WORLD TRADE
ORGANIZATIONWT/DS177/AB/R
WT/DS178/AB/R
1 May 2001
(01-2194)
Original: English
UNITED STATES – SAFEGUARD MEASURES ON
IMPORTS OF FRESH, CHILLED OR FROZEN
LAMB MEAT FROM NEW ZEALAND AND AUSTRALIA
AB-2001-1
Report of the Appellate BodyWT/DS177/AB/R
WT/DS178/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of the Participan ts and Third Participant..................................................................4
A. Claims of Error by the United States – Appellant.......................................................... 4
1. Unforeseen De velopments................................................................................4
2. Domestic Industry.............................................................................................6
3. Threat of Serious Injury....................................................................................74. Causation ..........................................................................................................7
B. Arguments of Australia – Appellee................................................................................. 9
1. Unforeseen De velopments................................................................................9
2. Domestic Industry...........................................................................................10
3. Threat of Serious Injury..................................................................................10
4. Causation ........................................................................................................11
C. Arguments of New Zealand – Appellee ........................................................................ 12
1. Unforeseen De velopments..............................................................................12
2. Domestic Industry...........................................................................................13
3. Threat of Serious Injury..................................................................................134. Causation ........................................................................................................14
D. Claims of Error by Australia – Appellant .................................................................... 15
1. Unforeseen De velopments..............................................................................15
2. Threat of Serious Injury..................................................................................163. Conditional Appeals .......................................................................................17
E. Claims of Error by New Zealand – Appellant.............................................................. 17
1. Threat of Serious Injury..................................................................................17
2. Judicial Economy............................................................................................193. Conditional Appeals .......................................................................................19
F. Arguments of the United States – Appellee .................................................................. 19
1. Unforeseen De velopments..............................................................................19
2. Threat of Serious Injury..................................................................................20
3. Judicial Economy............................................................................................21
4. Conditional Appeals .......................................................................................22
G. Arguments of the European Communities – Third Participant.................................... 22
1. Unforeseen De velopments..............................................................................22
2. Causation ........................................................................................................22
III. Issues Raised in this Appeal ............................................................................................... ......23
IV. Unforeseen Developments..................................................................................................... ...24WT/DS177/AB/R
WT/DS178/AB/R
Page ii
V. Domestic Industry............................................................................................................ .........30
VI. Threat of Serious Injury.................................................................................................... ........36
A. Standard of Review ...................................................................................................... 36
B. The Determination of a "Thr eat of Seriou s Injury"...................................................... 42
1. Background.....................................................................................................42
2. Meaning of the Term "Thr eat of Seriou s Injury"............................................43
3. Evaluation of Relevant Factors under Article 4.2(a) of the Agreement
on Safeguards .................................................................................................45
4. Panel's Review of the USITC's Determination of a "Threat of Serious
Injury".............................................................................................................50
VII. Causation .................................................................................................................. ................57
VIII. Judicial  Economy.......................................................................................................... ............67
IX. Conditional Appeals ......................................................................................................... ........69
X. Findings and Conclusions..................................................................................................... ....70WT/DS177/AB/R
WT/DS178/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Safeguard Measures on
Imports of Fresh, Chilled or Frozen LambMeat from New Zealand and Australia
United States,  Appellant/Appellee
Australia,  Appellant/Appellee
New Zealand,  Appellant/Appellee
European Communities,   Third ParticipantAB-2001-1
Present:Ehlermann,  Presiding Member
Bacchus,  Member
Ganesan,  Member
I. Introduction
1. The United States, Australia and New Zealand appeal certain issues of law and legal
interpretations in the Panel Report,  United States – Safeguard Measures on Imports of Fresh, Chilled
or Frozen Lamb Meat fr om New Zealand and Australia  (the "Panel Report").  1  The Panel was
established to consider complaints by Australia and New Zealand with respect to a definitive
safeguard measure imposed by the United States on imports of fresh, chilled and frozen lamb meat.  2
2. On 7 October 1998, the United States International Trade Commission (the "USITC")
initiated a safeguard investigation into imports of lamb meat.  3  By Proclamation of the President of
the United States, dated 7 July 1999, the United States imposed a definitive safeguard measure, in theform of a tariff-rate quota, on imports of fresh, chilled and frozen lamb meat, effective as of22 July 1999.
 4  The factual aspects of this dispute are set out in greater detail in the Panel Report.  5
3. The Panel considered claims by Australia and New Zealand that, in imposing the safeguard
measure on imports of lamb meat, the United States acted inconsistently with Articles I, II, and XIX
                                                     
1WT/DS177/R, WT/DS178/R, 21 December 2000.
2Panel Report, paras. 1.1 – 1.10.
3Ibid., para. 2.2;  G/SG/N/6/USA/5, 5 November 1998.
4"Proclamation 7208 of 7 July 1999 – To Facilitate Positive Adjustment to Competition From Imports
of Lamb Meat", United States Federal Register, 9 July 1999 (Volume 64, Number 131), pp. 37387-37392;
Panel Report, para. 2.6.
5Panel Report., paras. 2.1 – 2.8.WT/DS177/AB/R
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of the  General Agreement on Tariffs and Trade 1994  (the "GATT 1994"), and with Articles 2, 3, 4,
5, 8, 11, and 12 of the  Agreement on Safeguards . 6
4. In its Report, circulated to Members of the World Trade Organization (the "WTO") on
21 December 2000, the Panel concluded:
(a) that the United States has acted inconsistently with
Article XIX:1(a) of GATT 1994 by failing to demonstrate as a matter
of fact the existence of "unforeseen developments";
(b) that the United States has acted inconsistently with
Article 4.1(c) of the Agreement on Safeguards because the USITC, in
the lamb meat investigation, defined the domestic industry asincluding input producers (i.e., growers and feeders of live lamb) as
producers of the like product at issue (i.e. lamb meat);
(c) that the complainants failed to establish that the USITC's
analytical approach to determining the existence of a threat of serious
injury, in particular with respect to the prospective analysis and thetime-period used, is inconsistent with Article 4.1(b) of the Agreement
on Safeguards (assuming arguendo that the USITC's industry
definition was consistent with the Agreement on Safeguards);
(d) that the complainants failed to establish that the USITC's
analytical approach (see paragraphs 7.223-7.224) to evaluating all ofthe factors listed in Article 4.2(a) of the Agreement on Safeguards
when determining whether increased imports threatened to cause
serious injury with respect to the domestic industry as defined in the
investigation is inconsistent with that provision (assuming arguendo
that the USITC's industry definition was consistent with theAgreement on Safeguards and that the data relied upon by the USITC
were representative within the meaning of Article 4.1(c) of the
Agreement on Safeguards);
(e) that the United States has acted inconsistently with
Article 4.1(c) of the Agreement on Safeguards because the USITCfailed to obtain data in respect of producers representing a major
proportion of the total domestic production by the domestic industry
as defined in the investigation;
                                                     
6WT/DS177/4 and WT/DS178/5, 15 October 1999 and WT/DS178/5/Corr.1, 29 October 1999.  See,
also, Panel Report, paras. 3.1 – 3. 4.WT/DS177/AB/R
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(f) that the United States has acted inconsistently with
Article 4.2(b) of the Agreement on Safeguards because the USITC's
determination in the lamb meat investigation in respect of causation
did not demonstrate the required causal link between increased
imports and threat of serious injury, in that the determination did notestablish that increased imports were by themselves a necessary and
sufficient cause of threat of serious injury, and in that the
determination did not ensure that threat of serious injury caused by
"other factors" was not attributed to increased imports;
(g) that by virtue of the above violations of Article 4 of the
Agreement on Safeguards, the United States also has acted
inconsistently with Article 2.1 of the Agreement on Safeguards.
 7
5. As the Panel was of the view that it had addressed those claims and issues that it considered
necessary to enable the Dispute Settlement Body ("DSB") to make sufficiently preciserecommendations and rulings for the effective resolution of the dispute, the Panel exercised "judicialeconomy" and declined to rule on the claims made under Articles I and II of the GATT 1994, and
under Articles 2.2, 3.1, 5.1, 8, 11 and 12 of the  Agreement on Safeguards .
 8
6. The Panel recommended that the DSB request the United States to bring its safeguard
measure on imports of lamb meat into conformity with its obligations under the  Agreement on
Safeguards  and the GATT 1994.  9
7. On 31 January 2001, the United States notified the DSB of its intention to appeal certain
issues of law covered in the Panel Report and certain legal interpretations developed by the Panel,pursuant to paragraph 4 of Article 16 of the  Understanding on Rules and Procedures Governing the
Settlement of Disputes  (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the
Working Procedures for Appellate Review  (the " Working Procedures
 ").  On 12 February 2001, the
United States filed its appellant's submission.  10  On 15 February 2001, Australia and New Zealand
each filed an other appellant's submission.  11  On 26 February 2001, Australia, New Zealand and the
United States each filed an appellee's submission.  12  On the same day, the European Communities
filed a third participant's submission.  13
                                                     
7Panel Report, para. 8.1.
8Ibid. , para. 7.280.
9Ibid. , para. 8.2.
10Pursuant to Rule 21 of the  Working Procedures .
11Pursuant to Rule 23(1) of the  Working Procedures .
12Pursuant to Rules 22 and 23(3) of the  Working Procedures .
13Pursuant to Rule 24 of the  Working Procedures .WT/DS177/AB/R
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8. On 26 February 2001, the Appellate Body received letters from Canada and Japan indicating
that they would not be filing written submissions in this appeal.  14  Canada stated that it "reserve[d] the
right to intervene, as appropriate, during the oral hearing" and Japan indicated that it wished "toreserve its right to present its views at the oral hearing."  On 6 March 2001, the Appellate Body
Secretariat replied to Canada and Japan that the Division hearing this appeal wished to have
clarification as to whether Canada and Japan wanted to attend the oral hearing simply as "passiveobservers" or to participate actively in the oral hearing.  By their letters dated 9 March 2001, Canadastated that it wished to attend the oral hearing as  a "passive observer", while Japan stated that it
"would like to hear the arguments made by the partie s to the dispute, and to intervene when necessary
and [when] given an opportunity to do so by the Appellate Body."
9. On 9 March 2001, the Appellate Body Secretar iat informed the participants and third
participants that the Division hearing this appeal was "inclined to allow Canada and Japan to attendthe oral hearing as passive observers, if none of the participants or third participants object."  No such
objection was received.  On 14 March 2001, the Division hearing this appeal informed Canada, Japan,
the participants and the European Communities, that Canada and Japan would be allowed to attendthe oral hearing as passive observers, that is, to hear the oral statements and responses to questioningby Australia, the European Communities, New Zealand and the United States.
10. The oral hearing in the appeal was held on 22 and 23 March 2001.  The participants and the
European Communities, as third participant, presented oral arguments and responded to questions putto them by the Members of the Division hearing the appeal.
II. Arguments of the Participants and Third Participant
A. Claims of Error by the United States – Appellant
1. Unforeseen Developments
11. The United States appeals the Panel's finding th at the United States acted inconsistently with
Article XIX:1(a) of the GATT 1994 with respect to the issue of "unforeseen developments".  In the
view of the United States, the Panel erred in read ing words into the text of Article XIX and thereby
nullified the distinction between "conditions" for applying a safeguard measure, and "circumstances"
which must be demonstrated as a matter of fact in order to apply a safeguard measure, in a manner
that is inconsistent with the Appellate Body reports in  Argentina – Safeguard Measures on Imports of
                                                     
14Canada and Japan reserved their rights to particip ate as third parties in the proceedings before the
Panel;  Panel Report, para. 1.10.WT/DS177/AB/R
WT/DS178/AB/R
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Footwear   ("Argentina – Footwear Safeguard  ") 15 and  Korea – Definitive Safeguard Measure on
Imports of Certain Dairy Products ("Korea – Dairy Safeguard  ").  16
12. The United States emphasizes the fact that, according to the Panel, the United States breached
Article XIX:1(a) of the GATT 1994 because the published report of the USITC (the "USITC Report")
did not include a "conclusion" demonstrating the existence of unforeseen developments.  However,
Article XIX:1(a) contains neither the word "conclusion" nor any guidance as to how a Member shouldapproach the issue of unforeseen developments.   The Panel  implied   the "conclusion" requirement
from an erroneous interpretation of Article 3.1 of the  Agreement on Safeguards ,  which it viewed as
relevant context for interpreting Article XIX of the GATT 1994.  However, while the "context" of aprovision may help to understand the meaning of a term, such "context " cannot serve as the basis forcopying  or  reading  an obligation from one provision of an agreement into another provision in a
different agreement.  Furthermore, even as context, Article 3.1 of the  Agreement on Safeguards   does
not support the Panel's conclusion, since the scope of competent authorities' obligations to investigate
"pertinent issues" and reach "reasoned conclusions" under that Article is bound by the scope of the
investigation to be conducted under the  Agreement on Safeguards.   Neither Article 2.1, nor
Article 4.2, nor any other provision in the  Agreement on Safeguards  suggests that, in addition to the
requirements set out in that Agreement, competent authorities must also conduct an investigation and
reach a "reasoned conclusion" on the issue of unforeseen developments.  The United Statesemphasizes that such an obligation would elevate "unforeseen developments" into a "condition"additional to those explicitly set forth in Article 2.1 of the  Agreement on Safeguards .
13. In the view of the United States, a panel's role is to consider whether the Member taking the
safeguard action has demonstrated the existence of unforeseen developments as a matter of fact, and
not whether the competent authorities presented those facts in their report, as a separate finding, a
"reasoned conclusion", or in any other form.  The United States invokes the practice of contractingparties under the GATT 1947 and the negotiating history of the  Agreement on Safeguards   in support
of its position, and considers that the Report of the Working Party in  Hatters' Fur   suggests that
specific developments in the marketplace leading to an injurious import surge will not normally be
"foreseen" by negotiators at the time of making tariff concessions.
 17  The United States adds that, to
                                                     
15Appellate Body Report, WT/DS121/AB/R, adopted 12 January 2000.
16Appellate Body Report, WT/DS98/AB/R, adopted 12 January 2000.
17Report 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.  The United States argues, on the basis of this case, that the
unforeseen character of relevant developments "will be implicit in the result they have produced."(United States' appellant's submission, para. 43).WT/DS177/AB/R
WT/DS178/AB/R
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the extent that the factual record in the instant case is clear and uncontested, the USITC's Report
demonstrated the existence of unforeseen developments as a matter of fact.
2. Domestic Industry
14. The United States argues that the Panel erred in finding that the United States' definition of
the domestic industry, which included growers and feeders of live lambs, as well as packers and
breakers of lamb meat, was inconsistent with Article 4.1(c) of the  Agreement on Safeguards .  In the
view of the United States, where there is both a continuous line of production and a coincidence ofeconomic interests among various segments contributing to the production of a finished product, theterm "producer" in Article 4.1(c) of the  Agreement on Safeguards   may properly be read to include
the producers making the primary contribution to the value of the finished product.  In this regard, theUnited States points out that most sheep and lambs are meat-type animals kept primarily for theproduction of meat, and that the value added by the growers and feeders of live lambs accounts forabout 88 per cent of the wholesale cost of lamb meat  in the United States.  A definition of "domestic
industry" that excluded the growers and feeders would, therefore, be artificial, and would render the
determination of serious injury or a threat thereof meaningless.  In support of its arguments, theUnited States relies on the term "producers as a whole" in the definition set forth in Article 4.1(c) ofthe  Agreement on Safeguards   and takes the position that this phrase allows the national competent
authorities some flexibility to define "domestic industry" on the facts and circumstances of each case.
15. The United States suggests that the term "producer" must be construed in terms of how the
competent authorities will conduct their injury analysis.  Article 4.2(a) of the  Agreement on
Safeguards  requires competent authorities to evaluate "all relevant factors" bearing on the situation of
the industry.  This requires an authority to analyze all aspects of the industry, which in some
industries may include factors affecting the product in its raw stage.  Limiting the definition of
"producer" to only those processors contributing very limited value-added at the final stage of acontinuous line of production would create an arti ficial "domestic industry" and improperly restrict
the injury analysis.  On the facts of this case, to limit the domestic industry only to breakers andpackers would have required the USITC to examine only the portion of production responsible forapproximately 12 percent of the value of the like product, and to ignore the effects of the imports oflamb meat on producers whose economic interests were closely intertwined with those of the breakersand packers and whose financial health was similarly likely to be affected by lamb meat imports.
16. The United States argues that, in its findings on this issue, the Panel relied on panel reports
under the GATT 1947 that are not apposite to this case, and erroneously concluded that the United
States' approach would allow competent authorities to devise an unfairly "open-ended" definition ofWT/DS177/AB/R
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the domestic industry.  In fact, the USITC has developed principles that do effectively limit the
inclusion of particular producers in the definition of the domestic industry, and, in applying its two-pronged test, the USITC has only rarely included both processors and growers in the same domesticindustry.  Finally, the United States contends that the Panel's determination that the United States
violated Article 2.1 of the  Agreement on Safeguards  was based on its erroneous finding that the
United States had violated Article 4 of the  Agreement on Safeguards and should, for that reason, be
reversed.   
3. Threat of Serious Injury
17. The United States requests the Appellate Body to reverse the Panel's finding that the USITC's
data collection was inconsistent with Article 4.1(c) of the  Agreement on Safeguards .  The United
States asserts that, before the Panel, Australia and New Zealand did not establish a  prima facie   case
that the USITC's data collection was inconsistent with Article 4.1(c), as they did not make any suchclaim, and did not adduce any evidence or argument in support of such a claim.  The United States
also points out that none of the participants in the proceedings before the USITC argued that the data
was biased or inaccurately portrayed the condition of growers.
18. The United States maintains that, in addition to basing its finding on a claim that neither
complainant advanced, the Panel misinterpreted the provisions of the  Agreement on Safeguards
applicable to competent authorities' evaluation of the data collected in a safeguard investigation.Neither Article 4.1(c) nor any other provision of the  Agreement on Safeguards  imposes a standard of
"representativeness" on competent authorities conducting safeguard investigations.  The United Statesadds that the USITC acted consistently with the provisions of the  Agreement on Safeguards  that  are 
relevant to the issue of data collection, namely, Articles 4.2(a) and 4.2(b), which simply require
competent authorities to evaluate all factors of "an objective and quantifiable nature" having a
"bearing" on the state of the industry, and to determine the existence of the causal link on the basis of"objective evidence".  Lastly, the United States contends that the Panel's finding regarding Article 2.1of the  Agreement on Safeguards  was based on its erroneous finding that the United States had
violated Article 4 of the  Agreement on Safeguards  and should, for that reason, be reversed.
4. Causation
19. The United States submits that the Panel erre d in finding that the USITC's causation analysis
violated Article 4.2(b) of the  Agreement on Safeguards .  The Panel's analysis was, and was
acknowledged by the Panel to be, nearly identical to the approach of the panel in  United States –
Definitive Safeguard Measure on Imports of Wheat Gluten from the European CommunitiesWT/DS177/AB/R
WT/DS178/AB/R
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("United States – Wheat Gluten Safeguard  ") 18,  which was reversed by the Appellate Body.  The
Panel found that the USITC had not acted consistently with Article 4.2(b) of the  Agreement on
Safeguards  because it had failed to demonstrate that:  (i) increased lamb meat imports were
themselves a "necessary and sufficient" cause of serious injury to the U.S. lamb meat industry;
and (ii) they alone accounted for a degree of injury that met the threshold of "seriousness" required
under Article 4.2(a) and 4.2(b).  In  United States – Wheat Gluten Safeguard ,  the Appellate Body
reversed that panel's finding "that increased imports 'alone', 'in and of themselves', or ' per se ', must be
capable of causing injury that is 'serious'".  19  The Appellate Body found that Article 4.2(b) does not
suggest that increased imports must be the sole cause of the serious injury, or that 'other factors'causing injury must be excluded from the determination of serious injury.  This reasoning appliesequally in this case, and, according to the United States, demonstrates that the Panel erred in itsapproach.
20. The United States is of the view that the factual findings made by the Panel are not sufficient
to enable the Appellate Body to complete the analysis and determine whether the USITC properly
applied the causation standard mandated by the  Agreement on Safeguards .  In particular, the Panel
did not make factual findings necessary to determine whether the complainants had shown that theUSITC failed to demonstrate a genuine and substantial cause-and-effect relationship between lambmeat imports and serious injury.  Should the Appellate Body disagree, the United States submits thatthe USITC met the requirements identified by the Appellate Body in its Report in  United States –
Wheat Gluten Safeguard .  The USITC first demonstrated that increased lamb meat imports were an
important cause of threat of serious injury to the domestic lamb meat industry.  In determining that
imports were a no less important cause of the threat of serious injury than any other cause, the USITC
analyzed all other relevant factors.  Through this process, the USITC ensured that injury arising from
other causes was not attributed to imports and that the evidence on which it established causation byincreased imports reflected a genuine and substantial causal link.  The United States adds that thePanel's further finding under Article 2.1 of the  Agreement on Safeguards  was based on its erroneous
finding that the United States had violated Article 4 of the  Agreement on Safeguards  and should, for
that reason, be reversed.
                                                     
