WORLD TRADE
ORGANIZATIONWT/DS121/AB/R
14 December 1999
(99-5419)
Original: English
ARGENTINA – SAFEGUARD MEASURES ON IMPORTS OF FOOTWEAR
AB-1999-7
Report of the Appellate BodyWT/DS121/AB/R
Page i
I. Introduc tion................................................................................................................. ............1
II. Arguments of th e Participants............................................................................................... ..4
A. Claims of Error by Argentina – Appellant .................................................................4
1. Terms of Reference.......................................................................................4
2. Imposition of Safeguard Measures by a Member of a Customs Union ........5
3. Claims Under Articles 2 and 4 of the  Agreement on Safeguards .................6
B. Arguments by the European Communities – Appellee ...............................................9
1. Terms of Reference.......................................................................................9
2. Imposition of Safeguard Measures by a Member of a Customs Union ........9
3. Claims Under Articles 2 and 4 of the  Agreement on Safeguards ...............10
C. Claims of Error by the European Communities – Appellant ...................................12
1. Relationship Between Article XIX of the GATT 1994 and the
Agreement on Safeguards ...........................................................................12
D. Arguments by Argentina – Appellee ........................................................................15
1. Relationship Between Article XIX of the GATT 1994 and the
Agreement on Safeguards ...........................................................................15
E. Arguments by the Third Participants .......................................................................17
1. Indonesia .....................................................................................................17
2. United States ...............................................................................................19
III. Issues Raised In This Appeal............................................................................................... .22
IV. Terms of Reference.......................................................................................................... .....22
V. Article XIX of the GATT 1994 and "Unforeseen Developments" .......................................24VI. Imposition of Safeguard Measures by a Member of a Customs Union ................................34
VII. Claims under Articles 2 and 4 of the  Agreement on Safeguards .........................................40
A. Standard of Review ..................................................................................................41
B. Interpretation and Application of Articles 2 and 4 of the
Agreement on Safeguards ........................................................................................43
1. Increased Imports........................................................................................44
2. Serious Injury..............................................................................................47
3. Causation.....................................................................................................50
C. Article 12.7 of the DSU ............................................................................................53
VIII. Findings and Conclusions.................................................................................................. ...53WT/DS121/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
Argentina – Safeguard Measures on Imports
of Footwear
Argentina,  Appellant /Appellee
European Communities,  Appellant /Appellee
Indonesia,  Third Participant
United States,  Third ParticipantAB-1999-7
Present:Bacchus,  Presiding Member
Beeby,  Member
Matsushita,  Member
I. Introduction
1. Argentina and the European Communities appeal certain issues of law and legal interpretation
in the Panel Report, Argentina – Safeguard Measures on Imports of Footwear  (the "Panel Report").1
The Panel was established to consider a complaint by the European Communities with respect to the
application by Argentina of certain safe guard measures on imports of footwear.
2. On 14 February 1997, Argentina initiated a safeguard investigation and adopted
Resolution 226/97, which imposed provisional measures in the form of minimum specific duties onimports of certain footwear.
2  On the same day, the Argentine Ministry of Economy and Public Works
repealed the minimum specific duties on imports of footwear ("DIEMs") that had been maintained byArgentina since 31 December 1993.
3 The opening of the safeguard investigation and the
implementation of a provisional safeguard measure were notified to the Committee on Safeguards by
Argentina in a communication dated 21 February 1997  4 and, by further communication dated 5
March 1997, Argentina transmitted a copy of the provisional duty resolution to the Committee onSafeguards.
 5
                                                     
1WT/DS121/R, 25 June 1999.
2Panel Report, para. 2.1.  The Resolution became effective on 25 February 1997.
3Ibid., para. 8.2.
4G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, 25 February 1997.
5G/SG/N/6/ARG/1Suppl.1 and G/SG/N/7/ARG/1/Suppl.1, 18 March 1997.WT/DS121/AB/R
Page 2
3. On 25 July 1997, Argentina notified the Committee on Safeguards of the determination of
serious injury made by its competent authorities, the Comisión Nacional de Comercio Exterior("CNCE").
6  Attached to this notification was Act 338, the report of the CNCE on serious injury.
Act 338 incorporates by reference the Technical Report, a summary by CNCE staff of the factual data
gathered during the safeguard investigation.7  On 1 September 1997, Argentina notified the
Committee on Safeguards of its intention to impose a definitive safeguard measure.  8  O n
12 September 1997, Argentina adopted Resolution 987/97, which imposed, effective13 September 1997, a definitive safeguard measure in the form of minimum specific duties on certainimports of footwear.  On 26 September 1997, Argentina transmitted a copy of this Resolution to theCommittee on Safeguards
 9, and Uruguay, as Pro Tempore President of the Mercado Común del Sur
("MERCOSUR")10 notified the definitive safeguard measure imposed by that Resolution.11  O n
28 April 1998, Argentina published Resolution 512/98 modifying Resolution 987/97.12  On
26 November 1998, Argentina published Resolution 1506/98, further modifying Resolution 987/97,
and, on 7 December 1998, the Argentine Secretaria t of Industry, Commerce and Mines published
Resolution 837/98 implementing Resolution 1506/98.13  The relevant factual aspects of this dispute
are set out in further detail at paragraphs 2.1–2.6 and 8.1–8.20 of the Panel Report.
4. The Panel considered claims made by the European Communities that Argentina's safeguard
measures are inconsistent with Articles 2, 4, 5, 6 and 12 of the  Agreement on Safeguards , and with
Article XIX:1(a) of the  General Agreement on Tariffs and Trade 1994  (the "GATT 1994").  The
Panel Report was circulated to the Members of the World Trade Organization (the "WTO") on25 June 1999.
5. The Panel concluded that "the definitive safeguard measure on footwear based on Argentina's
investigation and determination is inconsistent with Articles 2 and 4 of the Agreement on Safeguards"and, therefore, "that there is nullification or impairment of the benefits accruing to the European
                                                     
6G/SG/N/8/ARG/1, 21 August 1997.
7Panel Report, paras. 5.250-5.251 and 8.127-8.128.
8G/SG/N/10/ARG/1, G/SG/N/11/ARG/1, 15 September 1997;  corrigendum 18 September 1997.
9G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, 10 October 1997.
10MERCOSUR was established on 26 March 1991, when Argentina, Brazil, Paraguay and Uruguay
signed the Treaty of Asunción, which provides for the creation of a common market among its four StateParties.
11G/SG/N/10/ARG/1/Suppl.2, G/SG/N/11/ARG/1/Supp.2, G/SG/14/Suppl.1 and G/L/195/Suppl.1,
22 October 1997.
12Panel Report, para. 2.5.
13Ibid., para. 2.6.WT/DS121/AB/R
Page 3
Communities under the Agreement on Safeguards within the meaning of Article 3.8 of the DSU."  14
The Panel found "no basis to address the [European Communities'] claims under Article XIX of
GATT separately and in isolation from those under the Safeguards Agreement."15  The Panel rejected
the claims of the European Communities under Article 12 of the  Agreement on Safeguards  16 and, in
light of its determination that the definitive safeguard measure is inconsistent with Articles 2 and 4 of
the  Agreement on Safeguards , the Panel did not consider it necessary to make findings with respect to
the claims of the European Communities under Articles 5 and 6 of that Agreement.17
6. On 15 September 1999, Argentina notified the Disp ute Settlement Body (the "DSB") of its
intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations
developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes  (the "DSU"), and filed a Notice of Appeal pursuant
to Rule 20 of the Working Procedures for Appellate Review  (the " Working Procedures ").  On
27 September 1999, Argentina filed its appellant's submission.18  On 30 September 1999, the
European Communities filed its own appellant's submission.19  On 11 October 1999, Argentina20 and
the European Communities21 each filed an appellee's submission.  On the same day, Indonesia and the
United States each filed a third participant's submission.  22
7. On 19 October 1999, the Appellate Body received a letter from the Government of Paraguay
indicating its interest "in attending" the oral hearing in this appeal.  On 25 October 1999, theAppellate Body received a second letter from Paraguay clarifying that it was not requesting anopportunity to "make oral arguments or presentations at the oral hearing" as set forth in Rule 27.3 ofthe  Working Procedures .  Rather, Paraguay maintained that, as a third party which had notified its
interest to the Dispute Settlement Body under Article  10.2 of the DSU, it had the right to "participate
passively" in the oral hearing before the Appellate B ody in the present dispute.  No participant or third
participant objected to the participation of Paraguay on a "passive" basis.  On 26 October 1999, the
                                                     
14Panel Report, para. 9.1.  The Panel's conclusions applied to "the definitive safeguard measure in its
original legal form (i.e., Resolution 987/97) as well as in its subsequently modified form (i.e.,Resolutions 512/98, 1506/98 and 837/98)." (Panel Report, para. 8.305)  This finding has not been appealed and,therefore, stands.
15Panel Report, para. 8.69.
16Ibid., paras. 8.301 and 8.304.
17Ibid., paras. 8.289 and 8.292.
18Pursuant to Rule 21(1) of the Working Procedures .
19Pursuant to Rule 23(1) of the Working Procedures .
20Pursuant to Rule 23(3) of the Working Procedures .
21Pursuant to Rule 22 of the Working Procedures .
22Pursuant to Rule 24 of the Working Procedures .WT/DS121/AB/R
Page 4
Members of the Division hearing this appeal informed Paraguay, the participants and third
participants that, having regard to the provisions of Articles 10.2 and 17.4 of the DSU as well as theprovisions of Rules 24 and 27 of the  Working Procedures , Paraguay would be allowed to attend the
oral hearing as a "passive observer".
8. The oral hearing in the appeal was held on 29 October 1999.  The participants and third
participants presented oral arguments and responded to questions put to them by the Members of theDivision hearing the appeal.
II. Arguments of the Participants
A. Claims  of Error by Argentina – Appellant
1. Terms of Reference
9. Argentina argues that the Panel violated Article 7.2 of the DSU and exceeded its jurisdiction
because the Panel not only considered, but relied on23, alleged violations of Article 3 of the
Agreement on Safeguards  even though the European Communities' request for the establishment of a
panel and the Panel's terms of reference mentioned alleged violations of only Articles 2 and 4 of the
Agreement on Safeguards .
10. Argentina notes that Articles 3 and 4 of the Agreement on Safeguards  are separate provisions,
each of which sets out distinct requirements.  In Argentina's view, Members intended with theseprovisions to allow national authorities to separate the Article 3 " findings and conclusions "
requirement from the Article 4 requirement of a " detailed analysis ", as is done in practice in
Argentina.  In this case, the "findings and conclusions" to which Article 3 refers are containedexclusively in Act 338 (on which the Panel relied ), but no claim of a violation of Article 3 was
before the Panel.
11. Argentina emphasizes that due process concerns underlie the rule that a Panel's jurisdiction is
limited by its terms of reference, as recognized in the Appellate Body Reports in  Brazil – Measures
Affecting Desiccated Coconut ("Brazil – Desiccated Coconut ")
 24 and  India – Patent Protection for
Pharmaceutical and Agricultural Chemical Products  ("India – Patents ").  25  Argentina concludes that,
by excluding Article 3 from its panel request, the European Communities essentially notifiedArgentina that it would not have to defend itself against Article 3 allegations.  Argentina adds that
                                                     
23In paras. 8.126, 8.127, 8.205, 8.207, 8.218 and 8.238 of the Panel Report.
24Appellate Body Report, WT/DS22/AB/R, adopted 20 March 1997, p. 22.
25Appellate Body Report, WT/DS50/AB/R, adopted 16 January 1998, para. 92.WT/DS121/AB/R
Page 5
since Article 3 is central to the Panel's decision-making, the Panel's statements about Article 3 cannot
be considered harmless error, " purely gratuitous comment " or not " a legal finding or conclusion. " 26
2. Imposition of Safeguard Measures by a Member of a Customs Union
12. Argentina argues that the Panel erred in its legal reasoning and interpretation of the
Agreement on Safeguards with respect to Argentina's right to exclude its partners in MERCOSUR
from the application of safeguard measures.  In Argentina's view, the Panel misinterpreted footnote 1to Article 2.1 of the Agreement on Safeguards , and imposed an obligation to apply safeguard
measures to customs union members when imports from all sources are taken into account for theinjury determination, as well as a "parallelism requirement".  Argentina maintains that neither of thesesupposed obligations has any basis in the Agreement on Safeguards .
13. Argentina contends that the footnote to Artic le 2.1 addresses comprehensively the conditions
applicable to a safeguard investigation when a Member is part of a customs union.  The fourthsentence of the footnote reflects the fact that Members could not agree on how to reconcile the
requirements of Article XXIV:8 of the GATT 1994 with the most-favoured-nation requirement in
Article 2.2 of the Agreement on Safeguards .  Thus, in the last sentence of the footnote, Members
specifically acknowledged that there was no resolution of this conflict in the  Agreement on
Safeguards .  Argentina notes that the drafting history of footnote 1 shows that the Members deleted
the very provisions that the Panel has attempted to "read in" to the existing text of the footnote.
27
14. Argentina alleges as well that the Panel erred in law by imposing a "parallelism requirement"
between the determination of injury and the application of the safeguard measure that is not found inthe Agreement on Safeguards .  Article 5, which sets out the requirements for the application  of
safeguard measures, makes no reference to any requirement of "parallelism", except to the extent that
a measure may not exceed what is necessary to remedy the injury.  Similarly, Article 9, whichexempts developing countries from the  application   of safeguard measures in certain circumstances,
does not impose a requirement that parallel modifications be made as part of the injury determination.
                                                     
26Appellate Body Report, Australia – Measures Affecting Importation of Salmon  ("Australia –
Salmon "), WT/DS18/AB/R, adopted 6 November 1998, para. 110.
27Argentina cites a text tabled on 31 October 1990 by the Chairman of the Negotiating Group on
Safeguards (MTN.GNG/NG9/W/25/Rev.3), which included the following proposal for the last sentence of the
footnote:
It is understood that when a safeguard measure is applied by a customs union
on behalf of a member state, [any injury attributable to competition from
producers established in other member states in the customs union shall not
be attributed to increased imports, in conformity with the provisions of sub-
paragraph 7(b)] [such a measure shall be applied to imports from other
member states of the customs union].  (emphasis added by Argentina)WT/DS121/AB/R
Page 6
In Argentina's view, the only "parallelism" on wh ich the Members agreed is that only the market
where injury is found can apply safeguard measures.
3. Claims Under Articles 2 and 4 of the  Agreement on Safeguards
15. Argentina argues that, despite articulating a standard of review which essentially requires that
a decision be "reasoned" and the decision-making process "explained", the Panel committed
"significant legal error" by engaging in a "wholesale exercise of  de novo   review".28  In its appellant's
submission, Argentina referred to the standard of review applied by the panel in  United States –
Imposition of Antidumping Duties on Imports of Fr esh and Chilled Atlantic Salmon from Norway
("United States – Salmon ") 29
 , as well as certain national rules of judicial review, for example, in the
United States Court of Appeals for the Federal Circuit.  Argentina clarified during the oral hearingthat it accepts that the appropriate standard of revi ew is found in Article 11 of the DSU, and that the
Panel correctly identified this standard of review.  Argentina's position is, rather, that havingidentified the proper standard of review, the Panel did not apply it correctly.  Instead, Argentina
contends, the Panel erred in conducting a " de facto de novo " review of the findings and conclusions of
the Argentine investigating authority.
16. In Argentina's view, the Panel's approach demonstrates confusion about the meaning of
de novo   review.
 30  The Panel repeatedly substituted its judgment for that of the Argentine authorities
and set out its own view of the correct analysis to  be made and the conclusions to be drawn.  The
Panel's analysis went far beyond the approach used in the cases to which to the Panel referred.31  The
Panel read methodologies into the  Agreement on Safeguards   where that Agreement itself is silent,
and it did so despite the fact that the Members have reached no agreement on such methodologies.
Argentina also contests the Panel's characterization of the object and purpose of the  Agreement on
Safeguards   as focused on limiting trade restrictions, and its reliance on this characterization in its
reasoning and decision making.  Argentina argues that the  Agreement on Safeguards   was in fact
intended  both  to increase discipline and transparency in safeguards cases  and  to liberalize some of
the rules relating to Article XIX in order to encourage Members to eliminate grey-area measures.
                                                     
