS calculation for beef
483. On the basis of the adjusted fixed external reference price determined by New Zealand and
New Zealand's improved calculation of eligible production levels (but for Hanwoo beef alone), the
following table recalculates Korea's beef AMS for 1997 and 1998.  The product-specific AMS are
then compared to the values of production supplied by Korea for 1997 and 1998:
                                                                                                                                                                    
Table 2 - Eligible production for Hanwoo Beef in 1997
Period Duration
(days)Head per
dayEligible Production
(Total Head)Carcass weight
equivalent (tonnes)
25.1.97-31.12.97 340 500 170,000 56,615
Table 3 -  Eligible production for Hanwoo Beef in 1998
Period Duration
(days)Head per
day/ (weight
kg.)Eligible Production
(Total Head)Carcass weight equivalent
(tonnes)
1.1.98-15.6.98 167 500
(500 kg.)83,500 25,843
16.6.98-7.7.98 21 340
(500 kg.)7,140 2,210
21 160
(399 kg.)3,360 786
8.7.98-15.7.98 7 340
(500 kg.)2,380 737
7 160
(399 kg.)1,120 262
16.7.98-18.7.98 4 340
(500 kg.)1,360 421
4 160
(399 kg)   640 150
19.7.98-26.7.98 7 160
(399 kg)1,120 262
27.7.98-31.12.98 35 350
(399 kg)12,250 2,864
35 250
(350 kg)8,750 1,795
Total 241 121,620 35,328
Source:
Information provided in various Korea MAF press st atements.  Carcass weight equivalents reflect the
weight of the animal category (top end of the range where a range was given) multiplied by eligibleproduction and the relevant carcass/live-weight ratios.  The ratios were 61.9 per cent in 1997 and, in1998, 61.9 per cent for 500 kg. steers and 58.6 per cent for other (medium) steers.WT/DS161/R
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Table 4 - Calculation of the product-specific AMS for Hanwoo beef and de minimis  calculation
Year AAP FERP EP MPS OS Total AMS VP Percentage
won/kg. tonnes billion won %
1997
19987,351.1
6,883.21,514
1,51452,615
35,328307.1
189.71.09
1.40308.2
191.12,107
1,83614.6
10.4
Key:
AAP  - Applied administered price – Source:  Notifications of Korea
FERP  - Fixed external reference price  - from Table 1
EP - Eligible production  - from Tables 3 and 3
MPS - Market price support – Source:  ((AAP-FERP)*EP)
OS - Other support – Source:  Notifications of Korea
VP - Value of production – supplied by Korea
484. By simply adding the actual  purchases of dairy cattle and hybrid cattle of Cheju Island262  to
the eligible Hanwoo production as set out in the previous table, the proportion of the total value ofbeef production accounted for by the beef product-specific AMS increases to 15.8 per cent and
11.7 per cent in 1997 and 1998 respectively.  Of course, including the eligible  production of dairy
cattle and hybrid cattle of Cheju Island would result in even higher figures.  Given the nature of the
scheme, eligible production could even be argued to be total beef production.
263  Despite the under-
estimation resulting from data deficiencies concerning dairy steers and hybrid cows, therefore,
Korea's product-specific beef AMS significantly  surpassed the 10 per cent de minimis  level in both
years.  Thus the product-specific AMS for beef should have been included in the calculation ofKorea's Current Total AMS in both years.  With no other changes to Korea's notified Current Total
AMS, the correct Totals should therefore be as follows:
264
Table 5 -   Adjusted Current Total AMS for Korea 1997 and 1998
Year Current Total AMS as notified
by Korea
(billion won)Product Specific AMS for Beef
(billion won)Correct Current Total
AMS
(billion won)
1997 1,936.95 308.2 2,245.2
1998 1,562.77 191.1 1,753.9
485. In 1997, the correct Current Total AMS for Korea as calculated by New Zealand exceeds the
annual commitment level as notified by Korea of 2,028.65 billion won contrary to Article 3.2 of the
Agreement on Agriculture.  In 1998, the correct Current Total AMS (but including only Hanwoo beefinstead of total eligible beef) falls below the notified commitment level of 1,951.70 billion won.
New Zealand does not have information at its disposal to assess whether, if all eligible beef
production was included, the Current Total AMS would have been surpassed.  Nevertheless, Korea
                                                     
262 Non-Hanwoo purchases amounted to 4,083 tonnes in 1997  and 4,454 tonnes in 1998.
263 According to [Korean] MAF, Statistical Yearbook of Agriculture and Forestry (1998) and MAI
(1998) as reported in the MAF website http://152.99.166.2/english/maf_03_12.html, total Korean beef
production (Hanwoo plus other) was 237,000 tonnes in 1997. The use of total production as eligible production
yields a Total beef AMS of around 1,300 billion won in that year.
264 As noted above, this still under-estimates the product-specific AMS for beef because of the under-
estimation of eligible production.WT/DS161/R
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still failed in 1998 to include beef in its Current Total AMS contrary to Article 7.2(a) of the
Agreement on Agriculture .265
6. Conclusion
486. For the reasons cited above, New Zealand requested the Panel to find that:
(a) the restrictions imposed by Korea on the sale and distribution of imported beef
constitute a violation of Article III:4 of GATT 1994;
(b) the tendering process adopted by the LPMO fo r the import of beef results in treatment
less favourable than that provided for in Korea's Schedule of Concessions, in breach
of Article II:1(a) of GATT 1994, and constitutes conduct by the LPMO that is in
breach of the non-discriminatory treatment requirement in Article XVII:1(a) of
GATT 1994;  and
(c) the maintenance by the LPMO of minimum auction prices accords to imported beef
treatment less favourable than that accorded to domestic beef, in contravention of
Article III:4 of GATT 1994.
487. Concerning domestic support, New Zealand submitted that, through incorrectly applying
Annex 3 of the Agreement on Agriculture  in calculating product-specific support for beef producers,
Korea has erroneously excluded support to beef producers from the calculation of its Current Total
AMS in 1997 and 1998 in violation of Article 7 of the Agreement on Agriculture .  Had Korea
correctly included support for beef producers in its Current Total AMS in 1997, the commitment level
specified in Section I of Part IV of its Schedule would have been exceeded, thus Korea was also in
violation of Article 3.2 of the Agreement on Agriculture  in that year.  New Zealand requested that the
Panel recommend to the DSB that Korea bring these measures into conformity with the provisions of
GATT 1994 and the Agreement on Agriculture .
                                                     
265 Article 7.2(a) provides: "Any domestic support measure in favour of agricultural producers,
including any modification to such measure, and any measure that is subsequently introduced that cannot be
shown to satisfy the criteria in Annex 2 to this Agreement or to be exempt from reduction by reason of any otherprovision of this Agreement shall be included in the Member's calculation of its Current Total AMS".WT/DS161/R
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VI. INTERIM REVIEW266
488. On 24 May 2000, the United States and Korea requested the Panel to review sections of the
Interim Panel Report which had been issued to the parties on 10 May 2000.  None of the parties
requested an additional meeting with the Panel.  Invoking WTO panel practice, the parties reservedthe right to respond to other parties' comments on the Interim Panel Report.  On 24 May the Panel
invited the three parties, should they so wish, to respond to each others' comments by 12 noon on
Tuesday, 30 May 2000.  On 30 May the three parties sent responses to each others' comments.
489. It is mainly Korea that has submitted review comments on various aspects of the interim
report including those relating to the legal test s under Article III:4 of GATT, the consequence of
Korea's legal beef import quota on the Article III:4 cl aims, the Panel's refusal to consider that the dual
retail system is a measure necessary to secure compliance with Korea's Unfair Competition Act , the
Panel assessment of the LPMO's practices between the end of October 1998 and the end of May 1999,
the Panel's considerations of the Complaining parties claims pursuant to Articles 3,4,6 and 7 of the
Agreement on Agriculture and the Panel's use of th e provisions of Annex 3 as well as the Panel's
consideration that its first duty, in light of the Complaining parties claim that Korea exceeded its
scheduled commitments with respect to domestic support, was to identify such commitments inKorea's Schedule.  The United States requested the Panel mainly to review some of its legal analysis
under Article XX(d).
490. In addition, Korea pointed the Panel to factual errors in the data used by the Panel and
initially provided by the United States.  Since all parties agree on these mistakes and since the
correction of these errors does not affect the reasoning developed in the panel report, the Panel hasdecided to revise such data accordingly.  Parties have also pointed to some linguistic and
typographical mistakes which the Panel has taken into account when revising its findings.
491. On a few occasions, Korea claimed that in its findings, the Panel did not fully reflect Korea's
arguments or refused to take them into account.  The Panel would like to insist that it has always
taken into account all Korea's arguments but the Panel has summarized only those arguments  which itconsidered particularly relevant to its legal analysis.  The Panel recalls that Korea was given ample
opportunity to comment on the descriptive part of this Panel report.  To ensure full transparency and
due process, the Panel agrees to revise the descriptive part of its report with a view to reassuring
Korea that all its arguments are fully reflected in the Panel report.
492. The Panel would like to add the following co mments on the parties' review requests and
responses:  Korea argues that the Panel is inconsistent in its findings that there is no "trade effect" test
required to prove a violation of Article III:4 of GATT.  The Panel would like to reiterate that theGATT/WTO jurisprudence has clearly established that when establishing a violation of Article III:4,
the Complaining parties do not need to demonstrate any actual or future specific trade effects caused
by the measure challenged.  This does not limit the obligation for the Panel to discuss whether the said
measure is treating imported products less favourably than domestic products.  This is why the Panel's
discussion is focussed rather on the main features of the dual retail system and the "architecture"
267 of
the measure challenged rather than the factual or  economic context of the Korean market, including
the effect of its beef import quota, its financial crisis or the health scares.
                                                     
266 Pursuant to Article 15.3 of the DSU, the findings of the panel report shall include a discussion of the
arguments made at the interim review stage.  Consequently the following section entitled Interim Review is part
of the Findings of this Panel report.
267 See for instance in the context of an Article III:2 analysis, Japan – Alcoholic Beverages , page 31 :
"Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protectiveapplication can most often be discerned from the design, the architecture, and the revealing structure of a
measure" (emphasis added).WT/DS161/R
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493. Korea submits that the Panel did not properly reflect its arguments with regard to the fact that
it had filled its import quota.  The Panel has revised its findings to use the very wording of Korea.
The Panel would like to reiterate three points.  First, the Panel considers that Korea was under no
obligation  to import any amount of beef but rather, pursuant to its annual import quota, Korea had a
right to limit importation to the level of its scheduled quota.  Second, the Panel considers that in 1997
and 1998 imports of beef into Korea were below its quota limits.  Third, the existence of such
scheduled beef import quota does not affect the legal assessment of the WTO compatibility of Korea's
dual retail system for beef.  It is always for the Complaining parties to bear the burden of proof that
Korea's dual retail system, in segregating imported and domestic beef, is violating the WTO national
treatment obligation.  There was no need to further address the actual trade effects of such dual retail
system or whether the low level of imported beef was rather the consequence of the import quota orthe financial crisis or the health scares.  There was no need to examine whether there was a correlation
between the level of imported beef and the dual retail system since the level of imports and the actual
commercial impact of the dual retail system need not be demonstrated in an Article III:4 analysis.  As
such, the dual retail system is inconsistent with Article III:4 of GATT and the existence of Korea's
import quota does not alter the normal GATT evidentiary rules or those relating to the burden ofproof.  Finally, the Panel did not conclude that th e number of imported beef stores was in any manner
"the reliable indicator of the effect of the dual retail system on imported beef" as the Panel was, and
still is, of the view that it was under no obligation to assess the trade effects of the dual retail system.
494. Korea claims that it never agreed that its dual retail system "affects" trade since Korea is of
the view that its dual retail system is not discriminatory.  Korea is misquoting the Panel findings andconfusing two concepts, i.e. (1) whether the measure at issue is an internal regulation – a regulation or
a requirement affecting the internal sale, offering for sale, purchase or distribution of imported and/or
domestic products – and (2) whether such internal regulation is discriminatory against imported
products.  Clearly, the dual retail system for beef  affects the sale, offering for sale and distribution of
beef in the Korean market.  In addition, and in a separate analysis, the Panel reached the conclusion
that such dual retail system was indeed discriminatory by treating imported beef less favourably than
domestic beef.
495. Korea submits that it does not understand the Panel's discussion on national treatment in
paragraphs 611 to 614 of the Interim Panel report.  The Panel would like to reiterate that the object of
the national treatment obligation is to ensure that imported products are not treated less favourably
than domestic products.  In this sense, Article  III:4 is not concerned with the treatment (or
mistreatment) that WTO Members may impose on their domestic products but rather whether,through the application of an internal mandatory regulation, imported products are treated less
favourably than domestic products.  In this context the Panel is of the view that segregation of
imported products in the Korean domestic market is inherently less favourable to imported products
which are excluded from the normal domestic distribution system, limiting thereby consumers choices
as further developed in the Panel's findings.  This conclusion is independent from the effect of theKorea's beef import quota which also reduces the availability of imported beef.  Again, the Panel
reiterates that when assessing the compatibility of  the dual retail system with the national treatment
obligation of Article III:4 of GATT, the Panel is under no obligation to assess the actual trade effects
of the quota on the availability of imported beef or the trade effects of the dual retail system.  In such
a determination, the Panel is not required to examine any specific data and is authorized to discuss thepotential consequences of such a system on the imported products relying on hypothetical
situations
268, always with a view to better understand the functioning of the Korean dual retail system
and the less favourable treatment to imported produ cts caused by the segregation of imported products
into the Korean domestic market.  Finally, basic economic principles suggest that the segregation of
imported products into the Korean market is certainly one of the factors that facilitate the maintenance
                                                     
268 See for instance what was done by the panel in Canada – Periodicals , upheld by the Appellate Body
report, page 23.  See also the Panel report on Indonesia - Automobiles , at paragraph 14.113.WT/DS161/R
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of the price differential between imported and domestic beef. In any case, with a view to ensuring
clarity, the Panel has slightly revised the wording of its findings accordingly.
496. Korea submits that, in its discussion on the applicability of Article XX(d), the Panel did not
reflect fully Korea's arguments relating to the "primitive" state of Korea's beef retail stores whichwould make it difficult for Korea to effectively pros ecute the perpetrators of fraud.  The United States
argues that the dual retail system and the Korean Unfair Competition Act  had been found only to share
similar objectives and that the Panel should have concluded that the Korean dual retail system was not
adopted to secure compliance with the Unfair Competition Act , pursuant to Article XX(d) of GATT.
The Panel is of the view that although not necessary, and disproportionate, the Korean dual retail
system does more than simply share the same objectives as the Unfair Competition Act , to the extent
that it reduces the opportunities and thus the temptations for butchers to misrepresent foreign beef fordomestic beef.  In this sense, the dual retail system ensures compliance with the prohibition against
misrepresentation as to the origin of beef pursuant to the Unfair Competition Act .  With a view to
ensuring clarity, the Panel has slightly revised the wording of its findings accordingly.
497. With reference to the Panel's discussion that no dual retail system is in place in other sectors
of the Korean economy, Korea has pointed to factual errors as to the level of imported beef in 1990and the proportion between dairy cow meat and imported beef during the same period.  The United
States admits the errors.  Under the circumstances (in light of the agreement of all parties) the
wording the findings has been slightly revised accordingly.
498. Korea also submits that the Panel does not understand the background material it provided or
misrepresents the fact when the Panel states that the December 1989 report for the National Assemblycan be used to substantiate that there are alternat ives available to Korea to combat fraud. Korea adds
that this 1989 report was submitted in the process of a one-time, special investigation of fraudulent
practices.  Korea submits that its main argument relates to the cost of continuous policing.  The
Complaining parties agree with the findings and note Korea's admission that it has the capacity to
investigate fraud.   First, the Panel would like to insist that it had clearly understood that theDecember 1989 report was the result of a special investigation.  Korea had thus demonstrated that it
has the capacity to investigate.  As to the relate d costs, the Panel has addressed this matter separately
and concluded that compliance with the WTO Agreement may sometimes require demanding and
even costly adjustments, as the WTO Agreement is a bargain.  As stated by the Appellate Body in its
report on Japan – Alcoholic Beverages :
"The WTO Agreement  is a treaty -- the international equivalent of a contract.  It is self-
evident that in an exercise of their sovere ignty, and in pursuit of their own respective
national interests, the Members of the WTO have made a bargain .  In exchange for the
benefits they expect to derive as Members of the WTO, they have agreed to exercise
their sovereignty according to the co mmitments they have made in the WTO
Agreement ."
269  (Emphasis added.)
The Panel has deleted what was paragraph 654 of the Interim Panel report.
499. With reference to the Panel's discussion on the LPMO's tender practice to make a distinction
between grass-fed and grain-fed imported beef, Korea submits that the Panel seems to imply that the
fact that the LPMO failed to purchase grass-fe d beef on one or two occasions would constitute an
import restriction.  The Panel would like to reiterate that WTO Members are not obliged to import any
amount of foreign products, but they are prohibited, as a general principle, from interfering with any
import-export flows and from imposing any discriminatory distinctions between like imports.  To theextent that Korea imposes import conditions, not otherwise contained in its Schedule, such import
                                                     
269 See the Appellate Body report in Japan – Alcoholic Beverages , page 15.WT/DS161/R
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conditions do necessarily constitute import restrictions for grass-fed beef contrary to Articles XI and
II of GATT.  The LPMO, a state-trading enterprise, was under no obligation to import grass-fed beef,
but it is prohibited from making any discrimination against grass-fed beef.  To the extent that such
grass-fed/grain-fed distinction was never negotiated as a condition to its Schedule, Korea, through itsstate-trading enterprise, is prohibited from introducing such discrimination.  WTO Members cannot
avoid their tariff and other scheduled obligations through the use of a state-trading enterprise.
500. With reference to the fact that the LPMO did not call for tenders and did not discharge its
beef imports between the end of October 1998 and the end of May 1999, Korea submits that the Panel
should have taken into account the fact that if it would not have been commercially reasonable for
Korea to discharge its stocks at a time when replacement purchases would have needed to be made at
very high prices, owing to the currency devaluati on.  The Panel would like to insist that during that
same period the level of beef stocks was very high and not commercially reasonable.  There was
therefore no need for Korea to "replace" all such stocks.  Moreover, in not inviting tenders, the LPMO
had no way of knowing whether imported beef was av ailable at prices that would permit the LPMO to
import without incurring any financial losses.  In not  inviting tenders the LPMO effectively closed the
Korean market to imported beef to the extent of LPMO’s allocated quota share.  Korea also claimsthat the Panel ignored the fact that there were health scares during the same period.  The Panel would
like to add that Korea did not offer any evidence, other than newspapers clippings, that the cited
health scares had any impact on import levels during the relevant period or that they affected the
prices of imports or the prices Korean consumers were willing to pay for imported beef.
270 With a
view to ensure clarity the Panel has slightly revised the wording of its findings accordingly.
501. Concerning the claims relating to Korea's domestic support to its beef industry, Korea submits
that the Panel misrepresented Korea's argument that it was suffering prejudice from the fact that the
Complaining parties had not listed Annex 3 in their request for establishment of a panel, although they
referred to Annex 3 in their submissions and arguments. The Panel would like to add that although
Korea did submit generally that it could not adequately prepare its defense, the precise point made bythe Panel is that Korea never claimed nor argued that it had ever been uncertain about the nature of
the Complaining parties' claims regarding Korea's domestic support obligations.  In fact, Korea in its
first submission submitted detailed explanations on how it had calculated its aggregate measurement
of support for beef.  In addition the Panel recalls that in the recent report on US - FISC the Appellate
Body insisted that "good faith"
271 was a necessary component of any challenge of a panel's terms of
reference.  This implies that a party's claim that it has misunderstood a request for consultation or a
request for a panel should be raised as soon as possible.  In the present dispute, Korea alluded to thispoint only in its rebuttals and made a formal request one day before the second meeting of the Panel
with the parties.  With a view to ensuring clarity, the Panel has slightly revised its findings
accordingly.
502. Moreover, the Panel would like to reiterate that it considers that a claim that the level of
aggregate measurement of support was greater than that provided for in Korea’s Schedule necessitatesa calculation of the current support using the methodology prescribed in the Agreement on
Agriculture . Annex 3 contains one of those methodologies which is applicable in the present dispute
for the reasons set out in Section I hereafter.
                                                     
270 The Panel cannot see any link with an alleged health scare of September 1997 or June 1999 and the
period of the end of October 1998 and the end of May 1999.
271 See the US – FISC , paragraph 166: "The same principle of good faith [Article 3.10] requires that
responding Members seasonably and promptly bring claimed procedural deficiencies to the attention of thecomplaining Member, and to the DSB or the Panel, so that corrections, if needed, can be made to resolve
disputes.  The procedural rules of WTO dispute settlement are designed to promote, not the development oflitigation techniques, but simply the fair, prompt and effective resolution of trade disputes."WT/DS161/R
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503. Korea submits that the Panel should not have decided which of the two columns of figures set
out in its Schedule constituted Korea's committed levels of domestic support.  Korea even claims that
none of the Complaining parties have argued the relevance of the unbracketted numbers.  The Panel
would like to insist that the United States, throughout its submissions, has always referred to theunbracketted column, as containing the proper list of commitment levels.  But more importantly, the
Panel considers that it was obliged to determine first which were Korea's scheduled commitments in
order to comply with its mandate to determin e whether Korea exceeded such commitments. The
Complaining parties have claimed that Korea violated Article 3 of the Agreement on Agriculture
which states that a Member shall not provide domestic support in excess of the commitment levels
contained in its Schedule.  Therefore, the first obligation of this Panel was to identify which were the
commitment levels contained in Korea's Schedule.  Since Korea's Schedule contained two columns,only one of them was to be identified as the right one.  Korea's reference to footnote 1 of its Schedule
only explains the different base year used for each column  Korea's statement to the Committee on
Agriculture  mentioned in footnote 410 of the Interim Panel Report (footnote  428 of this Panel report)
does not help Korea: statements to the Committee on Agriculture  do not "legalize" measures otherwise
incompatible with the WTO.  Moreover, the document entitled "Notification Requirements andFormats" provides clearly that the "Information submitted under these formats is without prejudice to
the consistency of the arrangements notified with the relevant provisions of the WTO".
272
504. On this matter, the Panel would like to insist that it is not expanding its terms of reference; it
is only complying with its mandate.  Korea submits that the Panel is inconsistent when it decided not
to examine the Base Total AMS itself or the related data and methods of calculation used by Korea.The Panel indeed refused to re-open the calculation of Korea's scheduled commitments.  The Panel
has not examined how Korea arrived at those two sets of numbers.  However, the Panel was under the
obligation to identify which was Korea's set of commitment levels in order to determine whether
Korea has exceeded them.  The Panel decided that the unbracketted set of numbers was the only set of
commitment levels that bore any rela tion to the initial Base Total AMS.
505. Korea also submits that it should be allowed to follow the commitment levels contained in its
bracketted column because the commitment level for year 2004 is the same for both sets of numbers.
The Panel would like to reiterate that where the drafters of the Agreement on Agriculture  intended to
allow for flexibility in the amount of an annual reduction commitment, they made specific provision
for it, such as in Article 9.2(b) relating to export subsidy commitments.  No similar provision exists in
respect of domestic support.
506. Finally, the Panel would also like to stress that, of course, it is not questioning Korea's good
faith attempt to comply with its notification commitments.
                                                     
272 See Document G/AG/2 adopted by the Committee on Agriculture on 8 June 1995.WT/DS161/R
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VII. FINDINGS
A. GENERAL CONSIDERATIONS273
1. Brief description of the beef import regime in Korea
507. Korea's import regime for beef has a long history.  In 1989 Australia, the United States and
New Zealand requested that a GATT Panel be established to examine Korea's import regime for beef,
claiming that the Korean restrictions could no longer be justified for reasons relating to the protection
of Korea's balance-of-payments and were otherwise GATT inconsistent.  Prior to this panel request,
there had been no commercial imports of beef into Korea between 1985 and 1988.
508. The 1989 panel findings274 called on Korea to bring into consistency with the GATT 1947 a
number of specific measures taken in 1984 and 1985, and to enter into consultations with Australia,New Zealand and the United States with a view to establishing a timetable for the elimination of the
remaining import restrictions on beef.
509. Consultations between Korea, Australia, New Zealand and the United States resulted in the
conclusion of separate and parallel bilateral "Records of Understanding" (ROUs) in 1990 and 1993
intended to implement the findings of the 1989 panel and the consultations undertaken by Korea inthe GATT Committee on Balance-of-Payments Restrictions (hereafter called the "Committee on
Balance-of-Payments") in 1989.
510. The 1990 ROUs established a system of annual quotas for the period 1990 to 1992 and a
"Simultaneous Buy/Sell" (SBS) mechanism intended to distribute a proportion of the annual quotas to
entities other than the LPMO, the public body established by Korea in 1988 to administer theimportation of beef.  Additional ROUs, which entered into force in July 1993, continued the system of
annual quotas to the end of 1995 and significantly expanded the scope of, and participation in, the
SBS system.  Korea and the United States entered into another ROU in December 1993.  Following
the ROUs, import authority within the quota was divided between the LPMO and the SBS system,
with the amounts allocated to LPMO decreasing a nnually.  The SBS system was meant to furnish
foreign beef suppliers with the opportunity to sell directly to end users and customers through super-
groups representing different sectors of Korea's industry.
2. Brief description of the claims
511. The United States and Australia submit claims with reference to seven main measures,
275
including some more specific measures.  In general terms, the Complaining parties have claims
against:  (i) the dual retail system for beef; (ii) the alleged restrictions and less favourable treatment
imposed by the LPMO on the importation and distribution of foreign beef; (iii) the alleged restrictionsand less favourable treatment imposed by the f unctioning of the SBS system; (iv) the LPMO's
minimum auction prices and other discharge and tendering practices as well as the LPMO's alleged
refusal to import.  In addition, Australia claims that (v) the grass-fed/grain-fed distinction imposed by
the LPMO in its importation of beef is incompatible with various provisions of the WTO Agreement.
                                                     
273 The Panel has taken into account and considered all arguments submitted by the parties.  However,
throughout these findings, only the parties' arguments particularly relevant to the Panel's legal analysis havebeen summarized.  A more exhaustive description of the parties arguments is contained in the previous sections
of this Panel report.
274 The 1989 panel reports on Korea – Beef , complaint by Australia and complaint by the United States
are hereinafter referred to as the "1989 Panel reports".  There was also a similar panel report involvingNew Zealand.
275 See for instance, paragraphs 49 and 51 of this Panel report.WT/DS161/R
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The United States also has a general claim that, (vi) Korea's import licensing system constitutes a
restriction which is inconsistent with WTO provisions.  Finally, the Complaining parties have also
submitted claims, (vii) regarding Korea's domestic support to its bovine industry.
512. Korea challenges the general and more specific claims.  In addition to its various specific
defences, Korea submits, as a general defence, that pursuant to its Schedule of Concessions, many, if
not all, of the 17 measures276 challenged by the Complaining parties, constitute "remaining
restrictions" which benefit from a "transition period" and are required to be eliminated only by
1 January 2001.
3. Methodology followed by the Panel
513. In view of the nature of the general defence submitted by Korea, which requires this Panel to
interpret the WTO obligations of Korea in the light of the term "the remaining restrictions" contained
in Korea's Schedule, taking into account the historical context surrounding the inclusion of this term,
the Panel shall proceed in the following way.  Th e Panel will start by analysing the meaning and
scope of the terms of Korea's Schedule which provides that "the remaining restrictions shall be
eliminated or brought into conformity with GATT from 1 January 2001".  This will allow the Panel to
identify which of the disputed measures, if any, can be considered as "covered" by these words and
hence benefit from a "transition period".
514. Measures that do not benefit from such a transition period will then be examined by the Panel
for a determination on their consistency with various provisions of the WTO according to the
following sequence.  The first set of measures that  the Panel examines are those relating to the dual
retail system for beef.  All parties have emphasised  the importance of such measures.  Moreover, theeffect of the dual retail system will be further amplified once the beef import quota is phased out.  The
Panel thereafter examines claims relating to specific aspects of the SBS system and the LPMO rules.
The WTO compatibility of certain import and dist ribution practices by the LPMO/NFCL, in 1997 and
1998 - namely the refusal to discharge imported beef into the Korean market and the refusal to call for
tenders – and the grain-fed and grass-fed  distinction practiced by the LPMO when it calls for tenders,is then determined.  Finally, claims relating to the alleged excessive domestic support provided to the
Korean beef industry are assessed.
515. The Panel notes that this single panel was mandated by the DSB to examine both the requests
of the United States and Australia
277.  On occasion, the Complaining parties have differed in their
description of the Korean measures they challenge and they have sometimes submitted different
claims on the same measures.  In view of the pr ovisions of Article 9.2 of the DSU, the Panel has
ensured that the "rights which the parties to the dispute would have enjoyed had separate panelsexamined the complaints are in no way impaired".
B. K
OREA 'S DEFENCE THAT "THE REMAINING RESTRICTIONS " SHOULD BENEFIT FROM A TRANSITION
PERIOD AS ESTABLISHED IN ITS SCHEDULE LX
516. The Panel first examines the status and the sc ope of the term, "the remaining restrictions".
                                                     
276 Except the measures covered by the claims relating to the domestic support provided to Korea's beef
industry.
277 See paragraph 3 of this Panel report.WT/DS161/R
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1. Legal Status of  Note 6(e) to Korea's Schedule LX
(a) Arguments of the Parties
517. In support of its claim that its Schedule of Concessions provides for a transition period until
1 January 2001 to eliminate or bring into conformity  with the WTO all "the remaining restrictions" on
beef imports, Korea relies on Note 6(e) in its Schedule which reads:
"According to the results of the 1989 consultation with GATT/BOP Committee
and the Uruguay Round multilateral trade negotiation , the remaining
restrictions  on the items marked as "* Note 6(a)", "* Note 6(b)", "* Note 6(c)",
"* Note 6(d)", or "* Note 6(e) " in column 5 of Section I-A of Part I of this schedule
shall be eliminated or be brought into conformity with GATT provisions from the
dates specified as follows:  * Note 6(a): 1995;  * Note 6(b):  Jan. 1, 1996; * Note 6(c):Jul. 1, 1996;  * Note 6(d):  Jul. 1, 1997;  and * Note 6(e):  Jan. 1, 2001 ." (emphasis
added)
518. According to Korea, Note 6(e), which specifically covers beef products - the subject of this
dispute - defines the extent of its WTO commitments on the liberalization of its market for imports of
the beef products in question.  In support of this contention, Korea refers to Article II:1 of the GATTwhich provides that WTO Members shall accord to the commerce of other Members treatment no less
favourable than that provided for in the appropriate part of the appropriate Schedule annexed to this
Agreement.
519. Korea argues that the reference to "the remaining restrictions" in Note 6(e) can only possibly
be interpreted as meaning that "all limitations placed on actions which continue to exist at the time ofconclusion of the treaty (the Uruguay Round) and which are not in conformity with GATT should be
eliminated or brought into conformity with GATT by January 1, 2001." Korea submits that almost all
of the measures challenged by the Complaining part ies were already in existence at the time of the
Uruguay Round, implying that the measures in dispute are "remaining restrictions" within the ambit
of Note 6(e).
278
520. The Complaining parties submit that Members' schedules annexed to the Marrakesh Protocol
to the General Agreement on Tariffs and Trade 1994 are integral parts of the GATT 1994.279
However, both Complaining parties reject Korea's claim that its commitments under Note 6(e) of itsSchedule provide a transition period until 1 January 2001 for the measures at issue in this dispute to
be brought into conformity with GATT/WTO.
280
521. In Australia's view, the significance of the Note is limited, not only to GATT-inconsistent
measures, but also to restrictions which are quantitative in nature, which were in existence at the timeof the 1989 report of the GATT Committee on Balance-of-Payments
281 and the 1989 GATT panel
reports282, and which are specified in Korea's Schedule.  Australia contends that the Uruguay Round
negotiations only lengthened the transition period for these measures, but did not permit the
maintenance of new, post-1989, GATT-inconsistent, measures.283  Australia also argues that the Panel
                                                     
278 Paragraphs 54 and 105 of this Panel report.
279 Paragraph 60 of this Panel report.
280 Paragraphs 63 and 66, for instance, of this Panel report.
281 BOP/R/183.1, 27 October 1989.
282 Panel reports Korea – Beef , complaint by Australia; and complaint by the United States.  (A similar
panel exists with New Zealand.  All three of which were adopted on 7 November 1989.)
283 Paragraph 77 of this Panel report.WT/DS161/R
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should first determine whether the measures at issue in the present dispute are prima facie  inconsistent
with the WTO Agreement and then examine Korea's claim based on this so-called transition period.284
522. The United States argues that the term "remaining restrictions" interpreted in accordance with
Article 31 of the Vienna Convention on the Law of Treaties  ("Vienna Convention") leaves enough
ambiguity to justify recourse to supplementary m eans of interpretation in accordance with Article 32
of the Vienna Convention.  In this regard, the United States submits that in order to establish the true
meaning of "remaining restrictions", the 1987 report of the GATT Committee on Balance-of-
Payments, the 1989 GATT panel report, the 1989 report of the GATT Committee on Balance-of-
Payments with respect to Korea's balance-of-payment measures, and the 1990 and 1993 Records of
Understanding (ROUs) between the United States and Australia on the one hand and Korea on the
other hand should all be examined as documents forming the historical background to the use of thewords "remaining restrictions" in the Note to the Schedule.  For the United States, the term
"remaining restrictions" covers only restrictions that existed at the time of the balance-of-payment
consultations and that have continued until the end of the Uruguay Round.
285  For the United States,
Korea's assertion of a transition period is in effect a unilateral reduction in its obligations under the
WTO.  According to the United States, Korea may not exempt itself from specific GATT obligationsand to do so through reliance on a Note to its Schedule of Concessions would be inconsistent with the
US - Sugar Head Note
286 and EC - Bananas III287 cases in 1993.
(b) Relevant jurisprudence on the WTO Schedules
523. The legal status of a Member's Schedule of Concessions was addressed by the Appellate
Body in EC – Computer Equipment , where it was held that:
"…A Schedule is … an integral part of the GATT 1994 … Therefore, the concessions
provided for in that Schedule are part of the terms of the treaty. As such, the only
rules which may be applied in interpreting the meaning of a concession are the
general rules of treaty interpretation set out in the Vienna Convention ."288
524. In the Canada – Dairy  dispute, which was concerned with the interpretation of a schedule in
the area of agriculture (where schedules are of pa rticular relevance), the Appellate Body confirmed
that the provisions of schedules are terms of the treaty and should be interpreted together with the
other relevant WTO treaty provisions. The Appellate Body also recognized that "although Canada's
commitment on fluid milk was made unilaterally, both Canada and the United States understood that
this commitment represented a continuation by Canada of current access opportunities …".289
525. More recently, the Appellate Body in Korea – Safeguards  insisted on the fact that the WTO is
"one treaty" and therefore all provisions (including Schedules) ought to be interpreted harmoniously,in an effective manner, in order to ensure that no clause or provision is reduced to "inutility".
290
(c) The Panel's assessment
526. The Panel considers that Note 6(e), as it relates to the beef products in question, is a specific
elaboration of Korea's Schedule of concessions for the liberalization of its market for agricultural
products.  Therefore, Note 6(e) of Korea's Schedule must be read together with the other WTO
                                                     
284 Australia, Rebut. paragraphs 1.4-1.5.
285 Paragraphs 69 -70 of this Panel report.
286 Panel report on US – Sugar Headnote , paragraphs 5.2-5.3.
287 Appellate Body report on EC – Bananas III , paragraphs 154-158.
288 Appellate Body report on Canada – Dairy , paragraph 131.
289 Ibid., paragraph 139.
290Appellate Body report on Korea – Safeguards , paragraph 81.WT/DS161/R
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obligations.  The Panel cannot ignore Note 6(e) and cannot reduce its "utility".  The Panel therefore
does not agree with Australia's interpretation that the term "remaining restrictions" refers only to the
quotas already listed in Korea's Schedule.  To interpret "remaining restrictions" to cover the
restrictions already agreed upon and reflected in Korea's Schedule would reduce Note 6(e) to inutility.
527. The Panel does not agree with Australia's contention that the Panel should first determine
whether the measures at issue are prima facie  inconsistent with the WTO Agreement and then
examine Korea's claim based on the transition period.  As noted above, Note 6(e) must be read
together with the other WTO obligations which th e Complaining parties claim have been violated.
The Panel needs to proceed to a determination of the obligations of Korea under "the WTO
Agreement as a whole" with regard to each measure.  Korea's Schedule does not constitute an
exception to other GATT provisions, but rather qualifies Korea's obligations under the WTOAgreement.  The Panel considers, therefore, that it is more appropriate to determine first the scope of
the term "remaining restrictions".  It would be a waste of its judicial function to assess the WTO
compatibility of measures which will be phased out  or otherwise brought into conformity with the
WTO by 2001.
528. In this regard, the Panel notes that, in response to its questions, Korea stated that the coverage
of remaining restrictions under Note 6(e) is "limited to all GATT-inconsistent measures that existed at
the conclusion of the Uruguay Round". In the same an swer, Korea also stated that if there are any
remaining restrictions which have not yet been el iminated or brought into conformity with GATT,
Korea still has one full year of time remaining to do so.
291  Read together, these responses imply a
recognition by Korea that all the measures characterized as "remaining restrictions" under Note 6(e)are GATT-inconsistent and are to be eliminated or  brought into conformity with the WTO Agreement
by 1 January 2001.
529. The Panel shall therefore first analyse the meaning and the scope of the terms of Korea's
Note 6(e), and then identify which of the measures challenged in the present dispute are "covered" by
the provisions of Note 6(e) and, therefore, benefit from a transition period until 1 January 2001, bywhich date they shall be eliminated or otherwise brought into conformity with the WTO Agreement.
2. Scope and interpretation of the term "the remaining restrictions"
530. At the outset, the Panel would like to emphasize that this dispute deals with issues arising out
of a case from the past, in other words, the consequences of a dispute over alleged balance-of-
payment problems that took place before the entry into force of the GATT 1994 Understanding on
Balance-of-Payments Provisions (hereafter called the "GATT 1994 Understanding on Balance-of-
Payments").  As mentioned by the Panel in India – Quantitative Restrictions
292, prior to the WTO and
the GATT 1994 Understanding on the Balance-of-Payments, the GATT Committee on Balance-of-
Payments would often grant to a contracting pa rty disinvoking Articles XII or XVIII:B of GATT,
long periods for the phasing out of balance-of-p ayments restrictions, during which period the legal
status of these remaining import restrictions was not altogether clear.293  Paragraph 13 of the GATT
1994 Understanding on Balance-of-Payments now clearly provides that:
"In those cases in which a time-schedule has been presented for the removal of
restrictive measures taken for balance-of-payments purposes, the General Council may
                                                     