18Panel Report, WT/DS166/R, adopted 19 January 2001, as modified by the Appellate Body Report,
WT/DS166/AB/R.
19Appellate Body Report, WT/DS166/AB/R, adopted 19 January 2001, para. 79.WT/DS177/AB/R
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B. Arguments of Australia – Appellee
1. Unforeseen Developments
21. Australia requests the Appellate Body to uphold th e finding of the Panel that the United States
acted inconsistently with Article XIX:1(a) of the GATT 1994.  The Panel interpreted Article XIX:1(a)
of the GATT 1994 in a manner that gave meaning and effect to all the applicable provisions,
including the clause "unforeseen developments", and correctly concluded that the USITC Report didnot contain the required conclusion on "unforeseen developments".  Should the Appellate Bodyreverse the Panel's interpretation of Article XIX of the GATT 1994, Australia requests the AppellateBody to complete the analysis and find that the United States failed to satisfy the "unforeseendevelopments" requirement in Article XIX:1(a) of the GATT 1994.
22. Australia points out that Article 11.1(a) of the  Agreement on Safeguards  requires Members
taking safeguard action under Article XIX of the GATT 1994 to ensure that such measures conformwith the provisions of the  Agreement on Safeguards .  Members applying safeguard measures must,
therefore, satisfy the requirements of both Article XIX of the GATT 1994 and the  Agreement on
Safeguards , including Article 3.1 of the  Agreement on Safeguards , which requires competent
authorities to provide "reasoned conclusions" on "all pertinent issues of fact and law".  The Appellate
Body has held that "unforeseen developments" are "circumstances that must be demonstrated as amatter of fact".  Therefore, Australia submits that Article XIX:1(a) of the GATT 1994, read in thecontext of Article 3.1 of the Agreement on Safeguards ,  requires competent authorities to reach a
reasoned conclusion demonstrating the existence of "unforeseen developments".
23. Australia contests the United States' view that Members are only required to demonstrate the
existence of unforeseen developments on an  ex post facto   basis in a WTO dispute settlement
proceeding.  This would allow an issue that was not investigated, examined or even considered by the
USITC to be discerned from its report.  Australia also rejects the United States' argument that thePanel's approach elevates the "unforeseen developments" requirement into an "independent condition"for the application of a safeguard measure.  To satisfy the " conditions " imposed under Articles 2 and 4
of the  Agreement on Safeguards ,  competent authorities must make a  determination   that includes an
evaluation  of  " all relevant factors " and, as Article 4.2(c) explicitly provides, must also publish a
"detailed analysis of the case under investigation as well as a demonstration of the relevance of thefactors examined".  On the other hand, Australia maintains, in order to satisfy the "unforeseendevelopments" requirement, competent authorities need only examine the existence of unforeseen
developments based on the factual evidence before them at the time of the investigation, reach aWT/DS177/AB/R
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Page 10
conclusion based on that evidence that demonstrates the existence of "unforeseen developments" as a
matter of fact, and present that conclusion, in some manner, in the published report .
2. Domestic Industry
24. Australia requests the Appellate Body to upho ld the Panel's finding that the USITC's
inclusion of growers and feeders of live lambs in the definition of producers of lamb meat wasinconsistent with Article 4.1(c) of the  Agreement on Safeguards.  The United States' approach to
defining the domestic industry has no support in Article 4.1(c) of the  Agreement on Safeguards ,
interpreted in its context and in light of its object and purpose, or in previous panel decisions.
25. Australia believes that the meaning of "producer of a like product" is clear.  The producers
of an article   are simply those who make  that  article.  The term "as a whole" in Article 4.1(c) of the
Agreement on Safeguards   refers to the comprehensiveness of the investigation that must be
conducted  once the domestic industry has been identified , but does not go to the issue of how to
define the scope of the domestic industry.  Accepting the United States' standard would leave it to thediscretion of importing Members to choose "how far upstream and/or downstream [in] the productionchain of a given 'like' end product" they could go to define the "domestic industry".
 20  Australia adds
that even if criteria such as vertical integration, continuous lines of production, economicinterdependence or substantial coincidence of economic interests were relevant, the Panel madefindings of fact which reveal that these criteria were not present in the United States' lamb meat
industry.
3. Threat of Serious Injury
26. Australia requests the Appellate Body to uphold the finding of the Panel with respect to the
sufficiency of the data.  Although the United States seeks to characterize this issue as one of datacollection ,  the Panel's finding relates to the  representativeness   of the data rather than to data
collection.  Australia submits that the Panel correctly concluded that the data used by the USITC inmaking its determination was not sufficiently representative of "those producers whose collectiveoutput … constitutes a major proportion of the total domestic production of those products" within themeaning of Article 4.1(c) of the  Agreement on Safeguards   and that the USITC's determination was,
as a result, inconsistent with Article 2.1 of that Agreement.
                                                     
20Australia's appellee's submission, para. 111.WT/DS177/AB/R
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27. Before the Panel, Australia claimed that the safeguard measure imposed by the United States
breached Article 4.2 of the  Agreement on Safeguards  and, therefore, also breached Article 2.1 of the
Agreement on Safeguards .  The inadequacy of the data was noted in Australia's submission, was also
acknowledged in the USITC Report, and was reflected in the Panel Report.  Thus, Australia did
establish a prima facie  case that the data relied upon by the USITC was not sufficiently representative
of the domestic industry.
28. Contrary to the United States' assertion that the  Agreement on Safeguards  only requires that
the factors evaluated be "objective and quantifiable", and bear on the state of the industry, Australiasupports the reasoning of the Panel that Article 4.1(c) implicitly requires that the sample data used besufficiently representative of the producers as a whole.  The failure of the United States to considersufficiently representative data means that the state of the "domestic industry" has not been properlyevaluated.  Furthermore, even if the Appellate B ody reverses the Panel's finding under Article 4.1(c),
and even accepting the test suggested by the United States, Australia maintains that relying on
statistically invalid, incomplete or absent data, as the USITC did, cannot be objective or have any
meaningful bearing on the factors that must be evaluated under Article 4.2(a) of the Agreement on
Safeguards .  Australia, therefore, submits that the USITC did not properly evaluate the relevant
factors as required under that provision.
4. Causation
29. Australia contends that the Panel correctly found that the USITC's causation analysis did not
comply with Article 4.2(b) of the  Agreement on Safeguards , and that the Panel's findings are
consistent with the Appellate Body Report in  United States – Wheat Gluten Safeguard.  The
requirement that there be a "genuine and substantial relationship" of cause and effect between
increased imports and the threat of serious injury im plies more than a mere contribution to a threat of
serious injury.  The Panel's test of "necessary and sufficient cause" seeks to articulate such a standard,even if imports need not  by themselves   cause a threat of serious injury.  Australia stresses that the
Panel was careful to distinguish its "necessary and sufficient" test from a "sole cause" test.
30. Australia submits that, in any event, the United States failed to meet the causation standard set
out by the Appellate Body in  United States – Wheat Gluten Safeguard   because the United States
failed to demonstrate as a matter of fact that any threat of serious injury caused by other factors hadnot been attributed to imports.  The USITC limited itself to examining other factors individually andsimply considering whether each such factor was a "less important cause" of injury than imports.  The
USITC, however, failed to assess the aggregate effect of the factors other than increased imports, and
failed to demonstrate that the injury caused by these other factors was not attributed to imports.WT/DS177/AB/R
WT/DS178/AB/R
Page 12
Australia adds that, independently of whether the USITC met the obligation of non-attribution, it did
not make a valid determination of whether a "causal link" existed between increased imports and thethreat of serious injury.  Specifically, since the USITC only found that increased imports were an important   cause and a cause that was not less than any other cause, it did not ensure that the
evidence on which it established causation reflected  a "genuine and substantial relationship" of cause
and effect.
C. Arguments of New Zealand – Appellee
1. Unforeseen Developments
31. New Zealand considers that the Panel correctly found that the United States acted
inconsistently with Article XIX:1(a) of the GATT 1994.  The United States seems to criticize thePanel for interpreting Article XIX in light of the provisions of the  Agreement on Safeguards , despite
the fact that the  Agreement on Safeguards  itself, as well as previous decisions of the Appellate Body,
clearly establish that the  Agreement on Safeguards  and Article XIX must be read together.
Article 11.1(a) of the  Agreement on Safeguards  requires that Article XIX be applied in conformity
with the provisions of the  Agreement on Safeguards .  Article 3.1 of the  Agreement on Safeguards 
clearly requires "reasoned conclusions" on " all pertinent issues of fact or law".  The Appellate Body
has found that "unforeseen developments" are "circumstances that must be demonstrated as a matterof fact in order for a safeguard measure to be applied".  Thus, New Zealand reasons, the failure of theUSITC to provide a "conclusion" on unforeseen developments is a clear breach of Article XIX:1(a) ofthe GATT 1994.
32. New Zealand does not agree with the United States that the Panel's approach effectively
transformed a circumstance requiring demonstration as a fact into an independent condition for the
application of a safeguard measure.  The Panel explicitly recognized the distinction between such
circumstances and conditions and, in pointing ou t that it was not essential for the competent
authorities, in their conclusions, to use the pr ecise terminology of "unforeseen developments",
revealed its awareness that it was the factual demonstration, rather than the fulfilment of somecondition, that was specifically required.  New Zealand also contests the United States' argument that"unforeseen developments" could be  assumed   from a determination of threat of serious injury.  Such
an approach would render ineffective the requirement to  demonstrate   unforeseen developments.
New Zealand adds that the USITC did not demonstrate the existence of unforeseen developments as amatter of fact.  It is clear from the USITC Report that the USITC never even considered, much less
demonstrated, the existence of unforeseen developments.  The United States is effectively attempting
to rewrite the USITC Report to reflect what it  should   have said, but did not.  In any event,WT/DS177/AB/R
WT/DS178/AB/R
Page 13
New Zealand suggests, the descriptive statements contained in the USITC Report, that the
United States relies upon, relate to circumstances that were entirely foreseeable and foreseen.
2. Domestic Industry
33. New Zealand contends that the Panel correctly found that the USITC's definition of the
domestic industry producing lamb meat was inconsis tent with Article 4.1(c) and Article 2.1 of the
Agreement on Safeguards .  The ordinary meaning of Article 4.1(c) is clear and unambiguous.  The
"producers" of the "like product" constitute the "domestic industry" for the purposes of a safeguardinvestigation.  As there was no dispute that the "like product" in this case was lamb meat, the functionof the USITC was to determine the domestic indus try based on who produced lamb meat.  As the
USITC did not do this, the Panel correctly held that the United States acted inconsistently with theAgreement on Safeguards .  New Zealand adds that the term "as a whole" in Article 4.1(c) relates to a
quantitative requirement for the application of a safeguard measure and does not justify extending thescope of the domestic industry beyond those who produce the like product.
34. New Zealand further observes that :  (i) the degree of vertical integration in the present case
remains highly contested and, in any event, as the Panel pointed out, a safeguard measure that assistsproducers of a finished product will also benefit upst ream producers;  (ii) the United States is unable
to counter the Panel's concern with the open-endedness of the USITC's approach, and, moreover, thehistorical evidence of how the USITC has applied its principles is irrelevant to the question ofconsistency with the  Agreement on Safeguards ;  and (iii) contrary to the United States' claims, the
GATT cases discussed by the Panel provide strong support for the approach of the Panel.
3. Threat of Serious Injury
35. New Zealand requests that the Appellate Body uphold the finding of the Panel that the data
used as a basis for the USITC's determination was no t sufficiently representative within the meaning
of Article 4.1(c) of the  Agreement on Safeguards , and that, therefore, the United States breached
Article 2.1 of that Agreement.  Contrary to the United States' suggestion, the Panel did not find thatUnited States' data collection   was inconsistent with Article 4.1(c).  Rather, the Panel found that the
data relied upon by the USITC in making its determination of threat of serious injury was notsufficiently representative of "those producers whose collective output ... constitutes a majorproportion of the total domestic production of those products" within the meaning of Article 4.1(c),and, thus, that the USITC's threat of serious injury finding was inconsistent with Article 2.1 of theAgreement on Safeguards .WT/DS177/AB/R
WT/DS178/AB/R
Page 14
36. New Zealand recalls that, before the Panel, it claimed that the safeguard measure imposed
by the United States breached Article 2.1 of the  Agreement on Safeguards  because of flaws in the
safeguard investigation conducted by the USITC, including the inadequacy of the data relied upon bythe USITC in making its determination of threat of serious injury.  The information provided by
New Zealand in its first submission to the Panel clearly established a  prima facie   case in this regard.
37. New Zealand considers that, in its arguments on this issue, the United States ignores the fact
that Article 4.1(c) of the  Agreement on Safeguards  refers to the number of producers that must be
included in an investigation:  either "producers as a whole" or "those whose collective output ...
constitutes a major proportion of domestic production".  The Panel focused on this quantitative aspectin making its findings on the representativeness of the data and correctly interpreted Article 4.1(c) ofthe  Agreement on Safeguards .  With respect to the United States' arguments that the sufficiency of
data is only relevant under Articles 4.2(a) and 4.2(b) of the  Agreement on Safeguards ,  New Zealand
contends that the reliance by the USITC on questionnaire data in the present case was also
inconsistent with those provisions.  Article 4.2(a) requires an examination of factors as they affect the
"domestic industry".  The USITC's failure to consider  sufficiently representative data means, at the
outset, that the state of the "domestic industry" has not properly been evaluated.  Furthermore, theterms "objective" and "quantifiable" in Article 4.2(a) of the  Agreement on Safeguards   themselves
imply a threshold regarding the representativeness of data relied upon by competent authorities inevaluating relevant factors and making determinations under the  Agreement on Safeguards  which, in
the view of New Zealand, the United States did not meet.
4. Causation
38. New Zealand requests that the Appellate Body uphold the Panel's finding that the USITC's
causation analysis failed to comply with Article 4.2(b) of the  Agreement on Safeguards ,  and  that, by
virtue of failing to comply with Article 4 of the  Agreement on Safeguards ,  the United States also
acted inconsistently with Article 2.1 of the  Agreement on Safeguards .  The approach of the Panel to
causation was consistent with the Appellate Body's approach in  United States – Wheat Gluten
Safeguard .  New Zealand argues that, in any event, application of the test enunciated by the Appellate
Body in  United States – Wheat Gluten Safeguard  must lead to a conclusion that the United States
acted inconsistently with Article 4.2(b) of the  Agreement on Safeguards  because the United States
has failed to demonstrate that the USITC complied with any of the three steps of the process fordetermining causation mentioned by the Appellate Body in that case.WT/DS177/AB/R
WT/DS178/AB/R
Page 15
39. New Zealand argues, first, that the USITC failed to distinguish properly the injurious effects
caused by increased imports from the injurious effects caused by other factors.  Despite the attempt ofthe United States to portray the USITC Report as making such a distinction, the USITC's analysiscontains no overall assessment of the effects of the other factors causing serious injury, which would
have allowed them to be distinguished from the effects of increased imports.  Second, although it
acknowledged that a number of factors were also causing a threat of serious injury, the USITC failedto attribute injury to increased imports on the one hand, and to all other relevant factors on the otherhand.  The non-attribution requirement of the  Agreement on Safeguards  is not met where the
competent authorities merely  identify   different effects of other factors in the market.  Rather, having
found that a number of factors other than imports were contributing in a significant way to seriousinjury, the USITC was required to demonstrate that the injury caused by those other factors was notattributed   to increased imports.  Finally, the USITC failed to address the question whether there was
a genuine and substantial relationship of cause and effect between increased imports and serious
injury.  A finding on the existence of a "genuine and substantial" relationship is clearly different from
a finding that increased imports are "an important cause and one that is no less important than anyother cause".  New Zealand adds that, since the USITC failed to show that it had not attributed toincreased imports injury caused by other factors, it was not in a position to make any finding of a"genuine and substantial" relationship.
40. Were the Appellate Body to conclude that the Panel's reasoning on causation was incorrect,
New Zealand requests the Appellate Body to complete the analysis, and to conclude that theUnited States failed to meet its obligations under Article 4.2(b) of the  Agreement on Safeguards .
New Zealand submits that, contrary to the assertions of the United States, the Panel's factual findings
and the factual evidence on the record provide an  ample basis for the Appellate Body to do so.
D. Claims of Error by Australia – Appellant
1. Unforeseen Developments
41. If the Appellate Body reverses the Panel's ultimate conclusion on Article XIX:1(a) of the
GATT 1994, then Australia appeals the Panel's finding that a change in the product mix and/or cutsize of imported lamb meat could qualify as "unforeseen developments" within the meaning of thatprovision.  The Panel's finding was based on an erroneous interpretation of the Working Party reportin  Hatters' Fur .  That report provides no support for the conclusion that a simple change in the
structure of imports, in and of itself, can constitute an "unforeseen development".  As the changes in
the product mix and/or the cut size of imported lamb  meat are the only factors which the United States
argues constitute "unforeseen developments", Australia requests the Appellate Body to find that theWT/DS177/AB/R
WT/DS178/AB/R
Page 16
United States failed to demonstrate as a matter of fact the existence of unforeseen developments, as
required by Article XIX:1(a) of the GATT 1994.
2. Threat of Serious Injury
(a) Standard of Review
42. Australia appeals the Panel's interpretation and application of the standard of review.
Australia claims that the Panel erred in its interpretation and application of Article 11 of the DSU, andshowed inappropriate deference to the USITC.  Aust ralia submits that, in interpreting its standard of
review, the Panel wrongly believed that it was sufficient that the necessary findings and conclusionscould be  discerned   from the totality of the USITC Report examined in light of the arguments made
by the United States to the Panel.  Australia adds that, because the Panel indicated that it would
proceed by "taking at face value,  arguendo ,  the data and reasoning contained in the USITC's
report"  21, a number of assertions made by the United States about the evidence and the conclusions
drawn from it were not tested through the process of "objective assessment" that panels are required toundertake pursuant to Article 11 of the DSU.  Australia believes that this led the Panel to drawfavourable inferences from gaps in the data on the basis of assertions made by the United States,whereas the Panel should have assessed objectively whether the USITC Report contained an adequateexplanation of how the facts supported its determination of "threat of serious injury".  Australiaargues that the standard of review articulated by  the Panel in paragraph 7.141 would allow competent
authorities to avoid their obligation to evaluate all relevant factors under Article 4.1(a) of the
Agreement on Safeguards  simply by stating that it would be difficult to obtain relevant data.   Finally,
as set forth in further detail below, Australia appeals the Panel's application of the standard of reviewto the USITC's determination of the existence of a threat of serious injury.
(b) Evaluation of Relevant Factors
43. Australia claims that the Panel made a number of errors in its interpretation and application of
the relevant legal standard for determining "threat of serious injury".  First, the Panel erred in its
application of the legal standard in determining that a "significant overall impairment" was "clearly
imminent".  The Panel adopted a lower standard than that required in the  Agreement on Safeguards
and showed inappropriate deference to the USITC.  Second, although the Panel correctly stated that a
threat analysis should examine whether serious injury would occur  unless safeguard action was
taken ,  the Panel ignored the fact that the USITC never undertook such an examination.  Third, the
Panel erred in finding, based on certain explanations given by the United States to the Panel, that the
                                                     