28Argentina's appellant's submission, p. 25.
29Panel Report, ADP/87, adopted 27 April 1994, BISD 41S/229, para. 406.
30Argentina notes that " de novo  review" has been defined as "trying the matter anew – as if it had not
been heard before."  Black's Law Dictionary  (West Publishing Co., 5th ed., 1979) p. 392.
31Panel Report, United States – Restrictions on Imports of Cotton and Man-made Fibre Underwear
("United States – Underwear "), WT/DS24/R, adopted 25 February 1997, as modified by the Appellate Body
Report WT/DS24/AB/R;  Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses  ("United States – Shirts and Blouses "), WT/DS33/R, adopted 23 May 1997, as upheld by the Appellate
Body Report WT/DS33/AB/R.WT/DS121/AB/R
Page 7
17. With respect to the Panel's analysis of Argent ina's determination that imports had increased,
Argentina argues that the Panel collapsed the "increased imports" requirement with otherrequirements of Article 2, and wrongly treated it as a qualitative, rather than a quantitativerequirement.  In Argentina's view, the ordinary meaning of increased imports is that imports have
become greater, and, contrary to the position of the European Communities, there is no factual or
contextual support for any additional requirements in the  Agreement on Safeguards .
18. Argentina emphasizes that the Panel took a very specific view of how the "increase" in
imports must be calculated and compared.  Even though the Panel recognized that the five-year baseperiod selected was not inappropriate and that, on the basis of such review period, imports increased,the Panel nevertheless continued its inquiry and imposed a number of methodological hurdles whichmust be overcome before a finding of "increased imports" can be justified.  The Panel misdefined theword "rate" in Article 4 to include "direction", and found that there could only be "increased imports"in this case if:  (i) a change in the base year from 1991 to 1992 would still result in an increase;  (ii)
the analysis of end points and interim periods were mutually reinforcing;  and (iii) it was found that
the decrease in imports in 1994 and 1995 was temporary.
19. Argentina argues that, in its attempt to arrive  at the "correct" result, the Panel ignored the
following:  (i) 1991 was an appropriate starting point to measure any increase because 1991 was theyear in which market reforms were completed in Argentina;  (ii) the "mutually reinforcing"requirement means that virtually any decrease in imports during a review period could prevent afinding of increased imports;  and (iii) the Argentine decision in Act 338 specifically notes that thedecline in imports was due to the specific duties that had been placed on footwear imports.
20. Argentina contends that, in effect, the Panel did not object to the  analysis  made by the
Argentine authorities, but to their conclusion  that imports increased absolutely.  The Panel erred
because the effect of its approach was to redetermine the weight to be assigned to each fact.  Such anapproach does not meet the requirement of Article 11 of the DSU that an objective assessment beprovided.  The Panel also violated Article 11 of the DSU by referring to the  preliminary , rather than
the final determination of the Argentine authorities, in support of its findings.  In addition, the Panel
violated Article 3.2 of the DSU by imposing obligations on Argentina that are not found in theAgreement on Safeguards .
21. Argentina submits also that the Panel erred in its analysis of Argentina's determination of
"serious injury".  In Argentina's view, Article 4.2(c) of the  Agreement on Safeguards   only requires a
demonstration of the relevance of the factors examined, and not an examination of whether all factorsare relevant.  The Panel wrongly found that Argentina had not properly considered the factors ofWT/DS121/AB/R
Page 8
capacity utilization and productivity, despite the fact that productivity is explicitly mentioned in
Act 338 and the data to calculate capacity utilization was available to the Argentine authorities.
22. Argentina argues further that the Panel misinterpreted the evidence on "serious injury" and
then found it to be legally deficient.  The Panel improperly "required" Argentina to consider 1996 data
as part of its injury determination, and erred in dismissing Argentina's argument that it could not have
relied on 1996 data, as the record clearly shows that the data for 1996 was incomplete.  Argentinasubmits that it was appropriate and reasonable to use a single review period for which all data wasavailable as the basis for its consideration of all injury factors.
23. Despite certain statements made by the Panel, Argentina argues that the record is clear about
the data used for each injury factor.  Accordingl y, the Panel erred in:  (i) finding that Argentina
violated the  Agreement on Safeguards  because the questionnaire results did not match such public
industry-wide data;  (ii) criticizing the Argentine authorities' treatment of interested party data whichdiffered from questionnaire results;  (iii) criticizing as inconsistent the data on overall firm
profitability and its break-even point analysis;  and  (iv) finding that Argentina did not explain how a
shift to higher-value production was a sign of injury.
24. Argentina argues that the Panel further erred in its findings with respect to causation.  The
Argentine authorities concluded that imports took market share from the domestic industry, and thatthis led to a fall in domestic production that caused financial and economic indicators to fall for thecompanies investigated.  The Panel criticized this analysis and set out three of its own "standards".First, the Panel required that an upward trend in imports  coincide   with a  downward   trend in the
injury factors.  Argentina notes that Article 4.2(c) of the Agreement on Safeguards  refers to
"changes", not "downward trends", so th ere is no requirement that there be a  downward   trend in each
year of the period of review.  Moreover, the Panel's requirement of "coincidence" in time is notimplied by the term "cause".  Second, the Panel used the phrase "under such conditions" to develop arequirement that the "conditions of competition" between imported and domestic footwear in theArgentine footwear market demonstrate a "causal link" between increased imports and injury.Argentina asserts that there is no basis in the  Agreement on Safeguards   for this requirement.  Third,
the Panel required the Argentine authorities to establish that other relevant factors have beenanalyzed, and that injury caused by factors other than imports has not been attributed to imports.
Argentina maintains that this requirement goes  far beyond those actually contained in the  Agreement
on Safeguards , and fails to acknowledge the approach of th e Argentine authorities, which ensured that
general macroeconomic factors were not attributed to imports.WT/DS121/AB/R
Page 9
25. Finally, Argentina believes that the Panel viol ated Article 12.7 of the DSU, which requires
that a panel report include the "basic rationale" behind any findings and recommendations that a panelmakes.  For example, Act 338 specifically notes that the decline in imports was due to the specificduties placed on footwear imports in 1993.  Argentina contends that the Panel ignored this in its
insistence that the  Agreement on Safeguards   requires an analysis of intervening trends and its
criticism of Argentina for failing to take such tren ds into account.  Argentina contends also that the
Panel misinterpreted the evidence before it on "serious injury" and then found that evidence to belegally deficient.  In Argentina's opinion, therefore, the Panel's conclusions "are not rational and donot follow logically from the evidence".
32
B. Arguments by the European Communities  – Appellee
1. Terms of Reference
26. The European Communities does not agree with Argentina that the Panel erred in considering
or relying, in its reasoning, on Article 3 of the  Agreement on Safeguards   and, accordingly asks the
Appellate Body to affirm the Panel's conclusions in  that respect.  The European Communities notes
that the Panel has not found a violation of Article 3 of the  Agreement on Safeguards  as such .  Instead
the Panel legitimately referred to the requirements contained in Article 3.1 when considering theviolation of Article 4.2(c) (which the European Communities did invoke), because Article 4.2(c)contains a cross-reference to Article 3.  Moreover, the European Communities argues that, even inthe absence of a specific cross-reference, panels and the Appellate Body may, in their reasoning,legitimately rely on a provision that was not mentioned in the request for the establishment of a panel.The European Communities notes also that it made no claim of a violation of Article 3.
2. Imposition of Safeguard Measures by a Member of a Customs Union
27. The European Communities agrees with the Panel that the  Agreement on Safeguards  
contains a "parallelism" requirement. By taking into consideration imports from MERCOSURcountries for the purposes of making its injury determination, even though it never intended to imposemeasures on those imports, Argentina violated its obligations under the  Agreement on Safeguards  
and Article XIX of the GATT 1994.  During the oral hearing, the European Communities emphasized,however, that the Panel's interpretation of Article XXIV of the GATT 1994 and Article 2.2 of theAgreement on Safeguards   was not necessary to support its conclusion that a parallelism requirement
exists, that no claim relating to the legal status of MERCOSUR was made before the Panel, and that
                                                     
32Argentina's appellant's submission, p. 61.WT/DS121/AB/R
Page 10
neither party to this dispute has appealed the Panel's apparent assumption that Article XXIV is
applicable.
28. The European Communities points out that the text of Article 2.1 of the  Agreement on
Safeguards   sets out the  requirements   which should be fulfilled before a Member may apply a
safeguard measure .  This provision therefore underscores the inherent link between the  requirements  
and the  measure .  Article 5 of the  Agreement on Safeguards  reinforces such a link by providing that
"[a] Member shall apply safeguard measures only  to the extent necessary   to prevent or remedy
serious injury" and that "Members should choose measures  most suitable   for the achievement of
these objectives."  In the view of the European Communities, Article 9 of the  Agreement on
Safeguards   does not support Argentina's position that there is no "parallelism requirement" in the
Agreement on Safeguards .  Article 9 contains an express exception to the concept of "parallelism", but
no similar express exception is foreseen for members of customs unions.
29. The European Communities argues that Arti cle XIX of the GATT 1994 also requires
parallelism.  A liberalization obligation must give rise to increased imports, which in turn must cause
serious injury.  Under Article XIX, the authorized remedy for that serious injury can only be the
suspension of the relevant GATT or WTO liberalization obligation.  Accordingly, obligationsincurred by Argentina  within the framework of its customs union   cannot justify a safeguard measure,
and imports subject to such obligations must be excluded from the analysis.  The EuropeanCommunities notes in this context that there is no WTO obligation on Argentina not to imposesafeguard measures on its MERCOSUR partners , only an internal MERCOSUR commitment.
3. Claims Under Articles 2 and 4 of the  Agreement on Safeguards
30. The European Communities maintains that the Panel correctly interpreted and applied the
standard of review contained in Article 11 of the DSU, and did not engage in a  de novo   review.
31. The European Communities requests the Appellate Body to uphold the Panel's findings on
"increased imports".  The European Communities submits that the requirement of "increased imports"in Article 2.1 of the  Agreement on Safeguards   "should now be read in the light of the new package
of rights and obligations,"
33 including Article XIX of the GATT 1994, and the  Agreement on
Safeguards , as well as on the basis of the object and purpose of these agreements.  Given the content
of the new "package", the determination of "increased imports" necessarily contains more than it didunder the safeguard regime governed by Article XIX of the GATT 1947.  The European Communities
concludes that a strictly quantitative interpretation of the "increased imports" requirement (assuming
                                                     
33European Communities' appellee's submission, para. 71.WT/DS121/AB/R
Page 11
arguendo   that such an interpretation existed under Article XIX of the GATT 1947) can no longer be
reconciled with the functioning of the safeguard mechanism under the WTO.
32. In the view of the European Communities, the Panel did not, as Argentina claims, require that
both the end point to end point analysis and the intervening periods  must be   mutually reinforcing.
Rather, the Panel concluded that the Member taking a safeguard measure should determine whether or
not imports increased by examining the issue from more than just one angle.  If one analysis goes in a
different direction from the other, then, as the Panel says, this "raises doubts" as to whether theconclusion that "imports increased" is justified, and a proper explanation is required.  The EuropeanCommunities also highlights the fact that the Panel has based its reasoning on the "increased imports"requirement on the import figures for  all  countries, that is, including   MERCOSUR countries.  The
European Communities argues that Argentina's non-fulfilment of the requirement of "increasedimports" is even more striking when third-country imports are separated out.
33. The European Communities submits that the Pa nel correctly analysed Argentina's serious
injury determination as required by Article 11 of the DSU and was justified in concluding that this
determination did not comply with the  Agreement on Safeguards .  In the view of the European
Communities, the ordinary meaning of the requirement contained in Article 4.2(a) of the  Agreement
on Safeguards   that "the competent authorities shall evaluate all relevant factors" is that such
authorities are required to:  (i) evaluate  at least   all of the factors mentioned in Article 4.2(a), and
possibly more, if necessary;  and (ii) on the basis of this examination demonstrate –  and publish –  therelevance of the factors considered.  The European Communities submits that the Panel correctlyconcluded that Argentina failed to undertake these legally required steps with regard to capacity
utilization and productivity.
34. The European Communities also requests the Appellate Body to uphold the Panel's analysis
of Argentina's treatment of 1996 data.  Article 4.2(a) of the  Agreement on Safeguards  requires " all
relevant factors " to be considered, and the most  relevant   information is the most  recent .  The
European Communities rejects Argentina's claim that, since it could consider 1996 data for some butnot for all factors, it was reasonable to use a single review period for which all data are available.  TheAgreement on Safeguards   does not oblige Members to base their determinations on a complete set of
data for all  factors for a  fixed   time-frame.  By deliberately ignoring the 1996 information for those
factors for which it  had  collected the information, Argentina made conclusions which were not
reasonably supported by the facts.
35. The European Communities submits that the Pa nel correctly analysed Argentina's causation
determination, as required by Article 11 of the DSU, and was justified in concluding that thisWT/DS121/AB/R
Page 12
determination did not meet the requirements set out in Article 4 of the  Agreement on Safeguards.  In
the view of the European Communities, the ordinary meaning of the term causation is "the act ofcausing or producing an effect".
 34  One event (the increase in imports) must  produce   the other event
(serious injury).  If the two events take place simultaneously, then the probability that the events are
linked is greater than if they happen many years apart.  The longer the time between the two events,
the more a compelling analysis is required of why causation is still present.
36. The European Communities considers that the Panel correctly interpreted the "under such
conditions" requirement in Article 2.1 of the  Agreement on Safeguards   as indicating the need to
analyse the conditions of competition between the imported product and the domestic like or directlycompetitive products as part of the causation analysis required by Article 4.2(a) and (b).
 35  T h e
European Communities disputes Argentina's claim that Article 4.2(b) of the Agreement on
Safeguards   does not require a separate analysis of possible "other" factors.  In order to conclude that
no "other" factor had caused the serious injury, the European Communities submits that it is necessary
to examine whether there were such other factors present and to examine their impact on the domestic
industry.  In the view of the European Communities , by not providing such an analysis, in particular
of the "tequila effect", Argentina violated Article 4.2(b) and (c) of the  Agreement on Safeguards .
37. With respect to Argentina's claim of a violation of Article 12.7 of the DSU, the European
Communities submits that, as the Appellate Body found in  Korea – Taxes on Alcoholic Beverages
("Korea – Alcoholic Beverages ")36, the Panel has set out a detailed and thorough rationale for its
findings and recommendations in this case, as required by Article 12.7 of the DSU, and, therefore,there is no violation.
C. Claims of Error by the European  Communities – Appellant
1. Relationship Between Article XIX of the GATT 1994 and the Agreement
on Safeguards  
38. The European Communities appeals and requests the Appellate Body to reverse the Panel's
conclusion that safeguard measures imposed after the entry into force of the WTO agreements which
meet the requirements of the new  Agreement on Safeguards   also thereby satisfy the requirements of
Article XIX of the GATT 1994, as well as the Panel's consequent refusal to rule on the EuropeanCommunities' Article XIX claim.  The European Communities further requests the Appellate Body to
                                                     