291 Paragraph 59 of this Panel report.
292 Panel report on India – Quantitative Restrictions , paragraphs 5.28 to 5.53.
293 See for instance paragraph 13 of the Balance of Payments Report (BOP/R/183/Add.1): "The
Committee understood that, on the basis of the implementation of these undertakings by Korea, othercontracting parties will exercise due restraint in the a pplication of their rights under the General Agreement in
relation to products included in the programmes of liberalization".WT/DS161/R
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recommend that, in adhering to such a time-schedule, a Member shall be deemed to be
in compliance with its GATT 1994 obligations."
531. In the present dispute, as will be further explained below, the 1989 report of the GATT
Committee on Balance-of-Payments concluded that Korea, after disinvoking Article XVIII:B ofGATT
294, had until 1 July 1997 to remove its remaining restrictions.  The report recommended that
Korea, Australia, New Zealand and the United States consult with a view to developing an orderly
programme of liberalization  which would phase out the remaining restrictions .  The 1989 Panel
report also recommended that "Korea hold consultations with the United States, Australia and
New Zealand to work out a timetable for the removal of import restrictions on beef justified since
1967 by Korea for balance-of-payments reasons …"295 This led to the negotiation of various Records
of Understandings (ROUs).  Before the expiry of  the transition period envisaged in the ROUs, the
WTO Agreement was concluded in which Korea's "remaining restrictions" are again referred to in
Note 6(e) to Korea's Schedule which provides that  the remaining restrictions shall be eliminated by
2001.  This is the context to which the Panel needs to refer in order to determine the scope of the term
"the remaining restrictions".
532. The Panel must determine the meaning of the te rm "the remaining restrictions" in accordance
with Article 3.1 of the DSU - which provides that: "Members affirm their adherence to the principles
for the management of disputes heretofore a pplied under Articles XXII and XXIII of GATT 1947, and
the rules and procedures as further elaborated and modified herein" - and with Article XVI:1 of the
Agreement Establishing the WTO, which provides th at: "…the WTO shall be guided by the decisions,
procedures and customary practices followed by CONTRACTING PARTIES to GATT 1947 and the
bodies established in the framework of GATT 1947."  In additi on, the Panel should be guided by
Article 3.2 of the DSU, by applying customary rules of interpretation of public international law,
including the provisions of Articles 31 of the Vienna Convention  referring to the ordinary meaning of
the terms, and those of Article 32 of the same convention referring to the preparatory work and the
circumstances surrounding the conclusion of the Note 6(e) to Korea's Schedule.
533. Referring to the wording of Note 6(e) quoted above, the Panel notes that a "restriction" means
"a thing which restricts someone or something, a limitation on action, a limiting condition or
regulation".296 Korea's Schedule refers to "restrictions on the items marked…" in plural, so it clearly
contemplates having application to more than one "limiting condition or regulation".  This must be
read together with the use of the term "the" in "t he remaining restrictions on the items marked".  Note
6(e) does not refer to "any" restrictions existing at the end of the Uruguay Round but only to " the"
remaining restrictions.  The use of the term "the" implies identified and specified restrictions. Korea
admits that the remaining restrictions are not an unspecified range of measures..297  T h e  t e r m
"remaining restrictions" can, therefore, only be interpreted to mean "restrictions" other than the import
quota that is set forth in the Schedule.  To equate the term "the remaining restrictions" with the importquota identified in the Schedule would leave the Note meaningless.  If the Note referred to "these" or
"those" remaining restrictions, such terms could have been interpreted to mean the restrictions
mentioned in the Schedule, but the deliberate choice of the term "the" implies restrictions other than
those already listed in Korea's Schedule.
                                                     
294 See paragraph 7 of the 1989 BOP report: "Members of the Committee welcomed Korea's
commitment to disinvoke Article XVIII:B."
295 Panel report on Korea – Beef  (Australia) at paragraph 109, and Korea – Beef  (US) paragraph 131.
296 The New Shorter Oxford English Dictionary.
297 See paragraph 65 of this Panel report.WT/DS161/R
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534. The "restrictions" envisaged under the Schedule must be "remaining restrictions".298  What
amounts to a remaining restriction must therefore be determined with reference to a specific point in
time.  There are two points in time referred to by Note 6(e): the results of the balance-of-payments
consultations; and the results of the Uruguay Round.  The Panel notes that all parties to the presentdispute have identified these two events as the relevant temporal periods for determining what
amounts to a "remaining restriction" and must be determined with reference to a specific point in
time.
535. Note 6(e) refers to "the results of the 1989 consultation with BOP Committee and the
Uruguay Round of multilateral trade negotiations" as the basis for eliminating or bringing the
"remaining restrictions" into conformity with the GATT.  The Schedule thus creates a relationship
between the elimination of the "restrictions" and the "results" of two events - the 1989 consultation inthe GATT/BOP Committee and the Uruguay Round negotiations.  "According to" relates to both parts
of the sentence, i.e. the BOP consultations AND  the Uruguay Round (i.e. the use of a conjunction
between the BOP consultations and the Uruguay Round) .  If the remaining restrictions had no link
with the BOP consultations the words "according to " and "and" would be meaningless.  Therefore a
remaining restriction must at least bear a relation to the results of the BOP consultations and still be inplace when the Schedule was finalized as the result of the Uruguay Round.
536. A "result"
299 is "the effect, consequence, issue, or outcome of some action, process, or
design".  The "results" envisaged in the Note may, therefore, be characterized as the "effects,
consequences or outcomes" of the 1989 consultations and the Uruguay Round.  It follows that
"remaining restrictions" should be interpreted as meaning "restrictions" envisaged or at least bearing arelation to the "results" of the 1989 consultations and the "results" of the Uruguay Round, and
therefore still in place in March 1994 when the Uruguay Round schedules were filed with the
Secretariat.
537. The interpretation of Note 6(e) in accordance with Article 3.1 of the DSU and Article 31 of
the Vienna Convention  does not allow the Panel to come to a definitive finding on the list of "the
remaining restrictions", identified by Korea as benefiting from a "grace period" until 1 January 2001.
538. Article 32 of the Vienna Convention allows the Panel to have recourse to "supplementary
means of interpretation" when the interpretation accord ing to Article 31 leaves the meaning of a treaty
provision ambiguous or obscure.
300  In the present case, it is eviden t that in order to come to a more
precise definition of the term "remaining restrictions", it will be necessary to determine what is meant
by the "results" or "effects, consequences or outcomes" of the 1989 balance-of-payments
consultations and the Uruguay Round.  To the extent necessary to make an objective assessment of
the matter before the Panel301, it needs to ascertain the meaning of the term used in the various legal
instruments mentioned above where the term "the remaining restrictions" appeared before and until
the conclusion of the Uruguay Round.
539. In EC - Banana III , the Appellate Body upheld the panel's statement that it "had no alternative
but to examine the provisions" of a non-WTO agreement "in so far as it is necessary" to interpret the
                                                     
298 The New Shorter Oxford English Dictionary  defines "remain" as meaning "to be left behind or over
after others or other parts have gone or been removed, used, or dealt with; be in the same place or conditionduring further time; continue to stay or exist".
299 According to the New Shorter Oxford English Dictionary.
300 See Appellate Body report on Canada – Dairy , paragraph 138: "In our view, the language in the
notation in Canada's Schedule is not clear on its face. …  For this reason, it is appropriate, indeed necessary, in
this case, to turn to 'supplementary means of interpretation' pursuant to Article 32 of the Vienna Convention".
301 Article 11 of the DSU.WT/DS161/R
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WTO rules (the Lomé waiver referred to the Lomé Convention).302  The Panel shall therefore proceed
along the same line as in EC - Bananas III .  In this respect, the Panel emphasizes that its role is
limited to interpreting the term "the remaining restrictions" as used in Korea's Schedule, to find the
objective meaning of the terms of Note 6(e), the inclusion of which was agreed to by Members by theend of the Uruguay Round.  The Panel recalls that in EC – Poultry , the Appellate Body concluded that
the bilateral agreement between the European Communities and Brazil could be examined when
interpreting the provisions of the EC Schedule.
303  In EC – Computer Equipment , reference was made
to the practice of one state  to interpret the provision of a Member's schedule.304  I n  US – Shrimp ,
reference was made to treaties not even ratified by the parties in dispute in order to interpret
provisions of Article XX.305  In addition to the 1989 Panel reports and the GATT Committee on
Balance-of-Payments reports, the various bilateral agreements between Korea and the disputingparties, the ROUs, will thus be examined, not with a view to "enforcing" the content of these bilateral
agreements, but strictly for the purpose of interpreting an ambiguous WTO provision, i.e. Note 6(e) to
Korea's Schedule.
(a) Negotiating history and circumstances that led to the inclusion of the words "According to the
results of the 1989 consultation with BOP Committee and the Uruguay Round multilateral tradenegotiation, the remaining restrictions" in Note 6(e) of Korea's Schedule.
540. The Panel now proceeds to a detailed examination of the legal documents referred to above.
(i) The 1989 GATT Committee on Balance-of-Payments Restrictions Consultations
541. The 1989 BOP Committee undertook consultations with Korea to review import restrictions
imposed by Korea for the purpose of protecting its balance-of-payments position.
306  T h e s e
consultations followed an earlier set of consultations undertaken in 1987 between the BOP Committee
and Korea on the same issue, which found that improvements in Korea's balance-of-payments
position were such that "import restrictions could no longer be justified under Article XVIII:B" of the
GATT.  In reaching this conclusion, the 1987 Committee expected that Korea would "establish a
timetable for phasing out balance-of-payments restrictions, and … consider alternative GATTjustifications for any remaining measures , …" (emphasis added).
307
                                                     
302Appellate Body report on EC – Bananas III , at paragraph 167: " ... since the GATT
CONTRACTING PARTIES incorporated a reference to the Lomé Convention into the Lomé waiver, the
meaning of the Lomé Convention became a GATT/WTO issue, at least to that extent.  Thus , we have no
alternative but to examine the provisions of the Lomé Convention ourselves in so far as it is necessary tointerpret the Lomé waiver ." (Emphasis added.)
303 Appellate Body report on  EC – Poultry,  paragraph 83: " … Therefore, in our view, the Oilseeds
Agreement may serve as a supplementary means  of interpretation of Schedule LXXX pursuant to Article 32 of
the Vienna Convention , as it is part of the historical background of the concessions of the European
Communities for frozen poultry meat."
304 In Appellate Body report on EC - Computer Equipment , it was stated:  "93 … The purpose of treaty
interpretation is to establish the common  intention of the parties to the treaty.  To establish this intention, the
prior practice of only one of the parties may be relevant, but it is clearly of more limited value than the practice
of all parties".  (Emphasis added.)
305 In US - Shrimp , the Appellate Body used a variety of non-WTO international rules to interpret WTO
provisions.  As noted above in Part I, the Appellate Body examined the use of the term "natural resources" in anumber of international conventions (paragraphs 127-134).  It referred to other international conventions whenassessing the meaning of sustainable development referred to in the Preamble of the WTO Agreement
(paragraph 154).  It referred to international (and regional) treaties when assessing whether the US measure had
been applied in unjustifiable discrimination, in particular with reference to the way consultations had beenconducted and ought to be conducted under other international conventions (paragraphs 166-177).
306 BOP/R/183/Add.1, 27 October 1989.
307 BOP/R/171, 10 December 1987.WT/DS161/R
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542. During the 1989 consultations, Korea communicated its intention to disinvoke restrictions
imposed through Article XVIII:B by January 1990. In a statement to the BOP Committee on Balance-
of-Payments, Korea proposed this course of action on the proviso that the CONTRACTING
PARTIES:
"(i) agree to a grace period of ten years from the date of disinvocation;
 (ii) allow Korea to phase out during the grace period the existing balance-of-
payments restrictions in a progressive manner, but having due regard to the interests
of other contracting parties;  and
 (iii) reach an understanding not to take any unilateral or multilateral legal actions
against Korea's remaining restrictions during the given grace period." (statement by
Korea 23 October 1989, Annex I to BOP/R/183/Add.1) 308
543. During the consultations, it had been noted by Members of the Committee that:
"Korea was encouraged … to develop, in consultation with other Contracting Parties,
an orderly program of liberalisation  which would phase out remaining restrictions  in
a reasonably short period of time."  (Emphasis added.)309
This observation was maintained in the Committee's conclusion that:
"… appropriate flexibility  was necessary for Korea to phase out, or bring into
conformity with other GATT provisions, its remaining restrictions  … largely in the
agricultural sector."  (Emphasis added.)310
544. The conclusions of the Committee required Korea to:
"… eliminate its remaining restrictions  or otherwise bring them into conformity with
GATT provisions by 1 July 1997 … in a generally even manner, on a most-favoured-
nation basis, over two three-year programmes beginning on the expiry of the current
liberalization programme."  (Emphasis added.)311
545. Thus, it is evident that the results of the 1989 consultations were that Korea should, "in
consultation with other Contracting Parties," develop a programme that would phase out the importrestrictions remaining after Korea's disinvocation of Article XVIII:B over a ten year period starting
from the date of the actual disinvocation.  The consultations identified no list of such measures and
provided no general description.  In this regard, the findings of the Committee are clear that Korea
should "consult" with contracting parties on the substance of the programmes proposed to phase out
the "remaining restrictions".
(ii) The 1989 Panel Reports
546. It is important to note that the ROUs entered into by the above parties were also the result of
recommendations made by two 1989 GATT panels which specifically examined Korea's alleged
balance-of-payments restrictions as they related to beef products in the respective complaints by
Australia and the United States.
312  In both panels, parties challenged the existence of an import quota
                                                     
308 BOP/R/183/Add.1, paragraph 10.
309 Ibid. paragraph 7.
310 Ibid. paragraph 11.
311 Ibid. paragraph 12.
312 A similar and parallel panel was also established following the complaint of New Zealand.WT/DS161/R
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on beef and the role of the LPMO, established in 1988, in setting imported beef prices (mark-up) and
in its distribution activities.
547. The panel held that there were essentially two sets of restrictions on beef imports maintained
by Korea:
"(a)  measures amounting to a virtual suspension of imports introduced in
November 1984 and May 1985 and subsequently amended in August 1988.  These
measures were neither notified to, nor reviewed by, the GATT Committee on
Balance-of-Payments;
(b)  restrictions on beef existing since Korea's accession to the General Agreement in
1967, which were notified to, and reviewed by the Balance-of-Payments
Committee."313
548. After finding that Korea should eliminate or otherwise bring into conformity with the GATT
import measures on beef "introduced in 1984/85 and amended in 1988", the panel recommended that
Korea hold consultations with Australia and the United States and other interested contracting parties
in order to:
"work out a timetable for the removal of import restrictions on beef justified since
1967 by Korea for balance-of-payments reasons and report the result of such
consultations within a period of three months following the adoption of the Panel
report to the Council".314
549. It is thus evident that those panel reports form part of the background to the results of the
1989 Committee on Balance-of-Payments consultations.  Not only were the panel reports issued priorto the 1989 consultations, but also, the need for GATT Committee on Balance-of-Payments
consultations was referred to in each of the panel reports.  Indeed, both the panel reports and the
results of the Committee consultation were adopted by the Council on the same day,
7 November 1989.
550. Korea's consultations with some of the contracting parties (representing for that purpose the
CONTRACTING PARTIES) led it to adopt a num ber of individual Records of Understanding
(ROUs) with Australia and the United States between 1990 and 1993.
315  As will be shown, these
ROUs formed the basis of Korea's Schedule of Concessions at the end of the Uruguay Round.  The
Panel's examination of the ROUs for the purpose of  determining the meaning of the term "remaining
restrictions" is therefore not only consistent with the "results" of the 1989 consultations, but also with
the specific wording of Note 6(e), which calls for an examination of the "results" of both the 1989
consultations and the Uruguay Round.
551. It follows that the next step in the Panel's investigation into the meaning of "remaining
restrictions" must necessarily involve examination of the consultations and understandings reached by
Korea with the CONTRACTING PARTIES.  The Panel recalls that it does so only to the extent
necessary to interpret the terms of Note 6(e) to Korea's Schedule.
                                                     
313 Panel report on Korea – Beef (Australia ), paragraph 91.
314 Panel reports on Korea – Beef  (Australia), paragraph 109, and Korea – Beef  (US), paragraph 131.
315 Korea also concluded an ROU with New Zealand.WT/DS161/R
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(iii) The Records of Understanding
The 1990 Records of Understanding Between Korea and Australia; and Korea and the United States
552. The first of the Records of Understanding between Korea and Australia and Korea and the
United States316 was entered into in 1990.  Both the 1990 ROUs were circulated to all GATT
contracting parties.  The terms of the respective ROUs were almost identical and will, therefore, be
examined together.  Consistent with the results of the 1989 BOP Committee consultations, the 1990
ROUs manifest an intention on the part of Korea to:
" … eliminate its remaining import restrictions  or otherwise bring them into
conformity with GATT provisions as included in the conclusion of the report of the
GATT/BOP Committee.…"
553. To this end, the ROUs provide, generally, for the creation of a "joint study" team to:
" (1) examine the structural weakness of the Korean livestock industry and to review
the effects of the industry structure on the appropriate timing of market liberalisation;
and
(2) review the functions of the LPMO and make recommendations for improvements
in marketing and pricing practices in the future."  (Paragraph I.D.)
554. The ROUs call for the implementation of a "simultaneous buy/sell" (SBS) system, composed
of super-groups that would control a gradually increased share of the imports of beef into Korea (now
70 per cent of Korea's import quota).  The purpose of this mechanism was to increase access to
Korea's beef market.  The SBS is to replace gradually the activities of the LPMO.  In the 1990 ROUs,
it is envisaged that the details of the SBS mechanism is left to be determined through furtherconsultations between the parties (paragraph II.C).  Provision is also made for "industry-to-industry
dialogue" on issues associated with the beef trade (paragraph III).
317
555. As such, the 1990 ROUs did set up a framework for Korea to eliminate its remaining import
restrictions in accordance with the results of the GATT/BOP Committee consultations.  In doing so, it
is clear that the ROUs result from the 1989 consultations and identify the general nature of "theremaining restrictions" referred to in Note 6(e) of Korea's Schedule.
The July 1993 Records of Understanding Between Korea and Australia; and Korea and the United
States
556. Korea's second set of Records of Understanding (ROUs) with Australia and the United States
was entered into in July 1993.  These ROUs were also circulated to all contracting parties.  As with
the 1990 ROUs, the terms of the respective 1993 ROUs were almost identical and will therefore be
examined together.  The main objective of the July 1993 ROUs, as of the 1990 ROUs, was to
                                                     
316 See attached to the present Panel report, as  Annex 1 (the ROU between Korea and Australia).
317 In addition, the ROUs stipulate that Parties are to reserve their rights under the GATT
(paragraph V).WT/DS161/R
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eliminate all remaining import restrictions318 in accordance with the results of the 1989 GATT/BOP
Committee consultations and the 1989 GATT panel reports.319
557. In the July 1993 ROUs, the link between the 1989 panel's conclusion, the inconsistencies of
certain Korean measures and the transition period through the ROUs, is emphasised.  The July 1993ROUs add considerably more detail on the operation of the SBS system, created in the 1990 ROUs.
320
The December 1993 Record of Understanding Between Korea and the United States
558. A further ROU was entered into between Korea and the United States in December 1993.
The title of this ROU, in referr ing to "agricultural market access in the Uruguay Round", suggests that
it was reflective of Korea's agriculture negotiations under the Uruguay Round.  Indeed, the
December 1993 ROU sets out specific understandings on the importation of a number of agricultural
products.  In relation to beef, the ROU presents a schedule of quota volume for beef importsincreasing until the year 2000.  The ROU further sets out the amounts of duty and mark-up to be
imposed on the beef quota in each year and established a corresponding percentage share of the
annual quota for the SBS system.
559. The December 1993 ROU also expressly provided that:
"all balance-of-payments restrictions on beef shall expire no later than
December 31 2000. In the year 2001, there shall be no quota, no mark-up, no LPMO
involvement, and complete private sector autonomy regarding product quantity, price,
quality, and supplier. There shall be no government restrictions on product
utilisation".
560. Like the 1990 ROUs, the July 1993 ROUs, in establishing specific rules for the importation of
beef into Korea with a view to implementing the results of the BOP Committee consultations,
identified the "remaining restrictions" referred to in Note 6(e) to Korea's Schedule.  The Panel notes
that nowhere in the July or December 1993 ROUs is th ere a reference to the effect that the contents of
the 1993 ROUs should replace the 1990 ROUs.  The July 1993 ROUs are an elaboration of parts of
the 1990 ROUs.  Indeed, the December 1993 ROU expressly provides that:
"the current July 15, 1993 record of understanding (L/7270) shall continue to apply
except as modified to incorporate the provisions of the new understanding".
561. The December 1993 ROU between the United States and Korea was not circulated to GATT
contracting parties.  However, the link between this ROU and the Uruguay Round seems to have been
admitted by the United States.  For the United States, the effect of the December 1993 ROU was to
extend the duration of the quotas until 2001, and that this was ultimately made part of Korea's WTO
Schedule of Concessions.
321  The fact that the content of the ROUs was reflected in Korea's Uruguay
                                                     
318 See paragraph I:C of the July 1993 ROUs:  "This Understanding is the second Understanding
between the ROKG and USG concerning market access for b eef.  This Understanding reflects the desire of the
parties to implement the GATT dispute settlement panel recommendations and Balance-of-Payments Committeedeterminations."  The same commitment is reiterated in paragraph 3 - front page – and in paragraph VI.A.
319 In addition, the July 1993 ROUs stipulate that pa rties are to reserve their rights under the GATT
(paragraph VI.B).
320 For instance, paragraph IV:C.7(c) of the July 1993 ROU is a recognition of the continuity between
the panel's conclusion and the object of the ROUs when it provides that " in further implementation of the
findings of the GATT dis pute settlement panel on beef , during 1993 the [SBS] mark-up on beef shall not exceed
100 per cent …" (emphasis added).
321 Paragraph 99 of this Panel report.WT/DS161/R
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Round concessions is also admitted by Korea.322  Australia also recognizes the link between the
Schedule and the closing of the Uruguay Round, but does not agree to the meaning given by Korea to
Note 6(e).
562. The Panel considers that the December 1993 ROU, even if concluded only between Korea
and the United States, is relevant to assist the interpretation of the ambiguous terms of Note 6(e).  The
Panel recalls that in EC – Computer Equipment , the practice of one single WTO Member was stated
to be relevant when interpreting the provisions of the Schedule of the European Communities.323  In
particular, the Panel notes that the reference to a phasing out period until 1 January 2001 appears for
the first time in the December 1993 ROU.  It seem s reasonable to try to understand the relationship
between a first transition period to phase-out "remaining restrictions" until 1997 (provided to Korea
by the Committee on Balance-of-Payments) and the reference in Korea's WTO Schedule to the"remaining restrictions" to be phased-out by 2001.  The Panel underlines again that here it is not
enforcing the bilateral agreement between the United States and Korea but simply reading and
interpreting it in order to interpret a provision in a Member's Schedule.
(b) Material to be consulted in order to interpret Note 6(e) of Korea's Schedule
563. The Panel recalls that in its efforts to interpret the ambiguous terms of Note 6(e) of Korea's
Schedule, the circumstances of the conclusion of Korea's Schedules lead it to examine: the 1989 panel
reports on beef; the 1989 report of the Committee on Balance-of-Payments; and the various ROUs
negotiated by some GATT contracting parties upon recommendations of the GATT CONTRACTING
PARTIES in the wake of the reports just mentioned.
564. The Panel is thus called upon to determine the extent to which the measures at issue can be
found to exist in the 1989 panel reports on beef, in the 1989 report of the GATT Committee on
Balance-of-Payments or in the ROUs which were governing the beef trade relations between Korea,
the United States, Australia and New Zealand.  To the extent they are mentioned in these documents
and were still in place at the time of the conclusion of the Uruguay Round, the measures must be part
of "the remaining restrictions" within the meaning of Note 6(e). As a consequence, such measuresbenefit from a "transition period" until 1 January 2001 and until then, they cannot be successfully
challenged.  At the same time, as the Panel has determined above, the same measures found to be part
of "the remaining restrictions" would also be considered inconsistent with the WTO Agreement – save
for the transition period - and will, therefore, have to be phased-out by 1 January 2001.  Conversely,
measures falling outside the scope of restrictions envisaged or identified in the ROUs or in the 1989
panel reports and Committee on Balance-of-Payments reports could not have been intended to be
included in the reference to "the remaining restrictions" in Note 6(e) to Korea's Schedule.
(c) Determination of the measures which qualify as "remaining restrictions"
565. Before proceeding to the determination as to whether the specific measures at issue in the
present dispute are "remaining restrictions" within the meaning of Note 6(e), it is worth recalling them
in detail.
(i) Measures challenged
566. The measures challenged by the Complaining parties are the following:
                                                     
322 Paragraph 87 of this Panel report.
323 Appellate Body Report on EC – Computer Equipment , paragraph 93.WT/DS161/R
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Restrictions on the retail sale of imported beef
-  the requirement that imported beef be sold in specialized beef stores;
-  separate sales areas for the sale of imported beef in department stores;  and-  obligation to display an imported beef store sign.
Restrictions on purchases and sales in the wholesale market (for the LPMO's imports)
- mandatory acquisition of imported beef through established distribution channels 
(middlemen);
- supply from imported beef wholesale markets is restricted to specialized imported-
beef stores only;
- imported beef to be supplied only on a cash payments basis;  and
- wholesale markets required to retain records of the supplies of imported beef for at
least two years.
Limitations on participation in the SBS import system
- end-users (customers) not members of super-groups excluded from the system;
- range of end-users is restricted;- end-users can only import beef through the super-group to which they belong and 
can belong to only one super-group;
- quotas and sub-quotas allocated to super-groups according to annual plans rather 
than demand;  and
- labelling, reporting and record-keeping requirements not imposed on domestic 
beef.
Restrictions on discharge of LPMO's imports
- the LPMO's monthly and daily discharge practices;
- minimum wholesale price at auctions of imported beef.
Restrictions resulting from LPMO tendering practices
- refusal or delays in calling for tenders- the LPMO's tendering practice restricting the type of beef that may fill a tender to 
grain-fed beef to the exclusion of grass-fed beef.WT/DS161/R
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Price mark-up applied to imports through the SB S system that is additional to the tariff
Discretionary licensing system
567. The Panel now proceeds to examine whether the above measures were envisaged or can be
said to originate in the ROUs negotiated between the parties, and thus constitute "remainingrestrictions" within the meaning of Note 6(e).
(ii) Disputed measures that were in place in 1989 or originate in the ROUs and which therefore
constitute "remaining restrictions" within the meaning of Note 6(e)
Restrictions on purchases and sales in the wholesale market (for the LPMO's imports)
- mandatory acquisition of imported beef through established distribution channels 
(middlemen);
568. The Panel recalls that state-trading enterprises as such are consistent with the WTO
Agreement but their operations may be restrictive w ithin the meaning of the WTO Agreement.  To the
extent that a Korean regulation (or guidelines) requires the LPMO to sell its imports or some of them
through the wholesale market (and therefore prohibits it from selling to any consumers contrary to
what would otherwise be permitted for like domestic products), such a requirement is restrictive.However, it appears from the 1989 panel reports that the LPMO has always sold beef predominantly
through the wholesale market.
324  The Panel concludes, therefore, that this measure falls within the
meaning of the term "the remaining restrictions" mentioned in Note 6(e).325
Limitations on participation in the SBS import system
569. In giving effect to the results of the 1989 BOP consultations, the ROUs setting up the SBS
system were intended to assist Korea in establishing an "orderly program of liberalisation" with
"appropriate flexibility" to allow Korea to phase out its "remaining restrictions" by the year 2001.  By
its very nature, an "orderly program of liberalisation" may contain some temporary restrictions.
570. To this extent, the Panel considers that restrictions inherent to the SBS system326 put in place
at the time of the ROUs were intended to be covered by the term "the remaining restrictions" and,therefore, were to be tolerated until 2001.  However, this intention must be viewed in the light of the
more general requirements of the July 1993 ROUs in Paragraph IV.C.6(a) that:
"except as otherwise specified in this understanding, there shall be no restrictions
placed by the ROKG or any super-group on beef (regardless of country of origin,
product type, or specification, whether grass-fed or grain-fed or whether fresh, chilled
or frozen) imported under the SBS system, including processing requirements,
labelling, pricing, marking or packaging requirements or other barriers to legitimate
                                                     
324 See for instance paragraphs 23-24 and 39 of the panel report on Korea – Beef  (US):  "Korea recalled
that virtually all imported beef was resold through wholesale market auctions."
325 The Panel also recalls that, in the ROUs parties have agreed that as of 2001, the LPMO would no
longer be involved in the beef market and that with  the disappearance of the beef import quota, the LPMO
practices will have to be brought into conformity with the WTO Agreement.
326 The Panel considers it a governmental measure.  It was set up by the Korean government in the
ROUs, it creates a system of incentives and disincentiv es if one is interested in importing beef and it is
monitored by the MAF and the LPMO.  The Panel notes that the LPMO not only possesses the exclusive right toimport a substantial portion of the imported beef quota, but also exercises considerable control over the use ofthe remaining portion of the quota through its authority to allocate quota shares to the SBS super-groups and toapprove their import requests.  See the panel report on Japan – Semi-Conductors , paragraph 108.WT/DS161/R
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importation, distribution and sale that create unnecessary obstacles to trade  or
otherwise undermine the objectives  of the understanding."327
-  Super-group membership requirement
571. Some limitation on membership was envisaged in the 1990 ROUs in that it was stipulated that
"the mechanism will be used initially by tourist hot els, tourist restaurants, the NLCF and the Korean
Cold Storage company … Both governments will consult concerning future expansion of the SBS
system". (Paragraph II.C) More specifically, both the July 1993 ROUs prescribe rules for adding "new
super-groups" implying that there is indeed a membership requirement (paragraphs IV.A.1 and
IV.A.2).  The Panel concludes that this measure falls within the meaning of the term "the remaining
restrictions" mentioned in Note 6(e); it thus benefits from a transition period until 1 January 2001, bywhich date it shall be phased out or otherwise brought into conformity with the WTO.
-  Restrictions on range of end-users
572. The Panel considers that some restrictions on the range of end-users are inherent to the SBS
system.  This is confirmed in the definition of an end-user provided in both the July 1993 ROUs as"any individual private enterprise, firm, business, or grouping thereof, and/or their buying agents that
has the right  to import beef through any supergroup except NLCF and KCSC." (paragraph II,
emphasis added).  Therefore, the restrictions limiting the range of end-users who can import directly
from Australia and the United States existed at the time of the ROUs and can be viewed as some of
the "remaining restrictions" for the purpose of Note 6(e); these thus benefit from a transition perioduntil 1 January 2001, by which date they shall be phased out or otherwise brought into conformity
with the WTO.
- Prohibition on cross-trading between end-users, and between end-users and super-
groups
573. The July 1993 ROUs envisage cross-trading between certain end-users and two specific
super-groups.  For instance, KOSCA members not eligible to import through the KOSCA super-group
"shall have the right to participate in the SBS system as customers under the NLCF and KCSC."
(paragraph IV.B.2(d), emphasis added).  The ROUs also establish that "… beginning in January 1995,
any butcher shops that are or become registered dealers of imported beef shall have the right to
participate in the SBS system as customers under NLCF and KCSC." (Paragraph IV.B.2(e) emphasis
added).  Further references exist to all KOSCA members being allowed to participate in the SBSsystem as customers under NLCF and KCSC (ParagraphIV.C.1 (a)).
574. The specific inclusion of provisions permitting cross-trading between certain end-users and
super-groups, together with the membership requirement, implies the existence of a prohibition of
cross-trading with other super-groups.  If the pa rties had intended to permit cross-trading between
end-users and any other super-groups they would not have limited the super-groups allowed to do soto NLCF and KCSC.  To this extent, the Panel finds that the prohibition on cross-trading between
end-users, other than those within the KOSCA group, and super-groups other than NLCF and KCSC,
is inherent to the SBS system established in the ROUs and therefore is a "remaining restriction".
Hence, the Panel finds that it constitutes a "remaini ng restriction" within the meaning of Note 6(e) to
Korea's Schedule and benefits from a transition period until 1 January 2001, by which date it shall bephased out or otherwise brought into conformity with the WTO.
                                                     
327 In this light, the Panel considers that restrictions not inherent to the SBS system or creating
otherwise "unnecessary obstacles to trade" could not ha ve been intended to be part of "the remaining
restrictions".WT/DS161/R
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575. The ROUs also envisaged that there would not be any cross-trading between super-groups as
their allocation of shares was pre-determined annually and issued on a quarterly basis.  In addition, it
was provided in paragraph IV.C.6(b) of the July 1993 ROU that "any SBS sub-share that is not fully
utilised by a super-group by the end of the third calendar year quarter shall be reallocated to all othersuper-groups on a pro rata  basis  …  Such reallocation shall be made no later than October 15".  The
very existence of the need to provide for the re-allo cation of non-utilized quota shares is evidence that
cross-trading was otherwise understood to have been prohibited.  Thus, the Panel finds that the
prohibition on cross-trading between super-groups is inherent to the SBS system as then envisaged.
Therefore, the Panel finds that it constitutes a "remaining restriction" within the meaning of Note 6(e)
to Korea's Schedule and benefits from a transition period until 1 January 2001, by which date it shall
be phased out or otherwise brought into conformity with the WTO.
576. The ROUs do not, however, make any reference to the existence of any restriction on trading
between end-users.
- quotas and sub-quotas allocated to super-groups according to annual plans rather
than demand
577. The allocation and re-allocation of quotas to super-groups was expressly envisaged in the
1993 ROUs which specifically provide for the allocation of "shares and sub-shares" to super-groups
existing at the time of the ROUs (e.g. paragraph IV).  This, coupled with the possibility of the entry of
new super-groups into the SBS system, implies that allocation and re-allocation of quotas must be
inherent to the system.  The needs of new super-groups could not be satisfied without re-allocation ofquotas.
578. The existence of a mechanism of allocation of quota amounts is not only inherent to the SBS
system but it is also consistent with the general objective of the whole system to assist Korea to
establish an "orderly program of liberalisation" with "appropriate flexibility" to allow Korea to phase
out its "remaining restrictions" by the year 2001.  The Panel, therefore, finds that this measure is a"remaining restriction" for the purpose of Note 6(e) and benefits from a transition period until
1 January 2001, by which date it shall be phased out or otherwise brought into conformity with the
WTO.
-  recording requirements
579. Paragraph IV.C.14 of the July 1993 ROUs provide for record keeping measures to be
introduced along with the SBS system:
"approved super-groups shall administer record keeping of purchases to ensure
compliance with the annual and quarterly SBS shares."
580. The Panel finds that the record keeping requirem ents of the type actually imposed by Korea,
being practically the same as those explicitly referred to in the ROUs, were accepted by the parties as
being inherent to the SBS system and thereby fall w ithin the meaning of "the remaining restrictions"
of Note 6(e);  they thus benefits from a transition period until 1 January 2001, by which date it shall
be phased out or otherwise brought into conformity with the WTO.
Restrictions on discharge of imports through the wholesale system
-  minimum wholesale price
328 (auction/target price)
                                                     