21Panel Report, para. 7.138.WT/DS177/AB/R
WT/DS178/AB/R
Page 17
USITC had satisfied the requirement of making a "prospective analysis", when in fact the only
prospective analysis undertaken by the USITC was that imports would increase.  Fourth, the Panelwrongly deferred to the USITC's determination that  serious injury was "imminent" even though the
USITC did not make any finding or express any opi nion on what was meant by "imminent".  Fifth,
the Panel wrongly accepted the fact that the USITC relied on data only from the recent past.
However, in order to assess whether serious injury is clearly imminent, it is necessary to measure thealleged "significant overall impairment" against the base position of the domestic industry, andtherefore, a threat determination may need to take in to account the longer term state of that industry.
In this case, the USITC wrongly focused only on declines following a spike in prices that occurred inthe latter part of the period of investigation.  Sixth, the data relied on by the USITC was insufficientfor its determination of a threat of serious injury.
44. Australia also maintains that the Panel erred in finding that the USITC had evaluated all
relevant factors listed in Article 4.2(a) of the  Agreement on Safeguards .  In particular, according to
Australia, the USITC did not evaluate capacity ut ilization, employment, productivity or profits and
losses.
3. Conditional Appeals
45. Australia requests the Appellate Body, in the ev ent that it reverses any of the conclusions
reached by the Panel based on the arguments made by the United States, to complete the analysis forwhich the Panel exercised judicial economy;  specifically, this relates to Australia's claims underArticles 2.2, 3.1, 5.1, 8.1, 11.1(a), and 12.3 of the  Agreement on Safeguards .
E. Claims of Error by New Zealand – Appellant
1. Threat of Serious Injury
(a) Standard of Review
46. New Zealand claims that the Panel erred in its interpretation and application of Article 11 of
the DSU, and adopted an approach of inappropriate deference to the USITC.  The Panel wronglyinterpreted  the appropriate standard of review by limiting its consideration to evidence and
arguments contained in the published report of the USITC.  The Panel considered that alternativeexplanations for the declines in the United States industry's performance put forward by New Zealand
and Australia were relevant "only to the extent that they were raised in the investigation".
 22
New Zealand submits, however, that in order to make an "objective assessment" as required by
                                                     
22Panel Report, para. 7.207.WT/DS177/AB/R
WT/DS178/AB/R
Page 18
Article 11 of the DSU, a panel must examine evidence and arguments that will allow it to determine
whether the actions of a Member are in conformity with the covered agreements, and this may requirethe panel to go beyond the confines of a published report and the evidence collected by the competentauthorities.  The Panel also wrongly  applied  the standard of review.  Despite the evidence on prices,
in particular the high price levels in 1996 and early 1997, the improvement in prices in 1998, and the
projection of increased domestic prices in 1999, there was no reasoned or adequate explanation ofhow these facts supported the USITC's determinatio n of a threat of serious injury.  Therefore,
New Zealand submits, the Panel erred in finding that the USITC's analysis provided a reasoned oradequate explanation of how the facts supported its determination that increased imports threatened to
cause serious injury.
(b) Evaluation of Relevant Factors
47. New Zealand claims that the Panel erred in its interpretation and application of the relevant
legal standard for determining a "threat of serious injury", and, as a result, erroneously concluded that
the USITC's analytical approach to the determination of threat of serious injury and to the evaluationof all relevant factors was not inconsistent with the  Agreement on Safeguards .  New Zealand requests
the Appellate Body to reverse the Panel's conclusions on these issues.
48. New Zealand submits that the Panel erred, first, in relying solely on data from the recent past.
In order reliably to predict what will happen in th e future, data from the recent past, while important,
cannot be examined in isolation, particularly when information from an earlier period forms part of
the investigation by the competent authorities a nd is relevant to the determination of whether
increased imports have threatened to cause serious injury.  By allowing the USITC to ignore datafrom the beginning of the period of investigation, the Panel excluded evidence which may have had abearing on the situation of the domestic industry, contrary to Article 4.2(a) of the  Agreement on
Safeguards .  Furthermore, New Zealand submits, by simp ly assuming, without further analysis, that
the future will mirror the recent past, the Panel allowed the USITC to base its threat determination on"conjecture", contrary to Article 4.1(b) of the  Agreement on Safeguards .
49. New Zealand argues that the Panel further erred in finding that the USITC's determination
was  based on "fact-based projections concerning developments in the industry's condition".  The
USITC looked only  at projections concerning imports.  However, in order to determine what is soon
to happen, projections of "all relevant factors" that have a bearing on the situation of the industry mustbe considered.  In New Zealand's view, by looking at projections of imports alone, the USITC and the
Panel failed to take account of "all relevant factors" as required under Article 4.2(a) of the  Agreement
on Safeguards .WT/DS177/AB/R
WT/DS178/AB/R
Page 19
50. New Zealand contends that the Panel applied the wrong legal standard in assessing the
USITC's determination that increased imports threatened to cause serious injury and, in effect,lowered the threshold for making such a determination.  New Zealand refers to the Panel's statementthat a continuation of imports at an already increased level "may suffice"
 23 to threaten serious injury,
and to its statement that serious injury may be threatened "even if the majority of firms within the
relevant industry is not facing declining profitability".  24  These statements demonstrate that the Panel
was too lax in its application of the standard for assessing threatened  significant overall impairment.
New Zealand also challenges the Panel's assessment of the requirement that serious injury be "clearlyimminent", since the Panel, like the USITC, did not require a demonstration of urgent need for asafeguard measure.
2. Judicial Economy
51. New Zealand appeals the Panel's application of judicial economy to its claim under
Article 5.1 of the  Agreement on Safeguards .  The Panel's rulings relate solely to the safeguard
investigation ,  not to the safeguard  measure .  A further ruling on the safeguard measure itself is
needed to ensure a positive solution to this dispute.  New Zealand recalls that the measure applied bythe United States differed from the measure recommended by the USITC, and argues that the measureapplied is inconsistent with Article 5.1 of the  Agreement on Safeguards  because it is more trade
restrictive than the alternative proposed by the USITC, and because it is not necessary to facilitateadjustment in the United States' lamb meat industry.
3. Conditional Appeals
52. If the Appellate Body were to find against New Zealand on matters relating to the USITC's
safeguard investigation, then New Zealand requests that the Appellate Body complete the analysis in
relation to its claims under Articles 2.2, 3.1 and 5.1 of the  Agreement on Safeguards , and Articles I
and II of the GATT 1994, which the Panel did not  consider for reasons of judicial economy.
F. Arguments of the United States – Appellee
1. Unforeseen Developments
53. The United States requests the Appellate Body to dismiss Australia's appeal on "unforeseen
developments".  In its appeal, Australia appears to view the Working Party report in  Hatters' Fur  as
                                                     
23Panel Report, para. 7.187.
24Ibid., para. 7.188.WT/DS177/AB/R
WT/DS178/AB/R
Page 20
establishing  as a matter of law  that a change in the structure of imports can  never  constitute an
unforeseen development.  However, there is no basis for reading such a limitation into the text ofArticle XIX:1(a) of the GATT 1994.  The United States also contests Australia's argument that theUnited States failed to demonstrate the existence of unforeseen developments as a matter of fact.  As
the complainant, Australia had the burden of demonstrating that the developments in the marketplace
that the USITC identified in its report were not "unforeseen" developments, and it had failed to do so.The United States maintains that, to the extent that  the factual record in the instant case is clear and
uncontested, it demonstrates the existence of unforeseen developments as a matter of fact.
2. Threat of Serious Injury
(a) Standard of Review
54. The United States requests the Appellate Body to dismiss the appeal of Australia and
New Zealand under Article 11 of the DSU regarding the standard of review.  The Appellate Body hasmade it clear that an appellant seeking to rely on Article 11 must overcome a high hurdle.
25  T h e
challenge by Australia and New Zealand to the Panel's interpretation and application of the standardof review does not provide any basis whatsoever for finding a violation of Article 11 of the DSU.  On
the contrary, the Panel properly interpreted the standard of review as precluding it from conducting ade novo  examination of the USITC's determination.  The Panel objectively assessed the matter before
it by evaluating the USITC's investigation and published report, and judging whether the USITC hadexamined all the relevant facts and had provided a reasoned explanation of how the facts supported its
determination.  Thus, the United States concludes, the Panel Report demonstrates that the Panel
approached its task in good faith, and that it took into account the arguments of Australia andNew Zealand in reaching its determination.
(b) Evaluation of Relevant Factors
55. The United States urges the Appellate Body to dismiss the appeal of Australia and
New Zealand that the Panel erred in interpreting and applying the legal standard for determining
"threat of serious injury".  The Panel properly interpreted and applied the legal standards for assessing
"significant overall impairment in the position of the industry" and "clearly imminent".  The examplesof error cited by New Zealand are anecdotal and ignore the fact that the USITC and the Panel both
                                                     
25The United States refers in particular to:  Appellate Body Report, EC Measures Concerning Meat and
Meat Products (Hormones)  ("European Communities – Hormones "), WT/DS26/AB/R, WT/DS48/AB/R,
adopted 13 February 1998, DSR 1998:I, 135; Appellate Body Report,  European Communities – Measures
Affecting the Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 1998;  and Appellate
Body Report, Australia – Measures Affecting Importation of Salmon   ("Australia – Salmon "), WT/DS18/AB/R,
adopted 6 November 1998.WT/DS177/AB/R
WT/DS178/AB/R
Page 21
recognized that what is critical in a "threat" case is that the  overall  economic condition of the
domestic industry is likely to be seriously injured as a result of increased imports.  The USITC and thePanel conducted their analysis accordingly.  As for the "clearly imminent" standard, the United Statessubmits that the  Agreement on Safeguards   does not require competent authorities to make a
"finding" on the meaning of that phrase, that the Panel properly identified and applied the definition
of "clearly imminent", and that, in this case, there was, in fact, an urgent need for a safeguardmeasure.
56. The United States contests the argument by Australia and New Zealand that the Panel erred in
upholding the USITC's heavy reliance on data covering the latter part of the period of investigation.In fact, neither the Panel nor the USITC relied "solely" on post-1996 data.  The USITC collected andexamined data on imports and the condition of the domestic industry for a five year period, butfocused on data from January 1997 through September 1998, which it found to be the most probativein determining the threat of serious injury.  The Unit ed States considers this approach to be consistent
with the Appellate Body's reasoning in  Argentina – Footwear Safeguard .
57. The United States asserts that the Panel also correctly found that the USITC had conducted a
valid prospective analysis.  Contrary to the claims of Australia and New Zealand, the USITC did notbase its analysis solely on projections of increased imports.  Rather, the USITC made projections forfactors other than imports and assessed the relevant factors as a whole in determining that seriousinjury was imminent.  The United States adds that the appeals on this issue appear to invite theAppellate Body to revisit factual questions, and, th ereby, to exceed the scope of appellate review.
58. Finally, in response to Australia's claim that the Panel erred in upholding the USITC's
reliance on the available data to make factual findings and draw reasonable inferences about the
"relevant factors", the United States argues that the Panel correctly found that the USITC properly
considered the evidence, explained why it could not collect certain data or did not find such data to beprobative, and evaluated the "relevant factors", in accordance with the requirements of Article 4.2(a)of the  Agreement on Safeguards .
3. Judicial Economy
59. The United States urges the Appellate Body to dismiss New Zealand's appeal of the Panel's
decision to exercise judicial economy with respect to New Zealand's Article 5.1 claim.  This casecannot be distinguished from other cases where the Appellate Body concluded that panels hadexercised judicial economy properly.  Furthermore, the factual record is insufficient to support a
finding that New Zealand has satisfied its burden of proof under Article 5.1.  The United States addsWT/DS177/AB/R
WT/DS178/AB/R
Page 22
that New Zealand's appeal is based on a misinterpretation of the  Agreement on Safeguards , since
Article 5.1 does not require a Member to identify and apply the measure that is the "least traderestrictive".
4. Conditional Appeals
60. Should the Appellate Body reach this issue, the United States argues that it should reject all of
the conditional appeals made by Australia and New Zealand.  The United States argues that, asdemonstrated in its arguments before the Panel, the United States complied with its obligations under
Articles 2.2, 3.1, 8, 11 and 12 of the  Agreement on Safeguards ,  and under Articles I and II of
the GATT 1994.
G. Arguments of the European Communities – Third Participant
1. Unforeseen Developments
61. The European Communities considers that the Panel correctly found that the United States
acted inconsistently with Article XIX:1(a) of the GATT 1994 since the USITC Report did not contain
any  ascertainable and conclusive demonstration of the existence of unforeseen developments.  While
the Panel correctly stated that the demonstration of "unforeseen developments" does not require theprecise terminology of "unforeseen developments" to be used, it is nevertheless necessary that thecircumstances referred to in Article XIX:1(a) of the GATT 1994 are in substance identified as such,namely:  (i) circumstances which constitute developments leading to an injurious import surge;  and(ii) circumstances which show that such developments were unforeseen.  Such a demonstration cannotbe made  ex post facto .  In this regard, the European Communities agrees with the Panel's use of
Article 3.1 of the  Agreement on Safeguards  as relevant context.  Article 3.1 refers broadly to "all
pertinent issues of fact" and, therefore, its sc ope is not limited to issues arising under the  Agreement
on Safeguards .  If an issue is pertinent, by virtue of Article XIX:1(a) of the GATT 1994, it must also
be "pertinent" in the context of Article 3.1 of the  Agreement on Safeguards.  The European
Communities reasons that any other reading would effectively read the provisions of Article XIX outof the " inseparable package  of rights and disciplines" that govern safeguard measures.
26
2. Causation
62. The European Communities requests the Appellate Body to uphold the Panel's articulation of
the standard of causation.  The European Communities cautions that the interpretation of the causation
                                                     
26Appellate Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 81.WT/DS177/AB/R
WT/DS178/AB/R
Page 23
standard suggested by the United States is inconsistent with the object and purpose of the  Agreement
on Safeguards ,  would allow the imposition of trade restrictions against imports to remedy difficulties
of the domestic industry which are not related to imports, and would result in a lower injury standardbeing applied in safeguard actions than in anti-dumping and countervailing duty actions.
63. The European Communities stresses that the le gal structure governing safeguard measures in
WTO law emphasizes an  exclusive   link between the import surge and the serious injury to the
domestic industry, as shown in Article 2.1 of the  Agreement on Safeguards   and the first sentence of
Article 4.2(b).  In the view of the European Communities, the second sentence of Article 4.2(b) meansthat the process of assessing "serious injury" as a legally defined standard does not end with theassessment of the "relevant factors" listed in Article 4.2(a) of the  Agreement on Safeguards , but
further requires that the "non-attribution" process be completed.  No determination underArticle 4.2(a) of the  Agreement on Safeguards  can be made unless and until the effects of factors
other than imports have been disregarded.  While it is correct to say that imports will not be alone in
contributing to the situation of the domestic industry, and that the  Agreement on Safeguards  does not
require that only imports should have contributed to the state of the domestic industry, a "seriousinjury" finding under Article 4 of the  Agreement on Safeguards  must be based on the  sole  impact of
imports.  The European Communities concludes that  this is precisely what the Panel meant by
referring to imports as the " necessary  and  sufficient
 " cause of serious injury.27
III. Issues Raised in this Appeal
64. This appeal raises the following issues:
(a) whether the Panel erred in finding, in paragraph 8.1(a) of the Panel Report, that the
United States acted inconsistently with Article XIX:1(a) of the GATT 1994 by failingto demonstrate, as a matter of fact, the existence of "unforeseen developments";  and,if so, whether changes in the product mix of imported lamb meat and/or in the cutsize of imported lamb meat constitute "unforeseen developments" within the meaningof Article XIX:1(a) of the GATT 1994;
(b) whether the Panel erred in finding, in paragraphs 7.118 and 8.1(b) of the Panel
Report, that, by defining the relevant domestic industry for purposes of its safeguard
investigation to include growers and feeders of live lambs, the United States acted
                                                     
27Panel Report, para. 7.239.WT/DS177/AB/R
WT/DS178/AB/R
Page 24
inconsistently with Article 4.1(c) of the  Agreement on Safeguards  and, in
consequence, also with Article 2.1 of that Agreement;
(c) whether the Panel erred in its review of the USITC's determination that there existed
a "threat of serious injury", in particular, in the Panel's interpretation and application
of the appropriate standard of review under Article 11 of the DSU, and in its
interpretation and application of the requirement in Article 4.2(a) of the  Agreement
on Safeguards   to "evaluate all relevant factors";
(d) whether the Panel erred in finding, in paragraph 8.1(f) of the Panel Report, that the
examination of causation by the USITC was inconsistent with Article 4.2(b) of theAgreement on Safeguards   and, in consequence, also with Article 2.1 of that
Agreement;
(e) whether the Panel erred in its exercise of judicial economy, in particular in declining
to rule on New Zealand's claim under Article 5.1 of the  Agreement on Safeguards ;
and
(f) if the Appellate Body finds that the Panel erred in finding the United States' safeguard
measure to be inconsistent with Articles 2.1, 4.1(c) and 4.2(b) of the  Agreement on
Safeguards , whether that safeguard measure is inconsistent with Articles I and II of
the GATT 1994, and with Articles 2.2, 3.1, 5.1, 8.1, 11.1(a) and 12.3 of theAgreement on Safeguards .
IV. Unforeseen Developments
65. Before the Panel, Australia and New Zealand claimed that the United States failed to comply
with the requirements of Article XIX:1(a) of  the GATT 1994 regarding "unforeseen developments".
The Panel found:
Article XIX:1 read in the context of SG Article 3.1 requires the
competent national authority, in its determination, to reach a
conclusion demonstrating the existence of "unforeseen developments"
in the sense of GATT Article XIX:1.
 28
66. The Panel was of the view that the USITC's statements concerning the "changes in product
mix" or the "increase in cut size" of imported lamb meat were "simple descriptive statements", and
                                                     
28Panel Report, para. 7.31.WT/DS177/AB/R
WT/DS178/AB/R
Page 25
that those statements did not constitute "a conclusion" on the existence of unforeseen developments,
in the sense of Article XIX:1 of the GATT 1994.  29  On this reasoning, the Panel concluded that the
United States had acted inconsistently with Article XIX:1(a) of the GATT 1994 by "fail[ing] todemonstrate as a matter of fact the existence of unforeseen developments".
 30
67. The United States argues on appeal that the Panel made two significant errors.  31  First, the
United States argues that the Panel erred in finding that Article XIX:1(a) requires the competentauthorities, in demonstrating the existence of "unfor eseen developments", to set forth in their report a
finding or a "conclusion" with respect to thos e "unforeseen developments".  According to the
United States, it is sufficient for purposes of Article XIX:1(a) that the existence of unforeseendevelopments can be inferred from the factual r ecord of the investigating authority, and that the
existence of such developments can be "demonstrated during" dispute settlement proceedings in theWTO.  The United States maintains that there is no basis for "copying into" or "reading into"
Article XIX of the GATT 1994 the requirements from Article 3.1 of the  Agreement on Safeguards  
relating to the publication of a "report" by the "competent authorities".
 32  Second, the United States
argues that, in any event, the Panel erred in finding that the USITC Report failed to demonstrate, as amatter of fact, the existence of "unforeseen developments" under Article XIX:1(a);  in the view of theUnited States, the existence of unforeseen developments, namely, the shift in product mix from frozento fresh lamb meat, and from smaller to larger cuts, may be discerned from the contents of the USITCReport.  In this regard, we note that, at the oral hearing, the United States confirmed that its appeal onthis issue is limited to the Panel's finding that  the United States acted inconsistently with
Article XIX:1(a) of the GATT 1994 because the Report did not contain a "reasoned conclusion" onunforeseen developments.
 33
                                                     
29Panel Report, paras. 7.42 and 7.43.
30Ibid., paras. 7.44 and 7.45.
31United States' appellant's submission, para. 11.
32Ibid., paras. 17 and 18.
33In making its principal finding under Article XIX:1(a), the Panel also made certain other findings, for
example, that Article XIX:1(a) does not require a "two-step" causation approach (Panel Report, paras. 7.13-7.16and 7.31).  It also made a finding regarding the meaning of "unforeseen", as opposed to "unforeseeable",developments (Panel Report, paras. 7.22 and 7.24).  As none of these other findings are appealed, we will notaddress them.WT/DS177/AB/R
WT/DS178/AB/R
Page 26
68. We begin by noting that the claim made by both Australia and New Zealand before the Panel
was that the United States acted inconsistently with its obligation in Article XIX:1(a) of theGATT 1994 relating to "unforeseen developments".  Article XIX:1(a) of the GATT 1994 reads:
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 asto cause or threaten serious injury to domestic producers in that
territory 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 theconcession.
69. In our Reports in  Argentina – Footwear Safeguard   and  Korea – Dairy Safeguard ,  we
examined the relationship between Article XIX of the GATT 1994 and the  Agreement  on Safeguards
and, in particular, whether, with the entry into force of the  Agreement on Safeguards , Article XIX
continues to impose obligations on WTO Members when they apply safeguard measures.  Weobserved in those two appeals that "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 ",
and we said that these two texts must be read "harmoniously" and as "an inseparable package of rightsand disciplines".
 34  We derived support for this interpretation from Articles 1 and 11.1(a) of the
Agreement on Safeguards .  We observed, in both the Reports, that:
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)  The ordinary meaning of the
language in Article 11.1(a) – "unless such action conforms with the
provisions of that Article applied in accordance with this Agreement"– 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 .  Thus, any safeguard measure 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.
 35
                                                     
