WT/DS177/R
WT/DS178/R
Page A-238
ANNEX 2-9
SECOND SUBMISSION OF NEW ZEALAND
(29 June 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ............................................................................................................. 239
II. UNFORESEEN DE VELOPMEN TS................................................................................ 240
III. DOMESTIC INDUSTRY.................................................................................................. 246
IV. THREAT OF SE RIOUS INJURY ................................................................................... 249
V. CAUSAT ION .................................................................................................................... . 254
VI. NECE SSITY................................................................................................................... .... 260
VII. MFN ........................................................................................................................ ............ 263
VIII. CONCLUSION ................................................................................................................ .. 264
ANNEXES
NZ14. Testimony of Kirk Halpern, transcript of injury hearing, p 276.
NZ15. Testimony of John Cassidy, transcript of injury hearing, pp 223-225; Testimony of Brian
Comfort, transcript of injury hearing, pp 215, 236.
NZ16. Testimony of Daniel Sumner, tran script of remedy hearing, pp 177-178.
NZ17. Commissioner Crawford, transc ript of remedy hearing, p 200.
NZ18. Testimony of Daniel Sumner, tr anscript of remedy hearing, p 214.
NZ19. “USDA - Glickman announces $4 million to promote US Lamb”, Reuters presswire,
12/05/2000; “USDA to buy $15 million lamb”, Dow Jones Commodities Service, 14/02/2000;USDA, “Domestic Lamb Industry Adjustment Assistance”, December 1999.
NZ20. Ambassador Barshefsky, United States Trade Representative, transcript of House Agriculture
Committee Meeting, 23 June 1999.WT/DS177/R
WT/DS178/R
Page A-239
I. INTRODUCTION
1.1 In its written and oral pleadings in this case, New Zealand has established how the
United States actions in imposing safeguard measures on imports of lamb meat do not conform with
the United States obligations under the Safeguar ds Agreement and the GATT 1994: no unforeseen
developments that resulted in increased imports have been demonstrated; the domestic industryallegedly threatened with serious injury has been improperly identified; there has been a failure to
demonstrate that any threat of serious injury was caused by increased imports; the measure imposed
cannot be demonstrated to have been applied only to the extent necessary to prevent serious injury or
to facilitate adjustment; and the measure has not been applied to all imports irrespective of source.
1.2 The United States response in its First Written Submission and in its Oral Statement before
the Panel, has sought to refashion the report of the USITC in attempt to demonstrate that it complieswith the United States WTO obligations.  However, a careful comparison of what the USITC said
with what the United States now claims it said, show s that the United States description of the USITC
report does not withstand analysis.  The United States ascribes to the USITC conclusions that it did
not make and draws together a range of disparate comments made by the USITC, and then claims that
they collectively represent a conclusion of the USITC.  In this way, the United States seeks toreconstruct the USITC report, by suggesting that it draws conclusions that are not made and omits
statements that are.  This attempt by the United States to disregard the actual report prepared by the
USITC in favour of a new report prepared by the United States in an effort to defend the claims made
against it in this case cannot be entertained.  The Safeguards Agreement requires that the investigating
authority “evaluate” and “demonstrate” and provide reasoned conclusions and analysis.  Suchobligations are not met by subsequent attempts by the United States to show what the USITC should
have said.
1.3 The United States also seeks to have the Panel give it broad latitude in its interpretation of its
obligations under the Safeguards Agreement.  In its Oral Statement to the Panel at the First Hearing,the United States argued that the ability of Members to take safeguards measures should not be
unduly limited.
1   In its responses to questions from the Panel, the United States argues that the Panel
should not interpret safeguards obligations “narrowly” or “strictly”.2   Clearly, the United States has in
mind that its ability to take safeguards measures should not be subject to close scrutiny.
1.4 In it its First Written Submission, New Zealand pointed out that safeguards actions are
exceptional measures and, as the Appellate Body stated in Argentina – Safeguard Measures on
Imports of Footwear , “when construing the prerequisites for taking such actions, their extraordinary
nature must be taken into account."3   This approach does not depend on any characterisation of the
safeguards provisions of the WTO agreements as exceptions.  It is a recognition that Members must
observe their obligations carefully when taking measures that involve a temporary suspension of
treaty obligations that deprives other Members of negotiated benefits.  In short, there is no basis forthe latitude in interpretation that the United States claims in this case.  Rather, the Safeguards
Agreement should be interpreted according to the ordi nary meaning of its words in their context, and
that interpretation should not be stretched to accommodate the way in which it has been interpreted
domestically by one Member.
1.5 In this Second Written Submission, New Zealand will reaffirm the arguments that it has made
in its earlier written and oral submissions, showing that the United States attempts at refuting
New Zealand’s arguments are ill-founded. New Zealand will show that the USITC did not
demonstrate the existence of unforeseen developments.  It will also show that the United States
                                                     
1 United States Oral Statement at the First Panel Hearing, para 3.
2 United States Responses to Questions by the Panel, paras 119 and 120.
3 WT/DS121/AB/R, 14 December 1999, para 94.  See paras 7.16 and 7.18 of New Zealand’s First
Written Submission.WT/DS177/R
WT/DS178/R
Page A-240
definition of the “domestic industry” allegedly threatened by serious injury has no basis in WTO law.
New Zealand will demonstrate that the USITC made a determination that its domestic industry was
threatened with serious injury on the basis of noth ing more than a supposition that if imports increase
the domestic industry will suffer, and not on the basis of reasoned objective analysis.  Furthermore,
the United States did not demonstrate that any threat of serious injury to its domestic industry was
caused by imports and it attributed injury caused by other factors to increased imports.  Finally, theUnited States failed to apply a remedy only to the extent necessary to prevent serious injury and
facilitate adjustment, and did not apply the remedy to all of the imports which allegedly contributed to
the threat of serious injury facing its domestic industry.
II. UNFORESEEN DEVELOPMENTS
2.1 In its First Written Submission, New Zeala nd pointed out that the USITC had failed to
identify any “unforeseen developments”, within the meaning of GATT Article XIX, to which the
safeguard measures imposed by the United States responded.
4   Moreover, as New Zealand made
clear, there were no such unforeseen developments, since the decline in the United States lamb
industry was well-known, foreseen and foreseeable.5   In its First Written Submission, the
United States sought to remedy this defect in the USITC Report by referring to “significant,unexpected changes” which it perceived to be increases in imports and particularly increases in
chilled product.
6   However, as New Zealand argued in its Oral Statement at the First Panel Hearing,
such increases do not constitute “unforeseen developments” within the meaning of GATT Article XIX
on which the United States can rely in this case.7   Furthermore, it is up to the USITC at the time of its
investigation, not the United States ex post facto , to demonstrate the existence of unforeseen
developments.
2.2 GATT Article XIX.1(a) provides in relevant part,
“If as a result of unforeseen developments and of the effect of  the obligations
incurred by a contracting party under this Agreement, including tariff concessions,
any product is being imported into the territory of that contracting party in such
increased quantities and under such conditions as to cause or threaten serious
injury….”
In Argentina – Footwear  the Appellate Body said that although by referring to “unforeseen
developments” the opening clause of Article XIX.1(a) did not establish independent conditions for the
application of a safeguard measure, it did describe “certain circumstances  which must be
demonstrated as a matter of fact in order for a safeguard measure to be applied consistently with the
provisions of Article XIX of the GATT 1994."8
2.3 In articulating the test in this way, the Appellate Body made clear that although the existence
of “unforeseen developments” was not a “condition” in the sense of the provisions of Article 2.1 ofthe Safeguards Agreement relating to increased imports, causation and serious injury, it was,
nevertheless, something that had to be demonstrated.  The Appellate Body did not say that
“unforeseen developments” have simply to exist; it said that they have to be “demonstrated”.
Moreover, the Appellate Body also indicated that it was for the competent authorities to make such a
demonstration.  It pointed out in Argentina – Footwear  that since it had reached a decision on other
grounds that there was no legal basis for the safeguard measure imposed by Argentina, “we do not
believe that it is necessary to complete the analysis … by ruling on whether the Argentine authorities
                                                     
4 New Zealand’s First Written Submission, para 7.31.
5 New Zealand’s First Written Submission, paras 7.33 to 7.35.
6 United States First Written Submission, paras 49 and 59.
7 New Zealand’s Oral Statement at the First Panel Hearing, paras 20 to 25.
8 Argentina - Footwear, para 92.WT/DS177/R
WT/DS178/R
Page A-241
have,  in their investigation , demonstrated that the increased imports in this case occurred ‘as a result
of unforeseen developments…’."9   The issue was whether the Argentine authorities conducting the
investigation had demonstrated the existence of unforeseen developments; it was not whether the
Argentine government acting ex post facto  in the course of WTO proceedings had been able to do so.
2.4 That the competent authorities themselves must demonstrate the existence of “unforeseen
developments” also follows from Article 3.1 of the Safeguards Agreement.  The demonstration of the
existence of “unforeseen developments” clearly falls into the category of “all pertinent issues of fact
and law” on which Article 3.1 requires the competent authority to report.
2.5 In its response to the Panel’s questions, the United States seeks to bolster its view that the
competent authorities do not have to find the existence of unforeseen developments in the course of
their investigation, by arguing that there is nothing in Articles 2, 3 and 4 of the Safeguards Agreementthat furnishes a standard on the basis of which the competent authorities could decide whether
negotiators could have foreseen later developments.
10   Competent authorities, the United States
claims, would accordingly have to make additional inquiries into whether unforeseen developments
existed and whether they were foreseen.11
2.6 However, such a suggestion is a thinly disguised reiteration of the argument, rejected inArgentina - Footwear , that the Safeguards Agreement does not impose an obligation on Members to
find the existence of unforeseen developments.  That obligation is found in GATT Article XIX, not
the Safeguards Agreement, and so it is not surprising that no articulation of the standards for its
application are found in Articles 2, 3 or 4 of the Safeguards Agreement.  Moreover, WTO Membershave an obligation to carry out the terms of the WT O agreements, and not just to comply with those
obligations only in those circumstances where specif ic standards are found in the agreements for their
application.
2.7 Furthermore, the distinction between a legal condition and a factual circumstance on which
the United States places so much emphasis does not carry with it the consequence that the
United States implies.  While there is obviously a difference between a legal condition which has to
be fulfilled and a factual circumstance whose existence has to be demonstrated, in both instances they
constitute a legal requirement that has to met.  Failure to meet a legal requirement for the application
of a safeguard measure means that the measure cannot be applied.
2.8 In its First Written Submission, the United States appears to suggest that a demonstration of
“unforeseen developments” can be implied from the USITC’s Report.
12   It bases its argument on
things that were said in a range of disparate contexts and seeks to put them together as an implicit
demonstration of the existence of “unforeseen developments.”  The USITC discussed changes in
conditions of competition when discussing causation;13   it discussed changing market conditions
when discussing remedy;14   and it discussed increases in chilled product when considering whether
imported and domestic lamb meat were like products.15   These references are apparently meant to
show that the USITC was inferentially demonstrating that “unforeseen developments” were resulting
in increased imports.  But this inference is simply manufactured out of thin air.  It bears no
relationship to what the USITC actually said in its Report.
                                                     
9 Argentina - Footwear , para 98 (emphasis added).
10 United States Responses to Questions by the Panel, para 14.
11 United States Responses to Questions by the Panel, footnote 11.
12 United States First Written Submission, paras 49 to 60.
13 USITC Report, I-22.
14 USITC Report, I-30.
15 USITC Report, I-11.WT/DS177/R
WT/DS178/R
Page A-242
2.9 Even if it were possible at this late stage for the United States to remedy a defect in the
USITC Report, it has not done so in its First Written Submission or in its Oral Submission to the
Panel.  In large measure, the United States argument is that there was an increase in imports.  But the
requirement of “increased imports” is a condition of the application of a safeguard measure set out in
Article 2.1 of the Safeguards Agreement that is separate from the circumstance of “unforeseen
developments”.  That is the precise point of the decision of the Appellate Body in Argentina –
Footwear  which established that unforeseen developments constituted a circumstance that must be
demonstrated.16   It is not sufficient simply to show that the conditions of Article 2.1 of the Safeguards
Agreement have been met.  It must also be demonstrated  that the increased imports occurred as a
result of unforeseen developments.  That is the very question that the Appellate Body said in
Argentina - Footwear  it did not have to address because it had decided on other grounds.  If those
other grounds had not been present, the Appellate Body would have had to address the question of
whether the Argentine competent authorities had demonstrated that increased imports had resultedfrom unforeseen developments.
2.10 Nor can the other implicit argument of the United States withstand analysis.  In its First
Written Submission, the United States implies that it was not just the increase in imports that
constituted an “unforeseen development”, it was the change in product mix from frozen to chilled thatconstituted a change in conditions of competition or market conditions that was unforeseen.
17   But
this argument suffers from the same defects as the one considered above.  It stems from a misreading
of Article XIX.1(a) of the GATT 1994.  That provision makes clear that any increase in imports and
any change in the conditions under which they are imported must be as a result of “unforeseen
developments”.  It is necessary to show that increased imports and the conditions of import are a
result of something unexpected.
2.11 To allow the import increase or any change in the conditions of import to be “unforeseen
developments” would be to accept that increased imports and the conditions under which they are
imported must occur as a result of increased imports and the conditions under which they areimported.  This is tantamount to saying that they must “result” from themselves.  Such an approach
would render meaningless the requirement that the existence of unforeseen developments be
demonstrated.  It would be to read out of the law precisely what the Appellate Body confirmed in
Argentina – Footwear  was part of the law.
2.12 In its responses to the questions posed by the Panel, the United States tried to characterise
New Zealand’s position as an argument that the term “as a result of” in Article XIX of the GATT
1994 means the same as the term “to cause” in that Article and in Article 2.1 of the Safeguards
Agreement.
18   New Zealand makes no such argument.  Ra ther, New Zealand argues that in order to
comply with the requirement that unforeseen developments be demonstrated, the United States must
indicate some developments that were unforeseen that led to products being imported in such
increased quantities and under such conditions as to cause or threaten to cause serious injury.  As the
United States itself appears to recognise, the “outcome” of increased imports under such conditions as
to cause or threaten to cause serious injury must “generally follow” from certain unforeseen
developments.19   But it need not be caused by them.  In short, the United States characterisation of the
New Zealand position as imposing a double causation test is incorrect.
                                                     
16 Argentina - Footwear, para 92.
17 United States First Written Submission, paras 50 to 59.
18 United States Responses to Questions by the Panel, para 5.
19 In its responses to the Panel the United States says , “the expression ‘If, as a result of’ suggests that
the framers of Article XIX were seekin g to characterize a situation in which a particular outcome (‘a result’) has
followed generally from earlier occurrences.”:  United States Responses to Questions by the Panel, para 3.WT/DS177/R
WT/DS178/R
Page A-243
2.13 As the Appellate Body affirmed in Argentina – Footwear , the classic interpretation of the
term “unforeseen developments” remains that laid down by the GATT Working Party in the Hatters
Fur case:
“developments occurring after the negotiation of the relevant tariff concession which
it would not be reasonable to expect that the negotiators of the country making theconcession could and should have foreseen at the time when the concession was
negotiated."
20  
In that case, it was the “degree to which the change  in fashion affected the competitive situation” that
constituted the unforeseen development.21
2.14 In its response to questions from the Panel, the United States has attempted to minimise the
significance of the Hatters’ Fur  test to the point of non-existence.22   The essence of the United States
position is that if imports increase that is sufficie nt of itself to constitute an unforeseen development.
Indeed, the United States goes as far as saying that there is a presumption that subsequent increases in
imports were not foreseen.23   The United States says: “Because Members cannot be presumed
intentionally to place their industries in jeopardy through the grant of tariff concessions, it must be
presumed that later developments which imperil their producers are of a kind that were ‘unforeseen’when the concessions were negotiated."
24   Moreover, from the Exhibits attached to the United States
responses to the Panel’s questions, it is apparent that this is a long-held position of the United States.25  
The United States itself quotes from the remarks of the Chairman of the Tariff Commission in
testimony to the Senate Finance Committee in June  1948 that when imports enter in such increased
quantities and under such conditions as to cause or  threaten to cause serious injury, the situation
“must, in the light of the objective of the trade agreements program and of the escape clause itself, be
regarded as the result of unforeseen developments."26
2.15 Notwithstanding the United States claim to parentage of the escape clause, the United States
arguments demonstrate both the unreliability of relying on the negotiating history of one party as wellas the United States determination to remove any content from the concept of unforeseen
developments.  Its arguments in this case come to li ttle more than an attempt to read any requirement
of demonstrating the existence of “unforeseen developments” out of its safeguards obligations.
2.16 GATT Article XIX  requires that there must have been something that was unexpected or
unforeseen that triggered an increase in imports in such quantities and under such conditions as to
cause or threaten to cause serious injury.  The United States must show that something unexpected or
unforeseen occurred.  It has not done this.  Indee d, as New Zealand has pointed out, the developments
that resulted in increased imports were the direct result of actions taken by the United States
government, and thus could not have been unforeseen.  As a result, the United States has fallen back
on trying to show that the developments that were unforeseen were the increased imports themselves.
However, as New Zealand has pointed out, that approach, too, voids the requirement of unforeseendevelopments of any content.
                                                     
20 Report of the Intersessional Working Party on the Complaint of Czechoslovakia Concerning the
Withdrawal by the United States of a Tariff Concession under the Terms of Article XIX (“Hatters’ Fur”)GATT/CP/106, adopted 22 October 1951, para 9.  See Argentina - Footwear, para 96.
21 Hatters’ Fur, para 12.
22 United States Responses to Questions by the Panel, paras 23 to 25.
23 United States Responses to Questions by the Panel, para 26.
24 United States Responses to Questions by the Panel, para 8.
25 See in particular United States Exhibit 25, attached to its Responses to Questions by the Panel.
26 United States Response to Questions by the Panel, para 21.WT/DS177/R
WT/DS178/R
Page A-244
2.17 Nor is the United States argument that the unforeseen developments were increased imports
made any more plausible when it is couched in terms of a change in the conditions of competition.
The United States argues that there was an “abrupt reversal” in the pattern of competition after 199527,
which was “sudden” and “unexpected”28,  and that this constituted an “unforeseen development”
within the meaning of Article XIX of the GATT 1994.29   The United States bases its reasoning on the
alleged view of the USITC that the imported and domestic product became more similar and thereforemore directly competitive from 1995, as a result of the change in the product mix from frozen to fresh
and chilled product, and an increase in the size of the imported product.
2.18 However, the record of evidence in the USITC report does not support this allegation. The
USITC attempted to examine the conditions of competition between imported and domestic product
by comparing the sales of eight different product cuts.
30   Of the eight cuts chosen, three could not be
compared because there were insufficient sales of either the domestic or imported product, and in twocases (both frozen product) there were few domestic sales.  There were sufficient domestic and
imported sales of only three products, two of which were considered to be domestic products and one
an imported product.  Based on the evidence before it
31,  the USITC did not find much overlap, and
therefore not much direct competition, between those imported and domestic lamb meat cuts.
Furthermore, responses to questions put to importers on what significant changes in lamb meat cutshad occurred over the last five years identified an increase in the types of imported products which the
domestic industry did not produce.
32   This is consistent with the USITC’s finding of “evidence of
differences  between products from different sources”33,  rather than of direct competition.
2.19 Similarly the claim by the United States of more direct competition through the larger size of
the imported product does not stand up to scrutiny.  The USITC found that the average carcass weight
of the United States product was 67 pounds, compared to 35 pounds for New Zealand slaughter
lambs.34   The USITC also found that New Zealand racks of lamb were commonly in the 14 to 16
ounce range.35   The United States racks are in the 24 to 28 ounce range.36   The only real evidence
before the USITC concerning an increase in the size of the imported product is evidence that theaverage carcass weight of Australian product increased from 40 pounds in 1993 to 42 pounds in 1996
and 1997.
37   This is hardly a sufficient basis on which to conclude that the imported product has
become more comparable in size to the domestic product.  Indeed the United States now appears to
acknowledge this in its responses to questions of the Panel, where there is no mention made of the
larger size of the imported product.38
2.20 Nor is there any hard evidence that a change in the product mix from frozen to fresh andchilled made the imported product more directly competitive with the domestic product.  The USITC
found that domestic and imported lamb meat have the same uses, citing evidence that fresh, chilled
and frozen lamb meat are used in the same way.
39   If that is the case, a shift in the product mix can
have had no impact on the degree to which the products compete in the marketplace.
                                                     
27 United States First Written Submission, para 54.
28 United States First Written Submission, para 56.
29 United States First Written Submission, para 60.
30 USITC Report, II-74 to II-76.
31 Testimony of Kirk Halpern, injury hearing, attached as Annex NZ-14.
32 USITC Report, II-65.
33 USITC Report, I-23 (emphasis added).
34 USITC Report, II-8.
35 USITC Report, II-75.
36 USITC Report, II-74.
37 USITC Report, II-37.
38 United States Responses to Questions by the Panel, paras 9 to 13.
39 USITC Report, I-11.WT/DS177/R
WT/DS178/R
Page A-245
2.21 Even if that were not the case, it is clear that much of the increase in the fresh and chilled
product did not compete with the domestic product.  The USITC found that many imports supplied
new demand.40   Since 1994 New Zealand fresh and chilled lamb meat has been supplied to a major
American restaurant chain and to warehouse clubs which preferred the small size, taste, leanness and
consistency of New Zealand lamb.  These firms had not purchased lamb meat before 1994.  Most of
the growth in fresh and chilled imports has been du e to the natural growth in the number of outlets of
those American purchasers.41   The fresh and chilled imported lamb meat supplying this new demand
is therefore not in direct competition with the domestic product.  Imported product cannot therefore be
“displacing domestic product” as alleged by the United States.42
2.22 Furthermore, the increase in fresh and chilled product cannot have been an “unforeseen”
development within the meaning of Article XIX:1(a)  of the GATT 1994.  Fresh and chilled lamb meat
has been imported from New Zealand since 1986.43   Fresh and chilled product represented 31 per cent
of all lamb meat imports in 1990.44   In 1997 the majority of total lamb meat imports was still frozen.45  
Fresh and chilled lamb meat imports from New Zealand comprised only 30 per cent of New Zealand
total lamb meat imports in 1997.46   Given the higher prices of fresh and chilled product, and therefore
the likely higher returns to exporters from that type of product, it would have been both expected and
foreseen in 1995 that fresh and chilled product would increase.   Indeed the USITC in its 1995 reportreferred to the lifting of the restrictions on imports of New Zealand chilled lamb meat entering the
European Community market by 1 July 1995 in the context of identifying the allowance for “high-
value chilled sheepmeat” within total New Zealand imports.
47   Clearly, therefore, the likelihood of an
increase in high-value chilled lamb imports into the United States would have been expected and
foreseen at the beginning of 1995.
2.23 The United States has accordingly failed to show that the imported and domestic product
competed more directly since 1 January 1995, when the United States incurred obligations under
GATT 1994.  Even if this had been shown, the United States has failed to demonstrate that this would
have constituted an “unforeseen development” within the meaning of Article XIX.1(a) of the GATT1994.
2.24 Thus, even if it were possible to do so ex post facto the United States has failed to discharge
the burden of demonstrating the existence of  “unforeseen developments”.  New Zealand has shown in
its First Written Submission
48  and Oral Statement at the First Panel Hearing49  that the increase in
imports in this case resulted from a decline in domestic production, which in turn was a consequence
in large part of the removal of the subsidy paid to producers under the Wool Act.  Such a consequence
was clearly foreseeable.  The United States has not even attempted to rebut this.  It has not sought to
demonstrate that the decline in domestic production was unforeseen or unforeseeable, nor could it do
so, as that decline was the consequence of the United States own actions.  The resulting decline in
domestic production drew imports into the market in order to meet demand that was not being filled.
                                                     
40 USITC Report, I-32.
41 Testimony of John Cassidy and Brian Comfort, injury hearing, attached as Annex NZ-15.
42  United States Responses to Questions by the Panel, para 12.  The United States claim, at para 12 of
its responses to questions of the Panel, that New Ze aland conceded that imports displaced lamb meat is
incorrect.  New Zealand made no such concession.
43 USITC Report, II-20.
44 U S I T C ,  L a m b  M e a t :  Competitive Conditions Affecting the US and Foreign Lamb Industries  ,
Inv. No. 332-357, August 1995, USITC Publication No 2915, Table 2-14, attached as Exhibit 10 to theUnited States First Written Submission.
45 USITC Report, II-43.
46 USITC Report, II-43.
47 U S I T C ,  L a m b  M e a t :  Competitive Conditions Affecting the US and Foreign Lamb Industries ,
Inv. No. 332-357, August 1995, USITC Publication No 2915, page 4-20.
48 New Zealand’s First Written Submission, paras 7.33 to 7.35.
49 New Zealand’s Oral Statement at the First Panel Hearing, para 21.WT/DS177/R
WT/DS178/R
Page A-246
As New Zealand has pointed out, this case involves an attempt by the United States to pass on to
imports by means of a safeguard measure burdens that result from its own actions within its domestic
market.
III. DOMESTIC INDUSTRY
3.1 In its First Written Submission, New Zealand pointed out that the USITC had determined
what constituted the domestic industry allegedly threatened with serious injury on the basis of a test
that finds no justification in the Safeguards Agreement.50   Rather than determining the domestic
industry by looking at the producers of “like or di rectly competitive products”, the USITC sought to
expand the category of producers to those who did not produce “like or directly competitive
products.”  The United States claims that this appr oach is consistent with the Safeguards Agreement
on the basis that the term “producers as a whole” in Article 4.1(c) of the Safeguards Agreementshould be interpreted to include “producers” who are part of a “continuous line of production” from
the raw to the processed product, and where there is a “substantial coincidence of economic interest”
between the producer of the raw product and the producer of the processed product.
51   However, such
an approach ignores the context in which the words “as a whole” are used in Article 4.1(c) and has no
basis in the Safeguards Agreement or in the GATT 1994.
3.2 In its First Written Submission, the United States does not argue that live lambs are “like or
directly competitive” with lamb meat.  It simply says that the issue is “inapposite”.52   Rather, it seeks
to sustain the position taken by the USITC on the ground that there is an integral relationship between
the producers of live lambs and the producers of lamb meat.  In this case, the United States asserts,there is extensive integration between firms at di fferent stages in a continuous line of production.
Such “vertical integration” justifies, in the United States view, the inclusion of those who do not
produce like or directly competitive products within the domestic industry for the purposes of the
USITC’s investigation.  In seeking to support this argument, the United States relies on a case that is
not relevant, and seeks to distinguish, or to simply ignore, cases that are directly on point.
53
3.3 The GATT panel decision in New Zealand – Imports of Electrical Transformers from
Finland54,  on which the United States relies, simply has no relevance to this case.  There, the panel
rejected the idea that distinctions could be made between different producers of the same product.
That is not the question here.  It is whether producers of different products – products that are not likeor directly competitive – can be included within the definition of domestic industry.  The case would
be relevant if the argument was made that producers of certain kinds of lamb meat ought to have been
excluded from the definition of domestic industry.  But that is not New Zealand’s contention.
3.4 Equally, the United States attempt to distinguish the  cases of Canada - Imposition of
Countervailing Duties on Imports of Manufacturing Beef from the EEC
55  and Panel on United States
Definition of Industry Concerning Wine and Grape Products56  is unconvincing.  The fact that the
panel decision in Canada -Manufacturing Beef  was never adopted is irrelevant.  New Zealand did not
cite the case as binding authority.  It cited it to show a consistent pattern of reasoning under which the
idea that a like or directly competitive product determination should be made on the basis of some
                                                     
50 New Zealand’s First Written Submission, paras 7.40 and 7.41.
51 United States First Written Submission, paras 62, 63 and 68.  In responding to questions by the Panel
on this point, the United States cited three different dictionaries as support for its alleged “ordinary meaning” ofthe three words “product”, “production”, and “output”: United States Responses to Questions by the Panel,para 30.  This illustrates that the “ordinary meaning” of those words is constructed by the United States for thepurposes of interpretation of Article 4.1(c).
52 United States First Written Submission, para 61.
53 United States First Written Submission, paras 71 to 76.
54 BISD 32S/55, adopted on 18 July 1985.
55 SCM/85, 13 October 1987.
56 Adopted by SCM Committee on 28 April 1992, SCM/71, BISD 39S/436.WT/DS177/R
WT/DS178/R
Page A-247
notion of the vertical integration of an industry was consistently rejected by GATT panels.  That
pattern of reasoning is illustrated as well in Canada – Import Restrictions on Ice Cream and
Yoghurt57,  a decision that the United States conveniently ignores.
3.5 In United States - Wine and Grape Products  the panel recognised that the processing of
primary agricultural products is often a separately identifiable economic process, irrespective ofownership, so that it is in fact an industry that is  separate from the industry that is engaged in the
production of those primary products.
58   The panel also said that economic interdependence between
such separate industries is irrelevant to the definition of the industry.59   In Canada – Manufacturing
Beef the panel stated that the only case in which common ownership will affect the definition of
industry is where it results in such complete integration of production processes that it is impossible to
analyse each process separately.60   As the USITC itself recognised, that type of integration occurs in
this case only between grower and feeder operations and between packers and breakers.61   There is
accordingly no support in WTO or GATT jurisprudence for the approach taken by the United States
in determining the domestic industry in this case.
3.6 In any event, even if it had some basis in law, the United States “vertical integration” theory
fails on the facts of this case.  In the United States, the vertical integration that occurs within sectors,that is between growers and feeders, the producers of live lambs, and between packers and breakers,
the producers of lamb meat, does not occur in the same way across those sectors.  Only one firm,
Transhumance, a firm that actively opposed the petition to the USITC, operates across both live lamb
and lamb meat sectors.  But, even in the case of Transhumance separate business operations could be
identified and treated as separate industries for the purposes of investigating serious injury or threat.
Thus, the reality of “vertical integration” actually supports New Zealand’s contention on the
appropriate domestic industry, not that of the United States.
3.7 Moreover, the United States “continuous line of production” theory characterises live lambs
as no more than a raw input in a production process.  But that is completely misleading.  Live lambsare a distinct product.  They are sold for breeding stock.  They are a source of wool.
62   They are not
just inputs into the production of lamb meat.  The claim by the representatives of the United States in
the oral hearing that the United States has no export trade in live lambs does not alter the fact that live
lambs constitute a separate and distinct product from lamb meat.
3.8 Apart from its incompatibility with the reality of the live lamb and lamb meat industries, and
with the actual wording of Article 4.1(c) of the Safeguards Agreement, the United States argument
that the producers of inputs into products should be treated as part of the domestic industry for a
determination under the Safeguards Agreement also has important systemic implications.  It opens the
possibility that the producers of all inputs, no matter how  insignificant, could be considered part of the
domestic industry.  Such an approach would render safeguard disciplines meaningless.
3.9 In its responses to questions from the Panel, the United States has sought to minimise the
consequences of its arguments by saying that the USITC includes producers of a raw input in the class
                                                     
57 Adopted on 5 December 1989, BISD 36S/68.
58 United States - Wine and Grape Products, paras 4.3 and 4.5.
59 United States - Wine and Grape Products, para 4.5.
60 Canada - Manufacturing Beef, para 5.14.
61 USITC Report, II-29 and II-33.  In answer to a question from the Panel during the hearing on
26 May 2000 as to whether the United States industry is so highly integrated that the segments cannot beseparated, the United States replied only that as most lamb is produced for meat, there is a tendency for all
segments to rise and fall together.  This does not amount to an inability to differentiate between industries.
62 The USITC itself recognised that the removal of the Wool Act subsidy had a significant impact on
producers of live lambs, illustrating that the production of wool is also an important use of live lambs: USITCReport, I-30.WT/DS177/R
WT/DS178/R
Page A-248
of producers of the final processed product only in the case of agricultural products.63   In other words,
the United States is claiming that there are two definitions of producers of like or directly competitive
products applied in United States safeguards practice.  One applies to agricultural products and the
other applies to manufactured products.  But a justification for such a distinction cannot be found in
either the Safeguards Agreement or the GATT 1994.  The only distinction made between agricultural
products and other products for the purposes of safeguard measures in the WTO system is found inArticle 5 of the Agreement on Agriculture, which provides a special safeguard measure for certain
agricultural products.  The negotiators of the Safeguards Agreement were well aware of the option of
distinguishing between agricultural and other products if they wished to do so.  They did not do so for
the purposes of defining the domestic industry under Article 4.1(c) of the Safeguards Agreement.
Thus, this new United States position does nothing more than highlight the extent to which its
safeguards practice deviates from its obligations under the WTO agreements.
3.10 The concept of “the domestic industry that produces like or directly competitive products” in
Article 2.1 of the Safeguards Agreement was intended to have a limiting effect.  Indeed, Article 2.1
provides the primary reference to domestic industry, and defines it clearly by the qualification that it
is the industry “that produces like or directly competitive products”.  The primacy of Article 2.1 in
this respect is made clear by Article 4.1(c) which explains in its first clause that a domestic industry isto be understood as the “the producers as a whole of the like or directly competitive products …”.
The definite Article “the” can refer only to like or directly competitive products as identified in
Article 2.1.
3.11 The wording of Article 4.1(c) also makes clear that the term “producers as a whole” is a
quantitative measure of the class of producers.  It does not serve to expand the class to those who do
not produce a like or directly competitive product, as the United States argues.  This is reinforced by
the second clause of Article 4.1(c) which refers, as an alternative to “producers as a whole”, to “those
whose collective output of the like or directly competitive products constitutes a major proportion of
the domestic production of those products.”  Both are alternative ways of ensuring that there is arepresentative class of the domestic industry and not just isolated producers within that industry that
are claiming serious injury or threat.
64   Neither phrase expands the meaning of “producer” to include
more than producers of the like or directly competitive product, as the United States seeks to do.
3.12 In short, the problem with the United States approach to the determination of the domestic
industry in the present case is that it simply does not do what the Safeguards Agreement requires, that
is, to determine who constitutes a producer by looking at what they produce.  The United States
claims that in this case this would constitute an “artificial definition” of the domestic industry.65  
However, it is the United States, not New Zealand, that advances an artificial definition.  Such
artificiality arises because of the United States insistence that producers of a product that is not like or
directly competitive with an imported product should nevertheless be part of the industry composed of
producers of a product that is like or directly competitive with the imported product.  In arguing this
way, the United States seeks to rewrite the clear words of the Safeguards Agreement.
3.13 Finally, the United States seeks to nullify the effect of the USITC’s wrongful determination of
the domestic industry by arguing that on the facts it does not matter.  It claims that even if the
domestic industry were restricted to packers and breakers – those who actually produce a like ordirectly competitive product in this case – that domestic industry would still be threatened with
serious injury caused by increased imports.
66   However, as New Zealand will show in the next
                                                     
63 United States Responses to Questions by the Panel, para 28.
64 The United States expressly agrees with this position in para 41 of its responses to questions by the
Panel.
65 United States Oral Statement at the First Panel Hearing, para 15.
66 United States Oral Statement at the First Panel Hearing, para 16.WT/DS177/R
WT/DS178/R
Page A-249
section, even if it were admissible to make such a claim at this late stage, the claim that a domestic
industry composed of packers and breakers is threatened with serious injury has no basis whatsoever.
IV. THREAT OF SERIOUS INJURY
4.1 In its First Written Submission, New Zeala nd pointed out that the USITC had failed to
demonstrate that a threat of serious injury existed because it had not shown that any serious injury was
“clearly imminent”.67   In both its First Written Submission and before the Panel, the United States has
sought to obscure this issue, arguing that causation factors go to show the existence of a threat and
that threat factors prove causation.  The United States also seeks to discourage the Panel from looking
closely at the USITC’s reasoning on the specious ground that this would constitute a de novo
review.68   However, the fact remains that the USITC did not determine on the basis of facts, rather
than “allegation, conjecture or remote possibility” that there was a threat of serious injury.69   Neither
the USITC nor the United States in this case have explained how the continuation of an economic
pattern that has a long past history and which does not constitute  serious injury in the present, can
suddenly become a threat of serious injury in the future.
4.2 In order to determine whether there was a threat of serious injury, it is not sufficient, as the
United States has done, to examine simply whether imports are projected to increase in the future and
then to assume that this will adversely affect the position of the domestic industry.   What must be
demonstrated is a threat of serious injury, not a threat of increased imports.  The panel in Argentina -
Footwear  expressly rejected the possibility of finding a threat of serious injury based simply on the
threat of increased imports.70
4.3 As New Zealand has argued in its First Written Submission, the USITC failed to apply anymethod that would allow it to determine whether there was any significant overall impairment that
was clearly imminent.
71   The Appellate Body has indicated that in looking at significant overall
impairment, the competent authority is to look at the “overall picture” of the industry.72   In examining
whether a significant overall impairment in the position of the domestic industry was “clearly
imminent”, a competent authority should therefore ex amine how the overall picture of the industry is
likely to develop in the future, compared to its position in the past.
4.4 In this way serious injury or threat thereof is a relative concept.  It means significant overall
impairment in the position of the domestic industry relative to some point in the past.  In the case of
threat of serious injury an investigating authority must compare the overall position of the domestic
industry in the past with how it is likely to develop in the future, based on those past trends.  In order
to make a determination that is not based on allegation, conjecture or remote possibility, an
investigating authority should therefore examine th e factual evidence of the position of the domestic
industry in the past, and extrapolate how it was likely to develop in the future.
4.5 The USITC failed to establish “threat” on the basis of any serious analysis of either the past or
the future.  The USITC took the view that there had been a continuation of an impairment that existed
in the past, but which did not constitute serious injury, and concluded, as the United States pointed out
in its responses to the questions from the Panel, that the industry was “on the verge of a significant
overall impairment of its position."73   But this “verge” of impairment was based only on information
for 1997 and through to September 1998 - information which in the nature of agricultural markets can
                                                     
67 New Zealand’s First Written Submission, paras 7.56 and 7.69.
68 United States First Written Submission, para 92.
69 See Article 4.1(b) of the Safeguards Agreement.
70 Panel Report, Argentina - Footwear  WT/DS121/R, 25 June 1999, para 8.284.
71 New Zealand’s First Written Submission, paras 7.56 to 7.70.
72 Argentina - Footwear, para 139.
73 United States Responses to Questions by the Panel, para 43.WT/DS177/R
WT/DS178/R
Page A-250
be no more than a measurement of a fluctuation, as indeed it was.  Prices rose from the latter part of
1998 and, as now disclosed in information provided by the United States they continued to rise
through 1999.74   The industry was clearly not on the “verge” of impairment.  There was therefore no
reasoned basis for the conclusion of the USITC that the industry was faced with significant overall
impairment or that significant overall impairment was “clearly imminent”.
4.6 In attempting to argue that there was a threat of significant overall impairment in the position
of the domestic industry, the United States argues that prices are the key indicator of the domestic
industry’s financial condition and that where demand is stable increased imports will result in a
decline in prices.75   However, its conclusion that there was a threat of serious injury to the domestic
industry caused by increased imports, based as it was on the period 1997 to September 1998, did not
reflect the industry as a whole over a representative period.  It was not based on any analysis
grounded in the factual evidence before the USITC.
4.7 What the USITC engaged in was speculation, not informed or reasoned analysis.  This is
contrary to the decision of the panel in Argentina - Footwear that “any determination of threat must
be supported by specific evidence and adequate analysis."76   The United States has sought to support
its reliance on a short period of price fluctuation for determining the existence of a threat of seriousinjury by invoking the Appellate Body decision in Argentina – Footwear.
77   But that case involved a
determination of actual serious injury.  Such a determination is a factual matter.  Either an industry
has reached a state of significant overall impairment or it has not.  If it has reached that state then
serious injury has occurred and it does not matter that it has only just reached such a state.  A
determination of a threat of serious injury is different.  It is an analysis of what is likely to happen inthe future based on past trends.  Reliable assessments of what will happen in the future cannot be
made on the basis of the analysis of short-term conditions.  Based on a fluctuation in the prevailing
prices in one season only, the United States could not reasonably extrapolate that price dip into the
future.
4.8 In this regard, it is necessary to examine what the USITC did in reaching its determination
that there was a threat of serious injury.  Such an examination does not constitute a de novo  review as
the United States claims.  The United States cannot shield the actions of the USITC from Panel
scrutiny or use de novo  review claims to chill proper Panel consideration of this case.  In accordance
with Article 11 of the DSU, the function of the Panel is to make an objective assessment of the factsof the case and of the conformity of the actions of the United States with its obligations under the
Safeguards Agreement.  This involves determining whether the competent authorities of the
United States made the appropriate determinations and supported those determinations with reasoning
on all pertinent issues of fact and law.   Furthermore, contrary to the claims of the United States in its
responses to the Panel’s questions, New Zealand did assert in its first Submission that Article 3.1 of
the Safeguards Agreement applied to the United States obligations in respect of its determination of a
threat of serious injury.
78
4.9 If, as the United States argues, the key indicator of the health of the domestic industry wasprices, the USITC should have examined how prices  might develop in the future, based on an analysis
of price trends.  However, the USITC failed to undertake any price analysis.  Indeed, based on USDA
information that came before the USITC, domestic prices were expected to increase in 1999.
79   I n
fact, prices recovered somewhat in the final three months of interim 199880,  at the same time as
                                                     