328 Also called "target price" or "minimum auction price" by the parties.WT/DS161/R
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581. This form of pricing practice has been in place for many years.  The 1989 panel first noted
that a minimum bid price at wholesale auction, or derived price for direct sale, was set by the LPMO
with reference to the wholesale price for domestic beef.
582. The 1990 ROUs (paragraph D.(2)) provide that the joint study team, established by
agreement, should:
"review the functions of the LPMO and make recommendations for improvements in
marketing and pricing practices in the future."
This passage reveals a concern with the LPMO's role in the "marketing and pricing practices" of beef
imports.  The LPMO's restrictive pricing practices, such as the so-called minimum wholesale price,
appears to be amongst the types of practices, which falls within this concern.
583. Paragraph IV:C.7(c) also reveals the concern of the parties over Korea's import pricing
practices: "in further implementation of the findings of the GATT dispute settlement panel on beef ,
during 1993 the mark-up on beef shall not exceed 100 per cent" (emphasis added).
584. The LPMO's pricing practices, including its minimum wholesale price, are therefore to be
considered as one of "the remaining restrictions" within the meaning of Note 6(e), needing to beaddressed during Korea's transition period under the ROUs.  To this extent, the LPMO's minimum
wholesale price constitutes a "remaining restrictio n" which benefits from a transition period until
1 January 2001, by which date it shall be eliminated  or otherwise brought into conformity with the
WTO Agreement.
Price mark-up applied to imports through the SBS system that is additional to the tariff
585. Both sets of 1993 ROUs contain the following reference to the determination of prices
through the SBS system:
"The ROKG shall take no action to increase the price of beef entering under the SBS
system above the price of similar beef imported under general tender."
(Paragraph IV.A.3.)
586. In addition, paragraph IV.C.7 of the 1993 ROUs sp ecifically address the existence of an SBS
mark-up in the following terms:
" (a) A single, uniform percentage mark-up shall be applied to all types of beef
purchased under the SBS system and shall be equal to the difference between the
duty-paid price, c.i.f. Korea, and the price for all boneless cuts of imported grain-fed
high quality beef, based on the purchases of the LPMO sold in the general tender
system."
…
" (c) … in further implementation of the findings of the GATT dispute settlement
panel on beef , during 1993 the mark-up on beef shall not exceed 100 per cent of the
weighted average percentage mark-up applied to imported bone-less grain-fed high
quality beef during calendar year 1992, as derived from data in Attachment I."
329
                                                     
329 It happens that in 1992, as can be seen from Attachment 1, the LPMO mark-up expressed as a
percentage of duty paid export price was almost 100 per cent of the import price.WT/DS161/R
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587. This passage, in particular, indicates that the existence of an SBS-like mark-up was indeed
contemplated at the time of the ROUs.  Korea has also submitted "talking points"330 from an official
of the US Department of Agriculture on 24 Febr uary 1994, which shows that the United States had
accepted the imposition of the mark-up as an integral part of the 1993 ROU on beef and the UruguayRound market access. The Panel finds, therefore, th at the SBS mark-up is a "remaining restriction"
within the meaning of Note 6(e) and benefits from a transition period until I January 2001, by which
date it shall be eliminated or otherwise brought into conformity with the GATT/WTO.
Discretionary Licensing System
588. In addition to the measures listed by the Complaining parties, the United States claimed that
Korea's import licensing regime for imported beef, based on the issuance of import recommendations
by the LPMO, is totally discretionary and, therefor e, constitutes a non-automatic licensing procedure
for the purposes of the Agreement on Import Licensing Procedures  ("Licensing Agreement ").  The
United States submitted that the licensing procedures are administered in such a manner as to have
restrictive effects on the imports in question.
589. To the extent that imports are restricted through the application of a WTO compatible import
quota, a licensing system is necessary.  Indeed, the very nature of the SBS system set up under theROUs regulates the manner in which foreign beef enters Korea's market.  Therefore, the existence of a
licensing system per se , as distinct from its operation, must be one of the "remaining restrictions"
envisaged in Note 6(e).  In addition, since the beef import quota of the LPMO and the super-groups
benefit from a transition period until 1 January 2001, the provisions of its licensing system inherent to
the administration of the same beef quota must benefit from the same transition period.
331
590. The Panel is, therefore, of the view that it is appropriate to examine each of the specific
measures identified by the United States and reach a conclusion on each of them rather than examine
Korea's import licensing system generally.  In the context of these specific determinations, the Panel
will necessarily examine the US arguments and suggested evidence that Korea's administration  of its
licensing system was more trade-restrictive than necessary and contrary to the Licensing Agreement .
(iii) Disputed Measures not associated with the administration of the beef quota as of 1989 and
not envisaged in the ROUs
591. In entering into the ROUs, it is evident that the parties intended to keep open the possibility of
challenging any measures which were not inherent to those permitted in the ROUs. To this extent, it is
the view of the Panel that the term "the remaining re strictions" could not have been intended to allow
reliance on restrictions under the ROUs, if such restrictions were not inherent to those permitted
thereunder.
592. In support of the above, the Panel notes that, although providing for the existence of certain
restrictions, the July 1993 ROUs also set up a mech anism for consultations between the parties should
there be any disputes or problems of implementation.332  This envisages precisely the kind of situation
described in the previous paragraph, namely, the existence of restrictions not inherent to those
prescribed.
                                                     
330 Paragraph 306 of this Panel report.
331 However, other aspects of Korea's import licensing system, such as those features not inherent to
any remaining restriction – thus not benefiting from the transition period - can be successfully challenged andconsidered WTO incompatible.
332 Paragraph VI of the July 1993 ROU between Korea and the United States and paragraph VII of the
July 1993 ROU between Korea and Australia.WT/DS161/R
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593. The Panel, therefore, considers that the following measures or practices were not covered by
the wording of any of the ROUs and do not appear to be necessary or inherent to measures
(restrictions) otherwise explicitly envisaged in those agreements for the purpose of phasing out the
import quota.
Restrictions on the retail sale of imported beef
-  the requirement that imported beef be sold in specialized beef stores;
-   separate sales areas for the sale of imported beef in department stores;  and
-  obligation to display an imported beef store sign.
594. With reference to its dual retail system for beef, Korea claims that it is not discriminatory.  In
the alternative, Korea claims that it benefits from the protection of Article XX.  Finally, Korea also
claims that it is one of "the remaining restrictio ns", (thus admitting its restrictive nature) because it
existed at the time of the conclusion of the ROUs an d this fact is, according to Korea, recognized in
the ROUs.  Korea draws this conclusion from Sect ion IV B2(e) of the July 1993 ROU which provides
that:  "Also beginning January 1, 1995, any butcher shops that are or become registered dealers of
imported beef shall have the right to participate in the SBS system …  Such individual butcher shops
shall have the right to negotiate and place collective orders through NLCF and KCSC."
595. The Panel fails to see why the fact that butchers who sell foreign beef must be registered
implies that such butchers cannot also sell domes tic beef or why this reference would imply that
domestic supermarkets must have different cabinets or areas for foreign beef.
596. Moreover and more importantly, it is difficult to see how a dual retail system that did not
exist at the time of the 1989 panel reports or the 1989 balance-of-payments consultations and whichwas not negotiated in the context of the ROUs could have any relation with the phasing-out of
balance-of-payments restrictions, the issue at the centre of the consultations and the ROUs.
597. The Panel is, therefore, of the view that the above measures do not fall within the meaning of
"remaining restrictions".
Restrictions on purchases and sales in the wholesale market (for the LPMO's imports
- supply from imported beef wholesale market is restricted to specialised beef stores
only;
- imported beef to be supplied on a cash payment basis;  and
- wholesale markets required to retain records of the supplies of imported beef for at
least two years.
598. Although the LPMO has existed for many years,  there is no indication anywhere that the
above three measures are inherent to any state-trading activities or to the LPMO's marketing orpricing activities as discussed in the 1989 panel report, the balance-of-payments consultations and in
the 1990 and the July 1993 ROUs.  The Panel finds, therefore, that the three measures do not fall
within the meaning of "remaining restrictions".
Limitations on participation in the SBS import system
-  Prohibition on cross-trading between end-usersWT/DS161/R
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599. As mentioned above, the July 1993 ROUs envisage some restriction on cross-trading between
super-groups and between super-groups and end-users.  The ROUs do not, however, make any
reference to the existence of any restriction on trading between end-users.  In addition, such a
restriction would be more trade restrictive than necessary to achieve the objectives of the ROUs.  ThePanel, therefore, finds that the prohibition on cross-trading between end-users is not a restriction
envisaged by the parties to fall within th e meaning of "the remaining restrictions".
-  Labelling requirements
600. Paragraph IV.C.6 of the July 1993 ROUs, prescribes that:
"except as otherwise specified in this understanding, there shall be no … labelling,
pricing, marking, or packaging requirements or other barriers to legitimate
importation, distribution and sale that create unnecessary obstacles to trade orotherwise undermine the objectives of the understanding."
There is no provision for special labelling requirements in the ROU. The Panel, therefore, finds that
any additional or specific labelling requirements, if any, imposed on beef imported through the SBS
system are not "remaining restrictions".
Restrictions on discharge of imports
–  the LPMO's monthly and daily discharge practices
601. Some aspects of the LPMO's role in the marketing of beef imports were envisaged as a
"remaining restriction".  However, according to the United States and Australia, behaviour which
effectively led to restrictive practices additional to and independent of the otherwise legal import
quota on beef, could not have been intended by the parties to be "remaining restrictions" referred to inNote 6(e).  The type of marketing practices envisaged within "remaining restrictions" could not have
been those which effectively added to the normal restrictions of the beef import quota.
602. To the extent that the United States and Aust ralia claim that the Korean authorities have
imposed time constraints and administered the auctioning system in an abusive and non-commercial
manner, such restrictions could not have been considered by the parties to the ROU as acceptabletemporary restrictions inherent to any state-trading activity of the LPMO.  Such behaviour would be
rather additional to and independent from what was envisaged under the ROUs.
603. The Panel is, therefore, of the view that such practice could not have been considered to be a
"remaining restriction" within the meaning of Note 6(e).
Restrictions resulting from LPMO tendering practices
-  refusal or delays in calling for tenders
604. The United States claims that by refusing to call for tenders from the end of October 1997 to
the end of May 1998, (and keeping stocks of imported beef too high), Korea imposed import
restrictions, contrary to Article XI of GATT.  This type of measure is neither dictated by the existence
of an import quota, nor contemplated by the ROUs.
605. The Panel shall discuss this measure together with Australia's claims that the LPMO's
discharge of imports through the wholesale system, in particular LPMO's alleged refusal to releaseimports into the Korean market together with its stocking of imported beef, violated Article XI and its
Ad Note.WT/DS161/R
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-  grain-fed/grass-fed distinction
606. Although not expressly mentioned in terms of  the LPMO tendering activities, the problem
does surface in Attachment 3 to Australia's 1990 ROU in relation to the operation of the SBS system,
and again more specifically in Part V of Australia's 1993 ROU.  The Attachment to the 1990 ROUprovides that:
"All imports of beef under the simultaneous buy/sell system will receive equal, non-
discriminatory treatment without regard to country of origin and without regard to
whether it is grass-fed or grain-fed; fr esh, chilled or frozen; bone-in or bone-out."
607. Paragraph IV.C.6(a) of the 1993 ROU provides:
"Except as otherwise specified in this Understanding, there shall be no restrictions
placed by the ROKG or any super-group on beef (regardless of country of origin,product type, or specification, whether grassfed or grain-fed ...)."
608. The existence of the above references to grass-fed beef reveals that Australia was concerned
with discrimination between grass-fed and grain- fed beef in the wholesale market through the
operation of the SBS system.  It is clear that no such restrictions could be tolerated by Australia.
Thus, the alleged discrimination between grass-fed and grain-fed beef which, according to Australia,characterized the LPMO's tendering requirements for imports on several occasions, is not one of the
envisaged "remaining restrictions".
(iv) Summary of the Panel's Conclusions with Respect to the Measures in Dispute and Note 6(e)
of Korea's Schedule
609. The Panel has found the following measures to be  part of "the remaining restrictions" within
the meaning of Note 6(e):
Limitations on participation in the SBS import system
- super-group membership requirement;
- restriction on range of end-users;
- prohibition on cross-trading between end-users and super-groups;- quotas and sub-quotas allocated to super-groups according to annual plans rather 
than demand;  and
- record booking requirements.
Restrictions on purchases and sales into the wholesale market (for the LPMO's imports)
- mandatory acquisition of imported beef through established distribution channels 
(middlemen)
Restrictions on LPMO's discharge of imports
- minimum wholesale price
Price mark-up applied to imports through the SBS system that is additional to the tariffWT/DS161/R
WT/DS169/R
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Per se Existence of a Discretionary Licensing System relating to remaining restrictions (as
distinct from its operation)
610. The consequence of this finding is that all of the above measures, being covered by the term
"the remaining restrictions", benefit from the transition period until 1 January 2001 as prescribedunder Note 6(e).  At the same time, this finding also implies that all of the above measures are GATT
inconsistent and will need to be eliminated or otherwise brought into conformity with the WTO
Agreement by 1 January 2001.
611. The Panel also reaches the conclusion that the following measures are not "remaining
restrictions" within the meaning of Note 6(e):
Restrictions on the retail sale of imported beef
- the requirement that imported beef be sold in specialized beef stores;- separate sales areas for the sale of imported beef in department stores;  and
- obligation to display imported beef store sign.
Restrictions on purchases and sales in the wholesale market (for the LPMO's imports)
- supply from imported beef wholesale markets is restricted to specialised beef
stores only;
- imported beef to be supplied on a cash payments basis;  and
- wholesale markets required to retain records of the supplies of imported beef for at
least two years.
Limitations on participation in the SBS import system
- prohibition on cross-trading between end-users;- discriminatory labelling requirements.
Restrictions on discharge of imports through the wholesale system
- the LPMO's monthly and daily discharge practices.
Restrictions resulting from the LPMO's tender practices
- refusal or delays in calling for tenders;- the grain-fed/grass-fed distinction imposed when calling for tenders.
612. The consequence of these findings is that all of the above measures do not benefit from the
transition period set out in Note 6(e), and can, therefore, be challenged in the present procedure.
613. In the light of the above findings, the Panel will now proceed to determine the validity of the
Complaining parties' claims in relation to the above measures which do not constitute "remaining
restrictions" within the meaning of Note 6(e) of Korea's Schedule.WT/DS161/R
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C. CLAIMS AGAINST THE DUAL RETAIL SYSTEM AND RELATED MEASURES
1. General claims and defence of the parties
614. Australia and the United States claim that the dual retail system (and related measures333)
violate Article III:4 of GATT as it results in imported beef being treated less favourably than domesticbeef.
615. Korea's first defence is that the dual retail system for beef does not impose less favourable
treatment on imported beef as domestic and imported beef are both sold in separate shops.  Korea
adds that there are no limitations on the number of imported-beef shops and that decisions to open
imported-beef shops are determined exclusively on the basis of commercial considerations within the
context of the WTO compatible beef import quota.  Korea contends that, in order to substantiate their
claims under Article III of GATT, the Complaining parties must show that the measures in questionresult in actual prejudice to them in addition to the market access limitations resulting from Korea's
beef quota. According to Korea, where a legal import quota is in place two situations are possible.  If
the quota is fully absorbed, the claim that the WTO Agreement has been violated and as a result the
Complaining parties' rights have been prejudiced has to be rejected.
334  If the quota is not fully
absorbed the Complaining parties would have to show that the Korean regulation imposing on tradersthe obligation to sell domestic and imported beef in separate stores is the very reason why the quota
has not been absorbed.  According to Korea, the Co mplaining parties must show injury resulting from
the dual retail system independent of the protection afforded to domestic production through the
negotiation of the import quota for beef.
335  Korea recalls that its considers that it import quota was
fully absorbed in 1997 and 1998.  Korea's alternative defence is that the dual retail system isnecessary for the enforcement of its domestic law prohibiting fraudulent practices.  Therefore, should
it be found prima facie  to be inconsistent with Article III:4, the dual retail system should benefit from
the application of Article XX(d) of GATT and be declared WTO compatible.
2. Article III:4 of GATT and the dual retail system
616. Article III:4 of the General Agreement requires that imported products:
"The products of the territory of any cont racting party imported into the territory of
any other contracting party shall be accorded treatment no less favourable than that
accorded to like products of national origin in respect of all laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use.  The provisions of this paragraph shall not prevent the application
of differential internal transportation charges which are based exclusively on the
economic operation of the means of transport and not on the nationality of theproduct."
617. Article III:4 is violated if the Complaining parties demonstrate (a) that imported and domestic
products are "like";  (b) that the measure at issue is either a law, regulation, or requirement affecting
their internal sale, offering for sale, purchase, transportation, distribution, or use;  and (c) which
                                                     
333 Throughout these findings, a reference to the dual retail system includes:  (1) the requirement that
imported beef may not be sold in the same outlet as domestic beef but may only be sold in specialized imported-beef shops (Article 5C of the Guidelines Concerning Registration and Operation of Specialized Imported Beef
Stores); (2) the obligation for department stores and supermarkets authorized to sell imported beef to hold a
separate display (Article 3A of the same Guidelines).  The obligation for foreign beef shops to bear a sign
"Specialized Imported Beef Stores" is a related measure which the Panel addresses separately in Section 3thereinafter.
334 Paragraph 228 of this Panel report.
335 Paragraph 229 of this Panel report.WT/DS161/R
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provides to imported products a treatment less favourable than that accorded to like domestic
products.  Korea is essentially offering arguments relating to the third aspect, i.e. that imported beef is
not less favourably treated than domestic beef.
(a) Like product determination
618. This dispute is about imports into Korea of fresh, chilled and frozen beef which, the
Complaining parties argue, are "like" Korean beef. It has not been contested that imported and
domestic beef are "like products".336  Korea argues, in its Article XX defence, that imported and
domestic beef are even indistinguishable.  There is an important price differential between Korean
beef and imported beef.  However, according to Korea, such price differential is "mainly due to the
relative cost of production, quality differences, consumer preferences and the existence of a legal
quota".337  The Panel notes that almost 45 per cent of the imported beef is sold in restaurants, where
no distinction is made between any origin of beef offered.338  The Panel concludes, therefore, that
imported beef and Korean beef are like products within the meaning of Article III:4 of GATT.
(b) Law, regulation, or requirement affecting their internal sale, offering for sale, purchase,
transportation, distribution, or use
619. The measures at issue are clearly internal regulations, i.e. laws and/or regulations affecting
the internal sale, offering for sale, purchase and distribution of imported and domestic products.
(c) Less favourable treatment
(i) Arguments of the parties
620. The Complaining parties argue that, contrary to Article III:4, the purpose of which is to
provide equal conditions of competition once goods had been cleared through the customs339, the
Korean dual retail system imposes less favourable treatment for imported beef.  By requiring that
imported beef be sold in stores that cannot sell Korean beef, Korea denies imported beef the
opportunity to be sold in the vast majority of meat stores.  Imported beef is sold in approximately
5,000 stores, whereas there are approximately 45,000 stores where Korean beef is sold.340  The result
is that imported beef is excluded from the ordinary retail system where Korean consumers shop formeat.  The Complaining parties refer to the adopted panel reports on Canada - Marketing Agencies
(1992), and on US - Malt Beverages,  where it was concluded that by excluding imported beer or wine
from points of sale where domestic beer or wine could be sold, the imported products were denied
certain competitive opportunities enjoyed by domestic products.  Australia adds that the separate
display requirements in larger outlets also discriminates against imported beef because it has the
effect of emphasising any perception of quality differences between domestic and imported products.
In Australia's view, the fact that foreign beef is sold either in separate shops or in separate cabinets has
                                                     
336 Paragraphs 168-170 of this Panel report. "It is also well to remember that a prima facie  case is one
which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule
in favour of the Complaining party presenting the prima facie  case." Appellate Body Report on EC – Hormones ,
paragraph 104.
337 (Korea, comment on response no 1, 28 February 2000).  The Panel notes, however that the effect of
the import quota should be to increase the price of impor ted beef.  The Panel understands that Korea wanted to
refer to the idea that in limiting the volume of imported beef, the competition in the domestic market is thusreduced.
338 Paragraph 193 and footnote 140 of this Panel report.
339 Panel reports on Italian Agricultural Machinery , paragraphs 11-13;  US - Section 337 ,
paragraphs 5.11-5.14; Canada – FIRA , paragraph 6.6.
340 According to Korea the number of foreign beef shops were as follows: in 1995: 7,713;  in 1996:
7,569;  in 1997: 7,026;  in 1998: 5,498.  See footnote 111 of this Panel report.WT/DS161/R
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a negative effect on the marketability of imported beef.  The overall limited availability of imported
beef relative to domestic beef exacerbates this problem.
621. Korea argued that its dual retail system for imported and domestic beef does not offer less
favourable treatment to imported beef.  Korea submits that the United States and Australia have notbeen able to demonstrate how the system of separation of stores selling beef prejudices their rights
under the WTO Agreement independently of the injury resulting from the very existence of the
Korean quota on beef.  For Korea, in situations where a WTO compatible import quota is in place and
has been fully utilised , the claim that the WTO Agreement has been violated must be rejected.  In
situations where the quota has not been fully utilised
341, the Complaining parties, according to Korea,
have to show that this was the very result of  the dual retail system, something which, according to
Korea, the Complaining parties have failed to do.
622. Korea adds that to impose identical regulatory requirements on both categories of stores is in
full compliance with Article III:4 of GATT.  Ind eed, the same restrictions apply to domestic beef
stores (they cannot sell imported beef except pre-packed, although a few Korean supermarkets have a
separate section for foreign beef) as to imported beef stores (they cannot sell domestic beef, except
pre-packed): all stores must respect identical regulatory requirements.  The fact that there are morestores selling domestic rather than imported beef does not constitute discrimination and does not
engage the responsibility of Korea.  The limited volume of imported beef circulating in the Korean
market (a government choice which is consistent with Korea's WTO obligations) explains why there
are fewer stores selling imported beef in the Korean market.  Korea argues that imported beef can be
sold anywhere in Korea, and is subject to the sa me regulatory requirements.  The decision whether to
open a store selling domestic or imported beef is left to private operators.  The number of stores
selling imported beef has evolved freely over the years since the quota was established.
(ii) The relevant GATT/WTO jurisprudence
623. There is no doubt that there is no "effect test" requirement under Article III, the national
treatment principle of GATT.  GATT panels have c onsistently concluded that the pertinent criterion
under Article III:4 is whether Members "provide equal conditions of competition" once goods are
cleared through customs.  To cite the US – Section 337  panel report:
"Article III:4 would not serve this purpose if the United States interpretation
[referring to the US defence advanced in the Section 337  dispute] were adopted, since
a law, regulation or requirement could then only be challenged in GATT after the
event as a means of rectifying less favourable treatment of imported products rather
than as a means of forestalling it … [The panel] noted that this approach is inaccordance with previous practice of the CONTRACTING PARTIES in applying
Article III, which has been to base their decisions on the distinctions made by the
laws, regulations or requirements themselves and on their potential  impact, rather
than on the actual  consequences for specific imported products."  (Emphasis added;
footnotes omitted.)
342
624. As the panel on US – Section 337  emphasised, Article III:4 is concerned with the effective
equality of opportunities in the application of laws, regulations and requirements.  The same applies to
the national treatment provision of Article XVII:3 of GATS, which explicitly provides that formally
identical legal provisions, may, in some cases, have the effect of according less favourable treatmentto imported products.
                                                     
341 Which is not the case in this dispute according to Korea.
342  Panel report on US – Section 337 , paragraph 5.13.WT/DS161/R
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625. In Japan – Alcoholic Beverages  it was reiterated that "the broad and fundamental purpose of
Article III is to avoid protectionism in the application of … regulatory measures".
"Towards this end, Article III obliges Members of the WTO to provide equality of
competitive conditions for imported products in relation to domestic products….Moreover it is irrelevant that the trade effects of the tax differential between imported
and domestic products, as reflected in the volumes of imports, are significant or even
non-existent; Article III protects expectations not of any particular trade volume but
rather of the equal competitive relationship between imported and domestic
products."
343
626. Similarly, in Canada – Marketing Agencies (1992) , the panel stated that:
"The Panel recalled that the CONTRACTING PARTIES had decided in a number of
previous cases that the requirement of Article III:4 to accord imported products
treatment no less favorable treatment than that accorded to domestic products was a
requirement to accord imported products competitive opportunities no less favourable
than those accorded to domestic products.  The Panel found that, by allowing the
access of domestic beer to points of sale not available to imported beer, Canadaaccorded domestic beer competitive opportunities denied to imported beer".
344
627. Any regulatory distinction that is based exclusively on criteria relating to the nationality or
the origin of the products is incompatible with Article III and this conclusion can be reached even in
the absence of any imports (as hypothetical imports can be used to reach this conclusion) confirming
that there is no need to demonstrate the actual and specific trade effects of a measure for it to be foundin violation of Article III.
345  The object of Article III:4 is, thus, to guarantee effective market access
to imported products and to ensure that the latter are offered the same market opportunities as
domestic products.
628. The Panel takes this to mean that like products are to be offered the possibility to compete in
the framework of an integrated market.
                                                     
343 Appellate Body Report on Japan – Alcoholic Beverages , page 16.  In EC – Bananas III,
paragraph 252 the Appellate Body reiterated the conclusion of the GATT panel report US – Superfund :
"Article III:2, first sentence, cannot be interprete d to protect expectations on export volumes;  it protects
expectations on the competitive relationship between imported and domestic products .  A change in the
competitive relationship contrary to that provision must consequently be regarded ipso facto  as a nullification or
impairment of benefits accruing under the General Agreement."  (Emphasis added.)
344 Panel report on Canada – Marketing Agencies (1992),  paragraph 5.6.
345 See for instance the panel report on Indonesia – Automobiles where it was concluded that:  "14.112
…  The distinction between the products, which results in different levels of taxation, is not based on the
products per se , but rather on such factors as the nationality of the producer or the origin of the parts and
components contained in the product.  As such, an imported product identical in all respects to a domesticproduct, except for its origin or the origin of its parts and components or other factors not related to the productitself, would be subject to a different level of taxation."  "14.113 …  Under the Indonesian car programmes thedistinction between the products for [domestic] tax purposes is based on such factors as the nationality of theproducer or the origin of the parts and components contained in the product.  Appropriate hypotheticals are
therefore easily constructed.  An imported motor vehicle al ike in all  aspects relevant to a likeness determination
would be taxed at higher rate simply because of its origin or lack of sufficient local content. Such vehiclescertainly can exist (and, as demonstrated above, do in fact  exist).  In our view, such an origin-based distinction
in respect of internal taxes suffices in itself to violat e Article III:2, without the need to demonstrate the existence
of actually traded like products."WT/DS161/R
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(iii) The Panel's assessment
629. Korea's main argument is that its domestic beef is prohibited access to imported-beef shops
and, therefore, imported and domestic beef are treated equally.  Korea adds that to require the
dismantling of its dual retail regime would imply that GATT requires deregulation, which, accordingto Korea, is not the case.
630. The Panel wants to stress first that Article III:4 of GATT is not concerned with the treatment
of domestic products as such but whether imported products are treated less favourably than domestic
products.  In this regard, the Panel considers that, contrary to what Korea asserts, the measure Korea
applies to imported beef since 1990, whereby imported beef cannot be sold at the retail level through
the same outlets or in the same areas (in the case of department stores) as domestic beef, constitutes in
itself differential treatment and, what is decisive under Article III:4, such differential treatmentunavoidably results in the imported products being less favourably treated on the Korean market than
the like domestic products.
631. Regulations providing for the segregation of imported products on the domestic market limit
the possibility for consumers to compare imported and domestic products and effectively base their
consumption choice on the differences in quality, characteristic and prices of products (eitherdomestic or imported).  Thereby they reduce opportunities for imported products to compete directly
with domestic products.
632. Suppose an exporter wishes to increase its share of a foreign market.  It has to convince
distributors, and ultimately consumers, that it has a worthwhile product to sell at an attractive price, in
the same way as a domestic manufacturer.  In the case of a domestic manufacturer, he must persuadethe retailer to stock his product, which may mean replacing an existing domestic product, but will
usually involve the two products being sold side by side on a trial basis.  However, under a dual retail
system, the only way the imported product can get on the shelves is if the retailer agrees to substitute
it, not only for one but for all existing like domestic products.  This is clearly an added burden on the
imported product in principle, which will be particularly severe when imports have a small share ofthe market in the first place. It cannot be accepted that a dual retail system for beef, even if formally
identical for both domestic and imported goods, is in principle compatible with Article III:4.
Moreover, even assuming there could be a functioning dual retail system for imported goods, such
that its restrictive effects may appear to be minimal, this does not condone the inherently
discriminatory nature of such a dual retail system.
633. In the present case, the notion of equal competitive opportunity implies, at the very least, that
there be a possibility for imported beef to be physically present with like domestic beef at the point ofsale to the consumer.  By excluding imported beef from the existing retail system for domestic beef
(which comprises the vast majority of sales outlets), the dual retail system limits the potential market
opportunities for imported beef.  This is particularly evident since beef is a product which is
consumed on a daily basis, and for which consumers may not be willing to "shop-around" before
making their final purchase.
634. The dual retail system limits the competitive opportunities for imported beef in other ways.
In the context of a market mostly dominated by the domestic product, the costs associated with the
implementation of the dual retail system bear more heavily on imported than on domestic beef.
Indeed, one may expect that the latter will continue to be sold from existing retail facilities whereas
the former will require the establishment of new retail facilities.
346 Requiring that imported beef be
                                                     
346 Korea argues that there are no start-up costs fo r new outlets since existing domestic-beef shops may
be converted into imported-beef shops.  However, Korea does not indicate the proportion of imported-beefWT/DS161/R
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sold in specialized stores, or in separate displa y cabinets in large stores, encourages the perception
that imported beef and domestic beef are different, when they are in fact like products belonging to
the same market, as admitted by Korea.  The segregation of domestic and imported beef provides the
domestic product with a competitive advantage over the imported product based on criteria not relatedto the products themselves.  It also facilitates the maintenance of a price differential to the advantage
of domestic beef.  Overall, the segregation of domestic and imported beef tends to shelter the high
priced domestic products from the competition coming from the lower priced imported products.
635. Article III:4 of GATT is concerned with state measures and not with the autonomous
behaviour of economic operators.  Private firms, if  they so wish, may decide on commercial grounds
to distribute either domestic or imported goods alone.  However, a government regulation contravenes
Article III:4 if, as in the present case, it forces  distributors to make such a choice.
636. The dual retail system enforced by Korea in the case of beef is particularly unfavourable to
the imported products, if one considers that it was established at a time when the import quota was
being phased out.  Against this background, the dual retail system can be seen as a potential brake on
the market access prospects normally open to less expensive imported beef, the effect of which will be
fully felt the day the quota is lifted.
637. Actually, the jurisprudence on Article III makes it clear that no consideration needs to be
given to the effects of any less favourable treatment or the impact of such discriminatory regulation
on trade volume.
347  In order to demonstrate the Article III violation, there is, thus, no need to prove
that the dual retail system is having any effect on the Korean market distinct from that of the WTO
compatible quota.  The existence of a WTO compatible import beef quota is of no relevance to theclaims that the Korean dual retail system provides less favourable treatment to imported products.
Therefore, the Panel disagrees with Korea that it was for the Complaining parties to show that the
dual retail system causes them prejudice additional to (and independent of) that resulting from the
WTO compatible beef import quota, as there is no need to demonstrate any such prejudice.
638. As to the relationship between the existence of a WTO compatible quota and the possibility of
claims under Article III, it is well established that WTO Members are bound by all WTO provisions
simultaneously:
"… the WTO Agreement is a "Single Undertaking" and therefore all WTO
obligations are generally cumulative and Members must comply with all of them
simultaneously  …"
348 (emphasis added).
That is to say that even if Korea benefits from a WTO compatible import quota on beef, all Korea's
measures, such as the distinct dual retail system for beef, must respect all the other relevant provisionsof the WTO Agreement, including Article III of GATT.
                                                                                                                                                                    
shops that have resulted from the conversion of former domestic-beef shops.  Such converted shops would in
any case have lost the right to continue to sell domes tic beef to Korean consumers who want to buy such beef.
347 Although there is no need to prove any trade effect to win a claim of Article III violation, the effects
of the Korean dual retail system can be seen when during the financial crisis (1998) the importers of foreign
beef were not able to "adjust" as well as the domes tic producers because the retail (and the SBS) systems in
place limited their flexibility to search for additional and new points of sales.  It is reported that in 1997 and inparticular 1998 the number of foreign-beef shops went down importantly (in 1995:  7,713;  in 1996:  7,569;  in1997:  7,026;  in 1998:  5,498.  See footnote 111 of this Panel report.
348 Appellate Body Report on Korea – Safeguards , paragraph 74.WT/DS161/R
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(d) Conclusion
639. The Panel finds that under the Korean dual retail system imported beef is treated less
favourably than domestic beef.  Accordingly, the Korean dual retail system for beef is inconsistent
with Article III:4 of GATT.  Having reached this conclusion, the Panel considers that it is unnecessaryto determine whether this same measure also violat es Article XI of GATT, as claimed by Australia.
3. Article III:4 and the requirement to display a special sign
(a) The arguments of the parties
640. The Complaining parties claim that the requirement for specialized imported-beef shops to
display a sign "Specialized Imported Beef Store" constitutes a less favourable treatment for imported
beef, imposing a requirement that does not exist for domestic beef.  Australia adds that the sign
"Specialized Imported Beef Store " has the effect of emphasising any negative perceptions about the
quality of imported beef; this has detrimental effect on the marketability of imported beef and a
dampening effect on prices.  Australia recalled that in 1955, it had complained that an Hawaiian
regulation requiring firms which sold imported eggs to display a sign stating: "We sell foreign eggs",
violated Article III:4.  The complaint was withdrawn when a US domestic court decision declared the
law unconstitutional and contrary to Article III:4 of GATT.
(b) The Panel's assessment
641. The Panel is of the view that such a sign display requirement being essentially ancillary to the
dual retail system, itself is inconsistent with Article III:4, is necessarily also inconsistent with
Article III:4.
642. In addition, the requirement to display the sign " Specialized Imported Beef Store " goes
beyond the indication of origin on products and therefore is in violation of Article III:4 of GATT.
The Panel recalls that the 1956 Working Party report on "Certificates of Origin, Marks of Origin,
Consular Formalities" noted that "requirements going beyond the obligation to indicate origin  would
not be consistent with the provisions of Article III , if the same requirements did not apply to domestic
producers of like products".
349
643. The Panel finds, therefore, that the requirement imposed on shops selling imported beef to
display a sign " Specialized Imported Beef Store" is prima facie  in violation of Article III:4 of GATT.
644. The Panel now proceeds to examine Korea's defence based on Article XX(d) of GATT.
4. Korea's defence based on Article XX(d) of GATT
(a) Arguments of the parties
645. Korea claims that its dual retail system for beef, if found in violation of Article III:4, as is the
case, should benefit from the protection of Article XX(d) of GATT.350  Korea submits that it is
necessary to have domestic and imported beef sold through separate stores in order to counteract
fraudulent practices prohibited by the  Unfair Competition Act .  Because imported beef is cheaper than
domestic beef, traders have a strong incentive to sell imported beef as domestic beef   since by doing
so they can profit from the higher sales price.  In 1990, in order to stop these deceptive practices,
                                                     
349 The 1956 Working Party report on "Certificates of Origin, Marks of Origin, Consular Formalities ",
BISD 5S/102, paragraph 13.
350 Korea also argues that the dual retail system is a remaining restriction, something the Panel does not
accept.  See paragraphs 593 to 597 above.WT/DS161/R
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Korea enacted the dual retail system and decided to eliminate the previous simultaneous sales system
which had been in place since 1988 when imports of beef first resumed.  Korea argues that it seriously
considered the choice of instrument in order to reach its regulatory objective to ban fraudulent
practices by individual traders with respect to sales of beef.  In Korea's view, continuous policing ofthe shops was not an option in view of the substantial costs to the government.
351  On the other hand,
Korea stated that the dual retail system relies on policing only domestic-beef shops whilst ensuring
that stores selling imported beef indicate that they do so.  In Korea's view, this indication is sufficient
to remove the risk that imported beef be sold as domestic beef, as consumers know that in foreign
beef shops cheaper imported beef is offered.352
646. Korea refers the Panel to its Unfair Competition Act , which addresses commercial practices
which are considered unfair vis-à-vis  competitors and consumers (including fraudulent practices).
The purpose of the Act, as stated in Article 1, is to "maintain the order of sound transactions by
preventing unfair competitive acts."
647. In paragraph 1 of Article 2, the term "unfair competitive act" is defined as follows:
"(1)  Act misleading the public to understand the place of origin of any goods either
by falsely marking that place on any commercial document or communication, in saidgoods or any advertisement thereof or in any manner of misleading the general
public, or by selling, distributing, importing or exporting goods bearing such mark;
(2)  Act making a mark misleading people to understand as if any goods were
produced or processed in an area other than that where said goods are produced,
manufactured or processed, on any commercial document or communication, in saidgoods or any advertisement thereof, or in any manner of misleading the general
public, or act selling, distributing, importing or exporting goods bearing such mark;"
Korea submits that the system of separation of sales outlets is necessary to enforce this Act and that
Article XX(d) GATT provides an appropriate legal framework to justify the dual retail system.
648. Australia and the United States submit that, contrary to paragraph (d) of Article XX, the dual
retail system for beef was not put in place to secure compliance with a WTO compatible regulation on
deceptive practices; at best the dual retail system has the same objective as the Unfair Competition
Act.  Australia also submits that Korea's substantial market price support and the dual retail system are
actually exacerbating the price differential between domestic and imported beef, and therefore
increasing the likelihood of fraud.  In Australia's view, fraud will cease only when this artificial price
differential disappears.  In Australia's view, it is pertinent that record-keeping requirements that areimposed on imported beef stores are not imposed on domestic beef stores.  Therefore, Korea cannot
ascertain the sources of supply for domestic beef and hence whether fraud takes place in domestic
shops.
649. In addition, the Complaining parties argue that the dual retail system is not "necessary" to
avoid fraudulent practices. They also suggest WTO consistent alternatives to the dual retail systemthat would allegedly ensure the prevention of decept ive practices.  In support of their allegations, the
Complaining parties point to the manner in which Korea dealt with similar situations involving
domestic beef (misrepresentation of dairy beef for Hanwoo beef) or other sectors of the Korean
economy where frequent fraudulent practices are reported to occur.  Finally, the Complaining parties
claim that the Korean dual retail system for beef is in  any event inconsistent with the provisions of the
                                                     