34European Communities' appellee's submission, para. 121.
35Panel Report, para. 8.250.
36Appellate Body Report, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, para. 168.WT/DS121/AB/R
Page 13
reverse the legal interpretations and findings made in support of this conclusion, notably the Panel's
erroneous reference to the " express omission  of the criterion of unforeseen developments" in the
Agreement on Safeguards.   The European Communities requests the Appellate Body to complete the
Panel's reasoning and find, on the basis of the uncontested facts, that Argentina did not comply with
the requirement contained in Article XIX:1(a) of  the GATT 1994 to take safeguard measures only
where the alleged increase in imports is " as a result of unforeseen developments ".
39. The European Communities asserts that the requirement that increased imports result from
"unforeseen developments" is a fundamental characteristic of safeguard measures, and lies at thebeginning of the "logical continuum" of events ju stifying the invocation of the safeguard mechanism.
This starts with a WTO Member incurring an obligation under the GATT 1994.  After this obligation
is implemented, an unforeseen development occurs, resulting in increased imports, which occur underconditions such that serious injury (or a threat th ereof) is caused.  In the view of the European
Communities, if this chain of  events has occurred, then a WTO Member may take a safeguard
measure.
40. The European Communities is convinced that the WTO agreements are a "single undertaking"
which constitutes an "integrated system".  The requirement that increased imports must result from"unforeseen developments" and the other fundamental characteristics of safeguard measures were notexpressly repeated in the  Agreement on Safeguards   because they did not need to be clarified, added
to or modified.
41. The European Communities submits that there are four possible relationships between a
provision of the GATT 1994 and an Agreement in Annex 1A of the  Marrakesh Agreement
Establishing the World Trade Organization  (the " WTO Agreement "), namely:  a conflict   between
provisions of the two texts;  an  overlap   of provisions of the two texts
37;  an express derogation   in an
Agreement in Annex 1A of the  WTO Agreement   that allows for a violation of the GATT 1994;  and
provisions that are  complementary .  The European Communities argues that the fourth option, i.e,
complementary  provisions, describes the relationship between Article XIX:1(a) and Article 2.1 of the
Agreement on Safeguards , and should have formed the basis for the Panel's reasoning.  The Appellate
Body has confirmed in  Brazil – Desiccated Coconut  38 and  Guatemala – Antidumping Investigation
Regarding Grey Portland Cement from Mexico ( "Guatemala – Cement ") 39 that provisions of the
                                                     
37See e.g., Panel Report,  European Communities – Regime for the Importation, Sale and Distribution
of Bananas  ("European Communities – Bananas "), WT/DS27/R/USA, adopted 25 September 1997, as modified
by the Appellate Body Report, WT/DS27/AB/R, para. 203.
38Supra,  footnote 24.
39Appellate Body Report, WT/DS60/AB/R, adopted 25 November 1998.WT/DS121/AB/R
Page 14
GATT 1994 and the relevant Agreement in Annex 1A of the  WTO Agreement  represent a package of
rights and disciplines that must be considered in conjunction.  Applying this to the present case, theEuropean Communities argues that the  Agreement on Safeguards   does not supersede or replace the
GATT 1994, and that it is possible to apply the conditions in the GATT 1994 and the  Agreement on
Safeguards   together, because there is no formal conflict   between them.
42. The European Communities argues that the ordinary meaning of the term " as a result of
unforeseen developments " is "as a consequence of a sudden change in a course of action or events or
in conditions that has not been foreseen".
 40  The European Communities agrees that the opening
phrase of Article XIX:1(a) of the GATT 1994 is relevant context for the " as a result of unforeseen
developments " requirement, but comes to a conclusion opposite to that reached by the Panel.  This
phrase makes clear that there are two pre-conditions which need to be present before a safeguardaction can be taken.  Imports should increase  as a result of   unforeseen developments, and also  as a
result of   the effect of tariff concessions or any other obligations under the GATT 1994.
43. The European Communities rejects the reasoning of the Panel on the object and purpose of
the  Agreement on Safeguards .  In the view of the European Communities, the object and purpose of
the  Agreement on Safeguards   is inherently linked with Article XIX of the GATT 1994, entitled
"Emergency Action  on Imports of Particular Products". (emphasis added)  Therefore, safeguard
measures are by definition a mechanism based on "emergencies":  the very nature of a safeguardmeasure is to tackle an  urgent   situation which was  not expected .
44. The European Communities is of the view al so that the Panel mis-interpreted the 1951
Hatters ' Fur   case
41 by stating that it "made it easier" to meet the " unforeseen developments "
condition, and that the Panel wrongly gave credit to the view of one legal scholar that this case
"essentially read the unforeseen developments condition out of the text of Article XIX:1(a) ofGATT 1947".
 42  In fact, the  Hatters ' Fur  Working Party confirmed the validity and relevance of the
"as a result of unforeseen developments " requirement.  The European Communities adds that further
support for the continuing validity of the " as a result of unforeseen developments " requirement is
found in recent texts of national legislation notified by WTO Members.  Korea, Costa Rica, Norway,Panama and Japan have all incorporated the phrase in their national laws.
                                                     
40European Communities' appellant's submission, para. 24.
41Report of the Intersessional Working Party on the Complaint of Czechoslovakia Concerning the
Withdrawal by the United Stat es of a Tariff Concession under the Terms of Article XIX , ("Hatters ' Fur "),
GATT/CP/106, adopted 22 October 1951.
42Panel Report, para. 8.65, footnote 470.WT/DS121/AB/R
Page 15
D. Arguments by Argentina  – Appellee
1. Relationship Between Article XIX of the GATT 1994 and the  Agreement
on Safeguards  
45. Argentina requests the Appellate Body to affirm the Panel's finding that "safeguard measures
imposed after the entry into force of the WTO agreements which meet the requirements of the newSafeguards Agreement satisfy the requirements of Article XIX of GATT"
 43 and to decline to consider
the claims of the European Communities under Articl e XIX separately.  Argentina maintains that the
"unforeseen developments" requirement in Article XIX has not been included in the  Agreement on
Safeguards , and that this significant omission can only be attributed to the intention of Members to
eliminate that requirement  as a condition separate from and independent of the provisions of the
Agreement on Safeguards .
46. Argentina finds no legal text or other element that supports the reasoning of the European
Communities that there is a "logical continuum of events" that conditions the application of asafeguard measure and that begins with the conditi on that "unforeseen developments" must occur.  To
Argentina, it is clear that the Uruguay Round undertook to recast the disciplines governing the
application of safeguard measures by clarifying, developing and, where appropriate, modifying some
aspects of those disciplines.  If the entire content of Article XIX were perfectly consistent with the
Agreement on Safeguards , there would have been no need to include in Article 11.1(a) the reference
to "provisions of that Article applied in accordance with this Agreement".
47. In Argentina's view, the fact that certain Article XIX provisions are not expressly
incorporated in the Agreement on Safeguards   does not support the position of the European
Communities.  For example, the concept of  "emergency action" is incorporated by reference  in
Article 11.1(a), with the clarification that any measure of this kind must be applied in conformity bothwith the  Agreement on Safeguards   and with Article XIX, and the provision that safeguard
measures consist of the suspension of the relevant GATT obligation or the withdrawal or modification
of the relevant concession appears in Article 8 of the Agreement on Safeguards .  Similarly, the
concept of "unforeseen developments" is now fully met once the conditions under Article 2 of theAgreement on Safeguards   have been satisfied.  Consequently, Argentina submits that it is clear that a
situation in which a product is being imported "in such increased quantities" and "under suchconditions" as to cause or threaten serious injury is now, by definition, an instance of "unforeseendevelopments" within the meaning of Article XIX and Article 2 of the  Agreement on Safeguards .
                                                     
43Panel Report, para. 8.69.WT/DS121/AB/R
Page 16
48. Argentina argues that none of the four possible interpretations put forward by the European
Communities constitutes the proper analytical approach based on  Brazil - Desiccated Coconut .  The
panel in  Brazil – Desiccated Coconut   specifically rejected the notion that the  Agreement on
Subsidies and Countervailing Measures  (the " SCM Agreement ") merely imposed  additional  
substantive and procedural obligations44 or that a measure imposed under that Agreement and under
Article VI of the GATT 1994 would necessarily be consistent with Article VI in isolation.45
Argentina interprets this case to mean that Article VI in and of itself can no longer have anindependent, separate meaning, and that both agreements must be considered in conjunction.
46
49. Argentina refers to the negotiating history of the  Agreement on Safeguards   in support of its
position, noting that the June 1989 draft of that Agreement contained the concept of an "unforeseenincrease … " in imports.
47  By mid-1990, though, all references to measures taken as a result of
unforeseen or emergency situations had disappeared from the drafts of the  Agreement on
Safeguards .48  Thus, in Argentina's view, the requirement that the increase in imports should result
from unforeseen circumstances was expressly considered during the negotiation and intentionally left
out of the text.
50. Argentina highlights the fact that the Eu ropean Communities eliminated the "unforeseen
developments" requirements from its domestic legislation on safeguards.  49  Argentina considers this
to be proof that the European Communities did not it self consider that the requirement existed in the
context of the new rights and obligations defined and interpreted in the  Agreement on Safeguards .
51. Argentina requests that if the Appellate Body does not accept the Panel's interpretation, then,
in the alternative, the Appellate Body should find that there is a "conflict" between the  Agreement on
Safeguards   and Article XIX, and confirm that the  Agreement on Safeguards   takes precedence over
Article XIX in accordance with the General Interpre tative Note to Annex 1A.  Finally, in the event
that the Appellate Body finds that there is a separate obligation to verify the existence of unforeseendevelopments, Argentina requests, in the further alternative, that the Appellate Body find thatArgentina did verify such unforeseen developments in its investigation.  Argentina stated in its
                                                     
44Panel Report, WT/DS22/R, adopted 20 March 1997, as upheld by the Appellate Body Report,
WT/DS22/AB/R, para. 246.
45Ibid., para. 247.
46Appellate Body Report, Brazil – Desiccated Coconut , supra , footnote 24, p. 16
47MTN.GNG/NG9/W/25, 27 June 1989.
48MTN.GNG/NG9/W/25/Rev.2, 13 July 1990.
49EC Regulation 3285/94, OJ 1994 L349/53.WT/DS121/AB/R
Page 17
decision that "the pressure of imports was unforeseen on account of its rapid pace of increase at a time
when the national economy was facing macroeconomic problems".50
E. Arguments by  the Third Participants
1. Indonesia
52. Indonesia agrees with the European Communities that Argentina's safeguard measure was
"fatally flawed" because it was not imposed in response to "unforeseen developments" as required byArticle XIX of the GATT 1994.  Indonesia also joins the European Communities in its request that theAppellate Body complete the Panel's analysis and hold that Argentina acted in violation ofArticle XIX.  In Indonesia's view, the Pa nel's treatment of Article XIX and the Agreement on
Safeguards   is in direct conflict with the construction of the relationship between the GATT 1994 and
the Annex 1A Agreements by previous panels and by the Appellate Body.  Referring to the panel
report in  European Communities – Bananas
51, as well as to the Appellate Body reports in  Brazil –
Desiccated Coconut52 and  Guatemala – Cement53, Indonesia submits that the Panel erred in law when
it refused to apply Article XIX and the  Agreement on Safeguards  together, giving meaning to all 
terms in  both  agreements.  Indonesia adds that, by reading the "unforeseen developments"
requirement out of the WTO system altogether, the Panel removed an important protection againstabuse of the safeguard mechanism.
53. Indonesia submits that Argentina's interpretation of footnote 1 to Article 2.1 of the
Agreement on Safeguards  is incorrect.  Footnote  1 relates to the imposition of a safeguard measure
by a customs union.  Here, however, no action was taken  by a customs union .  Rather, Argentina
independently investigated and imposed the safeguard measure on its own behalf.  Footnote 1 says
nothing   about the obligations of, or any conditions affecting, a member of a customs union  acting
individually .  For the same reason, even assuming  arguendo   that Argentina's interpretation of the
negotiating history of footnote 1 is correct, it does not support Argentina's argument, because thelanguage on which the parties allegedly could not reach agreement would not have applied toArgentina's actions in this case, i.e., to where a safeguard measure is applied  by a state acting
independently .  Indonesia also questions whether Article XXIV is applicable to MERCOSUR, as the
members of MERCOSUR did not notify the cust oms union under Article XXIV of either the
GATT 1947 or the GATT 1994.
                                                     
50Act 338, folio 5350.
51Supra , footnote 37, para. 7.160.
52See  Brazil – Desiccated Coconut , supra , footnote 24, p. 14.
53Supra , footnote 39, para. 65.WT/DS121/AB/R
Page 18
54. Indonesia adds that even if footnote 1 were  somehow applicable to Argentina's action by
virtue of its MERCOSUR membership, that foot note would only permit a derogation from the
obligations contained in   Article 2.1  of the  Agreement on Safeguards .  However, Argentina's
independent imposition of a safeguard against only non-MERCOSUR countries violates  Article 2.2 ,
which obliges Members to apply safeguard measures in a nondiscriminatory fashion.
55. Indonesia maintains that the Panel's analysis of the "parallelism requirement" is best
understood, not as an interpretation of the terms of the  Agreement on Safeguards   as such, but as an
explanation of how – in practical terms – a Member can reconcile its WTO obligations under theAgreement   with commitments that it may have made separately to members of its customs union.
Argentina agreed with its fellow MERCOSUR members to refrain from applying safeguard measuresagainst one another.  That "extra-WTO" agreement, however, cannot exempt Argentina from itsobligations  vis-à-vis   all other WTO Members under the  Agreement on Safeguards .
56. Indonesia submits that the Panel properly refrained from conducting a  de novo   review of the
determinations by Argentine authorities.  In Indonesia's view, it was well within the scope of the
Panel's authority to assess whether those determinations were reasonably supported by the results ofthe investigation.  Moreover, Indonesia believes that, because Argentina failed to demonstrate"increased imports", failed to demonstrate "serious injury", and failed to demonstrate causation, thePanel correctly concluded that Argentina violated Articles 2 and 4 of the  Agreement on Safeguards .
57. With respect to "increased imports", Indonesia characterizes Argentina's principal complaint
as a belief that the Panel imposed new obligations on Members to use specific methodologies.  InIndonesia's view, however, the Panel Report merely  points out analytical flaws in Argentina's
analysis;  it is  not  fairly read as imposing specific requirements.  Indonesia contends that Argentina
ignored the "tense" of Article 2 of the  Agreement on Safeguards  – its focus on present and future
rather than past events.  In this respect, Indonesia points out that Argentina's failure to consult 1996data did not itself constitute a violation of Article 2 and also that the Panel did not characterize it assuch.  The Panel simply found fault with Argentina's failure to weigh  all  the available data,
particularly where the missing data would tend to contradict Argentina's finding of an "increase."
58. With respect to "serious injury", Indonesia underl ines that Argentina failed to consider two
factors that it was specifically required to evaluate under Article 4.2(a) – productivity and capacityutilization.  Indonesia rejects Argentina' s claim that it may pick and choose  a priori   the factors that it
wishes to examine, and explain the relevance of those selected factors after the fact.  Indonesia is also
of the view that the Panel correctly held that Arge ntina relied on inadequate evidence even for those
"serious injury" factors that it did choose to consider.WT/DS121/AB/R
Page 19
59. Indonesia submits that the Panel's conclusion that Argentina had not identified evidence or
analysis on which it could reasonably base a determination of causation should also be upheld.Argentina failed to separate out the effects of other economic factors – such as the "tequila effect" –from the effects of footwear imports on the domestic industry.  Indonesia agrees with the Panel that it
is not enough simply to juxtapose the imports and the injury, and then to assert that there must be a
link between them.  If Argentina did not or cannot explain  how  the alleged increase in imports
caused the alleged harm to its domestic manufacturers, then, Indonesia submits, the merecorrespondence of these events in time will not support the imposition of a safeguard measure.
2. United States
60. The United States submits that the Panel correctly found that safeguard investigations
conducted and safeguard measures imposed since the entry into force of the WTO agreements whichmeet the requirements of the  Agreement on Safeguards   also thereby satisfy the requirements of
Article XIX of the GATT 1994.  The United States requests the Appellate Body to uphold this ruling,
as well as the Panel's consequent decision to decline to rule on the Article XIX claim by the European
Communities.
61. The United States notes that while the  Agreement on Safeguards   defines "safeguard
measures" as "those measures provided for in Article XIX", a number of the provisions of theAgreement, including Articles 2, 3, 4, 5, 7, 8.3, 9 and 10, either limit the rights provided inArticle XIX or provide rights ruled out by Article  XIX.  In addition, the United States observes that
the preamble of the Agreement refers to a "comprehensive agreement, applicable to all Members",and notes the need to re-establish control over safeguards measures and to eliminate grey-area
measures.  These objectives were achieved through an agreement that imposed new procedural
requirements, enhanced transparency and consultation requirements, but loosened in some respectsthe strict requirements of Article XIX, while explicitly prohibiting grey-area measures.  If it werepossible for Members to pick and choose between the rights and obligations in the original package ofArticle XIX, and the rights and obligations in the  Agreement on Safeguards , then the entire project
represented by that Agreement would be revised  post hoc, and the negotiated balance would be
fundamentally upset.
62. The United States argues that the rebalancing of Article XIX was a fundamental premise of
the negotiations on safeguards.  Because of the problem of grey-area measures, the agreement had to
be comprehensive and had to apply to all contracting parties.  That rebalancing included the removal
of the "unforeseen developments" condition for safeguard measures.  Therefore, the text ofArticle XIX now cannot be read outside the context of the  Agreement on Safeguards , and thatWT/DS121/AB/R
Page 20
Agreement now completely occupies the field of regulation of safeguard measures in the WTO
system.  The United States concludes that the omission of "unforeseen developments" from theAgreement was intentional, and that this express omission must be given meaning.
63. The United States notes that legal scholars agree that under the  Agreement on Safeguards ,
"unforeseen developments" are no longer a prerequisite for a safeguard action
54, and that state practice
has also treated the question of "unforeseen developments" as "marginal, legally nonbinding orsubsumed by other aspects of the safeguards process".
55  The United States underlines that the great
majority of safeguards legislation notified to the WTO (including that of the European Communities)does not even refer to "unforeseen developments".  With respect to the  Hatters ' Fur  case of 1951
56,
the United States considers that, while this case cannot contradict the substantive rebalancing thattook place in the Uruguay Round, it does help to clarify the legal interpretation of "unforeseendevelopments" under the GATT 1947, the reasons why negotiators were willing to omit this conceptfrom the Uruguay Round results, and how a determination which fully satisfies the requirements of
Article 2.1 may also satisfy the "unforeseen developments" requirement.
64. With respect to the Panel's interpretation of footnote 1 to Article 2.1 of the  Agreement on
Safeguards , the United States refers to its view of the negotiating history of the footnote, as set out
in extenso   in paragraph 6.32 of the Panel Report and in footnote 396 to that paragraph.  The United
States emphasizes the reason why this footnote follows the word "Member":  due to the unique statusof the European Communities in the GATT, and to the fact that the European Communities did take
safeguards measures, a special provision was needed to deal with the application of safeguards by theEuropean Communities.
65. The United States also notes that Argentina and the Panel have wrongly referred to
Article XXIV of the GATT 1994.  In the view  of the United States, MERCOSUR has never been
notified under Article XXIV.   The parties to MERCOSUR have chosen to notify it instead exclusively
under the Decision on Differential and More Favourable Treatment, Reciprocity and FullerParticipation of Developing Countries
 57 (the "Enabling Clause").  The United States contends that,
having made this legal choice, Argentina is now precluded from basing its arguments on the
                                                     