74 United States Exhibit 42, attached to its Responses to Questions by the Panel.
75 United States First Written Submission, paras 81 and 86.
76 Panel Report, Argentina - Footwear , para 8.285.
77 United States First Written Submission, para 93.
78 New Zealand’s First Written Submission, paras 7.9 and 7.54.
79 Testimony of Daniel Sumner, injury hearing, attached as Annex NZ-16.
80 USITC Report, II-55, Figure 3.WT/DS177/R
WT/DS178/R
Page A-251
increased imports occurred.  This fact is consistent with the view that increased imports had and were
likely to have little direct influence on domestic prices.
4.10 The United States determination of threat of serious injury is based on a number of
suppositions.  It assumes that increased imports had a negative effect on domestic prices.  This
assumption appears to be based on the allegation that imported lamb meat undersold domestic lambmeat by 20 per cent over the period of investigation.
81   The evidence indicates that this statement is
grossly misleading.  A close examination of the product comparisons relied upon for this statement
demonstrates that in fact there was little direct comparison between the products considered.
Moreover, the information recently made available by the United States in its responses to questions
of the Panel, shows that there is no consistent tre nd for the imported products to grow faster than the
equivalent domestic product, which one would expect if the United States “displacement” theory had
any validity.82
4.11 The information provided by the United St ates shows that the price difference between
imported and domestic product has fluctuated throughout the period of investigation.  Often the price
gaps recorded over the last year of the period were less than those observed earlier.83   I n one case
where there was direct comparison of fresh chilled square cut shoulder (a large volume cut, especiallyfor the domestic lamb meat producers), the imported product was virtually always priced higher than
the domestic product.
84   Overall, the so-called “underselling” tended to reduce  over the period of
investigation and in any case was present throughout that period.  United States allegations of
underselling cannot, therefore, explain the contraction in the domestic price for lamb meat. For such a
situation of persistent “underselling” to exist would be more an indication of product differentiationthan of price undercutting.  Moreover, as indicated in New Zealand’s First Written Submission,
imported prices did not fall to the same degree as domestic prices over 1997 and 1998.
85   It cannot,
therefore, have been increased imports which led to a decline in domestic prices in 1997 and interim
1998.
4.12 The United States also assumes that there was and would be no impact on prices due to
changes in the competing prices of other meats.  However, whether prices rise or fall for a product
will always depend at least in part on the prices for other products which directly compete with that
product in the market.  The fall in the price of lamb meat on the domestic market occurred at the same
time as a fall in the price of competing meats, particularly pork.86   To claim that domestic lamb meat
prices are driven by imports, is therefore to ignore the key relevant factor of the price of competing
meats.  In this regard, the United States assertion, made in its responses to questions from the Panel87,
that “with respect to competition from other m eat products, the USITC found no evidence that other
meat products were displacing lamb meat” is simply incorrect.
4.13 The USITC Commissioners clearly had competition with other meats in the forefront of their
deliberations, one stating that “there’s a good argument to be made that the bigger competition [toimported lamb meat], the more difficult competition is from other alternative sources of protein, most
particular[ly] other meats”.
88   Neither is the United States statement consistent with the actual
findings of the USITC.  The USITC Commissioners  found that lamb meat consumers are sensitive to
                                                     
81 United States First Written Submission, para 87.
82 United States Exhibit 41, Tables 39 and 40, attached to its Responses to Questions by the Panel.
83 United States Exhibit 41, Tables 39 to 42, attached to its Responses to Questions by the Panel.
84 United States Exhibit 41, Table 43, attached to its Responses to Questions by the Panel.
85 New Zealand’s First Written Submission, page 61, Figure 5.  The United States, in para 45 of its
First Written Submission, queries the source of Figure 5 (and Figure 6).  The Red Meat Yearbook , which is the
source of the Figures is referred to as the data source for Table 37 of the USITC Report, and Tables D1 and D2
in Appendix D of the USITC Report.
86 USITC Report, II-70, Figure 17.
87 United States Responses to Questions by the Panel, para 70.
88 Commissioner Crawford, remedy hearing, attached as Annex NZ-17.WT/DS177/R
WT/DS178/R
Page A-252
price.89   And it considered that it was “plausible” that some purchasers of lamb meat had substituted
other meats.90   The United States assertion on the lack of impact of the competition of other meats is
therefore groundless.
4.14 The United States also does not take into account the fluctuation in agricultural prices and the
situation pertaining to the rest of the United States agriculture sector in 1997 and 1998.  Thebackground to the USITC investigation was a dramatic fall in the prices of all agricultural products in
1997 and 1998.  The USITC was told during its hearing that “you can’t make the money in anything
these days” and that when prices for hogs and cattle drop, so do those for live lambs.
91   T h e
United States, however, ignores the impact of these other competing meats on the price of lamb meat.
4.15 The third false assumption that the United States makes is that with the stabilisation of
consumption from 1996, increased imports would depress prices.  This reliance on the stabilisation inconsumption in the 1996 to 1998 period as an indication of health in the industry is also misplaced.
The United States fails to take account of the fact that consumption over that period had fallen from
previous years and that total consumption of lamb meat had been higher in the earlier part of the
period of investigation.
92   The reason for the stabilisation in 1996-1998 was the slow-down in the
decline in the production of domestic lamb meat.  The fall in domestic shipments in 1997 was thesmallest decline in the four years since 1993, and shipments increased in interim 1998.
93   E v e n
though consumption of lamb meat stabilised from 1996, and even increased in interim 1998, it was
still far below the level of consumption in 1993.
4.16 The United States also fails to take into account the nature of demand and supply in the
United States lamb meat market.  Prices for lamb meat in 1996 and early 1997 were at high levels not
witnessed in the preceding years.  These high prices  were the result of a reduction in supply below the
levels of demand existing in the market.  The fall in domestic production over 1993 to 1996, due to
the elimination of the Wool Act subsidy payments, le ft key purchasers with little option but to turn to
imports in order to maintain sales.  While imports increased over this period, they increased by lessthan the fall in domestic production.
94   In such circumstances imports cannot be displacing domestic
product.  Indeed increased imports in interim 1998 were channelled into increases in consumption,
meeting both unfilled demand and new demand previously not supplied with lamb meat.
4.17 The position of the domestic industry in 1998 was influenced by supply and demand factors
on the lamb meat market.  The termination of the Wool Act had been expected to have, and did have,
a profound effect on the domestic industry.  This effect continues today.  In order to withstand a 20
per cent drop in revenues, growers and feeders increased prices until mid 1997.  But once consumers
of lamb meat were faced with a choice between high priced lamb meat and significant falls in the
price of competing meats, there was a natural correction in prices.  By addressing only what was
occurring in the period since 1997 the United States has failed to take into account this overall
position of the domestic industry.  This is not a reasoned basis on which to impose a determinationthat significant overall impairment in the position of the domestic industry was clearly imminent.
4.18 In addition, the United States failed to undertake any analysis of how the position of the
domestic industry was likely to develop in the future, compared to its position in the past.  There was
no factual basis or analysis on which to determine how prices would develop in the future.  Had a
                                                     
89 USITC Report, I-31.
90 USITC Report, II-80.
91 Testimony, Daniel Sumner, remedy hearing, quo ting a United States grower representative, attached
as Annex NZ-18.
92 USITC Report, II-17, Table 5.
93 USITC Report, II-17, Table 5.
94 USITC Report, II-21, Table 7.WT/DS177/R
WT/DS178/R
Page A-253
proper analysis been undertaken, the United States could not have concluded that the domestic
industry was threatened with serious injury that was clearly imminent.
4.19 The United States both in its First Written Submission and in its Oral Statement at the First
Panel Hearing fails to explain how the USITC’s reasoning conforms with the terms of the Safeguards
Agreement.  The United States now advances the new argument that even if the domestic industrywere restricted to packers and breakers, a threat of serious injury would be established.
95   However,
even if this were true it would be irrelevant.  The USITC made no such finding.  The United States
cannot now make such a finding in place of the USITC.  If the competent authority has not made the
findings as required by the Safeguards Agreement, then the measure adopted by the United States
cannot stand.  Furthermore, even if this new claim by the United States were admissible, the factual
evidence in this case simply does not support such an argument.
4.20 The USITC found that production of packers fluctuated over the period of investigation,
while production of breakers trended upwards.96   More specifically production of packers in 1997
was 11.5 per cent higher than in 1995.97   Production of lamb meat decreased by 2 per cent in interim
1998.98   On a full year basis, therefore, production in 1998 was still significantly higher than in 1995.
Furthermore the information now disclosed by the United States shows that the unit value of packers’total shipments increased over 1993 to 1997, with the only decline occurring in interim 1998.
99
4.21 In relation to capacity the USITC Report found that the largest firms in the United States
packing industry were shown to be increasing their capacity over the period 1995-interim 1998.100   In
particular capacity increased by 15 per cent between 1995 and 1997 and then rose by 14 per cent ininterim 1998.  This follows a reduction in capacity over 1993 to 1995.  Similarly in the case of
breakers both production and capacity increased since 1995 with capacity rising faster than
production.  These trends continued into 1998.
101   Such an expansion suggests that the firms in
question are profitable.  This is not consistent with the assertion that the industry faces a threat of
serious injury.
4.22 Given that the production in 1998 was still significantly higher than in 1995, the reported
decline in capacity utilisation in the packing industry identified by the USITC102,  m u s t  h a v e  b e e n
solely due to the expansion in capacity.  This was probably occurring in the largest firms as they
sought to increase their market share of a declining lamb slaughter market.
4.23 In relation to profitability, the USITC stated that there was a significant decline in the value of
net sales and in operating income of packers and breakers.103   The information now provided by the
United States shows that direct labour and other processing costs of packers rose substantially in
interim 1998, clearly contributing to a decline in profits in that period.104   The evidence of the
financial condition of packer/breakers shows gross profit increasing in interim 1998, up 53 per cent.105  
No information on the financial condition of the one reporting breaker is disclosed by theUnited States.  It would seem clear that on the info rmation provided only packers had some declining
profitability in 1998.  Given the increase in capacity undertaken by the United States packing
                                                     
95 United States Oral Statement at the First Panel Hearing, para 16.
96 USITC Report, I-18, fn 78.
97 USITC Report, II-22, Table 8.
98 USITC Report, II-21.
99 United States Exhibit 41, Table 9, attached to its Responses to Questions by the Panel.
100 USITC Report, II-22, Table 8.
101 United States Exhibit 41, Table 3, attached to its Responses to Questions by the Panel.
102 USITC Report, I-20.
103 USITC Report, I-19.
104 United States Exhibit 41, Table 16, attached to its Responses to Questions by the Panel.
105 United States Exhibit 41, Table 18, attached to its Responses to Questions by the Panel.WT/DS177/R
WT/DS178/R
Page A-254
operations, any decline in operating incomes could not be caused by imports, but rather must have
been caused by the firms’ own actions in expanding capacity.
4.24 Inventories of packers decreased in interim 1998 by comparison with the previous year.106  
This would seem to indicate an improved ability to make sales over this period.  The only statement in
the USITC Report on employment in relation to packers is that direct labour and other costs ofpacking operations remained relatively constant over the period of investigation.
107   However it is
clear from the information now disclosed that direct labour costs and other processing costs rose
substantially in interim 1998.108   In relation to productivity the USITC stated that the data on direct
labour costs from packers and breakers indicated that productivity remained relatively constant over
the period of investigation.109   No further information is disclosed.  The information on inventories,
employment and productivity does not, therefore, support a conclusion that packers and breakers were
threatened with serious injury.
4.25 Specific information concerning breakers is confidential and has not been disclosed.
However, the fact that the USITC had financial data from only one specialist breaker110,  suggests that
the USITC would not have had a reliable basis for assessing whether the breakers were facing a threat
of serious injury.  Indeed the information made available on breakers’ production capacity and unitvalues is supportive of the view that breakers are not threatened with significant overall
impairment.
111
4.26 It follows that there is no basis in the information set out in the USITC Report on which to
draw the conclusion that there is a significant overall impairment in the position of the packers,packer/breakers and breakers that is clearly imminent.  Rather, the evidence in the USITC Report
would indicate that there was no such imminent significant overall impairment to the lamb meat
producers.  In short, if the domestic industry had been restricted to packers and breakers no
determination of threat of serious injury could have been made.
4.27 In summary therefore, the USITC failed to take account of the facts regarding the overall
situation of the domestic industry, including its long term decline, the effect of the termination of the
Wool Act payments, and the price of competing meats. It sought to determine that there was a threat
of significant overall impairment simply on the ground that prices which reached a high in early 1997
could not be maintained.   That was not a reasoned conclusion based on objective evidence.  It was adetermination based on conjecture.  This is not consistent with the requirements of the Safeguards
Agreement.
V. CAUSATION
5.1 In its First Written Submission New Zealand demonstrated that the United States had failed to
meet its obligations under Articles 2.1 and 4.2(b) of the Safeguards Agreement to show the causal linkbetween increased imports and the threat of serious injury.
112   Furthermore the USITC had applied a
“substantial cause” test that had no basis in the Safeguards Agreement or in GATT 1994113,  and had
attributed to increased imports injury caused by other factors.114   Although the United States affirms
that in its view the substantial cause test conforms with WTO law, it seeks to support the USITC
                                                     
106 USITC Report, II-22.
107 USITC Report, II-27.
108 United States Exhibit 41, Table 16, attached to its Responses to Questions by the Panel.
109 USITC Report, I-20.
110 New Zealand’s First Written Submission, para 4.9.
111 United States Exhibit 41, Tables 3 and 4, attached to its Responses to Questions by the Panel.
112 New Zealand’s First Written Submission, paras 7.77 to 7.93.
113 New Zealand’s First Written Submission, paras 7.73 to 7.76.
114 New Zealand’s First Written Submission, paras 7.94 to 7.96.WT/DS177/R
WT/DS178/R
Page A-255
determination on causation on the basis that the USITC in fact found increased imports to be in effect
the sole cause of the threat of serious injury.115   In doing so, the United States has had to refashion the
USITC’s Report to conform to this new interpretation.
5.2 Article 2.1 of the Safeguards Agreement stipulates that increased imports must “cause or
threaten to cause” serious injury.  The causal link between imports and serious injury or threat,Article 4.2(b) provides, must be demonstrated on the basis of objective evidence.  The second
sentence of Article 4.2(b) provides that injury caused by other factors is not to be attributed to
increased imports.
5.3 In New Zealand’s view, the effect of these provisions is that the causal relationship between
the threat of serious injury and increased imports must be such that the threat of serious injury must
have been caused  by imports.  This is “the causal link” that must be demonstrated in accordance with
Article 4.2(b).  Furthermore, where there are multiple causes that go to make up serious injury or the
threat of serious injury, the injury caused by othe r factors cannot be attributed to increased imports.
The “serious injury” or “threat of serious injury” found must be traced back to or attributed to
increased imports, not to those other factors.  This is the meaning of the second sentence of
Article 4.2(b).
5.4 It is for this reason, as New Zealand has argued, that the “substantial cause” test does not
comply with the Safeguards Agreement.  The approach  of the United States in situations where there
are multiple causes of serious injury or threat of serious injury is to consider the “relative importance”
of those causes through the application of the “substantial cause” test.
116   The United States in this
case concludes that since no factors other than incr eased imports were found to be “significant” by the
USITC, there could not have been any attribution of serious injury or threat thereof to factors other
than increased imports.117   However, this approach is not consistent with the Safeguards Agreement,
in particular Article 4.2(b).
5.5 Article 4.2(b) allows for the possibility that other factors besides increased imports may
impair the position of a domestic industry.  Where that is the case, Article 4.2(b) requires that any
such injury not be attributed to increased imports.  In applying the “substantial cause” test the USITC
instead determined that there were no factors of “significance” other than increased imports that
caused or threatened to cause serious injury.  The United States claims on the basis of thatdetermination that there was no attribution of serious injury to factors other than increased imports.  In
adopting this approach the United States is not in compliance with Article 4.2(b).
5.6 Furthermore, as New Zealand pointed out in its Oral Statement at the First Panel Hearing, the
“substantial cause” test as articulated by the USITC means that where serious injury or the threat of
serious injury is caused by three factors equally, one of which is increased imports, then that would be
sufficient in itself to meet the causation test.  But such a result involves attributing to increased
imports injury that is caused by other factors.  It involves treating as the cause of “serious injury” or
“threat of serious injury” a cause that may in fact be a minority cause of that serious injury or threat
thereof.  This is not consistent with Article 4.2(b), under which the injury caused by the causal factors
other than increased imports must not be attributed to those imports.  Only if “serious injury” or
“threat of serious injury” still remains once the injury caused by those other factors is excluded can itbe said that increased imports have “caused” the serious injury or threat.
5.7 Serious injury may be contributed to by a variety of factors, including increased imports.  If,
when the injury caused by factors other than increased imports is excluded serious injury or threat
thereof still remains, then that seri ous injury or threat can be attributed to increased imports.  In that
                                                     
115 United States First Written Submission, para 108.
116 United States First Written Submission, para 118.
117 United States First Written Submission, para 108.WT/DS177/R
WT/DS178/R
Page A-256
sense, increased imports have to be the cause or the sole cause of the “serious injury” or threat thereof
for which a safeguard remedy is applied.  If, on the other hand, when injury attributable to other
factors is excluded what is left is not serious injury or threat thereof, then there is no serious injury or
threat to attribute to increased imports.
5.8 The United States seeks in its responses to the Panel’s questions to avoid the consequences of
this analysis by resorting to dictionary definitions of the term “cause” in order to show that the word
is capable  of bearing the meaning of one of many causes t hat the United States wishes to ascribe to
it.118   It justifies this resort to the generic term “cause” by stating that Articles 2.1 and 4.2 of the
Safeguards Agreement both “employ the verb ‘to cause’ in one form or another."119   The objective of
the United States in resorting to these dictionary definitions is made clear in a single revealing
statement.  It asserts that “Article 4.2(b) requires a competent authority simply to demonstrate a
connection between the increased imports and the injury it has found."120   Thus, “cause” in the
Safeguards Agreement is reduced by the United States to nothing more than a mere “connection”.
5.9 Apart from this attempt to read causation, as well as unforeseen developments, out of its
safeguards obligations, the United States resort to the dictionary definition of “cause” also misses the
point.  Article 2.1 uses the term “to cause” which gives the generic concept of cause more specificdirection or content.  To cause something is different from being one of many causes of something.
Moreover, the critical provision of  Article 4.2(c) employs the term “cause” as an adjective, referring
to the causal link as “ the causal link” which refers to a single causal link, not “ a causal link” which
could be one among many.  Thus, the whole United States argument about the open-ended nature of
the concept of cause is based on a false premise.
5.10 Moreover, the United States resort to negotiating history simply does not prove the point the
United States wishes to make.
121   Rather, it shows that the negotiating history does not provide any
assistance on this matter.  There was obviously a variety of views on the meaning of cause in the
negotiations, and no consensus.  This reinforces the importance of the cardinal rule of interpretation,that the intention of the parties is to be gained from the text itself, and not from the often conflicting
views of the parties in the drafting process which ultimately coalesced around the final text.
5.11 The United States also argues in its response to the Panel’s questions, that the decision of the
panel in United States - Imposition of Anti-Dumping Duties on Imports of Fresh and Chilled Atlantic
Salmon from Norway
122  somehow supports its view that serious injury or the threat of serious injury
can be contributed to by other factors.123   However, the panel in United States - Atlantic Salmon
found that the USITC had concluded that “material injury” had been caused by increased imports.
Since the USITC had reached that conclusion, it was not, in the panel’s view, obligated to assess other
factors that might also have contributed to the injury being suffered by the domestic industry in
question.124   As the panel noted, the obligation on the USITC was that it was
“required to conduct an examination sufficient  to ensure that in its analysis of the
factors set forth in Articles 3:2 and 3:3 it did not find that material injury was caused
by imports from Norway when material injury to the domestic industry allegedly
                                                     
118 United States Responses to Questions by the Panel, para 46.
119 United States Responses to Questions by the Panel, para 46.
120 United States Responses to Questions by the Panel, para 48.
121 United States Responses to Questions by the Panel, paras 52 and 53.
122 ADP/87, 30 November 1992.
123 United States Responses to Questions by the Panel, paras 54 and 55.
124 United States - Atlantic Salmon, paras 547 and 548.WT/DS177/R
WT/DS178/R
Page A-257
caused by imports from Norway was in fact caused by factors other than these
imports."125
The problem in the present case is that the USITC did not do this.  The threat of serious injury that theUSITC found was contributed to by a variety of causes.  Nevertheless, the USITC attributed it all to
increased imports.
5.12 In the present case, the USITC did not exclude injury caused by other factors from its
causation analysis.  It did not conclude that there was a threat of “serious injury” that was attributable
to increased imports.  It concluded instead that increased imports were a cause that was no less
important than any other single cause of the threat of serious injury.  But if the USITC had eliminated
the injury that was caused by factors other than increased imports it would have had to conclude that
what remained did not constitute a threat of “serious injury”.  There was, in fact, no threat of serious
injury to attribute to increased imports.
5.13 Furthermore, in its First Written Submission a nd Oral Statements to the Panel at the First
Hearing, the United States has sought to recharacterise the USITC’s determination as a determination
that “increased imports were the only cause of any significance of the deterioration in the condition of
the domestic industry in 1997 and interim 1998...”.
126   But it supports this by nothing more than an
assumption that because a decline occurred, it must have been caused by increased imports.  The
United States theory of causation ignores other factors that caused a decline in the domestic industry
and ignores the evidence that shows increased imports to be a response  to a decline in domestic
supply rather than the cause of domestic decline.
5.14 The USITC, and the United States in these proceedings, discount the impact of the removal of
the Wool Act subsidy on the domestic industry.  The United States argues, without evidence to
substantiate its allegation, that the termination of the Wool Act payments did not have much influence
on events after 1996 and in any event it was not paid to packers and breakers.127   The latter argument
is curious in light of the United States claim that there is vertical integration within the industry whichmeans that prices affect growers/feeders and packers/breakers similarly and that their financial
fortunes rise and fall together.
128   Neither does it fit with the argument made by the United States that
the operations of packers and breakers would be highly affected by the supply and quality of the live
lambs produced by growers and feeders.129   In such circumstances one would expect that injury in one
part of the industry would be passed on to the other part, and that a decline in the supply of live lambswould lead to a decline in the output of the lamb meat industry.
5.15 The United States attempt to minimise the importance of the termination of the Wool Act
payments ignores the essential point of the New Zealand argument that increased imports resulted
from the decline of the industry, they did not cause it.  The Wool Act subsidy removal had a negative
impact on growers and feeders and the production of live lambs.  The Wool Act subsidies granted to
the producers of live lambs totalled US$125 million in 1993 and US$69 million in 1994.
130   T h e
USDA estimated that wool producers would have received an additional US$60 million if the phase-
out of the wool subsides had not taken place.131   The proportion of total net sales revenue from wool
and wool subsidies obtained by growers dropped from 25.4 per cent in 1993, to 21.1 per cent in 1995,
                                                     
125 United States - Atlantic Salmon, para 554.
126 United States Closing Statement at the First Panel Hearing, para 13.  See also United States Opening
Statement at the First Panel Hearing, para 17, and United States First Written Submission, para 108.
127 United States First Written Submission, para 90.
128 United States First Written Submission, para 67.
129 United States First Written Submission, para 65, citing USITC Report, I-13.
130 USITC Report, II-78, Table 45.
131 USITC Report, II-78.WT/DS177/R
WT/DS178/R
Page A-258
and to 12.2 per cent in 1996.  It fell even further to 5.5 per cent in interim 1998.132   This 20 per cent
drop in revenue led to a decline in the number of producers of live lambs and in turn a reduction in
supply of live lambs and therefore of lamb meat.  This reduction in supply, which continued beyond
1996, resulted in an unfilled domestic demand that was then met by increased imports.  Neither the
USITC nor the United States have met this argument  or contradicted what obviously flows from it:
increased imports were a consequence of the decline in the domestic industry, not the cause of it.
5.16 In attempting to take a snap-shot of the situation occurring in 1997 and interim 1998, without
regard to the industry situation in the years preceding, the United States is ignoring the very
conclusions of the USITC.  In discussing the remedy to be applied, the USITC Commissioners
identified the termination of the Wool Act payments as a significant  change in the market conditions
under which the domestic industry must operate.133   As a result of this change, the Commissioners
concluded that the domestic industry producing live lambs would have to continue to adjust in thefuture to a domestic market without the Wool Act subsidy payments.
134
5.17 The United States also attempts to gloss over the USITC’s conclusions based on the evidence
of the competition from other meats.  The United States points to the fact that the per capita
consumption of lamb meat had remained relatively steady since 1995.135   However, per capita
consumption of lamb meat was around 1.1 pounds in 1995 to 1997, compared to an average per capita
consumption of red meat of 120 pounds.136   Actual consumption of pork was 60 times the
consumption of lamb meat in interim 1998, while consumption of beef was more than 85 times that of
lamb meat.137   In light of the disparity between the size of the markets for lamb meat and other
competing meats, the markets for those competing meat s will clearly have an impact on the market for
lamb meat.
5.18 Indeed, the USITC found that final demand for lamb meat was determined among other
things by “prices of lamb meat and substitute products”.138   In comparing the retail price of lamb meat
to that of other competing meats, it is clear that the price of lamb meat has been consistently priced
higher than competing meats and that there was a significant fall in the prices of competing meats that
occurred from mid-1997, at the same time as the fall in the price of lamb meat.139   The USITC Report
includes evidence that the lower price trends of potential substitutes may have resulted in some
substitution away from lamb meat towards these other products.140   The USITC Commissioners
concluded that final consumers of lamb meat were somewhat sensitive to price.141
5.19 Although the USITC reached the conclusion that the price of competing meats was not a“more important cause” of threat of serious injury than increased imports, the evidence set out in the
USITC Report shows that the competition from other meats was a factor strongly influencing the
position of the domestic industry.  There was a causal relationship between the difficulties of the
domestic industry and the competing prices of other meats.
5.20 Other causes of the threat of serious injury were treated similarly by the USITC.  For
example, the USITC considered whether concentration in the packer segment of the industry and the
failure of the industry to develop and implement an effective marketing programme were “more
                                                     
132 USITC Report, II-26, Table 12.
133 USITC Report, I-30.
134 USITC Report, I-32.
135  United States First Written Submission, para 91.
136 USITC Report, II-69, Table 36.
137 USITC Report, II-71, Table 37.
138 USITC Report, II-66.
139 New Zealand’s First Written Submission, Figure 4, sourced from USITC Report, II-70, Figure 17.
140 USITC Report, II-69.
141 USITC Report, I-31.  Apparent consumption held steady and then actually increased at the end of
the period of investigation, at the same time that prices fell.WT/DS177/R
WT/DS178/R
Page A-259
important causes” of the threat of serious injury than increased imports.  While it found that they were
not “more important” causes, they were clearly identified by the USITC as causes.142   Indeed, the
inference from the USITC report appears to be that the latter factor was even viewed by the USITC as
a cause as important as increased imports.  While the USITC concluded that concentration in the
packer segment was a less important cause of the threat of serious injury, it interestingly refrained
from stating the same with regard  to the failure to develop and implement an effective marketing
programme.  While finding that the latter was not a “more important” cause than increased imports,
the USITC also noted that this factor was likely to have “an important impact on the industry”.143
5.21 The approach adopted by the USITC to causation in using its “substantial cause” test was to
disregard other factors which may be causing serious injury by considering that they individually are
not more important causes of serious injury than increased imports.  Having determined that
individually those other factors, including the effect of the termination of the Wool Act payments, theprice competitiveness of other meats, and the failure to develop and implement an effective marketing
programme for lamb meat, were not more important causes than increased imports of the threat of
serious injury, it was assumed that the entire serious injury or threat thereof was caused by the
increased imports.  There was no attempt to avoid attributing injury caused by other factors to
increased imports, in conformity with Article 4.2(b).  The USITC and the United States therebywrongly assumed that all the “serious injury” or threat thereof was caused by increased imports.
5.22 In its Oral Statement to the Panel, the United States began a new tack and started a process of
reinterpretation of the USITC’s report in order to  show that the USITC had  regarded increased
imports as in fact the sole cause of a threat of serious injury.  In its response to the questions of thePanel, the United States continued this reinterp retation.  The USITC is viewed, according to the
United States new interpretation, as having considered all of the other potential causes of threat of
serious injury in order to reject them and thus to comply with Article 4.2(b) and not attribute to
increased imports injury caused by other factors.  The fact that the USITC used language that would
conform with its domestic statute should not, the United States claims, detract from the fact that insubstance it was doing what the Safeguards Agreement requires.
5.23 Such an argument could have plausibility only if the actual words of the USITC are
completely ignored; indeed, the USITC’s words have to be taken to mean precisely the opposite of
what the USITC said.  As New Zealand pointed out in its Oral Statement to the Panel, the USITCfound that the termination of subsidies under the Wool Act was a cause; it found that competition
from other meats was a cause; it found the lack of an effective marketing programme a cause; and it
found that concentration in the packer segment was a cause.
144   It is too late for the United States now
to claim that the USITC did not mean what it said.
5.24 Nor is the United States view consistent with the adjustment assistance package
recommended by the USITC and that implemented by the President.  Both of these includedcomponents to address the other causes of difficulties facing the domestic industry, including the lack
of promotion and marketing, and lack of demand for lamb meat compared to other meats, which the
United States now claims were not factors affecting the domestic industry.
145   The attempt by the
United States in its responses to questions of the Panel to now claim that it is the “content of the
USITC Report as a whole” rather than the actual words used which should be determinative146,  does
not detract from the fact that the adjustment assistance package was implemented to address a factor
                                                     
142 USITC Report, I-25 and I-26.
143 USITC Report, I-26.
144 New Zealand Oral Statement at the First Panel Hearing, paras 53 and 54.
145 USDA “Domestic Adjustment Assistance Package”, December 1999 and related press articles,
attached as Annex NZ-19.
146 United States Responses to Questions by the Panel, para 86.WT/DS177/R
WT/DS178/R
Page A-260
that the USITC said was not “a more important cause” of threat of serious injury than increased
imports.147
5.25 If the USITC really had eliminated all these factors as causes of a threat of serious injury as
the United States now claims, on what basis was there any threat of serious injury within the meaning
of Article 4.1(b) left?
5.26 Throughout its arguments the United States seeks to avoid content being given to the
obligation to ensure that any threat of serious injury is caused by increased imports.  In its response to
the Panel’s questions, the United States challenges the idea of “precision in the evaluation of causal
factors."148   Yet, as New Zealand pointed out in its Oral Statement to the Panel, and in the economic
analysis it attached to that statement149,  a proper assessment and analysis is possible.  It is possible
through the use of simple  economic analysis for distinctions to be made between injury caused bydomestic factors and injury caused by increased imports.  The USITC failed to employ any such
analysis and thus it did not demonstrate the causal link between increased imports and the threat of
serious injury that it claimed existed.
5.27 As a result, the United States has not made a determination in accordance with the terms of
the Safeguards Agreement that a threat of serious injury has been caused by increased imports.
VI. NECESSITY
6.1 In its First Written Submission, New Zealand pointed out that the safeguard measure imposed
by the United States was not applied to the extent “necessary” to prevent serious injury, nor to the
extent “necessary” to facilitate adjustment, contrary  to the obligations set out in Article 5.1 of the
Safeguards Agreement.
150   In addition, the United States had not published any findings or reasoned
conclusions on the matter and hence was in violation of Article 3.1 of the Safeguards Agreement.151
6.2 New Zealand argued in its First Written Submission that the obligation under Article 5.1 ofthe Safeguards Agreement to apply a measure “only to the extent necessary to prevent or remedy
serious injury or to facilitate adjustment” is an obligation to choose the least trade restrictive measure
that will achieve those objectives.
152   The United States objected to this formulation, arguing in its
First Written Submission that there is no basis for a “least trade restrictive” test in the context ofArticle 5.1 of the Safeguards Agreement.
153   This does not equate with what the United States Trade
Representative, Charlene Barshefsky, told a Congressional Committee in June 1999, that in
determining the safeguard remedy to be applied to imports of lamb meat, the United States was
“weighing what we believe ... the most appropriat e and least trade-restricting remedy would be."154  
However, the United States does concede that in determining whether a measure complies with
Article 5.1, it is necessary to determine whether the measure “in its totality, is more trade restrictive
than required both to prevent serious injury from occurring and to assist the industry in adjusting to
import competition."155
6.3 In New Zealand’s view, in the context of Article 5.1, a “least trade restrictive” test and a “no
more restrictive of trade than required” test amount essentially to the same thing.  The requirement in
                                                     
147 USITC Report, I-26.
148 United States Responses to Questions by the Panel, para 90.
149 Attached to New Zealand’s Oral Statement at the First Panel Hearing as Annex NZ-13.
150 New Zealand’s First Written Submission, paras 7.97 to 7.109.
151 New Zealand’s First Written Submission, paras 7.110 and 7.111.
152 New Zealand’s First Written Submission, paras 7.98 to 7.101.
153 United States First Written Submission, para 191.
154 Transcript of House Agriculture Committee, 23 June 1999, attached as Annex NZ-20.
155 United States First Written Submission, para 210.WT/DS177/R
WT/DS178/R
Page A-261
Article 5.1 that a measure be applied only to the extent necessary to achieve the goals of that
provision is a requirement that there must be some degree of proportionality between ends and means.
The measure must be applied in a manner that will allow it to achieve the objectives of preventing or
remedying serious injury and facilitating adjustment, but the limitation that it must be applied only to
“the extent necessary” must have some substantive content.  In the context of an agreement concerned
with restrictions on trade for the purpose of preven ting injury, that content can be discovered only by
reference to the extent of the trade restrictiveness of the measure.
6.4 In other words, Article 5.1 requires some degree of proportionality between the end of
preventing serious injury and facilitating adjustment and the trade restrictive means of achieving that
goal.  It places a limit on the trade restrictiveness of the measure that can be adopted.  A measure that
was more trade restrictive than necessary to achieve the goal of preventing serious injury or
facilitating adjustment would undoubtedly not be a measure that was being applied only to the extentnecessary to prevent serious injury or facilitate adjustment.  In that sense, what is required is a
measure that is the least trade restrictive of those measures that will achieve the objective.
6.5 Thus, whether the Article 5.1 requirement is expressed in terms of “least trade restrictive” or
“no more restrictive of trade than required” or more generally as a requirement of proportionality, theend result is the same.  In the present case, the measure chosen by the United States met none of these
formulations.
6.6 In its response to the Panel’s questions, the United States seeks to avoid responsibility for
demonstrating that the measure chosen by the United States meets the requirements of Article 5.1 byasserting that the burden rests with New Zealand to establish a prima facie  case that Article 5.1 has
been complied with.
156   However, New Zealand has discharged that burden.  It has demonstrated that
the remedy chosen by the United States is more trade restrictive than necessary to achieve the goal of
preventing serious injury since the United States had available the less trade restrictive alternative
proposed by the plurality of the USITC.  However, the United States seeks to avoid the consequencesof this argument by asserting that it cannot be  assumed that the USITC proposed remedy “would be
sufficient to prevent serious injury and facilitate adjustment."
157  The plurality recommendation, the
United States claims “should not be presumptively regarded as adequate."158
6.7 By this ingenious argument, the United States is seeking to place New Zealand and the Panelon the horns of a dilemma.  On the one hand, the United States claims that the Panel cannot engage in
a de novo  review of the USITC’s investigation.  On the other hand, it says that the Panel cannot
presume that the USITC has met its obligation to propose a remedy that would be effective to prevent
serious injury and facilitate adjustment.  Ergo , New Zealand has not met the burden of proof of
showing that the United States has not complied with its Article 5.1 obligations, and it cannot meet
that burden as this would be an invitation to the Panel  to engage in a de novo  review.
6.8 In New Zealand’s view, the Panel should reject such sophistry.  The USITC plurality
proposed a remedy to prevent serious injury and to facilitate adjustment.  According to the
United States law this remedy finding is to be tr eated as the remedy finding of the USITC by the
President.
159   The United States Administration adopted a different remedy.  The Panel is entitled to
compare those remedies.  Thus, the United States must convince the Panel that the remedy chosen bythe USITC does not meet the requirements of Article 5.1 to avoid a comparison being made between
the Administration remedy and that recommended by the USITC for the purposes of determining
whether the provisions of Article 5.1 have been complied with.
                                                     
156 United States Responses to Questions by the Panel, para 162.
157 United States Responses to Questions by the Panel, para 111.
158 United States Responses to Questions by the Panel, para 111.
159 USITC Report, I-29.WT/DS177/R
WT/DS178/R
Page A-262
6.9 The United States also seeks to argue that, in fact, the measure adopted by the United States
was no more trade restrictive than that proposed by the USITC.160   But close analysis shows that this
is clearly incorrect. There are three levels of restrictions to be assessed in comparing the USITC
recommended measure and the actual United States measure:161  quota levels, in-quota tariffs, and out-
of-quota tariffs.  The quota levels under both measures are roughly equivalent.162   T h e  U S I T C
recommended measure contained no in-quota tariff beyond the ordinary WTO bound rate of 0.8c perkg.
163   Accordingly, in-quota costs under the USITC recommended measure are no more than they
would be with no safeguard measure in place.  The only additional costs to trade under the USITC
recommended measure, in all years, is the out-of-quota cost.  In particular, the only cost which can be
attributed to the fourth year of the USITC recommended measure, when there may be no safeguard
under the actual United States three-year measure imposed164, is the out-of-quota tariff rate.  The
USITC recommended a rate of 10 per cent in that year, 1 per cent higher than the first year in-quota
tariff rate of the actual United States measure.
6.10 With regard to the first three years of both measures, the United States has argued that there is
no difference in the trade restrictive effect of a 20 per cent out-of-quota tariff rate, as recommended
by the USITC, and a 40 per cent out-of-quota rate, as imposed by the United States, because both
were designed to be trade-preclusive.165   The United States is patently wrong.  By any definition, 20
per cent is less than 40 per cent.  Furthermore, according to basic economic principles, trade at the
out-of-quota rate will nevertheless be profitable any time that the difference in percentage terms
between the United States wholesale price for lamb and the world price for lamb is greater than the
out-of-quota rate.  Clearly, this is more likely to happen when the out-of-quota rate is 20 per cent than
when it is 40 per cent.  The out-of-quota rate imposed by the United States is therefore morerestrictive of trade than the out-of-quota rate recommended by the USITC.
6.11 A comparison of in-quota costs under both measures also reveals that the actual United States
measure is considerably more trade-restrictive than the USITC recommended measure.  Estimated
costs to trade for New Zealand at levels up to the quota level under the USITC recommended measurein year one would be US$116,000.  Under the actual United States measure up to the quota level
imposed estimated costs would be US$7,125,000.
166   The difference between these figures is
US$7,010,000.  In year two, in-quota costs to New Zealand under the USITC recommended measure
would be US$121,000, and under the actual United States measure would be US$4,878,000:  a
difference of US$4,757,000.  In year three, respective costs to New Zealand would be US$106,000and US$2,503,000, with a difference of US$2,397,000.  In total, over the first three years of both
measures, the measure imposed by the United States would result in in-quota costs to New Zealand of
US$14.164 million more than under the measure recommended by the USITC.
6.12 The measure imposed by the United States set similar quota levels as the USITC
recommended measure. The shorter initial duration of the measure imposed by the United States is
irrelevant to a determination of the trade restrictiveness of the measure as it can be extended to aduration of up to eight years.  The out-of-quota cost s to New Zealand trade of the actual United States
measure are clearly substantially more than those of the USITC recommended measure.  And the in-
quota costs of the United States measure will be approximately US$14.2 million more than the
                                                     
160 United States First Written Submission, paras 193 to 198, 201, and 202.
161 In assessing the relative restrictiveness of the measures the initial duration of the measures is
irrelevant, as both the Safeguards Agreement and the United States legislation allow the extension of a measureup to a maximum duration of eight years.
162 Each measure allows for a small increase in the quota level after the first year of the measure.
163 This is scheduled to drop to 0.7c per kg in 2001.
164 Assuming that the measure had not been extended.
165 United States First Written Submission, para 202.
166 These estimated costs were calculated by computing the tariff that would be payable on imports at
the quota level at a constant 1998 CIF price.WT/DS177/R
WT/DS178/R
Page A-263
USITC recommended measure.  It is on this basis that New Zealand argues the measure imposed by
the United States is more restrictive than the measure recommended by the USITC.
6.13 In seeking to support the remedy it has chosen, the United States places great emphasis on the
need to facilitate adjustment.  Thus, in its response to questions from the Panel it argued that the
remedy proposed by some of the Commissioners provided insufficient relief to facilitateadjustment.
167  In its First Written Submission, the United States objected to Australia and
New Zealand’s complaints about the remedy, claiming that the complainants wished “to leave the
U.S. lamb industry in the deteriorated state in which the USITC found it."168   By comparison, the
remedy is designed to return the industry to profitability.169
6.14 This focus away from preventing serious injury  to facilitating adjustment is revealing.  It
emphasises that the problems facing the domestic industry are adjustment problems arising out ofdomestic factors, and not a response to a threat imposed by imports.  Rather, controlling imports is the
mechanism chosen for dealing with domestic adjustment problems.
6.15 In short, the failure of the United States in this case is to choose a remedy that is proportional
to the alleged threat that has been found.  Or, in other words, that is “applied only to the extentnecessary to prevent serious injury and facilitate adjustment.”  Instead, the United States has sought to
craft a remedy that will return the industry to profitability regardless of the nature of the threat.  It
seeks to improve the position of an industry that has not been found to be seriously injured.  It is for
that reason that the remedy does not limit itself to hold imports at the 1998 levels, the alleged level of
the threat.  Instead, the remedy has as its objective to recapture for the industry the losses it hassuffered as a result of the removal of the Wool Act subsidies.  And those losses are to be recaptured
from imports of lamb meat.  Indeed, in effect, what the United States is doing in this case is replacing
a subsidy on wool with a tariff on imports of lamb meat.
VII. MFN
7.1 In its First Written Submission, New Zealand argu ed that the United States inclusion of the
imports of certain countries in its injury determination, but its exclusion of those imports from the
application of the safeguard measure, was contrary to its obligation under Article 2.2 of the
Safeguards Agreement to apply a safeguard measure to imported products irrespective of source.
170  
As a consequence, the United States was also in violation of its obligations under the GATT 1994.171  
The United States response was that it was perfectly justified in failing to apply the measure to
members of a free trade area, but that it did not in fact take the imports of Mexico, Canada and Israel
into account in its determination of the threat of serious injury.172
7.2 New Zealand does not take issue with the right of a member of a free trade area to exclude its
free trade area partners from the application of safeguard measures.  Indeed, New Zealand does sounder its Closer Economic Relations Agreement with Australia.  What New Zealand does object to is
the inclusion of the products of a free trade area partner in making the injury determination and then
the exclusion of those products from the application of the measure.  The United States claims that the
USITC did not do this.  However, in doing so it cites the USITC’s elimination of the imports of
Canada and Israel from its causation analysis, and ignores the fact that those imports were included inthe USITC’s threat of serious injury determination.
                                                     