351 See paragraph 244 of this Panel report.
352 See paragraph 255 of this Panel report.WT/DS161/R
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chapeau of Article XX, in that it imposes a disguised restriction on international trade since its only
purpose it to protect Korean beef production.
(b) Article XX(d) of GATT and the GATT/WTO jurisprudence
650. GATT Article XX (d) provides:
"Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on
international trade, nothing in this Agr eement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
…
(d)  necessary to secure compliance with laws or regulations which are not
inconsistent with the provisions of this  Agreement, including those relating to
customs enforcement, the enforcement of monopolies operated under paragraph 4 of
Article II and Article XVII, the protection of patents, trade marks and copyrights, and
the prevention of deceptive practices;"
651. Korea concedes that it bears the burden of  show ing that its retail restrictions fall within the
scope of Article XX.353  To satisfy its burden under Article XX, Korea must thus show that the
requirement for sale of imported beef in separate stores is "necessary to secure compliance with laws
that are themselves consistent with the GATT 1994" and further that the dual retail system is not
"applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail or a disguised restriction on international trade".
652. With reference to Article XX(d), the GATT panel report on US – Section 337  provided that
the first issue to be determined is whether a GATT consistent alternative could have been employed:
"It was clear to the Panel that a contracting party cannot justify a measure
inconsistent with another GATT provision as "necessary" in terms of Article XX(d) if
an alternative measure which it could reasonably be expected to employ and which isnot inconsistent with other GATT provisions is available to it ".
354 (Emphasis added)
653. In US – Gasoline , the Appellate Body also considered the existence of WTO consistent
alternative courses of action, concluding that the US measure did not benefit from the application of
Article XX355:
"There was more than one alternative course of action available  to the United States in
promulgating regulations implementing the CAA.  These included the imposition of
statutory baselines without differentiation as between domestic and imported gasoline.
This approach, if properly implemented, could have avoided any discrimination at
all."356 (emphasis added)
                                                     
353 Appellate Body report in US – Gasoline , page 22.
354 See Panel report in US - Section 337, paragraph  5.26.
355 In that case however, the Appellate Body, proceeded to the examination of alternatives under the
provision of the chapeau of Article XX.
356 Appellate Body report on US – Gasoline , page 25.WT/DS161/R
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(c) The Panel's assessment
654. In order to benefit from the protection of Article XX(d), Korea must demonstrate that the dual
retail system (including related measures), although inconsistent with Article III:4:
(i) is in place in order to "secure compliance" with a domestic GATT consistent law or
regulation which, here, means to enforce the Korean law against deceptive practices;
and if this is the case,
(ii) is "necessary" to prevent deceptive practices from occurring in the Korean beef
market (and more particularly the passing of foreign beef as domestic beef);  and if
this is the case,
(iii) is not applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail, or adisguised restriction on international trade.
(i) "… secure compliance with GATT consistent regulation"
655. The Panel must first identify and characterize the alleged GATT consistent regulation.  In this
case, the regulation referred to by Korea, is the Korean Unfair Competition Act , which among other
things, aims at the prevention of deceptive practices.  At face value, this is a GATT consistentregulation. Secondly, the Panel must identify the practices that Korea considers deceptive and aims to
prevent.  In the present case, the alleged deceptive practices are the misrepresentation of the origin of
beef, i.e. selling imported beef as domestic beef, a practice which is commercially profitable because
of the price differential.  The Panel acknowledges that, whatever is the cause of such fraudulent
practices, selling imported beef as domestic beef constitutes misrepresentation as to the origin of thebeef, contrary to Article 2 of the Unfair Competition Act .
357  The Panel recognizes that there can be
good reasons – apart from any protectionist motives – why a WTO Member might want information
to be provided as to the origin of products, and particularly meat products, at the retail level.
656. As the Panel understands it, the application of the Korean Unfair Competition Act  is initiated
either by private parties or by public authorities and takes the form of policing, investigations, desistorders, fines, etc.  The normal application of the Unfair Competition Act  would not have given rise to
an issue under Article III:4 and thus would not have required any justification under Article XX(d),
provided that the same degree of enforcement applies in the case of domestic and imported products.
The Korean measure under discussion does not pertain to the normal enforcement of the Unfair
Competition Act .  The establishment of a dual retail system is not among the tools, the use of which
the Unfair Competition Act  envisages or mandates for the purpose of deterring acts of
misrepresentation or other types of fraudulent practices.
358
657. Korea submits that in the case of foreign beef, it had to discard the normal application of the
Unfair Competition Act since this proved to be too difficult and too costly in late 1989 and early 1990
in view of the number of fraud cases which occurred at that time in the context of the single retail
system and where foreign beef was misrepresented as domestic beef.  The cases of misrepresentation
were themselves induced by the large difference between the respective prices of domestic and
                                                     
357 The Panel recalls that Article 1 of the Unfair Competition Act  prohibits any "act misleading the
public to understand the place of origin of any goods either by falsely marking that place on any commercial
document or communication, in said goods or any advertisement thereof or in any manner of misleading the
general public, or by selling, distributing, importing or exporting goods bearing such mark."
358 The Panel notes that in the Guidelines Con cerning Registration and Operation of Specialized
Imported Beef Stores, no reference is made to the n eed to combat fraud, as the basic rationale for the
implementation of such dual retail system.WT/DS161/R
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foreign beef.359  Thus, according to Korea, the arrival of  less expensive foreign beef on the Korean
market, after imports resumed in 1989, created an exceptional situation due to the frequency of
deceptive practices.  In order to prevent such practices from occurring, Korea decided to segregate
foreign beef at the retail level.  In other words, the dual retail system is presented by Korea as beingan exceptional remedy and a substitute to the normal manner of preventing practices forbidden by the
Unfair Competition Act .
360  The Panel considers that the dual retail system is indeed an exceptional
remedy for the purpose of preventing acts of misrepresentation.  In addition to being discriminatory, it
is a measure of a permanent and fixed character, which, once taken and until removed, cannot easily
be adjusted to changing circumstances.361  This is in contrast with the flexibility afforded by the
Unfair Competition Act .362
658. However, despite these troublesome aspects, the Panel accepts that the dual retail system was
put in place, at least in part, in order to secure compliance with the Korean legislation against
deceptive practices to the extent that it serves to prevent acts inconsistent with the Unfair Competition
Act.  First, the system was established at the time when, as stated by Korea and not refuted by the
Complaining parties, acts of misrepresentation were widespread in the beef sector.  Second, it must be
conceded that the dual retail system does appear to reduce the opportunities and thus the temptationsfor butchers to misrepresent foreign beef for domestic beef, when compared with the situation where
all domestic and imported beef could officially be supplied to the same shop.  The Panel notes that its
interpretation of the words "measure … to secure compliance with laws and regulations" is not
inconsistent with the approach taken by the panel on EEC – Parts and Components  and later followed
by the panel on Canada – Periodicals .
363 If one admits that the dual retail system was established in
part to secure compliance with the Korean statute against deceptive practices, the crucial question is
                                                     
359 Korea reports that the price of Korean-bred cattle was 12,000-15,000 won per kilogram while
imported beef was sold at 4,800 won per kilogram.
360 The Panel notes that it is not a complete substitute to the enforcement of the Unfair Competition Act
to the extent that, as recognized by Korea, the dual re tail system does not eliminate the need to prevent through
traditional means the large number of domestic-beef shops from trying to sell foreign beef as domestic beef.Also, the need to police large department stores remains high due to, in this case, the physical proximity ofimported and domestic beef.
361 For instance the price differential has been diminishing since 1990, and to the same extent the
incentive to engage in fraudulent practices.  However, the dual retail system has not been altered.
362 While Korea could claim that it made efforts to be somehow flexible in allowing imported packaged
beef to be sold in beef domestic shops, the Panel notes that Korean consumers are no t asking for packaged beef,
as evidenced by the very low level of consump tion (and imports of such pre-packaged beef).
363 In the EEC- Part and Components , the EEC had argued that Article XX(d) could cover a measure
(in that case, the imposition of anticircumvention duties) which prevented actions that were consistent with laws
and regulations (in that case, the EEC's antidumping regulation) but undermined their objectives.  That paneltook the view that it was not enough for the measure to share the same objective as the "laws and regulations".That panel considered that the measures covered by Ar ticle XX(d) "must prevent actions inconsistent with the
obligations set out in laws or regulations" (para. 5.15).  That panel referred to "The examples of the laws andregulations indicated in Article XX(d), namely 'those relating to customs enforcement , the enforcement  of
monopolies …, the protection  of patents … and the prevention  of deceptive practices" (emphasis added) …
[which] suggest that Article XX(d) covers only measures designed to prevent actions that would be illegal underthe laws or regulations." (para. 5.16).  Canada – Periodicals  concerned an import ban, which did no more than
share the same objective, i.e. the channelling of adve rtising revenue towards Canadian periodicals, as a tax
provision granting tax deduction for expenses, (paras. 5.8 to 5.10).
The interpretation given by the present Panel to the words "measure to secure compliance …" would be
inconsistent with the EEC - Parts and Components  only if one were to interpret the approach taken by the panel
in that case as requiring that measures coming within the scope of Article XX(d) be technically part of the "lawsand regulations" themselves.  The reading of the EEC – Parts and Components  does not warrant such an
interpretation and if it would, which is not the case, the present Panel would disagree with so narrow aninterpretation of Article XX(d).WT/DS161/R
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whether the measure is "necessary" to prevent misrepresentation of imported beef for domestic beef.
Here again the burden of proof is on Korea.
(ii) "necessary to prevent misrepresentation as to the origin of beef"
659. To demonstrate that the dual retail system is "necessary", Korea has to convince the Panel
that, contrary to what was alleged by Australia and the United States, no alternative measure
consistent with the WTO Agreement is reasonably available at present in order to deal with
misrepresentation in the retail beef market as to the origin of beef.  The Panel considers that Korea has
not discharged this burden for two inter-related reasons.  First, Korea has not found it "necessary" to
establish "dual retail systems" in order to prevent similar cases of misrepresentation of origin from
occurring in other sectors of its domestic economy.  Second, Korea has not shown to the satisfaction
of the Panel that measures, other than a dual retail system, compatible with the WTO Agreement, arenot sufficient to deal with cases of misrepresentation of origin involving imported beef.  The Panel
will detail each of these two reasons, noting that the first turns on facts – what does Korea do to
prevent misrepresentation in cases other than the one at hand?  The second rests both on factual
findings, some of those facts being the same as are relevant to the first question, as well as on
projections, based on those facts, regarding what Korea reasonably could do to preventmisrepresentation involving imported beef at the retail level?
Absence of dual retail systems in other sectors of the Korean economy
660. Deceptive practices similar to those which affected, in 1989 and 1990, the sale of foreign beef
at the retail level are reported to occur or may occur in other sectors of the Korean economy.However, in those instances, Korea did, or does, not require that the products involved be sold
through separate channels as a means to secure compliance with the Korean law on deceptive
practices.
661. For instance, Korea has treated differently situations involving similar risks of fraud such as
between domestic Hanwoo and domestic dairy cattle beef (dairy steer beef and dairy cow beef).However, there is no dual retail system for domestic dairy cattle beef. Korea's justification is that the
amount of such dairy beef is negligible.  In 1990, the year the dual retail system was established, beef
from domestic dairy cattle represented somewhat less than half the amount of imported beef and about
25 per cent of total beef consumption in Korea.
364  In 1998, beef from dairy cattle amounted to
approximately half of the amount of imported be ef and 12 per cent of total beef consumption.365
Therefore, the Panel considers that the amount of beef coming from dairy cattle is not negligible.
Korea also submitted that in late 1998 it discovered a DNA test that apparently distinguishes betweenthe two types of domestic beef.  The Panel is not convinced that such a scientific test, if being able to
distinguish between domestic Hanwoo beef and dair y beef, would not also be able to distinguish
                                                     
364 The Panel was not able to make comparisons at the retail level. According to Korea, beef imported
in 1990 amounted to 84,000 MT (See paragraph 258 of this Panel report) in excess of the 58,000 MT quota forthat year while according to MAF st atistics, Korean beef production amounted to 95,000 MT of which about
42 per cent came from dairy cattle.  In 1991, imports of beef amounted to 124,000 MT and domestic beef
amounted to 98,000 MT, of which 42 per cent came from dairy cattle. At the Interim review stage Korea and theUnited States submitted new data indicating that the amount of imported beef in 1991 would have been127,000 MT.  Even if one were to rely on this new data, this would not make the amount of dairy cattle beef lessnegligible.
365 In 1998, total consumption in Korea amounted to 345,000MT of which 91,000 MT was imported,
and about 254,000MT came from domestic production.  According to statistics by the NLCF, dairy cattle
represented, in 1998, 18.25 per cent of total Korean slaughter (head).  According to Korea, dairy cow beef alonerepresented 28,000 MT (Annex 11), i.e. 8.1 per cent of total beef consumption, 11 per cent of domesticproduction and corresponded to 30 per cent of the amount of imported beef.  See Annexes 8, 9, 10 and 11 of thisPanel report.WT/DS161/R
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between foreign and Korean beef.  Furthermore the discovery of a DNA test in 1998 can not explain
the absence of a dual retail system for domestic beef during the period before that date.
662. The Panel notes also that there is no dual retail system for other agricultural products.  Korea
suggests that it is necessary to resort to the drastic  measure of segregating retail sales in the case of
beef, but not in the instance of other products, because of beef 's particular importance as a component
of the average Korean's diet and the substantial commercial activity in beef.  However, Korea did not
explain to the satisfaction of the Panel why other sources of protein, such as pork and seafood, which
also have been identified as subject to fraudulent misrepresentation of the country of origin, were not
made subject to a dual retail system.
663. Moreover, although some 45 per cent of imported beef is sold in restaurants, there is no
requirement that domestic and foreign beef be offered in separate restaurants.  Restaurants sellingimported beef do not need to indicate whether they serve domestic or imported beef, or at least not
until 2000.  Two types of situations may arise.
366  In the first, some Korean restaurants may serve
imported beef as Hanwoo beef, thus suggesting that Korea may not consider the prevention of such
acts of misrepresentation to require the establishment of a dual restaurant system.  In the second, some
restaurants, while not necessarily claiming that their beef is Hanwoo beef, may in fact sell beefwithout any reference to its origin, thus suggesting th at Korea, unlike in the cases of butcher shops, is
at least, not preoccupied with the profits restaurants may make from such practices and with precise
information to be provided to consumers.
664. The Panel considers that the previous examples taken from outside as well as within the beef
sector indicate that misrepresentation of origin can indeed be dealt with on the basis of basic methods,consistent with the WTO Agreement, and thus less trade restrictive and less market intrusive, such as
the normal policing under the Korean Unfair Competition Act .
367  These examples could leave the
impression that only when imported beef is sold at the retail level does misrepresentation of origin
become a matter of such concern to Korea.  This di rectly questions the "necessity" of the dual retail
system.
Existence of WTO consistent alternative measures to prevent deceptive practices in the beef retail
market
665. The Panel considers that in the presence of an alternative measure consistent with WTO rules,
it is for Korea to demonstrate that such an alte rnative measure is not reasonably available or is
unreasonably burdensome, financially or technically, taking into account a variety of factors including
the domestic costs of such alternative measure, to ensure that consumers are not misled as to the
origin of the beef.
666. The Complaining parties have suggested that there exist alternatives measures consistent with
the WTO Agreement, including labelling, record-keeping, prosecution and fines that would be
effective in detecting and preventing deceptive practices as to the origin of beef.
667. With reference to the suggestion that the Kore an government could increase investigations,
prosecutions and the use of fines, Korea submits that imposing higher fines does not help to resolvethe issue since traders will continue to have an incentive to cheat.  Korea also asserts that more
traditional means of addressing fraud, such as through investigations and prosecutions, are not
                                                     
366 The Panel notes that the Livestock Times reported that the deceptive beef marketing practice was
widespread in restaurants (where price differential was 58 per cent).
367 The Panel also notes that Korea has not submitted any evidence of similar dual retail systems for the
purpose of preventing acts of misrepresentation as to the origin of goods in other WTO Members.WT/DS161/R
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practical because imported beef is allegedly nearly impossible to distinguish from domestic beef.
Korea's contention is unconvincing for a number of reasons.
668. With reference to Korea's allegation that investigations are impossible368, the Panel recalls
that in the discussions of the December 1989 report (by the National Assembly's Subcommittee onAudits of Agricultural and Livestock Marketing), Korea was able to be very precise in terms of the
exact amount of imported beef sold in deceptiv e ways.  According to Korea, "a Marketing
Association confirmed that 28 per cent of imported beef transacted at general butcher shops have been
faked and sold as Hanwoo".  It seems that Korea had then, before the entry into force of the dual retail
system, an investigation system that allowed it to identify imported beef and to distinguish it from
Korean beef.  The Report of the Proceedings of the National Assembly's Committee on Agriculture,
Forestry and Fisheries (7 March 1990), after investigations, reported fraudulent beef sales in604 instances.  At the time, Korea's investigation system and capacities appear to have been sufficient
to detect fraudulent practices even in the beef sector
369, without any need to having recourse to a dual
retail system. Contrary to Korea's allegations, therefore, it would seem that Korea had the ability to
distinguish imported beef from locally produced beef or at least to detect fraud when the one was
passed off for the other.  It is unlikely that such capacity would have disappeared in the course of afew years.
669. The effectiveness of fines will depend, on the one hand, on the level of such fines and the
probability of being caught and, on the other, on the level of profit margin resulting from such
fraud.
370  The Panel considers that the threat of prosecution, which for small butchers would imply an
attack on their reputation, would be an effective deterrent.
670. The Complaining parties submit that the auditing of purchase and sale records could
supplement Korea's WTO-consistent efforts to identify instances of fraudulent misrepresentation of
product origin.  The Complaining parties suggest that enforcement of record-keeping requirements,
applied universally to sales of beef, would be a WTO-consistent way of combating any fraud, as
Korean regulations relating to imported beef already require substantial record-keeping by the variouslevels of trade.
671. Korea's response is that audit trails are not yet a feasible option for Korea's under-developed
system of distribution.  With respect to record-keeping, Korea's response is that few merchants in
practice maintain comprehensive and accurate book records.
672. The Panel agrees that some forms of audit trailing are a rather sophisticated system of fraud
detection. But there are several alternative means available to Korea to ensure the prevention of
deceptive practices.  For instance, a generally applied record-keeping requirement backed with
sanctions would constitute a WTO consistent alternative to the WTO inconsistent dual retail system.
If foreign beef shops can keep book-records
371, it is difficult to see why the same could not be
requested from domestic shops.  Indeed, all beef traders at all levels of trade could be required to keep
records so that investigations would easily detect the origin of the beef sold and/or purchased and be
able to compare the prices of beef products and the profit made.
                                                     
368 Paragraph 244 of this Panel report.
369 Some kind of similar system must now be in place with respect to large department stores which can
be officially supplied with both domestic and imported beef, even though they are supposed to sell them in
separate areas.
370 If fines were commensurate to incentives to enga ge in fraudulent practices on the Korean market,
whether domestic or foreign goods are involved, this would appear consistent with Article III:4 of GATT.
371 A practice which when imposed only on foreign beef shops would be contrary to Article III:4 of
GATT.WT/DS161/R
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673. Korea also argues generally that, in the absence of a dual retail system, the prevention of acts
of misrepresentation at the retail level would require the continuous policing of beef stores, something
which, according to Korea, would be too costly.  However, Korea has not supplied any data as to the
costs which, for example, the normal enforcement of the Unfair Competition Act  would entail.
Moreover, as mentioned above, reliance on traditional means does not seem too costly an alternative
in those instances where acts of misrepresentation do or may occur on the Korean market.  After all,
with the WTO Agreement the Members have made a bargain372 and compliance with the WTO
Agreement may sometimes require (costly) adjustments to domestic policies and laws.373
674. On the basis of the previous discussion, the Panel considers that Korea has not demonstrated
to the satisfaction of the Panel that alternative measures consistent with the WTO Agreement were not
reasonably available in order to detect deceptive practices in the beef retail sector.
Non-fulfilment of the "necessity" requirement
675. For the reasons detailed above, the Panel finds that the dual retail system is a disproportionate
measure not necessary to secure compliance with the Korean law against deceptive practices.
Therefore, it is not justified by Article XX(d) of GATT.  Consequently, there is no need for the Panelto examine the relevance of the chapeau of Article XX of GATT.
(iii) Conclusion on Korea's Article XX defence
676. The Panel has thus not been convinced by Korea's defence that its dual retail system should
benefit from the application of Article XX(d) of GATT.
5. Conclusion on the WTO compatibility of the dual retail system for beef
677. The Panel finds, therefore, that Korea's dual retail system for beef is inconsistent with the
provisions of Article III:4 of GATT by treating imported beef less favourably than domestic beef, a
discrimination that cannot be justified pursuant to  Article XX(d) of GATT.  It should therefore be
removed or otherwise brought into conformity with  the WTO Agreement.  It is, however, for Korea to
decide which measure(s) consistent with WTO it wants to choose, whether measures already in use inKorea, or measures suggested above, or other measures, to replace the dual retail system.
D. C
LAIMS AGAINST THE (LPMO) DISTRIBUTION SYSTEM AT THE WHOLESALE LEVEL
1. General Arguments of the Parties
678. Australia raises the following specific claims against various requirements pertaining to sales
of beef imported by the LPMO: (a) the limitation of sales of imported beef to the wholesale market,
unless beef is processed and packaged; (b) the restrictions on supply of beef from the wholesale
market to specialized imported-beef stores only; (c ) sales on a cash payment basis; and (d) record-
keeping requirements, which according to Australia, are imposed only on beef imported by the LPMO
and thus accord less favourable treatment to imported beef.  The United States does not raise any
specific claims on this matter although it has claimed that the dual retail system, generally, is in
violation of Article III:4.
                                                     
372 As stated by the Appellate Body in its report on Japan – Alcoholic Beverages (page 15) :"The WTO
Agreement  is a treaty -- the international equivalent of a contract.  It is self-evident that in an exercise of their
sovereignty, and in pursuit of their own respective national interests, the Members of the WTO have made a
bargain .  In exchange for the benefits they expect to derive as Members of the WTO, they have agreed to exercise
their sovereignty according to the commitments they have made in the WTO Agreement ."
373 See Article XVI:4 of the Agreement Establishing the WTO.WT/DS161/R
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679. Korea's counter-arguments with reference to each specific claim above is that: (a) it is
impossible to establish comparability between domestic and imported beef since there is a WTO
compatible quota;  (b) the dual retail system, including the obligation for department stores to have a
separate section selling foreign beef, is compatib le with the WTO;  (c) Korea admitted that the
LPMO's sales of imported beef through the wholesale market shall in principle be on a cash basis,374
however, Korea argues that this requirement is also applied to the NLCF sales of domestic beef todomestic beef stores;  (d) Korea did not submit any counter-argument to this claim.  Korea concluded
that these measures, therefore, do not violate Article III:4.  Should the Panel reach a different
conclusion, Korea claims that it benefits from the protection of Article XX(d) of GATT.
2. The Panel's Assessment
680. The Panel recalls that in paragraph 584, it concluded that the LPMO's sale of imported beef
through the Korean wholesale market is a "remaining restriction" which benefits from a transition
period until 1 January 2001, by which date it shall be eliminated or otherwise brought into conformity
with the WTO Agreement.  This measure will therefore not be further discussed.
681. The Panel also recalls its discussion on Article III:4 of GATT in paragraphs 627 to 638 where
it concludes that the object of Article III:4 is to guarantee effective market access to importedproducts and to ensure that the latter are offered the same market opportunities as domestic products.
682. It is not disputed that imported and Korean beef are like products.  Nor is it disputed that the
above-mentioned measures are regulations or requirements affecting the sale, offering for sale or
distribution of imported beef.  Article III:4 of GATT is thus applicable to the present situation.  The
Panel will now proceed to examine Australia's claim that less favourable treatment is imposed onimported beef by the LPMO distribution rules.
(a) Restrictions on supply of beef from the wholesale market to specialized imported-beef stores
– the dual retail system
683. Australia claims that the requirement that beef imported through the LPMO be sold only in
specialized foreign beef shops is in violation of Article III:4.
684. The Panel has already reached the conclusion that the Korean dual retail system, whereby
imported beef (except pre-packed or processed) can only be sold in "foreign beef shops", is contrary
to Article III:4 and cannot benefit from the protection of Article XX.
685. The Panel finds, therefore, that the restrictions imposed on the supply of beef from the
wholesale market to specialized imported-beef stores , i.e. an application of the dual retail system,
impose on beef imported through the LPMO treatment less favourable than that accorded to domestic
beef which is not subject to any such restriction, and thus are contrary to Article III:4 of GATT.  Forthe reasons provided in paragraphs 654 to 676 above, the Panel reaches the same conclusion with
regard to the non-application of Article XX(d) to the present measures.
(b) Sales of imported beef through the wholesale market can allegedly only be on a cash basis
686. Australia claims that the requirement, contained in Article 11 of the Regulation Concerning
Sales of Imported Beef, that imported beef be supplied on a cash basis only is in violation ofArticle III:4.
                                                     
374 See paragraph 214 of this Panel report.WT/DS161/R
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687. Korea's defence that this requirement is also applied to the NLCF sales of domestic beef to
domestic beef stores does not appear to have been contradicted by Australia. Korea submits that both
imported and domestic beef stores sell their products mostly on a cash basis except where a credit
relationship is formed between the traders or when the trader has secured a mortgage bond.375  It is not
clear whether a "credit relationship" can legitimately take place in favour of specialized imported-beef
shops.
688. The Panel recalls that Australia bears the burden of proving its claim that beef imported by
the LPMO is subject to less favourable treatment (such as the requirement that payment take place
only on a cash basis) than domestic beef.  Considering the evidence before it, the Panel is of the view
that Australia has failed to do so and therefore cannot accept this claim.
(c) Record-keeping requirements
689. Australia claims that the obligation imposed on those who purchase foreign beef imported by
the LPMO to record all purchases and sales and retain such records for at least two years creates
compliance costs on distributors of imported beef in terms of time and expense.  These costs have an
inevitable impact on the price of imported product.  For Australia, the absence of similar requirements
on domestic beef, impose less favourable treatment on foreign beef imported through the LPMO,contrary to Article III:4 of GATT.
690. Korea submits that under the revised Guidelines, the specialized shops are no longer required
to keep records of sales.  The Panel is aware that its terms of reference oblige it to examine the factual
and legal situation on 26 May and on 26 July 1999, and that such revised Guidelines were adopted
after the Panel was established.
691. The Panel recalls Korea's concern with respect to fraudulent practices, that imported beef
could be sold as domestic beef.  To the extent that such record-keeping requirements were imposed
equally on the LPMO, to those who purchase from th e LPMO and to distributors of both imported and
domestic beef, such record-keeping requirements could be seen as a reasonable and feasible
alternative to ensure the prevention of fraudulent practices in Korea.
692. The Panel's appreciation of the evidence relevant to the time when it was given its mandate is
that those in Korea who purchased foreign beef impor ted by the LPMO were subject to more stringent
record-keeping requirements than those who purchased domestic beef.  There is no doubt that such
additional requirements are in violation of Article III:4.
E. C
LAIMS AGAINST THE SBS SYSTEM
1. General description of the claims of the Parties
693. The Complaining parties argue that the very existence of the SBS system, the restrictions on
who can import, the SBS membership requirement, the prohibition on cross-trading between super-
groups, the prohibition on cross-trading between end-users and super-groups and the prohibition on
cross-trading between end-users are restrictive and inconsistent with Articles III:4, and XI and its
Ad Note.
694. Australia adds that Korea's overall "supervision of imports", i.e. the labelling, reporting and
record-keeping requirements, is in violation of Article III:4, as similar requirements do not exist for
domestic beef.
                                                     
375 Ibid.WT/DS161/R
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695. Korea offers specific defences addressed below.
2. The Panel's assessment in the light of Note 6(e)
696. The Panel recalls its conclusion in paragraphs 569 to 580 that the SBS system, including its
exclusive membership mechanism, the prohibit ion on cross-trading between super-groups, and
between super-groups and end-users as well as some more onerous record book keeping requirements
were "inherent" features of the SBS system376 as set up by the parties in the ROUs and, thus,
constituted some of the remaining restrictions which benefit from a transition period until
1 January 2001, by which date they shall be eliminated  or otherwise brought in to conformity with the
WTO.
697. However, prohibition to cross-trade between end-users cannot be seen as "inherent" to the
SBS system as set up in the ROUs, as there is no reference to the existence of any restriction ontrading between end-users.  The same is to be said of any additional (or abusive) labelling requirement
imposed only on imported products as there is no reference to specific labelling requirements in the
ROUs. Some of the features of the SBS system relate to the distribution of imported beef.  However,
the origin of beef should be of no legal relevance to  its distribution within Korea.  In the Panel's view,
such additional labelling requirements are not inherent to the SBS system.  The prohibition on cross-trading between end-users and additional labelling requirements of the SBS system are not "remaining
restrictions".  The Panel proceeds to the examination of these specific measures.
3. Examination of two specific measures of the SBS system
(a) Prohibition on cross-trading between end-users
(i) Arguments of the Parties
698. The Complaining parties claim that the prohibition on cross-trading between end-users
impose a treatment less favourable on imported beef than on domestic beef.
699. Korea's response is that the Revised Management Guideline for Imported Beef prohibit only
the resale of imported beef by specialised stores to their counterparts selling domestic beef, but cross-
trading between specialized stores is now allowed.
(ii) The Panel's assessment
700. First, the Panel recalls that, based on its terms of reference, it must examine the situation on
and before 26 May and 26 July 1998.
701. Article 11 of the Guidelines prohibits, as previously, the use of imported beef for any purpose
other than a use permitted under the Guidelines for the particular end-user or customer.
 377  It specifies
the permitted uses of beef for the end-users of each of the super-groups and provides that no use or
                                                     
376 See in particular paragraphs 579-580 of this Panel report.
377 The prohibited activities, formerly identified in Articles 6 and 11 of the December 1997 Guidelines,
and previously in the SBS Operational Guidelines, are now contained in Article 26 of the October 1999Guidelines.  Although Korea recently reissued both the Regulations Concerning Imported Beef Stores and the
Operational Guidelines for Imported Beef Under the SBS Sy stem, and consolidated those directives into a single
document, the substance of the requirements is left unchanged.WT/DS161/R
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sale other than that provided for in Article 11 shall be authorized.378  Sanctions for failure to comply
with the specified use and sale limitations are severe.
702. The Panel recalls its discussion (see paragraphs 629 to 640 of this Panel Report and the panel
report on US – Section 337 , paragraph 5.13) on Article III:4 of GATT where it concludes that the
purpose of Article III:4 is to oblige all domestic laws and regulations to provide equality of
competitive conditions to imported products in relation to domestic products.379
703. The SBS Operational Guidelines and the December 1997 Guidelines are laws, regulations and
requirements affecting the internal sale, offering for sale, purchase, distribution or use of domestic or
imported beef.  It is not disputed that imported and Korean beef are like products.
704. The Panel recalls that similar restrictions on the internal distribution of domestic beef do not
exist.  The Panel finds, therefore, that foreign b eef imported through the SBS system is accorded less
competitive opportunities to reach potential consumers in the Korean market than those accorded to
domestic beef, for which there is no prohibition on cross-trading between end-users.
705. Thus, the prohibition against cross-trading between end-users imposed on foreign beef
imported through the SBS system is contrary to Article III:4 of GATT.  Having reached this
conclusion the Panel does not consider it necessary to examine the Complaining parties' claims thatthe same measure also violates Article XI and its Ad Note.
(b) Additional labelling requirements
(i) Arguments of the Parties
706. Australia argues that the Korean labelling requirements imposed on beef imported through the
SBS system are in violation of Article III:4, as similar requirements do not exist for domestic beef.Australia further claims that this requirement imposes an unnecessary, impractical and expensive
measure imposed only on the imported product, thereby artificially reducing the competitive ability of
the imported product.  For Australia, the current labelling of Australian products clearly identifies the
origin and product.  In Australia's view, many elements of what is required by Korea to be included
on the label are of no relevance, impracticable and more restrictive than necessary.  For instance, forthe end consumer, the contract number and super-group importer adds no information of any
relevance as these matters are concerned with the importation of foreign beef.  This requirement (to
indicate the number of the contract and the super-group) is impractical because the contract number
and super-group may be unknown at the time the product is packed by the producer.  The measure,
therefore, requires re-labelling either prior to shipme nt or in Korea.  For Australia, whether re-labelled
in Korea or Australia, there will be additional costs for the re-labelling, which will serve to make the
imported product less competitive.
707. Korea submits that all imported livestock products including beef are required to be marked
with, among other things, the name of the product, importer, the address of the importer, production
date, and shelf life.  For Korea, these requirements are necessary to facilitate the importation of these
products and are used for customs clearance purposes as well as distribution.  Korea adds that the
domestic beef traders must also mark the name of the products, producer, shelf life, and theproduction date.  For Korea, these requirements aim to protect public health and to establish sound
distribution processes.
                                                     
378 The restrictions on the specific use of imported beef by each end-user and customer are now set
forth in Article 21 of the new Guidelines.
379 The panel report on US - Section 337 , paragraph 5.13.WT/DS161/R
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(ii) The Panel's assessment
708. The Panel notes that no such additional labellin g requirement is inherent to the SBS system.
Some of the features of the SBS system relate to the distribution of imported beef.  However, under
basic WTO national treatment principle, the origin of beef cannot be a factor affecting the distributionof beef within Korea.   The Panel notes also that Korea has not raised any specific defence based on
the application of Article XX(b) for the protection of public health.
709. Under Article III:4 of GATT, imported products must not be subject to more stringent
requirements affecting their distribution within the Korean market than domestic products.  The Panel
has already referred to the 1956 Working Party report on "Certificates of Origin, Marks of Origin,
Consular Formalities" where it was concluded that the "requirements going beyond the obligation to
indicate origin  would not be consistent with the provisions of Article III:4, if they are not also
imposed on domestic products".
380
710. The Panel, therefore, finds that any additional labelling requirements imposed on foreign beef
imported through the SBS system that are not also imposed on domestic beef, such as the
requirements that the end consumer, the contract number and super-group importer be marked on the
imported beef,  are contrary to Article III:4 of GATT.
F. CLAIMS AGAINST THE LPMO' S MINIMUM WHOLESALE PRICE , THE REFUSAL OR DELAYS IN
CALLING FOR TENDERS AND THE DISCHARGE PRACTICES IN 1997-1998
1. General Arguments of the Parties
711. The United States claims that various "operating procedures" of the LPMO, including its
alleged establishment of a minimum wholesale price or minimum auction price, the alleged refusal or
delays in calling for tenders and the alleged delays  selling into the Korean market such imported beef
as well as the withholding of quota shares to SBS super-groups, amount to restrictions additional to
that of the WTO compatible beef import quota.
712. Australia's focus of concern is the manner in which the LPMO satisfies its mandate of price
stabilization.  In this regard, Australia submits  that the LPMO's alleged practice of imposing a
minimum wholesale price or minimum auction pri ce, the establishment and execution of monthly
discharge plans, and its control over daily imported beef discharge at the wholesale market are
inconsistent with the WTO Agreement.
713. Both Complaining parties point to the fact that Korea's import quota (both the LPMO and
SBS shares) were not filled which for them constitutes prima facie  evidence that Korea's practices in
its administration of the beef quota constituted an import restriction.
714. For the Complaining parties, the fact that such practices were those of a state-trading
enterprise cannot be used to justify their inconsis tency with Article XI of GATT, in view of the
Ad Note to Article XI which provides that the requi rements of Article XI also apply to measures taken
by a state-trading enterprise. Both Complaining parties claim that the same measures, as they restrict
imports of agricultural products, are also inconsistent with the provision of Article 4.2 of the
Agreement on Agriculture  and its footnote, which more specifically prohibits restrictions on imports
of agricultural products maintained through a state-trading enterprise. Australia claims that the same
measures violate Articles XVII and III:4 of GATT, while the United States argues that the same
practices also violate Article 3 of the Licensing Agreement  since the administration of the import
                                                     
