RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/112
4 December 2001
(01-6177)
Dispute Settlement Body
5 November 2001
MINUTES OF MEETING
Held in the Centre William Rappard
on 5 November 2001
Chairman:  Mr. R. Farrell (New Zealand)
Subjects discussed: Page
1. Surveillance of implementation of recommendations adopted by the DSB.........................1
(a) European Communities - Regime for the importation, sale and distribution of
bananas:  Status report by  the European Communities...............................................................1
2. United States – Preliminary determinations with respect to certain softwood
lumber from Canada ............................................................................................................. ...3
(a) Request for the establishm ent of a panel by Canada ..................................................................3
3. Argentina – Definitive anti-dumping measures on imports of ceramic floor tiles
from Italy..................................................................................................................... ..............4
(a) Report of the Panel ......................................................................................................... ............4
4. United States – Transitional safeguar d measure on combed cotton yarn from
Pakistan....................................................................................................................... ...............5
(a) Report of the Appellate Body and Report of the Panel...............................................................5
5. Proposed nominations for the indicative list of governmental and
non-governmental panelists ...................................................................................................11
1. Surveillance of implementation of recommendations adopted by the DSB
(a) European Communities - Regime for the importation, sale and distribution of bananas:  Status
report by the European Communities (WT/DS27/51/Add.23)
1. The Chairman recalled that Article 21.6 of the DSU required that "unless the DSB decides
otherwise, the issue of implementation of the recommendations or rulings shall be placed on the
agenda of the DSB meeting after six months following the date of establishment of the reasonableperiod of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue is
resolved".  He drew attention to document WT/DS27/51/Add.23 which contained the status report by
the European Communities on its progress in the implementation of the DSB's recommendations
concerning its banana import regime.WT/DSB/M/112
Page 2
2. The representative of the European Communities said that the Working Party to examine the
waiver requests submitted by the EC and the ACP countries had met in the past week.  A very
constructive exchange of views had taken place and good progress had been made.  However,
differences still remained.  The EC expected that the examination would continue to be carried out in
the constructive spirit and that a positive decision would be taken shortly.
3. The representative of Honduras said that on 5 October 2001, his country had withdrawn its
objection to the initiation of the examination procedure for a waiver requested by the EC in order to
grant preferences to the ACP countries.  Originally, Honduras had raised serious procedural
objections and the only reason for its decision to withdraw them was the unprecedented economic and
political pressure to which it had been subjected.  Throughout this long dispute, his country had
continued to believe in the dispute settlement system and had played by the rules.  However, its good
faith efforts had not been matched by the EC's full compliance with the DSB's rulings.  Instead the EChad requested a waiver.  Honduras had never been against the granting of a waiver, but considered
that the EC's request for a waiver was vague and, therefore, tainted by an illegality which would
disqualify it from examination.  This situation ra ised the following question:  What was the point in
claiming WTO rights, when in the end, a country like Honduras would be forced to accept a waiver
with a series of conditions which were contrary to its interests?  He emphasized that by giving itsconsent to the initiation of the examination of the waiver, Honduras would not forego its legitimate
rights.  He noted that many issues still remained unresolved after the discussion of preliminary
objections.  However, it was essential that the examination of the waiver requests be completed within
90 days.  Honduras called on the ACP countries to recogn ize, in the spirit of solidarity, that what was
being requested was not normal preferences, but a waiver that would be to the detriment of countriessuch as Honduras.
4. The representative of Ecuador said that his country had noted the status report submitted by
the EC at the present meeting.  Over the past three weeks, Ecuador had taken part in the intensive
work carried out by the Working Party to examine the requests for a waiver submitted by the EC and
the ACP countries to cover the WTO-inconsistent provisions of the Cotonou Agreement and the ECbanana import regime.  During the examination, Ecuador had noted with concern that the EC's
intention was to apply preferential tariffs in favour of the ACP countries in such a way as to preserve
WTO-inconsistent elements of the current banana import regime, which would not be covered by the
requested waivers.  Unlimited preferential tariffs designed for the ACP countries would result in
market conditions that would discriminate against bananas from Ecuador since its share of bananas
under tariff quotas would not increase.  At the same time, the ACP countries would have practically
unlimited market access under highly advantageous tariff preferences.  Furthermore, Ecuador wasconcerned about the EC's insistence that the waivers should remain in force for a longer period of
time than the duration of the transitional regime.  A waiver from Article I of GATT 1994, which
delayed the introduction of a tariff-only regime for a further two years, would prejudge and place
conditions on the negotiations to be held under Article XXVIII of GATT 1994.  He recalled that
Ecuador had concluded an understanding with the EC, which could serve as a good basis for asolution to the dispute, and was ready to agree to  the granting of the waivers.  However the EC,
despite the fact that it had the time and resources available to modify its regime, was still looking for a
way to evade and only partially fulfil its obligations.  As a result, the EC would continue to cause
damage to countries such as Ecuador.