167 United States Responses to Questions by the Panel, para 126.
168 United States First Written Submission, para 176.
169 United States Responses to Questions by the Panel, para 134.
170 New Zealand’s First Written Submission, para 7.113.
171 New Zealand’s First Written Submission, para 7.114.
172 United States First Written Submission, paras 247 and 254 to 257.WT/DS177/R
WT/DS178/R
Page A-264
7.3 In short, the USITC did in this case precisely what the Appellate Body said in Argentina –
Footwear  should not be done.  As the European Communities pointed out in its Oral Statement to the
Panel, the “principle of parallelism” set out in Argentina – Footwear  applies in this case as well.
Imports that are included in a safeguards investigation for the purpose of determining serious injury or
threat of serious injury must also be subjected to the safeguard measure that is ultimately adopted.  In
failing to do this, the United States is in violation of its obligations under Article 2.2 of the SafeguardsAgreement and Article I of the GATT 1994.
VIII. CONCLUSION
8.1 New Zealand has established that the actions of the United States in imposing the safeguard
measure on imports of lamb meat from New Zealand were not in accordance with the terms of the
Safeguards Agreement or of the GATT 1994.  The Un ited States attempts to show that the USITC did
in fact base its determination on the existence of unforeseen developments involves in effect writing
the concept of unforeseen developments out of its WTO safeguards obligations.  The United States
definition of the “domestic industry” has no basis in WTO law and the United States attempts to
establish that the USITC reached a reasoned determination that its domestic industry was threatened
with serious injury constitute no thing more than a supposition that if imports increase the domestic
industry will suffer.  The United States did not demonstrate that any threat to its domestic industry
was caused by imports.  Furthermore, the United States attributed injury caused by other factors to
increased imports, ignoring the obligation imposed by Article 4.2(b) of the Safeguards Agreement not
to do this.  Finally, the United States failed to apply a remedy only to the extent necessary to prevent
serious injury and facilitate adjustment, and did not apply the remedy to all of the imports whichallegedly contributed to the threat of serious injury facing its domestic industry.
8.2 There is a further issue that New Zealand wishes to advert to.  In addition to the arguments
the United States has made in an attempt to support the actions of the USITC, the United States
argued in its Oral Statement to the Panel that if  Members did not have confidence that they could taketemporary action to assist their industries where import surges seriously injure or threaten to injure
their domestic industries they would resort to “grey-area” measures, such as voluntary restraint
arrangements.
173  
8.3 But the real issue of confidence raised in th is and in other WTO disputes is the confidence
that all WTO Members should have that the rights and obligations provided for in the WTO
Agreement will be effectively upheld, including through the mechanisms in place to call to account
any Members who act inconsistently with such righ ts and obligations.  Accordingly, the spectre the
United States seeks to conjure up of unlawful “grey-area” measures being resorted to by Members
whose desire to use safeguard measures that do not conform to their WTO obligations has been
thwarted, should be ignored.  The task of the Panel is clear.  It is to apply the terms of the Safeguards
Agreement in accordance with the well-established principles for the interpretation of the WTOagreements.  The flexibility to which members are entitled in the imposition of safeguards is no more
and no less than what is permitted under those agreements.  Members are not entitled to have the
agreements interpreted in a way that ignores the ac tual words used in order to validate approaches to
safeguards that have existed traditionally in their laws and their practices.  The fundamental integrity
of the WTO safeguards system depends on Members complying with the obligations that they haveagreed to under the Safeguards Agreement.
8.4 In light of the above, the United States is clearly in violation of its WTO obligations.
Accordingly, New Zealand reaffirms its request to the Panel to recommend that the United States
                                                     
173 United States Oral Statement at the First Panel Hearing, paras 3 and 4.WT/DS177/R
WT/DS178/R
Page A-265
bring its treatment of imports of lamb meat from New Zealand into conformity with its obligations
under the Safeguards Agreement and the GATT 1994.WT/DS177/R
WT/DS178/R
Page A-266
ANNEX 2-10
NEW ZEALAND’S ORAL STATEMENT
AT SECOND PANEL HEARING
(26 July 2000)
1. In this Statement today, New Zealand will not attempt to repeat what we have said in our
previous written and oral submissions to the Panel.  Rather, we will set out the key issues before the
Panel and identify where we see the differences between ourselves and the United States on these
issues.  In this way we hope we may focus the issues in dispute in order to assist the Panel in its
deliberations.
2. Before dealing with the substantive issues, I would like to make several preliminary
comments.  The first relates to burden of proof.  On several occasions in this case the United States
has argued that New Zealand has failed to meet the burden of proof.  As a matter of law, we do not
believe that there is any disagreement on the question of burden of proof.  The basic principle set out
in the Woolshirts1 case applies. The burden is on the complainants to establish a prima facie  case.
Once they have done so, it is then for the respondent to rebut that case.
3. Nor, in the present case, do we believe that there is any substantive issue at stake over the
discharging of the burden of proof.  New Zealand has established a prima facie case of the
United States violation of its obligations under the Safeguards Agreement and under the GATT 1994.
It is for the United States to rebut that case.  Thus, in New Zealand’s view there is no question for the
Panel to resolve over the issue of burden of proof.
4. The second preliminary point I wish to make, Mr Chairman, relates to the interpretation of the
Safeguards Agreement.  A fundamental issue before the Panel in this case is whether the Safeguards
Agreement is to be interpreted in accordance with the Vienna Convention on the Law of Treaties -
that is, in accordance with the ordinary meaning of the words in their context and in the light of the
object and purpose of the Agreement.  Or, alternatively, should its provisions be interpreted in a way
that ignores the terms of the Agreement but accords with practices adopted by one Member?  This
question is a pervasive one in the present case, arising in respect of many of the differences betweenNew Zealand and the United States.
5. What the United States seeks to do in this case is to qualify the interpretation of the
Safeguards Agreement by introducing subsequent practice and negotiating history in circumstances
where the ordinary meaning of the words is clear.  But, as the International Court of Justice has said,
“If the relevant words in their natural and ordinary m eaning make sense in their context, that is an end
of the matter”.
2  Equally, the United States in this case invites the Panel to ignore decisions of the
Appellate Body and prior GATT jurisprudence.  As New Zealand will point out in this Statement,
none of this is justified.
6. In this case, the obligation on the Panel to interpret the terms of the Safeguards Agreement in
accordance with the basic rules of interpretation set out in the Vienna Convention is qualified only by
                                                     
1 United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India
(WT/DS33/AB/R, 25 April 1997), pages 14 to 16.
2 Advisory Opinion of 3 March 1950 on Competence of the General Asse mbly for the Admission of a
State to the United Nations [1950] ICJ Reports p 4, at p 8.  Quoted in the Report of the International Law
Commission on the Work of its Eighteenth Session , Yearbook of the International Law Commission, 1966, vol
II, p 221, attached to the United States Second Written Submission as US Exhibit 43.WT/DS177/R
WT/DS178/R
Page A-267
what was said by the Appellate Body in Argentina-Footwear3 when it noted that a safeguard action is
“extraordinary”.  And, as the Appellate Body went on  to say: “And when construing the prerequisites
for taking such actions, their extraordinary nature must be taken into account.”4  It is the Appellate
Body’s ruling that is the appropriate guidepost fo r the interpretation of the Safeguards Agreement and
not the claims of the United States, which would ignore both the ordinary meaning of the words and
the object and purpose of the Agreement.
7. My third preliminary comment relates to the standard that must be met by a Member before
applying a safeguard measure and the standard of review for a panel in reviewing a Member’s
safeguard actions.  In its Second Written Submission the United States claims that it has demonstrated
that the findings and economic conclusions of the USITC were “carefully reasoned and amply
articulated”.5  The standard of review for the Panel, as set out by the panel in Korea - Dairy  is that:
“an objective assessment entails an examination of whether the [competent authority]
had examined all facts in its possession ... (including facts which might detract froman affirmative determination in accordance with the last sentence of Article 4.2 of the
Agreement on Safeguards), whether adequate explanation had been provided of how
the facts as a whole supported the determination made, and, consequently, whether
the determination made was consistent with the [Member’s] international
obligations.”
6
The USITC did not meet this standard.  It did not examine all facts in its possession and it did notprovide adequate and reasoned explanations of how the facts as a whole supported the determination
made.  The United States has attempted to construct reasoned conclusions for the USITC and to imply
that analysis was done even though it was not.  None of this alters the fact that the USITC did not doin this case what the panel in Korea-Dairy  said must be done by a competent authority.
8. Throughout this case, the United States has sought to block proper review of the actions of the
USITC by charges of de novo  review.  In its Second Written Submission the United States goes
further and claims that “the fact that another finder of fact might reach a different conclusion does notestablish that a country’s competent authority violated the Safeguards Agreement”.
7  In making this
statement, which expresses a concept similar to that contained in Article 17.6 of the Antidumping
Agreement, the United States appears to be seeking to introduce into the Safeguards Agreement a
standard of review that is unique to the Antidumping Agreement and which was not incorporated into
the Safeguards Agreement.  As the Appellate Body said in the United States - Steel Products  case, the
Article 17.6 standard applies only to the Antidumpi ng Agreement and not to disputes arising under
other covered agreements.8
9. Mr Chairman, in any challenge made to actions taken under the Safeguards Agreement, a
panel has to be satisfied that the competent authority examined all the facts in its possession,
undertook adequate analysis and provided reasoned conclusions of how the facts as a whole supported
the determination made.  A panel has to be able to undertake an investigation that will allow it to
determine whether this has been done.  It cannot be thwarted by claims of de novo  review or spurious
claims about the standard of review under the Safeguards Agreement.
                                                     
3 Argentina - Safeguards Measures on Imports of Footwear  (WT/DS121/AB/R, 14 December 1999),
para 94.
4 Para 94.
5 United States Second Written Submission, para 1.
6 Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products  (WT/DS98/R, 21 June
1999), para 7.30.
7 United States Second Written Submission, para 31.
8 United States - Imposition of C ountervailing Duties on Certain Hot- Rolled Lead and Bismuth Carbon
Steel Products Originating in the United Kingdom  (WT/DS138/AB/R, 10 May 2000), para 50.WT/DS177/R
WT/DS178/R
Page A-268
10. My final preliminary point, Mr Chairman, is that the essence of this case is an attempt by the
United States to find a scapegoat for economic declines in its live lamb and lamb meat industries.  As
the USITC recognised, these industries have been in a long-term decline, due to domestic market
factors.9  They were then further affected by the removal of a considerable source of income that went
to live lamb producers from subsidies under the Wool Act.  That loss of income led to a significant
number of producers leaving the industry with a resulting decline in production.  A drop in domesticproduction had a flow-through effect.  It meant a contraction in the supply to producers of lamb meat
which obviously had a negative effect on their incomes.  It also meant that unfulfilled domestic
demand was taken up by imports and led to an increase in imports of lamb meat.
11. The fundamental issue in this case concerns the appropriate use of safeguard measures.  Can a
Member pass on to imports costs incurred by its domestic industry as a result of factors within its
domestic market?  Specifically, in this case, can a Member impose on imports the costs to the
producers of live lambs resulting from the removal of the Wool Act subsidies?  Or as we put it in ourSecond Written Submission, can the United States replace its subsidies on the production of wool
with a tax on the importation of lamb meat?
10  In this sense, as we have said, this case is about the
integrity of the safeguards regime under the WTO agreements.11
 Unforeseen Developments
12. Mr Chairman,  much has been said and written in this case about the issue of “unforeseen
developments”, with the result that a simple and straightforward issue is becoming quite unnecessarily
complicated.  GATT Article XIX prefaces the right of a Member to take safeguard measures in the
following way: “If, as a result of unforeseen developments and of the effect of the obligations
incurred by a contracting party under this Agreement…” and then goes on, products are being
imported in such increased quantities and under such conditions as to cause or threaten to cause
serious injury, then safeguard measures may be taken.  Although the Safeguards Agreement makes no
reference to “unforeseen developments”, the Appellate Body said in Argentina - Footwear  that the
existence of “unforeseen developments” was a “ circumstance which must be demonstrated as a matter
of fact in order for a safeguard measure to be applied consistently with the provisions of Article XIX
of the GATT 1994.”12  The Appellate Body also made clear that it was for the competent authorities
of the Member to make such a demonstration.13
13. The United States approach to this, as evidenced in its Second Written Submission, is to deny
that there is any need to make a “finding” of the existence of unforeseen circumstances.14  In doing so,
the United States appears to be making nothing more  than the rather trivial point that there is a
distinction between “finding” the existence of unforeseen developments and “demonstrating” the
existence of unforeseen developments, which is what the Appellate Body has said must be done.  If
there is a point of substance here, it escapes us.  For its part, New Zealand is quite happy with the
Appellate Body’s formulation that the existence of unforeseen developments must be “demonstrated”.Hence, the United States arguments about the term “finding” simply have no point.
14. In demonstrating the existence of unforeseen de velopments, it is not necessary to show, in the
words of the Appellate Body, that the developments be “unforeseeable” or “incapable of being
foreseen or anticipated”.
15  A Member does not have to prove that subjectively it could not have
foreseen a given development occurring after it incurred obligations under the GATT 1994.  Rather,
                                                     
9 USITC Report, I-17.
10 New Zealand’s Second Written Submission, para 6.15.
11 New Zealand’s Second Written Submission, para 8.3.
12 Para 92 (emphasis in original).
13 Para 98.
14 United States Second Written Submission, paras 3 and 4.
15 Argentina - Footwear , para 91.WT/DS177/R
WT/DS178/R
Page A-269
according to the Appellate Body, a Member has to demonstrate that the increased imports and the
conditions under which they are imported are the result of unforeseen developments.  In other words
there has to be an objective  demonstration that the developments were unforeseen or unexpected.
Contrary to the United States claim that there is no need for any “finding”, this does not mean that the
requirement of unforeseen developments need not be demonstrated.
15. The United States arguments also mask a more profound attack on the “unforeseen
developments” requirement.  In order to make this attack the United States finds it necessary to go
into what it refers to as “subsequent practice” to aid in the interpretation of the requirement of
“unforeseen developments”.16  However, when investigated, the subsequent practice on which the
United States relies is practice before the conclusion of the WTO agreements, not really subsequent
practice at all.  Thus, it is not used in the way that subsequent practice is meant to be used, that is as
explained by the International Law Commission, as objective  evidence of the understanding  of the
parties as to the meaning of the treaty.17  Although the United States referred to this statement of the
ILC in its Second Written Submission, it omitted the further discussion of the ILC which pointed to
the use of subsequent practice to resolve ambiguities or to confirm a meaning.18  Nowhere did the ILC
mandate the use of subsequent practice to contradict the ordinary meaning of words.
16. In any event, even on its own merits the “subsequent practice” referred to by the United States
does not demonstrate what the United States claims.  The alleged subsequent practice shows only thatin making its notification of a safeguard measure, New Zealand did not make any reference to
unforeseen developments.
19 And, in any event, in the 1973 Note by the Secretariat cited by the
United States in its Second Written Submission, the GATT Secretariat concludes in fact that
unforeseen developments  must  be shown.20
17. In fact, the arguments on “subsequent practice” made by the United States are nothing more
than an attempt by the United States to contradict the decision of the Appellate Body in Argentina-
Footwear .  In short, the United States continues to fight a battle that it has already lost in the
Appellate Body.
18. Two examples illustrate this. First, the United States refers to a statement by a United States
negotiator of the ITO Charter and of the GATT 1947, who said: “Therefore, the reference to‘unforeseen developments’ in GATT was meaningless as far as the United States obligations were
concerned”.
21  And second, the United States sums up its discussion of the requirement of unforeseen
developments with the statement, “there is no reason to conclude that Article XIX should be
interpreted in a manner today that would require an ‘unforeseen developments’ finding as a
precondition for the imposition of a safeguard measure.”22
19. Mr Chairman, in New Zealand’s view, these two statements by the United States effectively
encapsulate the issue before the Panel on the question of unforeseen developments.  Should the Panel
do what the Appellate Body has stipulated and require that unforeseen developments be demonstrated
in this case, or should it do what the United States wishes and make the requirement of unforeseen
developments “meaningless as far as United States obligations are concerned”?  In New Zealand’s
view, the question answers itself.
                                                     
16 United States Second Written Submission, paras 5 to 10.
17 Report of the International Law Commission on the Work of its Eighteenth Session , Yearbook of the
International Law Commission, 1966, vol II, p 221, attached to the United States Second Written Submission asUS Exhibit 43.
18 Report of the International Law Commission on the Work of its Eighteenth Session , Yearbook of the
International Law Commission, 1966, vol II, p 222, attached as Annex NZ21.
19 United States Second Written Submission, paras 8 and 9.
20 United States Second Written Submission, para 6.
21 United States Second Written Submission, para 10.
22 United States Second Written Submission, para 13.WT/DS177/R
WT/DS178/R
Page A-270
20. As a fall-back position, the United States also argues that “unforeseen developments” can be
found if one searches through the pages of the USITC Report and that it does not matter that the
USITC did not demonstrate their existence.23  As long as some unforeseen developments happen to be
there, in the United States view, Article XIX has been complied with.  But that is not what the
Appellate Body said in Argentina-Footwear .  It did not say that if a Panel can glean unforeseen
circumstances from the facts before the competent authority of the Member taking the safeguardmeasure then Article XIX has been complied with, re gardless of what the competent authority says or
decides.  The Appellate Body said that the existence of unforeseen circumstances must be
demonstrated , and it made clear that it was for the competent authority to do that.
24
21. Indeed, the United States goes as far as saying that the USITC made “uncontested findings”
on the existence of unforeseen developments, making all of its prior arguments about the lack of any
legal requirement to make such findings irrelevant.25  But, of course, those alleged findings are
nothing more than findings about the existence of  increased imports which the United States contortsin this case to be “uncontested findings” about “unforeseen developments”.  As New Zealand has
argued in earlier submissions, a finding of increased imports is a separate requirement from the
demonstration of unforeseen developments.
26
22. The United States also argues that its contentions about the so-called unforeseen
developments are not contested by New Zealand.27  And, of course New Zealand does not contest that
there were increased imports during the period of investigation.  But to assert the existence of a factor
that cannot in law constitute unforeseen developments, and then argue that the existence of unforeseen
developments is not contested because that factor has not been denied is simply a pointless exercise.
For the reasons set out in our Oral Statement at the First Panel Hearing and in our Second Written
Submission, New Zealand contests the United States  view that the alleged unforeseen developments
can constitute unforeseen developments within the meaning of Article XIX of the GATT.28  Thus, in
its claims that facts have not been challenged, the United States has proved nothing.
23. On this aspect, then, there are two questions for the Panel.  Can the failure of the competent
authority to demonstrate the existence of unforeseen developments be remedied by the United States
before this Panel by a reconstruction of the USITC’s report?  And, if so, can a finding of increasedimports be a substitute for a finding of unforeseen developments?  As New Zealand has shown, the
answer to both of these questions is “no”.
 Domestic Industry
24. On the question of the “domestic industry” in this case, the issue is quite straightforward.
Should the United States be required to apply the terms of the Safeguards Agreement in defining the
domestic industry, or should it be permitted to adopt a definition of its own making, a definition
which the United States itself admits it uses only in the case of agricultural products?29  T h e
United States would have the Panel write the word s “continuous line of production” and “coincidence
of economic interests” into the Safeguards Agreement.  But there is no legal basis for doing so.  The
approach that the United States seeks to apply to the determination of domestic industry is one that
                                                     
23 United States First Written Submission, paras 50 to 60 and Second Written Submission, paras 14 to
19.
24 Argentina - Footwear , paras 92 and 98.
25 United States Second Written Submission, para 16.
26 New Zealand’s Oral Statement at the First Panel Hearing, paras 19 and 20, and New Zealand’s
Second Written Submission, para 2.11.
27 United States Second Written Submission, paras 14 to 18.
28 New Zealand’s Oral Statement at the First Panel Hearing, paras 19 and 20, and New Zealand’s
Second Written Submission, para 2.11.
29 United States Responses to Questions from the Panel, para 28.WT/DS177/R
WT/DS178/R
Page A-271
has been consistently rejected by GATT panels.  Furt hermore, were we to resort to the United States
approach of looking to the negotiating history, we would find a rejection of the idea that upstream and
downstream producers be included in the concept of “domestic industry” for the purposes of the
Safeguards Agreement.30
25. Again, the United States seeks to bolster its position with non sequiturs  and irrelevant
arguments.  New Zealand is said not to contest the factual basis of the United States argument relating
to “continuous line of production” and “vertical integration” theories.31  But what is there to contest
when there is simply no legal basis for asserting the relevance of these theories?  As New Zealand has
pointed out on several occasions, the terms of the Safeguards Agreement define the domestic industry
by reference to the producers of like or directly competitive products.32  Growers and feeders produce
live lambs, packers and breakers produce lamb meat.  Live lambs and lamb meat are not like or
directly competitive products.  The United States does not even seek to deny that.  Nor does it attempt
to show that its approach to the determination of the domestic industry in the case of agriculturalproducts fits within the terms of the Safeguards Agreement.  In fact, the strongest argument it makes
is that such an interpretation may be “permitted” by the Agreement.
33  However, it never tries to
reconcile its approach with the actual terms of the Safeguards Agreement.
26. Furthermore, in its Second Written Submi ssion, the United States overstates what
New Zealand does not contest.  For example, the United States says that New Zealand does not allegethat there is no “vertical integration” throughout the four segments of the industry.
34  However, the
United States argument on vertical integration shows linkages between growers and feeders and
linkages between packers and breakers.  Except for isolated examples, it does not show any
integration between the producers of live lambs, that is, growers and feeders, and the producers of
lamb meat, that is, packers and breakers - the two industries that the USITC has improperly linked inthis case.
27. In short, there is simply no basis under the Safeguards Agreement on which the United States
approach to the determination of domestic industry in this case can be upheld.
 Threat of Serious Injury
28. Mr Chairman, it is important to remember that this is a case about threat of serious injury and
not about serious injury itself.  The error of the USITC was that it investigated the question of the
existence of serious injury, then, having failed to find actual serious injury, it assumed that there must
be a threat of serious injury.  In that way it ignor ed Article 4.1(b) of the Safeguards Agreement, which
provides that a threat determination must be based on serious injury that is clearly imminent , and that
the determination must be based on facts and not on allegation, conjecture or remote possibility.
29. The substance of the United States argument on threat of serious injury is that an increase in
imports at a time when the domestic industry was in decline meant that there was a threat of serious
injury.  In short, both the threat determination and the causation determination of the USITC werebased on an assumption about causation.
30. This is illustrated in a number of ways.  In seeking to support the USITC’s conclusions on
threat, the United States focuses its analysis, in a way the USITC did not do, on the period 1997 and
                                                     
30 Negotiating Group on Safeguards, Synopsis of Proposals, Note by the Secretariat ,
MTN.GNG/NG9/W/21 (31 October 1998), Heading C, para 19.
31 United States Second Written Submission, para 22.
32 New Zealand’s First Written Submission, para 7.41 and New Zealand’s Second Written Submission,
paras 3.1 to 3.12.
33 United States First Written Submission, para 70.
34 United States Second Written Submission, para 23.WT/DS177/R
WT/DS178/R
Page A-272
interim 1998.  But there was nothing remarkable about that period as far as the domestic industry was
concerned.  What the United States focuses on during that period was an increase in imports
(although, as New Zealand has pointed out, the increase was not as significant as the United States
claims),35 and a decline in prices.  This increase in imports becomes the basis for the United States
argument that there was a threat of serious injury.  But that, of course, assumes what had to be proved
in respect of both the serious injury and the causa tion determinations - that there was a relationship
between imports and domestic price declines, that an  increase in imports would cause serious injury,
and that such injury was clearly imminent.
31. The United States conflation of threat and causation is also evident in its discussion of
Annex NZ13 attached to New Zealand’s First Oral Statement.  That annex showed that, contrary to
the claims of the United States, economic analysis could be used to distinguish injury caused by
domestic factors from injury caused by increased imports.  The United States claims that the annex
“fails as a challenge to the USITC’s threat of injury determination”.36  But, of course, it was not
introduced as a challenge to the USITC’s threat of injury determination.  The United States sees it as
such a challenge because it does not distinguish ca usation from threat.  Moreover, the United States
linking of the analysis in Annex NZ13 with its arguments on the threat of serious injury is an implicit
admission by the United States that if the USITC’s assumption about causation cannot stand, then its
conclusion on threat falls to the ground as well.  That is, the USITC’s determination on threat is basedon nothing more than an assumption about causation.
32. I would like to make one additional comment at this stage.  The United States objects to
New Zealand’s characterisation in Annex NZ13 and elsewhere that what occurred was nothing more
than a normal fluctuation in agricultural trade,  claiming that New Zealand is seeking to make
safeguard measures unavailable for agricultural products.
37  That, of course, is not correct.  But
consider the implications of the United States claim.  If a one-year period is sufficient to determine a
trend on which to base a threat determination, then an industry which over a five-year period has
experienced a strong positive price trend could have a safeguard measure imposed simply because of
a short-term price drop in the sixth year.  That cannot be the purpose of the safeguards disciplines
under the WTO.
33. Mr Chairman, turning to the specific arguments made on the question of threat, the Panel is
confronted with two quite separate views of what occurred in this case.  On the one hand, you have
the picture the United States paints of a “surge” in imports in 1997 and interim 1998 at the same time
as a drop in domestic prices for lamb meat.  According to this view, lamb meat consumption was
stable in 1997 and interim 1998 and imported lamb meat, through increases in fresh and chilledproduct and its larger size, increasingly competed with domestic production. Under this theory, a
continuation of imports at prices lower than domestic prices would lead to further depressed prices.
On this basis, the United States claims that it can justify the USITC’s determination of threat.
34. On the other hand, New Zealand has shown that what in fact occurred was quite different.
The termination of the Wool Act payments led to a contraction in the supply of lamb meat and an
increase in domestic prices; the lower supply encour aged imports onto the market; much of these
imports went to supply new demand or went to meet latent demand in the market; there was littledirect competition between domestic and imported product; the drop in domestic prices in 1997 and
interim 1998 occurred as a result of the drop in prices in competing meats; domestic prices rose again
in the last three months of the period of investigation at a time of higher imports; and consumption
increased at the same time, absorbing the rise in imports.
                                                     
35 New Zealand’s Oral Statement at the First Panel Hearing, para 38.
36 United States Second Written Submission, para 45.
37 United States Second Written Submission, para 58.WT/DS177/R
WT/DS178/R
Page A-273
35. How can two accounts, each based on the same investigation of a competent authority, be so
different?  The answer lies, as we have suggested before, in the USITC Report itself.  It also lies in a
comparison between what the USITC actually found and what the United States now, in an attempt to
reinterpret the USITC’s Report, has said that the USITC found.  New Zealand has previously referred
to the inconsistencies between the United States description of the USITC Report and what was
actually said in that Report.38  In addition, the USITC Report itself also contains inherent
inconsistencies.
36. For example, the USITC found evidence of the larger size of imported product.39  At the same
time, it found evidence of differences between imported and domestic product,40 including
considerable differences in size.41  Which is correct?  The facts set out in the USITC Report show that
it is the latter.  Similarly, the USITC stated that in 1997 imports displaced  domestic product.42  It also
said that many imports supplied new demand.43  The evidence before the USITC points clearly to the
second statement being correct.  Let me take another example.  The USITC said that consumption oflamb meat was stable after 1996.
44  However, it also said that the market was somewhat sensitive to
price.45  The drop in the competing price of other meats at the same time as the decline in lamb prices
supports the latter statement.  The USITC also referred to prices remaining “depressed” to the end of
the period of investigation.46  But in contrast, the information collected by the USITC shows that
interim 1998 prices were higher than those at the beginning of the period of investigation.47  Finally,
the USITC said that imported prices for several of the products surveyed were 20 percent or more
below comparable quarters in 1996 and early 1997,48 which was used by the United States to justify
its allegations of 20 percent underselling of domestic product by imported product.49  However, the
actual evidence points to meaningful comparisons being possible for only three of the eight products
surveyed, and in one of those the domestic product actually oversold the imported product.50
37. Faced with such differences, both within the USITC Report and between what the USITC
actually found and what it is alleged by the United States to have found, the task of the Panel is to
determine whether the competent authority came to reasoned conclusions based on the evidence
before it.  As the United States itself admits in its Second Written Submission, the question before the
Panel is the adequacy  of the USITC’s determination as it was made at the time.51  The Panel should
examine the analysis performed by the competent authority on the basis of the determinations made
by that authority and on the basis of the evidence it has collected or should have collected.
                                                     
38 New Zealand’s Oral Statement at the First Panel Hearing, paras 6 to 9.
39 USITC Report, I-22.
40 USITC Report, I-23.
41 USITC Report, II-8.  See also II-37, where the increase in size of Australian imported product noted
by the USITC is shown to be a rise of only 2 pounds in average carcass weight over a period of three years.
42 USITC Report, I-24.
43 USITC Report, I-32.  In addition, Table 5 at II-17 shows that in interim 1998 the increase in imports
was matched by a slight rise in domestic shipments, suggesting that there was no displacement of domesticproduct by imports.
44 USITC Report, I-22.
45 USITC Report, I-22.
46 USITC Report, I-20.
47 USITC Report, II-55.  The USITC also noted that interim 1998 prices were above the average for the
full period of investigation.
48 USITC Report, I-20.  The footnote to this statem ent refers to frozen product categories and carcasses
for which there are very limited domestic sales.
49 United States First Written Submission, para 87.
50 United States Exhibit 41, Tables 38 to 43, attached to the United States Responses to Questions from
the Panel.
51 United States Second Written Submission, para 48.WT/DS177/R
WT/DS178/R
Page A-274
38. Such an examination will show that if a short period of just over one year was used in order to
determine that a threat of serious injury was clearly imminent, then no proper analysis of threat could
have been undertaken.  A determination of a threat of serious injury depends upon a prediction of
future trends based on an analysis of past trends.  There has to be an analysis  of past trends, and not
just a “snap-shot” of what occurred on a particular occasion.  The United States tries to justify its
approach on the basis of the Appellate Body’s focus in Argentina-Footwear  on the most recent
period.52  But, of course, Argentina-Footwear  was a case involving actual serious injury, and looking
at the most recent period is appropriate if the enquiry is to determine whether the industry in question
is suffering actual injury.  But, how can one predict what will happen in the future on the basis of only
a brief period in the past?  Analysis of trends over a representative period is a basis for determining
what will happen in the future.  Glancing at a brief occurrence is not.
39. In addition, even during that short unrepresentative period on which the United States now
focuses, nothing happened that did not happen during the longer period of investigation.  Prices hadrisen and fallen during the period of investigation, and they had risen in the beginning of 1997 and
then fallen again during the course of that year.  Imports had increased during the period of
investigation, and they had increased in 1997 and 1998.  What the United States seeks to do is to
make an assumption that that increase in imports wa s linked to the falling prices. The United States
determination of threat is, therefore, a determination based on an assumption of causation, that is, anassumption that if imports continued to increase, th ere would be serious injury.  As New Zealand has
said, a safeguard determination must be based on a threat of serious injury, not on a threat of
increased imports.
53
40. The United States approach illustrates precisely why it is a mistake to base future prediction
on short-term occurrences rather than on longer-term trends.  The assumption of a relationshipbetween the fall in prices in 1997 and an increase in  imports ignores the fact that prior to 1997 there
had been a fall in domestic production due to growers, who had been rendered uneconomic as a result
of the loss of the wool subsidy, leaving the industry.  Imports increased in response to a resulting
unfulfilled domestic demand.  At the same time growers remaining in the industry needed increased
prices in order to try to recoup losses resulting fr om the termination of the Wool Act subsidy.  But by
mid-1997, given the downward trend in competing meat prices, a correction had to take place and
consequently lamb prices fell.
41. Thus, by focusing only on the period from mid-1997 and in interim 1998, the United States is
able to make assumptions that are unwarranted and to reach conclusions about causation and threat
that are neither reasoned nor founded on analysis.  The “snap-shot” approach to determining threatadvocated by the United States is totally at variance with the requirement of the Safeguards
Agreement that threat determinations are not to be based on conjecture or remote possibility.
42. The new United States argument that a determination of threat can be made on the basis of
packers and breakers alone also cannot be sustained.
54  The United States cannot justify a decision of
its competent authority on a basis that was not even considered by that competent authority.  Nor can
it seek to support a decision of the competent authority on the basis of claims that are contrary to the
facts as found by that authority.  As New Zealand demonstrated in its Second Written Submission, thefacts before the USITC showed that far from being faced with a clearly imminent threat of serious
injury, packers and breakers saw improved economic conditions over the period of investigation.
55
There is simply nothing to this rather desperate attempt by the United States to support the decision ofthe USITC on threat of serious injury.
                                                     
52 United States Second Written Submission, para 32.
53 New Zealand’s Second Written Submission, para 4.2.
54 United States Oral Statement at the First Panel Hearing, para 16.
55 New Zealand’s Second Written Submission, paras 4.20 to 4.26.WT/DS177/R
WT/DS178/R
Page A-275
43. Thus, Mr Chairman, the issue before the Panel on the question of threat of serious injury is
whether the competent authority of a Member is required to make a determination of the existence of
a threat of serious injury on the basis of facts and on a reasoned determination that significant overall
impairment is clearly imminent as required by Arti cle 4.1(b) of the Safeguards Agreement, or whether
it is entitled to base such a determination on a “snap-shot” of events and to conclude that serious
injury is threatened on the basis of an assumpti on of causation.  Again, in New Zealand’s view, the
answer is clear.
 Causation
44. Mr Chairman, as in the case of the issue of “unforeseen developments”, the question of
causation is becoming mired in obfuscation.  The words of the Safeguards Agreement on causation
are clear.  They revolve around two propositions.  First, a safeguard measure can be applied only if
the alleged threat of serious injury was caused by imports.56  Second, where factors other than
increased imports are causing injury to the industry in question, that injury shall not be attributed to
increased imports.57  There is a simple corollary from these two propositions.  If, when the threat of
injury from these other factors is excluded, there is no threat of serious injury, then there is no threat
of serious injury to attribute to imports.  In those circumstances, there is no basis for taking a
safeguard measure.
45. The United States seeks to avoid the consequences of these propositions in a number of ways.
For example, it embarks on an excursus into the concept of “sole cause”.58  But its argument on this
point is simply irrelevant.  Of course there can be many causes of injury or of threat.  Article 4.2(b)
itself recognises that.  But that does not justify attributing to increased imports the injury or threat
caused by other factors.  Article 4.2(b) specifically proscribes that.  A competent authority cannot
attribute serious injury to increased imports where increased imports cause only injury, but increased
imports together with other factors cause serious injury.
46. Equally, the United States theory of the prohibition of “import isolation”, to the extent that it
has any meaning at all, seems to suggest that it is  permissible to attribute to increased imports injury
caused by other factors.59  However, this is clearly not correct.
47. In its Second Written Submission, the United States has sought to support its position by
extensive reference to the negotiating history of the Safeguards Agreement.60  However, this is a
curious use of negotiating history.  Article 32 of the Vienna Convention on the Law of Treaties
permits recourse to negotiating history as a supplementary means of interpretation in order to confirma meaning already reached by the application of the basic rule of interpretation set out in Article 31 or
where there is ambiguity.  As the International Court of Justice has said: “there is no occasion to
resort to preparatory work if the text of a convention is sufficiently clear in itself.”
61  The
United States has not argued that there is any ambiguity, thus its recourse to negotiating history must
be to confirm an existing meaning.  But that is not wh at the United States is doing at all.  Rather, the
United States is seeking to use negotiating history to contradict the ordinary meaning of the words of
the Safeguards Agreement.  This is exactly what Article 32 of the Vienna Convention on the Law of
Treaties does not permit.
                                                     
56 Safeguards Agreement, Article 2.1.
57 Safeguards Agreement, Article 4.2(b).
58 United States Second Written Submission, paras 63 to 86.
59 United States Second Written Submission, paras 87 to 89.
60 United States Second Written Submission, paras 64 to 80.
61 Advisory Opinion of 28 May 1948 on Admission of a State to the United Nations [1948] ICJ Reports,
p 57 at p 63.  Quoted in the Report of the International Law Commission on the Work of its Eighteenth Session ,
Yearbook of the International Law Commission, 1966, vol II, p 223, attached as Annex NZ21.WT/DS177/R
WT/DS178/R
Page A-276
48. In any event, in its setting out of the negotiating history of the Safeguards Agreement, at most
the United States has succeeded in showing that there were varying views amongst the negotiators as
to the meaning of the words they were using.  That is to be expected, and it is precisely why a treaty
interpreter is required by the Vienna Convention to search for intent in the words finally used in the
treaty and not to seek intent from the expressions of differing motives and intent of the parties during
their negotiations.  The United States arguments in this case demonstrate the wisdom of that rule.Moreover, it is an irony of the United States refere nce to the negotiating history in respect of the test
for causation that the one thing that does become clear from that history and from the final text agreed
on is that, having been discussed and considered, the “substantial cause” test advocated by the
United States in this case, was rejected by the Safeguards Negotiating Group.
62
49. Throughout its arguments about “sole cause” and “import isolation”, and its recourse to
negotiating history, the United States leaves one thing completely obscure.  That is, what is the
meaning of the second sentence of Article 4.2(b)?  In its First Written Submission, the United Statescame close to admitting that the sentence means precisely what it says – in other words, its ordinary
meaning.  It said that the second sentence of Article 4.2(b) “instructs Members not to blame increased
imports for any injury caused by other factors.”
63  In its Second Written Submission, the United States
again leans towards this approach, stating that th e sentence “requires Members to ensure that they
distinguish between different causes of injury rather than simply making the assumption that
increased imports are responsible for all of the injury that the industry has experienced.”64  We agree.
50. However, as if it then realised the implications of  this statement, the United States restated its
position in a way that bears no relationship to what was just said and appears even to contradict it.
“Stated otherwise,” the United States says, “the second sentence instructs Members that they should
not jump from the establishment of the ‘causal link ’ between increased imports and serious injury to
the conclusion that the sole source of the industry’s injury is attributable to those imports.”65  But, Mr
Chairman, if increased imports have in themselves caused serious injury, it does not matter whether
there are other causes as well.  In those circumstances, the admonition that the United States reads
into the second sentence of Article 4.2(b), not to jump from a conclusion of causation to a conclusion
of sole causation, is simply meaningless.  And if that is all that the second sentence of Article 4.2(b)means, then the United States has effectively written it out of the Safeguards Agreement.
51. At the end of the day, the United States cannot escape from the simple, ordinary, literal
meaning of the second sentence of Article 4.2(b).  In determining whether the threat of serious injury
that it had found was attributable to increased imports, the United States could not attribute to
increased imports injury caused by other factors.  However, that is exactly what the USITC did.  Itdetermined that its domestic industry was being threatened with injury from a variety of factors.
Collectively, this amounted, in the USITC’s view, to a threat of serious injury.  And, since none of the
factors causing the threat of injury was a greater cause than increased imports, then the collective
serious injury was attributed by the USITC to increased imports.  As a result, a determination of
causation was made by attributing to increased imports injury caused by other factors – which is
precisely what the second sentence of Article 4.2(b) says cannot be done.
52. Mr Chairman, I would now like to turn very briefly to Annex NZ13.
66  The United States has
raised a number of objections about its admissibility.  They argue that it constitutes an invitation to
undertake a de novo  review.67  They argue that it would be admissible only if it had been originally
                                                     
62 As illustrated by the Negotiating Group on Safeguards, Draft Text , MTN.GNG/NG9/W/25/Rev.3, 31
October 1990.
63 United States First Written Submission, para 119.
64 United States Second Written Submission, para 79.
65 United States Second Written Submission, para 79.
66 Attached to New Zealand’s Oral Statement at the First Panel Hearing.
67 United States Second Written Submission, para 79.WT/DS177/R
WT/DS178/R
Page A-277
placed before the USITC.68  But these United States arguments avoid the issue.  Annex NZ13 was not
presented as evidence of how the USITC should have decided the case.  It was not presented in order
to invite the Panel to engage in a de novo review.  It was presented in response to the contention of the
United States that causation could not be demonstrated with any degree of precision - that in a sense,
causation can be nothing more than an impressionistic response to circumstances by experienced
Commssioners on the USITC.
53. Annex NZ13 shows that the question of whether injury or threat is caused by increased
imports or by domestic factors is capable of being determined on the basis of objective analysis – that
it is possible to demonstrate the causal link between increased imports and the threat of serious injury
on the basis of objective evidence as Article 4.2(b) of the Safeguards Agreement requires.  Equally,
Annex NZ13 shows that it is possible to determine when factors other than increased imports cause
the threat of serious injury in question.  The United States objections to Annex NZ13 do not deny that
point.
54. Moreover, all of the United States arguments criticising Annex NZ13 fail to undermine its
essential point.  That is, in order to be able to argue that serious injury threatening lamb meat
producers was caused by imports, it would have to be shown that domestic prices on the United States
market were declining and that they were being forced down by lower-priced imports.  This was not
shown by the USITC, nor could it be.
55. Furthermore, the basic conclusion of Annex NZ13 would not have altered had there been a
breakdown between frozen and chilled lamb meat as the United States alleges.69  The price of frozen
lamb meat increased significantly over the period 1993 to 1998.70  Thus the increase in the aggregate
price of imports was not just the result of the increase in the proportion of chilled lamb meat as the
United States would have the Panel believe.71
56. Therefore, in relation to causation, Mr Chairman, the issue for the Panel is whether the second
sentence of Article 4.2(b), which requires that injury caused by other factors not be attributed to
increased imports, should be given any content.  New Zealand has demonstrated not only that the
ordinary meaning of the second sentence of Article 4.2(b) provides that content, but also that the
distinctions required by the application of that  provision can be drawn.  The United States, by
contrast, wishes to have the freedom to attribute to increased imports injury that is caused by other
factors, and in doing so, to deny any content to Article 4.2(b).  Such an approach cannot be justified
under the Safeguards Agreement.
 Necessity
57. Mr Chairman, the essential question in respect of Article 5.1 of the Safeguards Agreement is:
what is the nature of the obligation that is cast upon a Member in applying a safeguard measure?
Article 5.1 provides that the measure is to be applied “only to the extent necessary to prevent or
remedy serious injury and to facilitate adjustment”.  New Zealand has argued this means that inchoosing a remedy, a Member must choose one that is proportionate to the objective sought to be
achieved; it must be the least trade restrictive of those remedies that are capable of achieving the
objectives of preventing serious injury and facilitating adjustment.  And, since the plurality of the
USITC Commissioners proposed a remedy that is less trade restrictive than that applied by the
United States Administration, then it is incumbent on the United States to explain why it is not in
violation of Article 5.1.
                                                     