34Appellate Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 81;  see, also,
Korea – Dairy Safeguard , supra , footnote 16, para. 75.
35Appellate Body Report, Korea – Dairy Safeguard , supra , footnote 16, para. 77;  see, also, Appellate
Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 83.WT/DS177/AB/R
WT/DS178/AB/R
Page 27
70. We reiterate:  Articles 1 and 11.1(a) of the  Agreement on Safeguards  express the full and
continuing applicability of Article XIX of the GATT 1994, which no longer stands in isolation, buthas been clarified and reinforced by the  Agreement on Safeguards .
71. Based on this interpretation of the relationship between Article XIX of the GATT 1994 and
the  Agreement on Safeguards ,  we found in both these previous Reports:
The first clause in Article XIX:1(a) – "as a result of unforeseen
developments and of the obligations incurred by a Member under the
Agreement, including tariff concessions … " – is a dependent clause
which, in our view, is linked grammatically to the verb phrase "is
being imported" in the second clause of that paragraph.  Although we
do not view the first clause in Article XIX:1(a) as establishingindependent  conditions   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 applied consistently with theprovisions of Article XIX of the GATT 1994.  In this sense, we
believe that there is a logical connection between the circumstances
described in the first clause – "as a result of unforeseen developmentsand of the effect of the obligations incurred by a Member under this
Agreement, including tariff concessions … " – and the conditions set
forth in the second clause of Article XIX:1(a) for the imposition of a
safeguard measure.
 36 (underlining added)
72. Although we stated in these two Reports that, under Article XIX:1(a) of the GATT 1994,
unforeseen developments "must be demonstrated as a matter of fact", we did not have occasion, inthose two appeals, to examine when, where or how that demonstration should occur.  In conductingsuch an examination now, we note that the text of Article XIX provides no express guidance on this
issue.  However, as the existence of unforeseen developments is a prerequisite that must be
demonstrated, as we have stated, "in order for a safeguard measure to be applied"
 37 consistently with
Article XIX of the GATT 1994, it follows that this demonstration must be made  before   the safeguard
measure is applied.  Otherwise, the legal basis for the measure is flawed.  We find instructiveguidance for where and when the "demonstration" should occur in the "logical connection" that weobserved previously between the two clauses of Ar ticle XIX:1(a).  The first clause, as we noted,
contains, in part, the "circumstance" of "unforeseen developments".  The second clause, as we said,
                                                     
36Appellate Body Report, Korea – Dairy Safeguard , supra , footnote 16, para. 85; see, also, Appellate
Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 92.  As we noted in those Reports, the
"conditions" set forth in the second clause of Artic le XIX:1(a) are precisely the conditions reiterated in
Article 2.1 of the  Agreement on Safeguards .
37Appellate Body Report, Korea – Dairy Safeguard , supra , footnote 16, para. 85;  see, also, Appellate
Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 92.WT/DS177/AB/R
WT/DS178/AB/R
Page 28
relates to the three "conditions" for the application of safeguard measures, which are also reiterated in
Article 2.1 of the  Agreement on Safeguards .  Clearly, the fulfilment of these conditions must be the
central element of the report of the competent authorities, which must be published under Article 3.1of the  Agreement on Safeguards .
 38  In our view, the logical connection between the "conditions"
identified in the second clause of Article XIX:1(a) and the "circumstances" outlined in the first clause
of that provision dictates that the demonstration of the existence of these circumstances must alsofeature in the same report of the competent author ities.  Any other approach would sever the "logical
connection" between these two clauses, and woul d also leave vague and uncertain how compliance
with the first clause of Article XIX:1(a) would be fulfilled.
73. In this case, we see no indication in the USITC Report that the USITC addressed the issue of
"unforeseen developments" at all.  It is true that the USITC Report identifies two changes in the typeof lamb meat products imported into the United States.  These were:  the proportion of imported freshand chilled lamb meat increased in relation to the proportion of imported frozen lamb meat;  and, the
cut size of imported lamb meat increased.  The USITC Report mentions the first of these changes in
examining the "like products" at issue, and me ntions both changes under the heading "causation"
while describing the substitutability of domestic and imported lamb meat in the domesticmarketplace.
 39  However, we observe that the USITC Report does not discuss or offer any
explanation as to why these changes could be regarded as "unforeseen developments" within themeaning of Article XIX:1(a) of the GATT 1994.  It follows that the USITC Report does notdemonstrate   that the safeguard measure at issue has been applied, inter alia , "… as a result of
unforeseen developments …".
74. The USITC's failure to address the existence of unforeseen developments, in the USITC
Report of April 1999, is not surprising, as the USITC is not obliged by any United States legislation,
regulation, or other domestic rule, to examine the existence of unforeseen developments in itsinvestigation into the situation of a domestic industry.  Although the United States has subsequentlymodified its position on this issue
 40, we recall that, as a third participant in both  Korea – Dairy
Safeguard  and  Argentina – Footwear Safeguard ,  the United States argued that the omission of
unforeseen developments from the  Agreement on Safeguards   meant that it was no longer necessary
                                                     
38At the oral hearing before us, all participants agr eed that the fulfilment of these three conditions must
feature in the report of the competent authorities.
39USITC Report, pp. I-11, I-22, and I-23.
40At the oral hearing, the United States indicated that  it is no longer of the view that it is unnecessary to
demonstrate the existence of unforeseen developments.WT/DS177/AB/R
WT/DS178/AB/R
Page 29
to demonstrate the existence of unforeseen developments.  41  Our Reports in  Korea – Dairy
Safeguard  and  Argentina – Footwear Safeguard ,  in which we found that unforeseen developments
must be demonstrated as a matter of fact, were circulated on 14 December 1999, that is to say, morethan seven months  after   the report of the USITC on the domestic lamb meat industry was published
in April 1999.  Our two Reports were, therefore, not known to the USITC when it rendered its report
in the present case.
75. Accordingly, although we do not agree with every aspect of the Panel's reasoning, we uphold
the Panel's conclusion, in paragraphs 7.45 and 8.1(a) of the Panel Report, "that the United States hasfailed to demonstrate as a matter of fact the existence of unforeseen developments as required byArticle XIX:1(a) of GATT 1994".  In view of this  finding, we do not find it necessary to examine
Australia's conditional appeal on the issue of whether a change in the product mix and/or the cut sizeof imported lamb meat could qualify as "unforeseen developments" within the meaning ofArticle XIX:1(a) of the GATT 1994;  the condition on which that issue is appealed has not been
fulfilled.
76. We emphasize that neither Australia nor New Zealand has claimed that the United States
acted inconsistently with Article 3.1 of the  Agreement on Safeguards  with respect to unforeseen
developments.
 42  We do not, therefore, rule on whether the USITC, and, hence, the United States,
acted inconsistently with Article 3.1 of the  Agreement on Safeguards  because the USITC failed to
"set[] forth … findings and reasoned conclusions" on this issue.  Nonetheless, we observe thatArticle 3.1 requires competent authorities to set forth findings and reasoned conclusions on "allpertinent issues of fact and law" in their published report.  As Article XIX:1(a) of the GATT 1994requires that "unforeseen developments" must be demonstrated, as a matter of fact, for a safeguard
measure to be applied, the existence of "unforeseen developments" is, in our view, a "pertinent issue[]
of fact and law", under Article 3.1, for the application of a safeguard measure, and it follows that thepublished report of the competent authorities, under that Article, must contain a "finding" or"reasoned conclusion" on "unforeseen developments".
                                                     
41Appellate Body Report, Korea – Dairy Safeguard , supra , footnote 16, paras. 64 – 66;  see, also,
Appellate Body Report, Argentina – Footwear Safeguard , supra , footnote 15, paras. 60 – 63.
42Both Australia and New Zealand identified Article 3 in their request for the establishment of a panel.
However, in their arguments on unforeseen developments, they did not assert an inconsistency with Article 3.1of the  Agreement on Safeguards .  Instead, they claimed solely under Article XIX:1(a) of the GATT 1994.  At
the oral hearing before us, Australia and New Zeal and confirmed that their claim regarding unforeseen
developments was made under Article XIX:1(a) and not Article 3.1 of the  Agreement on Safeguards , although
they indicated that they had made arguments under Article 3.1 in developing their claim under Article XIX.WT/DS177/AB/R
WT/DS178/AB/R
Page 30
V. Domestic Industry
77. The USITC defined the domestic industry in this case to include growers and feeders of live
lambs, as well as packers and breakers of lamb meat.  The USITC did so because it considered thatthere was a "continuous line of production from the raw to the processed product", and that there was
a "substantial coincidence of economic interests" between and among the growers and feeders of live
lambs, and the packers and breakers of lamb meat.
 43
78. Before the Panel, Australia and New Zeal and claimed that the USITC had improperly
interpreted the term "domestic industry" by includ ing in that industry growers and feeders of live
lambs, even though they did not produce the product at issue, lamb meat.  In assessing this claim, thePanel examined the definition of the term "domestic industry" in Article 4.1(c) and stated that:
We find no basis in the text of this phrase ["producers … of the like or
directly competitive products"] for considering that a producer thatdoes not itself make the product at issue, but instead makes a raw
material or input that is used to produce that product, can nevertheless
be considered a producer of the product.
…
… the relevant industry consists of producers that themselves have
"output" of the "like" or "directly competitive" products .
 44 (emphasis
added)
79. The Panel added that the phrase "producers as a whole", which forms part of the definition in
Article 4.1(c), offered no support for the broader approach adopted by the USITC.  45  The Panel also
examined previous GATT panel reports which had addressed this issue, and concluded that thesereports supported its reading of Article 4.1(c) of the  Agreement on Safeguards .
46
80. On the basis of this reasoning, the Panel found:
                                                     
43USITC Report, pp. I-12 – I-14.
44Panel Report, paras. 7.67 and 7.68.
45Ibid., para. 7.74.
46The GATT panel reports examined by the Panel were:  United States – Definition of Industry
Concerning Wine and Grape Products  ("United States – Wine and Grapes "), adopted 28 April 1992, BISD
39S/436;  Canada – Imposition of Counterva iling Duties on Imports of M anufacturing Beef from the EEC
("Canada – Beef "), 13 October 1987, unadopted, SCM/85;  and  New Zealand – Imports of Electrical
Transformers from Finland   ("New Zealand – Transformers "), adopted 18 July 1985, BISD 32S/55.WT/DS177/AB/R
WT/DS178/AB/R
Page 31
… that the USITC's inclusion in the lamb meat investigation of input
producers (i.e., growers and feeders of live lamb) as producers of the
like product at issue (i.e. lamb meat) is inconsistent with
Article 4.1(c), and thus also with  Article 2.1 of the Agreement on
Safeguards.  47
81. The United States appeals this finding and argues that the USITC's determination of
"domestic industry" is correct, in particular, in its reliance on the criteria of a "continuous line of
production" and a "coincidence of economic interests" to assess which producers make up the
domestic industry.  The United States argues that the  Agreement on Safeguards   allows Members
some discretion when defining the term "producers" in the light of the facts and circumstances of eachcase.  Moreover, the United States argues that the Panel's own criteria for determining the scope of thedomestic industry are devoid of a textual basis.  In this respect, the United States asserts that the Panelincorrectly stated that the USITC had found growers and feeders to be producers of a product separateand distinct from lamb meat.  The United States maintains that the USITC's approach in this case isappropriate in order to capture in full the affected domestic industry.
82. As a preliminary matter, we note that the USIT C clearly stated in its report that the issue of
whether the producers of an input product could be  included in the domestic industry producing the
processed product is not addressed in the United States safeguard statute.
48  In response to questioning
at the oral hearing, the United States confirmed that the two-pronged test applied by the USITC indeciding this issue is not mandated either by the Un ited States safeguard statute or by any provision of
the United States Code of Federal Regulations  that applies to safeguard investigations and
determinations.  The United States also confirmed, at the oral hearing, that the USITC has adoptedthis test for defining a "domestic industry" in safeguard actions as a matter of practice in the evolutionof its own case law; for safeguard actions, the test has not been enacted into law or promulgated as aregulation.
83. We begin our analysis with the definition of the term "domestic industry" in Article 4.1(c) of
the  Agreement on Safeguards ,  which reads:
(c) in determining injury or threat thereof, a "domestic industry"
shall be understood to mean the  producers  as a whole  of the
like  or  directly competitive  products  operating within the
territory of a Member, or those whose collective output  of the
like or directly competitive products  constitutes a major
proportion of the total domestic production of  those
products ." (emphasis added)
                                                     
47Panel Report, para. 7.118.
48USITC Report, p. I-12.WT/DS177/AB/R
WT/DS178/AB/R
Page 32
84. The definition of "domestic industry" in this provision refers to two elements.  First, the
industry consists of "producers".  As the Panel indicated, "producers" are those who grow ormanufacture an article;  "producers" are those who bring a thing into existence.
 49  This meaning of
"producers" is, however, qualified by the second element in the definition of "domestic industry".
This element identifies the particular products that must be produced by the domestic "producers" inorder to qualify for inclusion in the "domestic indu stry".  According to the clear and express wording
of the text of Article 4.1(c), the term "domestic industry" extends solely to the "producers …  of the
like or directly competitive  products". (emphasis added)  The definition, therefore, focuses
exclusively on the producers of a very specific group of products.  Producers of products that are  not 
"like or directly competitive products" do not, acco rding to the text of the treaty, form part of the
domestic industry.
85. This definition of "domestic industry" in Article 4.1(c) of the  Agreement on Safeguards  is
further supported by Article 2.1 of that Agreement, which forms part of the relevant context and
which establishes the basic "conditions" for the imposition of a safeguard measure.  According toArticle 2.1:
A Member may apply a safeguard measure  to a product  only if that
Member has determined, pursuant to the provisions set out below, that
such product  is being imported into its territory in such increased
quantities, absolute or relative to domestic production, and under such
conditions as to cause or threaten to cause serious injury to the
domestic industry that produces like or directly competitive products
 .
(emphasis added)
86. Thus, a safeguard measure is imposed on a specific " product ", namely, the imported product.
The measure may only be imposed if that specific product ("such  product ") is having the stated
effects upon the "domestic industry  that produces like or directly competitive products ." (emphasis
added)  The conditions in Article 2.1, therefore, relate in several important respects to  specific products .
In particular, according to Article 2.1, the legal basis for imposing a safeguard measure exists  only 
when imports of a specific product  have prejudicial effects on domes tic producers of products that are
"like or directly competitive" with that imported pr oduct.  In our view, it would be a clear departure
from the text of Article 2.1 if a safeguard measure c ould be imposed because of the prejudicial effects
that an imported product has on domestic  producers of products that are  not  "like or directly
competitive products" in relation to the imported product.
                                                     
49Panel Report, para. 7.69.WT/DS177/AB/R
WT/DS178/AB/R
Page 33
87. Accordingly, the first step in determining the scope of the domestic industry is the identification
of the products which are "like or directly competitive" with the imported product.  Only when thoseproducts have been identified is it possible then  to identify the "producers" of those products.
88. There is no dispute that in this case the "like product" is "lamb meat", which is the imported
product with which the safeguard investigation was concerned.  The USITC considered that the
"domestic industry" producing the "like product", lamb meat, includes the growers and feeders of livelambs.  The term "directly competitive products" is no t, however, at issue in this dispute as the USITC
did not find that there were any such products in this case.
 50
89. The United States argues, nevertheless, that it is  permissible, on the facts and circumstances of
this case, to include in the "domestic industry" th e growers and feeders of live lambs because, as the
USITC has found:  (1) there is a "continuous line of production" from the raw product, live lambs, to theend-product, lamb meat;  and (2) there is a "substan tial coincidence of economic  interests" between the
producers of the raw product and the producers of the end-product.
90. This interpretation may well have a basis in th e USITC case law, but there is no basis for this
interpretation in the  Agreement on Safeguards .  The text of Article 4.1(c) defines the "domestic
industry" exclusively by reference to the "produc ers … of the like or directly competitive product".
There is no reference in that definition to the two criteria relied upon by the United States.  In our view,
under Article 4.1(c), input products can only be included in defining the "domestic industry" if they are
"like or directly competitive" with the end-produc ts.  If an input product and an end-product are not
"like" or "directly competitive", then it is irrelevant, under the  Agreement on Safeguards ,  that there is
a continuous line of production betw een an input product and an e nd-product, that the input product
represents a high proportion of the value of the e nd-product, that there is no use for the input product
other than as an input for the particular end-produc t, or that there is a substantial coincidence of
economic interests between the producers of these pr oducts.  In the absence of a "like or directly
competitive" relationship, we see no justification, in  Article 4.1(c) or any other provision of the
Agreement on Safeguards ,  for giving credence to any of these cr iteria in defining a "domestic industry".
                                                     
50We note that two Commissioners (Askey and Crawford) did not join in the findings of the USITC on
this point.  These two Commissioners both found that  live lambs , produced by growers and feeders, are directly
competitive with lamb  meat   and that, accordingly, the "domestic industry" includes the producers of these
competing products.  USITC Report, pp. I-8 and I-9, footnotes 7 (Commissioner Askey) and 8 (CommissionerCrawford).  The United States has not argued, before the Panel or before us, that  live lambs   are directly
competitive with lamb  meat , and that issue as we stated earlier, does not form part of this appeal.WT/DS177/AB/R
WT/DS178/AB/R
Page 34
91. In this respect, we are not persuaded that the words "as a whole" in Article 4.1(c), appearing
in the phrase "producers as a whole", offer support to the United States' position.  These words do notalter the requirement that the "domestic industry" extends only to producers of "like or directlycompetitive products".  The words "as a whole" apply to "producers" and, when read together with the
terms "collective output" and "major proportion" which follow, clearly address the  number   and the
representative   nature   of producers making up the domestic industry.  The words "as a whole" do not
imply that producers of  other   products, which are  not  like or directly competitive with the imported
product, can be included in the definition of domestic industry.  Like the Panel, we see the words "as awhole" as no more than "a  quantitative   benchmark for the proportion of producers … which a
safeguards investigation has to cover."
 51
  (emphasis added)
92. The Panel examined in some detail the GATT panel reports in  United States – Wine and
Grapes ,  Canada – Beef ,  and  New Zealand – Transformers .  We agree largely with the Panel's
analysis that these cases support the Panel's interpretation, with which we have also recorded our
agreement, of Article 4.1(c) of the  Agreement on Safeguards .  We do, however, have one reservation
worth mentioning.  In the course of examining the panel report in  Canada – Beef ,  the Panel
considered the importance to be attached to the degree of integration of the production process for aproduct.  Based on statements of the panel in  Canada – Beef ,  the Panel made the following
observation:
We agree that the factors of vertical integration or common ownership
are not in themselves determinative or even particularly relevant for
the scope of the domestic industry.  Rather, the issue is (i) whether the
products at various stages of production are  different forms of a single
like product  or have become  different products ; and (ii) whether it is
possible to  separately identify  the production process for the like
product at issue, or whether instead common ownership results in
such complete integration  of production processes that   separate
identification and analysis of different production stages is
impossible . 52 (underlining added)
                                                     
51Panel Report, para. 7.74.
52Ibid., para. 7.95.  We note that the dispute in  Canada – Beef  involved claims under the Tokyo Round
Agreement on Interpretation and Application of Articles VI, XVI and XXII of the General Agreement on Tariffs andTrade .  The panel, in that dispute, was called upon to interpret Article 6.6 of that Agreement, which explicitly
required "the separate identification of production" in assessing the effects of subsidized imports on the domesticindustry.  Accordingly, in that dispute, it was appropriate for the panel to examine the separate productionprocesses.  However, there is no such provision in the  Agreement on Safeguards .WT/DS177/AB/R
WT/DS178/AB/R
Page 35
93. The Panel went on to examine whether the production process of lamb meat involved separate
products or different forms of a single like product.  The Panel took the view that the USITC itself had
found that live lambs and lamb meat  were   separate products, and that it  was  possible to identify
separate stages of their production processes.  53
94. Although we do not disagree with the Panel's an alysis of the USITC Report, nor with the
conclusions it drew from that analysis, we have rese rvations about the role of an examination of the
degree of integration of production processes for the products at issue.  54  As we have indicated, under
the  Agreement on Safeguards ,  the determination of the "domestic industry" is based on the "producers
… of the like or directly competitive products".  Th e focus must, therefore, be on the identification of
the  products ,  and their "like or directly competitive" relationship, and not on the  processes   by which
those products are produced.  55
95. We recall that, in this case, the USITC determin ed that the like products at issue were domestic
and imported lamb  meat   and that the USITC did not find that  live lambs  or any other products were
directly competitive with lamb  meat .  On the basis of this finding of the USITC, we consider that the
"domestic industry" could  only  include the "producers" of lamb  meat .  By expanding the "domestic
industry" to include producers of other products, namely,  live lambs , the USITC defined the "domestic
industry" inconsistently with Article 4.1(c) of the  Agreement on Safeguards .
96. As a result, the imposition of the safeguard measure at issue was based on a determination of
serious injury caused to an industry other than th e relevant "domestic industry".  In addition, that
measure was imposed without a determination of se rious injury to the "domestic industry", which,
properly defined, should have been limited only to p ackers and breakers of lamb meat.  Accordingly,
we uphold the Panel's finding, in paragraph 7.118 of the Panel Report, that the safeguard measure at
issue is inconsistent with Articles 2.1 and 4.1(c) of the  Agreement on Safeguards .
                                                     