5. The representative of Panama reiterated his country's statement made at the previous DSB
meeting.  In Panama's view, the EC did not wish to comply with the DSB's recommendations.
Panama believed that even if the waiver was granted, the dispute would not be solved.  In Panama's
view, many aspects related to this dispute could not be resolved through granting of the waiver, in
particular, in light of the request submitted by the EC.  He recalled that Panama had never opposed
granting of the waiver but had objected to the EC's attempts to avoid compliance.  He noted thatdiscussions on the scope of the waiver were under way in another forum.WT/DSB/M/112
Page 3
6. The representative of Mexico said that his country was an interested party in this case and
urged other interested parties to try to find a sati sfactory solution to this matter.  He recalled that
Mexico's preference was to put into place a tariff-only system at a level that would enable Mexico to
have access to the EC's market.
7. The representative of the United States said that her country was pleased that the Working
Party had begun its examination of the waiver re quests for the new ACP-EC Partnership Agreement
and looked forward to making further progress toward resolving this dispute.  She said that the United
States would play as constructive a role as possible in that examination.
8. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
2. United States – Preliminary determinations  with respect to certain softwood lumber
from Canada
(a) Request for the establishment of a panel by Canada (WT/DS236/2)
9. The Chairman drew attention to the communi cation from Canada contained in document
WT/DS236/2.
10. The representative of Canada recalled that on 21 August 2001 Canada had requested
consultations with the United States regarding the preliminary countervailing duty and critical
circumstances determinations made by the US  Department of Commer ce on 9 August 2001 with
respect to certain softwood lumber from Canada, together with the expedited and administrative
review provisions of US law.  These consultations, which had been held on 17 September 2001, had
unfortunately failed to resolve the dispute.  Th e preliminary countervailing duty determination
contained a number of WTO-inconsistencies, including treating the right to harvest standing timber asconstituting a "financial contribution" under the SCM Agreement.  The critical circumstances
determination was similarly flawed.  In particular, Canada was concerned that there was no basis
under the SCM Agreement for the application of provisional measures pursuant to a critical
circumstances determination.  Canada also considered US countervailing duty law regarding
expedited reviews to be inconsistent with US obligations under the SCM Agreement and the WTOAgreement.  It failed to provide for reviews in c ountervailing duty cases in certain circumstances, and
mandated the imposition of inconsistent countervailing duty rates.  Consequently, and in accordance
with the relevant provisions of the DSU, the GATT 1994, and the SCM Agreement, Canada was
requesting the establishment of a panel to consider these matters.
11. The representative of the United States said that her country regretted that Canada had chosen
to request the establishment of a panel.  As a substantive matter, the United States believed that
Canada's claims lacked merit.  Moreover, the determinations made by the US Department of
Commerce were preliminary and subject to change.  Therefore, in the view of the United States,
Canada's request for a panel was premature and the United States urged Canada to reconsider its
request.  In any event, her country was not prepared to consent to the establishment of a panel at the
present meeting.
12. The representative of Canada said that he wished to respond to one point made by the United
States.  In Canada's view there were numerous important WTO-inconsistent aspects to the preliminary
determinations.  These aspects were reviewable under the SCM Agreement and Canada would fully
exercise its rights in this regard.
13. The DSB took note of the statements and agreed  to revert to this matter.WT/DSB/M/112
Page 4
3. Argentina – Definitive anti-dumping measures on imports of ceramic floor tiles from
Italy
(a) Report of the Panel (WT/DS189/R)
14. The Chairman recalled that at its meeting on 17 November 2000, the DSB had established a
panel to examine the complaint by the European Co mmunities.  The Report of the Panel contained in
document WT/DS189/R had been circulated on 28 September 2001.  In accordance with the Decision
on Procedures for the Circulation and Dere striction of WTO Documents contained in
WT/L/160/Rev.1, the Panel Report had been circulated as an unrestricted document.  The Panel
Report was now before the DSB for adoption at the request of the European Communities.  The
adoption procedure was without prejudice to the right of Members to express their views on the Panel
Report.