380 The 1956 Working Party report on "Certificates of Origin, Marks of Origin, Consular Formalities" ,
paragraph 13.WT/DS161/R
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licensing procedures are more "administratively burdensome than absolutely necessary to administer
the relevant measure".  The United States did not further develop its claim that such LPMO's practices
violate Article XVII of GATT.
715. Korea's defence to these claims is that, since it has a WTO compatible beef import quota in
place, the only way for Australia and the United States to establish a violation is for them to prove
that the quota was not fully utilized and that the failure to fill the quota is caused by, or the result of, a
separately identifiable prohibition or restriction.  Korea argues that even if such a quota is not fully
utilized, for the Complaining parties to successfully claim a violation of Article XI, they must
establish a clear causal relationship between separately identifiable restrictions and the non-fulfilment
of the quota (since the non-fulfilment can be due to a multitude of market factors).
716. In summary, Korea submits that in order to establish a violation of Article XI:1 in this case,
the United States and Australia must establish: (1) the existence of a separately identifiable
prohibition or restriction (beyond the quota and its implementation) on the importation of product,
other than duties, taxes or charges; (2) that such prohibition has been "made effective." In the present
case, this would involve establishing that (i) the quota has not been fulfilled, (ii) the restriction has
actually had the intended effect of restricting imports to a level below the quota level and that (iii) aclear causal link establishing that the non-fulfilment of the quota is specifically due to the measure at
issue and is not attributable to other factors.
717. Korea argues that it fully used its beef import quota so the Australian and US claims should
be rejected.  Furthermore, Korea argues that the United States and Australia do not properly attempt
to explain how any of the alleged restrictions constitute restrictions in addition to the restrictionsimposed for the purposes of implementing the legally valid quota.  Thus, in Korea's view, the fact that
the Complaining parties did not submit any evidence or arguments on the causal relationship between
any alleged restrictions and the reduced import leve ls is fatal to the Complaining parties since the
Korean financial crisis provides the commercial and economic reasons for the inability of Korea to fill
its import quota.
2. Minimum wholesale price
(a) Arguments of the Parties
718. The Complaining parties claim that, with a view to stabilizing prices, the LPMO auctions beef
which it imports while a minimum wholesale price (or minimum auction price or target price) is fixed
with reference to the domestic price.  The Pane l considers that the basis on which such a minimum
wholesale price is established is not clear.  In its first submission, Korea argues that the minimum
wholesale price for imported beef is fixed by reference to the price of domestic beef.
381  In its second
submission Korea argues that the minimum wholesale price is set to "avoid the sale of imported beef
below a certain price level".382  In response to a question by the Panel, Korea responded that "target
prices are set based mainly on the import price (duty paid CIF + selling cost) of beef … thereby aimed
at avoiding losses".383
(b) Panel's assessment in light of Note 6(e)
719. The Panel has already reached the conclusion that some kind of minimum wholesale price or
minimum auction price existed (and was indeed condemned by the 1989 Panel) at the time of the
1989 panel reports and must have existed at the time of the conclusion of Korea's Schedule, since the
                                                     
381 See paragraph 207 of this Panel report.
382 See for instance, paragraphs 130 and 131 of this Panel report.
383 See paragraph 131 of this Panel report.WT/DS161/R
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July 1993 ROUs provide for the need to improve LPMO 's pricing practices.  In the Panel's view, and
to the extent that some minimum/target auction price can be viewed as a "remaining restriction", the
Panel finds that such a restrictive pricing practice benefits from a transition period until
1 January 2001, by which date it should be phased  out or otherwise made WTO compatible.  The
Panel will not discuss this measure any further.
720. The Panel notes, however, that the Complaining parties have made other and distinct claims
against the administration of the beef quota by  the LPMO, namely, that the alleged refusal to
discharge imported beef into the Korean market resulted in the stocking of imported beef, and that the
alleged delays and refusal to call for tenders during certain periods contributed to the non-filling of
Korea's import quota.  The Panel shall, therefore, address these claims separately, below.
3. The LPMO's daily and monthly discharge practices; the withholding of imported stocks;
and the refusal or delays in calling for import tenders
(a) Arguments of the parties and factual determination made by the Panel
(i) Were the beef import quotas filled in 1997 and 1998?
721. In reply to the claims that the LPMO's auctioning and discharge functions are essentially
restrictive and led to the non-filling of the import quota for 1997 and 1998, Korea's first defence isthat its import quotas have been fully used.  In Korea's view, therefore, it cannot be in violation of its
WTO obligation and, in particular, its licensing system cannot have any trade-distortive effects as
prohibited by Article 1.2 and 3.2 of the Licensing Agreement .  In support of its arguments, Korea
refers the Panel to the conclusions of the panel and the Appellate Body in EC  – Poultry , where it was
said that the full utilisation of import licenses "strong ly suggests that any trade-distortive effects of the
operation of the licensing rules have been overcome by the exporters."
384
722. The parties have submitted data with reference to imports of beef by the SBS system and the
LPMO.  Korea provided the following data:
1997 LPMO SBS
Quota amount 83,500 tonnes 83,500 tonnes
Amount Purchased 83,500 tonnes 83,486 tonnes
Amount Customs Cleared 75,266 tonnes 75,666 tonnes
Amount of the quota not cleared 8,234 tonnes 7,509 tonnes
1998 LPMO SBS
Quota amount 74,800 tonnes 112,200 tonnes
Amount Purchased 74,800 tonnes 69,933 tonnes
Amount Customs Cleared 26,961 tonnes 94,395 tonnes
Amount of the quota not cleared 47,839 tonnes 17,805 tonnes
723. The Complaining parties submitted more or less similar data except for the non-use of the
SBS's share of Korea's import quota in 1998:
                                                     
384 Panel report on EC – Poultry , paragraph 249;  and Appellate Body report, paragraphs 119-122.WT/DS161/R
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1997 LPMO SBS
Quota amount 83,500 tonnes 83,500 tonnes
Amount Purchased 83,500 tonnes 83,175 tonnes
Amount Customs Cleared 75,266 tonnes 76,723 tonnes
Amount of the quota not cleared 8,234 tonnes 6,777 tonnes
1998 LPMO SBS
Quota amount 74,800 tonnes 112,200 tonnes
Amount Purchased 74,800 tonnes 69,933 tonnes
Amount Customs Cleared 26,961 tonnes 52,128 tonnes
Amount of the quota not cleared 47,839 tonnes 60,072 tonnes
724. In order to assess whether Korea's import quota has been filled, the Panel must determine
whether the annual level of imported beef is below the level at which Korea is entitled to limit
imports.  The date when contracts are signed between commercial actors is of no relevance whenassessing whether Korea's annual imports have been restricted.  What is relevant is the date of
importation of the beef products and the level of those imports.  The relevant date is the customs-
clearance date, i.e. the date when such beef products are effectively imported into Korea.
725. The Panel notes in particular the different figures submitted by the parties with regard to the
amount of customs cleared beef under the SBS in 1998.  The Panel notes as well that Korea submitsthat in 1997 the amount of beef customs cleared under the SBS was 75,666 tonnes and the amount
purchased was 83,486 tonnes while in 1998 the amount of beef customs cleared was 94,395 tonnes for
69,933 tonnes purchased.  The Panel notes furthermore that, according to these figures, under the SBS
system, super-groups were able to customs clear so much more than they purchased in spite of the fact
that super-groups, according to Korea, do not carry over stocks.
726. Australia submitted non-refuted evidence that in 1998, 112,200 tonnes was allocated among
the SBS super-groups (70 per cent of Korea's quota).  Of this amount, only 69,933 tonnes or 62.3 per
cent was actually taken up.  Among the various super-groups, KMPA, LCTM and KMIA used up
99.8 per cent, 99.3 per cent and 97.0 per cent of their allocations, respectively.  However, KTSC,
KFMP and KRSC used up only 33.0 per cent, 26.0 per cent and 14.8 per cent of their allocation.  This
suggests that super-groups with excess demand were prevented from purchasing additional imports
whilst other super-groups had unused quotas.  Although this appears very restrictive, the Panel hasreached the conclusion that such restrictions, i.e. the allocation and re-allocation process of the SBS
system, constitute part of "the remaining restrictions" within the meaning of Note 6(e) to Korea's
Schedule which, therefore, benefit from a transition period until 1 January 2001, by which date they
should be phased out or otherwise brought into conformity with the WTO Agreement.  Therefore,
although the SBS system of re-allocation of quot as (in which LPMO and MAF are involved) may
explain the non-filling of the SBS 70 per cent share of Korea's beef import quota, such SBS system
cannot be successfully challenged at the moment.  The Panel will, therefore, limit its discussion to the
LPMO practices – delays in selling stocks of imported beef and in calling for tenders – with regard to
the LPMO's 30 per cent share of Korea's beef import quota.
727. In respect of the LPMO's share of Korea's beef import quota, the Panel concludes that it was
not filled in 1997 and 1998.  As such, this is not evidence of any violation of any WTO rules.  In this
respect, the Panel notes that Korea is not bound by any minimum purchase or minimum import
obligation.WT/DS161/R
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(ii) The LPMO's role in the non-filling of the import quota
728. Korea admits that the LPMO suspended its tender s for beef of foreign origin between the end
of October 1997 and May 1998.385  In other words, in the Panel's view, while Korea was entitled to
limit imports of beef to the level of its import quota (30 per cent of which is exclusively allocated tothe LPMO), at the end of October 1997 the LPMO unilaterally decided to further reduce the level of
its import quota by part of this 30 per cent.
729. Australia submits evidence of demands for imported beef that remained unsatisfied
notwithstanding the fact that there was an important  amount of beef in stock. The Complaining parties
submit extracts from the Daily Meat News from 1997 to 1999 which show a consistent pattern of
supplying a range of imported beef cuts below amounts demanded and below amounts in stock.  For
example, data from the Daily Meat News on 13 February 1999 shows that although 275 boxes ofExcel (EC) brand chuck roll were demanded, only 175 boxes were awarded, despite availability of
500 boxes.  Similarly, despite demand for 655 boxes of IBP chuck roll and the availability of
800 boxes, only 555 boxes were sold.  Korea responds that these requests were not filled because the
price offered would have been below the minimum wholesale price.
730. There is also evidence that, in October 1997, the LPMO had an estimated 28,000 tonnes of
imported beef in stock.  By the end of 1998, th e LPMO had accrued stocks of 67,934 tonnes of
imported beef, more than the LPMO's entire quot a allocation for 1999.  As at July 1999, these stocks
had fallen to 61,524 tonnes.
386  The LPMO had, thus, enough beef in stock to respond to the market
demand.
731. To the extent that (i) Korea admits that the LPMO did not call for tenders between the end of
October 1997 and the end of May 1998; (ii) in 1998 the LPMO had stocks of imported beef
amounting to almost one full year of quota which necessarily led to very high stocking costs for the
LPMO; (iii) there is evidence that in 1997 an d 1998 LPMO/NLCF (hereafter collectively designated
as the LPMO) refused to sell imported beef although it had sufficient stock to respond to the demand
and that (iv) imported beef is generally cheaper than domestic beef, the Panel considers that theComplaining parties have submitted a prima facie  case that the LPMO's delays or refusal to call for
tenders in 1997 and 1998 and its discharge practices during the same period were, at least in part,
responsible for the non-filling of its portion of Korea's beef quota.
(iii) The issue of the economic justifications for Korea to do so
732. The Panel recalls that in light of the facts mentioned in paragraph 731 above, Korea has the
burden of rebutting the prima facie  case established by the Complaining parties.  In this regard Korea
submits that in the context of the 1997-1998 financial crisis, it was commercially justified for theLPMO to refuse to discharge (i.e. to sell the beef it  had in stock) and to refuse or delay the call for
tenders between the end of October 1997 and the end of 1998 because it would have made losses on
those sales.  Korea adds that the LPMO was already making important losses.
387  The Panel considers
that two distinct periods must be examined: firs t the period between the end of October 1997 and the
end of May 1998 and second, the period between June 1998 and the end of December 1998.
                                                     
385 See paragraph 138 of this Panel report.
386 "Cattle Prices and Beef Supply and Demand Trends", issued with MAF Press Release of
22 July 1999.  (Attached as Annex 12 of this Panel report.)
387 The Complaining parties submit that during that period the LPMO was not making real losses.  For
them, the LPMO's losses (as set forth in Annex 4 to this Panel report) appear to be overstated since they werecalculated by  comparing the LPMO's selling price to its costs which include, however, selling expenses.WT/DS161/R
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From the end of October 1997 to the end of May 1998
733. Korea admits that the LPMO refused to call for tenders between the end of October 1997 and
the end of May 1998.388  It argues that the LPMO's failure to call for tenders for beef imports between
November 1997 and May 1998 was the result of stagnant beef sales due to decreased domesticdemand for imported beef, resulting in increased imported beef stocks.
389  It noted that, after
November 1997, no subsequent purchases were made by the LPMO because it had already purchased
the total quota by October 1997.  It submits that, after the depreciation of the Korean won towards the
end of 1997, import prices in won surged while domestic beef prices fell, leading to a substantial
decline in the demand for imported beef.390
734. The Complaining parties do not dispute the effect of the financial crisis on the demand for
beef in Korea.  However, they argue that the main reason for the drop in imported beef consumptionwas the refusal of the LPMO to supply as part of a deliberate policy to stabilize and support the price
of domestic beef.
391  The higher cost of feed had an adverse effect on the profitability of Korean beef
farming in 1998, encouraging a sell-off of cattle with a consequent downward pressure on the
domestic beef price.392  They argue that the LPMO's actions in maintaining a minimum wholesale
price for imported beef were intended to offset this.
735. Korea's response is that the LPMO would have made losses on the import of beef and that it
was justified in maintaining the minimum wholesale pr ice at the level it did in order to prevent losses
on sales of imported beef.  In support of its allegation, Korea presents price data in Annexes 5 and 6
(KOREA's Exhibits 41 and 45)393.  These exhibits show average import prices above the LPMO
wholesale prices throughout 1998 (especially in the summer, well after the peak of the currencycrisis).  It argues that purchasers were not prepared to meet the target price level (set by reference to
c.i.f. + tariff + selling costs) and thus that it would have made losses if it had sold below this price.
736. The Panel notes some problems with the price data presented in Annex 4.  Korea does not
indicate how the import prices for the period during which tenders for imports were suspended as
shown in its Annex 4, are derived.  The Panel also  notes that, in calculating the LPMO losses in
Annex 4, Korea takes into account the LPMO's selling costs.  These selling costs averaged 11.5 per
cent in 1998 but were as high as 35 per cent on some cuts in some months.  Selling costs appear to
vary depending on the type of beef (grain-fed or grass-fed) and the type of cuts; selling costs also
change every month.  These high selling costs are in striking contrast with the fees charged by the
super-groups to their end-users or customers.
394  The Panel is not convinced that the LPMO's selling
costs could not have been reduced by selling the beef it had in stock, as some of the very high costs
probably were the result of its large stocks of imported beef.  The Panel, thus, has difficulty inaccepting that these selling costs always represent a legitimate cost item which should be deducted in
arriving at the LPMO profit or loss from selling imported beef.
737. The Panel notes also that super-groups continued to import beef in 1998 (as the LPMO also
did in the second half of 1998): this would not have been the case if, as Korea seems to argue, there
was not some demand for beef at prices higher than import prices.  While it is true that not all super-
                                                     
388 See paragraph 138 of this Panel report.
389 See paragraph 138 of this Panel report.
390 See paragraph 138 of this Panel report.
391 See paragraph 127 of this Panel report.
392 See paragraph 193 of this Panel report.
393 See Annexe 4 to this Panel report.
394 The Panel is aware that the super-groups are not supposed to keep stocks of beef under the ROUs;
the charges and fees that they are allowed to collect are much lower.  The United States alleges that SBS super-groups are only allowed by the MAF to charge 2-3 per cent to their end-users/customers.  See paragraph 140 ofthis Panel report.WT/DS161/R
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groups used their quotas, it is apparent that at the end of 1998, there was an important demand for
imported beef, as evidenced by the three reallocations of sub-shares, and the extensive import
activities of some super-groups (KMIA, LCTM and KMPA: representing processors, and sales agents
to shops and restaurants).
738. Korea also claims that there were health scares during that same period.  The Panel considers,
however, that Korea did not offer any evidence, other than newspapers clippings, that the cited health
scares had any impact on import levels during the relevant period or that they affected the prices of
imports or the prices Korean consumers were willing to pay for imported beef.395
739. However, in the absence of convincing evidence that these import prices and selling costs are
erroneous, the Panel will use the data in Annex 4 to evaluate Korea's claim that the LPMO would
have made important losses on imported beef at the end of 1997 and through 1998 on the grounds thatdemand for imported beef fell and stocks were building up.
740. The sales volume of imported beef at the wholesale level is not independent of the minimum
auction price set by the LPMO.  In this regard, the Panel notes that, for the specific chuck roll cut,
there is evidence that Korea increased the target price considerably between the last quarter of 1997
and January/February 1998 from 3,800 won/kg. to 4,620 won/kg.
396  Korea argues that the target price
is set by reference to the c.i.f. import price plus duty plus selling costs in order to avoid selling
imported beef at a loss.  But, even though it may be the case that a higher import price had to be paid
for the beef imported during those months, from the stock-holding perspective the relevant
comparison to make is between the price at which the LPMO had bought the beef that was in stock
and the price it would be able to get on selling it.  As the LPMO did not tender for beef afterNovember 1997, it must be that the beef in stock had been bought before the financial crisis and the
devaluation of the won.  Therefore, the LPMO woul d not have made losses as long as it sold beef
from its stocks.
397  In the Panel's view, during the period running from the end of October 1997 to the
end of May 1998, Korea would not have made all the losses it claims have occurred.  The Panel adds
that during that same period the level of beef stocks was very high and not commercially reasonable.There was, therefore, no need for Korea to take into account what would have been high
"replacement" costs of all such stocks.  Therefore, the Panel finds that Korea's delays in discharging
its imported beef were not commercially justified.
741. The Panel also finds that the absence of any LPMO tenders for imported beef in the period
between the end of October 1997 and May 1998 was not justified by the evidence presented.  By not
inviting tenders, the LPMO had no way of knowing whether imported beef was available at prices that
would permit the LPMO to import wit hout incurring any financial losses.  In not inviting tenders the
LPMO effectively closed the Korean market to im ported beef to the extent of LPMO’s quota share.
From June to the end of December 1998
742. With regard to Korea's absence and delays in calling for tenders, the Panel notes that the two
most important cuts in volume terms imported in 1998 were chuck roll and grass-fed (bone-in) beef.
                                                     
395  The Panel cannot see any link between an alleged health scare in September 1997 or June 1999 and
the period of the end of November 1998 and the end of May 1999.
396 The figure of 3,800 won/kg. was the average level of the target price for chuck roll for the last three
months of 1997 in Annex 7 to this Panel report in response to the Panel's Question No. 29 on 14 January 2000.In the table in paragraph 2.28 in Korea's First Submission the target price was given as 4,620 won/kg. in late
January 1998 for the same cut of beef.
397  For example, for chuck roll, the ex-LPMO import pr ice (c.i.f. price + duty + selling costs) in the
last quarter of 1997 was 4,311 won/kg. (Annex 7 to this Panel report).  The wholesale price in November andDecember 1997 was very slightly less than this, but was significantly higher in the January through May 1998period when, according to Korea, stocks were increasing (Annex 8 of this Panel report).WT/DS161/R
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Korea's figures for 1998 in Annex 4 suggest that it made losses in importing grass-fed (bone-in) beef
in each month that year, and on importing chuck roll from April of that year.  These losses are
calculated as the difference between the actual wholesale price obtained and the ex-LPMO import
price (c.i.f. price + duty + selling costs).  In this connection, it is relevant to recall that theComplaining parties have argued that the wholesale price obtained by the LPMO was manipulated by
the minimum target price system in order to hold it at a higher level than would otherwise have been
the case.  It therefore follows that, if the LPMO had in fact imported and discharged imported beef in
a "normal" manner, the wholesale price of imported beef would have been even lower than the level
which prevailed, and the losses incurred would have been even greater.
743. In reaching this conclusion, the Panel has assumed that the auction system for imported beef
operates in a transparent way and that all beef which is demanded at the auction price is, in fact,supplied.  Australia submits evidence that fewer boxes of beef were awarded than were demanded (on
a date in February 1999), despite the general availability of beef on that day.  Korea responds
398 that
the reason for the release volumes being less than domestic demand is that bid prices for the bulk of
imported beef were lower than minimum auction prices.  If Korea had released beef at these bid
prices, it would have incurred higher losses than those reported in Annex 4.  Thus, while the Panelbelieves that the LPMO import prices, and hence th e LPMO losses, may be exaggerated by the level
of selling costs included in the import price, the operation of the minimum auction price system acted
to offset this and would have reduced the size of reported losses.  If it were the case that, even at the
price being bid, Korea rationed the award of beef, th en the argument in this paragraph would not be
valid.  However, no evidence was submitted to challenge Korea's explanation on this point.
744. Given the LPMO's ability to influence the level of demand for imported beef through its
manipulation of the minimum target price system at auctions
399, it is for Korea to prove that it did not
abuse this practice by preventing access to imported beef by domestic consumers who, even after the
financial crisis at the end of 1997, might have been prepared to pay the commercial price for that beef.
Korea has submitted that the price being bid at the wholesale auction markets for particular cuts ofbeef was insufficient to cover its import price for most of 1998 and that this justified its delays in
tendering and shipping.  While the Panel has some reservations about the figures used by Korea to
make this point, it accepts that Korea was commercially justified to delay its purchasing of imported
beef during 1998.
(iv) Conclusion
745. In sum, with the rather limited evidence before the Panel, it appears to the Panel that Korea
did not have an economic reason for not calling for tenders and not discharging imported beef duringthe period between the end of October 1997 and the end of May 1998.  Korea's lack and delays in
calling for tenders and its discharge practices of imported beef after May 1998 until December 1998
(the last month for which detailed price data was provided by Korea in Exhibit 45, Annex 4 of this
Panel report) may be justified by normal economic considerations.
746. Having reached this factual conclusion, the Panel shall now examine whether the LPMO's
refusal to call for tenders between the end of October 1997 and the end of May 1998 and its daily and
monthly discharge practices during this period are inconsistent with the WTO Agreement.  Before
proceeding to its legal discussion, the Panel notes that Korea did not invoke Articles XII or XVIII:B
of GATT during the period when it experienced financial difficulties and does not claim, still today,
to have had any balance-of-payments difficulties in 1997 and 1998.
                                                     
398  See paragraph 138 of this Panel report.
399 A practice which in paragraph 584, the Panel has already deemed to be a "remaining restriction"
having to be phased out or otherwise brought into conformity by 1 January 2001.WT/DS161/R
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(b) The WTO provisions and jurisprudence on restrictions imposed by state-trading enterprises
747. The Panel shall now proceed to examine the law applicable to restrictions imposed by state-
trading enterprises.  The Complaining parties claim that the LPMO practices violate Article XI and its
Ad Note, Articles III and XVII of the GATT 1994 and Article 4.2 of the Agreement on Agriculture.
Korea's defence is that its import quota was filled in 1997 and 1998 or that in any event all its quota
had been purchased in 1997 and 1998 and would receive customs clearance before the end of 2000.
In addition, Korea argues that, in any event, the LP MO was justified in its refusal and delays to call
for tenders and discharge because it would have incurred losses in doing so.  The Panel has already
reached the conclusion that Korea has not demonstrated these facts to the satisfaction of the Panel for
the period between the end of October 1997 until the end of May 1998.  For the rest of 1998, Korea
may have been justified to keep some delays in calling for tenders and in discharging its imports as itappears that, if it had not done so, the LPMO would have incurred further losses.
(i) Articles XI, the Ad Note to Articles XI, XII, XIII, XIV and XVIII and Article XVI of GATT
748. Article XI.1 of the GATT provides that:
"No prohibitions or restrictions other than duties, taxes or charges, whether made
effective through quotas, import or export licences or other measures, shall beinstituted or maintained by any contracting party on the importation of any product of
the territory of any other contracting party … "
The Ad Note to Articles XI, XII, XIII, XIV and XVIII provides that:
Throughout Articles XI, XII, XIII, XIV and XVIII, the terms "import restrictions" or
"export restrictions" include restrictions made effective through state-trading
operations.
This is to say that when an import restriction is im posed by a state-trading enterprise, with or without
exclusive rights, such restriction would be covered by Article XI
400.
749. In the dispute on Japan - Agricultural Products  the Panel took note of Japan's contention that
quantitative restrictions made effective through import monopolies could not be covered by
Article XI:1 and found that:
"Article XI:1 covers restrictions on th e importation of any product, 'whether made
effective through quotas, import ... licences or other measures.'  The wording of this
provision is comprehensive, thus comprising restrictions made effective though an
import monopoly.  This is confirmed by the note to Articles XI, XII, XIII, XIV andXVIII, according to wh ich the term 'import restrictions' throughout these Articles
covers restrictions made effective through state trading operations ."  (Emphasis
added.)
More specifically, the panel in this case noted that:
"The basic purpose of this note is to extend to state-trading the rules of the General
Agreement governing private trade and to ensure that the contracting parties cannot
                                                     
400 The Panel notes that the general prohibition against import restrictions contained in Article XI and
its Ad Note find a more specific application in Article 4.2 of the Agreement on Agriculture  together with its
footnote with regard to agricultural products.  The Panel shall discuss further the relationship between this set ofprovisions below.WT/DS161/R
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escape their obligations with respect to private trade by establishing state-trading
operations ."401  (Emphasis added.)
750. The adopted GATT panel report on Canada - Marketing Agencies (1988) , dealt with import
and distribution restrictions imposed by a state-trading enterprise which held monopoly rights on boththe importation and the distribution.  It was found that:
" 4.24 … the note to Articles XI, XII, XI II, XIV and XVIII prov ided that throughout
these Articles "the terms 'import restrictions ' and 'export restrictions' include restrictions
made effective through state-trading operations ".  The Panel considered it significant
that the note referred to "restrictions made effective through state-trading operations"
and not to "import restrictions ".  It considered that this was a recognition of the fact
that in the case of enterprises enjoying a monopoly of both importation and distribution
in the domestic market, the distinction normally made in the General Agreement
between restrictions affecting the importa tion of products and restrictions affecting
imported products lost much of its signific ance since both types of restriction could be
made effective through decision by the monopoly .  The Panel considered that systematic
discriminatory practices of the kind referred to should be considered as restrictions
made effective through "other measures" contrary to the provisions of Article XI:1.  It
also noted that an agreement or arrangemen t would have to be consistent with the
General Agreement."402  (Emphasis added.)
751. Thus, in the special case where a state-trading enterprise possesses an import monopoly and a
distribution monopoly, any restriction it imposes on the distribution of imported products will  lead to
a restriction on importation of the particular product over which it has a monopoly.  In other words,
the effective control over both importation and distribution channels by a state-trading enterprise
means that the imposition of any restrictive measure, including internal measures, will have an
adverse effect on the importation of the products concerned.  The Ad Note  to Article XI therefore
prohibits a state-trading enterprise enjoying monopoly right over both importation and distributionfrom imposing any internal restriction against such imported products.
752. Article XVII of GATT (and the parallel footnote to Article 4.2 of the Agreement on
Agriculture  further discussed below) is also relevant to state-trading enterprises activities and
practices.  Article XVII of GATT provides that:
1.* ( a) Each contracting party undertakes that if it establishes or maintains a
State enterprise, wherever located, or grants to any enterprise, formally or in effect,
exclusive or special privileges ,* such enterprise shall, in its purchases or sales
involving either imports or exports, act in a manner consistent with the general
principles of non-discriminatory treatment prescribed in this Agreement for
governmental measures affecting imports or exports by private traders.
(b) The provisions of subparagraph ( a) of this paragraph shall be understood to
require that such enterprises shall, having due regard to the other provisions of thisAgreement, make any such purchases or sales solely in accordance with commercial
considerations ,* including price, quality, availability, marketability, transportation
and other conditions of purchase or sale, and shall afford the enterprises of the other
contracting parties adequate opportunity, in accordance with customary business
practice , to compete for participation in such purchases or sales.
                                                     
401 Panel report on Japan - Agricultural Products , paragraph 5.2.2.2.
402 Panel report on (1988) Canada - Marketing Agencies , paragraph 4.24.WT/DS161/R
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(c) No contracting party shall prevent any enterprise (whether or not an
enterprise described in subparagraph ( a) of this paragraph) under its jurisdiction from
acting in accordance with the principles of subparagraphs ( a) and ( b) of this
paragraph.
2. …
3. The contracting parties recognize that enterprises of the kind described in
paragraph 1 ( a) of this Article might be operated so as to create serious obstacles to
trade ;  thus negotiations on a reciprocal and mutually advantageous basis designed to
limit or reduce such obstacles are of importance to the expansion of international
trade.*
753. Article XVII.1(a) establishes the general obligation on state trading enterprises to undertake
their activities in accordance with the GATT principles of non-discrimination.  The Panel considers
that this general principle of non-discrimination includes at least the provisions of Articles I and III of
GATT.  This seems to be where the GAT T jurisprudence was pointed to when in  Canada - Marketing
Agencies (1988) , the Panel stated:
"4.26 The Panel then examined the contention of the European Communities that the
practices complained of were contrary to Ar ticle III.  The Panel noted that Canada did
not consider Article III to be relevant to this case, arguing that the Interpretative Note to
Articles XI, XII, XIII, XIV and XVIII made it clear that provisions other than
Article XVII applied to state-trading enterp rises by specific reference only.  The Panel
considered that it was not necessary to d ecide in this particular case whether the
practices complained of were contrary to Article III:4 because it had already found that
they were inconsistent with Article XI.  However, the Panel saw great force in the
argument that Article III:4 was also applicab le to state-trading enterprises at least
when the monopoly of the importation and m onopoly of the distribution in the domestic
markets were combined , as was the case of the provincial liquor boards in Canada.
This interpretation was confirmed a contrario by the wording of Article III:8(a).
(Emphasis added.)
754. In the panel report on Canada - Marketing Agencies (1992) , the Panel also concluded:
"For these reasons the Panel found that Canada's right under the General Agreement
to establish an import and sales monopoly for beer did not entail the right to
discriminate against imported beer inconsistently with Article III:4 through
regulations affecting its international transportation "403 (emphasis added).
755. The GATT jurisprudence has also made clear that the scope of paragraph (b), which refers to
commercial considerations, defines the obligations set out in paragraph (a).
756. In Canada – FIRA , the panel concluded:
"5.16 The Panel takes the view that, through its reference to sub-paragraph (a),
paragraph l(c) of Article XVII of the General Agreement imposes on contractingparties the obligation to act in their relations with state-trading and other enterprises
"in a manner consistent with the general principles of non-discriminatory treatment
prescribed in this Agreement for government al measures affecting imports or exports
by private traders".  This obligation is defined in subparagraph (b), which declares,
                                                     
403 Panel report on Canada - Marketing Agencies (1992) , paragraph 5.15.WT/DS161/R
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inter alia , that these principles are understood to require the enterprises to make their
purchases and sales solely in accordance with commercial considerations.  The fact
that sub-paragraph (b) does not establish a separate general obligation to allow
enterprises to act in accordance with commercial considerations, but merely definesthe obligations set out in the preceding subparagraph , is made clear through the
introductory words "The provisions of subparagraph (a) of the paragraph shall be
understood to require ...".  (Emphasis added.)
757. In other words the terms "general principle of non-discrimination treatment prescribed in this
Agreement" (Art. XVII:1(a)) should be equated with "make any such purchases or sales solely in
accordance with commercial considerations" (Art. XVII:1(b)).  The list of variables that can be used
to assess whether a state-trading action is based on commercial consideration (prices, availabilityetc…) are to be used to facilitate the assessment whether the state-trading enterprise has acted in
respect of the general principles of non-discrimination.  A conclusion that the principle of non-
discrimination was violated would suffice to prove a violation of Article XVII; similarly, a conclusion
that a decision to purchase or buy was not based on "commercial considerations", would also suffice
to show a violation of Article XVII.
758. Therefore, when assessing the claim of the WTO compatibility of the LPMO's discharge
practices, in particular its practice of refusing or delaying to sell imported beef into the Korean
market, the Panel shall also determine whether the LPMO "in … sales involving either imports or
exports, act[ed] in a manner consistent with the general principles of non-discriminatory treatment
prescribed in this Agreement for governmental measures" pursuant to Article XVII .
(ii) Article 4.2 of the Agreement on Agriculture
759. The Complaining parties claim that the practices mentioned above are also in violation of
Article 4.2 of the Agreement on Agriculture , taking into account footnote 1 which extends the
prohibition against import restrictions to non-tariff measures maintained through state-trading
enterprises.
760. The Panel recalls that Article 4.2 of the Agreement on Agriculture  provides that:
"Members shall not maintain, resort to, or revert to any measures of the kind which
have been required to be converted into ordinary customs duties … "
761. Footnote 1 to Article 4.2 clarifies that:
"These measures include quantitative import restrictions … discretionary import
licensing, non-tariff measures maintained through state-trading enterprises  … and
similar border measures other than ordinary customs duties, whether or not themeasures are maintained under country-specific derogations from the provisions of
GATT 1947 …"
762. Therefore, when dealing with measures relating to agricultural products which should have
been converted into tariffs or tariff-quotas, a violation of Article XI of GATT and its  Ad Note  relating
to state-trading operations would necessarily constitute a violation of Article 4.2 of the Agreement on
Agriculture  and its footnote which refers to non-tariff measures maintained through state-trading
enterprises.WT/DS161/R
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(c) The Panel's assessment
763. The LPMO is a notified state-trading agency for beef and imports its share of the annual
quota through a tendering system.404  The import, distribution and sale of beef imported by the LPMO
was still regulated at the time of the establishment of this Panel by Regulations on Imported Beef andthe Imported Beef Dealer Designation and Pr oduct Supply the purpose of which was "the
establishment of operational guidelines with regard to the storage, sales etc of beef imported in
accordance with the government's supply plan implemented in order to stabilize the prices of cattle
and beef in Korea".
405  In its notification to the Committee on State-Trading Enterprises, Korea
identifies the LPMO as the entity appointed by the MAF to administer the import regime for beef.
Moreover, as earlier discussed, MAF has delegate d extensive powers to the LPMO to administer
Korea's licensing regime for imported beef.
764. From 1988 to 1991, the LPMO was responsible for purchasing 100 per cent of the Korean
beef import quota; it was thus a full import monopoly.  Its share of the import quota has been reduced
over time but the LPMO is still responsible for the import of 30 per cent, over which no other
importer has any right. Special rights in relation to the import and discharge of the LPMO beef are
shared between two state trading agencies under a "consignment agreement" between the principal,the LPMO and its agent, the NLCF.  The NLCF has also been granted exclusive or special privileges
under government regulation, to control the daily discharge of beef on behalf of the LPMO.  Both
organizations have the stated objective of stabilizing the price of domestic beef.
406  The activities of
both organizations are also regulated and supervised closely by the MAF.
765. Thus, the LPMO and its agent the NLCF (herein referred to collectively as LPMO) have
exclusive rights of import for its 30 per cent share of Korea's beef import quota, to the extent that no
other entity can benefit from any of its import rights (as the SBS cannot import more than its 70 per
cent share) and therefore exercises full control over that 30 per cent of the Korean beef import market.
To the extent that the LPMO has such exclusive im port right over the said 30 per cent of Korea's beef
quota, and that the LPMO/NLCF also have full contro l over the discharge into the Korean market for
that same 30 per cent of all imported beef into Korea, the Panel considers that, though the LPMO does
not control all details of distribution, its powers over the discharge of imported beef into the Korean
market give it full control over the quantity distributed in the Korean market of the 30 per cent
allocated to it.  Therefore, the Panel is of the vi ew that the LPMO has exclusive right of import and
distribution over its allocated share of Korea's import quota on beef.
766. Based on the panel findings in the Canada -  Marketing Agencies (1988)  case, the Panel
considers that to the extent that LPMO fully controls both the importation and distribution of its30 per cent share of Korean beef quota, the distinction normally made in the GATT between
restrictions affecting the importation  of products (i.e. border measures) and restrictions affecting
imported products (i.e. internal measures) loses much of its significance.
767. Therefore, the Panel concludes that the LPMO's lack and delays in calling for tenders and its
discharge practices between the end of October 1997 and the end of May 1998, i.e. the LPMO'srefusal to discharge into the Korean market imported beef led it to keep important stocks of beef and
in turn to reduce imports, were restrictive.  As demonstrated above, these LPMO practices are closely
connected and have led to import restrictions on foreign beef, contrary to Article XI through the
application of its Ad Note .
                                                     