53Panel Report, para. 7.96.
54Ibid., para. 7.95.
55We can, however, envisage that in certain cases a question may arise as to whether two articles are
separate products .  In that event, it may be relevant to inquire into the production processes for those products.WT/DS177/AB/R
WT/DS178/AB/R
Page 36
VI. Threat of Serious Injury
A. Standard of Review
97. At the outset of its findings, the Panel considered the standard of review appropriate for
examination of the claims made by Australia and New Zealand.  After citing our Report in
Argentina – Footwear Safeguard ,  the Panel formulated the standard in the following terms:
… the standard of review that applies in safeguard disputes, as set out
above, requires us to refrain from a  de novo  review of the evidence
reflected in the report published by the competent national authorities.
Our task is limited to a review of the determination made by the
USITC and to examining whether the published report provides an
adequate explanation of how the facts as a whole support the USITC'sthreat determination.
 56
98. When the Panel came to examine the specific claims of Australia and New Zealand under
Article 4.2, the Panel stated:
In examining the USITC's threat of serious injury determination we
examine, first, whether the USITC evaluated " all  relevant factors of
an objective and quantifiable nature having a bearing on the situation
of [the] industry", in particular, the factors listed in SG Article 4.2(a),
as well as any other relevant factors.  Second, we examine whether the
approach  followed by the USITC consisted of a fact-based, future-
oriented consideration of increased imports and of the condition of theUS domestic industry.
 57 (emphasis in original)
99. Australia and New Zealand challenge two aspects of the Panel's standard of review.  First,
they argue that the Panel erred in its  interpretation , and, therefore, formulation, of the legal standard
to be used to review the determinations made by  competent authorities in safeguard investigations.
Second, they assert that, in reviewing the USITC's determination of a threat of serious injury, the
Panel erred in its  application   of the standard of review.
100. As the Panel noted, we had occasion to examine, in  Argentina – Footwear Safeguard ,  the
standard of review appropriate to a panel's examination of claims made under the  Agreement on
Safeguards .  In that appeal, we observed that:
                                                     
56Panel Report, para. 7.3.
57Ibid., para. 7.140.WT/DS177/AB/R
WT/DS178/AB/R
Page 37
[t]he  Agreement on Safeguards  … 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 withthe relevant covered agreements", sets forth the appropriate standard
of review for examining the consistency of a safeguard measure with
the provisions of the  Agreement on Safeguards .
 58
101. As regards the standard of review contained in Article 11 of the DSU, we recall that, in
European Communities – Hormones ,  we stated that "the applicable standard is neither  de novo
review as such, nor 'total deference', but rather the 'objective assessment of the facts' ".59
102. In our Report in  Argentina – Footwear Safeguard ,  we gave certain indications as to the
application   of the standard of review in Article 11 of the DSU in disputes where claims are made
under Article 4 of the  Agreement on Safeguards :
… 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, in our view, the Panel was
simply fulfilling its responsibility under Article 11 of the DSU intaking the approach it did.  To determine whether the safeguard
investigation and the resulting safeguard measure 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 examined all the relevant
facts and had provided a reasoned explanation of how the facts
supported their determination.  60 (underlining added)
103. Thus, an "objective assessment" of a claim under Article 4.2(a) of the  Agreement on
Safeguards  has, in principle, two elements.  First, a panel must review whether competent authorities
have evaluated  all relevant factors ,  and, second, a panel must review whether the authorities have
provided a   reasoned and adequate explanation  of how the facts support their determination.61  Thus,
                                                     
58Appellate Body Report, supra , footnote 15, para. 120.
59Appellate Body Report, supra , footnote 25, para. 117.
60Appellate Body Report, supra , footnote 15, para. 121.
61Clearly, a claim under Article 4.2(a) might not relate at the same time to both aspects of the review
envisaged here, but only to one of these aspects.  For instance, the claim may be that, although the competentauthorities evaluated all relevant factors, their explanation is either not reasoned or not adequate.WT/DS177/AB/R
WT/DS178/AB/R
Page 38
the panel's objective assessment involves a  formal  aspect and a  substantive  aspect.  The formal
aspect is whether the competent authorities have evaluated "all relevant factors".  The substantiveaspect is whether the competent authorities have given a reasoned and adequate explanation for theirdetermination.
104. This dual character of a panel's review is mandated by the nature of the specific obligations
that Article 4.2 of the  Agreement on Safeguards  imposes on competent authorities.  Under
Article 4.2(a), competent authorities must, as a fo rmal matter, evaluate "all relevant factors".
However, that evaluation is not simply a matter of form, and the list of relevant factors to be evaluatedis not a mere "check list".  Under Article 4.2(a), competent authorities must conduct a substantiveevaluation of "the  ' bearing
 ',  or the  ' influence  '  or  ' effect  ' " 62 or " impact " that the relevant factors
have on the "situation of [the] domestic industry". (emphasis added)  By conducting such asubstantive evaluation of the relevant factors, competent authorities are able to make a proper overalldetermination,  inter alia ,  as to whether the domestic industry is seriously injured or is threatened
with such injury as defined in the Agreement.
105. It follows that the precise nature of the examin ation to be conducted by a panel, in reviewing
a claim under Article 4.2 of the  Agreement on Safeguards ,  stems, in part, from the panel's obligation
to make an "objective assessment of the matter" under Article 11 of the DSU and, in part, from theobligations imposed by Article 4.2, to the extent that those obligations are part of the claim.  Thus, aswith any claim under the provisions of a covered agreement, panels are required to examine, in
accordance with Article 11 of the DSU
 63, whether the Member has complied with the obligations
imposed by the particular provisions identified in  the claim.  By examining whether the explanation
given by the competent authorities in their published report is reasoned and adequate, panels can
determine whether those authorities have acted consistently with the obligations imposed by
Article 4.2 of the  Agreement on Safeguards .
106. We wish to emphasize that, although panels are not entitled to conduct a  de novo   review of
the evidence, nor to  substitute   their own conclusions for those of the competent authorities, this does
not  mean that panels must simply  accept   the conclusions of the competent authorities.  To the
contrary, in our view, in examining a claim under Article 4.2(a), a panel can assess whether thecompetent authorities' explanation for its determination is reasoned and adequate  only  if the panel
critically examines that explanation, in depth, and in the light of the facts before the panel.  Panels
                                                     
62Appellate Body Report, United States – Wheat Gluten Safeguard , supra , footnote 19, para. 71.
63We note, however, that Article 17.6 of the  Anti-Dumping Agreement   sets forth a special standard of
review for claims under that Agreement.WT/DS177/AB/R
WT/DS178/AB/R
Page 39
must, therefore, review whether the competent authorities' explanation fully addresses the nature, and,
especially, the complexities, of the data, and responds to other plausible interpretations of that data.A panel must find, in particular, that an explanation is not reasoned, or is not adequate, if somealternative explanation   of the facts is plausible, and if the competent authorities' explanation does not
seem adequate in the light of that alternative explanation.  Thus, in making an "objective assessment"
of a claim under Article 4.2(a), panels must be open to the possibility that the explanation given bythe competent authorities is not reasoned or adequate.
107. In this respect, the phrase " de novo  review" should not be used loosely.  If a panel concludes
that the competent authorities, in a particular case, have  not  provided a reasoned or adequate
explanation for their determination, that panel has not, thereby, engaged in a  de novo  review.  Nor
has that panel substituted its own conclusions for those of the competent authorities.  Rather, the panelhas, consistent with its obligations under the DSU, simply reached a conclusion that the determinationmade by the competent authorities is inconsistent with the specific requirements of Article 4.2 of the
Agreement on Safeguards .
108. In this case, as we have noted, the Panel formulated the standard of review by reference to our
Report in  Argentina – Footwear Safeguard , and the Panel also, explicitly, rejected any standard
implying a de novo   review of the evidence.  Indeed, the Panel quoted the passage in our Report in
Argentina – Footwear Safeguard  to which we have just referred, and specifically drew attention to
our statement, in that passage, that panels must examine whether competent authorities haveexamined all relevant factors and whether those authorities have provided a reasoned and adequateexplanation for their determination.
 64  Accordingly, we find that the Panel correctly  interpreted  the
standard of review appropriate to the examination of the claims by Australia and New Zealand.
109. It will be recalled, though, that Australia and New Zealand have also appealed the Panel's
application  of the standard of review.  For the most part, their appeal on the  application   of the
standard of review is related to these participan ts' respective appeals that the Panel erred in finding
that the USITC had acted consistently with Article 4.2 of the  Agreement on Safeguards  in
determining that there existed a threat of serious injury to the United States' domestic lamb meatindustry.  We will, therefore, examine most of th ese arguments when we consider the issues relating
to the existence of a threat of serious injury.
                                                     
64Panel Report, para. 7.1.WT/DS177/AB/R
WT/DS178/AB/R
Page 40
110. However, one aspect of New Zealand's appeal on the application of the standard of review
raises a general procedural question we will address now.  This pertains to the  arguments  that a
panel is entitled to consider in reviewing competent authorities' determinations.  The Panel said in this
regard:
… to the extent that any of the alternative explanations put forward by
Australia and New Zealand are in effect new analyses of the record
evidence, they are not relevant to our review.  Rather, these factual
and legal arguments would be relevant to our review only to the extent
that they were raised in the investigation , in which case we would
need to consider whether the USITC gave a reasoned explanation ofwhy the facts supported its conclusions in respect of them, and
whether that explanation is persuasive.
 65  (emphasis added)
111. Thus, the Panel confined its  own  review of the competent authorities' determination to an
examination of that determination in terms of the  factual and legal arguments  put forward by the
interested parties  during the domestic investigation   conducted under Article 3.1 of the  Agreement on
Safeguards .
112. In our report in  Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or
Non-Alloy Steel H-Beams from Poland ,  in the course of our examination of the specificity of Poland's
request for the establishment of a panel under Article 6.2 of the DSU, we said:
The Panel's reasoning seems to assume  that there is always continuity
between claims raised in an underlying anti-dumping investigation
and claims raised by a complaining party in a related dispute brought
before the WTO.  This is not necessarily the case.  The parties
involved in an underlying anti-dumping investigation are generallyexporters, importers and other commercial entities, while those
involved in WTO dispute settlement are the Members of the WTO .
Therefore, it cannot be assumed that the range of issues raised in an
anti-dumping investigation will be the same as the claims that a
Member chooses to bring before the WTO in a dispute .
 66 (emphasis
added)
113. Although the claim under examination in that appeal was different, the same reasoning
applies in respect of the relationship between domes tic investigations culminating in the imposition of
a safeguard measure, and dispute settlement proceedings under the DSU regarding that safeguardmeasure.  In arguing claims in dispute settlement, a  WTO Member   is not confined merely to
rehearsing arguments that were made to the competent authorities by the  interested  parties   during
                                                     
65Panel Report, para. 7.207.
66Appellate Body Report, WT/DS122/AB/R, adopted 5 April 2001, para. 94.WT/DS177/AB/R
WT/DS178/AB/R
Page 41
the domestic investigation, even if the WTO Member was itself an interested party in that
investigation.  Likewise, panels are not obliged to determine, and confirm themselves the nature andcharacter of the arguments made by the interested parties to the competent authorities.  Argumentsbefore national competent authorities may be influenced by, and focused on, the requirements of the
national laws, regulations and procedures.  On th e other hand, dispute settlement proceedings brought
under the DSU concerning safeguard measures imposed under the Agreement on Safeguards  may
involve arguments that were not submitted to the competent authorities by the interested parties.
114. Furthermore, we recall that, in  United States – Wheat Gluten Safeguard ,   w e  r e v e r s e d  a
finding by the panel that  competent authorities  are obliged to evaluate only those other relevant
factors, under Article 4.2(a), which were actually raised by the interested parties during theinvestigation before it.
 67  We said there that competent authorities have an  independent   duty of
investigation and that they cannot "remain[] passive in the face of possible short-comings in theevidence  submitted, and  views   expressed, by the  interested parties ."
 68 (emphasis added)  In short,
competent authorities are obliged, in some circumstances, to go beyond the arguments that were
advanced by the interested parties during the investigation.  As  competent authorities   themselves are
obliged, in some circumstances, to go beyond the arguments of the interested parties in reaching theirown determinations, so too, we believe,  panels are not limited to the arguments submitted by the
interested parties to the competent authorities in  reviewing those determinations in WTO dispute
settlement.
115. We wish to emphasize that the discretion that WTO Members enjoy to argue dispute
settlement claims in the manner they deem appropriate does not, of course, detract from theirobligation, under Article 3.10 of the DSU, "to engage in dispute settlement procedures 'in good faith
in an effort to resolve the dispute'."
 69  It follows that WTO Members cannot improperly withhold
arguments from competent authorities with a view to raising those arguments later before a panel.  Inany event, as a practical matter, we think it unlikely that a Member would do so.
116. At the oral hearing before us, New Zealand indicated that, in its view, the Panel had failed to
consider the econometric arguments it had set forth in Exhibit NZ-13 on the ground that thesearguments had not been presented to the USITC.  In view of our findings below, we do not find it
necessary to examine the significance of Exhibit NZ-13.
                                                     
67Appellate Body Report, supra , footnote 19, para. 56.
68Ibid., para. 55.
69See, Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" ,
WT/DS108/AB/R, adopted 20 March 2000, para. 166.WT/DS177/AB/R
WT/DS178/AB/R
Page 42
B. The Determination of a "Threat of Serious Injury"
1. Background
117. Before the Panel, Australia and New Zealand both claimed that the USITC's determination of
a threat of serious injury was inconsistent with Article 4.2(a) of the  Agreement on Safeguards
because the USITC did not properly evaluate "all relevant factors", as required by Article 4.2(a).  As
part of this claim, the parties asserted that the USITC did not have sufficient data to allow it to make aproper evaluation of the situation of the domestic industry.
118. The Panel found, first, that the USITC had "investigated" all the relevant factors mentioned in
Article 4.2(a) of the  Agreement on Safeguards .
 70  The Panel next considered the approach the USITC
took in determining whether there existed a "threat" of serious injury.  The Panel concluded that therewas "no conceptual fault with the USITC's analytical approach" and that this approach was"sufficiently fact-based and future-oriented".
 71  However, the Panel was "not persuaded" that the data
used as a basis for the USITC’s determination in this case was sufficiently  representative  of the
domestic industry  72, and the Panel, therefore, concluded:
… that the United States has acted inconsistently with Article 4.1(c) of
the Agreement on Safeguards because the USITC failed to obtain data
in respect of producers representing a major proportion of the total
domestic production by the domestic industry as defined in the
investigation.  73
Consequently, the Panel also found that the USITC's determination of a threat of serious injury was
inconsistent with Article 2.1 of the  Agreement on Safeguards .  Australia and New Zealand appeal
certain aspects of the Panel's findings on the threat of serious injury.  So, too, does the United States,with respect to another aspect of these findings.
119. Although not identical in all respects, the appeals by Australia and New Zealand on this issue
both challenge the Panel's interpretation and application of the term "threat of serious injury".  Theirarguments on the misapplication of this term are closely entwined with their arguments that the Panelerred, under Article 4.2(a), first, in concluding that the USITC had evaluated "all relevant factors"and, second, in concluding that the USITC had adopted a proper analytical approach to the evaluation
                                                     
70Panel Report, para. 7.177.
71Ibid., paras. 7.222 and 7.224.
72Ibid., para. 7.225.
73Ibid., para. 8.1(e).WT/DS177/AB/R
WT/DS178/AB/R
Page 43
of the data in a case of alleged "threat" of serious injury.  Both participants assert that in reaching
these conclusions, the Panel showed undue deference to  the USITC.  Accordingly, they argue that the
Panel failed to apply the appropriate standard to its review of the USITC's determination.
120. For its part, the United States appeals the Panel's finding that, because the data before the
USITC was not sufficiently  representative   of the domestic industry, the United States acted
inconsistently with Article 4.1(c) of the  Agreement on Safeguards .  The United States argues that
Article 4.1(c) simply defines the term "domesti c industry" and does not impose any obligation on
Members regarding the sufficiency of data about a "domestic industry".  In any event, theUnited States adds, the USITC complied with the relevant obligations on data collection.  As theUnited States sees it, Article 4.2(a) requires no more than that competent authorities evaluate allrelevant factors of an "objective and quantifiable nature" having a "bearing" on the situation of thedomestic industry, while Article 4.2(b) requires that those authorities' determination of the causal linkbe made on the basis of "objective evidence".  The United States contends that the  Agreement on
Safeguards   does not require that the data collected by competent authorities be representative of a
particular proportion of the domestic industry.
121. Before addressing these appeals, we note that the Panel's analysis of these issues was based
on the assumption that the USITC's findings on the definition of the "domestic industry" wereconsistent with the  Agreement on Safeguards .
 74  We have found that the Panel correctly concluded
that the USITC improperly defined the "domestic industry".  Even so, as the relevant findings of thePanel on the "threat of serious injury" have in fact been appealed, we think it appropriate for us toexamine the "issues of law" and "legal interpretations " raised in this appeal regarding these findings.
In doing so, we will use the same assumption employed by the Panel.
2. Meaning of the Term "Threat of Serious Injury"
122. We first address, briefly, the interpretation of the term "threat of serious injury", which is
defined in Article 4.1(b) of the  Agreement on Safeguards  as follows:
(b) "threat of serious injury" shall be understood to mean  serious
injury that is clearly imminent , in accordance with the
provisions of paragraph 2.  A determination of the existence ofa threat of serious injury shall be based on facts and not merely
on allegation, conjecture or remote possibility; (emphasis
added)
                                                     
74Panel Report, para. 7.119.WT/DS177/AB/R
WT/DS178/AB/R
Page 44
123. An integral element of this definition is the reference to "serious injury", which is defined in
Article 4.1(a) of the  Agreement on Safeguards  as follows:
(a) "serious injury" shall be understood to mean a  significant
overall impairment  in the position of a domestic industry;
(emphasis added)
124. The standard of "serious injury" set forth in Article 4.1(a) is, on its face, very high.  Indeed, in
United States – Wheat Gluten Safeguard ,  we referred to this standard as "exacting".  75  Further, in this
respect, we note that the word "injury" is qualified by the adjective "serious", which, in our view,underscores the extent and degree of "significant overall impairment" that the domestic industry mustbe suffering, or must be about to suffer, for the sta ndard to be met.  We are fortified in our view that
the standard of "serious injury" in the  Agreement on Safeguards   is a very high one when we contrast
this standard with the standard of "material injury" envisaged under the  Anti-Dumping Agreement ,
the  Agreement on Subsidies and Countervailing Measures   (the " SCM Agreement ")  and the
GATT 1994.
 76  We believe that the word "serious" connotes a much higher standard of injury than the
word "material".  77  Moreover, we submit that it accords with the object and purpose of the  Agreement
on Safeguards   that the injury standard for the application of a safeguard measure should be higher
than the injury standard for anti-dumping or countervailing measures, since, as we have observedpreviously:
[t]he application of a safeguard measure does not depend upon
"unfair" trade actions, as is the case with anti-dumping or
countervailing measures.  Thus, the import restrictions that are
imposed on products of exporting Members when a safeguard actionis 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 into account.
 78
125. Returning now to the term " threat   of serious injury", we note that this term is concerned with
"serious injury" which has  not  yet occurred, but remains a future event whose actual materialization
cannot, in fact, be assured with certainty.  We note, t oo, that Article 4.1(b) builds on the definition of
                                                     