15. The representative of the European Communities said that the EC thanked the Panel for the
excellent work and welcomed its ruling.  He noted that all the claims submitted by the EC had been
upheld, even if the EC regretted that the Panel had unjustifiably departed from the correct
interpretation of the obligation under Article 6.9 of the Anti-Dumping Agreement adopted by the
Panel in the case on Guatemala - Cement II.1  The EC wished to point out that, due to the gravity and
number of violations identified by the Panel, an immediate withdrawal of the measure by Argentina
appeared to be the only acceptable solution.
16. The representative of Argentina said that hi s country wished to thank the members of the
Panel for their efforts in resolving this dispute, which due to the number of factual elements involved
was particularly complex.  The task fulfilled by the Panel reaffirmed the effectiveness of the dispute
settlement mechanism in underpinning the principles and commitments of the Uruguay Round.Argentina was not pleased with the Panel's conclusion that the measure at issue was inconsistent with
the Anti-Dumping Agreement.  However, it wished to express its satisfaction with the Panel's finding
that the implementing authority might choose the way in  which to inform the interested parties of the
essential facts of the investigation, thereby discounting the alleged existence of an obligation of
means, as opposed to an obligation of results.  Once again, in view of the limited resources whichshould be used sparingly, Argentina had decided not to use its right of appeal.  Pursuant to
Article 21.3 of the DSU, Argentina would prov ide information to the DSB on how it would
implement the Panel's rulings and recommendations.
17. The representative of the United States said that her country welcomed the Panel's
determination that Article 6.9 of the Anti-Dumping Agreement did not prescribe the manner in which
investigating authorities were to comply with the obligation to disclose essential facts and that the
obligation might be met by the authorities in a variety of ways.
18. The representative of Hong Kong, China said th at his delegation was pleased to find that the
rulings of the Panel had contributed to clarifying certain procedural requirements under the Anti-
Dumping Agreement.  First, Hong Kong, China welcomed the Panel's reaffirmation that an
investigating authority might disregard the primary source of information and resort to the use of facts
available only under the specific conditions of Article 6.8 and Annex II of the Anti-DumpingAgreement.  To ensure fair treatment to exporters, Hong Kong, China considered it important that
investigating authorities should not be easily allowed to disregard information provided by exporters.
Hong Kong, China hoped that this ruling would enable investigating authorities to exercise due
consideration in performing objective and unbiased evaluations of facts in the course of
investigations.  Second, Hong Kong, China welcomed  the Panel's confirmation of the need to take
into account all significant factors affecting price comparability to ensure fair comparison between
                                                     
1 WT/DS156.WT/DSB/M/112
Page 5
export price and normal value.  As required under Article 2.4 of the Anti-Dumping Agreement, there
was no doubt that it was the responsibility of investigating authorities to make due adjustments for
differences which affected price comparability in the relevant calculations. It was thus hoped that
investigating authorities would take note of th e importance of this requirement in conducting anti-
dumping investigations.  With these observations, Hong Kong, China supported the adoption of thePanel Report.
19. The DSB took note of the statements and adopted
 the Panel Report contained in
WT/DS189/R.
4. United States – Transitional safeguard meas ure on combed cotton yarn from Pakistan
(a) Report of the Appellate Body (WT/DS192/AB/ R) and Report of the Panel (WT/DS192/R)
20. The Chairman drew attention to the communi cation from the Appellate Body contained in
document WT/DS192/6 transmitting the Appellate Body Report on "United States – Transitional
Safeguard Measure on Combed Cotton Yarn from Pakistan", which had been circulated in document
WT/DS192/AB/R, in accordance with Article 17.5 of  the DSU.  In accordance with the Decision on
Procedures for the Circulation and Derestriction of WTO Documents contained in document
WT/L/160/Rev.1 both Reports had been circulated as unrestricted documents.  He recalled that
Article 17.14 of the DSU required that "an Appellate Body report shall be adopted by the DSB andunconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to
adopt the Appellate Body report within 30 days following its circulation to Members.  This adoption
procedure is without prejudice to the right of Members to express their views on an Appellate Body
report".