68 United States Second Written Submission, paras 46, 51 and 52.
69 United States Second Written Submission, paras 53 to 56.
70 Meat and Livestock Australia’s Pre-injury Hearing Submission, Exhibits 8 and 12, attached to the
Australian First Written Submission as Exhibit AUS-28.
71 United States Second Written Submission, para 55.WT/DS177/R
WT/DS178/R
Page A-278
58. The United States continues to challenge the use of the term “least trade restrictive”.72
Apparently the representatives of the United States in this case have not had the opportunity to speak
with the United States Trade Representative who, as we pointed out in our Second Written
Submission, agrees that the objective in choosing a safeguard measure is to choose the measure that is
least trade restrictive.73
59. Nor do the United States arguments based on the interpretative provisions of the Vienna
Convention afford it any support.  It claims that words are being imported from other areas,74 and
ignores that the interpretative function is to give meaning to the words in the treaty.  For this is
precisely where the United States arguments fall down.  It objects to the New Zealand interpretation
of Article 5.1, but fails to offer any alternative interpretation of that provision.  What obligation,
according to the United States, does Article 5.1 impose on a Member in taking a safeguard measure?
60. The United States comes close to offering its views on Article 5.1 when it says that the
provision “calls for an examination of whether the measure a Member has chosen to apply isappropriately gauged to the specific injury and causation findings that the competent authorities have
made”.
75  But this leaves the central question unanswered.  How does one determine whether a
measure is “appropriately gauged”?  Rather than throwing light on the issue, the United States
approach simply turns the enquiry right back to th e debate over the meaning of “only to the extent
necessary”.
61. Some impression of the real approach of the United States can be gleaned from its criticisms
of New Zealand’s views in its Second Written Submission.76  It says of its characterisation of the
New Zealand approach that “That degree of scientific perfection is simply unachievable”, and goes on
to say that “identifying an appropriate safeguard measure is an inherently uncertain enterprise.”77  In
these two statements, the United States reveals an approach that is found in its arguments on otheraspects of this case: there cannot be disciplines placed on Members taking safeguard measures - the
whole area is to be left to the subjectivities of each Member.  In effect, Article 5.1 should not be given
any content.
62. In this regard, the United States arguments on burden of proof are simply a smokescreen to
cover the fact that the United States wishes to avoid articulating a standard under Article 5.1 andshowing how it meets that standard.  It posits a burd en that could never be met.  And, of course, it
does so in order to prevent any comparison being made between the USITC plurality recommendation
and the measure that the Administration adopted, because it cannot demonstrate that its chosen
measure is applied only to the extent necessary to prevent serious injury and to facilitate adjustment.
As New Zealand has pointed out, in many respects that measure goes well beyond the prevention ofany threat or the facilitation of any necessary adjustment.
63. To this end, the United States resorts to arguments such as claiming that a three year measure
is ipso facto  less trade restrictive than a four year measure regardless of the content of that measure .
78
That simply does not make sense.  It is rivalled only by the claim that a 40 per cent out of quota tariff
is equivalent to a 20 per cent out of quota tariff!79  These, Mr Chairman, are the arguments of the
desperate.  Furthermore, an analysis of the United States past safeguard practice reveals that 80 per
                                                     
72 United States Second Written Submission, paras 98 to 101.
73 New Zealand’s Second Written Submission, para 6.2.
74 United States Second Written Submission, para 100.
75 United States Second Written Submission, para 110.
76 United States Second Written Submission, paras 102 to 110.
77 United States Second Written Submission, para 105.
78 United States Second Written Submission, fn 90.
79 United States Second Written Submission, fn 90.WT/DS177/R
WT/DS178/R
Page A-279
cent of United States safeguard measures were for a duration of four years or more.80  This makes a
nonsense of United States arguments that the likelihood of the safeguard in this case being extended
“is conjectural at best”.81
64. New Zealand has clearly demonstrated that the measure adopted by the United States does not
meet the requirements of Article 5.1.  First, no serious injury was found at existing levels of imports,
yet the in and out of quota tariff rates were set at levels designed to reduce  imports to levels below
those in 1998.  Thus, the measure was applied to an extent greater than necessary to prevent a threat
of serious injury.  It was, as the United States itself claims, designed to improve  the position of the
domestic industry.82  It was not designed to prevent  serious injury to that industry.  Second, in its
causation findings, the USITC found other factors to be causing injury and the measure imposed
addresses these elements of the USITC’s findings.  Indeed, specific measures were adopted to address
these other causation factors.  Clearly, therefore, the safeguard measure adopted by the United States
goes beyond the extent necessary to prevent the seri ous injury or facilitate adjustment resulting from
the threat of serious injury attributable to increased imports.
 MFN
65. Mr Chairman, the issue surrounding the United States violation of Article I of the GATT 1994
and Article 2.2 of the Safeguards Agreement is quite simple.  The USITC included the imports of
certain countries, notably Canada, Mexico and Israel, in its determination of threat, but excluded the
imports of those countries from the application of its safeguard measure.
66. In its First Written Submission, the United States sought to argue that this had not occurred.83
In its Second Written Submission the United States appeared to concede that it had occurred and
argued that it was entitled, indeed obliged, to do this.84  Neither argument can be sustained.  What the
United States is seeking to do in this case is have the Panel incorporate a special causation rule into
the Safeguards Agreement for dealing with free trade areas.  However, the principle of “parallelism”
set out in Argentina-Footwear  stands in the way of the United States arguments in this case.85  I n
New Zealand’s view the Argentina-Footwear  principle clearly applies.
 Conclusion
67. By way of conclusion, Mr Chairman, I would like to make the following brief comments.  In
this case the Panel is faced with a stark choice.  Should it apply the provisions of the Safeguards
Agreement and the GATT 1994 in accordance with their terms, or should it rewrite the relevant
provisions of those agreements along the lines advocated by the United States?  In New Zealand’s
view, to follow the United States approach would be wrong both as a matter of policy and as a matterof legal interpretation.
68. As a matter of policy, what the United States is essentially advocating is that little more than a
one year price drop for a given agricultural product should be sufficient to take safeguard action.  If
that is so, then a large part of world agricultural trade could time and again be blocked by safeguard
measures. Clearly, the option of using safeguards must be available for agricultural products.
However, a determination of a threat of serious injury triggering safeguard action cannot result from
                                                     
80 Guide to GATT Law and Practice , (1995) vol I, pages 539 to 559 (Analytical Index).  An
examination of the Analytical Index discloses that the average length of time for United States safeguardmeasures is six years.
81 United States Second Written Submission, fn 90.
82 United States First Written Submission, para 175, 198, and 204.
83 United States First Written Submission, paras 254 to 257.
84 United States Second Written Submission, paras 118 to 123.
85 Argentina - Footwear , para 113.WT/DS177/R
WT/DS178/R
Page A-280
changes in market conditions that are no more than  price fluctuations that are to be expected in
agricultural trade.  The Safeguards Agreement cannot be applied in a way that would obliterate any
distinction between measures taken under the Safeguards Agreement and measures taken under the
special safeguards provisions of the Agreement on Agriculture.
69. As a matter of policy, too, the causation requirement of the Safeguards Agreement cannot be
applied so as to ignore any distinction between injury  or threat caused by increased imports and injury
or threat caused by domestic factors.  Members cannot be permitted to place on imports the burden of
economic decline due to domestic factors.
70. As a matter of legal interpretation, as we have shown, the United States arguments cannot be
supported.  They involve denuding the concept of “unforeseen developments” of any content;
rewriting the concept of domestic industry to exclude the defining factor of “like or directly
competitive products” and replacing it with concepts of “continuous line of production” and
“coincidence of economic interests”; eliminating the requirement that a determination of a threat ofserious injury be based on facts and not on allegation, conjecture or remote possibility; permitting the
attribution to increased imports of injury caused by other factors; and eviscerating the requirement
that a measure be applied only to the extent necessary to prevent injury and to facilitate adjustment of
any procedural or substantive content.  Finally, the United States is asking the Panel to provide a new
rule for the application of safeguard measures to free trade areas.
71. In New Zealand’s view, Mr Chairman, all of this has to be rejected.
72. I would like finally to reaffirm all of the arguments made by New Zealand in our earlier
written and oral pleadings, and to respectfully request the Panel to find the United States in violation
of its obligations under the Safeguards Agreement and the GATT 1994 and to recommend that the
United States bring its treatment of imports of lamb meat from New Zealand into conformity with itsobligations under those agreements.WT/DS177/R
WT/DS178/R
Page A-281
ANNEX 3-1
LETTER FROM THE UNITED STATES
REQUESTING PRELIMINARY RULINGS
(5 May 2000)
Pursuant to paragraph 13 of the Panel’s Working Procedures, and having reviewed the
submissions of Australia and New Zealand in the present dispute, the United States hereby requests
preliminary rulings on the following issues.
A. Insufficiency of Panel Request
1. The panel requests of Australia and New Zealand were insufficient as a matter of law to
satisfy the requirement of Article 6.2 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes  (“DSU”) that such requests “shall identify the specific measures at issue and
provide a brief summary of the legal basis for the co mplaint sufficient to present the problem clearly.”
The complaining parties failed to provide any indicati on of the legal basis for their claims.  Australia’s
panel request and corrigendum in document WT/D S178/4 and WT/DS178/4/Corr.1 merely provide
one paragraph identifying the US safeguard measure on lamb, note that consultations took place, and
state that:
Australia considers that the measure, and associated actions and decisions taken by
the USA, are inconsistent with the obligations of the USA under the Agreement on
Safeguards and GATT 1994, in particular:
Articles 2, 3, 4, 5, 8, 11, and 12 of the Agreement on Safeguards, and Articles I, II,
and XIX of GATT 1994.
Similarly, in its panel request in document WT/DS177/4, New Zealand provides one paragraph
identifying the US safeguard measure on lamb, states that
New Zealand considers that this measure is inconsistent with the obligations of the
United States of America under the following provisions:
Articles 2, 3, 4, 5, 11 and 12 of the Agreement on Safeguards; and Articles I, II and
XIX of the GATT 1994.
and then notes that consultations took place.  Nothing in either of these panel requests provides any
other information that would in itself further clarify exactly which of the obligations in these named
articles is alleged to be infringed.
2. In the recent appellate proceeding on Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products,  the Appellate Body examined a panel request by the EC closely resembling
the panel requests in the present dispute.  The Appellate Body noted its earlier decision in the
Bananas case that “it was sufficient for the Complaining Parties to list the provisions alleged to have
been violated without setting out detailed arguments as to which specific aspects of the measures at
issue relate to which specific provisions of those agreements.”  ( Bananas  at fn. 13, ¶141). However,
the Appellate Body then clarified that in the Bananas  case it first had restated the reasons why
precision is necessary in a request for a panel; then had stressed that claims, not detailed arguments,
are what need to be set out with sufficient clarity; and third, had found that the listing of articles inWT/DS177/R
WT/DS178/R
Page A-282
that case satisfied the minimum  requirements of the DSU, and the EC had not been misled as to what
claims were in fact being asserted against it. ( Korea- Dairy , ¶123).
3. The Appellate Body then noted that “[i]dentification of the treaty provisions claimed to have
been violated by the respondent is always necessary both for purposes of defining the terms of
reference of a panel and for informing the respondent and the third parties of the claims made by thecomplainant; such identification is a minimum prerequi site if the legal basis of the complaint claim is
to be presented at all.”  The Appellate Body went on to note that there would be circumstances where
the “simple listing of the articles of the agreement or agreements involved” would be sufficient to
meet the standard of clarity  in the legal basis of the complaint, and there would be situations when
such a listing would not  satisfy the standard of Article 6.2, “for instance, where the articles listed
establish not one single, distinct obligation, but rather multiple obligations.  In such a situation, the
listing of articles of an agreement, in and of itself, may fall short of the standard of Article 6.2.”  ( Id.
at ¶124)  The Appellate Body then found that this issue must be examined on a case-by-case basis,
taking into account “whether the ability of the respondent to defend itself was prejudiced, given the
actual course of the panel proceedings, by the fact that the panel request simply listed the provisions
claimed to have been violated.” ( Id at ¶127.)
4. The Appellate Body then went on to examine the EC panel request in the Korea Dairy  case.
It found that GATT Article XIX and Articles 2, 4, 5 and 12 of the Agreement on Safeguards
(“Agreement”)  – all of which are at issue in this dispute – each have multiple paragraphs, most of
which have at least one distinct obligation.  ( Id., at ¶129)  It found that the Korea Dairy  panel’s
“perfunctory” examination of the DSU Article 6.2 issue raised by the EC was not satisfactory.  ( Id. at
¶130)  It determined that the EC panel request - which contained exactly the same elements as the
panel requests in the present case - should have been more detailed.  The Appellate Body denied
Korea’s appeal solely because Korea failed to demons trate to the Appellate Body that the mere listing
of the articles had prejudiced its ability to defend itself in the course of the panel proceedings.  While
Korea had asserted it had sustained prejudice, Korea had not offered any supporting particulars. ( Id. at
¶131)  The Appellate Body noted the desirability of  resolving such issues through preliminary rulings.
The United States seeks such a preliminary ruling.
5.  Every legal provision cited in both Australia and New Zealand’s panel requests contains
multiple obligations, yet neither request identifies the specific obligations at issue.  Neither the listingof articles nor any other material in the panel requests clarifies which of the multiple obligations
potentially at issue is actually implicated.  Thus, these requests are insufficient under DSU Article 6.2.
6. The United States does not assert substantial pr ejudice to the United States with respect to the
claims of the complainants under Articles I, II  and XIX of the GATT 1994 and Articles 5, 11 and 12
of the Agreement, as it was possible for us to discern those subprovisions that would be implicated on
the basis of the context of this proceeding.  However, the mere listing of Articles 2, 3 and 4 of theAgreement, without any elucidation of the actual clai ms at issue, fails to meet the standard of DSU
Article 6.2 and has substantially prejudiced the United States by compromising its ability to respond
to the claims of the complaining parties.
7. Both the Australia and New Zealand submissions raise multiple claims under each of the cited
articles of the Agreement, in particular Article 4 of the Agreement, that were not and could not have
been known to the United States based on the panel requests and corrigendum.  For example, with
respect to the obligations listed in Article 4 of the Safeguards Agreement, it was unclear whether
Australia and/or New Zealand were stating a claim with respect to the United States’ finding with
respect to (1) threat of serious injury as that term is defined in Article 4.1(b); (2) domestic industry asthat term is defined in Article 4.1(c); (3) any or all of the economic factors to be evaluated that are set
out in Article 4.2(a), each of which represents an independent obligation; (4) causation (Article
4.2(b)); or (5) the published analysis of the case required by Article 4.2(c).  Even the complainants’
submissions are unclear in many instances as to wh ich provisions are claimed to be violated and why,WT/DS177/R
WT/DS178/R
Page A-283
for instance concerning the injury determination under Article 3.  The United States can only
conclude that the claims in this case will continue to evolve, and that this evolution will be
uncontrolled by the terms of reference because of the vagueness of the panel requests.
8. Because of the inadequacy of the panel requests, it was not until Australia and New Zealand
filed their first written submissions that the United States was able to know their actual legal claims.Yet, while both complaining parties have had a number of months to prepare their legal arguments,
the United States was given only three weeks to respond.  Moreover, notwithstanding the long period
of time Australia and New Zealand had to prepare their first written submissions, both complaining
parties, during the organizational process for this panel proceeding, requested and were given even
more time , six more days, to prepare their submissions than had been proposed in the draft timetable.
Yet the United States was only provided one additional day in which to respond.
9. The insufficiency of the Panel requests has seriously prejudiced the United States in the
preparation of its defense.  It prevented the United States from knowing the true nature of the claims
being made against the US measure and placed the United States in the position of merely guessing
which of the many obligations in these several articles might be at issue in this review.  This severely
limited the ability of the United States to begin the task of preparing its defense.  The disputeresolution process is intended to be a relatively speedy process.  Central to such a speedy process is
the requirement that claims be clearly stated at the required time.  The failure of a complaining party
to do so prejudices the responding party and undercuts the fairness of the entire process.  It effectively
stacks the deck against the responding party.
10. The failure of the complainants to comply w ith Article 6.2 has also compromised the ability
of other Members to know what issues are at stake in this proceeding so that they could determine
whether to intervene as interested third parties concerning their interest in those issues.  The true
scope of this case will only be apparent to other Members after the panel report is circulated, at which
point it will be too late to reserve third party rights .  The failure to comply with the transparency and
due process obligations expressed in Article 6.2 therefore nullifies important values in the WTO
dispute settlement system.   This prejudice to the rights of third parties cannot be cured by merely
adjusting the timetable of this proceeding.
11. Accordingly, the United States requests that the Panel rule that the panel requests fail to
comply with Article 6.2.  Because a valid panel request is a legal prerequisite for a panel proceeding
under the DSU, to the extent that the panel requests fail to meet Article 6.2, this panel proceeding
lacks a legal basis and cannot go forward.
12. As the Appellate Body has noted ( Bananas fn. 13 at ¶144; Korea Dairy  fn. 81 at ¶130),
provision of preliminary rulings by panels provides a means of dealing with Article 6.2 compliance
problems without causing prejudice or unfairness to any party or third party.  Indeed, the UnitedStates seeks a preliminary ruling in this instance to prevent such prejudice and unfairness.  If the
Panel rules that these panel requests fail to comply with Article 6.2, Australia and New Zealand can
cure this problem by seeking panel establishment anew on the basis of new panel requests.  This
would provide the notice, transparency and due process required by the DSU, and permit all Members
to know whether they should reserve rights as third parties in this case.   Such expeditious action bythe Panel would also facilitate resolution of this dispute with the least time added to the entire process.
In the case of Guatemala - Cement, Mexico’s failure to comply with procedural prerequisites led to
the Appellate Body finding that the panel in that case never should have considered Mexico’s
complaint.  After sustaining a reversal in the Appellate Body, Mexico has pursued the same measure
on the basis of an amended panel request, but with the loss of substantial time and resources for theparties and for the WTO dispute settlement system.  It would have been better for all concerned if the
panel in that case had resolved the same issue by a preliminary ruling.WT/DS177/R
WT/DS178/R
Page A-284
13. Although the United States considers that dismi ssal of this proceeding in its entirety is the
most appropriate remedy, if the Panel decides not to do so, the United States requests that the Panel
rule that the panel requests fail to comply with  Article 6.2 in respect of the claims made under
Articles 2, 3 and 4 of the Agreement on Safeguards.  If the Panel so rules, then because those claims
do not have a legal basis under Article 6.2, they cannot be considered in a proceeding based on the
panel requests at issue.  Australia and New Zealand can then each decide whether to go forward withthe present panel proceeding or whether to expeditiously start again with a legally proper panel
request.
14. If the Panel decides to proceed and to consider the claims made under Articles 2, 3 and/or 4 of
the Agreement on Safeguards notwithstanding the inadequacy of the panel requests, the United States
requests that the Panel extend the time given to the United States to respond to the claims and
arguments based thereon set out in the First Written Submissions of Australia and New Zealand.While an extension of time will not cure the defects in the panel request, additional time will mitigate
in part the prejudice to the United States result ing from the inadequate request. The United States
requests that the Panel grant the United States at least two extra weeks to file its first written
submission.
15. The United States further requests an immediate ruling from the Panel postponing the
deadline for the first written submission of the United States until it has ruled on the above requests.
B. Exclusion of US Statute from Panel Terms of Reference
16. In their respective panel requests, neither Australia nor New Zealand raises the claim that the
US safeguard statute, on its face, is inconsistent with US obligations under the Agreement on
Safeguards .  However, New Zealand, but not Australia, makes that allegation in its First Written
Submission.  ( New Zealand First Submission  at ¶ ¶ 7.73 - 7.76)
17. It is the United States’ view that the consistency of the US statute is not within the Panel’s
terms of reference, which merely authorize the Panel:
To examine, in the light of the relevant provisions of the covered agreements cited by
New Zealand in document WT/DS177/4 and by Australia in document WT/DS178/5and Corr. 1, the matter referred to the DSB by New Zealand and Australia in those
documents, and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements.
The panel requests identify the United States measure as follows.18. Australia in WT/DS178/5 and /Corr.1 refers to “the definitive safeguard measure imposed by
the United States of America (USA) on imports of lamb meat”, referencing documents
G/SG/N/10/USA/3-G/SG/N/11/USA/3, and G/SG/N /10/USA/3/Suppl.1-G/SG /N/11/USA/3/Suppl.1
and the relevant tariff items, and states that:
Under the "Proclamation 7208 of 7 July 1999 – To Facilitate Positive Adjustment to
Competition From Imports of Lamb Meat" and the "Memorandum of 7 July 1999 –
Action Under Section 203 of the Trade Act of 1974 Concerning Lamb Meat" by the
President of the United States of America, published in the Federal Register Vol. 64,
No. 131, pp. 37389-37392 on 9 July 1999 and the Federal Register Vol. 64, No. 132,
pp. 37393-37394 on 12 July 1999 respectively, the United States of Americaintroduced a definitive safeguard measure in the form of a tariff-rate quota on imports
of lamb meat effective as of 22 July 1999.3WT/DS177/R
WT/DS178/R
Page A-285
3 Subsequently modified by the "Proclamation 7214 of 30 July 1999 – To Provide for the
Efficient and Fair Administration of Action Taken With Regard to Imports of Lamb Meat and forOther Purposes" by the President of the United States of America published in the Federal RegisterVol. 64, No. 149, pp. 42265-42267 on 4 August 1999.
There is no reference to the US statute.
19. New Zealand in WT/DS177/4 states that
Under the “Proclamation 7208 of 7 July 1999 - To Facilitate Positive Adjustment to
Competition From Imports of Lamb Meat” and the “Memorandum of 7 July 1999 -
Action Under Section 203 of the Trade Act of 1974 Concerning Lamb Meat” by the
President of the United States of America, published in the Federal Register Vol. 64,No. 131, pp. 37389 to 37392 on 9 July 1999 and the Federal Register Vol. 64, No.
132, pp. 37393 to 37394 on 12 July 1999 respectively, the United States of America
imposed a definitive safeguard measure in the form of a tariff-rate quota on imports
of fresh, chilled, or frozen lamb meat1   effective as of 22 July 1999.2
1 As provided for in subheadings 0204.10.00, 0204.22.20, 0204.23.20, 0204.30.00,
0204.42.20, and 0204.43.20 of the Harmonised Tariff Schedule of the United States.
2 Some of this information has also been contained in the United States Article 12.1(c)
Notification to the Committee on Safeguards (G/SG/N/10/USA/3, G/SG/N/10/USA/3/Suppl.1,G/SG/N/11/USA/3 and G/SG/N/11/USA/3/Suppl.1).
Again, there is no reference to the US statute.
20. The United States therefore requests that the Panel rule that the consistency of the US statute
with US obligations under the Agreement on Safeguards  is not within the Panel’s terms of reference
and is thus outside the scope of this dispute.
C. Business Confidential Information (BCI)
21. The complaining parties have requested that the United States provide information that the
US International Trade Commission (“USITC”) has designated as business confidential information
(“BCI”).  This information was submitted to the USITC by both foreign and domestic producers
under strict assurances of non-disclosure.  The USITC is prohibited from disclosing the information
absent consent from the submitting companies under Article 3.2 of the Agreement on Safeguards .
That article, and section 202(a)(8) of the US Trade Act of 1974 (19 U.S.C. 2252(a)(8)), which is the
provision of US law that implements Article 3.2, prohibit the USITC from disclosing BCI it receives
in the course of a safeguard investigation without permission from the submitting parties.
22. We anticipate that the complainants will ask the Panel to seek this information from the
United States.  If so, Australia and New Zealand s hould be asked to specify what BCI they seek and
why that information is relevant to the claims, if any, they have properly made within the Panel’s
terms of reference.  Once that is known, the United States can then help the Panel develop proceduresthat will help persuade the firms that provided th e BCI to the USITC to authorize disclosure of the
BCI.  Based on prior experience the United States believes that domestic producers are unlikely to
provide such consent unless they are informed of  the specific information requested, who will have
access to the information, and the procedures that will be established to protect the information.  The
Panel should be aware that purchasers are not necessarily beneficiaries of the safeguard action andmay not find it in their interest to respond promptly or to provide their consent.WT/DS177/R
WT/DS178/R
Page A-286
23. Finally, with respect to BCI information provided to the USITC by New Zealand and
Australian producers, the United States believes that the complaining parties are in the best position to
obtain the necessary consent of these producers.  Accordingly, if the Panel requests such information,
we anticipate that Australia and New Zealand will aid the United States in obtaining consent from
those producers.WT/DS177/R
WT/DS178/R
Page A-287
ANNEX 3-2
FIRST WRITTEN SUBMISSION OF THE UNITED STATES
(15 May 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ............................................................................................................. 289
II. PROCEDURAL B ACKGRO UND ................................................................................... 290
III. STATEMENT OF FACTS................................................................................................ 291
IV. NOTIFICATIONS AND CONSULTATI ONS................................................................ 293
V. LEGAL AR GUMENT....................................................................................................... 294
A. THE BURDEN OF PROOF IN DISPUTES UNDER THE SAFEGUARDS AGREEMENT ...................... 294
B. THE STANDARD OF REVIEW TO BE APPLIED IN THIS DISPUTE ............................................... 295
C. THE USITC REPORT DOES NOT FAIL TO DEMONSTRATE THE EXISTENCE OF "UNFORESEEN
DEVELOPMENTS ".................................................................................................................. 297
D. AUSTRALIA 'S AND NEW ZEALAND 'S CLAIMS UNDER THE SAFEGUARDS AGREEMENT .......... 299
1. The USITC properly found the domestic industry to consist of firms with mutual
economic interests in a conti nuous line of production.................................................... 299
(a) The Complainant's arguments misconstrue the basis for the USITC's definition of the
domestic i ndustry.............................................................................................................. ... 299
(b) A definition of "Producer" that encomp asses those firms with consistent economic
interests along a continuous line of production is in keeping with the safeguards .............. 301
2. The USITC's threat of serious injury determination fully accords with the requirements
of Article 4 of the Safeguards Agreement........................................................................ 304
(a) Because they do not address the USITC's findings, complainants fail to make a prima
facie  showing that the USITC's determination violated any WTO requirements................ 304
(b) The fact that complainants can point to other factors that in the long run have
adversely affected the US industry is irrelevant to whether the industry is threatenedwith serious injury cause d by increase d imports ................................................................. 308
(i) New Zealand's long-run analysis of the effe ct of imports ignores the significant change
in trends that occu rred after 1996 ....................................................................................... 308
(ii) Complainants' efforts to blame the industry's troubles on the termination of the Wool
Act Support Payments ignores the USITC's findings that the industry had largely
recovered from that termination by 1997 ............................................................................ 309
3. The terms in which the USITC expressed its conclusions are entirely consistent with
the Safeguards Agreement ................................................................................................ 311
(a) New Zealand's theoretical attack on the US Statute provides no basis for challenging
the determination at issu e in this pr oceeding....................................................................... 311
(b) The USITC satisfied the causation requirements of the Safeguards Agreement ................. 312WT/DS177/R
WT/DS178/R
Page A-288
4. The alternative methodologies that comp lainants propose for evaluating the data
are not required by the Safeguards Agreement .............................................................. 314
(a) The USITC determination concerned the industry as a whole and included each
segment ........................................................................................................................ ........ 314
(b) The USITC properly considered each factor required by the Agreement and was not
required to conduct an  econometric analysis ....................................................................... 315
(c) The USITC properly drew inferences about the imminent future from recent trends in
industry in dicato rs............................................................................................................ .... 317
(d) Complainants Arguments that the USITC s hould have put more weight on certain
evidence do not detract from the adequacy  of the determinat ion it reached........................ 317
(i) The USITC accurately and objectively characterized the evidence on profitability............ 317
(ii) The USITC reasonably did not place weight on growths in packer and breaker capacity in
preference to other evidence of  the industry' s position ................................................ 318
(iii) The USITC reasonably discounted the relevance of inventory data when the product
 at issue generally is not invent oried for long periods of time............................................. 319
(e) Australia's other criticisms of the methodology of the USITC's decision make
incorrect assumptions about the USITC's determination and fail to allege any
violation of the Agreement .................................................................................................. 319
5. The USITC based its determination on obj ective evidence in keeping with Article 4.2
of the Safeguards Agreement............................................................................................ 320
(a) In evaluating information on growers and feeders, the USITC conducted an objective
evaluation by use of both offi cial and questi onnaire data.................................................... 320
(b) The USITC obtained objective evidence on domestic feeder, feeder/grower, and
packer and brea ker operations ............................................................................................. 323
(c) As to factors concerning which it was not practical to obtain objective information,
the USITC objectively evaluated the record by placing no weight on those factors ........... 324
6. Australia and New Zealand have failed to establish that the US safeguard measure is
inconsistent with the requirement of Article 5.1 ............................................................. 325
(a) Intr oduction................................................................................................................ .......... 325
(b) Article 5.1 does not establish a "l east trade restric tive" sta ndard ........................................ 326
(c) Australia has failed to establish a prima facie  case of non-compliance with Article 5.1 .... 329
(d) The lamb meat safeguard measure the United States applied was consistent with the
objectives of  Article 5.1...................................................................................................... . 331
(i) Injury and threat indicators identified by the USITC .......................................................... 332
(ii) Description of the US measure ............................................................................................ 33 2
(iii) The measure addresses the threat and injury identified by the USITC................................ 332
7. Australia and New Zealand have failed to establish that the US safeguard measure is
inconsistent with the requirements of Article 3.1............................................................ 334
8. The United States properly excluded im ports from developing countries, Canada,
Mexico, and Israel from th e safeguard measure............................................................. 336
(a) CBERA and ATPA imports................................................................................................. 336
(b) Canada, Mexico, and Israel.................................................................................................. 337
9. The United States satisfied its obligations under Articles 8 and 12............................... 339WT/DS177/R
WT/DS178/R
Page A-289
(a) The United States has satisfied its obligations under Article 8............................................ 339
(b) The United States satisfied Ar ticle 12 notificati on requirements ........................................ 340
(i) The United States notified "all pertinent information" to the Committee on Safeguards as
required under Article 12.2.......................................................................................... 340
(ii) The United States conducted consultations in conformity with Article 12.3........................ 342
(iii) The United States properly notified its "laws, regulations and administrative procedures"
pursuant to Ar ticle 12.6................................................................................................ 343
10. The United States measure is not incons istent with Article 11 of the Safeguards
Agreement...................................................................................................................... . …344
11. The United States satisfied its obligations under Article II of the GATT 1994............ 344
VI. CONCLUSION .................................................................................................................. 344
I. INTRODUCTION
1. In October 1998, the United States lamb m eat industry petitioned the United States
International Trade Commission (“USITC”) to investigate whether a surge in lamb meat imports from
Australia and New Zealand had depressed prices in  the US market and eroded industry sales and
profits to the point that the industry’s financial health had been seriously compromised.  The industrypointed to a dramatic increase in lamb meat imports beginning in 1996, which had continued to climb
in 1997 and over the first nine months of 1998.  The surge in imports, the industry claimed, had
resulted in widespread commercial damage to US lamb meat producers and injury was continuing to
accrue.
2. The USITC promptly launched an investigation, both to determine whether the US industry
was seriously injured, or threatened with serious injury, as it claimed and, if so, whether increased
lamb meat imports were responsible for the industry’s condition.  In the course of its investigation, the
USITC held extensive hearings and solicited written views and commercial data  from US, Australian,
and New Zealand lamb meat producers, as  well as US importers and consumers.
3. Based on their investigation, and as carefully detailed in a lengthy report they prepared, the
six USITC Commissioners unanimously concluded that  the US lamb meat industry: (1)  was facing
imminent serious injury; and (2) the threat of serious injury was due to a surge in highly competitive
fresh and chilled lamb meat imports from Australia and New Zealand.  During the course of itsinvestigation the USITC closely examined other possible reasons for the industry’s sudden downturn,
but concluded that no explanation other than the major jump in lamb meat shipments from Australia
and New Zealand was plausible.
4. As US law requires, the USITC then made recommendations to the President of the
United States on an appropriate remedy.  Here, the six USITC Commissioners could not agree,
ultimately forwarding to the President three different recommendations.  There were two commonelements in each of these recommendations, however.  All of the Commissioners suggested that the
President impose four years of import relief and that he accompany that relief with a set of financial
and other adjustment assistance measures.
5. In early July 1999, after careful deliberation, the President implemented a relief package
aimed at the specific injury indicators that the USITC had reported.  The relief -- which took the form
of a “tariff-rate quota” (TRQ) -- was designed to re turn the US lamb meat industry to a minimal level
of profitability for a temporary period and thus place the industry in a position to make needed
investments and improve its competitiveness.WT/DS177/R
WT/DS178/R
Page A-290
6. The relief package contained a substantial financial assistance element, as the USITC
Commissioners had recommended.  But the import relief the President imposed was limited to three
years and one day, rather than the four years the USITC had proposed, reflecting a desire to limit the
trade impact of the relief to the degree possible.  At Australia’s and New Zealand’s request, the
President: (1) allocated the TRQ between those two countries; (2) delayed implementation of the TRQ
so that it would not apply to Australian or New Zealand lamb meat shipments in transit to theUnited States; and (3) agreed to implement the TRQ through an export licensing scheme that allows
those Members to meter and control lamb meat exports to the United States.
7. The short period of limited import relief that the United States has provided to its lamb meat
industry is just the sort of “safeguard” measure contemplated by Article XIX of the GATT 1994
(“GATT 1994 ”) and the WTO Agreement on Safeguards (“Safeguards Agreement”).  Having
undertaken a  thorough, transparent, and public investigation, having determined that increased lambmeat imports had left US producers threatened w ith serious injury, and having amply explained the
reasons for its findings on all pertinent issues of fact and law, the United States was fully entitled to
give its lamb meat industry a brief respite from competitive import pressure sufficient to assist them
in regaining competitiveness.
8. Australia and New Zealand have raised a long list of objections challenging both the USITC’s
investigation and its threat of serious injury determination, and the nature of the safeguard measure
that the United States has imposed, and a series of purported procedural infirmities.  As the United
States explains in the following pages, eac h one of those many objections is unfounded.
II. PROCEDURAL BACKGROUND
9. On 16 July and 23 July 1999, respectively, New Zealand and Australia requested
consultations with the United States pursuant to Article 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes  (“DSU”), Article XXII:1 of the GATT 1994 , and
Article 14 of the Safeguards Agreement.   New Zealand’s consultation request alleged that the USsafeguard measure – embodied in Proclamation 7208, with an accompanying memorandum from the
President – was inconsistent with Articles 2, 4, 5, 11 and 12 of the Safeguard Agreement, and Articles
I and XIX of the GATT 1994 .  Australia considered that the US measure was inconsistent with
Articles 2, 3, 4, 5, 8, 11 and 12 of the Safeguards Agreement, and Articles I, II and XIX of the GATT
1994 .
10. By letter dated 23 July 1999, Australia asserted a substantial commercial interest in lamb
meat, and it sought to be joined in the consultations requested by New Zealand.  Similarly, on
2 August 1999, New Zealand requested to be joined in the consultations with Australia.  The
United States acceded to both requests.
11. Consultations were held in Geneva on 26 August 1999, but failed to settle the dispute.12. On 14 October 1999, New Zealand requested the establishment of a panel pursuant to Article
6 of the DSU and Article 14 of the Safeguards Agreement to examine the US measure with the
standard terms of reference as set out in Article 7 of the DSU.  In identifying the legal claims under
dispute, New Zealand merely listed the same articles of the Safeguards Agreement and the GATT
1994  that it had identified in its consultation request without providing any elaboration as to the
specific legal obligations at issue.
13. Australia also requested the establishment of a panel on 14 October 1999, pursuant to
Article XXIII of the GATT 1994 , Articles 4 and 6 of the DSU, and Article 14 of the Safeguards
Agreement.  Australia’s panel request, like New Zealand’s, listed the relevant articles of the
Safeguards Agreement and the GATT 1994  without specifying the specific provisions in dispute.WT/DS177/R
WT/DS178/R
Page A-291
14. The Dispute Settlement Body established a single panel to review both Australia’s and
New Zealand’s allegations on 19 November 1999.  Aust ralia (in respect of New Zealand's complaint)
and New Zealand (in respect of Australia's complaint) reserved third party rights, as did Canada, the
European Communities, Iceland, and Japan.
III. STATEMENT OF FACTS
15. Following the filing of a petition on 7 October 1998, by representatives of the domestic lamb
meat industry, the USITC, after extensive investigation, found that the industry was threatened with
serious injury due to increased imports.  The USITC collected copious information through a variety
of methods -- including questionnaires sent to foreign and domestic producers, purchasers and
importers; official statistics; other public sources; briefs from parties, including foreign and domestic
producers; and hearings on injury and remedy.  All of the business confidential information the
USITC collected from these entities was made available under “protective order” (a legally bindinglimitation on further disclosure) to representatives of interested parties participating in the proceeding.
16. On 5 April 1999, the USITC transmitted to the President a report containing its findings and
conclusions and recommending that the President provide relief to the US lamb meat industry.
17. The USITC report explains findings and conclusions at length and describes the investigation
that it conducted.  Those findings address each factor enumerated in Article 4 of the Safeguards
Agreement and survey other factors affecting the US lamb meat industry.  The following discussion
summarizes some key facets of the USITC report, particularly those that the First Submissions of
Australia and New Zealand (“complainants”) tended to obscure.
18. The USITC found the relevant domestic industry to consist of the firms that are part of the
continuous line of lamb meat production.
1  As the USITC found, growers and feeders contribute
approximately 88 per cent of the wholesale cost of lamb meat.  Packers, who slaughter the lambs, and
breakers, who cut whole carcasses into smaller parts, act as “finishers” of lamb meat products.  Manyoperations are vertically integrated, and finishers are heavily dependent on growers and feeders for the
volume and condition of the lambs they purchase.  As the USITC determined, firms in the various
segments of the lamb meat industry have interdependent economic interests evidenced by the
congruent impact of low prices on all sectors.
2
19. The USITC found the lamb meat industry to be threatened with serious injury and establishedthe causal link to increased imports in keeping with Article 4.2 of the Safeguards Agreement.  The
USITC obtained information on the developments in the industry by examining an extended period,
1993 through the first nine months of 1998 (“interim 1998").  Its threat finding was based in large
measure on a significant, and unforeseen, change that occurred in the latter part of the period.  The
USITC found that before 1996 the US industry was affected by two major adverse factors -- the
phasing out, largely during 1994 and 1995, of Wool Act payments to growers and feeders, and fallingdemand.  While it considered that the effects of withdrawal of the wool support programme had
diminished but not entirely disappeared by 1997, the USITC concluded that the industry had
experienced some recovery since the programme terminated in 1996.
3  Similarly, the USITC
concluded that demand for lamb meat, which had been falling over an extended period, had begun to
stabilize at about the same time.4
                                                     
1  USITC Report at I-13.
2  USITC Report at I-13-14.
3  USITC Report at I-24-25.
4  USITC Report at I-22.WT/DS177/R
WT/DS178/R
Page A-292
20. The year 1997, however, turned out to be the zenith of the industry’s recovery, as low-priced
imports soared and the indices of the industry’s financial health began to deteriorate.5  Prior to 1996,
the volume of imports had been relatively constant, falling from 41.0 million pounds in 1993 to
38.7 million pounds in 1994, and then increasing to 43.3 million pounds in 1995.  Thereafter,
however, imports rose, increasing to 50.7 million pounds in 1996 and 60.4 million pounds in 1997.
Comparing the first nine months of 1997 with the same period of 1998, imports jumped from 46.1million pounds to 55.1 million pounds.
6
21. The USITC found that this rise corresponded to a change in the nature of imports.  Between
1995 and 1997, imports changed substantially.  Historically, almost all US lamb meat had been sold in
fresh or chilled form, while almost all imported lamb meat was shipped in a frozen state.7  T h e
volume of imported lamb in chilled form increased by more than 100 per cent from 1995 to 1997,
while imports of frozen lamb meat rose by onl y 11 per cent.  In addition, the USITC found that
imported lamb meat was increasingly being sold in larger cuts, putting it in more direct competition
with US product.8
22. The USITC found that as these changes in the character of imports put them increasingly in
head-to-head competition with domestic lamb meat products, imports captured substantial marketshare from US firms.  That conclusion was supported by the fact that the 9.7 million pound growth in
imports in 1997 was mirrored by an 8.4 million pound decrease in US shipments.
9  As the USITC
found, during the end-of-period surge in imports the unit value of US, Australian and New Zealand
lamb meat all fell, reflecting the effects of increased supply on domestic prices.10
23. During 1997 and interim 1998, all segments of the domestic industry suffered deterioratingfinancial performance.  Operating income for most packers and processors reached its lowest point in
that period.  After having operated at a profit in 1995 and 1996, feeders operated at a loss in 1997 and
at a sharper loss in interim 1998.  While net sales value enjoyed by growers trended upward during
1993-97, it fell by 19 per cent in interim 1998.  The USITC found grower profits at a diminished levelin 1997. 
11
24. The USITC determined that increases in import volume were likely to have further negative
effects on the domestic industry’s prices, shipment volumes, and financial condition in the imminent
future.12  It found that Australian and New Zealand producers projected that their shipments to the
United States in 1999 would be 21 per cent over 1998 levels, with the major proportion in the form of
fresh and chilled lamb meat.13  Because growers and feeders cannot reduce production in the short
run, increased imports had already caused a decline in prices and any further increases would cause
additional downward price pressure in the US market.14  Since imports in 1997 had already captured
market share directly from the US industry, the USITC found that additional increased imports, in the
form in which the US industry markets its produc t, would likely have a negative impact on the
industry’s shipments.15  The USITC determined that these negative effects would adversely impact the
US industry’s already damaged financial performance.16  After examining each other cause of injury
                                                     