54M.C.E.J. Bronckers, "Voluntary Export Restraints and the GATT 1994 Agreement on Safeguards," in
J.H.J. Bourgeois, F. Berrod and E.Fournier (eds.),  The Uruguay Round Results:  A European Lawyers'
Perspective " (European University Press, 1995), p. 275;  M. Trebilcock and R. Howse, The Regulation of
International Trade  (2nd ed., 1999), p. 228.
55United States' third participant's submission, para. 22.
56Supra , footnote 41.
57L/4903, adopted 28 November 1979, BISD 26S/203.WT/DS121/AB/R
Page 21
assumption that MERCOSUR is an Article XXIV agreem ent, and that, therefore, the fourth sentence
of footnote 1 to Article 2.1 of the  Agreement on Safeguards   is legally irrelevant in this case.
66. The United States submits that the Panel identified and applied the proper standard of review.
A fair reading of the Panel Report demonstrates that the Panel did not, as Argentina alleges, engage in
de novo   review or construct alternate methodologies that it then concluded Argentina had failed to
satisfy.  Rather, the Panel properly examined whether Argentina had evaluated the relevant evidence,reached conclusions that were reasonably supported by the evidence, and adequately explained thereasoning set forth in its findings and conclusions.  On this basis, and in keeping with the applicablestandard of review, the Panel properly concluded that Argentina's actions were inconsistent withArticles 2 and 4 of the  Agreement on Safeguards .
67. With respect to "increased imports", the United States emphasizes that the Panel  did not   re-
evaluate the facts or impose a specific methodology for collecting or evaluating the evidence.  ThePanel did not conclude that an end point analysis is  per se   inconsistent with the  Agreement on
Safeguards .  Rather, the United States believes, the contrary evidence on interim periods was so
significant that, in the absence of an explanation in Argentina's determination concerning how it hadevaluated that contrary evidence, the Panel could not conclude that Argentina's determination thatimports had increased constituted an objective evaluation of the record as a whole.
68. The United States argues also that the Panel properly found that Argentina's conclusions with
respect to "serious injury" were not adequately supported by the evidence.  The Panel's determinationthat, under Article 4.2(a), a Member must evaluate  all  relevant factors is consistent with past panel
practice, including  United States – Underwear   and  United States – Shirts and Blouses .
 58  T h e
United States also rejects as without merit Argentina's attacks on the Panel's determination that
Argentina's findings and conclusions were not adequately explained and supported by the evidence.
69. On the question of causation, the United States notes that Argentina alleges  inter alia   that
the Panel articulated a series of "new standards" th at Argentina had to satisfy, rather than analyzing
the adequacy of Argentina's actual decision.  However, the United States asserts that the Panel'sdetermination makes clear that what is at issue is Argentina's failure to provide sufficient evidence tojustify its decision.  The United States concludes that the Panel correctly found that Argentina'smeasure cannot be sustained where the underlying decision does not demonstrate that Argentinaconsidered the relevant evidence and provided a reasoned explanation of its conclusions.
                                                     
58Supra , footnote 31.WT/DS121/AB/R
Page 22
III. Issues Raised In This Appeal
70. This appeal raises the following issues:
(a) whether the Panel exceeded its terms of reference in its consideration of Article 3 of
the Agreement on Safeguards ;
(b) whether the Panel erred:  in concluding that "safeguard investigations conducted and
safeguard measures imposed after the entry into force of the WTO agreements whichmeet the requirements of the new Safeguards Agreement satisfy the requirements ofArticle XIX of GATT";  in its consequent refusal to consider the EC's claims underArticle XIX of the GATT 1994;  and in its conclusion that the phrase "as a result ofunforeseen developments" in Article XIX:1(a) of the GATT 1994 was " expressly
omitted " from the  Agreement on Safeguards   and, therefore, has no relevance for a
safeguard measure imposed under the  Agreement on Safeguards ;
(c) whether the Panel erred in its interpretation and application of Article 2 of the
Agreement on Safeguards   and Article XXIV of the GATT 1994 as these provisions
relate to the application of the safeguard measure at issue in this case;
(d) whether the Panel:  enunciated and applied the correct standard of review in this case;
erred in its interpretation and application of the conditions for imposing a safeguardmeasure set forth in Articles 2 and 4 of the Agreement on Safeguards , in particular,
increased imports, serious injury and causation;  and set out a "basic rationale" for itsfindings as required by Article 12.7 of the DSU.
IV. Terms of Reference
71. Argentina argues, on appeal, that the Panel violated Article 7.2 of the DSU and exceeded its
terms of reference, because the Panel not only considered, but also relied on, alleged violations ofArticle 3 of the  Agreement on Safeguards   even though the request for the establishment of a Panel
submitted by the European Communities only alleged violations of Articles 2 and 4 of the  Agreement
on Safeguards .  Argentina maintains, in particular, that the Panel's references to Article 3 contained in
paragraphs 8.205, 8.207, 8.218 and 8.238 of the Panel Report
 59 demonstrate that the Panel relied on
                                                     
59At page 1 of its appellant's submission, Argentina also referred to the Panel's reasoning in
paragraphs 8.126 and 8.127 of the Panel Report.  During the oral hearing, however, Argentina limited itsarguments to paragraphs 8.205, 8.207, 8.218 and 8.238 of the Panel Report.WT/DS121/AB/R
Page 23
obligations contained in Article 3 in reaching its conclusion that Argentina did not act in compliance
with its obligations under Article 4.2(c) of the  Agreement on Safeguards .
72. Article 4.2(c) of the  Agreement on Safeguards  provides as follows:
The competent authorities shall publish promptly,  in accordance with
the provisions of Article 3 , a detailed analysis of the case under
investigation as well as a demonstration of the relevance of the factors
examined. (emphasis added)
Article 3 provides, in relevant part:
1. … The competent authorities shall publish a report setting forth
their findings and reasoned conclusions reached on all pertinent issuesof fact and law.
73. We have examined the specific paragraphs in the Panel Report cited by Argentina, and we see
no  finding   by the Panel that Argentina acted inconsistently with Article 3 of the  Agreement on
Safeguards .  In one instance
60, the Panel referred to Article 3 parenthetically in support of its
reasoning on Article 4.2(a) of the  Agreement on Safeguards .  Every other reference to Article 3 cited
by Argentina was made by the Panel in conjunction with the Panel's reasoning and findings relating toArticle 4.2(c) of the  Agreement on Safeguards .  None of these references constitutes a legal finding
or conclusion by the Panel regarding Article 3 itself.
74. We note that the very terms of Article 4.2(c) of the  Agreement on Safeguards   expressly
incorporate the provisions of Article 3.  Thus, we find it difficult to see how a panel could examinewhether a Member had complied with Article 4.2(c) without also referring to the provisions of
Article 3 of the Agreement on Safeguards .  More particularly, given the express language of
Article 4.2(c), we do not see how a panel coul d ignore the publication requirement set out in
Article 3.1 when examining the publication requirement in Article 4.2(c) of the  Agreement on
Safeguards .  And, generally, we fail to see how the Pane l could have interpreted the requirements of
Article 4.2(c)  without  taking into account in some way the provisions of Article 3.  What is more, we
fail to see how any panel could be expected to make an "objective assessment of the matter", asrequired by Article 11 of the DSU, if it could only refer in its reasoning to the specific provisionscited by the parties in their claims.
75. Consequently, we conclude that the Panel did not exceed its terms of reference by referring in
its reasoning to the provisions of Article 3 of the  Agreement on Safeguards .  On the contrary, we find
that the Panel was  obliged   by the terms of Article 4.2(c) to take the provisions of Article 3 into
                                                     
60Panel Report, para. 8.238.WT/DS121/AB/R
Page 24
account.  Thus, we do not believe that the Panel erred in its reasoning relating to the provisions of
Article 3 of the  Agreement on Safeguards  in making its findings under Article 4.2(c) of that
Agreement.
V. Article XIX of the GATT 1994 and "Unforeseen Developments"
76. The European Communities appeals the Panel's conclusion "that safeguard investigations
conducted and safeguard measures imposed after the entry into force of the WTO agreements whichmeet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX ofGATT."
 61  The European Communities appeals as well the Panel's consequent refusal to rule on the
European Communities' Article XIX claim, and asks the Appellate Body to reverse the legalinterpretations and findings of the Panel made in support of this conclusion, notably the "fundamentalerror" made by the Panel when it referred to the " express omission   of the criterion of unforeseen
developments" in the Agreement on Safeguards .
 62  The European Communities argues that the
requirement of increased imports resulting from "unforeseen developments" is a fundamental
characteristic of a safeguard measure because it lies at the beginning of a "logical continuum" of
events justifying the invocation of a safeguard measure.  63  The European Communities requests the
Appellate Body to find, on the basis of uncontested facts in the Panel Report, that Argentina did notcomply with the requirement in Article XIX:1(a) of the GATT 1994 that safeguard measures may onlybe taken when the alleged increase in imports is "a result of unforeseen developments".
 64
77. In concluding that safeguard investigations and safeguard measures imposed after the entry
into force of the  Agreement on Safeguards  which meet the requirements of that Agreement also
thereby " satisfy "  the requirements of Article XIX of the GATT  1994, the Panel made the following
observations about the relationship between Article XIX of the GATT  1994 and the  Agreement on
Safeguards :
                                                     
61Panel Report, para. 8.69.
62European Communities' appellant's submission, para. 5.
63Ibid., para. 17.
64Ibid., para. 138.WT/DS121/AB/R
Page 25
… the application of safeguard measures in the meaning of
Article XIX requires - since the entry into force of the Safeguards
Agreement - conformity with the requirements and conditions of the
latter agreement.  Although all the provisions of Article XIX of
GATT continue to legally co-exist with the Safeguards Agreement inthe framework of the single undertaking of the Uruguay Round
agreements, any implementation of safeguard measures in the
meaning of Article XIX presupposes the application of and thus
compliance with the provisions of the Safeguards Agreement.
 65
…
… While the Safeguards Agreement does not supersede or replace
Article XIX, which continues to remain in force as part of the GATT,the original conditions contained in Article XIX have to be read in the
light of the subsequently negotiated and much more specific
provisions of the Safeguards Agreement.  Those provisions of the
Safeguards Agreement place the original rule of Article XIX within
the entire package of the new WTO legal system and make itoperational in practice.
 66
…
… Given the reasoning developed by the panel and the Appellate
Body in the  Brazil - Desiccated Coconut  case, it is our view that
Article XIX of GATT and the Safeguards Agreement must a fortiori 
be read as representing an   inseparable package  of rights and
disciplines which have to be considered in conjunction.  Therefore, we
conclude that Article XIX of GATT cannot be understood to represent
the total rights and obligations of WTO Members, but that rather the
Safeguards Agreement as applying the disciplines of Article XIX ofGATT, reflects the latest statement of WTO Members concerning
their rights and obligations concerning safeguards.  Thus the
Safeguards Agreement should be understood as defining, clarifying,
and in some cases modifying  the whole package of rights and
obligations of Members with respect to safeguard measures as they
currently exist.  By the same token, and in the light of the principle of
effective treaty interpretation, the  express omission  of the criterion of
unforeseen developments in the new agreement (which otherwise
transposes, reflects and refines in great detail the essential conditions
for the imposition of safeguard measures provided for in Article XIX
of GATT) must, in our view, have meaning.
 67
…
                                                     
65Panel Report, para. 8.55.
66Ibid., para. 8.56.
67Ibid., para. 8.58.WT/DS121/AB/R
Page 26
… it is our conclusion that safeguard investigations conducted and
safeguard measures imposed after the entry into force of the WTO
agreements which meet the requirements of the new Safeguards
Agreement satisfy the requirements of Article XIX of GATT.
Therefore, we see no basis to address the EC's claims underArticle XIX of GATT separately and in isolation from those under the
Safeguards Agreement.
 68
78. In addressing this issue, we will examine, first, whether the Panel is correct in its conclusion
about the relationship between the  Agreement on Safeguards   and Article XIX of the GATT 1994,
and, second, whether the clause – "as a result of unforeseen developments and of the effect of theobligations incurred by a Member under this Agreement, including tariff concessions … " inArticle XIX:1(a) of the GATT 1994 continues to have any meaning and legal effect.
79. With respect to the relationship between the  Agreement on Safeguards  and Article XIX of
the GATT 1994, we begin with Article II of the  WTO Agreement .  Paragraph 2 of that Article
stipulates:
The agreements and associated legal instruments included in
Annexes 1, 2 and 3 (hereinafter referred to as "Multilateral Trade
Agreements") are integral parts  of this Agreement,  binding on all
Members . (emphasis added)
Paragraph 4 of that Article provides:
The General Agreement on Tariffs and Trade 1994 as specified in
Annex 1A (hereinafter referr ed to as "GATT 1994") is  legally distinct
from the General Agreement on Tariffs and Trade, dated
30 October 1947 … (hereinafter referred to as "GATT 1947").
(emphasis added)
80. We note that the GATT 1994 is the first agreement that ap pears in Annex 1A to the
WTO Agreement , and that it consists of:  the provisions of the GATT 1947, as rectified, amended or
modified by the terms of legal instruments that ente red into force before the entry into force of the
WTO Agreement ;  the provisions of certain legal instruments, such as protocols and certifications,
decisions on waivers and other decisions of the CONTRACTING PARTIES to the GATT 1947, thatentered into force under the GATT 1947 before the entry into force of the  WTO Agreement ;  certain
Uruguay Round Understandings relating to specific GA TT articles;  and the Marrakesh Protocol to the
GATT 1994 containing Members' Schedules of Concessions.
69
                                                     