21. The representative of Pakistan said that his country's complaint against the US safeguard
measure on combed cotton yarn from Pakistan was the first complaint brought by Pakistan, in its
individual capacity, before the WTO dispute settle ment system.  Pakistan was pleased that the US
measure had been found to be inconsistent with the Agreement on Textiles and Clothing (the ATC)
and should therefore be withdrawn.  However, Pakistan believed that this case had revealed that the
dispute settlement system contained a number of shortcomings.  At the present meeting, Pakistan
wished to underscore a number of systemic concerns. The reason was that despite positive
recommendations and rulings at various stages of this dispute, the rights and obligations impaired as a
result of the US measure might not be restored until the measure expired under the ATC.
22. He noted that successive reviews of a transitional safeguard by the Textiles Monitoring Body
(TMB), a panel and the Appellate Body, and then by  the arbitrator determining the reasonable period
of time to comply with the DSB's recommendations, required a considerable amount of time.  While
these complex, four-stage procedures were taking their course, the complainant had to bear theeconomic consequences of the safeguard action.  Under the DSU procedures, no compensation was
provided to the complainant for the trade damage in curred during the course of the proceedings.  He
noted that the International Court of Justice, under Article 41 of its Statute, had the power "to indicate,
if it considers that circumstances so require, any provisional measures which ought to be taken to
preserve the respective rights of either party".  There was no corresponding provision in the DSU.Therefore, effectively the complainant did not ha ve any procedural remedy until the end of the
implementation period.  Only then and only if the defendant did not implement the DSB's
recommendations, might the complainant request co mpensation or an authorization to suspend
concessions.  This meant that for a considerable period of time it was possible to disregard the
obligations under the ATC by simply refusing to accept the TMB recommendations, appealing thepanel report and forcing the complainant to request an arbitrator to determine the length of the
implementation period.  Under Article 6.12 of the ATC, a safeguard action might be imposed for a
period of up to three years.  In the present case, this three-year period would expire onWT/DSB/M/112
Page 6
17 March 2002;  i.e. in the next five months.  Depending on the length and results of the further
proceedings in this case, the date on which the implementation period would end under the DSU
could be close to the date on which the safeguard action had to, in any case, be removed under the
ATC.  In the best  circumstances, Pakistan's invocation of its rights under the DSU would shorten the
period of application of the safeguard action on its cotton yarn exports by a few months.
23. He said that the United States had justified its safeguard action on the basis of legal
arguments, which in Pakistan's view were irreconcilable not only with the WTO law but also with the
basic principles of justice.  By forcing Pakistan to obtain rulings on these unique claims by the TMB,
the Panel and the Appellate Body, the United States had succeeded in maintaining an illegal safeguard
action for almost three years.  Thus, if the US safe guard action was legal, it would have to be removed
after three years.  The case at hand raised the question of whether the DSU procedures permitted
Members exporting textiles and clothing to enforce their rights under the ATC.  Under Article 3.2 and3.3 of the DSU, the main function of the DSU was to preserve the rights and obligations of Members
under the WTO Agreement and to ensure a prompt settlement of disputes.  However, in this case, the
DSU had been used to deny a Member its rights under the ATC and to delay the settlement of a
dispute so as to provide protection to domestic producers while lengthy proceedings had taken their
course.  Thus, the procedures to enforce WTO law seemed to have been turned into a mechanism toescape law.
24. According to Article 3.2 of the DSU, a further important function of the DSU procedures was
to clarify the WTO law and to render the multilateral trading system more secure and predictable.
Even if the ruling of the Appellate Body had come too late to effectively contribute to the settlement
of the dispute, that ruling was nevertheless helpful by contributing to the clarification of the law andwould thereby help to prevent disputes from arising in the future.  It was probably this objective that
the drafters of the DSU had in mind when they ha d instructed the Appellate Body in Article 17.12 of
the DSU to "address each of the issues" raised in the appeal, thus obliging the Appellate Body to
make rulings on the issues submitted to it.  Pakistan believed that, in the case at hand, the Appellate
Body had not fully carried out its mandate under Article 17.12 of the DSU because it had failed toaddress all the issues submitted to it.
25. He noted that the United States had argued before the Appellate Body that, whenever a
national authority could legitimately conclude on the basis of the facts before it that the conditions for
taking a safeguard action under Article 6 of the ATC were met, then the action might be imposed in
accordance with Article 6 and that the only role of the panel was to examine whether the evidence
available to the authority had been properly investigated.  Pakistan had objected to this interpretation
because there were two instances in which the United States had based its safeguard actions oninformation provided by the American Yarn Spinne rs Association which had subsequently turned out
to be incorrect.