75Appellate Body Report, supra , footnote 19, para. 149.
76"Material injury" is the standard provided for in Article VI of the GATT 1994, Articles 5
(footnote 11) and 15 (footnote 45) of the  SCM Agreement ,  and Article 3 (footnote 9) of the  Anti-Dumping
Agreement .
77We find support for our view that the standard of "serious injury" is higher than "material injury" in
the French and Spanish texts of the relevant agreements, where the equivalent terms are, respectively,  dommage
grave   and  dommage important ;  and  daño grave   and  daño importante .
78Appellate Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 94.WT/DS177/AB/R
WT/DS178/AB/R
Page 45
"serious injury" by providing that, in order to constitute a "threat", the serious injury must be " clearly
imminent  ".  The word "imminent" relates to the mo ment in time when the "threat" is likely to
materialize.  The use of this word implies that the anticipated "serious injury" must be on the very verge
of occurring.  Moreover, we see the word "clear ly", which qualifies the word "imminent", as an
indication that there must be a high degree of likelihood that the anticipated serious injury will
materialize in the very near future.  We also note th at Article 4.1(b) provides that any determination of a
threat of serious injury "shall be based on facts and not merely on allegation, conjecture or  remote
possibility ." (emphasis added)  To us, the word "clearly" relates also to the  factual   demonstration of the
existence of the "threat".  Thus, the phrase "clearly imminent" indicates that, as a matter of fact, it mustbe manifest that the domestic industry is on the brink of suffering serious injury.
126. We recall that, in  Argentina – Foot wear Safeguard ,  we stated that "it is essential for a panel to
take the definition of 'serious injury' in Article 4.1(a) of the  Agreement on Safeguards   into account in
its review of any determination of 'serious injury'."
 79  The same is equally true for the definition of
"threat of serious injury" in Article 4.1(b) of that Agreement.  Thus, in making a determination on
either the existence of "serious injury", or on a "threat" thereof, panels must always be mindful of thevery high standard of injury implied by these terms.
3. Evaluation of Relevant Factors under Article 4.2(a) of the Agreement
on Safeguards
127. So far, we have examined the interpretation of the term "threat of serious injury" in the
abstract.  However, the  Agreement on Safeguards  also imposes obligations on competent authorities
with respect to the  process  by which they arrive at a determination of serious injury or threat thereof.
Article 4.2(a) of the Agreement provides that, in making an injury determination, the competentauthorities must "evaluate all relevant factors".  This appeal raises two general interpretive questionsconcerning the way in which competent authorities actually conduct their "evaluation" of "all relevantfactors".  The first of these questions is whether the "evaluation" by the competent authorities, under
Article 4.2(a), must be based on  data that is sufficiently representative   of the domestic industry.  The
second question is whether there is an appropriate  temporal focus   for the competent authorities'
"evaluation" of the data in determining that there is  a "threat" of serious injury in the imminent future.
                                                     
79Supra , footnote 15, para. 139.WT/DS177/AB/R
WT/DS178/AB/R
Page 46
(a) Sufficiency of the Data
128. The Panel found that, in order to make a determination regarding the "domestic industry", as
defined in Article 4.1(c) of the  Agreement on Safeguards ,  competent authorities must rely on data
that is sufficiently representative of that industry.  80  The United States appeals this interpretation and
asserts that the sole requirements in the  Agreement on Safeguards   on data collection are that the
factors to be evaluated must be "of an objective and quantifiable nature" and that these factors have a"bearing on the situation of [the domestic] industry".
129. We note that no provision of the  Agreement on Safeguards   specifically addresses the
question of the extent of data collection, and in particular, whether competent authorities must havebefore them data that is representative of the domestic industry.  However, we note as well that, underArticle 4.2(a) of the  Agreement on Safeguards , competent authorities are required to investigate
whether the "domestic industry" is facing a situation of "serious injury".  To do so, competentauthorities are obliged to "evaluate" all relevant factors of an "objective and quantifiable" nature.
Moreover, in conducting this evaluation, Article 4.2(a) requires competent authorities to evaluate the
"bearing" that the relevant factors have on the "situation of [the domestic] industry".  On this basis,competent authorities must make an "ove rall" determination as to whether the " domestic industry " is
seriously injured, or threatened with such injury.
 81
130. We recognize that the clause "of an objective and quantifiable nature" refers expressly to
"factors", but not expressly to data.  We are, however, convinced that factors can only be "of anobjective and quantifiable nature" if they allow a determination to be made, as required byArticle 4.2(b) of the Agreement on Safeguards ,  on the basis of "objective evidence".  Such evidence
is, in principle, objective data.  The words "factors of an objective and quantifiable nature" imply,
therefore, an evaluation of objective  data  which enables the measurement and quantification of these
factors.
131. The term "domestic industry" is defined as meaning,  at least ,  the producers of "a major
proportion of the total domestic production" of the products at issue.  In our view, the requirement forcompetent authorities to evaluate the "bearing" that the relevant factors have on the"domestic industry
 " and, subsequently, to make a determination concerning the overall "situation of
that  industry  ",  means that competent authorities must have a  sufficient   factual basis to allow them
to draw reasoned and adequate conclusions concerning the situation of the "domestic industry".  The
                                                     
80Panel Report, para. 7.221.
81Appellate Body Report, Argentina – Footwear Safeguard , supra , footnote 15, para. 139.WT/DS177/AB/R
WT/DS178/AB/R
Page 47
need for such a sufficient factual basis, in tur n, implies that the data examined, concerning the
relevant factors, must be representative of the "domestic industry".  Indeed, a determination made onthe basis of insufficient data would not be a determination about the state of the "domestic industry",as defined in the Agreement, but would, in reality, be a determination pertaining to producers of
something less than "a major proportion of the total domestic production" of the products at issue.
Accordingly, we agree with the Panel that the data evaluated by the competent authorities must besufficiently representative of the "domestic industry" to allow determinations to be made about thatindustry.
132. We do not wish to suggest that competent authorities must, in every case, actually have before
them data pertaining to  all  those domestic producers whose production, taken together, constitutes a
major proportion of the domestic industry.  In some instances, no doubt, such a requirement would beboth impractical and unrealistic.  Rather, the data before the competent authorities must besufficiently representative to give a true picture of the "domestic industry".  What is sufficient in any
given case will depend on the particularities of the "domestic industry" at issue.  In this case, the
Panel's conclusion that the data before the USITC was not sufficiently representative is, in our view, afinding that turns on the particularities of the United States' lamb meat industry, as defined by theUSITC, and we see no reason to disturb this finding of the Panel.  We note, moreover, that the USITCitself acknowledged that the data before it for growers did not represent a "statistically validsample".
 82
133. We, therefore, uphold the Panel's finding that the USITC, and, hence, the United States, acted
inconsistently with the  Agreement on Safeguards   by making a determination regarding the "domestic
industry" on the basis of data that was not sufficie ntly representative of that industry.  However, we
find that, in so doing, the United States acted inconsistently with Article 4.2(a) of the  Agreement on
Safeguards ,  read together with the definition of "domestic industry" in Article 4.1(c).  Article 4.1(c)
contains nothing more than a definition of the term "domestic industry" and does not, by itself,impose any obligation on WTO Members.  We, therefore, disagree with the Panel's ultimateconclusion on this point that the United States acted inconsistently with Article 4.1(c) alone.
134. Accordingly, we modify the Panel's conclusion, in paragraph 8.1(e) of the Panel Report, by
holding that the United States acted inconsistently with Article 4.2(a) of the  Agreement on
Safeguards   in making a determination regarding the "domestic industry" on the basis of data that
was not sufficiently representative of that industry.
                                                     
82USITC Report, p. I-17.WT/DS177/AB/R
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(b) Temporal focus of the data evaluation
135. Before the Panel, the parties disagreed as to which part of the period of investigation was the
most relevant in "evaluating" the state of the domestic industry when making a "threat" determination.The Panel opined that, "due to the future-oriented nature of a threat analysis, it would seem logical
that occurrences at the beginning of an investigation period are less relevant than those at the end of
that period."
 83  The Panel went on to conclude that:
… the USITC was correct to focus on the  most recent data   available
from the end of the investigation period.  We also consider that data
from 1997 and interim-1998 cover an adequate and reasonable time-period if complemented by projections extrapolating existing trends
into the imminent future so as to ensure the prospective analysis
which a threat determination requires.
 84 (emphasis added)
Therefore, we consider that, by basing its determination on events at
the end of the investigation period (i.e., one year and nine months)rather than over the course of the entire investigation period, the
USITC analysed sufficiently recent data for making a valid evaluation
of whether significant overall impairment was "imminent" in the near
future.
 85 (emphasis added)
136. We recall that, in making a "threat" determination, the competent authorities must find that
serious injury is "clearly imminent".  As we have already concluded, this requires a high degreeof likelihood that the anticipated serious injury will materialize in the very near future.  Accordingly,
we agree with the Panel that a threat determination is "future-oriented".  However, Article 4.1(b)
requires that a "threat" determination be based on "facts" and not on "conjecture".  As facts, by their
very nature, pertain to the present and the past, the occurrence of future events can never bedefinitively proven by facts.  There is, therefore, a tension between a future-oriented "threat" analysis,which, ultimately, calls for a degree of "conjecture" about the likelihood of a future event, and theneed for a fact-based determination.  Unavoidably, this tension must be resolved through the use offacts from the present and the past to justify the conclusion about the future, namely that seriousinjury is "clearly imminent".  Thus, a fact-based evaluation, under Article 4.2(a) of the Agreement on
Safeguards ,  must provide the basis for a projection that there is a high degree of likelihood of serious
injury to the domestic industry in the very near future.
 86
                                                     
83Panel Report, para. 7.192.
84Ibid., para. 7.193.
85Ibid., para. 7.194.
86We observe that the projections made must relate to the overall state of the domestic industry, and not
simply to certain relevant factors.WT/DS177/AB/R
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137. Like the Panel, we note that the  Agreement on Safeguards  provides no particular
methodology to be followed in making determinations of serious injury or threat thereof.  87  However,
whatever methodology is chosen, we believe that data relating to the most recent past will providecompetent authorities with an essential, and, usually, the most reliable, basis for a determination of a
threat of serious injury.  The likely state of the dom estic industry in the very near future can best be
gauged from data from the most recent past.  Thus, we agree with the Panel that, in principle, within
the period of investigation as a whole, evidence from the most recent past will provide the strongestindication of the likely future state of the domestic industry.
138. However, we believe that, although data from the most recent past has special importance,
competent authorities should not consider such data in isolation from the data pertaining to the entireperiod of investigation.  The real significance of the short-term trends in the most recent data, evidentat the end of the period of investigation, may only emerge when those short-term trends are assessedin the light of the longer-term trends in the data for the whole period of investigation.  If the most
recent data is evaluated in isolation, the resulting picture of the domestic industry may be quite
misleading.  For instance, although the most recent data may indicate a decline in the domesticindustry, that decline may well be a part of the normal cycle of the domestic industry rather than aprecursor to clearly imminent serious injury.  Likewise, a recent decline in economic performancecould simply indicate that the domestic industry is returning to its normal situation after an unusuallyfavourable period, rather than that the industry is on the verge of a precipitous decline into seriousinjury.  Thus, we believe that, in conducting their evaluation under Article 4.2(a), competentauthorities cannot rely exclusively on data from the most recent past, but must assess that data in thecontext of the data for the entire investigative period.
 88
139. In this case, the Panel interpreted Article 4.2(a) of the  Agreement on Safeguards   to mean that
the USITC was entitled to "base its determination" of a "threat of serious injury" on data pertaining tothe last 21 months of the five year  period of investigation.  In our view, as we will see below, thePanel's interpretation of the temporal aspects of the competent authorities' evaluation, underArticle 4.2(a), placed  too much   emphasis on certain data from the most recent past, while neglecting
                                                     
87Panel Report, para. 7.184.
88We note that, at footnote 130 of our Report in  Argentina – Footwear Safeguard , supra , footnote 15,
we said that "the relevant investigation period should not only  end  in the very recent past, the investigation
period should  be  the recent past."  In this Report, we comment on the relative importance, within the period of
investigation, of the data from the end of the period, as compared with the data from the beginning of the period.The period of investigation must, of course, be sufficiently long to allow appropriate conclusions to be drawnregarding the state of the domestic industry.WT/DS177/AB/R
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other, even more recent data.  Also, the Panel did not ensure that the data was assessed in the context
of the data for the entire period of investigation.  The Panel's approach improperly excluded thepossibility that short-term trends in the data, evident in the last 21 months of the period ofinvestigation, could possibly be a misleading indicator of the likely future state of the domestic
industry, when viewed in the context of the data for the entire period of investigation.
4. Panel's Review of the USITC's Determination of a "Threat of Serious
Injury"
140. We have examined, so far, the interpretation of the appropriate standard of review, and the
interpretation of the term "threat of serious injury" defined in Article 4.1(b) of the  Agreement on
Safeguards .  We have also examined certain interpretive questions relating to the competent
authorities' evaluation, under Article 4.2(a) of that Agreement, in making a determination that there issuch a "threat".  With all these considerations in mind, we will now examine the heart of the appeal byAustralia and New Zealand on this point:  whether the Panel  applied   the appropriate standard of
review to the USITC's evaluation of the state of the domestic industry, under Article 4.2(a), and to theUSITC's determination that there existed a "threat of serious injury".
141. We have already said that, in examining a claim under Article 4.2 of the  Agreement on
Safeguards ,  a panel's application of the appropriate standard of review of the competent authorities'
determination has two aspects.  First, a panel must review whether the competent authorities have, asa  formal   matter, evaluated  all relevant factors  and, second, a panel must review whether those
authorities have, as a  substantive   matter, provided a   reasoned and adequate explanation   of how the
facts support their determinations.
142. As regards the formal aspects of the Panel's review, we observe that the Panel found that
"the  USITC has investigated all the relevant injury factors ".
 89 (emphasis added)  The Panel reached
this conclusion after describing, in summary form, the data before the USITC concerning the relevantfactors.
 90  Although Australia argues that the Panel erred in finding that the USITC had evaluated all
of the relevant factors  91, we consider that the Panel was correct to conclude that, as a formal matter,
                                                     
89Panel Report, para. 7.177.
90Ibid., paras. 7.142 – 7.171.  We note that this section of the Panel Report is entitled "Whether the
USITC evaluated in this investigation all injury factor s listed in SG Article 4.2(a)".  After an introduction
(paras. 7.139 – 7.141), the Panel presented a "Summary of the injury data collected by the USITC"
(paras. 7.142 – 7.171), before turning to examine whether the USITC had evaluated all relevant factors
(paras. 7.172 – 7.178).
91Australia's other appellant's submission, paras. 63 – 80.WT/DS177/AB/R
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the USITC did evaluate each of the relevant factors, with respect to some part of the domestic
industry, as the USITC defined that industry.  Howe ver, we see the essence of Australia's appeal, on
this point, as directed more toward the Panel's review of the  substantive  aspects of the USITC's
evaluation of the relevant factors, and to the US ITC's determination that the domestic industry was
threatened with serious injury.  92  New Zealand also appeals the substantive aspects of the Panel's
review.  93  Both of these appellants assert that the Panel erred in finding that the USITC's explanation
of its evaluation of the relevant factors was adequate to support its determination that there existed athreat of serious injury to the domestic industry.
143. On our reading of the Panel Report, we see that the Panel examined, first, whether the USITC
formally evaluated all the relevant factors.  Next, the Panel examined "the USITC's  analyticalapproach" and concluded that there was "no conceptual fault" with that approach because it was"sufficiently fact-based and future-oriented".
 94  The Panel reached this conclusion after reviewing the
"[p]rojections relevant to a threat of injury finding" and the "[r]elevant time-period for the threat
analysis".  95  The Panel also made an "[e]valuation of data pertaining to the period from January 1997
to September 1998".  96  This period was the last 21 months of the period of investigation, on which the
Panel said the USITC could "bas[e] its determination".  97  In the course of evaluating the data from
this period, the Panel noted:
… the complainants do not, as such, challenge the USITC's findings
that there were declines in 1997 and interim-1998 for most of the
indicators referred to by the USITC in its determination.  98
144. After summarizing the remainder of the parties' views on the data, the Panel then observed,
correctly, that the competent authorities are not requi red "to show that each listed injury factor is
                                                     
92Australia's other appellant's submission, paras. 63 – 80.
93New Zealand's other appellant's submission, paras. 3.12 – 3.22.
94Panel Report, paras. 7.222 and 7.224.
95Ibid., headings 3(a) and 3(b), pp. 64 and 65.
96Ibid., heading 3(c), p. 66.
97Ibid., para. 7.194.
98Ibid., para. 7.199.WT/DS177/AB/R
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declining" but, rather, they must reach a determination in light of the evidence as a whole.  99  Without
any further analysis, the Panel concluded:
Therefore, in the light of the specific evidence, explanations and
prospective analysis reflected in the USITC report, we consider theUSITC's reliance, among other difficulties, on factors including the
domestic industry's market share, production, shipments, profitability
and prices as a sufficient basis for determining whether threat of
serious injury exists.  We also consider that the USITC's analysis of
the overall picture of trends reflected in and projected from the most
recent data (especially from 1997 and interim-1998) along with the
projections concerning further increases in imports (assumingarguendo  that the data on which these trends and projections were
based were representative of a major proportion of the producers
forming the relevant industry), seem to confirm the USITC
determination that a "significant overall impairment" in the overall
position of the domestic industry was clearly imminent.
 100
(underlining added)
145. Finally, the Panel examined, and upheld, the claim by Australia and New Zealand that the
USITC did not have sufficiently representative data to make a determination about the lamb meatindustry, as defined by the USITC.
 101
146. The only part of the Panel Report where the Panel purports to conduct a substantive review of
whether the USITC provided a reasoned and adequate explanation of how the facts supported itsdetermination is in the section dealing with the "[e]valuation of data pertaining to the period fromJanuary 1997 to September 1998".
 102  However, even there, the Panel did not demonstrate any
substantive   review of the factors which it considered provided "a sufficient basis" for the USITC's
                                                     
99Panel Report, para. 7.203.  We note that, earlier in its Report, the Panel stated that competent
authorities "may arrive at a threat determination  even if the majority of firms within the relevant industry is not
facing declining profitability ,  provided that an evaluation of the injury factors  as a whole  indicates threat of
serious injury." (Panel Report, para. 7.188, emphasis added)  In  Argentina – Footwear Safeguard ,  we said that
the competent authorities' determination of "serious injury" must be based on "the overall picture" of thedomestic industry and that the determination must be made "in light of all the relevant factors".  Accordingly, inevaluating "the overall position of the domestic industry", no single relevant factor can be accorded decisive
importance and, instead, all of the factors must be examined and weighed together. (Appellate Body Report,
Argentina – Footwear Safeguard , supra , footnote 15, para. 139)
It follows that the Panel was correct to state that the competent authorities' determination must be based
on "an evaluation of the injury factors  as a whole ".  Moreover, it is theoretically possible, as the Panel said, that
an industry  might  be threatened with serious injury, even though "a majority of firms … is not facing declining
profitability".  Profits are simply one of the relevant factors mentioned in Article 4.2(a) and to accord that factordecisive importance would be to disregard the other relevant factors.  However, in our view, it will be a rarecase, indeed, where the relevant factors as a whole indicate that there is a threat of serious injury, even thoughthe "majority of firms in the industry" is not facing declining profitability.
100Panel Report, para. 7.204.
101Ibid., paras. 7.208 – 7.221.
102Ibid., heading 3(c), p. 66, and, paras. 7.196 – 7.204.WT/DS177/AB/R
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determination – "market share, production, shipments, profitability and prices".  The Panel seemed to
regard it as sufficient for its own conclusion, firs t, that most economic indicators were in decline
in 1997 and 1998 and, second, that not every economic indicator need be in decline.
147. Australia and New Zealand made a number of substantive arguments before the Panel about
the USITC's evaluation, and about its determination that the domestic industry was "threatened with
serious injury" at the end of the period of investigation in 1998.  These arguments were that: lambmeat prices actually rose in late 1998 and in  1999;  the USITC's price comparisons wereinappropriate;  the USITC did not properly evalua te capacity, capacity utilization, inventories and
productivity;  lamb growers' production, sales and productivity increased over the entire period ofinvestigation;  shipments of live lambs increased in 1998;  and, growers' productivity and employment
levels increased in 1998.  The Panel summarized the substantive arguments made by Australia andNew Zealand regarding the USITC's evaluation and determination.
 103  Yet, nowhere do we see that
the Panel actually addressed them.
148. These arguments by Australia and New Zealand were evidently intended to cast doubt on the
adequacy of the explanation provided by the USITC as to how the facts, in the form of the data,supported the USITC's "threat of serious injury" determ ination.  In our view, by failing to review the
USITC's determination in light of these detailed s ubstantive arguments, the Panel failed to examine
critically whether the USITC had, indeed, provided a reasoned and adequate explanation of how the
facts supported its determination that there existed a "threat of serious injury".
149. In consequence, we find that the Panel has not  applied   the appropriate standard of review,
under Article 11 of the DSU, in examining whether, as a substantive matter, the USITC provided areasoned and adequate explanation of how the facts support a determination of "threat of serious
injury" under Article 4.2(a) of the  Agreement on Safeguards .
150. Having found that the Panel did not properly review the USITC's determination that there
existed a "threat of serious injury", we now turn to examine ourselves the claims of Australia andNew Zealand on this issue.  We will focus on the arguments by Australia and New Zealand relating toprices, and we will base our determination  exclusively   on the facts presented in the USITC Report,
which form part of the Panel record and are uncontested.
                                                     