68Panel Report, para. 8.69.
69See paragraph 1 of the language incorporating the GATT 1994 into Annex 1A of the
WTO Agreement .WT/DS121/AB/R
Page 27
81. Thus, the GATT 1994 is  not  the GATT 1947.  It is "legally distinct" from the GATT 1947.
The GATT 1994 and the  Agreement on Safeguards   are  both  Multilateral Agreements on Trade in
Goods contained in Annex 1A of the  WTO Agreement , and, as such, are  both  "integral parts" of the
same treaty, the  WTO Agreement , that are "binding on all Members".  70  Therefore, the provisions of
Article XIX of the GATT 1994  and  the provisions of the  Agreement on Safeguards   are  all 
provisions of one treaty, the  WTO Agreement .  They entered into force as part of that treaty at the
same time.  They apply equally and are equally binding on all WTO Members.  And, as theseprovisions relate to the same thing, namely the application by Members of safeguard measures, thePanel was correct in saying that "Article XIX of GATT and the Safeguards Agreement must a fortiori  
be read as representing an   inseparable package   of rights and disciplines which have to be considered
in conjunction."
 71  Yet a treaty interpreter must read all applicable provisions of a treaty in a way that
gives meaning to  all  of them, harmoniously.72  And, an appropriate reading of this "inseparable
package of rights and disciplines" must, accordingly, be one that gives meaning to  all  the relevant
provisions of these two equally binding agreements.
82. The drafters of the  WTO Agreement   addressed this issue specifically.  The precise nature of
the relationship between Article XIX of the GATT 1994 and the  Agreement on Safeguards   within the
WTO Agreement   is described in Articles 1 and 11.1(a) of the  Agreement on Safeguards  as follows:
Article 1 
General Provision
This Agreement establishes rules for the application of
safeguard measures  which shall be understood to mean those
measures provided for in Article XIX of GATT 1994 . (emphasis added)
Article 11
Prohibition and Elimination of Certain Measures
1. (a) A Member shall not take or seek any emergency
action   on imports of particular products  as set forth in Article XIX of
GATT 1994 unless such action conforms with the provisions of that
Article  applied in accordance with this Agreement . (emphasis added)
                                                     
70WTO Agreement , Article II:2.
71Panel Report, para. 8.58.
72We have recently confirmed this principle in our Report in  Korea  – Definitive Safeguard Measure on
Imports of Certain Dairy Products , WT/DS98/AB/R, circulated 14 December 1999, para. 81.  See also
Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline  ("United States
– Gasoline "), WT/DS2/AB/R, adopted 20 May 1996, p. 23;  Appellate Body Report, Japan – Taxes on
Alcoholic Beverages  ("Japan – Alcoholic Beverages "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R,
adopted 1 November 1996, p. 12;  Appellate Body Report, India – Patents , supra , footnote 25, para. 45.WT/DS121/AB/R
Page 28
83. We see nothing in the language of either Article 1 or Article 11.1(a) of the  Agreement on
Safeguards  that suggests an intention by the Uruguay Round negotiators to  subsume   the requirements
of Article XIX of the GATT 1994 within the  Agreement on Safeguards  and thus to render those
requirements no longer applicable.  Article 1 states that the purpose of the  Agreement on Safeguards 
is to establish "rules for the application of safeguard measures which shall be understood to mean
those measures provided for   in Article XIX of GATT 1994." (emphasis added)  This suggests that
Article XIX continues in full force and effect, and, in fact, establishes certain  prerequisites for theimposition of safeguard measures.  Furthermore, in Article 11.1(a), the ordinary meaning of thelanguage "unless such action  conforms with the provisions of that Article  applied in accordance
with this Agreement " (emphasis added) clearly is that any safeguard action must  conform with  
the provisions of Article XIX of the GATT 1994  as well as   with the provisions of the  Agreement on
Safeguards .  Neither of these provisions states that any safeguard action taken after the entry into force
of the  WTO Agreement  need only conform with the provisions of the  Agreement on Safeguards .
 73
84. Thus, we conclude  that any safeguard measure74 imposed after the entry into force of the
WTO Agreement   must comply with the provisions of  both  the  Agreement on Safeguards and
Article XIX of the GATT 1994.
85. As a consequence, we must examine the claims of the European Communities under
Article XIX of the GATT 1994, and, specifically, its claim on appeal that the clause – "as a result ofunforeseen developments and of the effect of the obligations incurred by a Member under thisAgreement, including tariff concessions … " – in Ar ticle XIX:1(a) of the GATT 1994 is a requirement
that must be satisfied in order for a safeguard measure to be imposed.
86. The provisions of Article XIX:1(a) of the GATT 1994 and Article 2.1 of the  Agreement on
Safeguards , which together set out the conditions for applying a safeguard measure under the
WTO Agreement , read as follows:
                                                     
73We note that the provisions of Article 11.1(a) of the  Agreement on Safeguards  are significantly
different from the provisions of Article 2.4 of the  Agreement on the Application of Sanitary and Phytosanitary
Measures , which state:
Sanitary or phytosanitary measures which conform to  the relevant provisions
of this Agreement shall be presumed to be in accordance with  the obligations
of the Members under the provisions of GATT 1994 which relate to the useof sanitary or phytosanitary measures, in particular the provisions ofArticle XX(b). (emphasis added)
74With the exception of special safeguard measures taken pursuant to Article 5 of the  Agreement on
Agriculture   or Article 6 of the  Agreement on Textiles and Clothing .WT/DS121/AB/R
Page 29
GATT 1994
Article XIX
Emergency Action on Imports of Particular Products
1. ( a)I f ,  as a result of unforeseen developments and of the
effect of the obligations incurred by a Member under this Agreement ,
including tariff concessions , any product is being imported into the
territory of that Member in such increased quantities and under such
conditions as to cause or threaten serious injury to domestic producers
in that territory of like or directly competitive products, the Membershall be free, in respect of such product, and to the extent and for such
time as may be necessary to prevent or remedy such injury, to suspend
the obligation in whole or in part or to withdraw or modify the
concession. (emphasis added)
Agreement on Safeguards
Article 2
Conditions
1. A Member may apply a safeguard measure to a product only
if that Member has determined, pursuant to the provisions set out
below, that such product is being imported into its territory in such
increased quantities, absolute or relative to domestic production, and
under such conditions as to cause or threaten to cause serious injury tothe domestic industry that produces like or directly competitive
products. (footnote omitted)
87. In comparing the language of Article XIX:1( a) of the GATT 1994 and Article 2.1 of the
Agreement on Safeguards , we observe that although much of the language in the two provisions is
very similar, and, in fact, identical, the initial clause in Article XIX:1(a) – "as a result of unforeseendevelopments and of the effect of the obligations incurred by a Member under this Agreement,including tariff concessions … " – does not appear in Article 2.1 of the Agreement on Safeguards .
After making this same observation, the Panel concluded that the "unforeseen developments" clausewas "expressly omitted" by the Uruguay Round negotiators.  And, although the Panel conceded at onepoint in its reasoning that Article XIX and the  Agreement on Safeguards   "legally co-exist"
 75 as part
of the  WTO Agreement , the Panel concluded from this supposedly " express omission " that the
"omitted" phrase has no meaning.
88. We believe that, with this conclusion, the Panel failed to give meaning and legal effect to  all
the relevant terms of the  WTO Agreement , contrary to the principle of effectiveness ( ut res magis
                                                     
75Panel Report, para. 8.55.WT/DS121/AB/R
Page 30
valeat quam pereat ) in the interpretation of treaties.  76  The Panel states that the " express omission  of
the criterion of unforeseen developments" in Article XIX:1(a) from the  Agreement on Safeguards  
"must, in our view, have meaning."  77  On the contrary, in our view, if they had intended to  expressly
omit  this clause, the Uruguay Round negotiators would and could have said so in the  Agreement on
Safeguards .  They did not.
89. Furthermore, it is clear from Articles 1 and 11.1(a) of the  Agreement on Safeguards  that the
Uruguay Round negotiators did not intend that the  Agreement on Safeguards  would entirely replace
Article XIX.  Instead, the ordinary meaning of Articles 1 and 11.1(a) of the  Agreement on Safeguards
confirms that the intention of the negotiators was that the provisions of Article XIX of the GATT 1994and of the  Agreement on Safeguards   would apply  cumulatively , except to the extent of a conflict
between specific provisions.
 78  We do not see this as an issue involving a conflict between specific
provisions of two Multilateral Agreements on Trade in Goods.  Thus, we are obliged to apply theprovisions of Article 2.1 of the  Agreement on Safeguards   and Article XIX:1(a) of the GATT 1994
cumulatively , in order to give meaning, by giving legal effect, to all the applicable provisions relating
to safeguard measures.
90. Having concluded that the clause – "as a result of unforeseen developments and of the effect
of the obligations incurred by a Member under this Agreement, including tariff concessions … " – inArticle XIX:1(a) of the GATT 1994 does have meaning, we are obliged by virtue of that conclusion toconsider what that meaning  is.  Toward this end, we refer again to the language of Article XIX:1(a),
in its entirety:
                                                     
76We note that in our Report  United States – Gasoline , (supra, footnote 72, p. 23), we emphasized that:
… One of the corollaries of the "general rule of interpretation" in the Vienna
Convention  is that interpretation must give meaning and effect to all the
terms of a treaty.  An interpreter is not free to adopt a reading that wouldresult in reducing whole clauses or paragraphs of a treaty to redundancy orinutility.
See also Appellate Body Report, Japan – Alcoholic Beverages , supra, footnote 72, p. 12;  and Appellate Body
Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products ,
WT/DS103/AB/R, WT/DS113/AB/R, adopted 27 October 1999, para. 133.
77Panel Report, para. 8.58.
78As set out in the General Interpretative Note to Annex 1A of the  WTO Agreement .WT/DS121/AB/R
Page 31
If,  as a result of unforeseen developments  and of the effect of
the obligations incurred  by a Member under this Agreement , including
tariff concessions , any product is being imported   into the territory of
that Member in such increased quantities and under such conditions as
to cause or threaten serious injury to domestic producers in thatterritory of like or directly competitive products, the Member shall be
free, in respect of such product, and to the extent and for such time as
may be necessary to prevent or remedy such injury, to suspend the
obligation in whole or in part or to withdraw or modify the
concession. (emphasis added)
91. To determine the meaning of the clause – "as a result of unforeseen developments and of the
effect of the obligations incurred by a Member under  this Agreement, including tariff concessions … "
– in sub-paragraph (a) of Article XIX:1, we must examine these words in their ordinary meaning, in
their context and in light of the object and purpose of Article XIX.
 79  We look first to the ordinary
meaning of these words.  As to the meaning of "u nforeseen developments", we note that the dictionary
definition of "unforeseen", particularly as it relates to the word "developments", is synonymous with"unexpected".
 80  "Unforeseeable", on the other hand, is defined in the dictionaries as meaning
"unpredictable" or "incapable of being foreseen, foretold or anticipated".  81  Thus, it seems to us that
the ordinary meaning of the phrase "as a result of unforeseen developments" requires that thedevelopments which led to a product being imported in such increased quantities and under suchconditions as to cause or threaten to cause serious injury to domestic producers must have been"unexpected".  With respect to the phrase "of the effect of the obligations incurred by a Member under
this Agreement, including tariff concessions … ", we believe that this phrase simply means that it must
be demonstrated, as a matter of fact, that the importing Member has incurred obligations under theGATT 1994, including tariff concessions.  Here, we note that the Schedules annexed to theGATT 1994 are made an integral part of Part I of  that Agreement, pursuant to paragraph 7 of
Article II of the GATT 1994.  Therefore, any concession or commitment in a Member's Schedule issubject to the obligations contained in Article II of the GATT 1994.
92. When we examine this clause – "as a result of unforeseen developments and of the effect of
the obligations incurred by a Member under this Agreement, including tariff concessions … " – in its
                                                     
79As we have said in Appellate Body Report, United States – Gasoline , supra , footnote 72, p.17;
Appellate Body Report, Japan – Alcoholic Beverages , supra , footnote 72, p. 11;  Appellate Body Report,
India – Patents , supra , footnote 25, para. 46;  Appellate Body Report, Argentina – Measures Affecting Imports
of Footwear, Textiles, Apparel and Other Items , WT/DS56/AB/R, adopted 22 April 1998, para. 47;  Appellate
Body Report, European Communities – Customs Classific ation of Certain Computer Equipment ,
WT/DS62/AB/R, adopted 22 June 1998, para. 84;  Appellate Body Report, United States – Import Prohibition
of Certain Shrimp and Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, para. 114.
80See  Webster's Third New International Dictionary , (Encyclopaedia Britannica Inc., 1966) Vol. 3,
p. 2496;  and  Black's Law Dictionary , 6th ed., (West Publishing Company, 1990) p. 1530.
81Ibid.WT/DS121/AB/R
Page 32
immediate context in Article XIX:1(a), we see that it relates directly to the second clause in that
paragraph – "If, … , any product is being imported into the territory of that Member in such increasedquantities and under such conditions as to cause or threaten serious injury to domestic producers inthat territory of like or directly competitive products …".  The latter, or second, clause in
Article XIX:1(a) contains the three conditions  for the application of safeguard measures.  These
conditions , which are reiterated in Article 2.1 of the Agreement on Safeguards
82, are that:  (1) a
product is being imported "in such quantities and under such conditions";  (2) "as to cause";(3) serious injury or the threat of serious injury to domestic producers.  The first clause inArticle XIX:1(a) – "as a result of unforeseen developments and of the obligations incurred by aMember under the Agreement, including tariff concessions … " – is a dependent clause which, in ourview, is linked grammatically to the verb phrase "is being imported" in the second clause of thatparagraph.  Although we do not view the first clause in Article XIX:1(a) as establishing independentconditions   for the application of a safeguard measure, additional to the  conditions   set forth in the
second clause of that paragraph, we do believe that the first clause describes certain  circumstances
which must be demonstrated as a matter of fact in order for a safeguard measure to be appliedconsistently with the provisions of Article XIX of the GATT 1994.  In this sense, we believe that thereis a logical connection between the circumstances described in the first clause – "as a result ofunforeseen developments and of the effect of the obligations incurred by a Member under thisAgreement, including tariff concessions … " – and the conditions set forth in the second clause ofArticle XIX:1(a) for the imposition of a safeguard measure.
93. Our reading is supported by the context of these provisions.  As part of the context of
paragraph 1(a) of Article XIX, we note that the title of Article XIX is:  " Emergency Action on Imports
of Particular Products ".  The words "emergency action" also appear in Article 11.1(a) of the
Agreement on Safeguards .  We note once again, that Article XIX:1(a) requires that a product be
imported " in such increased quantities  and  under such conditions  as  to cause or threaten serious
injury  to domestic producers". (emphasis added)  Clearly, this is not the language of ordinary events
in routine commerce.  In our view, the text of Article XIX:1(a) of the GATT 1994, read in its ordinarymeaning and in its context, demonstrates that safeguard measures were intended by the drafters of theGATT to be matters out of the ordinary, to be matters of urgency, to be, in short, "emergency actions."And, such "emergency actions" are to be invoked only in situations when, as a result of obligations
incurred under the GATT 1994, a Member finds itself confronted with developments it had not
"foreseen" or "expected" when it incurred that obligation.  The remedy that Article XIX:1(a) allows inthis situation is temporarily to "suspend the obligation in whole or in part or to withdraw or modify the
concession".  Thus, Article XIX is clearly, and in every way, an extraordinary remedy.
                                                     