5  USITC Report at I-18.
6  USITC Report at I-15.
7  USITC Report at I-22.
8  USITC Report at I-22-23.
9  USITC Report at I-22.
10 USITC Report at I-22.
11 USITC Report at I-19-20
12  USITC Report at I-23.
13  USITC Report at I-23.
14  USITC Report at I-24.
15  USITC Report at I-24-25.
16  USITC Report at I-24.WT/DS177/R
WT/DS178/R
Page A-293
proposed by Australian and New Zealand producers and US lamb meat importers (“respondents”), the
USITC reaffirmed that there was a high degree of likelihood that increased imports would have a
substantial negative effect on volume or prices, or both, of the US industry’s lamb meat sales.17
25. Under United States law, when the USITC makes an affirmative determination, USITC
Commissioners provide recommendations to the President on appropriate remedies.  In this case, thesix USITC Commissioners made three different recommendations, each recommending four years of
import relief and a package of adjustment assistance measures.  The recommendations differed
substantially in other respects. Although the safeguard measure applied by the President drew on
certain elements of these suggestions, the President did not adopt any recommendation completely.
26. On 7 July 1999, to address the threat of injury found by the USITC, the President
proclaimed
18 a TRQ on imported lamb meat for three years and one day, with the quota threshold set
at 31,851,151 kilograms in the first year (the level of US lamb meat imports during calendar year
1998), increasing by an additional 857,342 kilograms in each of the two succeeding years.
Above-quota imports were made subject to tariffs of 40 per cent, 32 per cent, and 24 per cent ad
valorem  over the successive years of the measure.  Below-quota imports were made subject to
additional duties of nine, six and three per cent ad valorem  over the same period.  The President also
provided US$100 million in funding for various adjustment assistance measures to, among other
things, assist the industry with market prom otion, productivity and product improvements and
scientific research.
27. The President concurred with the USITC finding that imports of lamb meat produced in
Canada and Mexico did not account for a substantial share of total US imports of lamb meat and were
not contributing importantly to the threat of seri ous injury.  The USITC had found that imports from
these sources during its period of investigation were negligible.  As required by statute in such
situations, the President excluded lamb meat from Canada and Mexico from the safeguard measure.
The President also did not apply the TRQ to imports of lamb meat from Israel, beneficiary countriesunder the Caribbean Basin Economic Recovery Act and the Andean Trade Preference Act, and from
other developing countries that accounted for a minor share of lamb meat imports.
IV. NOTIFICATIONS AND CONSULTATIONS
28. The United States has complied with the procedural requirements set out in Article 12 of the
Safeguards Agreement in respect of the USITC’s lamb meat investigation and the application of a
safeguard measure on lamb meat imports.  Pursuant to Article 12.1(a), the United States notified the
Safeguards Committee on 30 October 1998 of the investigation the USITC had initiated to examine
the domestic industry’s serious injury claim.
19
29. On 9 February 1999, the USITC voted unanimously that lamb meat was being imported into
the United States in such increased quantities as to be a substantial cause of threat of serious injury tothe domestic industry.  The United States provided a 12.1(b) notification on 17 February 1999
informing the Committee on Safeguards and WTO Members of the unanimous vote.
20  The USI TC
published its report and remedy recommendation on 5 April 1999, and the United States provided a
copy of the report to the Committee, as part of the United States revised Article 12.1(b) notification,
on 13 April 1999.21
                                                     
17  USITC Report at I-26.
18  Proclamation 7208 of 7 July 1999, To Facilitate Positive Adjustment to Competition from Imports
of Lamb Meat (“Proclamation”), attached hereto as US Exhibit 2.
19  G/SG/N/6/USA/5 (circulated 5 November 1998).  Attached hereto as US Exhibit 3.
20  G/SG/N/8/USA/3 (circulated 18 February 1999); G/SG/N/8/USA/3/Corr.1 (circulated
22 February 1999); G/SG/N/8/USA/3/Corr.2 (circulated 25 February 1999).  Attached hereto as US Exhibit 4.
21  G/SG/N/8/USA/3/Rev.1 (circulated 15 April 1999).  Attached hereto as US Exhibit 5.WT/DS177/R
WT/DS178/R
Page A-294
30. The United States applied a safeguard measure with respect to lamb meat exported on or after
22 July 1999, and provided notification to the Committee on 9 July 1999, and 13 August 1999,
pursuant to Article 12.1(c) and Article 9 of the Safeguards Agreement.22
31. The United States also satisfied its consultation obligations under the Safeguards Agreement.On 28 April 1999 and 4 May 1999, respectively, the United States consulted with Australia and
New Zealand in Geneva regarding the USITC lamb meat report.  On 14 July 1999, the United States
again consulted with both parties in Washington, D.C. regarding the proposed US lamb meat
safeguard measure..
23
V. LEGAL ARGUMENT
32. Australia and New Zealand raise legal claims under both the Safeguards Agreement and the
GATT 1994 .  The United States respectfully submits that both Members’ claims are unfounded that,
accordingly, the Panel should reject them.
33. The United States’ submission begins with a discussion of certain general legal issues arising
from the other parties’ submissions.24  First, the United States articulates the burden of proof that
complainants must meet.  Second, the United States sets forth the applicable standard of review.
Third, the United States describes how the safeguards action it adopted was a valid response to
“unforeseen developments,” which were fully examined and addressed in the USITC report and were
clearly demonstrated as a matter of fact consistent with Article XIX of GATT 1994 .
34. Next, the United States addresses the complainants’ specific legal claims under the
Safeguards Agreement.  First, the United States demonstrates that Australia’s and New Zealand’s
claims under Articles 2 and 4 are without merit because the USITC investigation and report satisfy the
requirements of the Safeguards Agreement.  Second, the United States addresses Australia’s and
New Zealand’s erroneous claims that the US safe guard measure is inconsistent with Article 5.1.
Third, the United States explains that its safeguard measure did not need to be justified under
Article 3.1.  Fourth, the United States explains why its remedy properly excluded imports from
Canada, Mexico, Israel, and developing countries.  Fifth, the United States describes how the actions
it has taken fulfill the requirements of Articles 8 and 12.
35. Finally, the United States explains that the safeguard measure is not inconsistent with US
obligations under Article II of the GATT 1994  or Article 2.2 of the Safeguards Agreement.
A. THE BURDEN OF PROOF IN DISPUTES UNDER THE SAFEGUARDS AGREEMENT
36. Australia and New Zealand fail to meet their burden of making a prima facie  case with
respect to their asserted claims.  Instead, in large measure Australia and New Zealand rely on
unfounded assertions advanced without supporting evidence or legal grounding.
                                                     
22  G/SG/N/10/USA/3, G/SG/N/11/USA/3 (circulated 12 July 1999).  Attached hereto as US Exhibit 6.
The United States issued a supplemental notification informing the Safeguards Committee that the measure
would become effective with respect to goods exported  on or after 22 July 1999.  See G/SG/N/10/8SA/3/Suppl.
1, G/SG/N/11/USA/3/Suppl. 1.  Attached hereto as US Exhibit 7.
23   See US Article 12.5 notification.  G/L/313,G/SG/19 (circulated 23 July 1999).  Attached hereto as
US Exhibit 8.
24  In its submission of May 5, 2000, the United States presented the Panel with its objections to the
panel requests by both complainants, as well as its response to complainants’ requests for confidential
information.WT/DS177/R
WT/DS178/R
Page A-295
37. In United States -- Measures Affecting Imports of Woven Wool Shirts and Blouses from India,
the Appellate Body noted that “a party clai ming a violation of a provision of the WTO Agreement by
another Member must assert and prove its claim."25  The Korea--Dairy panel also had occasion to
address questions on the burden of proof, and it found that “[a]s a matter of law the burden of proof
rests with the European Communities, as complainant, and does not shift during the panel process."26
38. Moreover, the Dairy  Panel noted that it was for the EC, as the complainant, to submit a prima
facie  case of violation of the Safeguards Agreement.27  The Dairy Panel interpreted this to mean that it
was for Korea – as the defending party – to rebut the EC’s evidence and arguments, once the EC had
made its prima facie case, by submitting its own evidence and arguments in support of its assertion
that it had respected the requirements of the Safeguards Agreement at the time of its determination.28
The Dairy Panel then concluded that “[a]t the end of this  process, it is for the Panel to weigh and
assess the evidence and arguments submitted by both parties in order to reach conclusions on whetherthe EC claims are well-founded."
29  The Appellate Body affirmed the Panel’s application of the
burden of proof.30
39. As will be discussed below, Australia and New Zealand fail to offer legally sufficient
evidence and arguments to establish their prima facie  case.  To the extent that the complainants  offer
any claims that are both legally germane and accompanied by sufficient argumentation, the United
States rebuts those claims.
B. THE STANDARD OF REVIEW TO BE APPLIED IN THIS DISPUTE
40. The standard of review to be applied in safe guards cases is well-established.  In the two
previously decided safeguards cases, Korea – Definitive Safeguard Measure on Imports of Certain
Dairy Products  (“Korea -- Dairy”) and Argentina -- Safeguard Measures on Imports of Footwear
(“Argentina -- Footwear”) , the panels specifically rejected the notion that panels may review de novo
the determination made by the domestic investigating authority.31  Rather, as articulated by the panel
in Argentina – Footwear,
our review will be limited to an objective assessment, pursuant to Article 11 of the
DSU, of whether the domestic authority has considered all relevant facts, including
an examination of each factor listed in Article 4.2(a), of whether the published report
on the investigation contains adequate explanation of how the facts support thedetermination made, and consequently of whether the determination made is
consistent with Argentina’s obligations under the Safeguards Agreement.
32
                                                     
25  United States -- Measures Affecting Imports of Woven Wool Shirts and Blouses from India,
WT/DS33/AB/R, Report of the Appellate Body adopted 25 April 1997, at ¶ IV (“US -- Woven Wool Shirts”).
26  Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/R,
21 June 1999, at ¶ 7.24 (“Korea -- Dairy”).
27  Korea -- Dairy  at ¶ 7.24.  As the Appellate Body has noted, a prima facie case is “one which, in the
absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour ofthe complaining party presenting the prima facie case.”  European Communities -- Measures Concerning Meat
and Meat Products,  WT/DS26 and 48/AB/R, Report of the Appellate Body adopted 13 February 1998, at ¶ 104.
28   Korea – Dairy  at ¶ 7.24.
29  Korea – Dairy at ¶ 7.24.
30  Korea -- Definitive Safeguard Measure on Imports of Certain Dairy Products , WT/DS98/AB/R,
Report of the Appellate Body adopted 14 D ecember 1999, at ¶ 150 (Appellate Body Report, Korea–Dairy ).
31  Korea – Dairy at ¶ 7.30 (“Korea -- Dairy ”); Argentina -- Safeguard Measures on Imports of
Footwear, WT/DS121/R, 25 June 1999, at ¶ 8.117 (“Argentina -- Footwear”).
32  Argentina -- Footwear  at ¶ 8.124.  Similarly, the Korea – Dairy Panel (at ¶ 7.30) concluded that:
the Panel’s function is to assess objectively the review conducted by the national investigating
authority, . . . an objective assessment entails an examination of whether the [Korean national authority] hadWT/DS177/R
WT/DS178/R
Page A-296
41. In Argentina–Footwear , the Appellate Body reviewed the panel’s articulation of the standard
of review and concluded that the panel had stated the standard “correctly.” As the Appellate Body
explained,
Article 11 of the DSU, and, in particular, its requirement that “. . . a panel should
make an objective assessment of the matter before it, including an objective
assessment of the facts of the case and the applicability of and conformity with the
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.33
42. The United States respectfully submits that the above-quoted standard is the appropriatestandard of review to be applied under Article XIX and the relevant provisions of the Safeguards
Agreement in this dispute.  As to the determinations to be made by the competent authority pursuant
to Articles 3 and 4 of the Safeguards Agreement, the nature of the Panel’s review is delineated by the
obligations under those articles.  Specifically, Article 3 requires “reasoned conclusions on all pertinent
issues of fact and law,” and Article 4 requires “a detailed analysis of the case under investigation aswell as a demonstration of the relevance of the factors examined.”  Accordingly, the authority’s
conclusions satisfy the Agreement if they are reasoned conclusions based on the information obtained
in the investigation and if the authority’s analysis demonstrates the relevance of the factors it
examined.  That a Panel might have reasoned to different conclusions if viewing the evidence de novo
does not establish a violation of the Agreement if the authority’s conclusions are reasoned and basedon demonstratively relevant factors.  As to other determinations to be made on the basis of the
competent authority's report, the question is whether the report reasonably demonstrates the facts to
be examined even where a specific legal conclusion is not required.
43. The Appellate Body's admonition that panels must avoid conducting a de novo  review of the
evidence applies equally to a panel's examination of whether a Member has applied safeguard
measures only to the extent necessary to prevent or remedy serious injury and facilitate adjustment in
conformity with Article 5.1.  The United States has set out at ¶ 210 below the sort of inquiry that it
considers would be appropriate under Article 5.1.  Such an inquiry would based on an examination of
the relationship between the serious injury, or threat of serious injury, identified by the Member'scompetent authority, on the one hand, and the nature, duration and extent of the safeguard measures
the Member applied, on the other.
44. To a substantial degree, New Zealand’s and Australia’s arguments in this proceeding are
inconsistent with the standard of review articulated above.  As will be discussed at length below, a
great deal of their argumentation simply seeks to present another view of the facts, rather than  show
that the findings made by the authorities in any way violated the Agreements.  Such argumentationimproperly seeks to have the Panel make its own de novo  interpretation of the record.
45. Moreover, in at least three instances, New Zealand and Australia appear to go further and
present to the Panel evidence that was not before the USITC in order to seek to refute the USITC’s
findings.  In ¶¶ 7.85 and 7.86 of its first written submission, New Zealand presents “Figure 5:  Indexesof real import and domestic wholesale US lamb prices” and “Figure 6: Indexes of real (CPI deflated)
                                                                                                                                                                    
examined all facts in its possession or which it should have obtained in accordance with Article 4 of the
Safeguards Agreement (including facts which might detract from an affirmative determination in accordancewith the last sentence of Article 4.2 of the Safeguards Agreement), whether adequate explanation had been
provided of how the facts as a whole supported the determination made, and, consequently, whether the
determination made was consistent with the international obligations of Korea.
33  Argentina -- Safeguard Measures on Imports of Footwear , WT/DS121/AB/R, Report of the
Appellate Body adopted 14 December 1999,  at ¶120 (Appellate Body Report, Argentina -- Footwear ).WT/DS177/R
WT/DS178/R
Page A-297
prices for lamb on US market.”  The sources of both indexes are said to include the USDA/AMS Red
Meat Yearbook:  “Livestock, Dairy and Poultry”  1997-1999 . New Zealand does not show how the
Yearbook  was part of the USITC’s record at the time it made its threat determination.  Similarly, in
¶ 48 of its first written submission, Australia presents a graph entitled “US Lamb Price” and gives as
its source the USDA.  Australia does not state where in the USITC’s record this information can be
found or even allege that it was part of the USITC’s record at the time the USITC made its threatdetermination.  To the extent these documents were not part of the USITC’s record, Australia and
New Zealand are trying to persuade this Panel to engage in a  de novo  review of the underlying facts
and to substitute its judgment for that of the national investigating authority.  By urging this approach,
Australia and New Zealand effectively repudiate the standard of review they claim to endorse.
46. The Korea - Dairy  Panel emphasized that “the Panel should examine the analysis performed
by the national authorities  at the time of the investigation  on the basis of the various national
authorities’ determinations and the evidence it has collected."
34  The Panel should strike any new
evidence that Australia and New Zealand seek to put before it, along with arguments based on that
evidence.
C. THE USITC REPORT DOES NOT FAIL TO DEMONSTRATE THE EXISTENCE OF "UNFORESEEN
DEVELOPMENTS "
47. Australia and New Zealand both claim that the US safeguard measure fails to comply with
Article XIX of GATT 1994  because it allegedly was not a response to “unforeseen developments.”
For the following reasons, Australia’s and New Zealand’s arguments are without merit and should be
rejected.
48. As the Appellate Body recognized in Argentina--Footwear,  Article XIX of the GATT 1994
does not establish “independent conditions” for the application of a safeguard measure, but rather
“describes certain circumstances which must be demonstrated as a matter of fact in order for a
safeguard measure to be applied."35  In Argentina--Footwear , the Appellate Body held that the
“unforeseen developments” requirement of Article XIX remains in force despite the fact that it was
not included in the Safeguards Agreement.  The USITC’s report amply demonstrated the existence of
such developments.
49. The introductory language in Article XIX was intended to ensure that any increase in imports
that may result in serious injury or threat of serious injury to a domestic industry is not simply the
result of (1) negotiated tariff reductions; or (2) factors of which the negotiating WTO Member was
unaware at the time of the tariff concession.  Thus, unforeseen developments would include
significant, unexpected changes in the marketplace as compared to the situation that pertained at the
time of the tariff concession.  The developments summarized below, which resulted in a surge of
low-priced lamb meat into the United States after 1995, were not foreseen by the United States at the
time the tariff concession on lamb was negotiated as part of the Uruguay Round.36
50. The USITC lamb meat report concluded that “ [t]he conditions of competition in both thedomestic and world lamb markets have changed in several important respects during the past several
years.  As a result of these changes . . .  processors will have to adjust to a market with increased
competition from imported fresh lamb meat."
37  These changes in market conditions could not have
been anticipated from prior market conditions.  The report fully describes prior market conditions.  It
                                                     
34  Korea-Dairy , at ¶ 7.55.
35  Appellate Body Report, Argentina -- Footwear,  at ¶ 92.
36  The United States submitted its first tariff reduction offer on lamb meat on March 5, 1992.
Substantive tariff negotiations ended on 15 December 1993.  The transmittal letter for the US offer is attachedhereto as US Exhibit 9.
37  USITC Report at I-32.WT/DS177/R
WT/DS178/R
Page A-298
describes how, in a 1981 countervailing duty investigation involving Lamb Meat from New Zealand  ,
the USITC found the same like product but acknowledged that, unlike today, “most imported lamb at
that time was shipped frozen and virtually all domestic lamb was fresh or chilled."38
51. Similarly, in a 1995 study of competitive conditions affecting US and foreign lamb industries,
the USITC had found that imports did little to displace US-produced lamb or to suppress its price, andthat imports were imperfect substitutes.
39
52. The study reported US Commerce Department statistics that showed from 1990 to 1994 the
proportion of imports consisting of fresh or chilled lamb meat never exceeded 31 per cent and
declined to only 20 per cent in 1994.40  Thus, the historical pattern of importation and trends up to
1994 gave the United States no reason to foresee a relative increase in imports in fresh or chilled
form.
53. By the time of the USITC’s 1999 determination, it found that, while most US lamb meat
traditionally had been sold as fresh or chilled and imported lamb meat was sold frozen, imported lamb
meat was increasingly entering the United States in fresh or chilled form.41  By 1998, foreign
exporters as a whole anticipated that the majority of their 1999 increase would be fresh and chilledlamb meat.
42
54. In short, the pattern of competition that pertained up to 1995 reversed abruptly thereafter.
55. The USITC record shows that imported and domestic products in fact became more similar
during the period of investigation.43  Not only did New Zealand and Australian imports increasingly
shift from frozen to fresh or chilled products, but imported cuts became larger in size and more
comparable to domestic cuts.44
56. The USITC recounts, in detail, how the US market for lamb meat suddenly and unexpectedlychanged after 1995.  Between 1993 and 1994 imports of lamb meat from Australia and New Zealand
declined.
45  In contrast, imports of lamb meat from Ne w Zealand and Australia rose dramatically over
the latter half of the period of investigation.46  As the USITC found, between 1995 and 1997 in
particular, imports of fresh or chilled lamb meat increased 101 per cent, while imports of frozen lamb
meat increased only by 11 per cent during this same period.47  The USITC also found the overall
increase in lamb meat imports since 1997 resulted in a higher market share for importers.48  Moreover,
foreign exporters projected that the major portion of their 1999 increase would be in the form of fresh
and chilled lamb meat.49
                                                     
38  USITC Report at I-10.
39  USITC Report at II-72, citing at n.173, USITC, Lamb Meat: Competiti ve Conditions Affecting the
US and Foreign Lamb Industries  , USITC Inv. No. 332-357, Pub. 2915, Aug. 1995, at 5-42-43, attached hereto
as US Exhibit 10.
40  Id., Table 2-14 at 2-51.
41  USITC Report at I-11.
42  USITC Report at I-22.
43  USITC Report at I-22.
44  USITC Report at I-23, n.114.
45  USITC Report at II-19, Table 6.
46  The period of investigation ran from 1 January 1993 through 30 September 1998.  USITC Report at
I-7 and II-18-19.  During 1993-1997, the quantity of imports of lamb meat increased by 47 per cent while thevalue of such imports increased by 131 per cent.  The quantity and value of imports from interim 1997 to
interim 1998 increased by 19 per cent and 8 per cent, respectively.  USITC Report at II-18.
47  USITC Report at I-31.
48  USITC Report at I-31.
49  USITC Report at I-22, n. 113, citing,  Tables 24-25, 29-30, II-40, II-47-48.WT/DS177/R
WT/DS178/R
Page A-299
57. This dramatic change in the pattern of importation is reflected in the USITC data on
Australian and New Zealand imports.  The USIT C specifically found that “[u]p through 1995, the
majority of lamb meat imported from Australia was frozen.  Since 1996, however, about half of the
imports from Australia had been fresh lamb meat."50  The USITC found that fresh or chilled bone-in
cuts from Australia increased from 4.6 million pounds in 1993 to 8.6 million pounds in 1997, and
fresh or chilled boneless cuts rose sharply from 674,000 pounds in 1993 to 6.2 million pounds in1997.
51  Exports of fresh or chilled Australian lamb meat to the United States increased between 1993
and 1997 and were projected to increase by 27 per cent in 1998 and by 16 per cent in 1999.52
58. Similarly, New Zealand’s exports of lamb meat to the United States increased from 17 million
pounds in 1993 to 26 million pounds in 199753, and the USITC concluded that “an increasing share of
US lamb meat imports from New Zealand consists of fresh product."54   Fresh or chilled bone-in cuts
accounted for 19 per cent of the quantity imported in 1997, up from 10 per cent in 1993.55  Fresh or
chilled boneless cuts increased as a share of total imports from 5 per cent in 1993 to 11 per cent in
1997.56  Conversely, imports of frozen bone-in cuts declined from 64 per cent to 58 per cent during
the period and imports of frozen boneless cuts dropped from 19 per cent to 10 per cent.57
59. In sum, the USITC studies up to 1995 showed that lamb meat imported up to that timecompeted only to a limited extent with US products.  The USITC’s 1999 safeguards report recognizes
that conditions changed significantly, and unexpectedly, after 1995.  The changing nature of lamb
meat imports indicates they are coming increasingly into competition with US product and eroding
US industry market share.  That development will only worsen in the imminent future.
58
60. The USITC’s findings demonstrate, as a matter of fact, circumstances constituting unforeseendevelopments, and Australia’s and New Zealand’s claims that the US safeguard measure fails to
comply with the “unforeseen developments” provision of Article XIX:1(a) therefore are groundless.
D. 
AUSTRALIA 'S AND NEW ZEALAND 'S CLAIMS UNDER THE SAFEGUARDS AGREEMENT
1. The USITC properly found the domestic industry to consist of firms with mutual
economic interests in a continuous line of production
(a) The Complainant's arguments misconstrue the basis for the USITC's definition of the
domestic industry
61. Australia and New Zealand are incorrect in arguing that the USITC improperly found that the
domestic industry producing lamb meat includes growers and feeders of live lambs, as well as packers
and processors (“breakers”) of lamb meat.59  First, a majority of USITC Commissioners defined the
“like” product to be lamb meat.  Although two USITC Commissioners found the like or directly
                                                     
50  USITC Report at I-31 and I-32.
51   USITC Report at II-20.
52  USITC Report at II-40, n. 124, citing  the October 1998 issue of Australian Meat & Livestock
Review, which stated:  “The last three months have been spectacular for lamb imports to the United States.
During September, 1,683 tons of lamb were exported, the highest monthly export figure on record.”  . . . The
November 1998 issue of Australian Meat and Livestock Review  reported that Australia’s exports of lamb to
North America “were up a stunning 41.4 per cent over the level of October 1997.”
53  USITC Report at II-43, n. 138, citing o fficial US Commerce Department statistics.
54  USITC Report at II-43.
55  USITC Report at II-43.
56  USITC Report at II-43.
57  USITC Report at II-43, citing  US Commerce Department statistics.
58  USITC Report at I-22.
59  USITC Report at I-13.WT/DS177/R
WT/DS178/R
Page A-300
competitive product to include live lambs, the majority’s industry definition – which is the subject of
the complainants’ objections – was not based on such a finding.  Thus, Australia’s and New Zealand’s
extensive arguments that live lambs are not “like or directly competitive” with lamb meat60 are simply
inapposite.
62. The USITC majority considered whether to include live lamb growers and feeders as part of
the industry based on the traditional USITC approach in defining industries that produce processed
products such as lamb meat.  That approach is to examine whether (1) there is a continuous line of
production from the raw to the processed product, and (2) there is substantial coincidence of
economic interest between the growers and processors.61  In this case, the majority found that the
domestic lamb meat industry included growers and feeders of live lambs as well as packers and
breakers of lamb meat.62
63. Thus, the relevant issue is not whether live lambs are “like or directly competitive” with lambmeat, but whether the USITC majority correctly found that growers, feeders, packers and breakers
constitute the US industry that produces lamb meat.  Before addressing the legal question of whether
the USITC correctly identified the various segments of the lamb industry (“producers as a whole” as
Article 4.1(c) puts it), it is worth examining the Commissioners’ factual analysis, whichcomplainants’ arguments obscure.
64. The evidence clearly established a continuous line of production from a raw product, live
lambs, to the processed product, lamb meat.
63  Notably, in the United States, “most” sheep and lambs
are meat-type animals kept primarily for the production of lambs for meat.64  “Most,” as will be
discussed further below, was a considerable understatement.  The USITC found that, except for lambs
held for breeding purposes, virtually all meat-type lambs are shipped to feeders in the fall, who feed
them for between 30 and 120 days and then sh ip them to lamb packers for slaughter.65  Packers then
either further process the lamb into primal, subprimal or retail cuts, or ship the carcasses to breakers
who perform a similar processing function.66  The cuts are then sold to nonbreaker wholesalers or
retail outlets.67   The Commission explicitly noted that this line of production yields only one principal
end-product, lamb meat.68
65. In determining the domestic industry, the USITC also found evidence of a coincidence of
economic interests between lamb growers and proc essors.  The value-added by lamb growers and
feeders ( i.e., the value of slaughter-ready live lambs) accounted for nearly 88 per cent of the ultimate
wholesale cost of lamb meat.69  Consequently, packers and breakers could be viewed largely as
finishers of products for which the vast majority of value had already been created by growers and
feeders.  Packers’ and breakers’ operations therefore would be highly affected by the supply and
quality of the live lambs produced by growers and feeders.70
66. The USITC found that the vertical integration of the industry also supported a finding of acoincidence of economic interests between different industry segments.
71  For example, there are
                                                     
60  New Zealand’s First Written Submission at ¶¶ 7.41-52; Australia’s First Written Submission at ¶¶
108-118.
61  USITC Report at I-12.
62  USITC Report at I-13.
63  USITC Report at I-13.
64  USITC Report at II-4.
65  USITC Report at I-13.
66  USITC Report at I-13 and II-14.
67  USITC Report at I-13 and II-15.
68  USITC Report at I-13 n. 44 and II-15.
69  USITC Report at I-8, I-9 and II-12.
70  USITC Report at  I-13.
71  USITC Report at I-13.WT/DS177/R
WT/DS178/R
Page A-301
growers who process lamb meat.  These growers both feed and slaughter lambs.72  In addition, one
major lamb packer also owns a lamb feeder.73  In addition, some lamb producers retain title to their
lambs in feedlots, by having them be fed for a fee or having some type of partnership with the feedlot
owner.74  Thus, lamb producers have a direct interest in slaughter operations as estimates indicate that
70 to 80 per cent of lambs slaughtered are in feedlots.75  No representatives in any of the four industry
segments testified before the USITC that the economic interests of packers and breakers divergedfrom those of growers and feeders.
76  Moreover, the price of lamb meat affects all four industry
segments similarly.77
67. The USITC found this to mean that, when processors did well, growers and feeders also
benefitted, but when processors confronted lower prices, they passed the lower prices back to feeders
and then growers, and all suffered to some extent.78  Price changes at retail are transmitted back down
the production chain79, and the price of lamb meat affects all four industry segments similarly.80  In
this case, all four segments were negatively impacted financially, and all experienced significant
declines in the unit value of their sales at the end of the period.81  For example, one rancher testified
before the Commission that lower import prices forced processors to reduce prices for the carcasses
they bought from the packers, who in turn had to reduce the prices they paid to feedlots for live
lambs.82  This rancher stated that because feedlot operators sold their lambs in the spring of 1998 for
less than they paid for them in the fall of 1997, they had to reduce the price they could pay for lambs
in the fall of 1998.  Thus, lower import prices “forced the entire US lamb meat industry in successive
waves to substantially reduce the prices they could pay for their lamb."83
(b) A definition of "Producer" that encompasses th ose firms with consistent economic interests
along a continuous line of production is in keeping with the safeguards
68. The United States submits that, when the product at issue is a processed product, the
undefined term “producer” as used in Article 4.1(c) of the Safeguards Agreement may be properly
read to include growers/feeders where there is su ch a continuous line of production and coincidence
of interest.  The Safeguards Agreement, Art.  4.1(c) states:
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 competitiveproducts constitutes a major proportion of the total domestic
production of those products.
69. Where such an integral relationship exists between growers of a raw product and the finishers
of that product, it is in keeping with both the context of this provision and the object and purpose of
the Safeguards Agreement to regard both as producers of the finished product.
84  Article 4's definition
                                                     
72  USITC Report at II-12.
73  USITC Report at I-14.
74  USITC Report at II-12.
75 USITC Report at II-24.
76  USITC Report at I-14.
77  USITC Report at I-14.
78  USITC Report at I-14.
79  USITC Report at II-66.
80  USITC Report at I-13.
81  USITC Report at I-14.
82  USITC Report at I-14 n. 50.
83  USITC Report at I-14 n. 50.
84  See Argentina -- Footwear  at ¶ 93 (interpreting the term “ increased imports” in view of the use of
the term “emergency” in the title of Article XIX).WT/DS177/R
WT/DS178/R
Page A-302
of  “producer” provides a basis for the injury analysis contemplated by that article.  The term
“producer” must therefore be understood within the context within which the required injury analysis
may be performed.  The Agreement presupposes that an authority will be able to consider “all relevant
factors” bearing on the situation of an industry.85  Limiting the definition of “producer” to those who
contribute only limited value-added toward the final stages of a process that operates as a continuous
line of production would create an artificially defined  “domestic  industry” and necessarily impedesuch analysis.  This is particularly so when, as here, extensive integration exists between firms at
different stages in that continuous line of production.
70. Moreover, not including those with consistent interests in a continuous line of production
would defeat the Agreement’s express purposes of facilitating adjustment and assuring that safeguard
measures do not escape control of the multilateral regime.  When such integration and unity of interest
exists, the full impact of imports will be felt at all levels of the line of production and measuresbenefitting the finishers of the product also will benefit those at the earlier stages of production.  To
permit such benefits to accrue to firms at earlier stages without including their operations in the injury
analysis would both allow Members to use safeguard measures to facilitate adjustment outside the
control of the Safeguards Agreement and artificially  delimit the actual effects of increases in imports.
Conversely, remedial measures that addressed only the effects of imports on one aspect of acontinuous line of production would be inadequate  to “prevent or remedy serious injury and to
facilitate adjustment” under Article 5.1, since adjustments made by only one segment of the line of
production would not insulate it from the effects of increased imports on other segments.  While the
United States does not claim that the Agreement necessarily requires such an analysis, it submits that
such an analysis is certainly permitted by the Agreement’s use of the undefined term “producer.”
71. The USITC’s determination of  the domestic industry is also consistent with GATT
precedent.  The determination of domestic industry under Article VI of the General Agreement on
Tariffs and Trade  was the subject of a GATT  panel report in  New Zealand -- Imports of Electrical
Transformers from Finland.
86  In that report,  the Panel rejected New Zealand’s argument that the
domestic industry consisted of four distinguishable ranges of transformers which, for purposes of the
injury determination, should be considered separately.87  The Panel concluded, to the contrary, that
this was an invalid argument and “it was the overall state of the health of the New Zealand
transformer industry which must provide the basis for a judgement whether injury was caused by
dumped imports."88  The definition of industry in the Safeguards Agreement may be interpreted
similarly as being applicable to the type of vertical relationships that exists among the four industry
sectors that together produce US lamb meat. Particularly persuasive to the Panel in New Zealand --
Electrical Transformers was that “each segment of the industry’s operation made a contribution to the
overall viability and profitability of a producer of transformers..89   The same analysis applies in this
case, since the USITC explicitly found a continuous line of production in the lamb industry from the
raw to the processed product, each segment of which made a contribution to the principal
end-product, lamb meat.90  The Panel found that, to decide otherwise, would:
allow the possibility to grant relief through antidumping duties to
individual lines of production of a particular industry or company -- a
notion which could clearly be at variance with the concept of
industry in Article VI in a case like the present one where both the
                                                     
85   Safeguards Agreement, Art. 4.2(a).
86  New Zealand - Imports of Electrical Transformers from Finland, L/5814, BISD 32S/55 (adopted
18 July 1985) (“New Zealand -- Electrical Transformers”).
87  New Zealand -- Electrical  Transformers at ¶ 4:6.
88  New Zealand -- Electrical  Transformers at ¶ 4:6.
89  New Zealand -- Electrical  Transformers at ¶ 4:6.
90  USITC Report at I-13 n. 44 and II-15.WT/DS177/R
WT/DS178/R
Page A-303
Finnish exporter and the New Zealand industry were engaged in the
manufacture and distribution of power transformers.91
72. The unadopted GATT Panel Report in  Canada -- Imposition of Countervailing Duties on
Imports of Manufacturing Beef From the EEC on which New Zealand relies is inapposite because it
was never adopted by the Contracting Parties and thus cannot be regarded as part of the body of caselaw which the Members of the WTO contemplated would be considered in proceedings under the
DSU.
92  Moreover, the factors considered by the Canada-Manufacturing Beef   panel stand in sharp
contrast to those present here.  The Panel found :
In Canada there is little vertical integration between suppliers of
cattle and the firms which perform slaughterhouse and boning
operations.  Processing operations are sometimes performed byintegrated firms while in other cases the slaughtering and boning
operations are performed by separate firms.  The Canadian firms
engaged in processing operations were not parties to the
countervailing duty proceeding and took no position on the question
of material injury.
93
73. In contrast, firms representing all four segments of the domestic industry joined in the petitionand supported the request for relief in the safeguards investigation.  Moreover, the US lamb meat
industry is vertically integrated in such a way that  it is virtually impossible to analyze each segment of
the domestic industry producing lamb meat by focusing on only one, discrete sector.  For example,growers engage in more than one sheep producing activity, such as feeding and sometimes
slaughtering lambs.
94  A major US packer also owns both a breaker operation and Superior Farms,
which is a lamb feeder.95  Some lamb producers retain title to their lambs in feedlots by having them
fed for a fee or having some type of partnership with the feedlot owner.96  As a result, grower/feeder
operations could not be separately categorized as either one.97  These facts show the industry is so
highly integrated it is not possible to focus on only one respective sector of the production process.
The inability to disaggregate the respective sectors producing the like product, lamb meat, requires
that the definition of the domestic industry include all four of the sectors contributing to the
production of the like product.
74. New Zealand’s reliance on United States -- Definition of Industry Concerning Wine and
Grape  Products98, which involved an examination of the definition of domestic industry under the
Article 6:5 of the Subsidies Code, is similarly mispla ced.  In that case, the Panel found that wine and
grapes were not “like” products, and that producers of grapes were not part of the same domestic
industry as producers of wine.  The Panel considered that, even if there was a close relationship
between grape and wine production, there were in fact two separate industries existing in the
United States.99  The Panel relied on the fact that in a previous countervailing duty investigation on
wine imports, the USITC had found it inappropriate to include grape growers within the scope of the
                                                     
91  New Zealand -- Electrical  Transformers at ¶ 4:6.
92  Japan -- Taxes on Alcoholic Beverages , WT/DS8/DS10/DS11/R, 11 July 1996, at ¶ 6.18.  The Panel
noted that an unadopted Panel report need not be taken into account; it does not constitute “subsequent
practice.”
93  Canada-Manufacturing Beef at ¶  2.6.
94  USITC Report at I-14 n. 46 and II-12.
95  USITC Report at I-14 n. 47.
96  USITC Report at II-12.
97  USITC Report at II-29, n. 89.
98 United States -- Definition of Industry Concerning Wine and Grape Products, BISD 39S/436
(adopted 28 April 1992) (“Wine-Grape” ).
99  Wine-Grape  at ¶  4.3.WT/DS177/R
WT/DS178/R
Page A-304
domestic industry.100   The USITC had declined to include the growers because only 42-55 per cent of
wine grapes were used in the production of wine, and there were other major markets for wine grapes
(e.g., table grapes and raisins).101   In contrast, meat-type lambs are almost wholly devoted to the
production of lamb meat102, which remains substantially the same during processing and is never
transformed into a different article.
75. As the USITC found, although some dual-use breeds are kept for both the production of wool
and meat, lambs are overwhelmingly raised for meat rather than for wool.103  In 1997, the ratio of net
sales/revenue for slaughter and feeder lambs in comparison to net sales/revenues obtained by US lamb
growers from any other item including wool was 84.6 per cent in 1997;  86.8 per cent in interim 1997;
and 88.9 per cent in interim 1998.104  Such ratios indicate that, in contrast to the situation that obtained
in Wine-Grape , the US lamb industry is almost completely devoted to the production of lambs for
meat.
76. In short, the facts found not to be present in Canada-Manufacturing Beef  and Wine-Grape are
precisely those present in the current case.  The USITC’s industry definition is based on pertinent
factors and provides for a realistic definition of the pertinent industry consistent with the express
purpose of the Safeguards Agreement and prior cases.
2. The USITC's threat of serious injury determination fully accords with the requirements
of Article 4 of the Safeguards Agreement
(a) Because they do not address the USITC's findings, complainants fail to make a prima facie
showing that the USITC's determination violated any WTO requirements
77. In keeping with Article 4.2(a) of the Agreement, the USITC evaluated “all relevant factors of
an objective and quantifiable nature having a bearing on the situation of that industry.”  Its
determination clearly demonstrates why the USITC found, in keeping with Article 4.2(b), “on the
basis of objective evidence, the existence of a causal link between increased imports of the product
concerned and [threat of] serious injury.”  In their arguments concerning that conclusion, however,New Zealand and Australia fail to make out a  prima facie  case for finding that the USITC’s
determination violated these provisions.  They ignore the findings that the USITC actually made and
ignore the Appellate Body’s decisions about the nece ssary elements of an injury analysis under the
Safeguards Agreement.
78. Unlike the briefs of the complaining Members, the findings of the competent authority here
are consistent with the recent Appellate Body holding in Argentina  – Footwear , that recent data are
the most probative of the question of whether a product “is being imported” in such increased
quantities as to cause or threaten serious injury.
105  The essence of the USITC’s threat determination
rests on evidence in the USITC record supporting four principal findings:
79. First, imports of lamb meat from Australia and New Zealand surged late in the period of
investigation and this surge was projected to continue past the period of investigation into 1999.
80. Second, the mix of such lamb meat imports shifted during the investigation, from frozen lamb
meat to fresh/chilled lamb meat and from smaller cuts to larger cuts, the form and cut size of lamb
                                                     
100  Wine-Grape  at ¶ 4.4.
101  Certain Table Wine From France and Italy , Inv.  Nos.  701-TA-210 and 211 (Preliminary) USITC
Pub. No. 1502 (March 1984), at 9, attached hereto as US Exhibit 11.
102  USITC Report at II-4.
103  USITC Report at II-4.
104  USITC Report at II-26.
105  Argentina – Footwear at ¶ 130-131.WT/DS177/R
WT/DS178/R
Page A-305
meat most similar to that produced and marketed by domestic lamb meat producers.  This trend,
which placed imports in increasingly direct competition with domestic production, was projected to
continue into 1999.
81. Third, this surge in imports, and the change in mix of the imported product, led to falling
domestic prices for lamb meat.  The fact that US demand for lamb had stabilized since 1996 anddomestic growers and producers were unable in the short run to reduce production meant that
increased supply caused prices to fall in the short run.  Lamb meat prices fell sharply in 1997 and
interim 1998 and, as the USITC found, these trends would continue into the future.
82. Fourth, economic indicators relating to the health of the domestic industry had stabilized by
1996 after termination of the US Wool Act.  However, those indicators sharply deteriorated in 1997
and 1998, when imports surged, and this deterioration was projected to continue into 1999.  Inparticular, industry profitability fell sharply in 1997 and interim 1998.
83. The written submissions of Australia and New Zealand leave this core account unchallenged.
These findings led the USITC to conclude that the domestic lamb meat industry was threatened with
serious injury caused by increased imports, and that serious injury was imminent.  As this summaryshows, although the USITC examined imports and the condition of the domestic industry during the
period 1993-97 and the interim period January-September 1998, its determination focused on the most
recent data, data for 1997 and interim 1998.  The arguments of the complaining Members focus
instead on what they regard was the primary reason for the industry’s troubles in the whole period,
1993 to interim 1998, and leave unmentioned the changes in import effects on which the USITCrelied.  Such an analysis, if adopted by an administering authority, might well be impermissible under
the Agreement, in view of the Argentina -- Footwear  Appellate Body decision’s admonition that an
injury analysis must examine sudden, recent developm ents.  In any event, the alternative analyses that
New Zealand and Australia propose can hardly be required.
84. The data of record showed, as the USITC found, a surge in imports in 1997 and interim 1998,
relative to the earlier years in the period of investigation.  The USITC found that imports increased by
19 per cent in 1997 from the same period a year earlier, and found imports increased by 19 per cent in
the first nine months of 1998, as compared with the year earlier period.
106  The increases in 1997 and
1998 were in marked contrast to import levels in 1993-95 when import levels were relatively steady.Imports in fact declined between 1993 and 1994.
107  The USITC found that the share of the domestic
market held by imports more than doubled during the period of investigation, with most of this
increase occurring in 1997 and 1998.108  The share of the US market held by imports (measured in
quantity) ranged between 11.2 per cent and 16.6 per cent during 1993-96, and then increased sharply
to 19.7 per cent in 1997 and 23.3 per cent in interim 1998.109  Thus, imports of lamb meat into the
United States and the share of the US market held by imports increased sharply in 1997, by 19 per
cent, and again, in interim 1998, also by 19 per cent (as compared with interim 1997).  Australian andNew Zealand firms projected that their export surges to the US would continue through 1999 and their
exports of lamb meat to the United States in 1999 would exceed the 1998 level by 21 per cent
110, a
level nearly twice the level entered in 1995.  Australia and New Zealand contest none of these
findings.
85. Although they seek to portray a marketplace in which their producers serve a customer base
different from that of the domestic producers, Australia and New Zealand likewise do not contest the
findings that led the USITC to find an increasing convergence in the US market of domestic and
                                                     