103The Panel summarizes these arguments at paragraphs 7.200 – 7.202 of the Panel Report.WT/DS177/AB/R
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151. The USITC made the following statement about prices:
We find that financial performance across all industry segments has
worsened due largely to  falling prices .  Commission questionnaires
show a marked  decline in prices   for various lamb meat products
beginning in mid-1997 .  Although prices recovered to some degree
in 1998,  prices remained depressed through September 1998 ,  the end
of the period surveyed.  Weighted average U.S. delivered  prices   for
virtually all of the products surveyed were substantially lower
beginning with the third quarter of 1997 .  In several instances
prices   for several of the products  were 20 percent or more below
comparable quarters in 1996 and early 1997 . 104 (emphasis added)
In summarizing the data on prices, the USITC Report states:
Respondents have questioned whether the domestic industry is injured
when slaughter prices, the price felt most directly by the segment of
the industry that petitioners have stated are most injured, ended the
period of investigation higher than they began.  Respondents arguedthat prices are returning to normal after a temporary increase brought
about by decreased domestic supply.  Petitioners state that the
Commission should focus on the price decline in 1996 and 1997 and
that 1993 is not a good year for comparison because it was one of the
worst years on record.  To examine this question, staff converted
monthly slaughter lamb prices (Jan. 1985-Aug. 1998) to constant 1985
dollars using the BLS producer price index to remove the effects ofinflation.  The average real price per CWT was $62.96 for the full-
period (Jan. 1985-Aug. 1998) and $56.19, $55.61, $64.86, $71.50,
$73.32, and $64.73, respectively, for years 1993-interim 1998.  Thus,
prices were below the full-period average in 1993 and 1994, increased
above the average level in 1995-97, and decreased to slightly abovethe average in interim 1998.
 105
152. Australia and New Zealand argued, before the Panel, that it was not appropriate for the
USITC to use prices from 1996 and 1997 as the benchmark for comparison with prices in 1998, at theend of the period of investigation, because prices in 1996 and 1997 were unusually high.  The fall inprices between 1996 and 1998 was, they argued, a misleading indicator of price trends because priceswere simply returning to their normal levels and were not in general decline.  In addition, Australiaand New Zealand argued that, in any event, the most recent price data indicates that prices were rising
                                                     
104USITC Report, p. I-20.
105Ibid., p. II-55.  The USITC Report has two parts.  Part I contains the "Determination and views of
the Commission" (pp. I-1 – I-61);  Part II contains "Information obtained in the investigation"(pp. II-1 – II-83).  The United States stated, at the oral  hearing before us, that panels and the Appellate Body can
rely on all aspects of the USITC Report.WT/DS177/AB/R
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Page 55
in 1998, at the end of the period of investigation.  106  This rise in prices indicated, they argued, that the
situation of the lamb meat industry was improving and that it was not faced imminently with "seriousinjury".
153. We note that the price data set out in the USITC Report, which we have just summarized,
indicates that prices in 1996 and 1997 were considerably higher than at any other point during the
period of investigation.
 107  The data also shows that prices were significantly lower in August 1998
than in 1996 and 1997.  108  Prices in 1998 were, nonetheless, markedly higher than the prices in 1993
and 1994, the early part of the period of investigation.  109  In addition, the price data in the Part II of
the USITC Report, and in United States' Exhibit US-41, submitted to the Panel, indicates that therewas a sharp rise in prices in the last few months of the period of investigation, in mid-1998.
 110
154. Accordingly, the uncontested data demonstrates  that, during the period of investigation, lamb
meat prices generally rose until 1996/1997, then dropped until mid-1998, and rose again until the endof the period of investigation.  At that time, prices were higher than they had been at the beginning of
the period of investigation.
155. We emphasize that we are not in a position to reach any definitive conclusions on the
significance of these price trends for the situation of the domestic lamb meat industry.  However,these trends raise doubts for us about the adequacy of the USITC's explanation of the "bearing" ofprices on the situation of the domestic industry.
                                                     
106Although we attach no importance to this fact, we note that Meat and Livestock Australia Ltd.
("MLA") argued, in its post-hearing brief before the USITC, that the  sharp rise in prices at the end of the
period of investigation   showed that the USITC did not have an adequate basis to find that the domestic industry
was seriously injured (MLA, Post-hearing brief, p. 19, submitted as Australia's Exhibit Aus-29 in the Panel
proceedings).
107Average real prices in dollars per hundred weight ("CWT") of live lambs purchased for slaughter
were at their highest in 1997 ($73.32) and at their lowest in 1994 ($55.61).  Prices in interim 1998 ($64.73) were
slightly above the average. (USITC Report, p. II-55)
108Average real prices per CWT were:  $71.50 in 1996;  $73.32 in 1997;  and, $64.73 in interim 1998.
(USITC Report, p. II-55)
109Average real prices per CWT were:  $56.19 in 1993;  $55.61 in 1994;  and, $64.73 in interim 1998.
(USITC Report, p. II-55)
110USITC Report, Figures 3, 5, 7, 8, and 9.  See, also, United States' Exhibit US-41, Tables 38, 39, 40,
and 43.  Table 38 (carcasses) shows a price rise of 10.4 percent between 1 July and 30 September 1998;  Table
39 (fresh chilled frenched rack) shows a price rise of 3.9 percent during that period;  Table 40 (fresh, chilled
loins) shows a price rise of 29.2 percent during that period;  Table 43 (fresh, chilled square cut shoulder) showsa price rise of 32.6 percent during that period.  These tables indicate that the price rises occurred in July –
September 1998, the last three months of the period of investigation.  We, also, note, for completeness, thatTables 41 and 42 (cuts of frozen boneless leg) show prices falling during that period by 0.8 percent and 1.6percent respectively.WT/DS177/AB/R
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156. In the passage we quoted previously, from page I-20 of the USITC Report, the USITC
expressed the view that the "worsen[ing]" financial performance of the domestic industry was "duelargely to  falling   prices" for lamb meat.
111  It is clear from this passage that the USITC determined
that prices were "falling" through a comparison between prices in 1998 and prices in 1996/1997.
However, it seems to us that there is a legitimate doubt as to which prices during the period of
investigation should have been used as the appropriate benchmark.  That doubt stems from the factthat prices in 1996 and 1997 were around 30 percent higher than they had been in 1993 and, duringthose two years, were also at their peak for the period of investigation.  In these circumstances, we
consider that the USITC Report should have explained why prices in 1996 and 1997 were theappropriate benchmark rather than prices in 1993, 1994 or 1995.  The USITC provides no suchexplanation and, instead,  assumes   that prices in 1996 and 1997 were the appropriate benchmark.  We
do not wish to suggest that prices in 1996 and 1997 could  not  be used as the benchmark, or that
prices from another year should have been the benchmark.  Our point is that the USITC has not
justified its decision – which was key to its overall evaluation of prices and, thus, also, of the financial
performance of the domestic industry – that prices in 1996 and 1997 were the appropriate benchmarkfor comparison with prices in 1998.
157. For similar reasons, we are not satisfied that the USITC explained adequately its conclusion
that "prices remained depressed  through September 1998" because, compared with price levels
in 1993 and 1994, prices in September 1998 were markedly higher, and were not "depressed".
 112
(emphasis added)  Again, the USITC's conclusion overlooks entirely the evolution of prices across theentire period of investigation, and fails to explai n why the overall rise in prices between 1993 and
1998 is not relevant to the determination.
158. In addition, we have already observed that there was a sharp rise in lamb meat prices in the
last few months of the period of investigation.
113  However, the USITC's consideration of this rise in
prices was confined to the observation that, "[ a]lthough prices recovered to some degree in 1998 ,
prices remained depressed through September 1998".114 (emphasis added)  The USITC did not
elaborate further on the importance to the domestic industry of the rise in prices in 1998.  Nor did theUSITC explain the likely future evolution of prices in light of these price rises which were, in somecases, rather significant.  The USITC did not, ther efore, explain, at all, whether it considered that
                                                     
111USITC Report, p. I-20.
112Ibid.
113Supra , para. 153.  See, in particular, footnote 110.
114USITC Report, p. I-20.WT/DS177/AB/R
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prices would continue to rise;  whether the price rises would be reversed;  or whether prices would
remain at the level reached at the end of the period of investigation.
159. We see a contradiction between the most recent price rises, in 1998, and the USITC's
conclusion that the price data supports its determination that the domestic industry is threatened with
serious injury.  A rise in prices, particularly if significant, should, in the ordinary course of events, be
beneficial for an industry.  Conceivably, such a rise could lead to an increase in revenues, and couldincrease margins and profits, and, possibly, also, production levels, if the price rises are sustained.Thus, if an industry is  not  yet in a state of serious injury, and that industry has enjoyed rising prices
in the most recent past, it is, at least, questionable whether the industry is highly likely to sufferserious injury in the very near future.  In such a situation, the competent authorities should devoteparticular attention to explaining the apparent cont radiction between the most recent price rises and their
view that the industry is still threatened with seri ous injury.  In this case, the USITC offered no such
explanation.
160. We wish to emphasize again that our remarks a bout the price data are not intended to suggest
that the domestic industry was  not  threatened with serious injury.  Rather, our conclusion is simply
that the USITC has  not  adequately explained how the facts rela ting to prices support its determination,
under Article 4.2(a), that the domestic industry was threatened with such injury.
161. Accordingly, we find that the United States acted inconsistently with Article 4.2(a) of the
Agreement on Safeguards   and, hence, also with Article 2.1 of that Agreement.
VII. Causation
162. In assessing the claims made by Australia and New Zealand relating to causation, the Panel
began with a "[g]eneral interpretative analysis" of the relevant provisions of the  Agreement on
Safeguards ,  before turning to the application of that interpretation to the facts of this dispute.
 115  The
Panel took note of the terms of Articles 4.2(a) and 4.2(b) of that Agreement  116 and, after examining
the ordinary meaning of the word "cause"  117, stated:
                                                     
115Panel Report, heading 2, p. 74.
116Ibid., para. 7.236.
117Ibid., para. 7.237.WT/DS177/AB/R
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It is not enough that increased imports cause just some injury which
may then be intensified to a "serious" level by factors other than
increased imports.  In our view, therefore, the ordinary meaning of
these phrases describing the Safeguards Agreement’s causation
standard indicates that increased imports must not only be  necessary ,
but also  sufficient  to cause or threaten a degree of injury that is
"serious " enough to constitute a significant overall impairment in the
situation of the domestic industry.  118 (underlining added)
163. The Panel added that:
… the second sentence of SG Article 4.2(b) also makes clear … that
increased imports need  not  be the  sole  or exclusive causal factor
present in a situation of serious injury or threat thereof, as the
requirement not to attribute injury caused by other factors by
implication recognises that  multiple   factors may be present in a
situation of serious injury or threat thereof.  119
…
… where a number of factors, one of which is increased imports, are
sufficient  collectively   to cause a significant overall impairment of the
position of the domestic industry, but increased imports  alone   are not
causing injury that achieves the threshold of "seriousness" set up bySG Article 4.2(a) and 4.2(b), the conditions for imposing a safeguard
measure are not satisfied.  While we believe that a Member remains
free to determine any appropriate method of assessing causation, any
method that it selects would need to ensure that the injury caused by
increased imports, considered alone, is "serious injury", i.e., causing a
significant overall impairment in the situation of the domestic
industry.  Moreover, we cannot see how a causation standard that does
not examine whether increased imports are both a  necessary   and
sufficient   cause for serious injury or threat thereof would ensure that
injury caused by factors other than increased imports is not attributed
to those imports.  120 (underlining added)
164. The United States appeals the Panel's finding that the USITC's causation analysis was
inconsistent with the  Agreement on Safeguards .  According to the United States, there is no basis in
Article 4.2(b) of that Agreement to support the Panel's interpretation that increased imports must be a"necessary  and sufficient cause" of, or must, "considered alone", cause, serious injury or a threat
thereof.  The United States asserts that the Panel's approach is indistinguishable from the approach ofthe panel in  United States – Wheat Gluten Safeguard ,  which we reversed on appeal.  The United
                                                     
118Panel Report, para. 7.238.
119Ibid., para. 7.239.
120Ibid., para. 7.241.WT/DS177/AB/R
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Page 59
States concludes that, for the reasons we gave in th at appeal, we must also reverse the Panel's findings
on causation in this dispute.
165. We agree with the United States that the Panel's interpretation of the causation requirements
in Articles 4.2(a) and 4.2(b) of the  Agreement on Safeguards  is very similar to the interpretation of
the same provisions by the panel in  United States – Wheat Gluten Safeguard .  Both panels reasoned
that increased imports, considered on their own, must be capable of causing, or threatening to cause,injury which is "serious".
 121  Both panels stated that increased imports must be "sufficient" to cause
serious injury.  122  Moreover, both panels accepted that the situation of the domestic industry may be
aggravated by other factors which are also contribut ing to the injury and, therefore, that increased
imports need not be the sole cause of injury, but may be one of several causes.  123  Furthermore, we
note that, in this case, the Panel relied on the interpretation of the causation requirements given by thepanel in  United States – Wheat Gluten Safeguard   and stated that its interpretation of causation "is
consistent   as well with the findings of the Panel in  US – Wheat Gluten   (currently on appeal)".
 124
(emphasis added)  As the United States points out, we did indeed reverse those findings on appeal in
our own Report in  United States – Wheat Gluten Safeguard .
166. In that appeal, in examining the causation requirements in the  Agreement on Safeguards , we
observed that the first sentence of Article 4.2(b) of the  Agreement on Safeguards  provides that a
determination "shall not be made unless [the] investigation demonstrates … the existence of  the
causal link  between increased imports … and serious injury or threat thereof." (emphasis added)  In
interpreting this phrase, we said:
                                                     
121Panel Report, para. 7.241;  Panel Report, United States – Wheat Gluten Safeguard , supra , footnote
18, paras. 8.138, 8.139 and 8.143.
122Panel Report, paras. 7.238 and 7.241;  Panel Report,  United States – Wheat Gluten Safeguard , supra ,
footnote 18, para. 8.138.
123Panel Report, para. 7.238;  Panel Report, United States – Wheat Gluten Safeguard , supra ,
footnote 18, para. 8.138.
124Panel Report, para. 7.242.  See, also, Pa nel Report, paras. 7.244, 7.245 and 7.247.WT/DS177/AB/R
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… the term "the causal link" denotes, in our view, a relationship of
cause and effect such that increased imports contribute to "bringing
about", "producing" or "inducing" the serious injury.  Although that
contribution must be sufficiently clear as to establish the existence of
"the causal link" required, the language in the first sentence ofArticle 4.2(b) does  not  suggest that increased imports be  the sole 
cause of the serious injury, or that " other   factors" causing injury must
be excluded from the determination of serious injury.  To the contrary,
the language of Article 4.2(b), as a whole, suggests that "the causal
link" between increased imports and serious injury may exist,  even
though other factors are also contributing, "at the same time", to the
situation of the domestic industry .
 125
167. We also noted in that appeal the crucial significance of the second sentence of Article 4.2(b),
which states that competent authorities "shall not … attribute" to increased imports injury caused byother factors, and we found that:
Clearly, the process of attributing "injury", envisaged by this sentence,
can only be made following a separation of the "injury" that must then
be properly "attributed".  What is important in this process is
separating or distinguishing the  effects  caused by the different factors
in bringing about the "injury".
 126
168. We emphasized there that the non-attribution language in the second sentence of
Article 4.2(b) means that the effects of increased imports, as separated and distinguished from theeffects of other factors, must be examined to determine whether the effects of those imports establisha "genuine and substantial relationship of cause and effect" between the increased imports and seriousinjury.
 127
169. We also addressed, in that appeal, the language in Articles 2.1 and 4.2(a) of the  Agreement
on Safeguards , which we found to support our reading of the non-attribution language in the second
sentence of Article 4.2(b).  By way of conclusion, we:
… reverse[d] the Panel's interpretation of Article 4.2(b) of the
Agreement on Safeguards  that increased imports "alone", "in and of
themselves", or " per se ", must be capable of causing injury that is
"serious".  128
                                                     
125Appellate Body Report, United States – Wheat Gluten Safeguard , supra , footnote 19, para. 67.
126Ibid., para. 68.
127Appellate Body Report, United States – Wheat Gluten Safeguard , supra , footnote 19, para. 69.
128Ibid., para. 79.WT/DS177/AB/R
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170. In view of the close similarity between the respective interpretations of the causation
requirements in the  Agreement on Safeguards   given by this Panel and by the panel in  United States
– Wheat Gluten Safeguard ,  we are of the view that, for the reasons we gave in  United States – Wheat
Gluten  Safeguard ,  the Panel in this dispute erred in its interpretation of the causation requirements in
the  Agreement on Safeguards .   A s  w e  h e l d  i n   United States – Wheat Gluten Safeguard , the
Agreement on Safeguards  does not require that increased imports be "sufficient" to cause, or threaten
to cause, serious injury.  Nor does that Agreement require that increased imports "alone" be capable ofcausing, or threatening to cause, serious injury.
171. Accordingly, we reverse the Panel's interpretation of the causation requirements in the
Agreement on Safeguards ,  as set forth in paragraphs 7.238, 7.241 and 7.247 of the Panel Report.
172. Having reversed the Panel's "[g]eneral interpretative analysis"
 129 of "causation", we go on to
consider whether the Panel was correct nonetheless in concluding that the United States actedinconsistently with the causation requirements in Article 4.2 of the  Agreement on Safeguards .  Our
own examination of this issue is based  exclusively   on the facts presented in the USITC Report, which
form part of the Panel record and are uncontested.  Furthermore, notwithstanding the findings we havemade previously in this appeal
 130, we must  assume  in our examination:  first, that the definition of
the domestic industry given by the USITC is correct,  and, second, that the USITC correctly found
that the domestic industry is threatened with serious injury.  On this basis, we must examine whetherthe USITC properly established, in accordance with the  Agreement on Safeguards ,  the existence of
the required "causal link" between increased  imports and threatened serious injury.
173. At the outset, we note that this appeal does  not  involve any claim relating to the causation
standard set forth in the United States statute.
 131  The Panel issued a preliminary ruling that the
United States statute  as such   does not fall within the Panel's terms of reference  132, and this ruling has
not been appealed.  133  Therefore, like the Panel, our task on this issue is confined to examining the
                                                     
129Panel Report, heading 2, p. 74.
130Supra , paras. 75, 96, 133, 134 and 161.
131Under the United States Trade Act of 1974 (19 U.S.C. §§ 2251 to 2254), the United States'
competent authorities are directed, by Section 202(b)(1)(A) to "make an in vestigation to determine whether an
article is being imported into the United States in such increased quantities as to be a substantial cause  of
serious injury, or the threat thereof  ". (emphasis added)  Section 202(b)(1)(B) explains that the term "substantial
cause" means "a cause which is important and not less than any other cause."
132Panel Report, paras. 5.57 and 5.58.
133Furthermore, at the oral hearing, all the participan ts agreed that the United States' statutory standard
as such is not at issue in this appeal.WT/DS177/AB/R
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application  of the United States' statutory causation standard by the USITC in its determination in the
lamb meat investigation for its consistency with the  Agreement on Safeguards .
174. The claims by Australia and New Zealand relating to causation focus principally on the
requirement, in Article 4.2(b) of the  Agreement on Safeguards , that injury caused by factors other
than increased imports should not be "attributed" to those imports.  In the view of Australia and
New Zealand, it is uncontested that the USITC acknowledged that other factors were having injuriouseffects on the domestic industry.  However, Australia and New Zealand argue that the USITC failedto explain what the injurious effects of the other factors were, and, therefore, that the United Statesfailed to demonstrate compliance with the "non-attribution" requirement in the second sentence ofArticle 4.2(b) of the Agreement on Safeguards .
134
175. Accordingly, we must consider whether the USITC properly ensured that injury caused, or
threatened, by factors other than increased imports was not attributed to increased imports, as requiredby Article 4.2(b).  In so considering, we recall that, as we have already elaborated at some length in
this Report, when examining a claim under Article 4.2 of the  Agreement on Safeguards ,  panels must
review whether the competent authorities have acted consistently with the obligations in Article 4.2by examining whether those authorities have given a reasoned and adequate explanation as to how the
facts support their determination.
 135
176. Article 4.2(b) of the  Agreement on Safeguards   provides:
(b) The determination referred to in [Article 4.2(a)] shall not be
made unless this investigation demonstrates, on the basis of
objective evidence, the existe nce 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 attr ibuted to increased imports.
(emphasis added)
177. In our Report in  United States – Wheat Gluten Safeguard ,  we said:
                                                     