82We note that the title of  Article 2 of the  Agreement on Safeguards  is: "Conditions ".WT/DS121/AB/R
Page 33
94. This reading of these phrases is also confirmed by the object and purpose of Article XIX of
the GATT 1994.  The object and purpose of Article XIX is, quite simply, to allow a Member to re-adjust temporarily the balance in the level of concessions between that Member and other exportingMembers when it is faced with "unexpected" and, thus , "unforeseen" circumstances which lead to the
product "being imported" in "such increased quantities and under such conditions as to cause or
threaten serious injury to domestic producers of like or directly competitive products".  In perceivingand applying this object and purpose to the interpretation of this provision of the  WTO Agreement , it
is essential to keep in mind that a safeguard action is a "fair" trade remedy.  The application of asafeguard measure does not depend upon "unfair" trade actions, as is the case with anti-dumping orcountervailing measures.  Thus, the import restrictions that are imposed on products of exportingMembers when a safeguard action is taken must be seen, as we have said, as extraordinary.  And,when construing the prerequisites for taking such actions, their extraordinary nature must be taken intoaccount.
95. Our reading of these prerequisites does precisely this, by making certain that  all  the relevant
provisions of the  Agreement on Safeguards   and Article XIX of the GATT 1994 relating to safeguard
measures are given their full meaning and their full legal effect. Our reading, too, is consistent with thedesire expressed by the Uruguay Round negotiators in the Preamble to the  Agreement on Safeguards  
"to clarify and  reinforce   the disciplines of GATT 1994, and  specifically those of its Article XIX  …,
to re-establish  multilateral control   over safeguards and eliminate measures that escape such control
…".
83  In furthering this statement of the object and purpose of the  Agreement on Safeguards , it must
always be remembered that safeguard measures result in the temporary suspension of concessions or
withdrawal of obligations, such as those in Article II and Article XI of the GATT 1994, which are
fundamental to the  WTO Agreement .  As such, safeguard measures may be applied only when  all  the
provisions of the Agreement on Safeguards   and Article XIX of the GATT 1994 are clearly
demonstrated.
96. In addition, we note that our reading of the clause – "as a result of unforeseen developments
and of the effect of the obligations incurred by a Member under this Agreement, including tariffconcessions … " – in Article XIX:1(a) is also consistent with the one GATT 1947 case that involvedArticle XIX, the so-called " Hatters ' Fur" case.
 84  Members of the Working Party in that case, in 1951,
stated:
                                                     
83Agreement on Safeguards , Preamble.
84Report of the Intersessional Working Party on the Complaint of Czechoslovakia Concerning the
Withdrawal by the United Stat es of a Tariff Concession under the Terms of Article XIX , ("Hatters ' Fur "),
GATT/CP/106, adopted 22 October 1951.WT/DS121/AB/R
Page 34
… "unforeseen developments" should be interpreted to mean
developments occurring after the negotiation of the relevant tariff
concession which it would not be reasonable to expect that the
negotiators of the country making the concession could and should
have foreseen at the time when the concession was negotiated.85
97. In the light of all of this, we do not agree with the Panel that any safeguard investigations
conducted or safeguard measures imposed after the entry into force of the  WTO Agreement  "which
meet the requirements of the new Safeguards Agreement  satisfy  the requirements of Article  XIX of
GATT." (emphasis added)  Therefore, we reverse the Panel's conclusion in paragraph 8.69 of the
Panel Report that safeguard measures imposed after entry into force of the WTO Agreement  which
meet the requirements of the  Agreement on Safeguards  necessarily "satisfy" the requirements of
Article XIX of the GATT 1994, as well as the Pa nel's finding that the Uruguay Round negotiators
"expressly omitted" the clause – "as a result of unforeseen developments and of the effect of theobligations incurred by a Member under this Agreement, including tariff concessions … " – fromArticle 2 of the  Agreement on Safeguards .
98. As will be seen, in the final section of this Report, we uphold the conclusions of the Panel that
Argentina's investigation in this case was inconsistent  with the requirements of Articles 2 and 4 of the
Agreement on Safeguards .  As a consequence, there is  no legal basis   for the safeguard measures
imposed by Argentina.  For this reason, we do not believe that it is necessary to complete the analysisof the Panel relating to the claim made by the European Communities under Article XIX of theGATT 1994 by ruling on whether the Argentine authorities have, in their investigation, demonstratedthat the increased imports in this case occurred "as a result of unforeseen developments and of theeffect of the obligations incurred by a Member under this Agreement, including tariffconcessions … ".
VI. Imposition of Safeguard Measures by a Member of a Customs Union
99. Argentina claims on appeal that the Panel misinterpreted footnote 1 to Article 2.1 of the
Agreement on Safeguards  and erred by "imposing an obligation" on a member of a customs union to
apply any safeguard measure on other members of that customs union whenever imports from all
sources are taken into account in a safeguards investigation.
100. The Panel described the issue before it as follows:
                                                     
85Supra , footnote 84, para. 9.  This interpretation was proposed by the representative of
Czechoslovakia, and was accepted by the majority of the Working Party with the exception of the United States.WT/DS121/AB/R
Page 35
… the essential question is whether Argentina was permitted under
the Safeguards Agreement to take MERCOSUR imports into account
in the analysis of injury factors and of a causal link between increased
imports and the alleged (threat of) serious injury, and was at the same
time permitted to exclude MERCOSUR countries from theapplication of the safeguard measure imposed.
 86
101. Article 2 of the  Agreement on Safeguards   provides as follows:
Conditions
1. A Member1 may apply a safeguard measure to a product only if
that Member has determined, pursuant to the provisions set out below,
that such product is being imported in to its territory in such increased
quantities, absolute or relative to domestic production, and under suchconditions as to cause or threaten to cause serious injury to the domestic
industry that produces like or directly competitive products.
2. Safeguard measures shall be applied to a product being imported
irrespective of its source.
1A customs union may apply a safeguard measure as a single unit or on behalf of a
member State.  When a customs union applies a safeguard measure as a single unit, all
the requirements for the determination of se rious injury or threat thereof under this
Agreement shall be based on the conditions existing in the customs union as a whole.When a safeguard measure is applied on behalf of a member State, all the
requirements for the determination of serious injury or threat thereof shall be based on
the conditions existing in that member State and the measure shall be limited to thatmember State.  Nothing in this Agreem ent prejudges the interpretation of the
relationship between Article XIX and paragraph 8 of Article XXIV of GATT 1994.
102. The Panel examined the ordinary meaning of footnote 1 to Article 2.1, and stated that " in the
case of measures imposed by a customs union   there are two options for imposing safeguard measures,
i.e., (i) as a single unit or (ii) on behalf of a member State."  87 (emphasis added)  The Panel assumed
that it was dealing with a safeguard measure imposed by a customs union "on behalf of a memberState" within the meaning of the first and third sentences of footnote 1, and concluded that the"footnote does not concern  to whom  but rather  by whom  a safeguard measure may be applied."
 88
The Panel then proceeded to examine the context of Article 2.1 and the footnote thereto.  The Panel
declared this context to be Article 2.2, which provides that "[s]afeguard measures shall be applied toa product being imported irrespective of its source."
 89  The Panel then stated that:
                                                     
86Panel Report, para. 8.75.
87Ibid., para. 8.78.
88Ibid., para. 8.83.
89Ibid., para. 8.84.WT/DS121/AB/R
Page 36
The ordinary meaning of Article 2.2 would appear to imply that, as a
result of a member-State-specific investigation, safeguard measures
have to be imposed on a non-discriminatory basis against products
from all sources of supply, regardless of whether they originate from
within or from outside of the customs union.  90
103. On the basis of this reasoning, the Panel stated its interpretation that:
… the two options offered by the footnote to Article 2.1 read in
conjunction with Article 2.2 imply a  parallelism   between the scope
of a safeguard  investigation   and the scope of the   application   of
safeguard measures.  Thus, in the light of the context of the footnote
to Article 2.1, a member-state-specific investigation in which
serious injury or threat thereof is found based on imports from all
sources could only lead to the imposition of safeguard measures ona MFN-basis against all sources of intra-regional as well as extra-
regional supply of a customs union.
 91
The Panel concluded, on the basis of its reasoning relating to Article 2, that "a member-state-specific
investigation that finds serious injury or threat thereof caused by imports from all sources cannotserve as a basis for imposing a safeguard measure on imports only from third-country sources ofsupply."
 92
104. The Panel then turned its attention to Article XXIV of the GATT 1994, in response to an
argument by Argentina that Article XXIV of the GATT 1994 and certain MERCOSUR regulations
prohibited Argentina from imposing safeguard measures on other MERCOSUR countries.  After alengthy analysis of Article XXIV:8 of the GATT 1994, the Panel stated:
… we do not agree with the argument that in the case before us
Argentina is prevented by Article XXIV:8 of GATT from applying
safeguard measures to all sources of supply, i.e., third countries aswell as other member States of MERCOSUR.
 93
105. Finally, the Panel concluded as follows:
                                                     
90Panel Report, para. 8.84.
91Ibid., para. 8.87.
92Ibid., para. 8.91.
93Ibid., para. 8.101.WT/DS121/AB/R
Page 37
… in the light of Article 2 of the Safeguards Agreement and
Article XXIV of GATT, we conclude that in the case of a customs
union the imposition of a safeguard measure only on third-country
sources of supply cannot be justified on the basis of a member-state-
specific investigation that finds serious injury or threat thereof causedby imports from all sources of supply from within and outside a
customs union.
 94
106. We question the Panel's implicit assumption that footnote 1 to Article 2.1 of the  Agreement
on Safeguards  applies to the facts of this case.  The ordinary meaning of the first sentence of
footnote 1 appears to us to be that the footnote only applies when a customs union applies a safeguardmeasure "as a single unit or on behalf of a member State".
 95  On the facts of this case, Argentina
applied the safeguard measures at issue after an investigation by Argentine authorities of the effects of
imports from all sources on the Argentine domestic industry.
107. MERCOSUR did not apply these safeguard measures, either as a single unit or on behalf of
Argentina.  96  When the safeguard measures at issue in this case were adopted by the government of
Argentina, the transitional provisions in Chapter XII of the Regulation on the Application ofSafeguard Measures to Imports from Non-Member s of MERCOSUR (the "Regulation"), approved by
Common Market Decision No. 17/96, were in ef fect among the State Parties of MERCOSUR.
97
According to these transitional provisions, the inve stigation procedure for the adoption of safeguard
measures was to be conducted by the competent authorities of the State Party in question, applyingrelevant national legislation.
98
                                                     
94Panel Report, para. 8.102.
95We also note that footnote 1 relates to the word "Member" in Article 2.1, which is commonly
understood to mean a Member of the WTO.
96It is true that on 26 September 1997, Ur uguay, as Pro Tempore President of MERCOSUR and
on behalf of Argentina, notified the definitive safeguard measure imposed by Argentina.(G/SG/N/10/ARG/1/Suppl.2, G/SG/N/11/ARG/1/Supp.2, G/SG/14/Suppl.1 and G/L/195/Suppl.1,22 October 1997).  However, all relevant resolutions were adopted by Argentina alone, pursuant to Argentinenational laws.  We further note that that all other notifications relating to the measures at issue in this case weremade by Argentina acting on its own behalf.  In particular, on 26 September 1997 –  the same day as Uruguay
notified the measure on behalf of Argentina –  Argentina itself transmitted a copy of Resolution 987/87 to the
Committee on Safeguards (G/SG/N/10/ARG/1/Suppl.1, G/SG/N/11/ARG/1/Suppl.1, 10 October 1997).
97Adopted by the Council of Ministers of MERCOSUR in December 1996.  See Panel Report,
para. 5.103.
98In response to questions during the oral hearing, Argentina confirmed that:
… until 31 December 1998, the common safeguards regime of MERCOSUR
provided for this modality of application of a measure which would permit astate member of the customs union to apply the measure uniquely and that itwould be notified by MERCOSUR.  That is why the measure was applied byArgentina within its regulatory framework.WT/DS121/AB/R
Page 38
108. Therefore, at the time the safeguard measures at issue in this case were imposed by the
Government of Argentina, these measures were no t applied by MERCOSUR "on behalf of" Argentina,
but rather, they were applied by Argentina.  It is Argentina that is a Member of the WTO for the
purposes of Article 2 of the  Agreement on Safeguards , and it is Argentina that applied the safeguard
measures after conducting an investigation of products being imported into  its  territory and the
effects of those imports on  its  domestic industry.  For these reasons, we do not believe that footnote 1
to Article 2.1 applies to the safeguard measures imposed by Argentina in this case.  As a result, wefind that the Panel erred in assuming that footnote 1 applied, and we, therefore, reverse the legalreasoning and findings of the Panel relating to footnote 1 to Article  2.1 of the  Agreement on
Safeguards .
109. Having found that footnote 1 to Article 2.1 is not applicable in this case, we also are not
persuaded that an analysis of Article XXIV of the GATT 1994 was relevant to the specific issue thatwas before the Panel.  This issue, as the Panel itself observed, is whether Argentina, after including
imports from all sources in its investigation of "increased imports" of footwear products into its
territory and the consequent effects of such imports  on its domestic footwear industry, was justified in
excluding other MERCOSUR member States from the application of the safeguard measures.  In our
Report in  Turkey – Restrictions on Imports of Textile and Clothing Products , we stated that under
certain conditions, "Article XXIV may justify a measure which is inconsistent with certain otherGATT provisions."
 99  We indicated, however, that this defence is available only when it is
demonstrated by the Member imposing the measure that "the measure at issue is introduced upon theformation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of
Article XXIV" and "that the formation of that customs union would be prevented if it were not
allowed to introduce the measure at issue."
 100
110. In this case, we note that Argentina did not argue before the Panel that Article XXIV of the
GATT 1994 provided it with a defence to a finding of violation of a provision of the GATT 1994.  AsArgentina did not argue that Article XXIV provided it with a defence against a finding of violation of
a provision of the GATT 1994, and as the Panel did not consider whether the safeguard measures atissue were introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV, we believe that the Panel erred in deciding that anexamination of Article XXIV:8 of the GATT 1994 was relevant to its analysis of whether the
safeguard measures at issue in this case were consistent with the provisions of Articles 2 and 4 of the
Agreement on Safeguards .  Accordingly, as we have found that the Panel's analysis of Article XXIV of
                                                     
99Appellate Body Report, WT/DS34/AB/R, adopted 19 November 1999, para. 58.
100Ibid.WT/DS121/AB/R
Page 39
the GATT 1994 was not relevant in this case, we reverse the Panel's legal findings and conclusions
relating to Article XXIV of the GATT 1994.101
111. We now turn to examine whether the Panel was co rrect in its interpretation that there is an
implied " parallelism  between the scope of a safeguard  investigation   and the scope of the  application
of safeguard measures."102  Article 2.1 provides that:
A  Member  may  apply a safeguard measures …  only  if  that Member
has determined … that such product is being imported into its
territory   in such increased quantities … and under such conditions as
to cause or threaten to cause serious injury to the domestic industry …
(emphasis added)
Article 4.1(c) defines "domestic industry" as meaning "the pr oducers as a whole of the like or directly
competitive products operating  within the territory of a Member  …". (emphasis added)  Taken together,
the provisions of Articl es 2.1 and 4.1(c) of the  Agreement on Safeguards  demonstrate that a Member of
the WTO may only apply a safeguard measure after that Member has determined that a product is beingimported  into its territory   in such increased quantities and under such conditions as to cause or threaten
to cause serious injury to  its domestic industry  within its territory .  According to Articles 2.1
and 4.1(c), therefore, all of the relevant aspects of  a safeguard investigation must be conducted by the
Member that ultimately applies the safeguard measur e, on the basis of increased imports entering its
territory and causing or threatening to cause serious injury to the domestic industry within its territory.
112. While Articles 2.1 and 4.1(c) set out the condit ions for imposing a safeguard measure and the
requirements for the scope of a safeguard  investigation , these provisions do not resolve the matter of
the scope of  application   of a safeguard measure.  In that context, Article 2.2 of the  Agreement on
Safeguards   provides:
Safeguard measures shall be applied to a product being imported
irrespective of its source.
As we have noted, in this case, Argentina applied the safeguard measures at issue after conducting an
investigation of products being imported into Argentine territory and the effects of those imports onArgentina's domestic industry.  In applying safeguard measures on the basis of this investigation inthis case, Argentina was also required under Article 2.2 to apply those measures to imports from allsources, including from other MERCOSUR member States.
                                                     