26. Pakistan's main argument was that Article 6.2 of the ATC did not state that a Member might
take safeguard action whenever it was determined on the basis of the evidence available to it that
increased imports caused serious damage or actual threat thereof.  Article 6.2 provided that suchaction might be taken "when, on the basis of a determination by a Member, it is demonstrated" that
increased imports caused serious damage or actual th reat thereof.  This wording made clear that the
determination had to be such as to demonstrate that the conditions for safeguard action were met.  A
determination that was based on demonstrably false data would not provide the required
demonstration.  Moreover, under Article 6.3 of the ATC, the determination had to be based on anexamination of changes in specified economic variables.  A determination based on an examination in
which unreliable data on those variables had been used did not meet this requirement.  Therefore, the
role of the panel was not merely to make an objective assessment of the national authority's
investigation, but to assess whether the results of that investigation were capable of demonstrating that
the conditions for imposing the safeguard action had been united.WT/DSB/M/112
Page 7
27. The United States and Pakistan had disagreed on the question of whether a Member acted
consistently with Article 6 of the ATC in maintaining a safeguard measure even if evidence that had
become available after the investigation demonstrated that the conditions for taking the safeguard
action had not been united at the time of the investigation, and whether a panel might examine that
issue.  According to the United States the answer was "no" because the panel might examine only thedue diligence of the authorities during the investig ation.  According to the Panel the answer was "yes"
because a panel had to examine not only whether the domestic authority had conducted its
investigation with due diligence but also whether the results of its investigation demonstrated that the
conditions for taking safeguard action had been united.  An investigation during which crucial and
decisive facts had been visibly not taken into a ccount could not provide such a demonstration.  This
was the central issue on which the appellant and the appellee had disagreed.  However, the Appellate
Body had declared it to be irrelevant and had ruled in paragraph 81 of its Report that "there is no needfor the purpose of this appeal to express a view on the question of whether an importing Member
would be under an obligation , flowing from the 'pervasive' general principle of good faith  that
underlies all treaties, to withdraw a safeguard measure if post-determination evidence relating to pre-
determination facts were to emerge revealing that a determination was based on such a critical factual
error that one of the conditions required by Article 6 turns out never to have been met".
28. He noted that the Appellate Body had implied that a Member who was able to demonstrate
that the conditions for taking safeguard action under Article 6 of the ATC had not been met might not
invoke Article 6 directly, but had to rely on the principle of good faith.  In Pakistan's view, this was a
regrettable ruling.  It was even more regrettable that the Appellate Body had explicitly declared the
question of whether the principle of good faith applied in this case to be an open legal issue.  ThePanel had given a clear and a well-reasoned response to this question, but the United States had
challenged the Panel's ruling.  The Appellate Body had reversed the Panel's ruling on the basis of
considerations unrelated to the issue before it.  The Appellate Body had concluded its examination by
stating that it was not necessary to rule on the issue.  In Pakistan's view the Appellate Body had an
obligation to address this issue because it was part of the issue of law raised by the United States inthe process of appeal.