404 G/STR/N/4/KOR, 10 December 1998.
405 Regulations Concerning Sales of Imported Beef, Article 1.  As of 1 October 1999, they are regulated
by the Government through the Management Guideline for Imported Beef  and Article 3 notes that beef is
imported by the LPMO for stabilizing demand and supply in the market.
406 LPMO , Foreword, page 1; Brief Introduction of NLCF , page 3.WT/DS161/R
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768. Since the Panel has already reached the conclusion that the above measures are inconsistent
with Article XI and the Ad Note to Articles XI, XII, XIII, XIV and XVIII relating to state-trading
enterprises, the same measures are necessarily inconsistent with Article 4.2 of the Agreement on
Agriculture  and its footnote referring to non-tariff measures maintained through state-trading
enterprises.
769. Should the LPMO/NCLF not be viewed as having  full control over the distribution of its
30 per cent share of Korea's import quota, the Panel considers that, when it delayed its sales of
imported beef into the Korean market while having important stocks, the LPMO was not acting "in a
manner consistent with the general principles of non-discriminatory treatment prescribed in this
Agreement for governmental measures affecting imports or exports by private traders"
(Article XVII:1(a)).  The Panel finds therefore that the LPMO's discharge practices after the end ofOctober 1997 and until the end of May 1998, were inconsistent with Article XVII.1(a) of GATT.  The
LPMO's suspension of calls for any tenders during the same period would still constitute an import
restriction, contrary to Article XI through the application of the Ad Note to Articles XI, XII, XIII,
XIV and XVIII of GATT.
G. C
LAIM WITH REGARD TO THE GRASS /GRAIN FED BEEF DISTINCTION
1. Arguments of the parties
770. Australia claims that in allocating the LPMO quota between grass-fed and grain-fed beef and
in excluding grass-fed beef from three tenders in 1999, on 10 June, 14 July and 10 September407, the
LPMO constricted the supply of imported grass-fed beef at a time when sales of grass-fed beef were
growing significantly.  Australia claims, therefore, that such restrictive tender practices areinconsistent with Article II, in that it imposes conditions contrary to and additional to the "terms,
conditions or qualifications" contained in Korea's Schedule.  Australia also claims that such grass-
fed/grain fed tendering practices provided less favourable treatment to imported beef than to domestic
beef where such a distinction is not made.  For Australia, it also constitutes an import restriction on
grass-fed beef contrary to Article XI and its Ad Note and contrary to Article XVII of GATT in that itis discriminatory and not based on commercial considerations.
771. Korea responds that the distinction between grass-fed and grain-fed beef does not by itself
constitute discriminatory treatment or an infringement of MFN principles.  All tenders are open to all
supplying countries and perfectly origin neutral.  For Korea, Australian exporters are free to
participate both in tenders for grass-fed and grain-fed beef and Australia has not adduced any
evidence that Australian products have been discriminated against based on their origin.  Korea
submits that if Australia's producers are operating on a commercial basis, they can be expected toadjust to the customers' demand, rather than expecting the customer to change its demand based on
their supply.  Korea also argues that import data show that the share of Australian imported beef has
grown in 1999, and therefore, no discrimination on the basis of origin has taken place.  Australia
challenges the Korean data and claims that imports of grass-fed beef by the LPMO in 1999 have
fallen by approximately 60 per cent.
2. Factual determination by the Panel
772. The Panel recalls that Korea's Schedule of Concessions includes tariff bindings on all beef
imported within the tariff quota of  43.6 per cent reducing to 41.6 per cent by 2000.  The Panel notes
also that Korea has made no qualification in its Schedule under column 7 "other terms and conditions"
and no reference to grain-fed beef or grass-fed beef.  The Panel also recalls that on 10 June and
                                                     
407 See paragraph 122 of this Panel report.WT/DS161/R
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14 July, i.e. before 26 July (date of the establishment of the present Panel for Australia408) grass-fed
beef was completely excluded from the call for tenders.409
773. The evidence shows that as a general matter, grass-fed beef originating in Australia, and
grain-fed beef from the United States, are like products.  However, in calls for tenders, a distinction ismade between these like products and on at least two occasions, i.e. on 10 June and on 14 July, grass-
fed beef was excluded from the tenders.  In a ddition, it may be emphasised that imports through the
SBS system, a commercially based regime, are not subject to any similar distinction. Such a
distinction is not imposed nor ever used in the commercial practices of the Korean domestic market
where different types of beef are distinguished according to a grading system using criteria such as
marbling, texture, meat colour, fat content and maturing level, pursuant to Article 28 of Korea's
Livestock Act.  The non-refuted evidence also shows that by May and June 1999, the sales of grass-fed beef on the Korean market increased by over three times compared to what had been consumed in
1998.
410
3. The WTO provisions and jurisprudence
774. The Panel considers that the LPMO's calls for tenders that impose a distinction between
grain- and grass-fed beef constitute de facto  limits on importation of grass-fed beef, thus amounting to
import restrictions.  The Panel recalls its discussion on Article XI, the Ad Note to Articles XI, XII,
XIII, XIV and XVIII, where it was concluded that the purpose of the Ad Note to Articles XI, XII,
XIII, XIV and XVIII is to ensure that WTO Members cannot escape their basic obligations, such as
the prohibition against import restrictions, by using a state-trading enterprise.
775. Article II:1 of GATT provides:
"(a) each contracting party shall accord to the commerce of the other
contracting party treatment no less favourable than that provided for in the
appropriate Part of the appropriate Schedule annexed to this Agreement.
(b) The products described in Part 1 of the Schedule relating to any
contracting party, which are the products of territories of other contracting parties,shall, on their importation into the territory to which the Schedule relates, and subject
to the terms, conditions or qualifications set forth in that Schedule, be exempt from
ordinary customs duties in excess of those set forth and provided therein."
776. The panel report on  EEC - Beef found that:
"The words, 'terms, conditions or qualifications' in paragraph 1(b) of Article II could
not be interpreted to mean that countries could (…) by the manner in which a
concession was administered actually limit a given concession to the products of aparticular country.  The Panel further found that the fact that in Annex II there was
only one certifying agency for the meat in questions and that this agency only
certified meat of United States origin in effect prevented access of high quality meat
from other countries."
                                                     
408 See document WT/DS169/6 and the provisions of Article 9.2 of the DSU which provides that one
single panel is established:  "The single panel shall organize its examination and present its findings to the DSB in
such a manner that the rights which the parties to the dispute would have enjoyed had separate panels examined the
complaints are in no way impaired".
409 See paragraph 122 of this Panel report.
410 See paragraph 122 of this Panel report:  1220 MTs in May/June 1998 compared with 3720 MTs in
May/June 1999.WT/DS161/R
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"Consequently, the Panel concluded that the manner in which the EEC concession on
high quality beef was implemented accorded less favourable treatment to Canada
than that provided for in the relevant EEC Schedule, thus being inconsistent with the
provisions of paragraph 1 of Article II of the General Agreement."  (Emphasisadded.)
411
4. The Panel's assessment
777. In the light of the evidence before it, the Panel considers that the LPMO practices to call for
tenders on the basis of the distinction between grass-fed and grain-fed beef, constitute an import
restriction in violation of Article XI of GATT, through the Ad Note to Articles XI, XII, XIII, XIV and
XVIII.
778. The Panel considers that pursuant to Article II, any other "terms, conditions or qualifications"
that add to import concessions must be set forth in Korea's Schedule.  The Panel recalls that Korea has
made no condition concerning grass-fed/grain-fed beef in its Schedule.  In administering its import
beef quota on the basis of grain-fed and grass-fed beef distinctions, Korea is imposing a condition in
the form of individual limits applied to grass and grain-fed beef, within Korea's total import quota.
The Panel recalls its conclusion above, that such grass-fed/grain-fed condition constitutes a limit, animport restriction, inconsistent with Article XI of GATT.
779. Given that Korea made no such qualification, and that imports of grass-fed beef by the LPMO
are thus restricted, the Panel finds that imports of grass-fed beef are accorded less favourable
treatment than that is provided for in Korea's Schedule, contrary to Article II:1(a).
780. Having reached the above conclusions, the Panel does not find it necessary to address
Australia's claims that the same measures also violate Articles III:4 and XVII of GATT.
H. 
CLAIM THAT KOREA 'S IMPORT LICENSING SYSTEM PER SE  VIOLATES VARIOUS PROVISIONS OF THE
WTO AGREEMENT
781. The United States claims that Korea's regulatory regime, and thus its licensing system, by
granting exclusive authority to the LPMO and the SBS system to import beef, effectively establishes anon-automatic import licensing system in violation of Article XI:1, Article 4.2 of  the Agreement on
Agriculture , and Article 3.2 of the Licensing Agreement .  In support of its allegations, the
United States refers to the panel and Appellate Body reports on India – Quantitative Restrictions .
782. With reference to the US claim that the Korean  import licensing system is inconsistent with
Article XI of GATT (and Article 4.2 of the Agreement on Agriculture ), this Panel is of the view, as
pointed out by Canada, that the conclusions reached in the India – Quantitative Restrictions  reports
are of no relevance to the present dispute, because the factual context is different.  Under the Indian
licensing system, a range of products had been added to a "Negative List of Imports" and such
products could only be imported with a licence.  These licences were issued on a discretionary basis.
There was no other quantitative restriction with the licensing system.  In other words, in the absence
of the discretionary licensing system, there would be no restriction on imports.  In these
circumstances, the Indian discretionary licensing sy stem was found to be, by itself, a restriction on
imports.  However, where a quota is in place, the use of a discretionary licensing system need not
necessarily result in any additional restriction.  Where a discretionary licensing system is
implemented in conjunction with other restrictions, such as in the present dispute, the manner in
which the discretionary licensing system is operated may create additional restrictions independent of
those imposed by the principal restriction.  Since this issue was not considered in the India -
                                                     
411 Panel report on EEC – Beef, paragraphs 4.5-4.6.WT/DS161/R
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Quantitative Restrictions report, that case does not provide authority for the proposition that a
discretionary licensing system, used in conjunction with a quantitative restriction, necessarily
provides some additional level of restriction over and above the inherent restriction on access created
through the imposition of a quantitative restriction.
783. In addition, the Korean discretionary licensing system has been put in place for the
administration of various import measures.  The Panel recalls that conclusions on a number of specific
measures have been reached in previous sections of this Panel report, including the fact that some of
the challenged measures benefit from a transition period until 1 January 2001.  The Panel, thus, does
not see the need to reach a separate conclusion on Korea's import licensing system, as various aspects
of Korea's import licensing system may be amended when Korea adopts new measures in accordance
with the conclusions of this Panel report and at the expiry of the transition period, i.e. on1 January 2001.
784. Finally, the Panel notes that many of the US claims regarding alleged violations of the
Licensing Agreement  are concerned with the substantive provisions of Korea's import (and
distribution) regime (by the LPMO or SBS super-gr oups).  It has been said repeatedly that such
substantive matters are of no relevance to the Licensing Agreement  which is concerned with the
administrative rules of import licensing systems.
412
785. For theses reasons, the Panel does not reach any general conclusion on the compatibility of
Korea's import licensing system with the WTO Agreement.
I. CLAIMS AGAINST THE ALLEGED EXCESSIVE DOMESTIC SUPPORT TO KOREA 'S CATTLE INDUSTRY
1. Korea's request for a preliminary ruling on the Panel's terms of reference and lack of
specificity as concerns cl aims relating to domestic support of the US and Australian claims
(a) Arguments of the Parties
786. Korea submits that the terms of reference of this Panel do not allow it to examine all the
claims and arguments raised by the Complaining parties413.
787. Korea argues that since the Complaining parties' request for a panel stated that "Korea has
increased the level of its domestic support for its cattle industry to the point that the total domestic
support provided by Korea exceeds its Aggregate Measurement of Support (AMS) under the
Agreement on Agriculture", the only measures that this Panel can legally examine are the Korean
measures of domestic support for its cattle industry.  Korea, therefore, argues that the data and
calculation methods used to establish its Base Total AMS in Part IV of Korea's Schedule LX, or in
broad terms, Korea's Schedule LX by itself, are not mentioned as disputed measures and no violation
can be claimed with regard to these additional measures.  Korea adds that the US and Australianrequests for the establishment of a panel (which form the basis of the terms of reference of this Panel),
were insufficiently detailed and specific to encompass the Complaining parties' claims based on
Annex 3 of the Agreement on Agriculture  and on the data and methodology used in Part IV of Korea's
Schedule LX.  Korea requests the Panel to limit its examination to Articles 3, 6 and 7 of the
Agreement on Agriculture , i.e. the Articles listed in the Complaining parties' request, and not to allow
the Complaining parties to bring claims or arguments which are based mainly on Annex 3 of the
Agreement on Agriculture  because Annex 3 was not identified as a legal basis upon which the
Complaining parties wished this dispute to be examined.
                                                     
412 Appellate Body report on EC – Bananas III , paragraph 197.
413 See paragraphs 30 to 32 of this Panel report.WT/DS161/R
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788. In support of its request, Korea refers the Panel to the Appellate Body decisions on EC -
Bananas III  and on Korea – Dairy  where it was concluded that panels must examine the request for
their establishment carefully to ensure its compliance with both the letter and the spirit of Article 6.2
of the DSU and that the listing of the Articles claimed to have been violated is a minimumprerequisite if the legal basis of the complaint is to be presented at all.
789. In response, the United States and Australia argue that Korea's request came too late as the
Panel's rules of procedure provide that a request for a preliminary ruling should be included in the first
written submission, which was not the case in the present dispute, and that Korea did not invoke any
just cause in support of its late request.  The Complaining parties also argue that the measures at issue,
and the specific provisions of the Agreement on Agriculture claimed to have been violated, were
included in their requests for establishment of a panel and were developed in their first writtensubmissions.  Korea had the opportunity in its first written submission to raise the issue of adequacy
of the panel request, but did not do so.
790. The Complaining parties add that in Korea – Dairy , the Appellate Body concentrated on the
issue of whether the panel request was specific enough to ensure that Korea's ability to defend itself in
the course of the panel proceedings was not prejudiced.  The Appellate Body also made it clear thatKorea had the burden of proof in claiming prejudice.  For the Complaining parties, there is no basis
for Korea to contend that it did not understand the claims being made or that it was not accorded an
opportunity to respond to these claims, since in its first written submission Korea responded to the
Complaining parties' claims regarding Articles 3, 6 and 7, and through Article 6, to Annex 3 and
Part IV of its Schedule.
791. Both Complaining parties also insist that a text ual analysis of Article 6 makes it clear that, if
Article 6 is to have any meaning, it must be considered together with Annex 3 and Part IV of Korea's
Schedule. Annex 3 and Part IV of Korea's Schedule are intrinsic to the Panel's interpretation of
Korea's obligations under Article 6.  The Panel's terms of reference explicitly requires it to examine
the consistency of Korea's domestic support measures for beef with its scheduled commitments underArticles 3, 6 and 7, in particular Korea's obligation to include in the calculation of its Current Total
AMS product specific support which exceeds the de minimis levels, and its obligation not to provide
support exceeding its AMS commitments for any given year.  For the Complaining parties, it is not
possible to make any determination of a Member's compliance with these obligations without
reference to the formulations contained in Annex 3, because Annex 3 contains the methodology
required to determine the current  AMS for specific products as well as the Current Total AMS.
Furthermore, it is not possible to decide whether Korea has met its obligations under these Articleswithout reference to the reduction commitment levels contained in Korea's Schedule.
(b) WTO provisions and jurisprudence on terms of reference
792. The terms of reference of the present Panel were determined by cross-referring to the
Complaining parties' requests for the establishment of a panel.
414 Both Complaining parties' requests
for the establishment of a panel contend that:
"At the same time, Korea has increased th e level of domestic support for its cattle
industry to the point that [Australia used the term "in amounts which result in"] the
total domestic support provided by Korea exceeds its Aggregate Measurement of
Support (AMS) under the Agreement on Agriculture.
[Only the US request contains the following paragraph: Korea's measures appear to
be inconsistent with the obligations of Korea under the General Agreement on Tariffs
                                                     
414 See WT/DS 161-169/5 and WT/DS161-169/6.WT/DS161/R
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and Trade 1994 (GATT 1994), the Agreement on Agriculture, and the Agreement on
Import Licensing Procedures.  In particular, the United States considers that Korea's
measures are inconsistent with the obligations of Korea under:]
(…)(2) Articles 3, 4, 6, and 7 of the Agreement on Agriculture, and (…)"
793. Article 6.2 of the DSU provides that
"The request for the establishment of a panel shall be made in writing.  It shall indicate
whether consultations were held, identify the specific measures  at issue and provide a
brief summary of the legal basis  of the complaint sufficient to present the problem
clearly. (…)" (emphasis added).
794. The Panel notes that the request for the establishment of a panel and, therefore, the terms of
reference of a panel, must contain at least two fundamental elements: a description of the specific
measure and the identification of the legal basis for the claims , both of which must be sufficient to
present the "problem" clearly.
795. The WTO jurisprudence has provided further clarification on these two aspects of a panel's
terms of reference, introducing a distinction between the claims and the arguments.  In  EC –
Bananas III , the Appellate Body stated:
"141. In our view, there is a significant difference between the claims  identified in
the request for the establishment of a panel, which establish the panel's terms of
reference under Article 7 of the DSU, and the arguments supporting those claims,
which are set out and progressively clarified in the first written submissions, therebuttal submissions and the first and second panel meetings with the parties.
142  … It is incumbent upon a panel to examine the request for the establishment of the
panel very carefully to ensure its complian ce with both the letter and the spirit of
Article 6.2 of the DSU .  It is important that a panel request be sufficiently precise  for
two reasons:  first, it often forms the basis for the terms of reference of the panelpursuant to Article 7 of the DSU;  and, second, it informs the defending party and the
third parties of the legal basis of the complaint ."
 415  (emphasis added.)
796. In Korea - Dairy , the Appellate Body had the opportun ity to elaborate its views on this
matter:
"123. Thus, we did not purport in European Communities – Bananas  to establish
the mere listing of the articles of an agreement alleged to have been breached as a
standard of precision, observance of which would always  constitute sufficient
compliance with the requirements of Article 6.2, in each and every case , without
regard to the particular circumstances of such cases. …
124. Identification of the treaty provisions claimed to have been violated by the
respondent is always necessary  both for purposes of defining the terms of reference
of a panel and for informing the respondent and the third parties of the claims madeby the complainant; such identification is a minimum prerequisite if the legal basis of
                                                     
415 In its report on EC – Hormones , the Appellate Body reiterated its views on the distinction between
claims and arguments.  See paragraphs 155-156.WT/DS161/R
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the complaint is to be presented at all .  But it may not always be enough.  There may
be situations where the simple listing of the articles of the agreement or agreements
involved may, in the light of attendant circumstances , suffice to meet the standard of
 clarity   in the statement of the legal basis of the complaint.  However, there may also
be situations in which the circumstances are such that the mere listing of treaty
articles would not satisfy the standard of Article 6.2.  This may be the case, for
instance, where the articles listed establish not one single, distinct obligation, but
rather multiple obligations.  In such a situation, the listing of articles of an
agreement, in and of itself, may fall short of the standard of Article 6.2 .  (Emphasis
added.)
127. Along the same lines, we consider that whether the mere listing of the
Articles  claimed to have been violated meets the standard of Article 6.2 must be
examined on a case-by-case basis.  In resolving that question, we take into account
whether the ability of the respondent to defend itself was prejudiced, given the actual
course of the panel proceedings , by the fact that the panel request simply listed the
provisions claimed to have been violated.
131. … Korea failed to demonstrate to us that the mere listing of the articles
asserted to have been violated has prejudiced its ability to defend itself in the course
of the Panel proceedings.   Korea did assert that it had sustained prejudice, but offered
no supporting particulars in its appellant's submission nor at the oral hearing .  We,
therefore, deny Korea's appeal relating to the consistency of the EuropeanCommunities' request for the establishment of a panel with Article 6.2 of the DSU."
(Emphasis added.)
797. In US - FISC  the appellate Body insisted that "good faith" was a necessary component of any
challenge on Panel's terms of reference which implies that a party's claim that it has misunderstood a
request for consultation or a request for a panel should be raised as soon as possible:
"166. Article 3.10 of the DSU commits Members of the WTO, if a dispute arises, to
engage in dispute settlement procedures "in good faith in an effort to resolve the
dispute".  This is another specific manife station of the principle of good faith which,
we have pointed out, is at once a general principle of law and a principle of general
international law.
416  This pervasive principle requires both complaining and
responding Members to comply with the requirements of the DSU (and related
requirements in other covered agreements) in good fait h. By good faith compliance,
complaining Members accord to the responding Members the full measure of
protection and opportunity to defend, contemplated by the letter and spirit of the
procedural rules.  The same principle of good faith requires that responding Members
seasonably and promptly bring claimed procedural deficiencies to the attention of the
complaining Member, and to the DSB or the Panel, so that corrections, if needed, canbe made to resolve disputes .  The procedural rules of WTO dispute settlement are
designed to promote, not the development of litigation techniques, but simply the fair,
prompt and effective resolution of trade disputes."
(c) The Panel's Assessment
798. In the particular circumstances of this case, three  principles should govern the determination
of the compatibility of a request for the establishment of a panel with Article 6.2 of the DSU.  First,
                                                     
416 [Original] United States – Shrimp , supra , footnote 99, para. 158.  In that report, we addressed the
issue of good faith in the context of the chapeau of Article XX of the GATT 1994.WT/DS161/R
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the "specific measure" at issue must be clearly identified.  Second, the claims must also be clearly
identified – in this respect claims should be distinguished from arguments, in which the latter can be
developed in written submissions.  The obligation to identify the claims implies that at  a minimum
the Articles claimed to have been violated must be listed (but this may not always be sufficient); if anArticle contains various distinct obligations, the listin g of Articles of an agreement, in and of itself,
may fall short of the standard of Article 6.  Third, in assessing whether a request for a panel is
sufficiently clear and detailed, the Panel ought to take into account whether the ability of the
respondent to defend itself was prejudiced, "given the actual course of the panel proceedings".
417
(i) The Measures at Issue
799. In the present dispute the measure identified by the Complaining parties is Korea's level of
domestic support to its cattle industry, resulting in a Current Total AMS exceeding Koreas' scheduledreduction commitments.  Korea's domestic support notifications to the WTO refer to support to its
"beef" industry. For the purpose of the present dispute, the Panel shall consider that domestic support
in the form of administered support prices is provided in favour of producers of cattle as part of the
Korean beef industry.
418  For the Complaining parties, if the actual domestic support for the beef
industry had been properly computed, Korea's Curr ent Total AMS would have exceeded its scheduled
domestic support reduction commitments in 1997, contrary to Article 3 of the Agreement on
Agriculture .  (The United States has a similar claim for 1998).
800. The United States also claims that the Base Total AMS specified in Section I, Part IV of
Korea's Schedule was initially miscalculated and, therefore, continues to invalidate Korea's annual
domestic support.  The Panel considers that if the United States wanted to challenge the Base TotalAMS itself as specified in Part IV of Korea's Schedule LX, and the related data and methods of
calculation which are "incorporated by reference" in that Section of Part IV of Korea's Schedule, this
should have been adequately identified in the US request for establishment of a panel.  However, no
such claim is set out in the US request for establis hment of a panel. The Panel concludes that the only
measure at issue is Korea's current domestic support for its beef industry in the context of Korea'sscheduled commitment levels on domestic support under the Agreement on Agriculture .
801. This does not mean that the Complaining partie s cannot refer, in their arguments, to Part IV
of Korea's Schedule LX, since their legal claim is that Korea's Current Total AMS, if properly
calculated to include domestic support for beef  (according to Article 6 and Annex 3), would have led
to a Current Total AMS exceeding Korea's annual  commitment levels specified in Part IV of Korea's
Schedule (as it stands), contrary to Article 3 of the Agreement on Agriculture .  In this respect the
Panel recalls that Article 3.2 explicitly refers to Part IV of Members' Schedules and that thoseSchedules explicitly incorporate Members'  AGST (constituent data and methodology).
(ii) The claims under Articles 3, 6 and 7 of the Agreement on Agriculture
802. Regarding Korea's claim that the Complainin g parties have limited their challenge to
violations of Articles 3, 6 and 7 and, therefore, sh ould not be allowed to raise claims or arguments
based on any provisions of Annex 3, the Panel note s that the relevant part of Article 3 of the
Agreement on Agriculture  reads as follows:
                                                     
417 See Appellate Body report in  Korea –Safeguards (quoted above), paragraph 127.
418 According to the evid ence submitted by Korea, cattle purchases under the Korea's price support
programme for beef include Hanwoo steers, dairy cattle and hybrid cattle of Cheju Island.  See paragraph 384 ofthis Panel report.WT/DS161/R
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"Incorporation of Concessions and Commitments
… 2. Subject to  the provisions of Article 6 , a Member shall not provide support in
favour of domestic producers in excess of the commitment levels  specified in Section I
of Part IV of its Schedule."  (Emphasis added.)
803. It is, therefore, clear that Article 3 provides that support in favour of domestic producers (and
here explicit reference is made to " subject to  Article 6") cannot exceed the level of support provided
for in a Member's schedule.  So, when assessin g the WTO compatibility of domestic support, two
parameters are indicated: first the provisions of Article 6 which refer to the object of those same
"commitments" on domestic support; and second, Section I of Part IV of a Member's schedule.
Therefore, the Panel considers that its terms of reference require   it to examine Korea's Schedule LX
to assess whether its domestic support in 1997 and 1998 exceeded the reduction commitmentscontained in its Schedule.
804. The relevant provisions of Article 6 read as follows:
"Domestic Suppor t Commitments
1. The domestic support reduction commitments of each Member contained in
Part IV of its Schedule shall apply to all of its domestic support measures in favour ofagricultural producers with the exception of domestic measures which are not subject to
reduction in terms of the criteria set out in this Article and in Annex 2 to this
Agreement.  The commitments are expressed in terms of Total Aggregate Measurement
of Support and "Annual and Final Bound Commitment Levels".
2. (…)3. A Member shall be considered to be in compliance with its domestic support
reduction commitments in any year in which its domestic support in favour of
agricultural producers expressed in terms of Current Total AMS does not exceed the
corresponding annual or final bound commitment level specified in Part IV of the
Member's Schedule.
4. (a) A Member shall not be required to include in the calculation of its
Current Total AMS and shall not be required to reduce:
(i) product-specific domestic support wh ich would otherwise be required
to be included in a Member's calculation of its Current AMS where such
support does not exceed 5 per cent of that Member's total value of production
of a basic agricultural product during the relevant year;  and
(ii) non-product-specific domestic support which would otherwise be
required to be included in a Member's  calculation of its Current AMS where
such support does not exceed 5 per cent of the value of that Member's total
agricultural production.
(b) For developing country Members, the de minimis  percentage under this
paragraph shall be 10 per cent."
805. Paragraph 3 of Article 6 elaborates on the prescriptions of Article 3 that domestic support, in
any year, in favour of agricultural producers, as expressed in terms of Current Total AMS, cannot
exceed the corresponding annual or final bound commitment level specified in Part IV of a Member'sWT/DS161/R
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schedule.  Paragraph 3 adds that "domestic support in favour of agricultural producers" is to be
expressed "in terms of Current Total AMS".
806. Article 7.2(a) of the Agreement on Agriculture provides that:
"Any domestic support measure in favour of agricultural producers , including any
modification to such measure, and any measure that is subsequently introduced that
cannot be shown to satisfy the criteria in Annex 2 to this Agreement or to be exempt
from reduction by reason of any other provision of this Agreement shall be included
in the Member's calculation of its Current Total AMS ". ( Emphasis added.)
807. Current Total AMS is itself defined in Article 1(h) as representing the sum of (1) AMS for
basic agricultural products, (2) all non-product-specific AMS and (3) all equivalent measurements of
support for agricultural products, " calculated in accordance with the provisions of this Agreement,
including Article 6 , and with the constituent data and methodology used in the tables of supporting
material incorporated by reference in Part IV of the Member's Schedule".419  This reference to "the
provisions of the Agreement" in Article 1(h)(ii) cl early includes the provisions of Annex 3.  This is
confirmed by the Article 1(a)(ii)  definition of the "AMS" as it relates to "support provided during any
year of the implementation period and thereafter", or, in other words, as it relates to the "currentAMS" which is specifically referred to in the context of the provisions of Article 6.4(a)(i) concerning
the product-specific de minimis .  This definition stipulates that "the current AMS", or "support
provided during the implementation period and ther eafter" is calculated in accordance with the
provisions of Annex 3 and taking into account the constituent data and methodology used in the tables
of supporting material incorporated by reference in Part IV of the Member's Schedule . 
420  There are
no conditions or exceptions placed on these definitions (except if the context may dictate otherwise as
provided in the introduction of Article 1).  The only  guidance additional to that of Annex 3 is that the
calculation should also take into account the data and methodology, if any, contained in the
supporting tables.
808. It is the Panel's understanding that the general scheme of the domestic support commitments,
which are unique to the agriculture sector, is one under which all WTO Members have obligations
with respect to non-exempt, generally trade-distor ting, domestic support measures. In the case of
those Members whose domestic support measures in the 1986-88 base period were fully covered by
one or more of the categories of exempt support, and who, therefore, have no Base Total AMS in
Part IV of their Schedules, their obligation under Article 7.2(b) of the Agreement is "not to provide
support to agriculture producers in excess of the relevant de minimis  level set out in paragraph 4 of
Article 6."  Where this was not the case the Members concerned421 have a "Base Total AMS" in
Part IV of their Schedules from which are derived the reduction commitment levels, or "annual
commitment levels", for each year of the implementation period and the final bound levels which are
applicable thereafter.  Although the Base Total AMS reflects the particular complex of non-exempt
(mainly product-specific) support in the base period, the annual AMS commitment levels derived
therefrom  represent a quantum of non-exempt support in monetary terms which may be used, subjectto certain constraints as regards "actionability" under Article 13 of the Agreement, to provide support
in favour of the producers of any agricultural product. In other words, the annual commitment levels
are sector-wide commitments which operate as a ceiling on non-exempt domestic support.  The
monetary value of these annual ceiling commitm ents is reduced in nominal terms over the
implementation period as specified in the Schedules.  In addition, the value of these commitment
                                                     
419 Article 1(h) of the  Agreement on Agriculture .
420 Article 1(a)(ii) of the Agreement on Agriculture .
421 Of the 136 WTO Members 30 have domestic support reduction commitments in Section I of Part IV
of their Schedules.  This includes 15 developing country Members, all of whom (with the exception of Korea)established their Base Total AMS in relation to a level of support which prevailed in the period 1986-1988.WT/DS161/R
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levels in real terms is further reduced by the fact that the Agreement makes no allowance for inflation,
other than in respect of "excessive rates of inflation" in terms of Article 18.4 of the Agreement on
Agriculture .  The overall effect of these commitments is to constrain over time the use of non-exempt,
generally product-specific, domestic support and to encourage a shift towards forms of domesticsupport which are classified, in the case for example of Annex 2 of the Agreement on Agriculture
("the Green Box"), as having "no, or at the most  minimal, trade-distorting effects or effects on
production".  This shift away from non-exempt support is facilitated by the fact that there are no
monetary ceilings on the exempt categories of support under Article 6, namely: the Green Box under
Article 6.1 and Annex 2; the special and differential treatment exemptions under Article 6.2; and
direct payments under "production-limiting programmes" (the so-called "Blue Box") in terms of
Article 6.5 of the Agreement.
809. In terms of Article 6.3, compliance with the scheduled commitment level for any year
consists in the Current Total AMS for that year not being in excess of that level.  If it is, that is a
breach of Article 3.2. The Complaining parties must therefore prove that Korea's total domestic
support is in excess of the scheduled commitment level.
422
810. In the first instance, the issue is how the Current Total AMS should have been calculated.
One has to rely on what Article 1(a) and (h) stipulate in respect of the calculation of  non-exempt
current support (as distinct from the base or base total AMS).  The Current Total AMS is a composite
or aggregate of calculations of non-exempt support in  respect of individual basic products and, if any,
of non-exempt non-product-specific support under Article 6.4(a)(ii). In other words, the calculation of
Current Total AMS is a "bottom-up" process.
811. Article 1(h)(ii) provides for two things: that the "Total AMS" is the "sum" of  all the AMS
sub-components;  and that the Current Total AMS is calculated "in accordance with the provisions of
this Agreement, including Article 6, and with the constituent data and methodology used in the tables
of supporting material incorporated by reference in Part IV of the Member's Schedule."
Article 1(a)(ii), in turn, provides that in any given year the AMS shall be calculated "in accordancewith Annex 3, taking into account the constituent data and methodology used in the tables of
supporting material incorporated by reference in Part IV of the Member's Schedule".  In the
calculations of product specific support the "constituent data and methodology" has an important role
to play in ensuring that the calculation of support to any given product is calculated in subsequent
years consistently with support calculated in the base period.  Consequently, where no support was
included in the base period calculation for any given product, there is no constituent data or
methodology in the tables of supporting material to a Member's Schedule to refer to.  In thesecircumstances, the only means available for calcul ating such domestic support is that provided in
Annex 3.
812. The basic product "beef" was not included in Supporting Table 6 ("Market Price Support") in
Korea's base period, i.e. in the product-specific support calculations contained in Korea's Supporting
Tables Relating to Commitments on Agricultural Products in Part IV of the Schedule("AGST/KOR").  Therefore, in the AGST incorporated by reference in Korea's Schedule, there is no
"constituent data" or "methodology" for the calculation of support for beef.  (The methodology that is
used is for other products, with different external reference prices being used for rice (1993) than for
                                                     
422 Article 7 of the Agreement on Agriculture :  "1. Each Member shall ensure  that any domestic support
measures in favour of agricultural producers which are not subject to reduction commitments because they
qualify under the criteria set out in Annex 2 to this Agre ement are maintained in conformity therewith.  2.(a)
Any domestic support measure in favour of agricultural producers , including any modification to such measure,
and any measure that is subsequently introduced that ca nnot be shown to satisfy the criteria in Annex 2 to this
Agreement or to be exempt from reduction  by reason of any other provision of this Agreement shall be included
in the Member's calculation of its Current Total AMS ."  (Emphasis added.)WT/DS161/R
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other products in Supporting Table 6.)  In the absence of AGST "constituent data and methodology"
for beef, the relevant calculation has, therefore, to be made "in accordance with the provisions of this
Agreement" (Article 1(h)) or "in accordance with Annex 3" (Article 1(a)(ii)).  In the circumstances,
this means that Annex 3 (which is an integral part of the Agreement on Agriculture  and which
provides specific guidance on AMS calculation) must be applicable for the purposes of calculating
current non-exempt support in respect of Korean beef.  The same result is arrived at if one approaches
the matter via Article 1(a)(ii), which of course specifically refers to Annex 3.  In fact, the two
approaches are complementary.
813. In addition, all these concepts, e.g. domestic s upport, AMS, Current Total AMS, and total
domestic support and the provisions of Article s 1(a), 1(h), 3.2, 6.4 and 7.2 are organically and
inextricably linked.  The obligation to respect the annual reduction commitments in Korea's Schedulecannot be read nor understood without an examination of: the level of domestic support provided by
Korea; the resulting aggregate measurement of support for the producers of beef; and the consequence
of this on the resulting Current Total AMS.  Concepts such as "aggregate measurement of support" or
"AMS" and "Current Total AMS" have only a meaning within the context of the Agreement on
Agriculture .  There is indeed a definition of such concepts in Article 1 of the Agreement on
Agriculture .  Aggregate  measurement of support and Current Total AMS, by their very nature, refer
to totals of specific and total domestic support that are arrived at through calculation.
814. The Panel considers that Annex 3 provides for the authoritative method for calculating the
components of the Current Total AMS, in the light of the domestic support commitments contained in
Article 6.  The Panel could not assess whether Kor ea has met its obligations under Article 6 without
examining the calculation prescriptions for AMS contained in Annex 3.  There is, therefore, a direct
link between Articles 3 and 6 and Annex 3.  The titles of Article 3 "Incorporation of Concessions and
Commitments", of Article 6 "Domestic Support Commitments" and of Annex 3 "Domestic Support:
Calculation of Aggregate Measurement of Support" demonstrate the inherent relationship between
these provisions.  The first terms of Annex 3 are "subject to the provisions of Article 6".  Annex 3 isso intrinsic to the calculation of the AMS that any analysis that ignores those provisions would render
substantial portions of the text of the Agreement on Agriculture  meaningless.  As a consequence,
Korea's interpretative approach – that unless there is a specific claim under Annex 3, reference cannot
be made to the provisions of Annex 3 - is contrary to customary rules of  treaty interpretation and
must be rejected as it would render Article 6 "inutile."
423
815. The Panel finds, therefore, that Articles 3, 6 and 7 provide the basis of Korea's obligations
relating to domestic support, and it is against the obligations of Articles 3, 6 and 7 that Korea's actionsmust be judged.  In all cases, Annex 3 contains th e methodologies to calculate the AMS, by providing
a basis for calculating support in respect of products not included in the "Base Total AMS".  The
Panel finds also that its assessment of the compatibility of Korea's domestic support with Articles 3, 6
and 7 requires that the Panel compares the effective support provided by Korea as determined using
the calculation parameters of Annex 3.  Only thereafter would the Panel be able to determine whetherevidence adduced by the Complaining parties demonstrates that Korea's Current Total AMS exceeds
Korea's scheduled commitment levels, contrary to Arti cle 3.  The Panel finds, therefore, that Australia
and the United States are entitled to rely on Annex 3 to support their arguments that Korea's domestic
                                                     