101Panel Report, paras. 8.93-8.102.
102Ibid., para. 8.87.WT/DS121/AB/R
Page 40
113. On the basis of this reasoning, and on the facts of this case, we find that Argentina's
investigation, which evaluated whether serious injury or the threat thereof was caused by imports fromall  sources, could only lead to the imposition of safeguard measures on imports from  all  sources.
Therefore, we conclude that Argentina's investigation, in this case, cannot serve as a basis for
excluding imports from other MERCOSUR member St ates from the application of the safeguard
measures.
114. For all the above reasons, we reverse the Panel's legal findings and conclusions relating to
footnote 1 to Article 2.1 of the  Agreement on Safeguards   and Article XXIV of the GATT 1994.  We
conclude that Argentina, on the facts of this case, cannot justify the imposition of its safeguardmeasures only on non-MERCOSUR third country source s of supply on the basis of an investigation
that found serious injury or threat thereof caused by imports from all sources, including imports fromother MERCOSUR member States.  However, as we have stated, we do not agree that the Panel was
dealing, on the facts of this case, with a safeguard measure applied by a customs union  on behalf of   a
member State.  And we wish to underscore that, as the issue is not raised in this appeal, we make no
ruling on whether, as a general principle, a member of a customs union can exclude other members ofthat customs union from the application of a safeguard measure.
VII. Claims under Articles 2 and 4 of the  Agreement on Safeguards
115. Although Argentina acknowledges that the Panel correctly articulated the proper standard of
review based on Article 11 of the DSU, Argentina alleges that the Panel erred in  applying   that
standard of review, by conducting a " de facto  de novo   review"
 103 of the findings and conclusions of
the Argentine authorities.  As a consequence, Argentina maintains that the Panel read certain
methodologies into the  Agreement on Safeguards   where that Agreement itself is silent, and thereby
added to the rights and obligations of Members under that Agreement in violation of Article 3.2 of theDSU.
104  The  Agreement on Safeguards , in Argentina's view, allows Members discretion in the way it
is implemented;  however, the Panel, in its reasoning, created new requirements that are not containedin the  Agreement on Safeguards .  Argentina also claims that the Panel made several legal errors in its
analysis of the requirements of Articles 2 and 4 of the  Agreement on Safeguards , in particular,
relating to the conditions of increased imports, serious injury and causation that must be satisfiedbefore a safeguard measure may be applied.
105  Finally, Argentina submits that the Panel Report was
not adequately reasoned because the Panel failed to reach reasonable conclusions based on the totality
                                                     
103Argentina's appellant's submission, p. 26.
104Ibid., p. 43.
105Ibid., pp. 43-66.WT/DS121/AB/R
Page 41
of the evidence before the Argentine authorities, and that the Panel has therefore not fulfilled the
requirement of Article 12.7 of the DSU that it provide a "basic rationale" for its ruling.106
A. Standard  of Review
116. The Panel stated its approach to the standard of review as follows:
In our view, we have no mandate to conduct a de novo  review of the
safeguard investigation conducted by the national authority.  Rather,
we must determine whether Argentina has abided by its multilateral
obligations under the Agreement on Safeguards … in reaching its
affirmative finding of injury and causation in the footwear
investigation.  107
…
… our review will be limited to an objective assessment, pursuant to
Article 11 of the DSU, of whether the domestic authority has
considered all relevant facts, including an examination of each factorlisted in Article 4.2(a), of whether the published report on the
investigation contains adequate explanation of how the facts support
the determination made, and consequently of whether the
determination made is consistent with Argentina's obligations under
the Safeguards Agreement.  We note that this was the standard ofreview applied by the Panel in   United States – Underwear , with
which we agree.
 108
117. Although the Panel ultimately stated the standa rd of review correctly, we are surprised that
the Panel based its approach on several reports by previous panels reviewing domestic investigationsin the context of two Tokyo Round Agreements:  the  Agreement on Implementation of Article VI of
GATT   and the  Agreement on Interpretation and Application of Article VI, XVI and XXIII of GATT
109
as well as two previous WTO panels in  United States – Underwear  and  United States – Shirts and
Blouses . 110
118. We have stated, on more than one occasion, that, for all but one of the covered agreements,
Article 11 of the DSU sets forth the appropriate standard of review for panels.  111  The only exception
                                                     
106Argentina's appellant's submission, pp. 42, 49 and 61.
107Panel Report, para. 8.117.
108Ibid., para. 8.124.
109Panel Report, New Zealand – Imports of Electrical Transformers from Finland , adopted on
18 July 1985, BISD 32S/55;  Panel Report, United States – Salmon , supra , footnote 29, para. 494.
110Supra , footnote 31.
111See e.g., Appellate Body Report, EC Measures Concerning Meat and Meat Products ("European
Communities – Hormones "), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, paras. 114-119;
Australia – Salmon , supra , footnote 26, para. 2.67.WT/DS121/AB/R
Page 42
is the Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994 , in which a specific provision, Article 17.6, sets out a special standard of review for
disputes arising under that Agreement.
119. In our report in  European Communities – Hormones , we stated that:
Article 11 of the DSU bears directly on this matter and, in effect,
articulates with great succinctness but with sufficient clarity the
appropriate standard of review for panels in respect of both the
ascertainment of facts and the legal characterization of such facts under
the relevant agreements. … 112
…
So far as fact-finding by panels is concerned, their activities are always
constrained by the mandate of Artic le 11 of the DSU:  the applicable
standard is neither  de novo   review as such, nor "total deference", but
rather the "objective assessment of the facts".  113
120. Although that case dealt with the panel's assessmen t of the facts, and this case deals with the
Panel's assessment of the matter, more generally, the same reasoning applies here.  The  Agreement on
Safeguards , like the  Agreement on the Application of Sanitary and Phytosanitary Measures , is silent
as to the appropriate standard of review.  Therefore, Article 11 of the DSU, and, in particular, its
requirement that "… a panel should make an objective assessment of the matter before it, including an
objective assessment of the facts of the case and the applicability of and conformity with the relevantcovered agreements", sets forth the appropriate sta ndard of review for examining the consistency of a
safeguard measure with the provisions of the  Agreement on Safeguards .
121. Based on our review of the Panel's reasoning, we find that the Panel correctly stated the
appropriate standard of review, as set forth in Ar ticle 11 of the DSU.  And, with respect to its
application   of the standard of review, we do not believe that the Panel conducted a  de novo   review
of the evidence, or that it substituted its analysis and judgement for that of the Argentine authorities.Rather, the Panel examined whether, as required by Article 4 of the  Agreement on Safeguards , the
Argentine authorities had considered all the relevant facts and had adequately explained how the facts
supported the determinations that were made.  Indeed, far from departing from its responsibility, inour view, the Panel was simply fulfilling its responsibility under Article 11 of the DSU in taking theapproach it did.  To determine whether the safeguard investigation and the resulting safeguardmeasure applied by Argentina were consistent with Article 4 of the  Agreement on Safeguards , the
Panel was obliged, by the very terms of Article 4, to assess whether the Argentine authorities had
                                                     
112Appellate Body Report, European Communities – Hormones , supra , footnote 111, para. 116.
113Ibid., para. 117.WT/DS121/AB/R
Page 43
examined all the relevant facts and had provided a reasoned explanation of how the facts supported
their determination.
122. In addition to "an objective assessment of the facts ", we note, too, that part of the "objective
assessment of the matter" required of a panel by Article 11 of the DSU is an assessment of "the
applicability of and conformity with the relevant covered agreements".  Consequently, we must also
examine whether the Panel correctly interpreted and applied the substantive provisions of Articles 2and 4 of the  Agreement on Safeguards , in particular, those relating to the requirements of imports "in
such increased quantities", "serious injury" to the domestic industry, and causation.
B. Interpretation and Application of Articles 2 and 4  of the Agreement on Safeguards
123. Articles 2.1 and 4.2 of the  Agreement on Safeguards   provide as follows:
Article 2
Conditions
1. A Member may apply a safeguard measure to a product only
if that Member has determined, pursuant to the provisions set out
below, that such product is being imported into its territory in suchincreased quantities, absolute or relative to domestic production, and
under such conditions as to cause or threaten to cause serious injury to
the domestic industry that produces like or directly competitive
products. (footnote omitted)
Article 4
Determination of Serious In jury or Threat Thereof
2. (a) In the investigation to determine whether increased
imports have caused or are  threatening to cause serious injury to a
domestic industry under the terms of this Agreement, the competentauthorities shall evaluate all relevant factors of an objective and
quantifiable nature having a bearing on the situation of that industry, in
particular, the rate and amount of the increase in imports of the product
concerned in absolute and relative terms, the share of the domestic
market taken by increased imports, changes in the level of sales,production, productivity, capacity utilization, profits and losses, and
employment.
(b) The determination referred to in subparagraph (a) shall
not be made unless this investigation demonstrates, on the basis ofobjective evidence, the existence of  the causal link between increased
imports of the product concerned and serious injury or threat thereof.
When factors other than increased imports are causing injury to the
domestic industry at the same time, such injury shall not be attributed to
increased imports.WT/DS121/AB/R
Page 44
(c) The competent authorities shall publish promptly, in
accordance with the provisions of Article 3, a detailed analysis of the
case under investigation as well as a demonstration of the relevance of
the factors examined.
124. We recall the Panel's ultimate conclusions on Articles 2.1 and 4.2:
For the foregoing reasons, we conclude that Argentina's
investigation did not demonstrate that there were increased imports
within the meaning of Articles 2.1 a nd 4.2(a);  that the investigation
did not evaluate all relevant factors of an objective and quantifiable
nature having a bearing on the situation of the domestic industry
within the meaning of Article 4.2(a);  that the investigation did not
demonstrate on the basis of objective evidence the existence of a
causal link between increased imports and serious injury within themeaning of Article 2.1 and 4.2(b);  that the investigation did not
adequately take into account factors other than increased imports
within the meaning of Article 4.2(b);  and that the published report
concerning the investigation did not set forth a complete analysis of
the case under investigation as well as a demonstration of therelevance of the factors examined within the meaning of
Article 4.2(c).
Therefore, we find that Argentina's investigation and
determinations of increased imports, serious injury and causation are
inconsistent with Articles 2 and 4 of the Safeguards Agreement.  As
such, we find that Argentina's investigation provides  no  legal basis
for the application of the definitive safeguard measure at issue, or any
safeguard measure.
 114
1. Increased Imports
125. With respect to the requirement relating to "in creased imports", the Panel stated as follows:
The Agreement on Safeguards requires an increase in imports as a
basic prerequisite for the application of a safeguard measure.  The
relevant provisions are in Articles 2.1 and 4.2(a).  115
…
Thus, to determine whether imports have increased in "such
quantities" for purposes of applying a safeguard measure, these two
provisions require an analysis of the rate and amount of the increase in
imports, in absolute terms and as a percentage of domestic
production.  116
                                                     
114Panel Report, paras. 8.279 and 8.280.
115Ibid., para. 8.138.
116Ibid., para. 8.141.WT/DS121/AB/R
Page 45
126. In its evaluation of whether the investigation by the Argentine authorities demonstrated the
required increase in imports under Articles 2.1 and 4.2(a), the Panel stated the following:
… the Agreement requires not just an increase (i.e., any increase) in
imports, but an increase in "such…quantities " as to cause or threaten
to cause serious injury .  The Agreement provides no numerical
guidance as to how this is to be ju dged, nor in our view could it do so.
But this does not mean that this re quirement is meaningless.  To the
contrary, we believe that it means that the increase in imports must be
judged in its full context, in particular with regard to its "rate and
amount" as required by Article 4.2(a).  Thus, considering the changes
in import levels over the entire period of investigation, as discussedabove, seems unavoidable when making a determination of whether
there has been an increase in imports "in such quantities" in the sense
of Article 2.1.
 117 (emphasis added)
127. The Panel concluded that Argentina did not adequately consider the "intervening trends in
imports, in particular the steady and significant declines in imports beginning in 1994, as well as thesensitivity of the analysis to the particular end points of the investigation period used."
 118  For these
reasons, the Panel concluded that "Argentina's investigation did not demonstrate that there were
increased imports within the meaning of Articles 2.1 and 4.2(a)".  119  The Panel, though, rejected an
argument made by the European Communities "that only a 'sharply increasing' trend in imports at theend of the investigation period can satisfy this requirement."
 120
128. Argentina maintains that, in its interpretation and application of the requirement of "increased
imports" in Articles 2.1 and 4.2 of the  Agreement on Safeguards , the Panel "impose[d] a variety of
methodological hurdles which must be overcome before a finding of 'increased imports' can be
justified."  121  In particular, Argentina argues that the Panel misinterpreted the word "rate" in
Article 4.2(a) to include "direction", and found that there could only be "increased imports" if:  (i) a
change in the base year from 1991 to 1992 would still result in an increase;  (ii) the analysis of endpoints and interim periods is mutually reinforcing;  and (iii) it is found that the decrease in importsin 1994 and 1995 was temporary.
 122  Argentina also asserts that the Panel "collapsed" the "increased
imports" requirement "with the other qualitative requirements of Article 2" and wrongly treated it asa "qualitative, rather than a separate quantitative
 requirement."  123  The ordinary meaning of "increased
                                                     
117Panel Report, para. 8.161.
118Ibid., para. 8.276.
119Ibid., para. 8.279.
120Ibid., para. 8.165.
121Argentina's appellant's submission, p. 45.
122Ibid., p. 46.
123Ibid., p. 45.WT/DS121/AB/R
Page 46
imports", in Argentina's view, is that imports have become greater, and Argentina argues that there is
no factual or contextual support for any additional requirements in the  Agreement on Safeguards . 124
129. We agree with the Panel that Articles 2.1 and 4.2(a) of the  Agreement on Safeguards   require
a demonstration not merely of  any  increase in imports, but, instead, of imports "in such increased
quantities … and under such conditions as to cause or threaten to cause serious injury."  125  I n
addition, we agree with the Panel that the specific provisions of Article 4.2(a) require that "the  rate
and  amount   of the increase in imports … in absolute and relative terms" (emphasis added) must be
evaluated.126  Thus, we do not dispute the Panel's view and ultimate conclusion that the competent
authorities are required to consider the  trends   in imports over the period of investigation (rather than
just comparing the end points) under Article 4.2(a).  127  As a result, we agree with the Panel's
conclusion that "Argentina did not adequately consider  the intervening trends in imports, in particular
the steady and significant declines in imports beginning in 1994, as well as the sensitivity of theanalysis to the particular end points of the investigation period used."
 128
130. All the same, while we do not find that the Panel erred in its application of the requirement in
Article 2.1 of the  Agreement in Safeguards  that the "product  is being imported  … in such increased
quantities", we do find the Panel's interpretation of that requirement somewhat lacking.  We note thatthe Panel characterized this condition in Article 2.1 on several occasions in the Panel Report simply as"increased imports".  However, the actual requirement, and we emphasize that this requirement isfound in  both  Article 2.1 of the  Agreement on Safeguards  and Article XIX:1(a) of the GATT 1994,
is that "such product  is being imported  … in such increased quantities"
 129, "and under such
conditions as to cause or threaten to cause serious injury to the domestic industry". (emphasis added)
Although we agree with the Panel that the "increased quantities" of imports cannot be just  any 
increase, we do not agree with the Panel that it is reasonable to examine the trend in imports over afive-year historical period.  In our view, the use of the present tense of the verb phrase "is beingimported" in both Article 2.1 of the  Agreement on Safeguards  and Article XIX:1(a) of the
GATT 1994 indicates that  it is necessary for the competent authorities to examine recent imports, and
not simply trends in imports during the past five years – or, for that matter, during any other period of
                                                     
124Statement by Argentina at the oral hearing.
125Article 2.1 of the  Agreement on Safeguards .
126Panel Report, paras. 8.140-8.141.
127Ibid., para. 8.276.
128Ibid.
129Article 2.1 of the  Agreement on Safeguards   contains the additional words "absolute or relative to
domestic production".WT/DS121/AB/R
Page 47
several years.  130  In our view, the phrase "is being imported" implies that the increase in imports must
have been sudden and recent.
131. We recall here our reasoning and conclusions above on the meaning of the phrase "as a result
of unforeseen developments" in Article XIX:1(a) of the GATT 1994.  We concluded there that the
increased quantities of imports should have been "unforeseen" or "unexpected".131  We also believe
that the phrase "in  such  increased quantities" in Article 2.1 of the  Agreement on Safeguards   and
Article XIX:1(a) of the GATT 1994 is meaningful  to this determination.  In our view, the
determination of whether the requirement of imports "in such increased quantities" is met is not amerely mathematical or technical determination.  In other words, it is not enough for an investigationto show simply that imports of the product this year were more than last year – or five years ago.Again, and it bears repeating, not just  any  increased quantities of imports will suffice.  There must be
"such  increased quantities" as to cause or threaten to cause serious injury to the domestic industry in
order to fulfil this requirement for applying a safeguard measure.  And this language in both
Article 2.1 of the  Agreement on Safeguards   and Article XIX:1(a) of the GATT 1994, we believe,
requires that the increase in imports must have been recent enough, sudden enough, sharp enough, andsignificant enough, both quantitatively and qualitatively, to cause or threaten to cause "serious injury".
2. Serious Injury
132. With respect to the requirement relating to "serious injury", Article 4.2(a) of the  Agreement
on Safeguards  provides, in relevant part:
In the investigation to determine whether increased imports
have caused or are threatening to cause serious injury to a domesticindustry under the terms of this Agreement, the competent authorities
shall evaluate all relevant factors  of an objective and quantifiable
nature  having a bearing on the s ituation of that industry , in particular ,
… the share of the domestic market taken by increased imports,
changes in the level of sales, production, productivity, capacityutilization, profits and losses, and employment.
133. The Panel stated that the requirements of Article 4.2(a) obliged it to:
                                                     