106  USITC Report at I-15, I-23.
107  USITC Report at I-15.
108  USITC Report at I-24.
109  USITC Report at I-18.
110  USITC Report at I-23.WT/DS177/R
WT/DS178/R
Page A-306
imported products.  As the USITC found, traditionally, virtually all domestic lamb meat sold in the
US market was fresh or chilled, and most imported lamb meat was frozen.111   However, the USITC
found that the mix of imported lamb meat changed during the period of investigation, from frozen to
fresh or chilled lamb, and to larger cuts, with the result that imported and domestic lamb meat
products became more similar.112  The USITC found that much of the increase in imports between
1995 and 1997 was in fresh or chilled lamb meat, which increased by 101 per cent during that period,as compared to 11 per cent for imports of frozen lamb meat.
113  The USITC report showed that since
1996, the majority of lamb meat imported from Australia has been fresh or chilled114;  it also showed
that an increasing share of imports of lamb meat from New Zealand were fresh or chilled.115
Moreover, foreign exporters told the USITC that the major portion of their 1999 increase would be infresh or chilled lamb meat.
116  In addition, the USITC found that, whereas domestic lamb carcasses
and the cuts derived from them were typically larger than imported cuts117, imported lamb meat cuts
became larger in size and more comparable to domestic cuts during the period of investigation.118
86. Australia and New Zealand likewise leave almost unmentioned the USITC’s findingsconcerning the recent and likely price depressing effects of imports.  Although they contend that the
US industry has been in a long-term decline due to falling demand for lamb meat, they do not contest
the USITC’s finding that demand has leveled off since 1996.  They likewise do not disagree that inthe short term domestic growers and feeders cannot reduce production.  This condition of competition
reflects characteristics specific to the lamb industr y – in particular, that the relatively long growth
cycle of lambs limits the ability of domestic growers and feeders to reduce production in the short run;
that meat-type lambs have one principal use, meat production, and cannot be diverted to other uses;
and that a lamb must go to slaughter within a sh ort time after reaching maturity regardless of market
price.
119  Australia and New Zealand do not dispute the premise that in these conditions increases in
supply are likely to put downward pressure on US prices.
87. Australia and New Zealand confirm120, rather than dispute, that prices fell in the period of
import surge.  The USITC found that prices for various lamb meat products declined sharplybeginning in mid-1997.  During the second half of 1997 and during interim 1998, prices for several
products were 20 per cent or more below comparable quarters in 1996 and early 1997.
121  The USITC
determination also made apparent the correlation between this fall in prices and the price pressure
from increased imports.   As the USITC found, even though the cuts of imported lamb meat grew in
size and were shipped increasingly as fresh or chilled meat, the unit values as well as price ofNew Zealand and Australian imports fell from interim 1997 to interim 1998.  Unit values and prices
for domestic products fell as well.
122  Pricing data gathered by the USITC for individual cuts showed
that imports undersold the domestic products by wide margins in most quarters, often by more than
20 per cent.123
                                                     
111  USITC Report at I-22.
112  USITC Report at I-22.
113  USITC Report at I-22.
114  USITC Report at II-16.
115  USITC Report at II-43.
116  USITC Report at I-22.
117  USITC Report at II-8.
118  USITC Report at I-22-23.
119  USITC Report at I-22.
120  New Zealand’s First Written Submission at ¶ 7.87 (“In 1998 both domestic wholesale and import
lamb meat prices declined.”)  Import prices declined by 12 per cent between 1997 and 1998.  See also
Australia’s First Written Submission at ¶ 48 and Graph 2.
121  USITC Report at I-20.
122  USITC Report at I-24.
123  USITC Report at II-74-76.WT/DS177/R
WT/DS178/R
Page A-307
88. The USITC also found that financial performance across all industry segments deteriorated
sharply in 1997 and interim 1998, and attributed this decline largely to falling prices caused by
increased imports.124  It found that the operating income for most packers and breakers fell to the
lowest point of the period of investigation in 1997 and interim 1998.125  It found that feeders, after
having operated at a profit in 1995 and 1996, operated at a loss in 1997 and at a substantial loss in the
first nine months of 1998.126  It found that growers as a whole operated at a diminished level of
profitability in 1997 and interim 1998, and that a significant number of individual growers operated at
a loss during that period.127
89. Consistent with the worsening condition of the domestic industry, the USITC noted that a
number of firms in the industry reported difficulties in generating adequate capital to finance plant
and equipment modernization.  Firms in the packer and breaker segments reported difficulties in
recouping new investments in plant and equipment and in repaying loans.128  Growers and feeders
reported cancellation or rejection of expansion plans, reductions in the size of capital investments,
bank rejection of loans, reduced credit ratings, and difficulty in repaying loans.129  Australia and
New Zealand do not appear to contest that these conditions existed, but instead assert that decisions to
go forward with investments undercut the argument that the industry was threatened with serious
injury, since the investments must have been made with the expectation of financial returns.  At somepoints, the complainants’ criticisms reflect a puzzlement that the USITC did not find the industry not
already to be suffering some injury.
90. Although Australia and New Zealand would have the Panel give great weight to the effects of
the termination of Wool Act support payments to lamb growers and feeders, they do not contest the
USITC’s basis for not finding the termination of those payments to have much influence on events
after 1996.  The USITC found that the support payments were phased out principally in 1994 and
1995, and terminated in 1996.
130 before  the surge in imports and sharp deterioration in the condition
of the domestic lamb meat industry in 1997 and interim 1998.  Moreover, the USITC found that the
payments had gone only to part of the industry, to lamb growers and feeders; the packer and breaker
segments of the domestic industry never received payments under the Wool Act.131  In addition, the
USITC found that in the intervening period between the phase out of the payments and the surge in
imports the grower and feeder segments of the industry had experienced recovery and that any
lingering residual effect of termination of the payments after 1996 was receding by the month.132  In
short, the USITC found that the termination of Wool Act payments could not explain the rapiddeterioration in the industry in 1997 and interim 1998 and threat of serious injury at the time of the
USITC’s injury determination.  Thus, the complainants’ extensive arguments about the effects of the
termination of  Wool Act payments over the entire period 1993 - interim 1998 are both irrelevant,
since they do not address the period of import surge and the USITC’s finding of serious injury in the
imminent future, and misleading, since they ignore the fact that the payments were not made to the
packer and breaker segments of the domestic industry.
91. The USITC found no evidence that any other alleged factors, including competition from
other meat products such as beef, pork, and poultry, might have significantly affected the condition of
the domestic industry in 1997 and interim 1998.  For example, with respect to competition from other
meat products, the USITC specifically noted that per capita US consumption of lamb meat had
                                                     
124  USITC Report at I-20.
125  USITC Report at I-19.
126  USITC Report at I-19.
127  USITC Report at I-20.
128  USITC Report at I-21.
129  USITC Report at I-21.
130  USITC Report at I-24.
131  USITC Report at I-25.
132  USITC Report at I-24-25.WT/DS177/R
WT/DS178/R
Page A-308
remained relatively steady since 1995.133  Although complainants argue that the USITC should have
examined further the effect of competition from other meat products on the lamb meat market, they
neither contest this finding on the evidence nor explain why it is not a sufficient finding under the
Agreement.
(b) The fact that complainants can point to other factors that in the long run have adversely
affected the US industry is irrelevant to whether the industry is threatened with serious injury
caused by increased imports
92. Much of complainants’ briefs is devoted to drawing alternative pictures of what has been
happening to the US lamb meat industry other than the view that the USITC adopted.  Most of those
arguments, as will be seen, are not supported by the record evidence or are not relevant to the analysis
required by the Safeguards Agreement.  However, even if the complainants’ alternative views were
permissible interpretations of the record, the possibility of those alternatives would not establish aviolation of the Safeguards Agreement.  As has been discussed previously, the standard of review
does not ask the Panel to decide whether it would have come to the same conclusion as the USITC.
(i) New Zealand's long-run analysis of the effect of imports ignores the significant change in
trends that occurred after 1996
93. Because they simply miss the point of the competent authority’s determination, none of the
factual arguments that complainants have made are capable of raising a prima facie  case that the
determination violated the Safeguards Agreement.  For example, New Zealand’s claim
134 that
increased imports could not have caused the threat of serious injury because, over the period of the
USITC’s investigation, imports increased less than domestic production declined ignores the USITC’sfocus on the recent period of import surge and invites the kind of long-term analysis that the Appellate
Body in Argentina – Footwear  sought to discourage.  As has been seen, the USITC based its finding
on what occurred in 1997 and interim 1998, when imports  of lamb meat surged, and what was likely
to occur in the imminent future, not on what happened in the four years prior to the surge in imports.
The USITC found that the 1997 increase in imports of 9.7 million pounds was mirrored by a declinein US lamb shipments of 8.4 million pounds.
135
94. New Zealand is correct that the USITC report shows that domestic production also fell in
earlier years.  New Zealand neglects to mention, however, that the USITC report also shows that
domestic consumption of lamb meat fell by almost the same amount during those years but did notfall in 1997-98.
136  Moreover, contrary to what happened in 1997 and interim 1998, increasing imports
were not a factor during this earlier period.  Imports were relatively steady, falling in 1994 and then
rising modestly in 1995 and 1996.137  In short, New Zealand’ s focus on long-term trends obscures,
rather than clarifies, the question of what will occur in the imminent future.
95. In particular, New Zealand overlooks the very significant fact that domestic production and
consumption trends diverged for the first time during the period of investigation in 1997 , the year in
which the surge in low priced imports began.138  Consumption rose for the first time in 1997, yet
domestic shipments continued to fall in 1997 and remained at the lower 1997 level (on an annualized
                                                     
133  USITC Report at I-25.
134  New Zealand’s First Written Submission at ¶ 7.79.
135  USITC Report at I-24.
136  USITC Report at II-17.
137  USITC Report at II-17.
138  USITC Report at II-17.WT/DS177/R
WT/DS178/R
Page A-309
basis) in interim 1998.139  On the other hand, imports rose by 19 per cent (in quantity) in 1997, and by
a further 19 per cent in interim 1998.140
96. New Zealand also fails to mention, and does not contest, that the mix in imported products
shifted during the period of investigation, particularly in 1997 and interim 1998, from frozen lamb
meat to fresh or chilled lamb meat, and to larger cuts.  Thus, over the period of investigation, the mixof imported products became more similar to those produced by the US industry and hence more
likely to displace domestic lamb meat in the domestic market.
97. The complainants’ submissions before this Panel, and their nationals’ submissions before the
USITC, in fact, leave no doubt that imports have displaced domestic lamb meat.  Australia
conceded
141 that about one third of the increase in lamb meat imports over the whole period of the
investigation displaced domestic lamb meat.  Since, as the USITC report reflected, such displacementtended to increase toward the end of the period, Australia’s estimate reinforces the conclusion that in
1997-interim 1998 significant displacement occurred.  During the USITC investigation, Australian
and New Zealand respondents made a similar concession.  In their update of a 1995 USITC model
analysis that they furnished to the USITC during the investigation, Meat and Livestock Australia and
Meat New Zealand conceded that “imports displace some amount of domestic lamb meat” in thedomestic market.  This statement is likely to have substantially understated conditions existing in
1997 and interim 1998 because the update was based on imports during the period 1961-1997, when
the great majority of imported lamb meat was in frozen form.
(ii) Complainants' efforts to blame the industry's troubles on the termination of the Wool Act
Support Payments ignores the USITC's findings that the industry had largely recovered from
that termination by 1997
98. Like New Zealand’s argume nts about whether imports displaced domestic production,
Australia’s argument about the effects of termin ation of the Wool Act payments focuses on what
happened long before the surge in imports in 1997 and interim 1998.  For example, in ¶47 of its FirstWritten Submission Australia cites to a long-term decline in the US sheep population since 1961.
Most of this analysis is irrelevant and not probative of the issue at hand.  What occurred before the
mid-1990's has little if any relevance to what happened in 1997 and interim 1998, when the surge in
imports occurred.  The Wool Act and the downsizing that occurred during the long period preceding
the import surge in 1997 were all past history.  The competent authority, as has been seen, found thateven those domestic producers who received the support payments had experienced some recovery by
1997, a finding Australia does not address.  Australia does not contest the finding that in the imminent
future any lingering effects of the termination of Wool Act payments will have an ever decreasing
effect and thus could not explain the imminent worsening of the domestic industry’s position that the
authority foresaw.
99. Similarly, the fact that a higher percentage of the reporting growers said that they operated at
a profit in 1998 than in 1993, or that live lamb slaughter prices were higher in 1997 and 1998 than in
1993, does not mean, as New Zealand claims
142, that the domestic industry could not have been
threatened with serious injury in 1998.  What the USITC found at the time of its decision was that,
based on the surge in imports in 1997 and interim 1998 and the coinciding deterioration in the
condition of the domestic industry, lamb meat “is be ing imported” in such in creased quan tities as to
threaten to cause serious injury to the domestic industry.  This is fully consistent with the Appellate
Body’s decision in Argentina – Footwear  that the competent authority focus on the most recent
                                                     
139  USITC Report at II-17.
140  USITC Report at II-17.
141  Australia’s First Written Submission at ¶ 146.
142  New Zealand’s First Written Submission at ¶¶7.59 and 7.62.WT/DS177/R
WT/DS178/R
Page A-310
period.  The USITC found that the domestic industry had largely adjusted by 1996 to conditions, such
as the termination of the Wool Act, that may have earlier affected profitability.
100. The gravamen of such arguments appears to be that an industry that has, as Australia puts it,
endured a “long-term secular decline” (¶62) cannot be threatened with serious injury by imports.
Complainants, however, make no legal argument to support this implicit proposition, quite apart fromfailing to address the findings of the USITC that suggest that, apart from the effects of imports, the
prior decline had largely come to an end by 1997.  They quite rightly do not cite any support in the
Safeguards Agreement for this premise, because no such support exists.
101. Nothing in the Safeguards Agreement says that a competent authority cannot find that
increased imports are causing or threatening to cause serious injury just because the industry may
have been injured at some earlier point in time by so me other factor.  All that the Agreement requires,
and as was made clear by the Appellate Body in Argentina – Footwear , is that the competent
authority find, at the time of its decision, that a product “is being imported” in such increased
quantities as to threaten to cause serious injury to the domestic industry.
102. The definition of  “serious injury” in Article 4.1(a) does not exclude the possibility that an
industry may also be adversely affected by causes other than imports.  It requires only “a significant
overall impairment in the position of the domestic industry,” meaning it only requires that the position
of the industry, whatever it otherwise may be, be impaired.
103. Complainants’ position seems to be that a man who has cancer may not suffer significant
overall impairment if run over by a car.  Nothing in the Agreement requires that conclusion.  Indeed,
Article 4.2(b) expressly assumes the opposite.  It provides, “When factors other than increased
imports are causing injury to the domestic industry at the same time , such injury shall not be
attributed to increased imports."
143  This provision thus takes into account that the industry may be
suffering from other causes of injury at the same  time.  It simply requires that an authority not
attribute what those other factors caused to the increased imports.144  It does not require that relief be
denied if other factors caused injury prior to the increase in imports.
104. Moreover, on the facts, both Australia’s and New Zealand’s characterizations of  pricing in
the market seem to be contrary to their picture of the US industry as in a long-term, inexorable declinethat would render shorter term effects a nullity.  For example, Australia asserts that “[t]he subsequent
cyclical drop in prices to the levels prevailing before the removal of the subsidies was a normal
cycle."
145  Similarly, the only reason for the 1998 price decline offered by New Zealand is that prices
had risen in earlier years and that  “agriculture prices fluctuate."146  Both of these statements are
consistent with the view that prices in this market can fluctuate with changes in supply and demand.
Neither Member contests the finding that demand -- contrary to the earlier long-term trend -- was
stable after 1996.  Thus, their characterizations of the market are consistent with the USITC’sconclusion that a 19 per cent increase in imports in 1997 and a further increase of 19 per cent in
interim 1998 over the interim 1997 level would cause price declines.  The record before the USITC
established that imports had declined in price a nd in most cases substantially undersold US product.
                                                     
143  (Emphasis added).
144  See United States -- Imposition of Anti-Dumping Duties on Imports of Fresh and Chilled Atlantic
Salmon from Norway, ADP87, 30 November 1992 (interpreting parallel provision of Tokyo Round
Antidumping Code).
145  Australia’s First Written Submission at ¶62.
146  New Zealand’s First Written Submission at ¶7.87.WT/DS177/R
WT/DS178/R
Page A-311
3. The terms in which the USITC expressed its co nclusions are entirely consistent with the
Safeguards Agreement
(a) New Zealand's theoretical attack on the US Statute provides no basis for challenging the
determination at issue in this proceeding
105. As has been seen, the USITC found that other posited causes of injury to the US industry
would be of negligible or diminishing importance in the imminent future.  The termination of WoolAct payments has already been discussed.  While the USITC found that other meat products, such as
beef, pork, and poultry, appear to compete with lamb to a certain extent, it found that per capita
domestic consumption of lamb meat had been relatively constant since 1995.  Accordingly, it found
no reason to believe that there would be a shift in demand in the imminent future.
147
106. Likewise, the USITC found that there was no sign ificant increase in input costs that explained
the sharp decline in industry profits.  It found that expenses for growers rose at a moderate rate andthen fell in interim 1998, that expenses for feeders rose at a faster but not dramatic rate, and that
expenses of packers and breakers rose moderately in line with production.  No increase was predicted
for the imminent future.
148  The USITC found that US Department of Agriculture data showed that the
fat content of domestic lambs was lower in 1997 than in earlier years, and that “fat” lambs could have
accounted for, at most, no more than a small percentage of domestic production.
107. With regard to packer concentration, the USITC noted information indicating that
concentration had actually decreased, rather than increased.  The USITC also found that packers, like
other segments of the industry, experienced deteriorating profits, and found that an undue level of
concentration would have suggested a greater ability to pass through lower prices to feeders andgrowers.
149  Similarly, while the USITC found that an effective marketing plan could have had an
important impact on the industry, it did not find that the failure to implement such a plan was a more
important cause of the threat of serious injury.150
108. It is clear from the USITC’s findings that the USITC found that none of these other possiblecauses had a significant impact on the deterioration in the condition of the domestic industry that
occurred in 1997 and interim 1998 or posed a threat of serious injury in the imminent future.  Thus,
the USITC found only one possible cause of a threat of serious injury – increased imports.  The
USITC’s finding was clearly consistent with the requirement of Article 4.2(b) that injury caused by
other factors not be attributed to increased imports .  The USITC did not attribute the threat of serious
injury to factors other than increased imports.  Indeed, it could not have, since it did not find that there
were any factors of significance, other than increase d imports, that threatened to cause serious injury.
109. New Zealand (notably not joined by Austra lia) contends, however, that the USITC acted
inconsistently with the Safeguards Agreement beca use it expressed its conclusions about the threat
posed by increased imports in terms required by the US statute.  The USITC concluded that increased
imports of lamb meat were a “substantial cause” of threat of serious injury to the domestic industry.Under the US safeguard statute, “substantial cause” means “a cause that is important and not less than
any other cause."
151
110. New Zealand argues that the USITC’s “substantial cause” analysis was inappropriate because,
in New Zealand’s view, it could lead the Commission impermissibly to “weigh” causation factors andto blame increased imports for causing a threat of serious injury that was in fact attributable to other
                                                     
147  USITC Report at I-22.
148  USITC Report at I-25.
149  USITC Report at I-25.
150  USITC Report at I-26.
151  Section 202(b)(1)(B) of the Trade Act of 1974, as amended, attached hereto as US Exhibit 12.WT/DS177/R
WT/DS178/R
Page A-312
factors.  To the contrary, US law requires that the USITC be particularly diligent about not attributing
injury from other factors to increased imports.  US law expressly requires that the USITC examine
factors other than imports which may be a cause of serious injury or threat of serious injury to the
domestic industry.152  As has been shown, the USITC found that factors other than increased imports
played no significant role in causing the threat of injury that the Commission found.  The USITC did
not find increased imports to be one among several causes of lower prices and domestic industry salesvolumes.
153  Thus, the question of whether it is permissible to weigh causation factors is a moot issue
in this case, since increased imports were not one of a multiple number of causation factors and the
USITC did not engage in weighing.
111. Thus, even if New Zealand’s objections to the use of a “substantial cause” analysis are correct
– which the United States disputes – they are irrelevant for purposes of this case.  They cannot
provide a basis for concluding that the USITC’s threat of serious injury determination was inadequate.It is thus unnecessary for purposes of deciding this case for the Panel to address New Zealand’s
complaint on this subject.
154
(b) The USITC satisfied the causation requirements of the Safeguards Agreement
112. In any event, New Zealand’s objection to the “substantial cause” analysis is baseless.  The
“substantial cause”  test has been embodied in US safeguards legislation for over 25 years.  Similar
language was included in US safeguards statutes dating back to 1955.155
113. New Zealand apparently considers that Article 2.1 can only be satisfied when increased
imports are the exclusive cause of the injury or threat  of injury that the industry has sustained, since it
asserts that: “[T]here can be no serious injury attribut able to imports at all if that serious injury is in
fact attributable to other causes."156  However, nothing in Article 2.1 suggests that is the case.
Article 2.1 provides:
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 injuryto the domestic industry that produces like or directly competitive
products.
                                                     
152  Section 202(c)(2)(B) of the Trade Act of 1974, as amended, attached hereto as US Exhibit 13.
153  See USITC Report at I-26.
154  See United States -- Shirts and Blouses from India , WT/DS33/AB/R, Report of the Appellate Body
adopted 25 April 1997, at VI (“Given the explicit aim of  dispute settlement that permeates the DSU, we do not
consider that Article 3.2 of the DSU is meant to encourage either panels or the Appellate Body to ‘make law’ by
interpreting existing provisions of the WTO Agreement  outside the context of resolving a particular dispute.  A
panel need only address those claims that must be addressed in order to resolve the matter in issue in thedispute.”)  Moreover, New Zealand’s contention amounts to an attack on the US statute itself, which as theUnited States pointed out in its in letter of May 5, 2000, is beyond the Panel’s terms of reference.
155  For example, Section 6(a) of the Trade Agreements Extension Act of 1955 provided that:
“Increased imports, either actual of relative, shall be cons idered as the cause or threat of serious injury to the
domestic industry producing like or directly competitive products when the Commission finds that such
increased imports have contributed substantially towards causing or threatening serious injury to such industry.”
(emphasis added.) [Ch. 169, Pub. L. 86], attached hereto as US Exhibit 14.
156  New Zealand’s First Written Submission at ¶7.75.WT/DS177/R
WT/DS178/R
Page A-313
114. While Article 2.1 plainly establishes a causation requirement, nothing in that provision
specifies the degree  of cause required before a safeguard measure can be imposed.157  Neither GATT
Article XIX:1 nor Article 2.1 of the Safeguards Agreement specifies that increased imports must be
the exclusive cause of injury, or threat of injury, that the domestic industry has sustained.  New
Zealand argues otherwise, but points to Article 4.2 for the proposition that this limitation should be
read into Article 2.1.
115. It is worth noting that Article 2.1 directs Members to make their injury and causation
determinations “pursuant to the provisions set out below”.  Those provisions include Article 4.2,
which addresses injury causation in detail.  In considering the meaning of the causation language in
Article 2.1, it is thus appropriate to look to the more specific language of Article 4.2(b).
116. Article 4.2(b), second sentence, suggests that increased imports may be understood to “cause”
serious injury, or threat of serious injury, even when the injury that the industry has sustained is being
caused by other factors as well.  Article 4.2(b), second sentence, provides that:
When factors other than increased imports are causing injury to the
domestic industry at the same time, such injury shall not be attributedto increased imports.
117. This sentence addresses situations in which injury to a domestic industry is attributable both
to increased imports and other sources.  By its own terms, the sentence recognizes that factors other
than increased imports may be “causing” injury at the same time as increased imports.
118. If increased imports and other factors can be “causing” injury at the same time for purposes of
Article 4.2(b), second sentence, New Zealand cannot be correct in asserting that Article 2.1 – which
uses the nearly identical expression “to cause” – should be interpreted to require that increased
imports must be the sole cause of serious injury or threat of injury.  Moreover, if increased importsand other factors may be “causing” injury or threat of injury at the same time, a competent authority
may appropriately consider the relative importance of those causes through the application of a
“substantial cause” or similar causation standard.
119. Contrary to New Zealand’s view, Article 4.2( b), second sentence, does not preclude Members
from attributing serious injury, or threat of serious injury, to increased imports where other factors
have also contributed to the conditions leading to the injury or threat.  Rather, it instructs Members
not to blame increased imports for any injury caused by other factors.  The USITC fully complied
with that requirement, as has been shown.
120. New Zealand is also wrong in its claim in ¶¶ 7.73-7.76 of its First Written Submission that the
causation test in US law is a “less stringent” test than that required by the Agreement.  If anything, theUS law in fact embodies a more stringent  test.  Nothing on the face of the Agreement requires an
authority to compare the extent of damage caused by different factors affecting an industry.  Thus, the
United States statute calls on its authority to make a more detailed analysis than the Agreement
requires.
121. Likewise, New Zealand is wrong in its claim that  the US test can be met even when increased
imports “are one of many causes” of the serious injury or threat of serious injury.
                                                     
157  See John Jackson, “The General Agreement on Tariffs and Trade,” in A Lawyer’s Guide to
International Business Transactions, Pt. I,  Surrey and Wallace, eds., 2d ed. 1977, at 66, attached hereto as US
Exhibit 15.  “Unlike US legislation, which generally has been more specific about the degree or quantity of
cause required for the link between increased imports and serious injury before escape clause relief can beinvoked, the GATT escape clause is very general.  Arguably, any degree of cause between increased imports
and serious injury to domestic producers will suffice.” (footnote omitted)WT/DS177/R
WT/DS178/R
Page A-314
Section 202(b)(1)(B) of the US Trade Act of 1974 defines the term “substantial cause” to mean “a
cause which is important and not less than other cause.”  Thus, increased imports must be both an
“important” cause of the serious injury or threat, and “not less than any other cause.”  The legislative
history of the US provision makes it clear that a cause of injury would not be an “important” cause of
injury, and thus not a “substantial” cause, when it was one of many such causes, even if it was equal
to or greater than any other cause.  The US Senate committee that drafted this particular provisionstated “The [USITC] Commissioners will have to assure themselves that imports represent a
substantial cause or threat of injury, and not just one of a multitude of equal causes or threats of
injury."
158
122. In sum, the “substantial cause” test represents a long established and well considered
approach that fully implements the requirements of Article XIX and the Safeguards Agreement.  In
this case, it has led to a detailed analysis as to which New Zealand has no basis for complaint.
4. The alternative methodologies that complainan ts propose for evaluating the data are not
required by the Safeguards Agreement
(a) The USITC determination concerned the industry as a whole and included each segment
123. In making its determination, the USITC considered all of the evidence with respect to each of
the factors and concluded that the domestic industry, as defined to include growers, feeders, packers,
and breakers, was threatened with serious injury.  While the USITC gathered data with regard to the
various economic factors for each of the four industry segments, the USITC did not make, and was
not required to make, separate threat of injury determinations with respect to each of the segments.
Nevertheless, as is shown above, the USITC found that many factors, including financialperformance, deteriorated for all industry segments.
124. The data that the USITC obtained on each of the segments were sufficient to allow the USITC
to make a determination that the industry as a whole was threatened with serious injury caused by
increased imports.  To the extent practical, the USITC obtained data on each of the economic factorsfor all four segments of the industry.  The USITC vi ewed this as the most appropriate way to examine
data to avoid double counting or the combining of data expressed in different forms (e.g., shipments
vs. production).
159  This also provided the USITC with a safety check on data, because it gave the
USITC the ability to compare trends in data for the various factors for each of the sectors, so as to
determine whether the trends were similar and, if not, probe the reasons for any differences.  Inparticular, it enhanced the USITC’s ability to probe the validity of the data compiled from grower
questionnaires, which reflected a much smaller sampling of producers than the data for other
segments.  The fact that the grower data showed trends that were for the most part similar to the data
compiled for other industry segments, and that differences were explainable, suggested that they were
objective and valid, even though the sample was small.
125. Australia argues
160 that, as a consequence of its definition of domestic industry, the USITC
was obliged to prove that there would be a significant overall impairment in the position of the
producers in each of  the industry segments.  In support, Australia cites generally to Article 4 of the
Safeguards Agreement, but not to any specific paragraph or clause therein.
                                                     
158  Trade Reform Act of 1974, Report of the Committee on Finance . . . on H.R. 10710 , S. Rept. No.
93-1298, 93rd Cong., 2d Sess. 120-21 (1974), attached hereto as US Exhibit 16.
159  USITC Report at I-16, note 61.  In the two instances in which the collection of data was not
practical (e.g., capacity and capacity utilization data fo r growers and feeders), the USITC explained why it was
not practical to collect such data (e.g., no practical wa y to measure range capacity, varying time that lambs are
kept in feedlots).  USITC Report at I-20 n.96.
160  Australia’s First Written Submission at ¶157.WT/DS177/R
WT/DS178/R
Page A-315
126. Australia does not find any specific support for its claim in Article 4 because none exists.
Moreover, what Australia argues is contrary to the basic concepts in Article 4.  Article 4.1(a) defines
serious injury to mean “a significant impairment in the position of a domestic industry ” (emphasis
added).  Article 4.1(c) defines domestic industry to mean “the producers as a whole  of the like or
directly products . . .” (emphasis added).  Thus, Article 4 directs a competent authority to examine the
condition of the producers as a whole, as opposed to different groups of producers.  While this doesnot mean that a competent authority could not separately examine data with respect to producers in
different segments of the industry, the finding must  be made with respect to the condition of the
domestic industry as a whole.
127. The USITC found that financial performance declined in all four segments in 1997 and
interim 1998, during the period when the surge in imports occurred.  Australia seeks to discount the
significance of the decline in financial performance by arguing that some of the firms were stillprofitable, or that only a few more firms in a particular segment operated at a loss in 1998 than in
1997, or that the loss for feeders in interim 1998 was due to the $21.26 fall in the price per lamb of
slaughter lambs, as compared to the fall of only $6.70 in the price per feeder lamb.
161
128. As stated earlier, nothing in the Safeguards Agreement requires a finding that all firms in theindustry are operating at a loss, or that the industry as  a whole is operating at a loss.  Indeed, the list of
factors in Article 4.2(a) of the Agreement includes “ profits  and losses,” which indicates that an
industry may be seriously injured or threatened with serious injury even though the industry as a
whole or individual firms are profitable.  What is key in a threat case is that the economic position of
the domestic industry is likely to deteriorate seriously as a result of increased imports.  The USITCclearly found this to be the case as to the industry as a whole and as to each of its component sectors.
129. Moreover, the decline in slaughter and feeder prices that Australia references precisely
illustrates what was happening in the domestic market and supports the USITC’s finding.  Imports of
lamb meat compete head to head with domestically produced lamb meat.  When low-priced importsincrease and drive down the price of domestic lamb meat at the wholesale level, the price decline is
then passed through to feeders and eventually to growers.  The surge in imports should first adversely
affect the price of slaughter lambs and then the price of feeder lambs.  Australia refers to this as “a
short run phenomenon, which would be expected to be corrected in future periods."
162  T h e
“correction” that Australia refers to is that the lower prices caused by imports will be passed throughto growers, a process that was clearly in progress in early 1999 when the USITC found that the
domestic industry was threatened with serious injury .  As the USITC noted, the growing of lambs is a
relatively long process, and growers and feeders are unable to reduce production in the short run.
When a lamb is mature, it must go to market, regardless of the market price.  As Australia implicitly
recognizes, this process means that lamb growers cannot in the short run protect themselves from
effects of imports on lamb meat sales.  In short, while the evidence showed that not all sectors would
be impacted identically, all would suffer serious deterioration in their positions due to increasedimports.
(b) The USITC properly considered each factor required by the Agreement and was not required
to conduct an econometric analysis
130. The USITC conducted the appropriate analysis in determining that imports of lamb meat were
in such increased quantities as to cause the threat of serious injury.  The USITC considered the
evidence with respect to each of the factors requir ed by the Agreement and made its determination
based on that evidence.
                                                     
161  Australia’s First Written Submission at ¶¶153-164.
162  Australia’s First Written Submission at ¶160.WT/DS177/R
WT/DS178/R
Page A-316
131. New Zealand claims163, without citing any basis in the Agreement, that the USITC should
have performed an econometric analysis regarding the factors causing the threat of serious injury,
since in 1995 the USITC performed a vector autoregression model analysis of the lamb meat market.
This claim is without basis for two principal reasons.  First, the Agreement does not require that a
competent authority perform such an analysis.  In fact, the Agreement does not prescribe any specific
methodology  that a competent authority must employ in demonstrating the link between increased
imports and serious injury or the threat of serious injury.  Second, because such analyses typically rely
on relatively long data series, such analyses generally are not helpful in explaining what happened in
the most recent period or in projecting what will happen in the imminent future.  Because such models
are more useful in showing the long-term trends, reliance on such analyses might well be inconsistent
with the holding of the Appellate Body in Argentina – Footwear , that recent data are the most
probative of whether a product “is being imported” in such increased quantities as to cause or threaten
serious injury.
132. The USITC’s 1995 model164 was not developed for use in a safeguard investigation, but rather
for use in a fact-finding investigation conducted under a different statutory authority.  The model
focused on competitive conditions characterizing the US  sheep markets at the farm level , as opposed
to the effects of imports of lamb meat on the lamb meat industry.  Second, it assumed that the mix ofimported and domestic lamb meat products would remain steady.  Third, it covered the period
1961-1994, when the Wool Act was in effect.  The update of this model provided by Australian and
New Zealand respondents during the USITC investigation presented many of the same problems as
the 1995 model.  While it included three additional years of data (1995-97), it also covered the period
back to 1961 and did not include the most recent period (interim 1998).  Thus, both models focusedon the sheep markets at the farm level , not the lamb market.  Second, neither of the models considered
the most recent data on which the USITC in part relied – data for interim 1998.  Even the updated
model presents average dynamic patterns for 1961-97 with which the variables have historically
interacted.  Third, the assumptions in both models for the product mix of imported lamb meat are in
direct conflict with the USITC’s finding in the 1999 safeguards case – that the mix of imported lambmeat products had shifted during 1997 and interim 1998 and, based on projections supplied by
Australian and New Zealand producers, this shift would continue through 1999.  Thus, the
assumptions and  results of the 1995 model run and the updated run were not valid for purposes of the
1999 safeguards investigation.  Accordingly, the USITC did not rely on either of the model runs in
making its determination in the safeguards investigation.
133. Contrary to New Zealand’s implication, the USITC does not perform econometric analyses of
the kind urged by New Zealand during the course of a safeguards investigation.  Rather, consistent
with Article 4.2, the USITC evaluates the evidence of an objective and factual nature with respect to
each of the relevant factors and makes its findings and conclusions on the basis of that evaluation.
New Zealand’s insistence upon the value of such an analysis reflects its misconceived position,
contrary to Argentina – Footwear , that a safeguards investigation should concern long-term trends,
rather than a detailed analysis of the very recent developments that can create emergency conditions.
                                                     
163  New Zealand’s First Written Submission at ¶7.83.
164  The model was included in a USITC fact finding report on conditions affecting the US and foreign
lamb industries completed in 1995.  The report consisted mostly of information about the domestic and foreign
lamb industries and product trade.  The model was not th e focus of the report.  The report was prepared by the
USITC at the request of the US Trade Representative.  See USITC,  Lamb Meat: Competitive Conditions
Affecting the US and Foreign Lamb Industries, Investigation No. 332-357 , USITC Publication 2915, Aug. 1995,
at 5-36 et seq.   Attached hereto as US Exhibit 10.WT/DS177/R
WT/DS178/R
Page A-317
(c) The USITC properly drew inferences about the imminent future from recent trends in industry
indicators
134. Consistent with the Appellate Body decision in Argentina – Footwear , in making its
determination the USITC focused on the most recent available data, data for full year 1997 and
interim year 1998.  The USITC also considered the level of imports and the shift in the mix of imports
for that period and projections for full year 1998 and 1999 provided by Australian and New Zealandproducers.  It also considered the nature of the industry, including the inability of domestic growers
and feeders to adjust their production in the short term.  On the basis of these data, and the trends
therein, the USITC drew inferences and concluded that serious injury was imminent.  Consistent with
the definition of “threat of serious injury” in Article 4.1(b), the USITC finding was “based on facts
and not merely on allegation, conjecture, or remote possibility.”
135. Accordingly, the USITC considered evidence of recent trends in industry performance to
provide the most reliable basis for making inferences about the imminent future. The record provided
no basis for concluding that such trends were not probative of the near term, and Australia provides
no basis for believing that they were not.  Australia
165 nevertheless  contends that this was not enough,
and claims that the USITC should have performed a “prospective analysis” for the industry.  To assist
itself in performing this analysis, Australia contends that the USITC should have gathered “forwardlooking data ” from growers.
166  Australia does not state what kind of additional data the USITC
should have gathered or define what such an analysis would entail, or explain why the analysis used
by the USITC violates the Safeguards Agreement.
136. The USITC relied on projections provided by lamb meat producers in Australia and
New Zealand about projected export levels and the mix of exports to the United States for full year
1998 and for 1999.  Three of the USITC Commissioners expressed the additional view that they did
not believe the exporters would have exaggerated their near-term future exports to the United States,
since an overstatement would not likely have been in their interest.167  The USITC also concluded
that, in the short run, domestic growers and feeders would be unable to reduce production, demandwould be unlikely to shift, and costs were not predicted to change significantly.
168  T h e  U S I T C ’ s
findings therefore provided a sound, objective reason for concluding that recent trends in the effects
of imports on the domestic industry would provide sound guidance for predicting the imminent future.
As a result of this analysis, the USITC concluded that there was a “high” degree of likelihood that
“the increased imports will have a substantial negative effect on the volume or prices, or both, of theUS industry’s lamb meat sales."
169  Australia again has not articulated a basis for finding a violation of
the Agreement.
(d) Complainants Arguments that the USITC should have put more weight on certain evidence do
not detract from the adequacy of the determination it reached
(i) The USITC accurately and objectively characterized the evidence on profitability
137. New Zealand’s arguments concerning profitability evidence simply ask the Panel to
recharacterize the evidence.  New Zealand claims170 that the USITC’s statement that a significant
portion of individual growers reported that they had operated at a loss was “misleading.”  Instead,
New Zealand argues, the USITC should have said that a significant portion operated at a profit.  This
makes no sense.  First, the USITC statement was absolutely true, and New Zealand’s suggested
                                                     
165  See, e.g ., Australia’s First Written Submission at  ¶139.
166  Australia’s First Written Submission at ¶133.
167  USITC Report at I-23 n.23.
168  USITC Report at I-22-24.
169  USITC Report at I-26.
170  New Zealand’s First Written Submission at ¶7.59.WT/DS177/R
WT/DS178/R
Page A-318
rephrasing of the statement clearly concedes that it was true.  Second, and more importantly, the
Safeguards Agreement nowhere requires that a competent authority find the domestic industry as a
whole or every producer in the industry to be operating at a loss in order for the industry to be
seriously injured or threatened with serious injury.  What it does require is that the competent
authority find that increased imports are causing or threatening serious injury to the domestic industry.
This the USITC did in fact find, and the fact that a significant portion of growers reported that theyhad operated at a loss in the most recent period, at the time when imports were surging, was one of the
facts supporting this finding.
138. New Zealand again complains
171 that the USITC was selective in its use of profitability data
for feeders in that it drew conclusions based on data reported by different numbers of feeders – nine
feeders for the full years 1993-97, seven feeders for interim 1997, and six feeders for interim 1998.
There was nothing selective in what the USITC did.  The USITC had a fully uniform data series forthe five full years 1993-97, covering the same nine firms.  The interim year data are most useful for
comparing the most recent interim period with the previous interim period, as opposed to previous full
year periods.  At the USITC explained on page II-29 of its report, one of the feeder firms that reported
data for interim 1997 went out of business in interim 1998.  The USITC report stated that this
contributed to the reduction in net sales quantity and value and total expenses when compared tointerim 1997.
172  The USITC’s findings accurately and objectively characterize the evidence
concerning profitability.
(ii) The USITC reasonably did not place weight on growths in packer and breaker capacity in
preference to other evidence of the industry's position
139. While not denying that the factors on which the USITC relied were relevant under Article 4.2
of the Agreement, Australia and New Zealand insist that the authority should have placed greater
weight on other factors.  These arguments do not make  out a violation of the Agreement and invite the
Panel to violate the standard of review by reweighing the evidence.  Article 4.2(a) requires competent
authorities to “evaluate” all relevant factors.  It does not require that an authority give weight to eachfactor in each investigation, nor does it require that an authority find that each factor provide evidence
that supports the conclusion it reached.
140. Thus, Australia’s assertion
173 that the increase in capacity of US packers and breakers during
the investigation does not support a finding of threat of serious injury does not state a propositioncontrary to the conclusion that the USITC reached.  The USITC did not rely on capacity information
in making its affirmative finding of threat of serious injury.   Rather, the USITC found such factors as
worsening financial performance, declining sales,  falling prices, and falling market share due to
increased imports more indicative of whether the industry’s position would deteriorate.
174
141. Moreover, the reasons why the authority found such trends more probative are evident on the
face of its determination.  As the authority found, firms in the packer and breaker segments reporteddifficulties in recouping new investments in plant and equipment and in repaying loans.
175  Thus, the
fact of past investment did not, as Australia posits, necessarily provide evidence of an expectation of
profits in the future, when firms were having difficulty recouping that investment.  Indeed, their
failure to recoup investment was consistent with the effects of falling sales and market share due to
increased imports.
                                                     