29. Pakistan had one further major concern about the Appellate Body's Report.  In paragraph 119
of its Report, the Appellate Body had ruled that "Article 6.4, second sentence, does not permit the
attribution of the totality of serious damage to one Member, unless the imports from that Member
alone have caused all the serious damage."  In paragraph 124, it had further ruled that "An assessment
of the share of total serious damage, which is proportionate to the damage actually caused by imports
from a particular Member, requires, therefore, a comparison according to the factors envisaged inArticle 6.4 with all other Members (from whom imports have also increased sharply and substantially)
taken individually."  These rulings should be welcomed since they could ensure that importing
Members did not attribute to one exporting country the damage caused by another or by others and
that they conducted the comparative analysis required to avoid this situation.  However, having made
these rulings, the Appellate Body had then made a distinction between the "assessment of the share ofthe total serious damage" and the "attribution" of that share to the Members from whom imports had
increased sharply and substantially.  It concluded that while all Members from whom imports had
increased sharply and substantially had to be included in the "assessment" of the share of the total
serious damage, not all Members necessarily had to be included in the "attribution" of that share.  The
Appellate Body had justified this as follows:  "The Panel considered it necessary, in its reasoning, torule on the broader interpretative question of whether Article 6.4 requires attribution to all Members
the imports from whom cause serious damage or actual threat thereof.  The United States also appeals
the Panel's interpretation on this broader question.  However, our findings resolve the dispute as
defined by Pakistan's claim before the Panel.  We, therefore, do not rule on the issue of whether
Article 6.4 requires attribution to all Members the imports from whom cause serious damage or actual
threat thereof.  In these circumstances, the Panel's interpretation on this question is of no legal effect"
(paragraph 127 of the AB Report).WT/DSB/M/112
Page 8
30. The Appellate Body's approach called for a number of comments.  It was completely artificial
to distinguish between the "assessment" of the share of the total serious damage and the "attribution"
of that share.  The second sentence of Article 6.4 listed the criteria that were to be used to determine
the Members to whom the serious damage was "attributed".  This provision did not distinguish
between assessment of the damage and the attribution of the damage.  Therefore, the distinction madeby the Appellate Body could not be reconciled with the terms of Article 6.4.  Moreover, if the criteria
set out in the second sentence of Article 6.4 were not relevant for the attribution of serious damage,
then there would be no criteria at all.  The Appellate Body's ruling therefore implied that importing
countries, when applying their safeguard measures, might be completely free to pick and choose any
of the exporting Members that had contributed to the serious damage.
31. The question was how to reconcile this approach with the basic principles of the world trade
order.  Pakistan believed that Members should reflect on this question.  Article 1.6 of the ATCexplicitly stated that the ATC did not affect the rights and obligations of Members under the other
multilateral trade agreements "unless otherwise provid ed in this Agreement".  The interpreter had to
proceed on the assumption that the GATT rules applied unless the ATC contained a different rule.  If
the provisions of the ATC were silent on a particular point, the terms "unless otherwise provided in
this Agreement" obliged the interpreter to presum e that the drafters of the ATC intended the GATT
principles to apply.  Under the GATT, the most-favoured-nation principle applied.  Article 6.4 made
clear to what extent Members imposing safeguard actions might deviate from this principle.
However, nowhere did Article 6 state that the Member invoking this provision was entitled to freely
pick and choose the Members to whom the serious damage was attributed.
32. In Pakistan's view, the Panel had presented a clearly reasoned and balanced interpretation of
an important provision of the ATC, which would have provided greater security and predictability to
the multilateral trading system.  The Panel had endorsed Pakistan's legal claim on the basis of that
interpretation.  The Panel had not exceeded its competence by making this interpretation.  By
declaring this interpretation to have no legal effect and failing to replace it by its own interpretation,
the Appellate Body had destroyed the security and predictability that the Panel's ruling would haveachieved.  According to Article 17.13 of the DSU, th e Appellate Body had to either "uphold, modify
or reverse" the legal findings of the panel.  The duty to uphold, modify or reverse the findings of the
panel implied that the Appellate Body had the duty to replace the panel's findings with a finding of its
own.  It could not simply declare a finding that th e panel was competent to make to be "of no legal
effect".  Such a declaration would be justified only if the DSU would not permit any ruling on the
issue, for instance, because the issue had not been part of the matter referred to the DSB in accordance
with Article 7 of the DSU.
33. Pakistan was pleased that the case under consideration had ended with the recommendation
that the United States bring its safeguard measures into conformity with the ATC.  However, Pakistan
found it disturbing that the United States had been able to use the DSU procedures in this case, to
escape its obligations under the ATC simply by obliging three bodies of the WTO to consider, in
Pakistan's view, the most frivolous arguments.  Pakistan was also deeply disappointed that theAppellate Body had refused to rule on the propositi on that a safeguard measure had to be withdrawn if
it was based on a critical factual error and that Members could simply pick and choose the Members
to which they attributed serious damage.  It appeared that a neutral tribunal would not have any
difficulty in endorsing these straightforward propositions.  After the case on Turkey – Textiles
2 this
was now the second case involving the ATC in which the Appellate Body had refused to create legal
certainty on central legal points important to developing countries exporting textile and clothing
products.  Pakistan regretted that this did not enhance the confidence of developing countries in the
dispute settlement system.