423 The principle of effective interpretation or "l'effet utile" reflects the general rule of interpretation
which requires that a treaty be interpreted to give meanin g and effect to all the terms of the treaty.  For instance
one provision should not be given an interpretation that will result in nullifying the effect of another provision ofthe same treaty.  See for instance the statement of the Appellate Body in  US – Gasoline , page 23:  "An
interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty toredundancy or inutility".WT/DS161/R
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support for its beef producers was not properly calculated and indeed exceeded the 10 per cent
de minimis . 424
(iii) Korea's prejudice
816. Finally, the Panel notes that, although Korea submits generally that it was not able to prepare
adequately its defense because of the lack of specificity of the Complaining parties' requests for the
establishment of a panel, Korea has never claimed, and does not now allege, that it has ever been
uncertain about, or without adequate notice of, the na ture of the Complaining parties' claims regarding
Korea's domestic support obligations.  In fact, in its first submission, Korea submitted detailed
explanations on how it had calculated its aggregate measurement of support for beef..  The Panel
recalls that when challenging the terms of reference of a panel, parties must act in "good faith" which
implies that their claim should be raised as soon as possible.425  In the present dispute Korea alluded to
this point only in its rebuttals and made a formal request one day before the second meeting of the
Panel with the parties.  After reviewing Korea's submissions, its answers to the parties' as well as to
the Panel's questions during the course of the present proceedings, the Panel remains of the opinion
that Korea clearly understood the matter at issue.  The Panel considers that Korea was not misled by
the requests for establishment of panels because the reference to "Korea has also increased the level of
domestic support  for its cattle industry in amounts which results in426 the total domestic support
provided by Korea exceeding its Aggregate Measurement of Support (AMS) under the Agreement on
Agriculture" could only have referred to domestic support, which under the Agreement on
Agriculture, is defined by reference to a Member's domestic support.  For the Panel a claim that the
level of aggregate measurement of support made available was greater than that provided for inKorea’s Schedule necessitates a calculation of AMS using the methodology prescribed in the
Agreement on Agriculture .  In the present case, having omitted any aggregate measurement of support
for beef in its constituent data, Korea's current domestic support for beef can only have been
calculated on the basis of the methodology contained in Annex 3.
(iv) Conclusion
817. The Panel is, therefore, unable to accept Korea's claim that this Panel is prohibited from
examining the Complaining parties' arguments based on the provisions of Articles 3 and 6 and
Annex 3 of the Agreement on Agriculture  to the effect that Korea's Current Total AMS, if properly
calculated, exceeded Korea's reduction commitments contained in its Schedule.
2. Claims that Korea's domestic support for beef exceeded the 10 per cent de minimis  and led
to a Total Current AMS for 1997 and 1998 which exceeded Korea's scheduled annual
commitment levels
(a) Arguments of the Parties
818. Australia and the United States claim that, as a result of support provided to cattle or beef
producers, Korea has exceeded the annual commitment levels specified in Section 1, Part IV of its
Schedule in 1997.  The same claim is made by the United States in respect of the commitment levels
for 1998.  The basis of these claims is that, if properly calculated in accordance with the provisions of
                                                     
424 The Panel notes that in Japan – Alcoholic Beverages , the panel and the Appellate Body reached
conclusions based on the Ad Note  to Article III:2 even though claims had been raised under Article III only.
Ad Notes  and Annexes are integral parts of the Agreement they relate to.
425 See the Appellate Body report on US – FISC , paragraph 166.
426 The US request for establishment of a panel (WT/DS 161/5) used the expression "At the same time,
Korea has increased the level of domestic support for its  cattle industry to the point that the total domestic
support provided by Korea exceeds its Aggreg ate Measurement of Support (AMS) under the Agreement on
Agriculture ."WT/DS161/R
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the Agreement on Agriculture , in particular Article 6.4 and Annex 3, support to producers of beef
would exceed the de minimis  level of 10 per cent provided for developing countries and would
therefore have to be included in Korea's Current Total AMS for 1997, as required by Article 7.2(a) of
the Agreement on Agriculture .  If so included, the result would be that Korea's Current Total AMS
would increase in 1997 from 1,936.95 billion won, as notified, to 2,245.2 billion won, and in 1998,
from 1,562.77 billion won, as notified, to 1,753.9 billion, thus breaching the annual commitment
levels of 1997 and 1998 which are specified in (the first column of commitment levels in) Section 1 of
Part IV of Korea's Schedule.  In addition, the United States claims that the Total Base AMS reflected
in Korea's Schedule Section I, Part IV was initially miscalculated and, therefore, these initial errors
continue to vitiate Korea's annual reduction commitments.  In support of its claims of mis-calculation
of the Total Base AMS (the initial computation), the United States refers, amongst other elements, tothe provisions of the Modalities paper
427 when interpreting provisions of Annex 3.
(b) The Panel's assessment
819. The Panel has already concluded in paragraphs 799 to 801 that the measure challenged in the
Complaining parties' request for a panel is the allegedly excessive domestic support for its beef
industry and the resulting excessive Current Total AMS, and not Korea's Schedule itself, nor themethodology followed by Korea with respect to support provided for other products during the base
period in the original setting of Section 104 Part IV of its Schedule.  The Panel shall, therefore,
determine whether, on the basis of Articles 3, 6, 7 and Annex 3, read in conjunction with
Articles 1(a)(ii) and 1(h)(ii),  Korea provided domestic support to its beef industry in excess of the
de minimis  10 per cent of its total annual production and whether the resulting Current Total AMS
exceeded Korea's scheduled commitment levels.
(i) Korea's scheduled commitment levels of domestic support
820. The Panel notes that in Part IV of its Schedule, Korea sets forth the total current AMS for
each year of the implementation period (1995-2004).  However, unlike any other WTO Member,
Korea has provided two separate numbers with re spect to the Current Total AMS for each year.
These figures are presented in two separate columns, the second of which is set off by parentheses.  In
the second column, the Total AMS annual commitment levels reflect the use of a 1993 base year for
rice when domestic support for rice appears to have peaked; this has inflated the Total AMS annual
commitment levels shown in brackets in the second column for the years 1995 through 2003.
Nowhere in its Schedule does Korea identify which of the sets of support figures constitutes Korea's
binding obligation.
428  Through its 1997 and 1998 notifications, Korea appears to be following the
commitments contained in the column where the figures appear in the parentheses:
                                                     
427 MTN.GNG/MA/W/24, 20 December 1993.
428 However, in a response to a question during a meeting of the Committee on Agriculture as to which
of the two sets of figures in Korea's Schedule were dispositive, Korea answered:  "The figures in brackets
correspond to Korea's real annual commitment level, using the 1993 base period for rice and the 1989-1991 base
period for other products, as indicated in the footnote of Korea's Schedule LX.  The said calculation and annualcommitment level of AMS were already reviewed and agreed upon by the Member countries in March 1994.The other set of figures corresponds to the annual commitment using the base period of 1989-1991 for allproducts."  Summary Report, G/AG/R/9 (17 January 1997) at page 18.WT/DS161/R
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Schedule LX – Republic of Korea
Total Base 1995 : 1,695.74 (2,182.55)
1,718.60 1996 : 1,672.90 (2,105.60)
1997 : 1,650.03 (2,028.65)
1998 : 1,627.17 (1,951.70)1999 : 1,604.32 (1,874.75)2000 : 1,581.46 (1,797.80)2001 : 1,558.60 (1,720.85)
2002 : 1,535.74 (1,643.90)
2003 : 1,512.89 (1,566.95)2004 : 1,490.00 (1,490.00)
821. The Panel first has to determine first which of the two sets of figures listed in Section I of
Part IV of  Schedule LX constitutes Korea's Total AMS commitment levels for 1997 and 1998 for the
purposes of Article 3.2 of the Agreement on Agriculture .  Given that it would be logically impossible,
as well as contrary to the general object and purpose of the provisions of the Agreement on
Agriculture  on domestic support, to have two distinct Total AMS commitment levels for each of these
years, the Panel considers that the set of annual figures which are not qualified by brackets must betreated as constituting Korea's commitment levels for the years in question for the purposes of
Article 3.2 of the Agreement on Agriculture.
822. In support of this conclusion the Panel notes th at, as with Section I of Part IV of other
schedules which contains domestic support reduction commitments, the unbracketed figures in
Korea's Schedule are derived from, and directly linked to, the "Base Total AMS".  In other words,each of the figures in the first column represents a reduction in the annual commitment levels that is
calculated by reference to the specified "Base Total AMS" figure of 1,718.60 billion won.  On the
other hand, the figures in the second column bear no such relationship to the specified "Base Total
AMS" of 1,718.60 billion won.  In fact, the bracketed figures in the second column for 1997 and 1998
are both higher than the "Base Total AMS" figure.  This incongruity in the relationship between the
bracketed figures for 1997 and 1998 and the specified "Base Total AMS" figure reinforces the Panel's
conclusion that the unbracketed figures alone should be treated as constituting Korea's annual
commitment levels.
429  Korea is the only WTO Member whose Part IV domestic support Schedule
contains two such sets of annual commitment leve ls.  No provision of the Agreement on Agriculture
authorises such a departure from the norm or practice which has been followed by all otherdeveloping country members in establishing their domestic support reduction commitments.
823. The Panel shall now proceed to examine the Comp laining parties' claims that Korea's Current
Total AMS as calculated violates Articles 3, 6 and 7 of the Agreement on Agriculture, in that the
domestic support for Korea's beef industry in 1997 and 1998 was such as to exceed Korea's scheduled
reduction commitments.
(ii) Domestic support for the beef industry in 1997 and 1998
824. The Panel noted that Korea's notification of its Current Total AMS for 1997 was
1,936.95 billion won .
430  Korea's bound commitment level for 1997 was 1,650.03 billion won.  Korea
exceeded the level of domestic support provided under its commitment level for 1997 and, thus,
violated Articles 3.2. and 6.3 of the Agreement on Agriculture .  Even if the WTO compatible
commitments were those between parentheses, and therefore, the annual maximum level of support
for 1997 was 2,028.65 billion won, the Panel finds that the method employed by Korea to calculate
                                                     
429 Where the drafters of the Agreement on Agriculture  intended to allow for flexibility in the amount
of an annual reduction commitment, they made specific provision for it, such as in Article 9.2(b) relating toexport subsidy commitments.  No similar provision exists in respect of domestic support.
430 Korea's Committee on Agriculture Notification, Table DS:1 at 2 (G/AG/N/KOR/18).WT/DS161/R
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current support in respect of beef is not consistent with the provisions of the Agreement on
Agriculture .
825. For 1998, Korea's bound commitment level is 1,627.17 billion won while Korea's notified
Current Total AMS is 1,562.77 billion won.  In the light of its examination, the Panel considers that,properly calculated pursuant to Article 6 and Anne x 3, current support for beef would be higher in
1997 and in 1998 than the level notified and defended by Korea. The following errors in Korea's
calculations have been identified by the Panel: incorrect calculation of (1) market price support for
beef including through the use of a - fixed external reference price for beef relating to the wrong stage
of processing; - the use of an incorrect eligible production level; and – the calculation of total
production, as well as (2) the omission of other non-exempt support measures from the calculation of
the current aggregate measurement of support for the producers of beef.
Market-price support
826. The principal form of support for beef producers used by Korea in 1997 and 1998  was "price
support for beef,"
431 a form of "market price support".  Paragraph 8 of Annex 3 of the Agreement on
Agriculture specifies how market price support shou ld be assessed for the purpose of calculating its
Current Total AMS.  It provides that:
"market price support shall be calculated using the gap between a fixed external
reference price and the applied administered price multiplied by the quantity of
production eligible to receive the applied administered price".
827. It is worth recalling that the quantification of market price support in AMS terms is not based
on expenditures by government.  Market price support as defined in Annex 3 can exist even wherethere are no budgetary payments.
432  Market price support gauges the effect of a government policy
measure on agricultural producers of a basic product rather than the budgetary cost of that measure
borne by government.  In general, with market price support programmes, all producers of the
products which are subject to the market price support mechanism enjoy the benefit of an assurance
that their products can be marketed at least  at the support price.  Therefore, the minimum price
support will be available to all marketable production of the type and quality to which the
administered price support programme relates, including where actual market prices are above the
administered minimum price level.  There may, of  course, be circumstances where eligible production
may be less than total marketable production, as for example where the minimum price support is
only available to producers in certain disadvantaged regions.  Another possible example would be
where there is a legislatively predetermined, non-discretionary, limitation on the quantity of
marketable production that a governmental intervention agency could take off the market at theadministered price in any year.  In the latter case, the particular design and operation of the price
support mechanism would have to be taken into account in determining eligible production, since
even governmental purchases at a level below the legislatively predetermined quantity limit could,
depending on market conditions, suffice to maintain market prices at above the minimum levels for all
marketable production.  Hence, with these qualifications, eligible production for the purposes ofcalculating the market price support component of current support should comprise the total
marketable production of all producers which is eligible to benefit from the market price support,
even though the proportion of production which is actually purchased by a governmental agency may
be relatively small or even nil.
                                                     
431 Korea's Committee on Agriculture notifications for 1997 and 1998 refer to "price support"
(G/AG/N/KOR/18 and 24 respectively).
432 Paragraph 8 of Annex 3 explicitly notes that "[b]udgetary payments made to maintain this gap
[between a fixed external reference price and the applied administered price], such as buying-in or storage costs,
shall not be included in the AMS.WT/DS161/R
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828. The market price support is calculated in computing the difference between a fixed external
reference price (FERP) and an applied administered price (AAP) with the difference being multiplied
by eligible production.  Both the FERP and the AAP must be calculated at an equivalent stage of
processing or converted accordingly.  Since the aggregate measurement of support is calculated byreference to the applied administered price and the fixed external reference price, both of these two
variables must be calculated at a comparable st age of production.  Paragraph 7 of Annex 3 provides
that the AMS shall be calculated as closely as practicable to the point of first sale of the agricultural
product.  Korea admits this.
433  In other words, the fixed external reference price must be at (or
converted to) the same stage in the processing chain as the applied administered price for the basic
agricultural product(s) concerned.
"Fixed External Reference Price (FERP)"
829. Korea's calculation of its FERP is problematic. In 1997, Korea's applied administered price
(AAP) for beef was, as set out in the Korean MAF press statement of 27 January 1997,434
2,400 thousand won per 500 kg. Hanwoo steer for the remainder of the 1997 calendar year.  Since thisprogramme was offered to different types of beef (with different support prices), Korea used a
weighted average applied administered price and converted the base unit for the calculations from aper head basis to a per kilogram carcass weight (bone-in) basis, whereas the FERP is calculated on a
(at least partly boneless)  "product weight" basis for 1989-1991.  The FERP has to be assessed at a
practicable, comparable level of trade as close to the first point of sale as possible.
435  The AAP is
based on live animals, while the FERP refers to meat on a product weight basis.  While both prices
purport to be  shown on a carcass weight basis, the FERP claimed by Korea includes slaughter costs,
whereas the AAP does not.  As a result, the FERP used by Korea is overstated.  The effect of Korea's
error is a narrowing of the difference between its AAP and the FERP, and consequently an
understatement of the amount of domestic support.
830. Moreover, the Panel recalls that,  by virtue of Articles 1(a)(ii) and 1(h)(ii), Korea is bound by
the provisions of Annex 3, since it did not have any "constituent data and methodology" for beef in itsBase Total AMS. This means, inter alia , that a 1986-88 external reference price has to be used
(paragraphs 9 and 11 of Annex 3).  Korea's object ion that beef was not imported during that period
and that it has no relevant import price data is not sustainable, since paragraph 9 of Annex 3 allows
the use of  proxy prices.
436  Proxy prices were in fact used in Korea's AGST, Supporting Table 6, for
rice and two types of barley.437  The Panel finds, therefore, that in both 1997 and 1998 Korea
miscalculated its fixed external reference price contrary to Article 6 and paragraph 9 of Annex 3.
Korea, by unilaterally electing to use a fixed external reference price based on data for 1989-1991 thatis inconsistent with the methodology provided for in the Agreement on Agriculture , distorts the
calculation of domestic support.
                                                     
433 See paragraph 389 of this Panel report.
434 See paragraph 384 of this Panel report.
435 Paragraph 7 of Annex 3 of the Agreement on Agriculture provides that the AMS "shall be calculated
as close as practicable to the point of first sa le of the basic agricultural product concerned".
436 Paragraph 9:  "The fixed external reference price shall be based on the years 1986 to 1988 and shall
generally  be the average f.o.b. unit value for the basic agricultural product concerned in a net exporting country
and the average c.i.f. unit value for the basic agricultural product concerned in a net importing country in the base
period.  The fixed reference price may be adjusted for quality differences as necessary".  The reference to"generally" has been interpreted to allow countries to use proxy prices as Korea did for rice and two types ofbarley.
437 G/AG/AGST/KOR, page 8.WT/DS161/R
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"Eligible/actual production"
831. The Panel finds that Korea has used an incorrect figure for the level of eligible production in
its calculation of market price support. Korea argues that it used the actual production to calculate its
market support.  The language of paragraph 8 of Annex 3 makes it clear that it is the quantity ofproduction which is "eligible" to receive the benefit of the price support provided through the applied
administered price which is relevant.  The actual quantity of purchases is not relevant in the
calculation of market price support.  Korea, by indicating its intent to purchase specified quantities,
made them eligible to receive the applied administered price, and consequently affected and supported
the price of all such products.
832. As mentioned, the fact that not all eligible production was actually purchased by the
government is irrelevant.  This interpretation of the eligibility of production for price support isconfirmed by the language in the last sentence of paragraph 8 of Annex 3 which states that the
provision is not concerned with the actual amount of budgetary outlays.  It is the market price support
provided by the government measure that is th e focus of the provision, since as indicated in
paragraph 827 above, it is marketable production as a whole which benefits from this type of support.
833. Korea argues that requiring the aggregate measurement of support for beef to be computed
based on eligible production would be unfair because actual production was used for computing the
base period AMS.  The Panel recalls, however, that the Tables of Support Material upon which
Korea's Base Total AMS was calculated (AGST/KOR) had no product specific AMS calculation for
beef (or cattle) included in its (initial) Total Base AMS.  Therefore, Korea is required by the wording
of Article 1(a)(ii) of the Agreement on Agriculture , in the absence of "constituent data and
methodology used in the tables of supporting material", to rely exclusively on the provisions of
Annex 3.
834. Korea's underestimation would be even greater if the meaning of "eligible production", which
the Panel considers to be appropriate in the light of its interpretation above, were to be applied.  For
instance, in 1997, based on the evidence submitted, that quantity was 500 head per day of Hanwoocattle above 500 kg. within the 27 January to 31 December 1997 period (340 days).  A total of
170,000 head of Hanwoo cattle were thus eligible in the 1997 calendar year as used by Korea for its
domestic support commitments.  In carcass weight terms, this amounts to 52,615 tonnes for Hanwoo
cattle alone.
438   However, Korea notified a total figure of 35,127 tonnes in 1997, thereby
underestimating the eligible production (let alone any AMS for its beef industry), and thus the market
price support, the aggregate measurement of support for producers of beef and the Current Total
AMS.  There is also evidence that dairy steer and hybrid cows were eligible for support, which wouldincrease the aggregate measurement of support for beef.
"Total value of production"
835. The Panel further notes that there is also evidence that Korea's data for the total value of
production was based on the value of 1996 production and not that of 1997.
439  Korea explains that it
did not have any available data for 1997.  The Panel considers, however, that it would be against thespirit and wording of the Agreement on Agriculture if WTO Members could avoid their obligations to
respect annual commitment levels by notifying data from another year.
                                                     
438 170,000 head @ 500 kg. (0.5 tonne) per head multiplied by the conversion coefficient of 61.9 per
cent, i.e. ((170,000*0.5)*.619) = 52,625 tonnes carcass weight equivalent.  See paragraph 480 of this Panelreport.
439 See paragraph 376 of this Panel report.WT/DS161/R
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Product specific programmes
836. The Panel also notes that there are other features of Korea's calculation and characterisation
of support for beef producers in both 1997 and 1998 which would have warranted closer examination
in terms of the explicit provisions of Article 7.2(a) of the Agreement on Agriculture .  This applies in
particular to the programme described as the "Loan interest subsidy for livestock farming" (27.28 and
31.77 billion won in 1997 and 1998 respectively), which on the evidence presented by all parties
substantially benefits beef producers (but presumably not only beef producers) and which has been
classified by Korea as "non-product specific support" within the non-product-specific de minimis  level
in terms of Article 6.4 (a)(ii).  In the Panel's view, given the clear language of Article 1(a), for a
measure to be classified as "non-product-specific support" for the purposes of the exemption in
Article 6.4(a)(ii), it would have to constitute "support provided in favour of agricultural producers ingeneral", and  not to a particular product-specific subset of producers.
(iii) Recalculation of the aggregate measurement of support for beef in 1997 and 1998 and of the
Current Total AMS
837. The Panel considers that Australia and the United States have provided sufficient evidence
and arguments in support of their claims that Korea has miscalculated its annual support to its beefindustry in 1997 and 1998.  The Complaining parties also submit recalculations of the numerous
variables in the product-specific domestic support for beef and Korea's Current Total AMS.
440  The
Complaining parties also refer the Panel to the recalculations submitted by New Zealand, as third
party, and with which the Complaining parties concur and which they use as an "adjunct" to their own
submissions.441
838. For reasons of clarity and simplicity of those recalculations, the Panel has decided to rely on
the recalculation offered by New Zealand.442  On the basis of the adjusted fixed external reference
price and the recalculation of eligible production levels (but for Hanwoo beef alone), the following
table offers revised data on Korea's beef aggregate measurement of support for 1997 and 1998.  The
beef product-specific aggregate measurement of support is then compared to the values of productionsupplied by Korea for 1997 and 1998.
                                                     
440 See, for instance, paragraphs 365, 375, 379, 381, 382, 383 of this Panel report.
441 See paragraph 413 of this Panel report.
442 The Panel notes that for this recalculation of Korea's FERP, New Zealand even used 1989-1991 data
(inflating Korea's legitimate level of domestic support), contrary to the Panel's conclusion that pursuant to
Annex 3 a 1986-1988 FERP should have been employed.  Paragraph  9:  "The fixed external reference price shall
be based on the years 1986 to 1988 and shall generally  be the average f.o.b. unit value for the basic agricultural
product concerned in a net exporting country and the average c.i.f. unit value for the basic agricultural productconcerned in a net importing country in the base period.  The fixed reference price may be adjusted for qualitydifferences as necessary".  Paragraph 11:  "The fixed reference price shall be based on the years 1986 to 1988 and
shall generally be the actual price used for determining payment rates."  (Emphasis added.)WT/DS161/R
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Calculation of the product-specific AMS for Hanwoo beef and de minimis calculation443
Year AAP FERP EP MPS OS Total AMS VP
won/kg. tonnes billion wonPercentage
1997
19987,351.1
6,883.21,514
1,51452,615
35,328307.1
189.71.09
1.40308.2
191.12,107
1,83614.6
10.4
839. The Complaining parties suggest that by adding the "actual" purchases of dairy cattle and
hybrid cattle of Cheju Island to the eligible Hanwoo production as set out in the table above, the
proportion of the total value of beef production accounted for by the beef product-specific domestic
support increases to 15.8 per cent and 11.7 per cent in 1997 and 1998 respectively.444
840. If Korea had included the "eligible" production of dairy cattle and hybrid cattle of Cheju
Island in its calculation, its aggregate measurement of support for beef would have certainly resulted
in even higher figures, exceeding the 10 per cent de minimis referred to in Article 6.4(b)  of the
Agreement on Agriculture  by a larger margin .
841. In so miscalculating Korea violated Article 6.4 of the Agreement on Agriculture .  Thus, since
it was above the 10 per cent de minimis , the product-specific aggregate measurement of support for
beef should have been included in the calculation of Korea's Current Total AMS in both years, as
provided for in Article 7.2(a) of the Agreement on Agriculture .
842. The Complaining parties also offer their own calculation of Korea's Total Current AMS for
1997 and 1998 (including the recalculation by New Zealand)445, evidence not refuted by Korea to the
satisfaction of the Panel.  Such calculations lead to the results set out in the table below:
Adjusted Current Total AMS for Korea 1997 and 1998
Year Current Total AMS as notified
by Korea
(billion won)Product Specific AMS for Beef
(billion won)Correct Current Total
AMS
(billion won)
1997 1,936.95 308.2 2,245.2
1998 1,562.77 191.1 1,753.9
                                                     