171  New Zealand’s First Written Submission at ¶7.60.
172  USITC Report at II-29.
173  Australia’s First Written Submission at ¶¶151-152.
174  USITC Report at I-24.
175  USITC Report at I-21.WT/DS177/R
WT/DS178/R
Page A-319
(iii) The USITC reasonably discounted the relevance of inventory data when the product at issue
generally is not inventoried for long periods of time
142. Although the USITC found that inventories reported by US packers rose slightly over the
period, the USITC did not give weight to that eviden ce as an indication of threat of injury.  The
USITC explained that inventory data are “not particularly relevant” because fresh lamb meat is
perishable and can be inventoried for only a limited time.176  This conclusion reflects that the authority
did not simply accept every negative trend as suggestive of an affirmative determination, but rather
carefully evaluated the value of each piece of evidence.
143. New Zealand does not explain why the USITC, having found inventories irrelevant, violated
the Agreement when it did not make a specific finding about the decrease in inventories in interim
1998.177  Under Article 4.2(c) of the Agreement, the authority was required to make a detailed
analysis of the case and a demonstration of the relevance of the factors examined.  By giving a preciseexplanation of  the irrelevance of inventories, the USITC explained the reason why it found other
factors more important and why a detailed analysis of the case did not require further findings on
inventories.
144. Indeed, the USITC decision elsewhere gives yet another reason for not finding the interim
1998 fall in inventories particularly relevant.  As the authority found, production fell in interim
1998.
178  In the circumstances, a decline in inventories is not necessarily indicative of a positive trend.
(e) Australia's other criticisms of the methodolo gy of the USITC's decision make incorrect
assumptions about the USITC's determination and fail to allege any violation of theAgreement
145. Contrary to Australia’s claim, the USITC made no finding that the domestic industry was not
experiencing serious injury.
179  In this case, the USITC found that lamb meat was being imported in
such increased quantities as to cause a threat of serious injury to the domestic industry.  It did not
make a negative finding of present serious injury.  Under Article 2.1 of the Agreement, a Membermay impose a safeguard measure if it finds that the requisite conditions either cause or threaten to
cause serious injury.  The Agreement nowhere states that an authority in making such a determination
must find that the other possible ground for taking a measure does not exist.  Australia does not
contend that the USITC should first have made a determination as to whether increased imports cause
current serious injury, and that issue is not before this Panel.
146. Australia seems to further criticize the USITC for finding that the domestic industry was
threatened with serious injury before it looked at causation issues
180, but cites no reason such an
analysis is contrary to the Safeguards Agreement.  In their written views, the USITC Commissioners
addressed in sequential sections their reasons for concluding that the domestic industry was threatened
with serious injury and their reasons for concluding that increased imports of lamb meat were causing
the threat of serious injury.  The Commissioners could, as they have in past determinations, found thatthe industry was threatened with serious injury, but that such a threat was not caused by increased
imports.  Thus, the fact that the Commissioners made a finding about whether the industry was in a
threatened state in no way biased their consideration of causation.
147. Indeed, while the United States does not claim that such a division of findings is required by
the Agreement, it notes that Article 4.2(b) requires a demonstration of “the existence of the causal link
                                                     
176  USITC Report at I-20.
177  New Zealand’s First Written Submission at ¶7.61.
178  USITC Report at I-18.
179  Australia’s First Written Submission at ¶187.
180  Australia’s First Written Submission at ¶188.WT/DS177/R
WT/DS178/R
Page A-320
between increased imports of the product concerned and serious injury or threat thereof.”  This
provision certainly suggests that the demonstration of a causal link may be a distinct conclusion from
the establishment of a threat of serious injury.
5. The USITC based its determination on object ive evidence in keeping with Article 4.2 of
the Safeguards Agreement
148. Complainants’ challenges to the objectivity of the evidence on which the USITC relied have
no support in the Agreement or are based on prejudicial mischaracterizations of what the authority in
fact did.  As the United States shows herein, the United States examined all facts in its possession or
which it should have obtained in accordance with Article 4.2 of the Safeguards Agreement, including
facts that may have detracted from an affirmative determination.
149. The complaining Members’ complaints about the data on which the USITC relied is similarly
misplaced.  The USITC conducted a massive inves tigation, which provided an objective basis for
making the analysis required by the Safeguards Agreement.  There is simply no merit to their
claims181 that the USITC was selective in its use of data in order to reach a particular result.
(a) In evaluating information on growers and feeders, the USITC conducted an objective
evaluation by use of both official and questionnaire data
150. In evaluating the condition of the domestic industry, the USITC relied on data obtained from
responses to USITC questionnaires and from the US  Department of Agriculture (“USDA”).  As the
USITC noted, the USDA annually collects and publishes data on domestic lamb slaughter and the
number of lamb-growing establishments, and such data were more comprehensive than those that itcould develop in the course of its investigation.  The USITC noted that the sheer size of the domestic
industry – over 70,000 growers in 1997 – made it impossible for the USITC to canvass a large
percentage of the industry or even to develop the kind of statistically valid sample used for smaller,
less dispersed industries.  Accordingly, in evaluating the various factors, the USITC relied on the
more comprehensive USDA data when possible.  In evaluating factors, such as financial conditions,for which there were no USDA data, the USITC relied on questionnaire response data.
182
Complainants have not suggested any reason why this approach constituted anything less than anobjective evaluation of the evidence.
151. To obtain financial and other data on grower operations, the USITC sent questionnaires to
110 firms and individuals believed to be among the larger growers of lambs.  It received data from 57
firms or individuals accounting for an estimated 6 per cent of domestic lamb production.  In view of
the relatively small coverage of these responses, the USITC did not place decisive weight on
questionnaire data received from growers.  Nevertheless, the USITC found it appropriate to take these
data into account along with other data obtained in the investigation in evaluating the condition of the
industry.  The USITC drew three conclusions from its evaluation of the grower responses: First, that a
comparison of the questionnaire data and USDA da ta suggested that questionnaire responses from
domestic growers, if anything, reflected that thos e who responded were doing better than the industry
as a whole; second, that the overall trends in grower questionnaire data did not differ markedly from
the trends in the questionnaire data obtained from feeders, packers, and breakers, for which
questionnaire coverage was significantly higher; and third, that none of the respondents argued that
the data were biased, or that they inaccurately portrayed the condition of growers.
183
152. The USITC identified the sources of the data on which it relied and carefully explained itsreasons for doing so.  The USITC relied on what it considered to be the most objective and
                                                     
181  New Zealand’s First Written Submission at ¶7.58; Australia’s First Written Submission at ¶122.
182  USITC Report at I-16-17.
183  USITC Report at I-17.WT/DS177/R
WT/DS178/R
Page A-321
comprehensive data.  Finally, the USITC was completely candid in noting any limitations in a
particular data series and the weight that it was giving to such data.
153. For those factors for which the USITC was able to obtain data from both questionnaire
responses and the USDA, the USITC carefully compared  the respective data series for differences and
sought to determine the reasons for any differences.  For example, the USITC noted that USITCquestionnaire data on production and shipments from all industry segments generally showed much
more positive trends than USDA data.  The USITC also noted that USDA data showed a loss of
nearly 20,000 lamb-growing establishments over the period of investigation, while the questionnaire
data show a slight increase in shipments, employment, and net sales over the period.  Based on its
evaluation of these data, the USITC concluded that the questionnaire data likely represented a set of
entities that are performing better than the lamb meat industry as a whole.  The USITC found that the
main reason for this was that the questionnaire data had a “survivorship bias” in that the USITC didnot obtain responses from the establishments that exited the market.
184  Thus, the USITC reasonably
concluded that the USDA data were more representative of the industry as a whole.
154. Despite these extensive efforts and the care that the USITC took not to overstate the probative
character of its evidence, Australia and New Zealand contend, in effect, that no conclusion could be
drawn from the evidence gathered.  Australia objects that the existence of a survivorship bias185 in the
questionnaire data should not have led the USITC to rely on USDA data on the issue of threat.186
Australia’s position on this question is somewhat puzzling, since it also seems to have argued that theUSITC questionnaire data were so flawed that the USITC should not have relied on it at all.
Australia’s argument appears to amount to a contention that the USITC could neither rely on officialdata, because it included producers who had gone out of business, nor on questionnaire data, because
the USITC was unable in the course of its investigation to conduct further questionnaire samples.
155. These arguments do not set forth a cogent reason why the USITC did not properly rely on
USDA data.  That data was, as no one contests, more comprehensive than any data the USITC wouldbe able to collect during its investigation and, unlike the questionnaire data, unaffected by a
survivorship bias.  The fact that the USDA data included data from firms that had gone out of
business did not make it less representative of the industry in the imminent future.  The industry
included firms that were both likely to survive in the future and likely to perish.  Analyzing data that
was representative of such dynamics in the recent past represented the best way of attempting toanticipate such dynamics in the future.  Neither complaining Member has advanced any reason under
the Agreement why the USITC could not properly rely on more comprehensive official data where it
was available.
156. New Zealand and Australia, conversely, contend that the USITC should not have relied on
questionnaire data at all because it ignores the USITC’s finding concerning survivorship bias.  Their
assumption
187 that only injured firms answer questionnaires was, as the USITC found, the opposite of
what the record in this case indicated.  The available data suggested that those who answered were
doing better than the industry as a whole.188  This result suggested that responses are more likely to
come from the less injured firms, which, in an indust ry with a multitude of small producers, are more
likely to have the staff that can fill out the USITC’s extensive questionnaire.  Moreover, the healthier
responding firms may be short term beneficiaries of the deteriorating conditions in the industry in that
                                                     
184  USITC Report at I-17.
185  In this argument Australia appears to adopt the USITC’s finding of a survivorship bias, although
elsewhere Australia contests it.
186  Australia’s First Written Submission at ¶ 122.
187  Australia’s First Written Submission at ¶¶131, 154.
188  For example, the 49 growers who furnished financial information were in business for the full
five-year period of the investigation, whereas a significant contraction occurred in the number of growers duringthe five-year period.WT/DS177/R
WT/DS178/R
Page A-322
they may be picking up business from the firms that have downsized or exited the industry.  Firms in
the most desperate condition, whose staffing has been  cut to the bone as part of a struggle to survive,
are less likely to have had the resources to fill out the questionnaire.  Thus, to the limited extent that
the USITC did rely on questionnaire data, neither New Zealand nor Australia has reason to complain
about the result.  To the extent that the questionnair e data fell short of being fully representative, it
erred in favor of a finding of a lack of threat of serious injury.
157. Australia is absolutely wrong when it asserts that the USITC “did not attempt to obtain a valid
picture” of the grower segment of the domestic industry.189  Australia bases its complaint on the fact
that the USITC sent out only 110 questionnaires to lamb growers, but does not allege any bias or
imbalance in the USITC questionnaires or the choice of firms selected to receive questionnaires.  Nor
does Australia indicate what more the USITC should have done or what would constitute such a valid
picture, or allege that the United States violated any specific article of the Safeguards Agreement inthis regard.
158. To the contrary, the USITC undertook a vigorous effort to obtain data on grower operations
and as a result had sufficient information at the time of its determination on which to draw a valid
picture of what was happening in this sector.  Th e USITC sent out a large number of questionnaires –
110 – to firms and individuals believed to be among the larger growers of lamb, more than it sends
out in the course of a typical safeguard investigation.   The USITC received usable data from more
than half of the recipients, and in particular received usable financial data from 49 growers.  This
provided the USITC with a more than sufficient basis for drawing conclusions about the condition of
the domestic industry.  In addition, the USITC obtained more comprehensive data on groweroperations compiled by the US Department of Agriculture to the extent such information was
available, and received substantial additional information about grower operations from the parties in
the investigation and from persons who testified at th e public hearing.  Finally, the USITC obtained a
substantial body of comprehensive data on other industry segments, against which it was able to cross
check grower data for purposes of confirming similarities or differences in trends.
159. None of the Australian and New Zealand respondents in the USITC investigation, who had
access under administrative protective order to the individual confidential grower questionnaire
responses, argued to the USITC that the data were  biased or inaccurately portrayed the condition of
growers.  To the contrary, the New Zealand respondents in the USITC investigation argued that thefinancial data compiled by the USITC from grower questionnaires supported their position, in that
they showed that domestic lamb growers “d id remarkably well throughout the period of
investigation."
190
160. Australia’s suggestion that the USITC should have compelled answers to questionnaires, or
obtained a particular response rate or level, has no basis in the Safeguards Agreement.191  T h e
Agreement sets forth no specific standard of investigative thoroughness.  Nor, contrary to Australia’sassumptions, does the Agreement require that questionnaire data be scientifically valid in a statistical
sense.  Rather, it requires that a determination be made “on the basis of objective evidence."
192  Such a
standard does not require a competent authority, as Australia suggests, to send repeated waves of
questionnaires to additional firms if extensive sampling does not yield universal responses.  Such a
requirement would unduly prolong a proceeding whose pendency can have distortive trade effects andwhose purpose is to address emergency situations.
161. Here the USITC conducted an extensive investigation.  Its efforts were reasonably calculated
to obtain data that were impartial and as comprehensive as practicable under the circumstances.  It
                                                     
189  Australia’s First Written Submission at ¶127.
190  USITC Report at I-17.
191  Australia’s First Written Submission at ¶140.
192  Safeguards Agreement, Art. 4.2(b).WT/DS177/R
WT/DS178/R
Page A-323
assured the objectivity of the evidence on which it relied by comparing results for different sources,
where available, and evaluating the evidence for any indications of bias.  It carefully drew only those
inferences that the evidence objectively evaluated would allow and systematically relied on the most
comprehensive data available.  The Agreement requires no more.
(b) The USITC obtained objective evidence on domestic feeder, feeder/grower, and packer and
breaker operations
162. The USITC obtained extensive and sufficient data on domestic feeder operations and these
data support the USITC’s finding that the domestic industry is threatened with serious injury.
Australia’s complaint193 that the USITC report gives no basis for why its compilation of feeder data
consists of nine feeders is easily answered: these were the firms that furnished the USITC with data.
As explained in the USITC report, the USITC receiv ed responses from 18 feeder operations, some of
which were also growers.194
163. Australia’s claim that the USITC data series for feeder operations is deficient because thenumber of firms furnishing full year and interim year data was different is without merit.  Interim data
are not directly comparable to full year data, and are most useful for comparing data for the most
recent interim (part-year) period with those for the same period in the prior year.  Thus, the fact thatthe number of firms furnishing full year and interim year data was different does not undercut the
usefulness of the interim period data.  Moreover, the USITC did note in its report that one of the firms
that supplied interim 1997 data went out of business in 1998, and that this contributed to the reduction
in net sales quantity and value and total expenses for interim 1997.
195
164. Australia complains that the USITC obtained data from only three grower/feeder operations,and that the USITC did not receive interim 1998 data from these firms that would have been relevant
to a threat finding.
196  It is not clear what point Australia is trying to make here.  In finding that the
domestic industry was threatened with serious injury, the USITC  based its decision in part on the
deterioration in the condition of the industry during interim 1998.  To the extent that the USITC didnot have interim 1998 data on grower/feeder operations, it did not rely on such data.  Moreover,
Australia’s complaint here understates the USITC’s data collection efforts with respect to
grower/feeder operations.  As the USITC stated in its report, it received 10 questionnaire responses
from firms that reported themselves to be grower/feeder operations.  However, the USITC reclassified
seven of them as growers because they indicated that they fed only their own lambs.
197  Furthermore,
Australia’s complaint here only serves to reinforce the fact that the USITC made every reasonable
effort to collect data from each type of producer in order to obtain a complete picture of what was
happening in the industry and exercised great care in evaluating the evidence it obtained.
165. The USITC obtained extensive and sufficient data on domestic packer, packer/breaker, and
breaker operations, and these data support the USITC’s finding that the domestic industry is
threatened with serious injury.  The USITC received data on lamb meat operations from packers,packer/breakers, and a breaker accounting for approximately 76 per cent of domestic lamb meat
production.
198  This represented a very substantial share of overall domestic lamb meat packing and
processing operations, and provided more than sufficient basis for the USITC to draw conclusions
about those operations.  Australia’s claim199 that the USITC should have obtained data from
additional packing and processing operations assumes that such data were readily available to the
                                                     
193  Australia’s First Written Submission at ¶¶137-38.
194  USITC Report at II-13, and II-13 n.46.
195  USITC Report at II-29.
196  Australia’s First Written Submission at ¶134.
197  USITC Report at II-29 n.89.
198  USITC Report at II-24.
199  Australia’s First Written Submission at ¶¶ 140-141.WT/DS177/R
WT/DS178/R
Page A-324
USITC.  As the authority’s report indicates, many of the packers and breakers devote only a portion of
their overall operations to the processing of lamb200 and were unable to provide separate data on lamb
meat operations.
166. In an industry as complex as the one at issue here, it will always be possible to point to gaps
in the evidence an investigation obtains.  This is why the Agreement does not mandate perfection indata collection and requires only objectivity.  Neither Australia nor New Zealand has articulated any
way in which the USITC’s investigation transgressed the requirements of the Agreement.
(c) As to factors concerning which it was not practical to obtain objective information, the
USITC objectively evaluated the record by placing no weight on those factors
167. The USITC found that it was not practical to collect data on capacity and capacity utilization
from lamb growers and feeders.  The USITC found that such data were not quantifiable.  The USITCfound that growers’ range capacity would likely have varied from ranch to ranch depending on land
conditions, and that feeder capacity also depended on a number of variables that are difficult to
measure, including length of time that lambs are kept by the feeders, which may vary with market
conditions.
201
168. Australia notes that “capacity utilization” is one of the factors listed in Article 4.2(a) of theSafeguards Agreement that a competent authority must consider, and claims that the USITC’s
inability to gather such data violates the Safeguards Agreement.
202  However, Australia overlooks the
fact that Article 4.2(a) requires that a competent authority evaluate all relevant factors of an “ objective
and quantifiable nature ” (emphasis added) bearing on the situation of the industry.  For the reasons
stated in the USITC report, the USITC correctly concluded that it was unable to compile data on
grower and feeder capacity utilization that would have been “objective and quantifiable” within the
meaning of Article 4.2(a).
169. The USITC obtained data on employment from  domestic lamb growers and feeders, which
showed a modest increase in employment during the most recent period.  The USITC also obtained
data on personnel costs from packers and breakers.  The line item for these data in the packer and
breaker financial tables is in the confidential version of the USITC’s report; the actual data are
business confidential information.  However, as a general matter, packers and breakers were unable to
provide the USITC with usable data on the number of employees and hours worked because manyfirms use the same production workers to slaughte r and/or process other meat animals and products.
Thus, the USITC was able to obtain only limited “objective and quantifiable” data within the meaning
of Article 4.2(a) on packer and breaker employment.  Thus, contrary to Australia’s claim
203, the
USITC did obtain and present some employment-related data for lamb packing and processing
operations.  However, the USITC did not rely on employment data in making its affirmative
determination.
170. The Agreement does not require an authority to give weight to each factor enumerated in
Article 4.2(a).  Rather, it only requires that the factors be evaluated, and then only when they afford
objective and quantifiable evidence.  The USITC’s decision not to place weight on factors for which
there were no reliable data was entirely consistent with the Agreement.
171. In summary, despite complainants’ lengthy objections, their submissions to this Panel do not
demonstrate that the USITC’s investigation or determination can be said to have violated the
Safeguards Agreement.  As previous Panels have he ld, in making injury findings about industries as a
                                                     
200  USITC Report at II-15.
201  USITC Report at I-20 n.96.
202  Australia’s First Written Submission at ¶225.
203  Australia’s First Written Submission at ¶¶170, 225.WT/DS177/R
WT/DS178/R
Page A-325
whole, authorities may, but need not, make finding s about segments, but in any case must analyze the
significance of impacts on industries as a whole.204
6. Australia and New Zealand have failed to establish that the US safeguard measure is
inconsistent with the requirement of Article 5.1
(a) Introduction
172. Based on a thorough and painstaking investigation, and after hearing from all interested
parties, the USITC reached a unanimous determination that a surge in Australian and New Zealand
lamb meat imports had left the domestic lamb industry in imminent peril of serious injury.  In its
findings, the USITC pointed to the variety of ways in which the domestic industry had been damaged
under competitive pressure from increased shipments of Australian and New Zealand lamb meat into
the US market during 1997-98.  While the USITC found that the condition of the US lamb industry
had not yet reached the point of significant overall impairment, the USITC plainly expected suchimpairment to occur very shortly if trends continued.
173. In these circumstances, the United States was entitled under Article XIX of GATT 1994  and
the Safeguards Agreement to modify its GATT tariff concessions to provide a limited period of relief
to its lamb industry from import pressure, sufficient to prevent serious injury and facilitate theindustry’s adjustment to import competition.  The relief that the United States provided was carefully
and conservatively tailored to that purpose, consis tent with the USITC’s specific findings regarding
the injury that the US lamb industry had experienced.
174. The relief package the United States put in place included a large component of financial
assistance, in combination with domestic regulatory measures, aimed at enhancing industry
competitiveness.  The import element of the relief  was limited in nature, designed to generate a
modest increase in US lamb meat prices over three years and thus restore a minimal level of
profitability to more efficient US lamb producers during that period.  The relief sought to accomplish
this result by effectively capping lamb imports at their high-water mark and introducing a limitedincrease in duties below that level, phased down over the three-year period.
175. Taken as a whole, the package represented minimal steps needed to give the US lamb meat
producers a short period of breathing room to enhance productivity and regain competitiveness.  The
import component of the package is fully consistent with Article XIX and the Safeguards Agreementin that it provides a small degree of relief to US lamb meat producers over a limited time sufficient to
assist them in responding to the challenge of import competition.
176. Australia and New Zealand nonetheless object to the import aspect of the relief package.
While they each advance certain ill-founded criticisms of the remedy the United States applied, they
fail to offer any systematic assessment of why it is inappropriate.  Rather, the gist of their objections
is that the import relief goes too far because it fails to leave the US lamb industry in the deterioratedstate in which the USITC found it.  That is, susceptible to imminent “serious injury.”  This is the
conclusion to be drawn from Australia’s and New Zealand’s insistence that because the US lamb
industry was merely under  “threat” of serious injury the United States was foreclosed under
Article 5.1 from applying any relief that might restrain lamb imports to below their highest levels
during the 1997-98 surge period.
177. If this restrictive reading of Article 5.1 were to be credited it would undermine the remedial
purpose of Article XIX and the Safeguards Agreement, which is to permit Members temporarily to
suspend their GATT obligations, or modify their GATT concessions, in order to provide industries
                                                     
204 See Korea--Dairy at ¶ 7.58; Mexico -- Anti-dump ing Investigation of High Fructose Corn Syrup
(HFCS) From the United States, WT/DS132/R, 28 January 2000 at ¶ 7.147.WT/DS177/R
WT/DS178/R
Page A-326
experiencing or threatened by serious injury, a brief respite from competitive pressure sufficient to
assist those industries in regaining competitiveness.
178. Article XIX has long been understood to permit Members to modify their tariff concessions to
the degree required to place industries in a position to restore their competitiveness.  The 1951 Report
of the Working Party on the “Withdrawal by the United States of a Tariff Concession underArticle XIX” (Felt Hats) considered the time and extent to which the United States was permitted
under Article XIX to suspend tariff concessions and concluded that the original tariff concessions
should be wholly or partially restored:
if and as soon as the United States industry is in a position to
compete with imported supplies  without the support of the higher
rates of duty.
205
179. The well-recognized remedial purpose of Article XIX was made explicit in Article 5.1, firstsentence, of the Safeguards Agreement, which provides that safeguards measures may be applied both
to prevent or remedy serious injury and to “facilitate adjustment.”  The articulation of this second
purpose for import relief makes clear that Members are not required to limit their safeguard measuresto those that merely preserve an industry in a deteriorated state just short of serious injury, but rather
may apply import relief that will place the industry in a position to regain its competitiveness.
180. In short, Australia’s and New Zealand’s reading of Article 5.1 cannot be sustained if
Article XIX and the Safeguards Agreement are to provide, as they were intended, an opportunity forMembers to provide limited, temporary, but real import relief both for industries already experiencing
serious injury and those in imminent peril of such injury.
(b) Article 5.1 does not establish a "least trade restrictive" standard
181. New Zealand grounds its argument under Article 5.1 against the US lamb meat safeguard
measure on the premise that the first sentence of that provision required the United States to identify
and apply the “least trade restrictive” safeguard measure available to prevent serious injury to the US
lamb industry and facilitate its adjustment.
182. New Zealand has mischaracterized the requirement imposed by Article 5.1, first sentence,
effectively rewriting the sentence to require Members to identify and apply the hypothetical single
least trade restrictive safeguard measure conceivable.
206  That is a virtually impossible standard and is
at variance with the straightforward manner in which Article 5.1, first sentence has been interpreted to
date.
183. Article 5.1, first sentence, provides:
                                                     
205  GATT/CP/106, report adopted on 22 October 1951, GATT/CP.6/SR.19, Sales No. GATT/1951-3,
at 26, ¶ 38 (emphasis added).
206  New Zealand also mischaracterizes past GATT jurisprudence and the Appellate Body report in
Gasoline , which do not in fact refer to any “least trade restrictive” test.  New Zealand is also in error in claiming
that the term “necessary” wherever it appears in the WTO Agreement has some uniform meaning allegedlyderived from the particular context of Article XX of the GATT 1994, an affirmative exception.  Nor does
New Zealand explain how its approach, which imputes to the term “necessary” a series of conditions not found
in the text, can be reconciled with the fact that when the drafters of the WTO Agreement wished to adopt a “nomore trade restrictive” test, they did so explicitly in the text.  See e.g., Art. 5.6 of the Agreement on the
Application of Sanitary and Phytosanitary Measures .WT/DS177/R
WT/DS178/R
Page A-327
A Member shall apply safeguard measures only to the extent
necessary to prevent or remedy the serious injury and to facilitate
adjustment.
New Zealand reads this sentence as requiring the United States to ensure that its lamb meat safeguard
measure is “necessary” to prevent or remedy the serious injury and to facilitate adjustment.  Thesentence does not say that the specific safeguard measure chosen must be “necessary”, however.
Rather the sentence says that a Member “shall apply ” safeguard measures “only to the extent
necessary”.
184. The expression “only to the extent” in Article 5.1, first sentence, is plainly linked to the words
“shall apply”.  Thus, Members “shall apply” safeguard measures only to a certain “extent”.  The term
“necessary” modifies the word “extent”, meaning that  the “extent” of application of the measure must
be “necessary”.  Taken as a whole, the sentence says that safeguard measures may be applied only to
the degree required to prevent or remedy serious injury and facilitate adjustment.
185. By contrast, New Zealand’s reading effectiv ely rewrites the expression “apply safeguard
measures only to the extent necessary” in Article 5.1, first sentence, to read “apply those safeguard
measures that are necessary”.  New Zealand’s construction ignores the fact that the word “extent”
means “amount” or “degree” rather than “if” or “when”.
186. Read in its context, Article 5.1, first sentence, addresses the degree to which measures may be
applied to accomplish the objectives set out in that sentence; it cannot be read to mean that such
measures must be justified as “necessary,” much less “least trade restrictive”.  Article 5.1 expands on
language in Article XIX:1(a) of GATT 1994 , which permits a contracting party to suspend GATT
obligations and modify its  GATT commitments in response to increased imports of a particular
product that are causing, or threatening to cause, serious injury to a contracting party’s industry.
187. The relevant language of Article XIX:1(a) states that in such circumstances the contracting
party:
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 inpart or to withdraw or modify the concession.
188. In this passage, the term “necessary” plainly modifies the expression “to the extent”, as it
does in Article 5.1, first sentence.  Moreover, the entire expression “to the extent . . . necessary” is
linked to the phrase “to suspend the obligation . . . or modify the concession”.  The plain meaning of
this passage is that a contracting party may depart  from its GATT commitments and obligations to the
degree (and for the time) required to prevent or remedy the injury.  Although it too includes the term“necessary,” the passage cannot be read as requiring a contracting party to adopt any particular
measure, let alone a hypothetical single least trade restrictive alternative.
189. Article 5.1, first sentence, should be read along with the rest of Article 5 to amplify the
relevant provisions of Article XIX:1(a), not to de part from them.  Such a reading would be consistent
with a principal object and purpose of the Safeguards Agreement, as articulated in its preamble, which
is to clarify and reinforce the disciplines of Article XIX.  The sentence should not be interpreted in
such a restrictive fashion that it defeats the objective of Article XIX, which is to provide a meaningful
opportunity for contracting parties (now Members) to provide to industries under siege from increased
imports a meaningful opportunity to regain their competitiveness.
190. New Zealand suggests that the panel in the Korea--Dairy case accepted a “least trade
restrictive” standard as the relevant test for interpreting a Member’s compliance with Article 5.1.  In
fact, the panel stated that a Member seeking to comply with Article 5.1 “. . . must apply a measureWT/DS177/R
WT/DS178/R
Page A-328
which in its totality is no more restrictive than is necessary to prevent or remedy the serious injury and
facilitate adjustment.”  The panel did not refer to, or establish, a “least trade restrictive” test.207
Rather, it said that the measure the Member selects should be examined as a whole to determinewhether it is more restrictive than necessary to achieve its purpose.  The Appellate Body affirmed that
reading.
208
191. As the Appellate Body has stated, Article 5.1 imposes an obligation on a Member to ensurethat its safeguard measure “is commensurate with the goals of preventing or remedying serious injury
and of facilitating adjustment."
209  Thus, Article 5.1 does not require a Member to select any particular
measure, let alone identify and apply the “least trade restrictive” one.  Rather, it says that the measure
the Member does select should be designed to accomplish the twin goals of preventing or remedying
serious injury and facilitating adjustment and should not go further than required to meet those
objectives.
192. New Zealand has not demonstrated why the US lamb meat safeguard fails this test.
New Zealand’s principal argument is to point to the remedy that three of six USITC commissioners
recommended, suggest that it represented a less trade restrictive alternative, and thereby conclude that
the United States did not apply the “least trade restrictive” available safeguard measure.  As notedabove, however, Article 5.1, first sentence, did not compel the United States to adopt the “least trade
restrictive” alternative.  Article 5.1, first sentence, does not limit Members to a single choice, or set of
choices, of safeguard measures.
193. New Zealand seeks to bolster its conclusion that the US lamb TRQ is not the least trade
restrictive alternative by misreading the USITC report.  New Zealand claims the USITC found that:
the level of imports that existed during the period of investigation
was not injurious.  Rather, the threat the USITC identified came from
potential future increases.
Based on this reading of the USITC report, New Zealand claims that the United States was foreclosed
under Article 5.1, first sentence, from imposing a remedy that restricted lamb meat imports to levels
below those during the period of investigation.
194. New Zealand is wrong. The USITC found that  during 1997-98 increased lamb meat imports
had caused considerable injury to the US lamb industry.  The USITC report demonstrates very
specifically both the debilitated condition of the industry and the link between that injury and import
levels during 1997-98.
210
195. While the USITC made no finding about whether the industry had reached the point of
significant overall impairment  – i.e., “serious injury” -- the USITC did find that such injury was
“imminent.”  It is plain that at least three of the six USITC commissioners rejected New Zealand’s
premise that the US industry would lapse into “serious injury” only if import levels exceeded those of
1998.  Commissioners Miller and Hillman stated that:
                                                     
207  If the framers of the Safeguards Agreement had intended to depart from Article XIX and impose a
“least trade restrictive” test in Article 5.1, they would have included one explicitly.  New Zealand’s attempt toread words into Article 5.1 that are not there violates the fundamental rule of treaty interpretation that a treaty
interpreter must “read and interpret the words actually us ed by the agreement under examination, and not words
which the interpreter may feel should have been used.”  European Communities - Measures Affecting Meat and
Meat Products (Hormones) , WT/DS26/AB/R, Report of the Appellate Body adopted 13 February 1998, at ¶
181.
208  Report of the Appellate Body, Korea -- Dairy,  at ¶ 103.
209  Report of the Appellate Body, Korea -- Dairy , at ¶ 96.
210  USITC Report at I-18-21, I-23-26.WT/DS177/R
WT/DS178/R
Page A-329
It is our view that the industry would experience serious injury
caused by imports if import levels and prices continue at
now-existing levels, even if no further price declines occur.211
196. Commissioner Koplan found, similarly, that a remedy set at existing import levels “would notstave off the threatened serious injury, much less provide the industry with the opportunity to make a
positive adjustment to prepare for the import competition."
212
197. In summary, the USITC found that the US lamb meat industry was already  in a deteriorated
condition due to competition from imports at 1997-98 volumes and prices.  There was every reason to
believe that the industry was imminently susceptible of decline into “serious injury” even if imports
were held to then-existing levels.  It was thus en tirely appropriate for the United States to apply a
safeguard measure that would guard against that possibility.
198. Moreover, New Zealand’s argument ignores the second purpose for safeguard measures
stated in the first sentence of Article 5.1 --  namely, to allow a Member to apply safeguard measures
to the extent required to f acilitate the industry’s adjustment to import competition.  Under
New Zealand’s theory,  a Member could impose safeguard measures sufficient only to preserve an
industry in the same threatened condition its competent authority had found it in, with the result that
on lifting the safeguard measure it would immediately be vulnerable to serious injury.  That would
increase the likelihood that the industry would, as soon as permissible, again seek import relief,
leading to repeated impositions of safeguard measures, contrary to the purpose of the Agreement.Article 5.1, first sentence, makes clear that safeguard measures may be applied to the extent necessary
to facilitate adjustment, an objective that would be frustrated by a reading of Article 5.1 that required
a Member to do no more than keep its industry in a continuing state of distress.
199. Finally, New Zealand’s specific argument that  the US safeguard measure was not “necessary”
to facilitate the industry’s adjustment is baseless.  New Zealand objects (at ¶ 7.107) that the US
safeguard measure failed to include adjustment assistance and thus could not be “necessary” to
promote industry adjustment.  In fact, a principal element of the relief that the United States provided
to the lamb meat industry was a package of adjustment assistance measures, as discussed below.
New Zealand’s further claim (at ¶ 7.108) that the US measure was incapable of facilitating adjustment
because it would lower consumer demand for lamb meat ignores the fact that the USITC found the
demand for lamb meat to be relatively inelastic, so that price changes would have little effect on
demand.
213  In any event, as explained above, New Zealand’s claim that the United States must
demonstrate that its safeguard measure was “necessary ”  is based on a misinterpretation of Article 5.1,
first sentence, and should be rejected.
(c) Australia has failed to establish a prima facie  case of non-compliance with Article 5.1
200. Unlike New Zealand, Australia does not characterize Article 5.1, first sentence, as imposing a
“least trade restrictive” remedy standard.  Rather, Australia suggests that the US safeguard measure
was excessive because, in Australia’s view, it is more restrictive than the remedy three of the USITC
commissioners recommended.  Both the remedy r ecommended by the USITC plurality, and the
measure ultimately adopted, take the form of a tariff-rate quota (TRQ).  Australia objects to the factthat the US safeguard measure includes an “in-quota” tariff and a higher out-of-quota tariff than the
plurality recommended.
214   In Australia’s view, these differences mean the US safeguard measure
                                                     
211  USITC Report at I-40.
212  USITC Report at I-49.
213 USITC Report at II-70.
214 New Zealand makes a similar argument (at ¶ 7.102).WT/DS177/R
WT/DS178/R
Page A-330
went beyond the extent “necessary” to prevent or remedy the serious injury and facilitate adjustment,
and therefore the measure contravenes Article 5.1.
201. The initial flaw with Australia’s theory is that its analysis is overly simplistic.  Australia fails
to note that the plurality recommendation, if impl emented, would have imposed a four-year safeguard.
By contrast, the lamb meat TRQ that the United States actually applied will terminate in three yearsand a day.  In this sense, the US measure is clearly less restrictive, taken as a whole, than the remedy
the plurality recommended.
202. Australia’s citation of the difference in over-quota rates is a second example of the flaws in its
reasoning.  It is true that the USITC plurality recommended over-quota duty rates that were lower
than those included in the US safeguard measure.  However, contrary to Australia’s assertion there is
no difference in the trade restrictive effect of a 20 per cent ad valorem duty rate, which the USITC
plurality recommended for the first year of the safeguard, and the 40 per cent ad valorem  rate that the
United States actually applied.  Both the USITC plurality recommendation and the US safeguard set
the quota at 1998 import levels.  At those levels, the 20 per cent rate proposed by the USITC plurality
was designed to be trade-preclusive
215, as was the 40 per cent rate included in the US measure.  In
fact, the only real difference between the plurality recommendation and the US measure in terms ofthe effect of out-of-quota duty rates is that under USITC recommendation the annual drop in duty
rates, particularly in years three and four, provided for the possibility of limited imports beyond 1998
levels during those years.
203. Australia’s additional argument that there was “no conceivable basis” for applying a tariff to
in-quota imports is mistaken as well.  The sole rationale for Australia’s claim is that because the
USITC unanimously found that the level of imports during 1997-1998 resulted in a threat of serious
injury, and not present serious injury, applying an in-quota tariff went “well beyond” what was
“necessary” to prevent serious injury.  That is wrong.
204. The purpose of the in-quota tariff is modestly to increase prices for lamb meat in the United
States and thereby generate additional revenue for the US lamb meat industry.  The USITC threat of
serious injury determination identified low prices as one of the principal reasons for the US industry’s
poor financial health.
216  It was perfectly appropriate for the United States to structure its measure in a
manner that provides relief from low prices, thus making it possible for the industry to return toprofitability.  That objective is consistent with facilitating the industry’s adjustment, as contemplated
by Article 5.1, particularly in a case in which the US competent authority had found that the
industry’s financial performance had worsened largely due to falling prices
217 and that, as a result,
firms in the industry had experienced difficulty in generating adequate capital to finance
modernization of their domestic plants and equipment.218
205. The remainder of Australia’s Article 5.1 complaints (at ¶¶ 75-80) are directed at the USITCplurality recommendation, rather than at the US measure itself.  Inasmuch as the United States did not
apply the plurality’s suggested remedy, Australia’s arguments are not legally germane in this
proceeding and need not be addressed further.
206. At this point, the United States would like to turn to a broader criticism of Australia’s
position, a criticism that is relevant to New Zealand as well.  Australia and New Zealand both rest
much of their Article 5.1 arguments on the claim that the so-called “USITC recommended measure”
was “less restrictive” than the actual US lamb meat safeguard.  Their argument ignores, however, that
the USITC actually issued three recommendations, not one.  Under US law, the plurality
                                                     
215  See USITC Report at I-34, I-37.
216  USITC Report at I-23-24.
217  USITC Report at I-20.
218  USITC Report at I-21.WT/DS177/R
WT/DS178/R
Page A-331
recommendation is deemed to be the USITC “remedy finding,” but the President is not required to
give it any greater weight than recommendations presented by commissioners, much less adopt it.
207. Moreover, the Safeguards Agreement placed the United States under no obligation to
consider, or accord any weight to, the USITC plurality remedy recommendation (or any other
proposed or hypothetical remedy recommendation).  The Agreement does not seek to dictate the termsof a Member’s remedy selection process.  Article 5  is silent on the procedures that a Member may
employ in choosing a remedy.  Instead, it imposes disciplines on the end result of that process, the
safeguard measure itself.  Accordingly, Australia’s and New Zealand’s reliance on the USITC
plurality recommendation as the touchstone for applying Article 5.1 is misplaced.
208. Six USITC Commissioners participated in the investigation and unanimously agreed that
lamb meat was being imported in such increased quantities as to be a substantial cause of the threat ofserious injury to the domestic industry.  They all examined the same record of the investigation and
yet recommended three different remedies.  Three Commissioners recommended a tariff-rate quota –
the form of remedy the United States ultimately employed.  Two recommended a straight tariff.  One
recommended a quantitative restriction.  Each advanced reasons that their recommendation was the
minimum necessary for purposes of preventing serious injury and facilitating adjustment.
209. This difference of opinion illustrates that there may be a range of remedies from which to
choose in any given case depending on how the deciding body weighs the evidence of injury or threat
and considers how it can best be addressed.  Members should not be held to root out and apply a
single, optimum, or “least trade restrictive” remedy.  Rather, in imposing a safeguard measureMembers must ensure that the measure imposed – whatever form it takes – is appropriate for the
purpose of preventing or remedying the serious injury and facilitating adjustment and is not applied
beyond the time and extent necessary to accomplish those objectives.  Australia and New Zealand
have not established a prima facie  case that the US lamb meat safeguard measure fails that test.
(d) The lamb meat safeguard measure the United States applied was consistent with the
objectives of Article 5.1
210. The various complaints that New Zealand and Australia have lodged against the US safeguard
measure do not substitute for a systematic examination of its nature, the context in which it was
applied, and the degree to which it meets or exceeds the objectives mentioned in Article 5.1, firstsentence.  In the view of the United States, in order to decide whether the lamb meat safeguard
measure is being applied to an extent inconsistent with Article 5.1, it would be necessary to undertake
a multi-step inquiry, along the lines of the following:
(1) a review of the evidence of threat of serious injury that the USITC identified;(2) an examination of the nature of the sa feguard measure the United States imposed,
including its product coverage, form, duration, and level;
(3) an analysis of how the measure both addresses the evidence of threat of serious injury
the USITC identified and facilitates industry adjustment; and
(4) in light of the foregoing, an assessment of  whether the measure, in its totality, is more
restrictive than required both to prevent serious injury from occurring and to assist the
industry in adjusting to import competition.
211. In their First Submissions, neither Australia nor New Zealand suggests any systematic
analysis of this sort, much less demonstrates why such an analysis shows that the US lamb meat
safeguard measure does not withstand scrutiny under Article 5.1.WT/DS177/R
WT/DS178/R
Page A-332
212. While the United States is not required to defend its safeguard measure in the absence of a
showing of  prima facie  inconsistency with Article 5.1, it is pr epared for purposes of completing the
factual record in the case to describe the basis on which it designed that measure and why the measure
is appropriate in light of the objectives of that article.  That discussion follows.
(i) Injury and threat indicators identified by the USITC
213. As discussed in depth above, the USITC identified a range of indices demonstrating that the
condition of the US lamb industry had deteriorated significantly during 1997-98 as a result of
increased lamb meat imports and suggesting that the industry was in imminent danger of declining
still further into “serious injury.”  These indicato rs included the US industry’s declining market share,
drops in domestic production and shipments, declining industry profitability, and falling prices.219
The USITC also found that the industry was encountering difficulties in generating adequate capital tofinance modernization.  The US safeguard measure was designed to address and ameliorate thesedifficulties, working in tandem with a financial assistance package and regulatory measures provided
by the federal government.
(ii) Description of the US measure
214. The US measure was structured as a TRQ with a duration of three years and one day, and was
accompanied by a sizeable industry assistance package.  The nature of the TRQ is as follows:
In the first year, a 9 per cent ad valorem  tariff on imports up to 31,851,151 kilograms
and a 40 per cent ad valorem  tariff on imports in excess of that level;
In the second year, a 6 per cent ad valorem  tariff on imports up to 32,708,493
kilograms and a 32 per cent ad valorem  tariff on imports in excess of that level; and
In the third year, a 3 per cent ad valorem  tariff on imports up to 33,565,835 kilograms
and a 24 per cent ad valorem  tariff on imports in excess of that level.
215. In addition, at their request, the TRQ provides separate quota allocations for Australia and
New Zealand.  Those allocations guarantee Australia and New Zealand approximately 99 per cent of
the total imports under the TRQ.
(iii) The measure addresses the threat and injury identified by the USITC
216. The United States designed the measure so that it would address the specific financial and
commercial difficulties that the USITC had identified as demonstrating that the US industry was
threatened with serious injury, and then used an economic model to test various combinations of
in-quota and out-of-quota tariffs in order to find the combination of variables that would address the
injury without going beyond the extent necessary.
220
217. The “in-quota” tariff component of the TRQ was meant to address the low prices andconsequent declining profitability that the USITC had identified as a principal source of the
threatened serious injury.
221  The economic model predicted that the in-quota tariff included in the
                                                     