134See, generally, Australia's appellee's submission, paras. 226 – 250;  New Zealand's appellee's
submission, paras. 6.32 – 6-39.
135Supra , paras. 100 – 107.WT/DS177/AB/R
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Article 4.2(b) presupposes, therefore, as a first step in the competent
authorities' examination of causation, that the injurious effects caused
to the domestic industry by increased imports are  distinguished from
the injurious effects caused by other factors.  The competent
authorities can then, as a second step in their examination, attribute toincreased imports, on the one hand, and, by implication, to other
relevant factors, on the other hand, "injury" caused by all of these
different factors, including increased imports.  Through this two stage
process, the competent authorities comply with Article 4.2(b) by
ensuring that any injury to the domestic industry that was  actually
caused by factors other than increased imports is not "attributed" to
increased imports and is, therefore, not treated as if it were injurycaused by increased imports, when it is not.  In this way, the
competent authorities determine, as a final step, whether "the causal
link" exists between increased imports and serious injury, and whether
this causal link involves a genuine and substantial relationship of
cause and effect between these two elements, as required by theAgreement on Safeguards .
 136
178. We emphasize that these three steps simply desc ribe a logical process for complying with the
obligations relating to causation set forth in Article 4.2(b).  These steps are not legal "tests" mandatedby the text of the  Agreement on Safeguards ,  nor is it imperative that each step be the subject of a
separate finding or a reasoned conclusion by the competent authorities.  Indeed, these steps leaveunanswered many methodological questions relating to the non-attribution requirement found in the
second sentence of Article 4.2(b).
179. The primary objective of the process we described in  United States – Wheat Gluten
Safeguard   is, of course, to determine whether there is "a genuine and substantial relationship of
cause and effect" between increased imports and serious injury or threat thereof.  As part of that
determination, Article 4.2(b) states expressly that injury caused to the domestic industry by factors
other than increased imports "shall not be attributed to increased imports."  In a situation whereseveral factors  are causing injury "at the same time", a final determination about the injurious effects
caused by  increased imports   can only be made if the injurious effects caused by all the different
causal factors are distinguished and separated.  Otherwise, any conclusion based exclusively on anassessment of only one of the causal factors – increased imports – rests on an uncertain foundation,because it  assumes  that the other causal factors are  not  causing the injury which has been ascribed
to increased imports.  The non-attribution language in Article 4.2(b) precludes such an assumptionand, instead, requires that the competent authorities assess appropriately the injurious effects of the
other factors, so that those effects may be disentangled from the injurious effects of the increased
                                                     
136Appellate Body Report, supra , footnote 19, para. 69.WT/DS177/AB/R
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imports.  In this way, the final determination rests, properly, on the genuine and substantial
relationship of cause and effect between increased imports and serious injury.
180. As we said in our Report in  United States – Wheat Gluten Safeguard ,  the non-attribution
language in Article 4.2(b) indicates that, logically, the final identification of the injurious effects
caused by increased imports must follow a prior separation of the injurious effects of the different
causal factors.  If the effects of the different factors are not separated and distinguished from theeffects of increased imports, there can be no proper assessment of the injury caused by that single anddecisive factor.  As we also indicated, the final determination about the existence of "the causal link"between increased imports and serious injury can only be made  after   the effects of increased imports
have been properly assessed, and this assessment, in turn, follows the separation of the effects causedby all the different causal factors.
181. We emphasize that the method and approach WTO Members choose to carry out the process
of separating the effects of increased imports and the effects of the other causal factors is not specified
by the  Agreement on Safeguards .  What the Agreement requires is simply that the obligations in
Article 4.2 must be respected when a safeguard measure is applied.
182. In this case, the USITC Report states that the "worsen[ing]" financial situation of the
domestic industry, as defined by the USITC, had occurred as "a result of the increase in imports."
 137
The USITC identified six factors other than increased imports which were alleged to be contributingto the situation of the domestic industry at the same time.
 138  Applying the statutory standard
established in United States law, the USITC considered whether, individually, each of these sixfactors was a "more important cause" of the threat of serious injury than the increased imports.  TheUSITC concluded that each of these factors was not a more important cause than the increased
imports.
 139  The USITC then concluded, echoing the Un ited States statutory standard, that "the
increased imports are an important cause, and a cause no less important than any other cause, of thethreat of serious injury".
 140
                                                     
137USITC Report, p. I-24.
138These six other factors were:  the cessation of subsidy payments under the National Wool Act
of 1954;  competition from other meat products, such as beef, pork and poultry;  increased input costs;overfeeding of lambs;  concentration in the packing se gment of the industry;  and a failure to develop and
maintain an effective marketing program for lamb meat.  (USITC Report, pp. I-24 – I-26).
139USITC Report, pp. I-24 – I-26.
140Ibid., p. I-26.WT/DS177/AB/R
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183. According to Australia and New Zealand, the USITC's determination on this issue is
inconsistent with Article 4.2(b) of the  Agreement on Safeguards  because the methodology used by
the USITC did not ensure that injury caused by the six other factors was not attributed to increasedimports.
 141  Our examination, therefore, focuses on the issue of non-attribution.  As we have just
stated, in a situation such as this, where there are several causal factors, the process of ensuring that
injury caused by other causal factors is not attributed to increased imports must include a separationof the effects of the different causal factors.
184. By examining the  relative   causal importance of the different causal factors, the USITC
clearly engaged in some kind of process to separate out, and identify, the effects of the differentfactors, including increased imports.  Although an examination of the  relative   causal importance of
the different causal factors may satisfy the requiremen ts of United States law, such an examination
does not, for that reason, satisfy the requirements of the  Agreement on Safeguards .  On the record
before us in this case, a review of whether the United States complied with the non-attribution
language in the second sentence of Article 4.2(b) can only be made in the light of the explanation
given by the USITC for its conclusions on the relative causal importance of the increased imports, asdistinguished from the injurious effects of the other causal factors.
185. In that respect, we see nothing in the USITC Report to indicate how the USITC complied
with the obligation found in the second sentence of Article 4.2(b) and, therefore, we see no basis foreither the Panel or us to assess the adequacy of the USITC process with respect to the "non-attribution" requirement of Article 4.2(b) of the  Agreement on Safeguards .  The USITC Report, on its
face, does not explain the process by which the USITC separated the injurious effects of the differentcausal factors, nor does the USITC Report explain how the USITC ensured that the injurious effects
of the other causal factors were not included in the assessment of the injury ascribed to increased
imports.  The USITC concluded only that each of four of the six "other factors" was, relatively, a lessimportant cause of injury than increased imports.
 142  As Australia and New Zealand argue, and as the
                                                     
141Australia argues that, "after finding that other factors were merely a 'less important cause' of the
threat of serious injury than imports, [the USITC] failed to undertake the next step in the analysis" and,
therefore, "failed to demonstrate that any threat of seri ous injury caused by other factors had not been attributed
to imports". (Australia's appellee's submission, pa ras. 225 and 231;  see, generally, paras. 225 – 250)
New Zealand argues that the USITC failed "to properly distinguish the injurious effects of imports from theinjurious effects of other factors", and also failed "to ensure  that threat of serious injury caused by 'other factors'
was not attributed to increased imports". (New Zealand's appellee's submission, heading (i), p. 52 andpara. 6.39;  see, generally, paras. 6.16 – 6.39)
142These four other factors were: cessation of the payments under the National Wool Act of 1954;
competition from other meat products; concentration in the packer segment of the industry; the failure todevelop and implement an effective marketing program.WT/DS177/AB/R
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Panel expressly found  143, in doing so, the USITC acknowledged implicitly that these factors were
actually causing injury to the domestic industry at th e same time.  But, to be certain that the injury
caused by these other factors, whatever its magnitude, was not attributed to increased imports, theUSITC should also have assessed, to some extent, the injurious effects of these other factors.  It did
not do so.  The USITC did not explain, in any way, what injurious effects these other factors had on
the domestic industry.  For instance, of the six "other factors" examined, the USITC focused most onthe cessation of the payments under the National Wool Act of 1954 (the "Wool Act") subsidy.  TheUSITC recognized that the Wool Act subsidies represented an important contribution to the profits ofthe growers and feeders of live lambs.
 144  Yet the USITC's analysis of the injurious effects of this
"factor" is confined largely to the statemen t that "the loss of Wool Act payments  hurt  lamb growers
and feeders and caused some to withdraw from the industry." 145 (emphasis added)  This explanation
provides no insight into the nature and extent of the "hurt" caused to the domestic industry by thisfactor.  The USITC stated also that "the effects of termination of the Wool Act payments can be
expected to recede further with each passing month."
 146  The USITC, thereby, acknowledged that the
Wool Act will have on-going effects, but it did not elaborate on what these effects are likely to be norhow quickly they will disappear.  In varying degree, the same is true as well for the remaining "otherfactors" examined.  Thus, although the USITC acknowledged that these other factors were havingsome  injurious effects, it did not explain what these effects were, nor how those injurious effects were
separated from the threat of serious injury caused by increased imports.
186. In the absence of any meaningful explanation of the nature and extent of the injurious effects
of these six "other" factors, it is impossible to determine whether the USITC properly separated theinjurious effects of these other factors from the injurious effects of the increased imports.  It is,
therefore, also impossible to determine whether injury caused by these other factors has been
attributed to increased imports.  In short, without knowing anything about the nature and extent of theinjury caused by the six other factors, we cannot satisfy ourselves that the injury deemed by theUSITC to have been caused by increased imports does not include injury which, in reality, was causedby these factors.
                                                     
143Panel Report, para. 7.277.
144The USITC said that "Wool Act subsidies represent an important contribution to profit (15 to 20
percent)." (USITC Report, p. I-30)
145Ibid., p. I-24.
146Ibid., p. I-25.WT/DS177/AB/R
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187. In this respect, we also recall that, on this issue, the Panel concluded:
… that the USITC's application of the "substantial cause" test in the
lamb meat investigation as reflected in the USITC report did notensure that threat of serious injury caused by other factors has not
been attributed to increased imports.
 147
188. For the foregoing reasons, we find that the USITC, in its Report, did not adequately explain
how it ensured that injury caused to the domestic in dustry by factors other than increased imports was
not attributed to increased imports.  In the absence of such an explanation, we uphold, albeit fordifferent reasons, the Panel's conclusions that the United States acted inconsistently withArticle 4.2(b) of the  Agreement on Safeguards ,  and, hence, with Article 2.1 of that Agreement.
148
VIII.  Judicial Economy
189. The Panel made a single finding on the claims of Australia and New Zealand under Articles I
and II of the GATT 1994 and under Articles 2.2, 3.1, 5.1, 8, 11 and 12 of the  Agreement on
Safeguards :
Bearing in mind the statements of the Appellate Body on "judicial
economy" in the disputes on  United States – Shirts and Blouses  and
Australia – Salmon,  we believe that in the foregoing sections we have
addressed all those claims and issues which we considered necessaryfor the resolution of the matter in order to enable the DSB to make
sufficiently precise recommendations and rulings for the effective
resolution of the dispute before us.  Therefore, we see no need to rule
on the complainants' claims under SG Articles 2.2, 3.1, 5.1 and
GATT 1994 Articles I and II, or on Australia's claims under SGArticles 8, 11 and 12.
 149
190. New Zealand appeals the Panel's decision to exercise judicial economy by not examining its
claim under Article 5.1 of the  Agreement on Safeguards  on the nature of the safeguard measure
applied by the United States.  New Zealand submits that the Panel's rulings relate solely to the investigation  required to underpin safeguard measures, but do not address the appropriateness of the
 safeguard measure  itself.  Therefore, New Zealand concludes that, in declining to rule on the claim
under Article 5.1 of the  Agreement on Safeguards ,  the Panel has failed to enable the DSB to make
sufficiently precise recommendations and rulings for the effective resolution of this dispute.
                                                     
147Panel Report, para. 7.277.
148Ibid., paras. 7.279, 8.1(f) and 8.1(g).
149Ibid., para. 7.280.WT/DS177/AB/R
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191. We recall that, on the issue of panels' exercise of judicial economy, we have previously
explained that panels "need only address those claims which must be addressed in order to resolve thematter in issue in the dispute."
 150  At the same time, the "discretion" a panel enjoys to determine which
claims it should address is not without limits  151, as a panel is obliged "to address those claims on
which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations
and rulings so as to allow for prompt compliance by a Member with those recommendations andrulings".
 152
192. We have considered appeals from panels' application of judicial economy in the context of
challenges to safeguard measures on two previous occasions.  In  Argentina – Footwear Safeguard ,
the European Communities requested that we addr ess its claim on "unforeseen developments".  In
United States – Wheat Gluten Safeguard , the European Communities made a similar appeal
concerning its "unforeseen developments" claim.  In that case, the European Communities also askedus to overturn that panel's exercise of judici al economy and to address the European Communities'
claims under Article I of the GATT 1994 and Article 5 of the  Agreement on Safeguards .  However, in
both  Argentina – Footwear Safeguard  and in  United States – Wheat Gluten Safeguard ,  we upheld
the respective panel's findings that the safeguard measure imposed was inconsistent with therequirements of Articles 2 and 4 of the  Agreement on Safeguards .  In both cases, we determined,
therefore that the respective panel had correctly found that the safeguard measure lacked a legal basis,and, in both cases, we found that,  for this reason ,  the panel had acted within its discretion in
declining to address the issue of "unforeseen developments" under Article XIX:1(a) of theGATT 1994.  In  United States – Wheat Gluten Safeguard ,  in considering the further claims of the
European Communities, we observed:
The same reasoning also holds true for the European Communities'
claim under Article I of the GATT 1994 and Article 5 of the
Agreement on Safeguards .  As the Panel had found the measure to be
inconsistent with Articles 2.1 and 4.2 of the  Agreement on
Safeguards , the Panel was within its discretion in declining to
examine these claims.  Once again, a finding on this claim would nothave added anything to the ability of the DSB to make sufficiently
precise recommendations and rulings in this dispute.
 153
                                                     
150Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses from India , WT/DS33/AB/R, adopted 23 May 1997, DSR 1997:I, 323 at 340.
151Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products , WT/DS50/AB/R, adopted 16 January 1998, , DSR 1998:I, 9, para. 87.
152Appellate Body Report, Australia – Salmon, supra , footnote 25, para. 223.
153Supra , footnote 19, paras. 183 and 184.WT/DS177/AB/R
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193. In this case, the Panel found that the United States had acted inconsistently with
Article XIX:1(a) of the GATT 1994, with va rious provisions of Article 4 of the  Agreement on
Safeguards , and with Article 2.1 of the  Agreement on Safeguards .  The Panel found that the United
States had failed to "demonstrate", as a matter of fact "the existence of unforeseen developments", had
defined the United States' domestic lamb industry inconsistently with the provisions of Article 4.1(c)
of the  Agreement on Safeguards ,  had relied on data insufficient to support its determination of a
threat of serious injury pursuant to Article 4.2(a), and had erred in its assessment of causation underArticle 4.2(b).  These findings concern the substantive determinations made by the USITC, and, as inArgentina – Footwear Safeguard  and  United States – Wheat Gluten Safeguard ,  the findings made
by the Panel – as upheld by us on appeal – deprive the safeguard measure at issue of a legal basis.
194. In consequence, we are of the view that there is no meaningful distinction to be drawn
between the Panel's exercise of judicial economy in this case with respect to New Zealand's claimunder Article 5.1 of the  Agreement on Safeguards ,  and the exercise of judicial economy with respect
to the claim under that Article by the panel in  United States – Wheat Gluten Safeguard .  Having
found that the safeguard measure applied by the United States lacked a legal basis, the Panel wasentitled to decline to address further claims that the same measure is inconsistent with otherprovisions of the  Agreement on Safeguards .  We also observe that a finding on New Zealand's claim
under Article 5.1 of the  Agreement on Safeguards   would not have enhanced the ability of the DSB to
make sufficiently precise recommendations and rulings in this dispute.
195. We, therefore, conclude that the Panel did not err in its exercise of judicial economy with
respect to New Zealand's claim under Article 5.1 of the  Agreement on Safeguards .
IX. Conditional Appeals
196. Australia makes a conditional appeal against the Panel's exercise of judicial economy in
declining to examine its claims under Articles 2.2, 3.1, 4.2, 5.1, 8.1, 11.1(a) and 12.3 of theAgreement on Safeguards .  New Zealand makes a conditional appeal against the Panel's exercise of
judicial economy in declining to examine its claims under Articles 2.2, 3.1 and 5.1 of the  Agreement
on Safeguards,  and under Articles I and II of the GATT 1994.  These appeals, however, are made
only if   we reverse the Panel's conclusions that the safeguard measure at issue was inconsistent with
the  Agreement on Safeguards   and Article XIX:1(a) of the GATT 1994.  As the conditions on which
these requests are predicated have not been fulfilled, there is no need for us to examine the conditionalappeals of Australia and New Zealand.  We recall, as well, that we found above that there was noWT/DS177/AB/R
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need for us to examine Australia's conditional app eal relating to the Panel's findings on "unforeseen
developments".  154
X. Findings and Conclusions
197. For the reasons set forth in this Report, the Appellate Body:
(a) upholds the Panel's finding, in paragraphs 7.45 and 8.1(a) of the Panel Report, that the
United States acted inconsistently with Article XIX:1(a) of the GATT 1994 by failingto demonstrate, as a matter of fact, the existence of "unforeseen developments";
(b) upholds the Panel's finding, in paragraphs 7.118, 8.1(b) and 8.1(g) of the Panel
Report, that the United States acted inconsistently with Articles 2.1 and 4.1(c) of the
Agreement on Safeguards  because the USITC defined the relevant "domestic
industry" to include growers and feeders of live lambs;
(c) upholds the Panel's finding, in paragraph 7.221 of the Panel Report, that the USITC
made a determination regarding the "domestic industry" on the basis of data that wasnot sufficiently representative of that industry;  but modifies the Panel's ultimatefinding, in paragraph 8.1(e) and 8.1(g) of the Panel Report, that the United Statesthereby acted inconsistently with Articles 2.1 and 4.1(c) of the Agreement on
Safeguards  by finding, instead, that the United States thereby acted inconsistently
with Articles 2.1 and 4.2(a) of that Agreement;
(d) finds that the Panel correctly interpreted the standard of review, set forth in Article 11
of the DSU, which is appropriate to its examination of claims made under Article 4.2of the Agreement on Safeguards ;  but concludes that the Panel erred in applying that
standard in examining the claims made concerning the USITC's determination that
there existed a threat of serious injury; and finds, moreover, that the United Statesacted inconsistently with Articles 2.1 and 4.2(a) of the  Agreement on Safeguards 
because the USITC Report did not explain adequately the determination that thereexisted a threat of serious injury to the domestic industry;
                                                     
154Supra , para. 75.WT/DS177/AB/R
WT/DS178/AB/R
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(e) reverses the Panel's interpretation of the causation requirements in the  Agreement on
Safeguards  but, for different reasons, upholds the Panel's ultimate finding, in
paragraphs 7.279, 8.1(f) and 8.1(g) of the Panel Report, that the United States actedinconsistently with Articles 2.1 and  4.2(b) of the Agreement because the USITC's
determination that there existed a causal link between increased imports and a threat
of serious injury did not ensure that injury caused to the domestic industry, by factorsother than increased imports, was not attributed to those imports;
(f) upholds the Panel's exercise of judicial economy, in paragraph 7.280 of the Panel
Report, in declining to rule on the claim of New Zealand under Article 5.1 of theAgreement on Safeguards ;  and,
(g) declines to rule on the respective conditional appeals of Australia and New Zealand
relating to Articles I, II and XIX:1(a) of the GATT 1994, and to Articles 2.2, 3.1, 5.1,8.1, 11.1(a) and 12.3 of the  Agreement on Safeguards .
198. The Appellate Body  recommends  that the DSB request that the United States bring its
safeguard measure found in this Report, and in the Panel Report as modified by this Report, to beinconsistent with the GATT 1994 and the Agreement on Safeguards ,  into conformity with its
obligations under those Agreements.WT/DS177/AB/R
WT/DS178/AB/R
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Signed in the original at Geneva this 12th day of April 2001 by:
_________________________
Claus-Dieter Ehlermann
Presiding Member
_________________________ _________________________
James Bacchus A. V. Ganesan
Member Member