443 AAP - Applied administered price – Source:  Notifications of Korea; FERP - Fixed external
reference price;  EP - Eligible production;  MPS - Market price support – Source:  ((AAP-FERP)*EP); OS -
Other support – Source:  Notifications of Korea;  VP - Value of production – Source:  Paragraph 483 of this
Panel report.
444 Non-Hanwoo purchases amounted to 4,083 tonnes in 1997 and 4,454 tonnes in 1998.  See
paragraph 484 to this Panel report.
Year AAP FERP EP MPS OS Total AMS VP De minimis
percentage
won/kg Tonnes billion won %
1997
19987,351.1
6,883.21,514
1,51456,698
39,782331.0
213.61.09
1.40332.0
215.02,107
1,83615.8
11.7
445 See paragraph 484 of this Panel report.WT/DS161/R
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843. In the light of the evidence and the legal arguments presented, the Panel considers that the
Complaining parties have established a prima facie  case, which has not been rebutted by Korea, that
in 1997, the correct Current Total AMS for Korea (2,245.2 billion won) exceeded the annual
commitment level, i.e. 1,650.03 billion won (or even the levels referred to in the second column
between parenthesis of 2,028.65 billion won) contrary to Article 3.2 of the Agreement on Agriculture .
In 1998, the correct Current Total AMS - including only Hanwoo beef instead of total eligible beef –
also exceeded the annual commitment level, i.e. 1,627.17 billion won, contrary to Article 3.2 of the
Agreement on Agriculture .
(c) Conclusion
844. The Panel finds, therefore, that Korea's domestic support for beef for 1997 and 1998 was not
correctly calculated and exceeded the de minimis  level, in violation of Article 6 of the Agreement on
Agriculture .  The Panel also finds that, for the same years, Korea's domestic support for beef was not
included in Korea's Current Total AMS, in violation of Article 7.2(a).  Finally, the Panel finds that
Korea's Current Total AMS for 1997 and 1998 exceeded Korea's commitment levels, as specified in
Section 1, Part IV of its Schedule, in violation of Article 3.2 of the Agreement on Agriculture .WT/DS161/R
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VIII.  CONCLUSIONS AND RECOMMENDATIONS
845. In the light of the above findings, the Panel concludes as follows:
(a) The following measures are included in "the remaining restrictions" within the
meaning of Note 6(e) of Korea's Schedule and thus benefit from a transitional period
until 1 January 2001, by which date they shall be eliminated or otherwise brought into
conformity with the WTO Agreement:
(i) The price mark-up applied to imports through the SBS system that is
additional to the tariff;
(ii) The limitations on participation in the SBS import system including the
super-group membership requirement; the restriction on range of end-users; the
prohibition on cross-trading between end-users and super-groups; the quotas and sub-
quotas allocated to super-groups according to annual plans rather than demand;  and
the  recording requirements;
(iii) The requirement that the beef imported through the LPMO be distributed
only through the wholesale market;
(iv) The LPMO's minimum wholesale price;
(v) The per se  existence of a discretionary licensing system relating to any of
"the remaining restrictions" (as distinct from its operation);
(b) The dual retail system for beef (including the obligation for department stores and
supermarkets authorized to sell imported beef to hold a separate display, and theobligation for foreign beef shops to bear a sign "Specialized Imported Beef Stores") is
inconsistent with the provisions of Article III:4 in treating imported beef less
favourably than domestic beef, a discrimination that cannot be justified pursuant to
Article XX(d) of GATT;
(c) The requirement that the supply of beef from the LPMO's wholesale market be
limited to specialized imported beef import stores is inconsistent with Article III:4 of
GATT and cannot be justified pursuant to Article XX(d) of GATT;
(d) The more stringent record-keeping requirements imposed on those who purchase
foreign beef imported by the LPMO than those who purchase domestic beef, is
inconsistent with Article III:4 of GATT;
(e) The prohibition against cross-trading between end-users of the SBS system is
inconsistent with Article III:4 of GATT;
(f) Any additional labelling requirements imposed on foreign beef imported through the
SBS system that is not also imposed on domestic beef, such as the requirement that
the end consumer, the contract number and super-group importer be marked on the
imported beef,  are inconsistent with Article III:4 of GATT;
(g) The LPMO's lack of and delays in calling for tenders and its discharge practices
between November 1997 and the end of May 1998, constitute import restrictions on
foreign beef, inconsistent with Article XI of GATT through the application of theWT/DS161/R
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Ad Note to Articles XI, XII, XIII, XIV and XVIII.  The same practices are also
inconsistent with Article 4.2 of the Agreement on Agriculture  and its footnote.
Even if the LPMO had not had monopoly rights over the import and distribution of its
30 per cent share of Korea's beef import, the LPMO's lack of and delays in calling fortenders during the same period constituted an import restriction inconsistent with
Article XI  through the application of the Ad Note to Articles XI, XII, XIII, XIV and
XVIII. The LPMO's discharge practices during the same period were inconsistent
with Article XVII.1(a) of GATT.
(h) The LPMO's calls for tenders that are made subject to grass-fed or grain-fed
distinctions impose import restrictions inconsistent with Article XI of GATT; they
also treat imports of grass-fed beef less favourably than that is provided for in Korea'sSchedule, contrary to Article II:1(a) of GATT.
(i) Korea's domestic support for beef for 1997 and 1998  was not correctly calculated
and exceeded the de minimis  level, contrary to Article 6 of the Agreement on
Agriculture, and was not included in Korea's Current Total AMS, contrary to
Article 7.2(a) of the Agreement on Agriculture.
(j) Korea's total domestic support (Current Total AMS) for 1997 and 1998 exceeded
Korea's commitment levels, as specified in Section 1, Part IV of its Schedule,
contrary to Article 3.2 of the Agreement on Agriculture.
846. Under Article 3.8 of the DSU, in cases where ther e is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or
impairment of benefits under that agreement.  Acco rdingly, we conclude that, to the extent that the
Korea has acted inconsistently with the provisions of covered agreements, as described in the
preceding paragraphs, it has nullified or impaired the benefits accruing to the complainants under
those agreements.
847. The Panel recommends that the Dispute Settlement Body request Korea to bring its various
measures into conformity with its obligations unde r the covered agreements of the WTO mentioned in
paragraph 845 above.WT/DS161/R
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ANNEX 1
1990 RECORDS OF UNDERSTANDING*
RECORD OF UNDERSTANDING
BETWEEN THE GOVERNMENT OF THE REPUBLIC OF KOREA
AND THE GOVERNMENT OF AUSTRALIA
ON BEEF
The Government of the Republic of Korea and the Government of Australia, recognizing the
recommendations of the GATT dispute settlement pane l report on Korean import restrictions on beef
(L/6504) as well as the report of the GATT Balance of Payments Committee (BOP/R/183/Add.1)concerning Korea, have agreed as follows:
I. GENERAL TERMSA. With regard to beef, the Government of the Republic of Korea (hereinafter referred to as the
Korean Government) reaffirms its undertaking to eliminate its remaining import restrictions
or otherwise bring them into conformity with GATT provisions as included in the conclusion
of the report of the GATT/BOP committee on consultations with the Republic of Korea
adopted by the GATT Council on November 7, 1989.
B. Both sides agree that the provisions of this Understanding relating to the import of beef will
be implemented on a Most-Favoured-Nation (MFN) basis.
C. Conditions and levels of importation and sale of imported beef provided for in this Record of
Understanding and its Attachments will not be impaired or modified by either governmentwithout prior consultation.
D. A joint study team will be established in order to:
(1) examine the structural weakness of the Korean livestock industry and review the 
effects of the industry structure on the appropriate timing of market liberalization;
(2) review the functions of the Livestock Products Marketing Organization (LPMO) and
make recommendations for improvements in marketing and pricing practices in the future.
The study will be completed by May 1, 1991.  Other details concerning the joint study are set
out in Attachment 1.
Representatives of the National Livestock Cooperatives Federation (NLCF) and the LPMO
and the Australian Meat and Livestock Industry will respectively select the Korean and
Australian members of the study team.  Both governments will participate as observers.
Third country and industry representatives will be included on the study team.  The results ofthe study team will be taken into consideration by both governments during future
consultation.
E. Terms used in this Record of Understanding are defined in Attachment 2.
____________*The three 1990 ROUs are almost similar.WT/DS161/R
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II. MARKET ACCESS MEASURES
General Consumption
A. The base quota levels of general consumption importation on a customs clearance basis for
each of the three years in the period beginning January 1, 1990 and ending December 31,
1992 will be as follows:
1990 1991 1992
58,000 MT 62,000 MT 66,000 MT
B. Bilateral consultations concerning an import régime designed to increase imports following
the year 1992 will be initiated no later than July 1, 1992.
Simultaneous Buy/Sell (SBS)
C. A simultaneous buy/sell system will be implemented for seven per cent of the base quota
level for the import of beef.  This mechanism will be used initially by tourist hotels, tourist
restaurants, the NLCF and the Korean Cold Storage Company Ltd.  Principles of the
operation of this buyer access system are contained in Attachment 3.  Details concerning the
operation of this system will be determined by both governments no later than October 1,1990 based upon recommendations from the industry-to-industry dialogue established in
section III below.  Implementation of the SBS system will be effective no later than
October 1, 1990.  Both governments will consult concerning the future expansion of the SBS
system.
III. INDUSTRY-TO-INDUSTRY DIALOGUE
A. Representatives of the Korean and Australian meat and livestock industries met on 23 April to
discuss a range of technical issues.  The outcome of these discussions is reflected in
Attachment 1.
B. The two industries will meet at the request of either industry to discuss issues associated with
the beef trade.
C. The results of industry-to-industry dialogue will be submitted to the Korean and Australian
governments for review and consultations, as appropriate.
IV. CONSULTATIONS
Both sides will consult promptly at the reques t of either party on any matter relating to this
Record of Understanding and its Attachments.
V. GATT RIGHTS
Nothing in this Record of Understanding will be interpreted to affect the rights and
obligations of either country as contracting parties to the GATT.
VI. STATUS OF ATTACHMENTS
The Attachments to this Understanding form an integral part of it.
Signed on May 31st day of 1990 by the Representatives of the Governments of the Republic
of Korea and Australia.WT/DS161/R
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ATTACHMENT 1
INDUSTRY-TO-INDUSTRY DIALOGUE
The following issues were discussed between LPMO, NLCF and the Aust ralian industry (AMLC,
AMEFC, CCA).
1. Bid & performance bonds
LPMO could not agree to the elimination of bid & performance bonds because of the
difficulties LPMO may face without the bonds.  It was agreed that future discussions on the
issue would take into account the views of the Australian industry representatives.
2. Bid quantities
The Australian side noted that the minimum bid quantity had been reduced to 18 tonnes for
boneless beef and remained at 200 tonnes for bone-in beef.
3. SBS system
The Australian side noted that the SBS system  would be implemented no later than October 1,
1990 for 7% of the base quota.  Details for the SBS system are not fixed and LPMO invited
Australia's participation to assist in the developments of the new system.
The Australian side expressed its desire to meet in the near future to have detailed discussions
on the SBS based on the principle of non-discrimination by source and by product type.
4. Technical issues(a) The LPMO agreed that AMLC technical representatives would be consulted in case problems
arose with respect to product quality.
(b) For quality specification, it was agreed that Korea and Australia would jointly develop the
specification system.  In the first place, the "Ausmeat K1" which codifies the specification of
grain-fed beef that LPMO established shall be used.  And the "Ausmeat P1" which codifies
the specification of grass-fed beef that LPMO established shall be used.  These codes would
apply from the next tender issued.
(c) Other issues which are set out in an exchange of letters between the LPMO and AMLC will
be subject to further discussion.
5. Joint Study Team (JST)(a) LPMO and NLCF encouraged the Australian industry to participate actively in the study.(b) The Australian meat and livestock industry will notify the NLCF Chairman of the Australian
co-chair for the joint study team in the near future, but no later than May 21, 1990.Composition of the joint study team and the topics for consideration by the team will be
agreed as soon as possible.WT/DS161/R
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(c) The first meeting of participants in the study team will take place in Seoul either in the week
beginning June 11 or 18 June, 1990.  The agenda for this meeting will include details
concerning study topics, study methodology and study timetable.
ATTACHMENT 2
DEFINITIONS
For the purpose of this Record of Understanding and its Attachments:
1. "Beef" means meat of bovine animals, fresh, chilled or frozen.  All tonnage specified
in the agreement is given in boneless weight equivalent.
2. "Tourist hotels" and "tourist restaurants" mean tourist hotels and tourist restaurants as
defined by the Korean Foreign Trade Act and related and referenced regulations.
ATTACHMENT 3
SIMULTANEOUS BUY/SELL SYSTEM
1. All imports of beef under the simultaneous buy/sell system will receive equal,
non-discriminatory treatment without regard to country of origin and without regard to whether it is
grass-fed or grain-fed;  fresh, chilled or frozen;  bone-in or bone-out.
2. Buyers and sellers will have sole responsibility for product specification, delivery and other
terms of sales.
3. Buyers and sellers will simultaneously submit buy and sell prices to the LPMO to participate
in the LPMO tender.
4. Details of successful bids including product type, quantity, price, and origin will be made
public, promptly, once awarded.
5. The operation of the SBS system will be reviewed at the request of either party.WT/DS161/R
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ANNEX 2
JULY 1993 RECORDS OF UNDERSTANDING*
RECORD OF UNDERSTANDING
BETWEEN THE GOVERNMENTOF THE REPUBLIC OF KOREA
AND THE GOVERNMENT OF AUSTRALIA
ON MARKET ACCESS FOR BEEF
The Government of the Republic of Korea and the Government of Australia, recognizing the
recommendations of the General Agreement on Tariff s and Trade (GATT) dispute-settlement panel
report on Korean import restrictions on beef (L/6504) as well as the report of the GATTBalance-of-Payments Committee (BOP/R/183/Add.1) concerning Korea, and the May 1990 bilateral
Record of Understanding between the Government of the Republic of Korea and the Government of
Australia on beef, have agreed as follows:
I. GENERAL PROVISIONS
(a) The Governments of the Republic of Korea and Australia confirm that this Record of
Understanding and its attachments (hereinaft er referred to as "Understanding" will be
implemented on a most-favoured-nation (m.f.n.) basis.
(b) Conditions and levels of importation and sale of imported beef and all other
provisions provided for in this Understand ing shall not be impaired or modified by
either Government without prior consultation and mutual agreement.
(c) This Understanding is the second Unders tanding between the Government of the
Republic of Korea and the Government of Australia on market access for beef.  This
Understanding reflects the desire of the Parties to implement the GATT dispute--
settlement panel recommendations and Balance-of-Payments Committee
determinations.  Consultations between the Parties regarding such measures will be
held no later than 1 June 1995.
(d) Unless otherwise specified in this Understanding, all provisions of this Understanding
shall become effective upon the date of the exchange of letters confirming this
Understanding between the Government of the Republic of Korea and the
Government of Australia.
II. DEFINITIONS
For the purposes of this Understanding:"Base amount" means the minimum annual amount, on a customs cleared basis, expressed in
metric tonnes, of beef to be imported into the Republic of Korea.
"Beef" means all meat of bovine animals, fresh, chilled or frozen, as classified under HS 0201
and HS 0202.  All tonnage specified in this Unders tanding is given in retail weight equivalent.
"Customer" means any individual private enterprise, firm, business or grouping thereof that
under the terms of this Understanding has the right to import beef through NLCF and KCSC.
____________
*The three July 1993 ROUs  are almost similar.WT/DS161/R
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"End-user" means any individual private enterprise, firm, business, or grouping thereof,
and/or their buying agents that has the right to import beef through any super-group except
NLCF or KCSC.
"General tender system" is the import and distribution system for beef imported into the
Republic of Korea, excluding that which is supplied through the SBS system.
"Large-scale outlet" means a store with a total sales space of 3,000 square metres or more and
with more than 30 per cent of the total sales space operated by the owner.
"Mark-up" means the charge collected by the ROKG expressed as a percentage of the
duty-paid c.i.f. price.
"Parties" means the Government of the Republic of Korea and the Government of Australia."SBS share" means the portion of the base amount that must be allocated through the SBS
system.
"SBS sub-share" means the portion of the SBS share that must be allocated to a super-group."SBS system" means the system through which suppliers of beef imported into the Republic
of Korea conduct business directly with super-groups, end-users, or customers.
"Super-group" means and organization or associati on of end-users that has the right to import
beef under the SBS system and, as appropriate, allocate SBS sub- shares among its affiliated
end-users, and shall include the following entities, subject to the conditions and termsspecified in this Understanding:  the National Livestock Co-operatives Federation and its
subsidiary companies (NLCF);  Korea Cold Storage Company, Ltd.  (KCSC);  Korea Tourist
Hotel Supply Centre (KTHSC);  Korea Meat Industries Association (KMIA);  Korea Super
Chain Association (KOSCA);  and a Non- T ourist Restaurant Organization (NTRO) to be
formed for the purpose of importing and allocating imported beef.
"Supermarket" means a retail store whose principal business is the sale of food and beverages."Tourist hotels" means tourist hotels as defined by the Korean Foreign Trade Act and related
and referenced regulations.
"Tourist restaurants" means tourist restaurants as defined by the Korean Foreign Trade Act
and related and referenced regulations.
"Wholesale market" is the market for auction and distribution of beef imported under General
Tenders, other than that which is directed to NLCF and KCSC for further processing.
III. MARKET ACCESS - BASE AMOUNTS
(a) The base amounts are the minimum to be imported on a customs cleared basis for the
three-year period beginning 1 January 1993, and ending 31 December 1995 and shall
be as follows:
1993 99,000 metric tonnes
1994 106,000 metric tonnes
1995 113,000 metric tonnesWT/DS161/R
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(b) These base amounts shall be divided between SBS shares in the SBS system, as
specified in this Understanding, and the general tender system.  The general tenders
shall be published in domestic Korean newspapers, and the results of those tenders,
when the results become known, shall be made available to any interested party upon
request.
IV. MARKET ACCESS MEASURES - SIMULTANEOUS BUY/SELL (SBS) SYSTEM
A. General
1. NLCF, KCSC, and KTHSC; which participated under the 1990 Understanding, shall
participate in the SBS system as super-groups under this Understanding.  New
super-groups, end-users, and customers will be added to the SBS system over the
term of this Understanding as specified in this Understanding.
2. The SBS system, as specified in this Understanding, will be implemented not later
than 1 August 1993.  However, 1993 SBS shares and sub-shares will be allocated to
super-groups not later than the date of the exchange of letters confirming this
Understanding between the Government of the Republic of Korea and the
Government of Australia.
3. The ROKG shall take no action to increase the price of beef entering under the SBS
system above the price of similar beef imported under general tender.
B. Framework for SBS system
1. Annual SBS share and sub-share allocations
(a) The SBS annual shares are the amount to be allocated under the SBS system for the
three-year period beginning 1 January 1993 and ending 31 December 1995 and shall
be as follows:
1993  9,900 metric tonnes
1994 21,200 metric tonnes
1995 33,900 metric tonnes
(b) Annual sub-shares to be allocated to SBS super-groups shall be as follows (expressed
in metric tonnes, retail weight equivalent):
1993 1994 1995
NLCF 2,970 3,330 5,254
KCSC 2,970 3,330 5,254
KTHSC 3,960 4,664 5,424
NTRO 2,000 2,712
KMIA 4,676 7,118
KOSCA 3,200 8,138WT/DS161/R
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2. Schedule for addition of new entrants
(a) In 1993 the SBS sub-shares will be allocated by the ROKG among the three
super-groups (KTHSC, NLCF, KCSC), according to the schedule set out inSection IV.B.1.b of this Understanding.  These super-groups shall import beef on
behalf of affiliated end- users (except in the case of NLCF and KCSC) without the
participation, direction, or other involvement of the LPMO or ROKG.
(b) Beginning 1 January 1994 NTRO and KMIA will have the right to participate as
super-groups, and will each be allocated an SBS sub-share by the ROKG, according
to the schedule set out in Section IV.B.1.b of this Understanding.  KMIA and NTROwill allocate SBS sub-shares to their affiliated end-users and conduct transactions
without the participation, direction, or other involvement of the LPMO or ROKG.
(c) Beginning 1 October 1994, KOSCA will have the right to participate as a super-group
and will be allocated an SBS sub-share by the ROKG, according to the schedule setout in Section IV.B.1.b of this Unders tanding.  The KOSCA super-group will
allocated SBS sub-shares to its affiliated end-users and conduct transactions without
the participation, direction, or other involvement of the LPMO or ROKG.
Criteria for determining eligibility for SBS participation of current and future
KOSCA members are set out in Section IV.C.1 of this Understanding.
(d) Beginning 1 January 1995 any member of KOSCA not eligible to import through the
KOSCA super-group, as outlined in Section IV.C.1 of this Understanding, shall have
the right to participate in the SBS system  as customers under NLCF and KCSC.  For
the sake of commercial convenience, such individual KOSCA members shall have
the right to negotiate and place collective orders through NLCF and KCSC.
(e) Also beginning 1 January 1995, any butcher shops that are or become registered
dealers of imported beef shall have the right to participate in the SBS system as
customers under NLCF and KCSC.  For the sake of commercial convenience, such
individual butcher shops shall have the right to negotiate and place collective ordersthrough NLCF and KCSC.
(f) Beginning 1 August 1993 and in 1994 and 1995, KTHSC, as a super-group, will
administer the portion of the SBS system under which individual tourist hotels and
restaurants, as end-users, have the option to purchase beef through KTHSC ordirectly from foreign suppliers.
C. Additional provisions for SBS system
1. KOSCA member participation in the SBS system
(a) Direct outlets of KOSCa member companies shall have the right to participate in the
SBS system as end-users affiliated with the KOSCA super-group.  Franchise outlets
of KOSCA member companies that are or become registered dealers of imported beef
shall have the right to participate in the SBS system as customers of NLCF andKCSC.
(b) Any outlet of a KOSCA member company that is a large scale outlet shall be
excluded from SBS participation, except as provided for in sub-paragraph (c).WT/DS161/R
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(c) Notwithstanding sub-paragraph (b), and notwithstanding whether a KOSCA member
company outlet is affiliated with a large-scale outlet that is not a supermarket, such
KOSCA member company outlets that are operated as supermarkets shall have the
right to participate in the SBS system in  the manner specified in Section IV.C.1.a.
2. Notification
The SBS sub-shares for a calendar year shall be divided by the super-groups into
quarterly allocations in such a way as to reflect seasonal consumption patterns.  These
quarterly allocations shall be announced prior to the beginning of each calendar year.
The allocations shall be expressed in metric tonnes, retail weight equivalent.  SBSsub- share notifications shall be made available to any interested party on request.
3. Purchasing Authority
(a) End-users shall have the right to sign contracts and negotiate all terms of sale,
including price, quantities, specifications, terms of delivery, etc.  Customers shall
have the right to negotiate all terms of sale, including price, quantities, specifications,
terms of delivery, etc.
(b) End-users or their designated agents, and customers, shall have the right to apply to
the appropriate super-group for import authorization amounts under the SBS
sub-share.  Such authorization shall be granted by the super-groups upon request.
End-users and customers shall be granted such access to sub-shares through super-
groups, as established in this Understanding, until the sub-share is exhausted.  Once
an end-user or customer receives authorization to import, there shall be no furtherinvolvement by the super-group in the commercial transaction with the exception
than NLCF and KCSC will purchase and import beef on behalf of their customers.
(c) Direct or indirect charges imposed by super-groups for importing  beef on behalf of
their customers shall not exceed reasonable administrative costs and expenses
associated with such importation.  Direct or indirect charges imposed by super-groups
for administering the allocation of SBS sub-shares to end-users shall not exceedreasonable administrative costs and expenses associated with such allocation.
Super-groups shall make details of all such administrative costs and expenses
available to any interested party upon request and shall not extract profits beyond the
extent of such costs and expenses.
4. Allocation of SBS sub-shares by super-groups to end-users
(a) The allocation of sub-shares to end-users shall be the sole responsibility of
super-groups.  The procedures and criteria for allocation of these sub-shares shall be
fair, equitable, transparent, and implemented in good faith.  These criteria must beannounced and published.  To facilitate orderly marketing and development of
normal commercial relationships between end-users and foreign suppliers,
super-groups shall implement an allocation system that encourages stable, long-term
commercial relationships between end-users and foreign suppliers while making
provision for the entry of new end-users.  Anticipating the addition of new end-users,the super-groups must have agreed procedures and criteria for distributing SBS
sub-shares among their affiliated end-users.
(b) Unused end-user sub-shares must be reallocated, prior to 1 October of the calendar
year, by the super-group.WT/DS161/R
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5. NLCF and KCSC super-groups and importation of beef on behalf of their customers
Notwithstanding Sections IV.C.3 and IV .C.4, not later than 1 October 1994, NLCF
and KCSC will set and announce the standard by which they will purchase beef on
behalf of their customers.  This standard will be equitable, established in a transparent
manner, and based on the following principles:  NLCF and KCSC, taking into
account their SBS shares and the number of their customers, will determine an
appropriate ceiling for each customer and import on behalf of the customer amounts
requested under the ceiling, and in doing so shall not discriminate unfairly against
any customers.  As long as a customer's request meets the standard thus established,NLCF and KCSC will carry our the importation on behalf of their customers without
imposing further conditions.
6. Importation, utilization, and distribution of SBS product
(a) Except as otherwise specified in this Understanding, there shall be no restrictions
placed by the ROKG or any super-group on beef (regardless of country of origin,
product type, or specification, whether grass-fed or grain-fed or whether fresh, chilled
or frozen) imported under the SBS system, including processing requirements,
labelling, pricing, marking or packaging requirements or other barriers to legitimateimportation, distribution, and sale, that create unnecessary obstacles to trade or
otherwise undermine the objectives of this Understanding.  Beef imported under the
SBS system must be distributed and sold through legal channels in conformance with
Korean regulations.
(b) Any SBS sub-share that it not fully used by a super-group in any of its quarterly
allocations shall be transferred to that super-group's allocation for the subsequent
quarter, except that any SBS sub-share that is not fully utilized by a super-group by
the end of the third calendar year quarter shall be reallocated to all other super-groups
on a pro rata basis, in proportion to their respective entitlements under the SBS
system, for their use in the final calendar year quarter.  Such reallocation shall bemade no later than 15 October.  With regard to any such pro rata share that is
reallocated to KTHSC, any part of that reallocation used by KTHSC end-users shall
be subject to the percentage mark-up specified in Section IV.C.7. of this
Understanding.
(c) Neither the ROKG nor LPMO shall take any action to discourage super-groups and
their end-users or customers from importing or using their SBS shares or sub-shares,
as appropriate, as allocated under the terms of this Understanding.
7. SBS mark-up
(a) A single, uniform percentage mark-up shall be applied to all types of beef purchased
under the SBS system and shall be equal to the difference between the duty-paid
price, c.i.f. Korea, and the price for all boneless cuts of imported grain-fed high
quality beef, based on the purchases of the Livestock Products Marketing
Organization (LPMO) sold in the general tender system.  Such prices shall bedetermined by calculating the average prices over the immediately preceding
three-month period.  The mark-up shall be recalculated monthly.  This mark-up shall
be publicly announced and published prior to becoming effective.  However, in the
event that the mark-up in any month is in excess of the current percentage mark-up in
the general tender market, the mark-up in the SBS system shall be recalculatedWT/DS161/R
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weekly on a uniform basis using the latest available c.i.f. and general tender price
data for the immediately preceding month.
(b) The mark-up applied to beef subject to a contract shall be the mark-up in effect on the
date of the contract.
(c) Notwithstanding sub-paragraph (a), in further implementation of the findings of the
GATT dispute settlement panel on beef, during 1993 the mark- up on beef shall not
exceed 100 per cent of the weighted average percentage mark-up applied to imported
bone-less grain-fed high quality beef during calendar year 1992, as derived from data
in Attachment I.  During 1994, the mark-up on beef shall not exceed 95 per cent ofthe weighted average percentage mark-up applied during calendar year 1992.  During
1995, the mark-up on beef shall not exceed 90 per cent of the weighted  average
percentage mark-up applied during calendar year 1992.  There shall be no minimum
mark-up.
(d) Notwithstanding sub-paragraph (a), the mark-up for beef imported by KTHSC for
tourist hotels and restaurants shall be no more than 2 per cent of the duty-paid c.i.f.
price, except for cuts of beef specified in Attachment II.
(e) In the event that there are significant difficulties arising from discrepancies between
the mark-up for bone-in beef in the wholesale market and the SBS mark-up in
accordance with Section IV.C.7 of this Understanding, the Parties will consult with
each other with a view to addressing and resolving such difficulties.
(f) The Republic of Korea, LPMO, and super-groups shall neither directly nor indirectly
exert any influence on pricing decisions of end-users aside from the mark-up agreed
upon in this Understanding.
8. Samples
The importation of samples will be allowed under the SBS system, and the sample quantities
shall be counted as part of the SBS share.  Samples shall not be subject to the mark-up.  Allsuper-groups shall be responsible for establishing their sample import systems.
9. Bid and performance bonds and letters of credit
The utilization of bid and performance bonds and/or letters of credit shall be at the option of
SBS participants.
10. Short-weight claims
Short-weight claims shall be resolved between buyers and sellers.
11. Minimum purchase unit
There shall be no governmental restrictions on the minimum purchase unit of beef imports.
12. Product coverage
Product coverage for the SBS system shall be th e same as for the overall Understanding, as
defined in Section II for the term "beef" and shall include all product classified under HS
0201 and HS 0202.WT/DS161/R
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13. Purchasing frequency
There shall be no governmental restrictions on the timing of purchases by customers,
end-users, or their designated agents.
14. Record-keeping
Approved super-groups shall administer record -keeping of purchases to ensure compliance
with the annual and quarterly SBS shares.
15. Delivery periods
Delivery shall be determined between the end-user or customer and seller.  Delivery of
products purchased under quarterly SBS shares ma y be shipped in subsequent quarters as long
as deliveries are completed within sixty days following the end of the calendar year in which
the product was purchased.
V. GRASS-FED BEEF MARKETING
(a) The ROKG will evaluate in a transparent manner the impact on beef marketing and
consumer preferences of the 1993 trial imports of grass-fed beef into the wholesalemarket from July to September 1993.
(b) Giving due consideration to the results of the trial marketing of grass-fed beef in the
Korean wholesale market, the ROKG will allow gradually increasing tonnages of
grass-fed beef to be distributed in the wholesale market upon the completion of thetrial run.  In the event that any difficulty arises in the market either during the process
of the trial or after its completion, the Parties will have due recourse to the
consultation provision in Section VII of this Understanding for taking appropriate
measures to address and resolve such difficulties.
VI. RELATIONSHIP TO THE GATT
(a) With regard to beef, the ROKG reaffirms its undertaking to eliminate its remaining
import restrictions or otherwise bring them into conformity with GATT provisions as
provided in the conclusion of the report on the GATT Balance-of-Payments
Committee on consultations with the Republic of Korea adopted by the GATT
Council on 7 November 1989.
(b) Notwithstanding the above, both Parties reserve their rights under the GATT.
VII. CONSULTATION PROVISION
(a) The Parties agree to consult promptly at the request of either Party on any matter
relating to this Understanding.
(b) The Parties shall consult quarterly to ensure full implementation of this
Understanding.  The first such consultations shall take place not later than1 October 1993.  The agenda for these consultations may include, inter alia, problems
caused by employing the mark-up specified in Section IV.C.7.a of this Understandingand problems in access for end-users and super-groups under the SBS system in
accordance with requirements of this understanding.WT/DS161/R
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ATTACHMENT I
LPMO DATA FOR CIRCULATION OF 1992 AVERAGE MARK-UP
Wholesale Price, Duty-Paid Price, c.i.f. for Imported Beef
92.1 92.2 92.3 92.4 92.5 92.6 92.7 92.8 92.9 92.10 92.11 92.12 AVG.
Wholesale price (A) 6,038 6,407 6,510 7,581 7,419 6,811 7,021 7,182 6,802 7,524 9,730 9,757 7,235
Chuck Roll c.i.f. + tariff (B) 3,804 3,756 3,886 3,916 3,897 3,764 3,514 3,537 3,521 3,695 3,829 3,829 3,726
(A)-(B) 2,234 2,651 2,624 3,665 3,522 3,047 3,507 3,645 3,281 3,929 5,901 5,928 3,509Volume 3,885 1,335 1,945 1,681 2,414 2,211 2,281 3,362 3,029 1,895 1,397 1,916 2,279
Wholesale price (A) 5,936 5,759 5,285 6,039 5,979 5,606 6,008 5,793 5,451 6,094 7,526 7,312 6,132
Shoulder
Clodc.i.f. + tariff (B) 2,682 2,677 2,750 2,749 2,732 2,886 2,946 2,926 2,912 2,912 2,902 2,900 2,812
(A)-(B) 3,254 3,082 2,535 3,290 3,247 2,720 3,060 2,867 2,539 3,182 4,624 4,412 3,320
Volume 77 129 238 185 179 19 43 44 93 196 272 27 125
Wholesale price (A) 6,349 6,087 6,520 6,983 6,500 5,731 6,002 6,100 5,661 7,627 8,332 8,858 6,600
Knuckle c.i.f. + tariff (B) 3,507 3,587 3,643 3,667 3,740 3,766 3,654 3,628 3,605 3,509 3,675 3,674 3,646
(A)-(B) 2,842 2,500 2,877 3,316 2,760 1,965 2,348 2,472 2,056 4,018 4,657 5,184 2,954Volume 832 287 303 518 702 727 666 1,135 893 306 473 688 628
Wholesale price (A) 6,133 5,941 5,664 6,395 6,349 5,650 5,559 6,136 5,725 6,833 7,263 7,279 6,211
Top Round c.i.f. + tariff (B) 3,385 3,419 3,522 3,576 3,649 3,696 3,797 3,754 3,799 3,682 3,729 3,731 3,643
(A)-(B) 2,748 2,522 2,142 2,819 2,700 1,954 1,762 2,382 1,926 3,151 3,534 3,548 2,569Volume 332 137 227 108 158 186 127 223 353 220 309 56 203
Wholesale price (A) 10,072 10,095 9,881 10,340 10,120 10,291 10,900 11,741 11,671 13,629 12,709 11,422 11,041
Short Ribs c.i.f. + tariff (B) 4,803 4,855 4,788 4,724 4,689 4,667 4,708 4,707 4,669 4,678 4,796 4,797 4,739
(A)-(B) 5,269 5,240 5,093 5,616 5,431 5,624 6,192 7,034 7,002 8,951 7,913 6,625 6,302
Volume 1,071 484 687 535 738 748 654 1,171 788 453 751 692 731
Wholesale price (A)  6,781 7,059 7,050 7,830 7,639 7,217 7,453 7,825 7,250 8,356 9,797 9,854 7,749
Average c.i.f. + tariff (B) 3,900 3,881 3,943 3,933 3,951 3,930 3,749 3,789 3,719 3,781 3,944 3,986 3,867
(A)-(B) 2,881 3,178 3,107 3,897 3,688 3,287 3,704 4,036 3,531 4,575 5,853 5,868 3,882
Volume 6,197 2,372 3,400 3,027 4,191 3,891 3,771 5,935 5,156 3,070 3,202 3,379 3,966
Note : Prices are for Won/kilogram, US$1=798.3 (as of 7 May 1993) Mark-up = (A)-(B)
Volume is in metric tonnes. Mark-up expressed as a percentage of duty paid import price
Average is weighted average and may slightly differ, due to rounding. (A)-(B)
________   = 3882/3867 = 100.38%     B
Source:  MAFF/ROKGWT/DS161/R
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ATTACHMENT II
CUTS OF BEEF IMPORTED BY KTHSC
The following five cuts of beef, as defined in the National Association of Meat Purveyors
Meat Buyers Guide and the Handbook of Australian Meat, imported by KTHSC for tourist hotels and
restaurants shall be subject to the mark-up level specified in Section IV.C.7.a of this Understanding.
Meat Buyers Guide Reference Handbook of Australian Meat
Reference
Shoulder Clod 114, 114A, 114B 2300 (Blade, Clod)
Chuck Roll 116A 2275 (Chuck Roll)
2270 (Chuck-Square Cut)
Short Rib 123, 123A, 123B, 123C 1690-1694:  Bone-in
2235-2238   (Rib ends):  Boneless
Knuckle 167, 167A, 167B 2060 (Thick Flank)
2070 (Knuckle)
Top Round 168, 169 2000 (Top Side)
2010 (Inside)
All other beef imported by KTHSC for tourist hotels and restaurants shall be subject to the
mark-up level specified in Section IV.C.7.d of this Understanding.WT/DS161/R
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ANNEX 3
DECEMBER 1993 RECORD OF UNDERSTANDING
RECORD OF UNDERSTANDING BETWEEN KOREA
AND THE UNITED STATES
ON AGRICULTURAL MARKET ACCESS IN THE URUGUAY ROUND
Pork
Pork shall be liberalized by July 1, 1997, with nothing but a bound duty (minus appropriate DFA
reductions) remaining.  During the interim period (January 1995 through June 1997), Korea will
provide access quotas for imported frozen pork* in the amounts specified below.  Duties applied on
the quota amounts shall not exceed the bound duty, with any charges or fees applied in conformity
with GATT Article VIII.  Korea shall show a base rate of 37 per cent reduced to a bound rate of 25
per cent in 10 equal instalments in its Uruguay Round country schedule.  The applicable tariff rate atthe time of liberalization shall be 33.4 per cent.
1995 21,930 MT CWE
1996 29,240 MT CWE
1997** 18,275 MT CWE
* HS 0203.21.0000, HS 0203.22.0000, & HS 0203.29.0000
** January through June
Chicken
Chicken shall be liberalized by July 1, 1997, with nothing but a bound duty (minus appropriate DFA
reductions) remaining.  During the interim period (January 1995 through June 1997), Korea will
provide access quotas for imported frozen chicken* in the amounts specified below.  Duties applied
on the quota amounts shall not exceed the bound duty, with any charges or fees applied in conformity
with GATT Article VIII.  Korea shall show a base rate of 35 per cent reduced to a bound rate of 20
per cent in 10 equal annual instalments in its Uruguay Round country schedule.  The applicable tariffrate at the time of liberalization shall be 30.5 per cent.
1995 7,700  MT RTC
1996 10,400 MT RTC
1997** 6,500  MT RTC
* HS 0207.21.0000 & HS 0207.41.1000
** January through June
Dairy
Korea shall liberalize the following dairy items on January 1, 1995, at the applied rates, minus
appropriate DFA reductions.
HS 0406.30.0000 processed cheese 40 per cent
HS 0406.90.0000 other cheese 40 per centHS 1901.10.1010 preparations for infant use 40 per cent*
HS 1901.90.2000 other food preparations 40 per cent*
* Bound rate of duty is 60 per cent;  1993 applied rate of duty is 40 per cent.WT/DS161/R
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Korea shall liberalize whey powder (HS 0404.10.1000) and other whey (HS 0404.10.9000) on
January 1, 1995, and shall establish a tariff rate quota for calendar year 1995 of 23,000 MT with an
annual growth rate of 10 per cent.  The in-quota tariff rate shall be bound at 20 per cent.  Korea shall
bind in its Uruguay Round country schedule a ceiling binding of 99 per cent and shall reduce suchrate by no less than 50 per cent over the implementation period.
Fresh Oranges
Korea shall liberalize fresh oranges on July 1, 1997.  Korea shall provide access quotas for imported
fresh oranges* in the amounts specified below.  The quota shall be expanded from the 1997 base of
25,000 MT at an annual growth rate of 12.5 per cent.  The in-quota tariff shall be bound at 50 percent.  Korea shall bind in its Uruguay Round country schedule a ceiling binding of 99 per cent and
shall reduce such rate by no less than 50 per cent over the implementation period.
1995 15,000 MT
1996 20,000 MT1997 25,000 MT
* HS 0805.10.0000Orange Juice
Orange juice shall be liberalized by July 1, 1997, with nothing but a bound 60 per cent duty (minus
appropriate DFA reductions) remaining.  During the interim period (January 1995 through June
1997), Korea will provide access quotas for imported orange juice* in the amounts specified below.
Duties applied on the quota amounts shall not exceed the currently applied rate of 50 per cent, withany charges or fees applied in conformity with GATT Article VIII.
1995 50,000 MT
1996 55,000 MT
1997** 30,000 MT
* HS 2009.11.1000, HS 2009.11.9000, HS 2009.19.1000, HS 2009.19.9000 & HS
2009.30.9000
** January through June.
Beef (not covered by the current ROU)
Beef jerky (HS 0210.20.0000) shall be liberalized by July 1, 1997, with nothing but the applied 30 per
cent duty (minus appropriate DFA reductions) remaining.Beef offal (HS 0206.29.0000) shall be liberalized by July 1, 1997, with nothing but the applied rate of
20 per cent (minus appropriate DFA reductions) remaining.WT/DS161/R
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BEEF
YEAR QUOTA AMOUNT DUTY MARK-UP PER CENT SBS
(MT RWE) (%) (%) (%)
1993 99,000 20 100 15
1994 106,000 20 95 20
1995 123,000 43.6 70 30
1996 147,000 43.2 60 40
1997 167,000 42.8 40 50
1998 187,000 42.4 20 601999 206,000 42 10 70
2000 225,000 41.6 0 70
2001 - 41.2 0 -
2002 - 40.8 0 -
2003 - 40.4 0 -2004 - 40 0 -
All balance-of-payments restrictions on beef shall expire no later than December 31, 2000.  In the
year 2001, there shall be no quota, no mark-up, no LPMO involvement, and complete private sectorautonomy regarding product quantity, price, quality, and supplier.  There shall be no government
restrictions on product utilization.
The current July 15, 1993 Record of Understandin g (L/7270) shall continue to apply except as
modified to incorporate the prov isions of the new understanding.
NON-SENSITIVE UNLIBERALIZED BALANCE-OF-PAYMENTS ITEMS
Korea shall liberalize the following balance-of-payments items on January 1, 1995 or January 1, 1996,
at the currently applied 1993 tariff rates.
HS CODE DESCRIPTION APPLIED RATE0806 10 0000** Grapes, fresh 50
0808 10 0000* Apples, fresh 502009 60 0000* Grape juice 50
2009 70 0000** Apple juice 50
2202 90 2000* Beverage of fruit juice 10
* Korea agreed to liberalize these products in 1995.
** Korea agreed to liberalize these products in 1996.WT/DS161/R
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DUTY REDUCTIONS.  UNITED STATES MARKET ACCESS REQUESTS FOR THE
REPUBLIC OF KOREA
HS TARIFF LINE PRODUCT
0802 12 0000 ALMONDS, SHELLED
0802 32 0000 WALNUTS, SHELLED
0805 30 0000 FRESH LEMONS AND LIMES
0805 40 0000 FRESH GRAPEFRUIT
0806 20 0000 RAISINS
0809 20 0000 FRESH CHERRIES0813 20 0000 PRUNES
1001 90 9000 WHEAT, OTHER (NOT DURUM)
* 1005 90 1000 FEED CORN
* 1005 90 2000 POPCORN
1101 00 1000 WHEAT FLOUR
* 1105 10 0000 POTATO FLOUR AND MEAL
* 1105 20 0000 POTATO FLAKES, PELLETS, ETC.
* 1108 12 0000 CORN STARCH
* 1202 20 0000 PEANUTS, SHELLED
1507 10 0000 SOYABEAN OIL, CRUDE1507 90 1000 SOYABEAN OIL, REFINED
1512 11 1000 SUNFLOWER OIL, CRUDE
1512 19 1010 SUNFLOWER OIL, REFINED
1512 21 0000 COTTONSEED OIL, CRUDE
1512 29 1000 COTTONSEED OIL, REFINED1601 00 1000 PORK SAUSAGES, INCLUDING HOT DOGS
1904 10 BREAKFAST CEREALS
2004 10 0000 FROZEN FRENCH FRIES
2005 80 0000 SWEET CORN, NOT FROZEN
2009 20 0000 GRAPEFRUIT JUICE2104 10 SOUP AND BROTH
2304 00 SOYBEAN MEAL
2309 90 1010 MIXED FEEDS, FOR PIGS
2309 90 1020 MIXED FEEDS, FOR FOWLS
2309 90 1040 MIXED FEEDS FOR BOVINE ANIMALS
The duties on the products shown above shall be reduced by 40 per cent, for each individual tariff
line, from the duty levels applied in 1993 and shall be bound at the reduced levels.  These reductions
shall be implemented in ten equal instalments, from 1995 to 2004.
*  These products (HS 1005.90.1000, 1005.90.2000, 1105.10.0000, 1105.20.0000, 1202.20.0000 and
1108.12.0000) are subject to tariffication;  the reduction commitments on these products shall bemade on the in-quota tariff rates.WT/DS161/R
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ANNEX 4
(Korea's Exhibit 45)
WT/DS161/R
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ANNEX 5
(Korea Exhibit 27)
Estimated sales amount of imported beef
(Unit:  M/T)
Year Total Retail store Prepackaged Processor Restaurant Military Wholesale
market
1 23 45 678
1995 146,495 18,697 27,203 7,299 9,683 12,369 71,244
1996 149,201 37,116 15,801 7,420 15,149 14,397 59,318
1997 134,225 45,501 14,612 10,498 17,758 11,288 34,568
1998 85,416 31,505 10,502 13,609 6,485 5,454 17,861
Notes:
Numbers in column 3 purchased through Super groups.  Sales portion of retail store is as follows:
household (37.9 per cent),  other imported beef sales outlets (17.8per cent),  restaurant (44.2per cent).
Numbers in column 5 purchased through Super groups.
Numbers in column 6 purchased through Super groups.
Those imported beef that the LPMO imported and sold at wholesale markets are purchased by retail stores,
processors and restaurants, but data on their share in  the total volume of imported beef marketed are not
available.
Source:  LPMO.WT/DS161/R
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ANNEX 6
(Australia, 1st Submission, paragraph 3.6)
WT/DS161/R
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ANNEX 7
(Korea Exhibit 19)
Import and target prices for 1997
Chuck roll Ribs
1.1-3.31 4.1-6.30 7.1-9.30 10.1-12.31 1.1-3.31 4.1-6.30 7.1-9.30 10.1-12.31
import
price4,246 4,332 3,971 4,311 4,793 4,815 4,804 5,994
target
price3,800 3,800 3,800 3,800 3,340 3,340 3,340 3,340
Import Price = C.I.F.+DUTY+SELLING EXPENSESWT/DS161/R
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ANNEX 8
(Korea Exhibit 39)
LPMO Stocks, Sales volume and Average exchange rate
Stocks Sales volume Average exchange rate
MT Won/US$
Oct 1997 9,024 5,636 921.9
Nov 1997 14,130 4,519 1025.6
Dec 1997 17,061 3,701 1484.1
Jan 1998 16,600 2,419 1706.8
Feb 1998 18,293 1,652 1623.1
Mar 1998 18,837 2,191 1505.3
Apr 1998 18,475 1,793 1392.0
May 1998 17,011 1,872 1394.6
Jun 1998 15,514 1,498 1397.2
Jul 1998 12,717 2,802 1300.8
Note: Sales volume includes imported beef sold through wholesale market, for military use and as
prepackaged.WT/DS161/ R
WT/DS/169/ R
Page 229ANNEX 9
(US Exhibit 60)
Slaughter Statistics for Korea
1000 Head
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Hanwoo 397 311 302 345 488 576 580 640 887 1,023 912
Dairy Cattle 158 234 233 182 182 187 189 193 213 234 171
Other 12 9 10 10 17 15 11 17 25 25 12
Total Slaughter 567 554 545 537 687 778 780 850 1,125 1,282 1,095
% Dairy Cattle/Total 27.87 42.24 42.75 33.89 26.49 24.04 24.23 22.71 18.93 18.25 15.62
Source:  NLCFWT/DS161/R
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ANNEX 10
(New Zealand, Annex 7, Table 13)
Livestock numbers and meat production
Livestock Meat Production
Cattle [Beef Dairy] Pigs Chicken Total Beef Pork Chicken
1,000 Head 1,000 MT
1980 1,541 [1,361 180] 1,784 40,130 423 93 235 90
1985 2,943 [2,553 390] 2,853 51, 081 588 116 345 1261989 2,051 [1,535 515] 4,801 61,689 730 90 485 1551990 2,126 [1,622 504] 4,528 74,463 773 95 506 1721991 2,269 [1,773 496] 5,046 74,855 804 98 499 2071992 2,527 [2,019 408] 5,463 73,324 932 100 601 231
1993 2,814 [2,261 553] 5,927 72,945 987 130 618 239
1994 2,945 [2,393 552] 5,955 80,569 1,006 147 614 2451995 3,147 [2,594 553] 6,461 85,800 1,057 155 639 2631996 3,395 [2,844 551] 6,516 82,829 1,143 174 692 2771997 3,280 [2,736 544] 7,096 88,251 1,196 237 699 260
Source:  MAF, Statistical Yearbook of Ag riculture and Forestry (1998) and MAI (1998).WT/DS161/R
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ANNEX 11
(Korea Exhibit 35)
Beef Import value, Import volume and
Total consumption as compare to other products
Technical
means for
distinction
existingImport value
($ million)Import volume
(1000 MT)
(A)Total
consumption
(1000 MT)
(B)A/B(%)
Beef NO 247 91 345 26.3
S e s a m e  s e e d Y e s 4 55 49 06 0
Pork NO 137 52 700 7.4
Rice Yes 21 61 5,041 2.4
Garlic Yes 10 25 440 5.6
Potato flakes NO 0.000057 0.00025 NA -
Milkow
(domestic)Yes - 28 345 8.1
Frozen
chickenNO 15 12 260 4.6
Safflower
seedYes 0.033 0.041 NA -
Grapes Yes 2 1.1 399 0.27
Orange Yes 28 36.6 36.6 100
Note:  Import volume, import value and total consumption in 1998.WT/DS161/R
WT/DS169/R
Page 232
ANNEX 12
Australia Attachment 17
Cattle prices and beef supply & demand trends
1.  Beef supply & demand trend as at 19 July 1999
1998
Accrued
stock1999
Purchases1999
SalesStock Forecast
Purchases
Imported 67,934 14,343 20,753 61,524 47,457
Domestic 12,723 - 6,354 6,369 - LPMO
Subtotal 80,657 14,343 27,107 67,893 47,457
SBS 9,568 58,387 48,442 6,240 85,813
TOTAL 90,225 72,730 75,549 74,133 133,270
NB: 1.  Of total stock accrued from 1998, 49,474 tonnes has not yet cleared customs.
2.  LPMO 1999 quota 61,800 tonnes, SBS 1999 quota 144,200 tonnes.
2.  Cattle prices and beef consumption
Cattle price
(Unit:  '000 won)
December 1998 June 1999 Early July 1999 20 July 1999
Large steer 2,129 2,098 2,199 2,404
Calf 743 887 929 1,033
Cattle yardings
(Unit:  head, %)
December 1998 January 1999 June 1999 Early July 1999
Offered 299 271 248 211
Traded 84 83 87 88
Daily consumption of domestic beef
(Unit:  tonnes)
December 1998 June 1999 Early July 1999 19 July 1999
Daily 867 704 749 1,034
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