                                                     
2 WT/DS34.WT/DSB/M/112
Page 9
34. The representative of the United States said that her country regretted that the Appellate Body
had affirmed the ultimate conclusion of the Panel regarding the ATC-inconsistency of the US
transitional safeguard on imports of combed cotton yarn from Pakistan.  Nevertheless, the United
States recognized that the DSB would adopt the Panel and the Appellate Body Reports at the present
meeting and it wished to respond quickly to the DSB's recommendations and rulings, just as itexpected its trading partners to respond promptly to rulings that affected them.  However, before the
adoption of the Reports, the United States wished to offer the following comments on the reasoning in
the Reports.  The United States believed that the Appellate Body in its Report had correctly found that
the Panel had exceeded its mandate under Article 11 of the DSU when it had considered evidence that
was not in existence at the time that the US auth ority had determined to establish the transitional
safeguard.  The Appellate Body had correctly reasoned that the examination by a panel of such
evidence would allow a panel to substitute its judgment for that of the competent national authority.At the same time, the United States was concerned about the Appellate Body's reasoning on
Article 6.4 of the ATC, which governed the attribution of serious damage to individual Members and
the application of the non-MFN textiles safeguard.  In making its findings on this Article, the
Appellate Body had relied on what it considered to be the principle of "proportionality," found in a
draft article on state responsibility – a principle with no textual basis in a covered agreement.  TheUnited States believed it was inappropriate for the Appellate Body to develop a new "principle" not
based in the text of the ATC to conclude that the United States inappropriately attributed the totality
of the serious damage to Pakistan.  The United States was further concerned that, while
acknowledging that the referenced draft article on state responsibility purported to apply only in the
context of countermeasures against breaches of state responsibility – a context not at issue here – theAppellate Body had relied on this provision to inte rpret the ATC.  It was important to underscore that
the draft articles on state responsibility specifically provided that they were not applicable where legal
consequences for an internationally wrongful act were determined by special rules of international
law.  Moreover, the non-MFN framework established by the ATC set forth clearly the conditions
under which a transitional safeguard measure might be taken and the nature of the relief that could beimposed.  Proportionality had no relevance when the duration, magnitude, and scope of the remedy
was prescribed in the agreement.
35. It was not clear how an importing Member w ould implement this "principle".  Under the
ATC, transitional safeguards were established on the basis of serious damage, which was caused by
increased imports.  To some extent, each exporting country contributed to the increase in total imports
and in turn to the serious damage.  However, restraints might not be established on all exporting
Members causing serious damage, but only on those meeting the criteria of Article 6.4.  Thus, thestructure of Article 6 was inconsistent with the type of apportionment that the Appellate Body
purported to require.  Moreover, because the duration and scope of the remedy that might be taken
was set forth in the ATC, it was difficult to see how a Member could tailor the safeguard based on the
damage caused by imports from a particular Member.  Finally, the United States noted that while it
had decided not to appeal the Panel's findings on actu al threat of serious damage, those findings were
nonetheless of concern.  Although these findings were not entirely clear, the United States understood
the Panel to have rejected the US actual threat analysis because it was dependent upon the US
determination of serious damage, which, according to the Panel, had rested on an ATC-inconsistent
definition of domestic industry.  However, the Panel had gone on to offer its misguided views on what
might constitute an independent actual threat analysis.  These statements were not necessary to thedisposition of this issue and, accordingly, should be viewed as obiter dicta  which have no relevance
for future transitional safeguard determinations.  It should not be forgotten that the Agreement on
Textiles and Clothing represented part of the balance of rights and obligations assumed by all
Members, and the safeguard mechanism provided by Article 6 of that agreement constituted an
integral part of that balance.  It was critical that dispute settlement findings maintain this balance.
36. The representative of the European Communities sa id that the EC welcomed the ruling of the
Appellate Body on the standard of review.  That ruling confirmed that between total deference andWT/DSB/M/112
Page 10
de novo  review panels had an active duty to verify whether investigating authorities had correctly
performed their duty under the Safeguards Agreement.  The EC also welcomed the useful reminder of
the link between the WTO Agreement and the general prin ciples of international law, in particular the
principle of proportionality.
37. The representative of Hong Kong, China said that his delegation also welcomed the Appellate
Body Report.  He recalled that the TMB had examined the unilateral action and had recommended
that the unilateral restraint placed by the United States on Pakistan's export of category 301 product
should be rescinded.  The Appellate Body had now affirmed the Panel's finding that the US acted
inconsistently with Article 6.2 of the ATC by excluding from the scope of the domestic industry
production of combed cotton yarn by vertically integrated producers for their internal use.