130The Panel, in footnote 530 to para. 8.166 of the Panel Report, recognizes that the present tense is
being used, which it states "would seem to indicate that, whatever the starting-point of an investigation period, it
has to  end no later than the very recent past." (emphasis added)  Here, we disagree with the Panel.  We believe
that the relevant investigation period should not only  end  in the very recent past, the investigation period
should  be  the recent past.
131Supra , paras. 91-98.WT/DS121/AB/R
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… consider, first, whether all injury factors listed in the Agreement
were considered by Argentina, as the text of Article 4.2(a) of the
Agreement ("all relevant factors … including … changes in the level
of sales, production, productivity, capacity utilisation, profits and
losses, and employment") is unambiguous that at a minimum each ofthe factors listed, in addition to all other factors that are "relevant",
must be considered.
 132
The Panel also concluded that, pursuant to the provisions of Article 4.2(c) and, by reference, Article 3
of the  Agreement on Safeguards , it was required to examine whether Argentina's findings and
conclusions on "serious injury" were supported by the evidence before the Argentine authorities.
134. The Panel read Article 4.2(a) literally to mean that all the listed factors:  "changes in the level
of sales, production, productivity, capacity utilisation, profits and losses, and employment" – must be
evaluated in every investigation.  In addition, the Panel stated that all other relevant factors having a
bearing on the situation of the industry must also be evaluated.  As the Panel found that Argentina hadnot evaluated two of the listed factors, capacity utilization and productivity, the Panel concluded that
Argentina's investigation was not consistent with the requirements of Article 4.2(a).
 133
135. Argentina submits that the Panel erred in its analysis of Argentina's determination of "serious
injury".  According to Argentina, Article 4.2(c) of the  Agreement on Safeguards  requires only a
demonstration of the relevance of the factors examin ed, rather than an examination of all the listed
factors as relevant.  134  In response to the Panel's finding that Argentina had not properly evaluated the
factors of capacity utilization and productivity, Argentina replies by maintaining that the factor of
productivity is explicitly mentioned in Act 338 and that data sufficient to calculate capacity
utilization was available to the Argentine authorities.  135  Furthermore, Argentina argues that neither
capacity utilization nor productivity was a principal or a significant issue in the investigation.  136
Argentina also takes issue with the Panel's view that the available data for 1996 should have been
examined by Argentina in its investigation of "serious injury".  Here, Argentina responds that therecord clearly shows that the data for 1996 was incomplete, and Argentina submits that it wasappropriate and reasonable to use a single review period for which all the data was available as a basisfor its determination of "serious injury".  In addition, Argentina argues that the Panel erred in severalaspects of its examination of the evidence considered by the Argentine authorities.
                                                     
132Panel Report, para. 8.206.
133Ibid., para. 8.277.
134Argentina's appellant's submission, p. 60.
135Ibid., p. 59.
136Ibid., p. 60.WT/DS121/AB/R
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136. We agree with the Panel's interpretation that Article 4.2(a) of the  Agreement on Safeguards
requires a demonstration that the competent authorities evaluated, at a minimum, each of the factorslisted in Article 4.2(a) as well as all other factors that are relevant to the situation of the industryconcerned.  Furthermore, we do not dispute the Panel's finding that Argentina did not evaluate all of
the listed factors, in particular, capacity utilization and productivity.  We consider the other points that
Argentina has raised in this appeal, relating to the availability of data for 1996 and to the Panel'sevaluation of the evidence considered by the Argentine authorities, to relate to matters of fact whichare not within our mandate, under Article 17.6 of the DSU, to examine on appeal.
137. For these reasons, we uphold the Panel's conclusion that Argentina did not evaluate "all
relevant factors of an objective and quantifiable nature having a bearing on the situation of thatindustry" as required by Article 4.2(a) of the  Agreement on Safeguards .
138. However, although it was not necessary for the Panel to go beyond where it did in this case,
as the Panel found that Argentina had  not  evaluated all of the required listed factors, we do not
believe that an evaluation of the listed factors in Article 4.2(a) is all that is required to justify a
determination of "serious injury" under the  Agreement on Safeguards .  We note, in this respect, that
there is a definition of "serious injury" in Article 4.1(a) of the  Agreement on Safeguards , which reads
as follows:
"serious injury" shall be understood to mean a significant overall
impairment   in the position of a domestic industry. (emphasis added)
And we note that, in its legal analysis of "serious injury" under Article 4.2(a), the Panel made no use
whatsoever of this definition.
139. In our view, it is only when the  overall position   of the domestic industry is evaluated, in
light of all the relevant factors having a bearing on a situation of that industry, that it can bedetermined whether there is "a significant over all impairment" in the position of that industry.
Although Article 4.2(a) technically requires that certa in listed factors must be evaluated, and that all
other relevant factors must be evaluated, that prov ision does not specify what such an evaluation must
demonstrate.  Obviously, any such evaluation will be different for different industries in differentcases, depending on the facts of the particular case and the situation of the industry concerned.  Anevaluation of each listed factor will not necessarily have to show that each such factor is "declining".In one case, for example, there may be significant declines in sales, employment and productivity thatwill show "significant overall impairment" in the position of the industry, and therefore will justify afinding of serious injury.  In another case, a certain factor may not be declining, but the overall picturemay nevertheless demonstrate "significant overall impairment" of the industry.  Thus, in addition to aWT/DS121/AB/R
Page 50
technical examination of whether the competent authorities in a particular case have evaluated all the
listed factors and any other relevant factors, we believe that it is essential for a panel to take thedefinition of "serious injury" in Article 4.1(a) of the Agreement on Safeguards  into account in its
review of any determination of "serious injury".
3. Causation
140. With respect to the requirement of causation, Article 4.2(b) of the  Agreement on Safeguards
provides that a determination of serious injury:
… shall not be made unless this investigation demonstrates, on the basis
of objective evidence, the existen ce of the causal link between increased
imports of the product concerned and serious injury or threat thereof.When factors other than increased imports are causing injury to the
domestic industry at the same time, such  injury shall not be attributed to
increased imports.
141. The Panel interpreted the requirements of Article 4.2(b) as follows:
… we will consider whether Argentina's causation analysis meets
these requirements on the basis of (i) whether an upward trend in
imports coincides with downward trends in the injury factors, and if
not, whether a reasoned explanation is provided as to whynevertheless the data show causation;  (ii) whether the conditions of
competition in the Argentine footwear market between imported and
domestic footwear as analysed demonstrate, on the basis of objective
evidence, a causal link of the imports to any injury;  and (iii) whether
other relevant factors have been analysed and whether it is establishedthat injury caused by factors other than imports has not been attributed
to imports.
 137
142. On causation, the Panel stated:
… the  trends  -- in both the injury factors and the imports -- matter as
much as their absolute levels.  In the particular context of a causation
analysis, we also believe that this provision means that it is the
relationship  between the movements in imports (volume and market
share) and the movements in injury factors that must be central to acausation analysis and determination.
                                                     
137Panel Report, para. 8.229.WT/DS121/AB/R
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In practical terms, we believe therefore that this provision means that
if causation is present, an increase in imports normally should
coincide with a decline in the relevant injury factors. While such a
coincidence by itself cannot prove  causation (because, inter alia ,
Article 3 requires an explanation – i.e., "findings and reasonedconclusions"), its absence would create serious doubts as to the
existence of a causal link, and would require a very compelling
analysis of why causation still is present.
 138
143. Argentina argues on appeal that the Panel erred in establishing and applying three "standards"
in its analysis of causation.  First, Argentina maintains that the Panel required that an upward trend in
imports must  coincide   with a  downward   trend in the injury factors.  On this point, Argentina
maintains that Article 4.2(c) of the  Agreement on Safeguards  refers to "changes" and not to
"downward trends", so that there is no requirement that there be a "downward trend" in each year of
the period of investigation.  Moreover, Argentina maintains that the Panel's requirement of"coincidence" in time is not implied by the term "cause".  Second, Argentina asserts that the Panelused the phrase "under such conditions" to develop a requirement that the "conditions of competition"between imported and domestic footwear in the Argentine market demonstrate a causal link betweenthe increased imports and injury.  Argentina asserts that there is no basis in the  Agreement on
Safeguards  for this requirement.  Third, Argentina main tains that the Panel required the Argentine
authorities to establish that other relevant factors had been analyzed, and that injury caused by factorsother than imports is not evidence of serious injury caused by imports.  In Argentina's opinion, thisrequirement goes far beyond what is actually required in Article 4.2(b) of the  Agreement on
Safeguards .
144. We note that Article 4.2(a) requires the competent authorities to evaluate "the rate and amount
of the increase in imports", "the share of the domestic market taken by increased imports", as well asthe "changes" in the level of factors such as sales, production, productivity, capacity utilization, andothers.  We see no reason to disagree with the Panel's interpretation that the words "rate and amount"
and "changes" in Article 4.2(a) mean that "the  trends -- in both the injury factors and the imports --
matter as much as their absolute levels."
 139  We also agree with the Panel that, in an analysis of
causation, "it is the  relationship   between the  movements   in imports (volume and market share) and
the  movements   in injury factors that must be central to a causation analysis and determination."  140
(emphasis added)  Furthermore, with respect to a "coincidence" between an increase in imports and a
decline in the relevant injury factors, we note that  the Panel simply said that this should "normally"
                                                     
138Panel Report,  paras. 8.237 and 8.238.
139Ibid., para. 8.237.
140Ibid.WT/DS121/AB/R
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occur if causation is present.  141  The Panel qualified this statement, however, in the following
sentence:
While such a coincidence by itself cannot prove  causation (because,
inter alia , Article 3 requires an explanation – i.e., "findings and
reasoned conclusions"), its absence would create serious doubts as to
the existence of a causal link, and would require a very compelling
analysis of why causation still is present.  142
145. We are somewhat surprised that the Panel, having determined that there were no "increased
imports", and having determined that there was no "serious injury", for some reason went on to make
an assessment of causation.  It would be difficu lt, indeed, to demonstrate a "causal link" between
"increased imports" that did not occur and "serious injury" that did not exist.  Nevertheless, we see noerror in the Panel's interpretation of the causation requirements, or in its interpretation ofArticle 4.2(b) of the  Agreement on Safeguards .  Rather, we believe that Argentina has
mischaracterized the Panel's interpretation and reasoning.  Furthermore, we agree with the Panel'sconclusions that "the conditions of competition between the imports and the domestic product werenot analysed or adequately explained (in particular price);  and that 'other factors' identified by theCNCE in the investigation were not sufficiently evaluated, in particular, the tequila effect."
 143
146. For all these reasons, we uphold the Panel's conclusion that "Argentina's findings and
conclusions regarding causation were not adequately explained and supported by the evidence."  144
147. And, on the basis of all of the above reasoning, we uphold the Panel's findings and
conclusions in paragraph 8.279 and paragraph 8.280 of the Panel Report, including the conclusionsthat "Argentina's investigation and determinations of increased imports, serious injury and causationare inconsistent with Articles 2 and 4 of the Safeguards Agreement."
 145  We also uphold the Panel's
ultimate conclusion that "Argentina's investigation provides  no  legal basis for the application of the
definitive safeguard measure at issue, or any safeguard measure."  146
                                                     
141Panel Report., para. 8.238.
142Ibid.
143Ibid., para. 8.278.
144Ibid.
145Ibid., para. 8.280.
146Ibid.WT/DS121/AB/R
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C. Article 12.7 of  the DSU
148. Argentina also contends that the Panel violated Article 12.7 of the DSU by failing to provide
"a basic rationale" for its findings and conclusions.  Article 12.7 of the DSU reads, in relevant part:
… the report of a panel shall set out the findings of fact, the
applicability of relevant provisions and the  basic rationale   behind any
findings and recommendations that it makes. (emphasis added)
149. In our reports in  Korea – Alcoholic Beverages  147 and  Chile – Taxes on Alcoholic
Beverages  148, we found that the panels in those cases had provided sufficient reasons for their
findings and recommendations, and that, therefore, the requirements of Article 12.7 of the DSU werefulfilled.  In this case, the Panel conducted  extensive   factual and legal analyses of the competing
claims made by the parties, set out numerous factual findings based on detailed consideration of theevidence before the Argentine authorities as well as other evidence presented to the Panel, and
provided extensive explanations of how and why it reached its factual and legal conclusions.Although Argentina may not agree with the rationale provided by the Panel, and we do not ourselves
agree with all of its reasoning, we have no doubt that the Panel set out, in its Report, a "basic
rationale" consistent with the requirements of Article 12.7 of the DSU.
150. For these reasons, we reject Argentina's appeal under Article 12.7 of the DSU.  Indeed, we
cannot help but note that, in this appeal, Argentina seems to be arguing that the Panel said and didboth too much and too little.
VIII.  Findings and Conclusions
151. For the reasons set out in this Report, the Appellate Body:
(a) concludes that the Panel did not exceed its terms of reference by referring in its
reasoning to Article 3 of the  Agreement on Safeguards ;
(b) reverses the Panel's conclusion in paragraph 8.69 of the Panel Report that "safeguard
investigations conducted and safeguard measures imposed after the entry into force ofthe WTO agreements which meet the requirements of the new Safeguards Agreementsatisfy the requirements of Article XIX of GATT", and also reverses the Panel'sfinding that the Uruguay Round negotiators " expressly omitted " the phrase "as a result
of unforeseen developments" from Article 2 of the  Agreement on Safeguards ;
                                                     
147Supra , footnote 36, para. 168.
148Appellate Body Report, circulated 13 Decembe r 1999, WT/DS87/AB/R, WT/DS110/AB/R, para. 78.WT/DS121/AB/R
Page 54
(c) declines to make a finding with respect to the European Communities' claim under
Article XIX of the GATT 1994 since, in light of the findings in paragraph (f) below,there is, in any event, no legal basis for the safeguard measures imposed byArgentina;
(d) reverses the Panel's findings and conclusions relating to footnote 1 to Article 2.1 of
the  Agreement on Safeguards   and Article XXIV of the GATT 1994, and concludes
that Argentina, on the facts of this case, cannot justify the imposition of its safeguardmeasures only on non-MERCOSUR third country sources of supply on the basis of aninvestigation that found serious injury or threat thereof caused by imports from allsources, including imports from other MERCOSUR member States;
(e) concludes that the Panel correctly stated and applied the appropriate standard of
review, as set forth in Article 11 of the DSU;
(f) upholds the Panel's findings and conclusions that Argentina's investigation and
determinations of increased imports, serious injury and causation are inconsistent
with Articles 2 and 4 of the  Agreement on Safeguards , and that, accordingly,
Argentina's investigation provides no legal basis for the application of the definitivesafeguard measure at issue or any safeguard measure;  and
(g) concludes that the Panel did not fail to set out the "basic rationale" behind its findings
and recommendations as required by Article 12.7 of the DSU.
152. The Appellate Body  recommends   that the DSB request that Argentina bring its safeguard
measures found in this Report, and in the Panel Report as modified by this Report, to be inconsistent
with the  Agreement on Safeguards , into conformity with its obligations under that Agreement.WT/DS121/AB/R
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Signed in the original at Geneva this 17th day of November 1999 by:
_________________________
James Bacchus
Presiding Member
_________________________ _________________________
Christopher Beeby Mitsuo Matsushita
Member Member