Accordingly, Hong Kong, China supported Pakistan's  statement and urged the United States to bring
its measure into conformity with its obligations under the ATC without delay by prompt removal ofthe import restrictions.
38. The representative of Mexico said that his country had an ongoing interest in this matter and
wished that its interest be taken into account.
39. The representative of India said that his country had participated in this dispute as a third
party.  India was pleased to note that both the Pa nel and the Appellate Body had rejected the argument
made by the United States that the production of the vertically integrated producers was not part of the
domestic industry as defined in Article 6.2 of the AT C.  In the Appellate Body's view the definition of
the domestic industry "had to be product-oriented and not producer-oriented" and expressions "like"
and "directly competitive" were characteristics of the products (paragraphs 86, 95 and 96 of the AB
Report).  His country agreed with this.  India also welcomed the final findings of the Panel and theAppellate Body that the United States had acted inconsistently with its obligations under Article 6.4
of the ATC by not examining the exports from Mexico and possibly other appropriate Members
individually when attributing serious damage to exports from Pakistan.  India noted the Appellate
Body's efforts to interpret Article 6.4 of the ATC (attribution of serious damage to the imports from
Members individually) in the light of the rule of general international law on state responsibilityvis-à-vis  the principle of proportionality (paragraphs 120 and 122 of the AB Report).  However, India
agreed with the Panel’s conclusion in paragraph 7.126 of its Report that:  "The attribution cannot be
made only to some of the Members causing damage, it must be made to all such Members" whose
exports were causing serious damage.  Otherwise a Member imposing a safeguard restraint could pick
and choose to make attribution analysis.  This would be "the least consistent with an MFN approach
and, therefore, would be the least conducive to the progressive integration of the (textiles and
clothing) sector into the WTO system" (paragraph 7.128).  This conclusion of the Panel was based onthe text, object and purpose of the ATC and the context of WTO covered agreements
(paragraphs 7.126 – 7.131 and footnote 319 in the Panel Report).  With regard to the standard of
review, India noted that the Appellate Body had posed the issue very narrowly (paragraph 67 read
together with footnotes 39 and 51) and had answered that a panel had to "put itself in the place of that
Member" taking safeguard action and "must not consider evidence which did not exist" at the time ofdetermination (paragraph 78 of the AB Report).  Thus, the Appellate Body's ruling would not allow
panels to do anything except to uphold Member’s determination even if, in the language of AB
(paragraph 81), "a critical factual error that one of the conditions required by Article 6 turns out never
to have been met".  This was in contrast with Panel’s ruling (paragraphs 7.33 – 7.35), which was more
convincing than the Appellate Body's reasoning.
40. The representative of Japan said that his country noted that the Appellate Body Report in this
particular case contained many significant points.  In particular, the Report had extensively dealt with
the interpretation of "directly competitive", definition of the "domestic industry", the treatment of
captive production and the non-attribution principle.  The United States had attempted to justify the
exclusion of captive market segment from its injury determination analysis by misusing the reasoningWT/DSB/M/112
Page 11
of the Appellate Body in the case on United States – Lead and Bismuth II.3  However, the Appellate
Body had correctly rejected such an attempt and ruled that the domestic industry that produced both
actual and potentially "competitive" products had to be assessed as a whole for the injury
determination.  Furthermore, the Appellate Body had found that attributing serious damage to an
exporting Member, in excess of its actual damage caused by the imports from that Member, wouldamount to misattribution of damage and would be inconsistent with Article 6.4 of the ATC. Having
recognized that, the Appellate Body had ruled that the United States had acted inconsistently with
Article 6.4 of the ATC by not examining the effects of imports from Mexico.  Japan fully endorsed
the Appellate Body's view that, when determining serious damage or actual threat thereof, the
Member investigating the injury must ensure non-attribution by conducting the examination of the
products Member by Member, thereby preventing punitive application of the safeguard action.
41. The DSB took note of the statements and adopted
 the Appellate Body Report in
WT/DS192/AB/R and the Panel Repo rt in WT/DS192/R, as modified by the Appellate Body Report.
5. Proposed nominations for the indicative list of governmental and non-governmental
panelists
42. The Chairman drew attention to document WT/DSB/W/174 which contained additional
names proposed for inclusion on the indicative list in accordance with Article 8.4 of the DSU. He
proposed that the DSB approve the names contained in document WT/DSB/W/174.
43. The DSB so agreed.
__________
                                                     
3 WT/DS138.