219  USITC Report at I-18-21.
220  The model is a simple partial equilibrium model that measures the impact of implementing various
types of remedies.  The model shows the change to US sales, by quantity and value, given the implementation of
the TRQ.  The model is a supply and demand model that assumes that domestic and imported products are less
than perfect substitutes.  Such models, also known as Armington models, are relatively standard in applied tradepolicy analysis.
221  See USITC Report at I-19-20.WT/DS177/R
WT/DS178/R
Page A-333
safeguard measure would generate a modest price increase.  At a level of 9 per cent ad valorem  in the
first year of the safeguard measure, the in-quota tariff was estimated to generate an increase in
domestic product prices of 0.8 to 3.4 per cent.
218. The purpose of the out-of-quota tariff component of the TRQ was to address the increased
imports themselves.  The USITC investigation had concluded that the increased imports had directlycaptured market share from the domestic producers and were likely to have a negative impact on the
industry’s shipments, prices, and financial performance.
222  Three of the six Commissioners explicitly
found that the US industry would suffer serious injury if imports and prices remained at 1998 levels,
even if there were no further price declines.223  The out-of-quota tariff ensured that imports could not
exceed their 1998 level (the highest level imports had previously attained) in the first year of relief,
and provided a measure of stability and predictabili ty to the domestic industry with respect to the
maximum amount of import competition over the second and third years as well.224
219. Based on a 9 per cent ad valorem in-quota tariff and a 40 per cent ad valorem out-of-quota
tariff, the economic model suggested that the TRQ would generate a 4.4 to 11.9 per cent decline in
total imports from 1998 levels in the first year of the remedy.  The model estimated that, as a result,
the domestic industry would be able to recapture a portion of its lost market share, and that domesticshipments would increase by 0.2 to 2.2 per cent.  The combination of higher prices and higher US
shipment volumes was expected to lead to a 1.2 to 5.2 per cent rise in US industry revenues, thereby
modestly improving the industry’s financial health.  Greater US industry profitability, in turn, would
assist the industry in generating new capital and in increasing its  ability to borrow, modernize and
adjust successfully to the changed conditions of trade.
220. As the foregoing suggests, the TRQ was structured to provide a minimal degree of relief to
US lamb meat producers over a short period, sufficient to assist them in responding to the challenge
of import competition without unduly restricting imports.  In its first year, the TRQ was designed to
leave lamb meat imports at levels higher than in  any year but 1998.  Import levels could be expected
to increase in years two and three of the measure as the in-quota tariff rates decline and quota levels
increase.  In addition, by making the in-quota tariff rates degressive, the United States also ensured
that the modest price increases in the first year of the measure would decline in years two and three.
221. Furthermore, while the six USITC Commissi oners recommended leaving import relief in
place for four years
225, the President proclaimed the TRQ for only three years and a day, thereby
limiting the effect of the safeguard measure on Australian and New Zealand producers.  In addition,
the United States has implemented the TRQ through an export permit system.  The United States took
this approach at the request of Australia and New Zealand, who sought to ensure the orderly
marketing export and marketing their producers’ lamb meat products in the United States.
222. In addition, again at New Zealand’s and Australia’s request, the United States agreed to delay
implementation of the measure so that it would not appl y to lamb meat shipments then in transit to the
United States.  As originally proclaimed, the TRQ applied to lamb meat entering  the United States on
or after 22 July 1999.  At the request of Australia and New Zealand, the President issued a modified
proclamation changing the application of the TRQ to lamb meat exported  on or after 22 July 1999.
The effect of this change was to allow in excess of 1.5 million extra pounds of Australian and
                                                     
222  USITC Report at I-24.
223  USITC Report at I-40, I-49.
224  As discussed above, Commissioners Miller and Hillman believed that the domestic industry “would
experience serious injury caused by imports if import levels and prices continue at now-existing levels, even if
no further price declines occur.”  USITC Report at I-40.  Commission Koplan found, similarly, that a remedy set
at existing import levels “would not stave off the threatened serious injury, much less provide the industry withthe opportunity to make a positive adjustment  to prepare for the import competition.”  Id. at I-49.
225  See USITC Report at I-29, I-39, I-47.WT/DS177/R
WT/DS178/R
Page A-334
New Zealand lamb meat to enter the United States without being subject to the TRQ, thereby reducing
further the effect of the measure on Australian and New Zealand producers.
223. Finally, the United States accompanied the safeguard measure with a substantial programme
of federal financial and regulatory assistance, which was intended to facilitate the US industry’s
adjustment by providing up to $100 million to assi st with market promotion; product and production
improvements; basic sheep research; a scrapie eradication programme; and a lamb surplus removal
programme.  Half of the $100 million is being made available to the industry in the first year.  By
providing a substantial assistance package, the United States sought to minimize the import
component of the relief to the degree possible.
224. In sum, the US measure was specifically tailored to address the factors that the USITC had
identified as responsible for the threat of injury to the US industry and was carefully structured to
assist the industry in its adjustment efforts over a relatively short period without restricting lamb meat
imports during that time.
7. Australia and New Zealand have failed to establish that the US safeguard measure is
inconsistent with the requirements of Article 3.1
225. Both Australia and New Zealand claim that the United States was obliged, under Article 3.1,
to have published a report specifying the reasons that it imposed the safeguard measure that it did.226
That claim is unfounded.
226. Article 3.1 of the Safeguards Agreement establishes procedures that a competent authority
must observe when conducting an investigation to determine whether grounds exist to apply a
safeguards measure.  The third sentence of Article 3.1 states that "[t]he competent authorities shall
publish a report setting forth their findings and reasoned conclusions on all pertinent issues of law and
fact."  New Zealand and Australia assert that by failing to publish the reasons for its safeguard
measure, the United States has failed to meet this requirement.
227.  In the Korea–Dairy case, the European Commission attempted to read such a reporting
requirement into the Safeguards Agreement, based on a more plausible provision than New Zealand
and Australia advance in this proceeding.  The EC argued that Article 5.1, the provision of the
Safeguards Agreement that specifically governs the application of safeguard measures,  requiredKorea to justify its dairy safeguard measure in advance of the panel proceeding.  The panel agreed,
concluding that Members:
are required, in their recommendations or determinations on the application of a
safeguard measure, to explain how they considered the facts before them and why
they concluded, at the time of the decision, that the measure to be applied was
necessary to remedy the serious injury and facilitate the adjustment of the industry.
227
228. On appeal, the Appellate Body reversed the panel’s determination, explaining that “we do not
see anything in Article 5.1 that establishes such an obligation for a safeguard measure other  than a
quantitative restriction which reduces the quantity of imports below the average of imports in the last
three representative years."228
                                                     
226  Australia’s First Written Submission at ¶ 67; New Zealand’s First Written Submission at ¶ 7.110.
Article 3.1 of the Safeguards Agreement states that the competent authorities conducting a safeguards
investigation  “shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent
issues of fact and law.”
227  Report of the Appellate Body, Korea–Dairy , at ¶ 100, citing  Korea–Dairy  at ¶ 7.109.
228  Report of the Appellate Body, Korea–Dairy , at ¶ 99.WT/DS177/R
WT/DS178/R
Page A-335
229. The lamb meat safeguard measure does not impose a quantitative restriction.  Therefore, in
line with the clear precedent of the Appellate Body, the United States was under no obligation under
Article 5.1 to provide any justification for it.
230. Australia and New Zealand suggest that even if such a requirement cannot be found in
Article 5 – which deals explicitly with safeguard re medies – it should be read into Article 3, which
plainly does not.  As an initial matter, the fact that Article 5.1 requires a justification for certain
quantitative restrictions, but not for other safeguard measures, suggests that the Safeguards
Agreement requires no justification for the latter.  This is what the Appellate Body found in Korea -
Dairy , and thus should lay to rest New Zealand’s and Australia’s claims to the contrary.
231. However, Article 3.1, even if read in isolation from Article 5, does not establish a requirement
for a Member to provide findings and conclusions on the remedy it selected.   Article 3 is entitled“Investigation.”  It governs the procedures that apply when a competent authority examines whether
there are grounds for imposing a safeguard measure.  It does not establish a requirement that a
Member conduct a remedy investigation and publish “findings and reasoned conclusions on all
pertinent issues of fact and law” for the remedy decision it ultimately reached.
232. In the first place, there is no reason that a Member’s decision regarding whether to apply a
safeguard and, if so, the nature and extent of such a measure, would necessarily be founded
exclusively, or even primarily, on “issues of fact and law”.  Unlike a determination of serious injury
or threat of serious injury, which under the Safeguards Agreement must be based on specific legal and
factual determinations, the decision-making process for selecting a safeguard measure is not subject todisciplines governed by that Agreement.
233. While the ultimate measure a Member selects must conform to Article 5, for example, the
process of selecting that measure -- or deciding whether to impose any measure at all -- is likely to be
subject to a range of considerations.  These may include, for example, arguments advanced by otherMembers, such as those Australia and New Zealand communicated to the United States regarding the
advisability and structure of a possible safeguard measure while the remedy issue was pending before
the President.  Article 3.1 cannot be read to require a Member to publish its findings and reasoned
conclusions on such matters.
234. Article 3.1 does specify that a competent authority must hear “views” on whether or not
application of a safeguard measure would be “in the public interest”.  But this solely requires the
competent authority to hear from interested parties on whether recourse to a safeguard measure would
be appropriate.  It does not establish a requirement to explain why the deciding authority reached the
ultimate decision it did.
235. Indeed, nothing in the Safeguards Agreem ent suggests that the competent authority is
required to have any role in selecting, applying, or explaining safeguard measures.  References in the
Agreement to the application of safeguard measures, for example in Articles 1, 5, 6, 7, and 8, refer to
measures applied by “a Member” –  not by a comp etent authority.  These provisions do not condition
application of a safeguard measure on any written explanation by the competent authority regarding
the remedy selected.  Appropriately, the “justification” referred to Article 5.1, second sentence, avoidsany mention of the body that must provide it.
236. It is also worth noting that Article 3.1, on which New Zealand and Australia rely, requires
competent authorities to publish reports containing “ their  findings and reasoned conclusions on all
pertinent issues of fact and law.”  In countries like the United States that assign no role to theircompetent authorities in choosing or applying a safeguard remedy, they cannot be expected to have
made their own findings and conclusions regarding the remedy their governments ultimately impose.WT/DS177/R
WT/DS178/R
Page A-336
237. Finally, Article 4, which sets out the injury and causation factors a competent authority must
consider in the course of its investigation, contains the following requirement, set out in
paragraph 2(c):
The competent authorities shall publish promptly, in accordance with the provisions
of Article 3,   a detailed analysis of the case under investigation as well as a
demonstration of the relevance of the factors examined.229
238. This explicit tie between the publication requirements in Articles 3 and 4 contrast sharplywith the language of Article 5, which contains no such requirement.  The absence of such a
requirement in Article 5, together with its own, limited, requirement for a Member to justify certain
quantitative safeguard measures, demonstrates that the United States was under no obligation to
publish a report specifying the reasons that it imposed the safeguard measure that it did.
239. In sum, nothing in Article 3.1 compelled the USITC, or any other body in the United States,
to provide an advance written justification for its lamb meat safeguard measure.
8. The United States properly excluded impo rts from developing countries, Canada,
Mexico, and Israel from the safeguard measure
240. Australia and New Zealand complain that the United States has failed to include under the
safeguard measure imports from beneficiary countries under the Caribbean Basin Economic Recovery
Act (CBERA)
230 and the Andean Trade Preference Act (ATPA)231, and well as from Mexico, Canada,
and Israel.  New Zealand and Australia stake their arguments on incorrect premises that Article 2.2
and Article I of GATT 1994  required the United States to include these imports in the TRQ.
(a) CBERA and ATPA imports
241. New Zealand and Australia correctly observe that the US lamb meat TRQ excludes imports
from the CBERA and ATPA beneficiary countries.  These exclusions are entirely consistent with, and
indeed are compelled by, Article 9.1 of the Safegu ards Agreement, which addresses the application of
safeguard measures to imports of developing country Members.  Specifically, Article 9.1 provides
that:
Safeguard measures shall not be applied against a product originating in a developing
country Member as long as its share of imports of the product concerned in theimporting Member does not exceed 3 per cent, provided that developing country
Members with less than 3 per cent import share collectively account for no more than
9 per cent of total imports of the product concerned.
242. This means the United States was required to exclude from its lamb meat safeguard measure
imports from developing country Members whose impor t market shares were 3 per cent or below, and
provided that their combined import shares did not exceed 9 per cent.
243. Each of the CBERA and ATPA beneficiary countries is a developing country Member.
232
Combined US lamb meat imports from all developing country Members during the period 1996-98
averaged well under 9 per cent of imports.233
                                                     
229  Safeguards Agreement, Art. 4.2(c) (emphasis added).
230  19 U.S.C. 2701-2707.
231  19 U.S.C. 3201-3206.
232  The CBERA beneficiary countries are Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize,
Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Pana ma, St. Kitts and Nevis, Saint Lucia, Saint VincentWT/DS177/R
WT/DS178/R
Page A-337
244. Lamb meat imports from the CBERA and ATPA co untries, in particular, during the last three
years of the period of investigation, 1996-98, were zero.234  Consequently, pursuant to Article 9.1, the
United States was required to exclude CBERA and ATPA imports -- to the extent there might be any
-- from its lamb meat TRQ.  Moreover, the United St ates would have been justified in excluding these
imports from its safeguard measure even if the USITC had based its affirmative threat of seriousinjury determination on imports from all sources, as New Zealand and Australia claim.  New Zealand
concedes this point at footnote 188 of its First Submission.
245. However, Australia’s and New Zealand’s argume nt that the USITC based its determination on
all imports is simply wrong.  The USITC stated explicitly that its:
findings and recommendations in this case do not apply to Israel or to the Caribbean
Basin and Andean countries.  There were no reported importations of lamb meat from
any of these countries during the period of investigation, based on a review of data
compiled by the US Department of Commerce.  None of these countries are known to
be significant producers or exporters of lamb meat.
235
246. Given these facts, and the specific requirement of Article 9.1, Australia and New Zealandhave no grounds for objecting to the exclusion of CBERA or ATPA imports from the US safeguard
measure.
236
(b) Canada, Mexico, and Israel
247. The United States was also fully justified in excluding from the lamb meat TRQ imports from
Canada, Mexico, and Israel.
248. As Australia and New Zealand note, Article 2.2 of the Safeguards Agreement establishes a
general rule that “[a] safeguard measure shall be applied to a product being imported irrespective ofits source.”  Article 2.2 does not, however, specifically address the application of safeguard measures
by the members of customs unions and free trade agreements (FTAs) to imports from other countries
participating in the union or FTA.
249. Specific provisions addressing these issues are found in footnote 1 of the Safeguards
Agreement, appended to Article 2.1.  The last sentence of footnote 1 states that “Nothing in this
Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of
Article XXIV of GATT 1994.”
250. This language makes allowance for members of a free trade agreement established in
conformity with Article XXIV of GATT 1994  to exclude from their safeguard measures imports of
                                                                                                                                                                    
and the Grenadines, Trinidad and Tobago, and the British Virgin Islands.  The ATPA beneficiary countries are
Bolivia, Colombia, Ecuador, and Peru.
233  See USITC Report at II-19.
234  See US Exhibit 17.
235  USITC Report at I-34 n.170.
236  In addition, given that such favorable treatment is required by Article 9.1 of the Safeguards
Agreement, New Zealand’s argument that the measure violates Article I of the GATT 1994  is misguided.  See
New Zealand First Written Submission at ¶ 7.114.  General Interpretative Note to Annex1A to the MarrakeshAgreement Establishing the WTO provides that, in the event of a conflict between provisions of the GATT anda provision of another agreement in Annex 1A (including the Safeguards Agreement), the provision of that other
agreement shall prevail.  There is a clear conflict betw een a provision in the Safeguards Agreement requiring the
United States to favor developing countries under specified circumstances and the provision requiringmost-favoured-nation treatment in GATT Article I.  Accordingly, the General Interpretative Note mandates thatthe particular provision of the Safeguards Agreement – i.e., Article 9.1 – shall prevail.WT/DS177/R
WT/DS178/R
Page A-338
products from their FTA partners.  The United Stat es has concluded Article XXIV-consistent  FTAs
with Canada and Mexico pursuant to the North American Free Trade Agreement , and Israel pursuant
to the United States - Israel Free Trade Area Agreement , and notified them both to the GATT.237
251. The United States does not understand either Australia or New Zealand to suggest that
Article 2.2 (or GATT Article I) precludes participants in a free trade area from excluding each other’simports from the application of their safeguard measures.  This must be so, as Australia and
New Zealand exclude each other’s  imports from their own safeguards measures under the Australia
New Zealand Closer Economic Relations Agreemen t (ANZCERTA).  Indeed, Australia has stated:
Article XIX of GATT 1994 and the Agreement on Safeguards do not provide the
basis for action on imports into Australia covered by the Australia New Zealand
Closer Economic Relations Trade Agreement (CER).
238
252. New Zealand has made similar statements as well.239  The United States is attaching copies of
Australia’s and New Zealand’s statements on this issue to the WTO Safeguards Committee for the
Panel’s reference.
253. Thus, Australia and New Zealand must instead be arguing that the United States erred in
excluding Israeli, Mexican, and Canadian lamb meat imports from the TRQ because the USITC based
its threat of serious injury determination on all imports, including Israeli, Mexican, and Canadian
lamb meat imports.
254. This argument is based on a faulty premise.  The USITC did not base its threat of serious
injury determination on Israeli, Mexican, or Canadian imports.  As noted above, the USITC report
states plainly that its findings and recommendations do not apply to Israel.
255. There were no lamb meat imports from Mexico the last three years of the investigatory
period.240  Thus, there is no basis for suggesting that imports from Mexico played any significant role
in the USITC’s determination.241
256. Finally, Canadian imports during the 1996-98 period were negligible, reaching a high-water
mark of 0.3 per cent of total imports in 1997.  Impor ts at that level could not, and did not, account for
the threat of serious injury that the USITC found.  Indeed, the USITC stated this quite explicitly:
We find that imports of lamb meat from Canada . . . are not contributing importantly
to the threat of serious injury.  Imports from Canada accounted for less than 1 per
cent of total lamb meat imports in each year of the period of investigation.  At their
                                                     
237  See North American Free Trade Agreement, L/7176/Add. 1 (1 February 1993); Israel-United States
Free Trade Agreement, L/5862 (13 September 1985).
238  Replies to Questions Posed by Japan Concerning the Notification Provided by Australia of Laws
and Regulations under Article 12.6 of Agreement, G/SG/W/141, at 3 (12 March 1996).  Attached hereto as US
Exhibit 18.
239  Replies to Questions Posed by Canada, the European Community, Korea and The United States to
New Zealand Concerning the Latter's Notification of Laws and Regulations under Article 12.6 of theAgreement, G/SG/W/175, at 4 (5 June 1996) (stating that ANZCERTA does not permit Australia and NewZealand to take safeguard action against each other’s  imports).  Attached hereto as US Exhibit 19.
240  See US Exhibit 17.  The United States imported Mexican lamb meat during only one year of the
investigatory period, 1995.  In that year, Mexico’s im port market share was less than one per cent.  USITC
Report at I-27, II-18 n.73.
241  Indeed, the USITC specifically found that Mexica n lamb meat did not contribute importantly to the
threat of serious injury.  USITC Report at I-27.WT/DS177/R
WT/DS178/R
Page A-339
highest level of the period of investigation, 209,000 pounds, in 1997, imports from
Canada accounted for only 0.3 per cent of total US lamb meat imports.242
257. Thus, Australia and New Zealand are simply wrong in claiming that Canadian lamb meat
imports figured in the USITC’s threat of serious injury determination.  Accordingly, New Zealand and
Australia cannot stake an argument against the exclusion from the TRQ of Canadian lamb meatimports on the ground that the USITC based its determination in whole or part on those imports.  It
did not.
243
258. In summary, the United States was fully justified by virtue of footnote 1 and Article XXIV of
GATT 1994  in excluding Canadian, Mexican, and Israeli lamb imports from its safeguard remedy.
9. The United States satisfied its obligations under Articles 8 and 12
(a) The United States has satisfied its obligations under Article 8
259. Australia, unaccompanied by New Zealand, su ggests that the United States ran afoul of
Article 8.1 of the Safeguards Agreement, purportedly by failing to offer Australia trade concessions
substantially equivalent to those withdrawn by the US safeguard measure.  Australia’s argument is
based on a misreading of Article 8 and should be rejected.
260. Article 8 provides as follows:
1. A Member proposing to apply a safeguard measure or seeking an extension of a
safeguard measure shall endeavour to maintain a substantially equivalent level of concessionsand other obligations to that existing under GATT1994 between it and the exporting Members
which would be affected by such a measure, in accordance with the provisions of paragraph 3
of Article.
244  To achieve this objective, the Members concerned may agree on any adequate
means of trade compensation for the adverse effects of the measure on their trade.
2. If no agreement is reached within 30 days in the consultations under paragraph 3 of
Article 12, then the affected exporting Members shall be free, not later than 90 days after the
measure is applied, to suspend, upon the expiration of 30 days from the day on which written
notice of such suspension is received by the Council for Trade in Goods, the application of
substantially equivalent concessions or other obligations under GATT 1994, to the trade ofthe Member applying the safeguard measure, the suspension of which the Council for Trade
in Goods does not disapprove.
3. The right of suspension referred to in paragraph 2 shall not be exercised for the first
three years that a safeguard measure is in effect, provided that the safeguard measure has been
taken as a result of an absolute increase in imports and that such a measure conforms to the
provisions of this Agreement.
261. When read in conjunction with Article 12.3, Article 8.1 requires a Member to engage in
consultations in advance of applying a safeguard measure.  It does not impose an obligation to offer or
                                                     
242 USITC Report at I-27.
243  This alone is enough to distinguish this case from the situation in Argentina--Footwear .  In that
case, imports from MERCOSUR countries constituted between 21 and 55 per cent of total imports during theyears examined.  Argentina included those imports in it s injury and causation analyses, but excluded them from
its footwear safeguard.  See Argentina–Footwear at n.474 and accompanying text.
244  Paragraph 3 of Article 12 states that “A Member proposing to apply or extend a safeguard measure
shall provide adequate opportunity for prior consultations . . . with a view to, inter alia  , . . . reaching an
understanding on ways to achieve the objective set out in paragraph 1 of Article 8.”WT/DS177/R
WT/DS178/R
Page A-340
provide trade concessions as a condition for applying such a measure.  This interpretation is borne out
by the texts of Articles 8 and 12, as well as by th e object and purpose of the Safeguards Agreement.
262. Article 8.1 provides that a Member proposing to apply a safeguard measure “shall endeavour
to maintain a substantially equivalent level of concessions and other obligations . . . in accordance
with the provisions of paragraph 3 of Article 12.”  Article 12.3 provides that a Member shall provideopportunity for prior consultations with a view to, among other things, “reaching an understanding on
ways to achieve the objective set out in paragraph 1 of Article 8.”  Thus, the only obligation that
Article 8.1 imposes on a Member considering a safeguard measure is to provide an opportunity for
prior consultations.  The United States satisfied that obligation.
263. Moreover, Australia’s interpretation of Articl e 8.1 improperly divorces that provision from its
rightful place within the entirety of Article 8.  Again, Article 8.1 provides that a Member proposing toapply a safeguard measure “shall endeavour to maintain a substantially equivalent level of
concessions and other obligations . . . in accordance with the provisions of paragraph 3 of Article 12.”
Article 8.2 then references the Article 12.3 consultations, explaining that the exporting country
Members affected by a safeguard measure may suspend substantially equivalent concessions or other
obligations under GATT 1994  if no agreement is reached in the Article 12.3 consultations within 30
days.  Finally, Article 8.3 states that the right of suspension referred to in paragraph 2 “shall not be
exercised for the first three years” of the safeguard measure, provided that the requisite conditions are
met.
264. Thus, it is clear that Article 8.1 creates an obligation to consult.  Article 8.2 creates a right of
retaliation if no agreement is reached in the consultations.  However, Article 8.3 suspends that right of
retaliation during the first three years a safeguard measure is in place, provided that the requisite
conditions are met.  The United States respectfully submits that it has fully met its obligations under
the framework of Article 8.
265. A stated object and purpose of the Safegu ards Agreement supports this interpretation of
Article 8.  The preamble to the Agreement recognizes the need “to re-establish multilateral control
over safeguards and eliminate measures that escape such control.”  Specifically, drafters of the
Safeguards Agreement intended to eradicate so-called grey-area measures.  To ensure this objective,
they permitted Members to impose safeguards for a limited period without fear of “having to pay” forsuch action.  At the same time, they imposed disciplines on voluntary restraint agreements and other
grey-area measures.  The inclusion in the Agreement of both Article 8.3 and Article 11, which have
no counterparts in Article XIX, reflect the framers’ understanding.
266. For Australia to now argue that a Member must offer substantially equivalent concessions for
the application of safeguard measures during the three-year period referred to in Article 8.3
jeopardizes the objective to re-establish multilateral control because it would encourage Members tofind methods outside of the Safeguards Agreement to protect their injured domestic industries.  Such
an outcome would defeat a key purpose of the Agreement.
267. Accordingly, the United States respectfully submits that it satisfied its obligations under
Article 8.1 of the Safeguards Agreement.
(b) The United States satisfied Article 12 notification requirements
268. Australia also claims (again unaccompanied by New Zealand) that the United States has
failed to observe the notification requirements set out in Article 12 paragraphs 2, 3, and 6.  There is no
basis for this assertion.WT/DS177/R
WT/DS178/R
Page A-341
(i) The United States notified "all pertinent information" to the Committee on Safeguards as
required under Article 12.2
269. While acknowledging that such a requirement is not “specifically called for” in the
Safeguards Agreement, Australia nonetheless asserts United States was required by Article 12.2 to
furnish the Committee on Safeguards a written justification of the US lamb meat measure.245
270. Article 12.2 of the Safeguards Agreement provides in relevant part:
In making the notification referred to in paragraphs 1(b) and 1(c), the
Member proposing to apply or extend a safeguard measure shall
provide the Committee on Safeguards with all pertinent information,
which shall include evidence of serious injury or threat thereof
caused by increased imports, precise description of the productinvolved and the proposed measure, proposed date of introduction,
expected duration and timetable for progressive liberalization. . . .
271. In Korea -- Dairy,  the Appellate Body concluded (at ¶ 109) that to satisfy Article 12.2, a
Member’s notifications under 12.1(b) and (c) must at a minimum address all of the items specificallyenumerated in Article 12.2, as well as the injury factors listed in Article 4.2.  The US notifications
provided all such information, including a precise description of the proposed measure, its proposed
date of introduction, expected duration and timetable for progressive liberalization.
246  T h e
United States has therefore amply satisfied the minimum notification requirements of Article 12.2.
Australia has not suggested otherwise.
272. Instead, Australia seeks to read into Article 12.2 a requirement to provide a written
justification of the measure the United States applied.  In support of its position, Australia claims only
that information regarding the basis for the US measure would be “highly pertinent."247   This bare
conclusion does not amount to a legal argument and hence cannot support a finding that theUnited States has failed to carry out its obligations under Article 12.2.
273.  In any event, as discussed earlier in this Submission, the Appellate Body has considered and
rejected under Article 5.1 the notion that Members are under a general requirement to justify their
safeguard measures.  That door having been shut, Australia has sought two other avenues forimposing a justification requirement -- first, Article 3.1 and second, Article 12.2.
274. Australia’s claim under Article 12.2 fails for essentially the same reason that it fails under
Article 3.1.  Article XIX, as applied in accordance with the Safeguards Agreement, permits Members
to depart to a limited degree from their GATT obligations and concessions if, following an
investigation based on the substantive and procedural strictures set out in Articles 3 and 4, they make
an affirmative determination of serious injury or threat of serious injury consistent with Article 2.2 ofthe Agreement.  Such a determination is the justification for applying a safeguard measures.  No
further justification or explanation is required under Article 3.1 or 12.2.
275. As noted earlier in connection with Article 3.1, any requirement that would seek to reveal the
reasons why a Member decided between various alternative measures, or between applying asafeguard measure and refraining from doing so, would intrude on the Member’s deliberate process,
                                                     
245  Australia’s First Written Submission at ¶ 247.
246  G/SG/N/10/USA/3, G/SG/N/11/USA/3 (circulated 12 July 1999).  Attached hereto as US Exhibit 6.
The United States issued a supplemental notification informing the Safeguards Committee that the measure
would become effective with respect to goods exported  on or after 22 July 1999.  See
G/SG/N/10/8SA/3/Suppl.1, G/SG/N/11/USA/3/Suppl. 1.  Attached hereto as US Exhibit 7.
247  Australia’s First Written Submission at ¶ 247.WT/DS177/R
WT/DS178/R
Page A-342
including its communications with other Members.  On the other hand, to the extent Australia is
seeking to compel the United States to explain why the measure it chose is compatible with
Article 5.1, the Appellate Body has already spoken.
276.  Australia next asserts that the United States should have provided information to the
Committee regarding “unforeseen developments,” which in Australia’ s view was “pertinentinformation.”  Australia’s claim on this point is once again a mere legal conclusion without legal
argument sufficient to demonstrate the validity of its contention, much less demonstrate a prima facie
violation.
277. In fact, nothing in Article 12.2 required the United States to make a specific notification
regarding “unforeseen developments.”  Inferring a requirement to do so would run contrary to the
Appellate Body’s view in Argentina -- Footwear  that “unforeseen developments do not constitute an
independent condition for the application of a safeguard measure but rather certain circumstances that
must be demonstrated as a matter of fact."
248  Unforeseen developments are thus unlike evidence of
“serious injury,” for example, which is an independent conditions for the application of a safeguards
measure, and thus is subject to notification under Article 12.2.
278. Article 12.2 does not require an accounting of all pertinent facts that a competent authority
considered in its investigation.  Even if it did, the United States would have fully complied with
Article 12.2 on this score, since it forwarded to the Committee the USITC report on its lamb
investigation.  As fully explained at ¶¶ 47-60 of this submission, the USITC report amply
demonstrated the existence of “unforeseen developments.”
(ii) The United States conducted consultations in conformity with Article 12.3
279. Australia argues that the United States failed to comply with Article 12.3 because, while it
entered into consultations with Australia as that article requires, the United States failed to conduct
the consultations in “good faith” with a view to achieving the objective of Article 8.1.249  Article 8.1
provides that a Member proposing to apply a safeguard “shall endeavour to maintain a substantially
equivalent level of concessions and other obligations to that existing under GATT 1994.”
280. Australia does not allege that the United States failed to hold the consultations specified in
Article 12.3 or that the subjects covered in those consultations failed to include those specified in thatarticle.  Rather, Australia raises the novel claim that the United States failed to comply with
Article 12.3 because the United States referred in the course of those negotiations to the fact that
Article 8.3 prevents a Member from suspending substantially equivalent concessions during the first
three years of the measure.  That objection does not form the basis for a violation of Article 12.3.
281. Article 12.3 requires a Member proposing to apply a safeguard to provide “adequate
opportunity for prior consultations” with Members having a substantial interest in the productconcerned.  Australia does not deny that the United States not only provided this opportunity but
entered into such consultations with Australia.  Th erefore, the United States fully met the obligation
of Article 12.3.  The United States emphatically rejects Australia’s assertion that citing Article 8.3
constituted a lack of good faith.  Reference by a Member in the course of consultations under
Article 12.3 to the rights and obligations set out in the Safeguards Agreement can scarcely becharacterized as a demonstration of bad faith.  Any finding to the contrary would inappropriately limit
Members’ ability fully to represent their interests a nd address pertinent legal and factual issues in the
course of such consultations.
                                                     
248  Appellate Body Report, Argentina -- Footwear,  at ¶ 92.
249  Australia’s First Written Submission at ¶ 253.  Notably, Australia cites the provision of Article 8.1.WT/DS177/R
WT/DS178/R
Page A-343
(iii) The United States properly notified its "laws, regulations and administrative procedures"
pursuant to Article 12.6
282. Australia’s final objection under Article 12 is that United States failed to observe the
requirement in paragraph 6 to notify the Safeguards Committee of “laws, regulations and
administrative procedures relating to safeguards measures."250  Australia finds support for this
assertion in its contention that the US authorities  deliberated for more than three months before
deciding to apply a safeguard measure and the measure, in Australia’s view, was more restrictive than
the one the USITC had recommended.251  Australia thus concludes that the United States must have
engaged in “further intensive investigation” but did not notify such a procedure under Article 12.6.252
283. As previously demonstrated, nothing in the Safeguards Agreement required the United States
to adopt the recommendation of the USITC plurality.  Indeed, there is no requirement in the
Agreement for the United States to develop and publish recommendations, such as those that US lawrequires of the USITC, much less adopt them.  Unlike its injury investigation, a Member’s remedy
decision-making process is not subject to discipline under Article XIX or the Safeguards Agreement.
Thus, Australia’s complaint that the United States undertook a further review or “investigation” in the
course of deciding on an appropriate remedy, even if true, would not be grounds for complaint in this
forum.
284.  The United States notified its laws and regulations relating to safeguards measures to the
Safeguards Committee.
253  The US notification set out the relevant provisions of the US safeguard
law, in particular the following:
Sec. 203.  Action by the President Af ter Determination of Import Injury.
(1)(A) After receiving a report under Section 202(f) containing an affirmative finding
regarding serious injury, or the threat thereof, to a domestic industry, the President shall take
all appropriate and feasible action within his power which the President determines willfacilitate efforts by the domestic industry to make a positive adjustment to import competition
and provide greater economic and social benefits than costs.
(B)  The action taken by the President under su bparagraph (A) shall be to such extent, and
for such duration, subject to subsection (e)(1), th at the President determines to be appropriate
and feasible under such subparagraph.
254
The notification also set out the range of factors that the President is required to take into account in
making his determination and deciding what action to take.
285. Following the conclusion of the USITC’s investigation, the President received a report from
the USITC containing an affirmative finding of threat of serious injury to the domestic lamb meatindustry.  In accordance with the legal provisi ons notified to the Committee, the President then
determined and took action in response to that report.  Australia’s claim that the United States has
failed to notify the relevant procedure to the Safeguards Committee is demonstrably wrong.
                                                     
250  Australia’s First Written Submission at ¶¶ 250-257.
251  Australia’s First Written Submission at ¶ 257.
252  Australia’s First Written Submission at ¶ 257.
253  See G/SG/N/1/USA (6 April 1995).
254  Id. at 13, citing Section 203(a)(1) of the Trade Act of 1974, as amended.WT/DS177/R
WT/DS178/R
Page A-344
10. The United States measure is not incons istent with Article 11 of the Safeguards
Agreement
286. Australia, once again alone, claims (at ¶¶ 266-270) that the US safeguards measure
contravened Article 11 of the Safeguards Agreement because it allegedly was not an “emergency
action.”  The basis for Australia’s argument appears to be that if there had been a true emergency  the
United States would have imposed a safeguard measure sooner than nine months after the petition wasfiled.
287. Article 11.1(a) provides:
A Member shall not take or seek any emergency action on imports of particular
products as set forth in Article XIX of GATT 1994 unless such action conforms with
the provisions of that Article applied in accordance with this Agreement.
288. Australia’s argument is founded on the errone ous assumption that Article 11.1(a) establishes
an independent obligation for a Member to demonstrate that an “emergency” exists before it may take
action under the Safeguards Agreement.  As its title demonstrates, Article 11 is concerned with the
“Prohibition and Elimination of Certain Measures. ”  The purpose of Article 11 is to discipline certain
“grey-area” measures, not to establish additional conditions for imposing safeguard measures aboveand beyond those set forth in Article XIX or Article 2.2.
289. Australia simply misreads the phrase in Article 11.1(a) “emergency action on imports of
particular products as set forth in Article XIX of GATT 1994”.  The phrase is nothing more than a
word-for-word recitation of the title of Article XIX.  As such, it does nothing more than invoke that
article.  It thus does not create a requirement independent of those already set out in Article XIX, as
applied through the Safeguards Agreement.  As the United States has already demonstrated, the
United States fully complied with its obligations under Article XIX and GATT 1994.  Hence
Australia’s Article 11 claim is without merit.
11. The United States satisfied its obligations under Article II of the GATT 1994
290. Finally, Australia and New Zealand claim that because, in their view, the United States has
acted inconsistently with Article XIX of the GATT 1994  and the Safeguards Agreement, it is therefore
in breach of Article II of the GATT 1994 .  For all the reasons discussed above, the premise for this
claim is baseless.
291. Having fully met the requirements of Article XIX as applied in accordance with the
Safeguards Agreement, the United States was fully entitled to adopt the safeguard measure it did.
Inasmuch as Article XIX and the Safeguards Agreement specifically contemplate the application of
safeguard measures, the United States cannot be held to have acted inconsistently with Article II of
GATT 1994 .
VI. CONCLUSION
292. For the foregoing reasons, the United States respectfully submits that its safeguard measure
applied to imports of lamb satisfies US obligations under Article XIX of GATT 1994  and the
Safeguards Agreement and does not contravene Article II of GATT 1994 .  Australia’s and
New Zealand’s claims to the contrary are without merit and the Panel should reject them.WT/DS177/R
WT/DS178/R
Page A-345
ANNEX 3-3
ORAL STATEMENT OF THE UNITED STATES
CONCERNING PRELIMINARY ISSUES
(25 May 2000)
1. On behalf of the United States delegation, I would like to thank the Panel for this opportunity
to present our views on the preliminary matters at issue in this proceeding.  We will first address the
adequacy of Australia’s and New Zealand’s panel requests.  Next, we will address the exclusion of the
US statute from the Panel’s terms of reference.  We will then address the issue of businessconfidential information, including Australia’s ar gument that the United States should provide
information that the Administration and the President of the United States took into account in the
course of deciding whether to apply the US measure.
Insufficiency of Panel Requests
2. Turning first to the adequacy of New Zealand’s and Australia’s panel requests, the Panel in
this dispute has the somewhat unusual advantage that the Appellate Body has spoken directly on the
issue involved.  In the Appellate Body report in Korea Dairy  the provisions analyzed by the Appellate
Body include the exact same provisions at issu e here - Articles 2, 4, 5, and 12 of the Safeguards
Agreement and Article XIX of the GATT 1994.  And there the Appellate Body made clear that just
listing these article in a panel request is not enough to satisfy the obligation under Article 6.2 of the
DSU.  While legally the Appellate Body report in that dispute is not binding on any other dispute,
there is no reason why the Appellate Body would take a different approach if confronted with the
same issue again.
3. The thrust of the arguments that Australia and New Zealand raised in their 17 May letters to
the Panel confuse the functions of consultations and Panel requests.  New Zealand and Australia insist
that the United States should have known what claims their Panel requests raised because of issues
they mentioned during consultations under Article 4 of the DSU.  These arguments ignore theadmonition of Article 4.5 that parties to consultations should "attempt to obtain a satisfactory
adjustment  of the matter."
4. Australia and New Zealand seem to be suggesting that consultations serve to place Members
on notice of the claims that other Members participating in the consultations may later advance before
a panel.  But consultations are not meant to stake out legal claims.  Rather, they are meant to facilitate
efforts to achieve a mutually satisfactory resolution of the controversy.  To credit Australia’s andNew Zealand’s view that consultations should be understood to put Members on notice of legal claims
that will be advanced in later legal proceedings would require this Panel (and will require future
panels) to make a decision about the facts of an oral interchange in consultations of which no neutral
records are kept, and where there are no neutral observers.  There are good reasons why consultations
are oral -- the desire to facilitate settlement of disputes by negotiation and agreement, which is themost desirable outcome in many cases.
5. If panels were to hold Members to the specific claims they advanced in the course of such
consultations, it would make consultations unnecessarily rigid and formalistic, undermine the
objective of achieving a negotiated settlement, and reduce chances for narrowing the range of issueseventually presented to a panel if a settlement cannot be achieved.  Moreover, no matter how much
notice is provided during such consultations, no such notice will have been provided to other
Members who may wish to intervene as third parties.  In sum, we ask the Panel to reject the
complainants’ assertions that they could provide notice of their claims through consultations and thusWT/DS177/R
WT/DS178/R
Page A-346
could avoid the requirement in Article 6.2 of the DSU to provide a summary of the legal basis for
their complaints sufficient to present the problem clearly.
6. Article 6.2 was designed to avoid the kind of prejudice that the United States has suffered
here in having to respond to 156 pages of argument within 26 days, when the Panel request did not
present the legal basis for the claims made.  The US safeguard measure was announced on9 July 1999, which provided Australia and New Zealand with nine months in which to prepare their
First Written Submissions.  By contrast, the United States did not know with any certainty until three
weeks before its First Submission was due precisely which claims Australia and New Zealand
intended to advance.
7. Both Australia and New Zealand advanced a variety of legal claims during the lamb meat
consultations.  They have not pressed before this Panel some of the claims they made during theconsultations, and at the same time they have also made new claims in this proceeding that they did
not present in the consultations.  Australia admits, for example, that it did not raise during
consultations its claim that the United States breached Article 4.2(c) of the Safeguards Agreement.
See Australia’s 17 May Letter at ¶ 30.  Thus, the United States was not in a position to know which
arguments they raised during consultations would be raised in this proceeding, or in what form.
8. Australia’s and New Zealand’s attempt to shift the consequences of their failure onto the
United States cannot be accepted.  In arguing that the United States should have known which claims
were at issue, Australia and New Zealand concede that they knew at the time of the consultations – or
shortly thereafter – which obligations they would claim that the United States had violated.  Theycould have, but apparently chose not to, identify these obligations in their panel requests, as required
by Article 6.2.  If they had done so, the United States would have been in a more equitable position to
prepare its defense in the short time period allowed by the DSU.
9. Finally, contrary to complainants’ assertions, the United States did not sit on its rights to
challenge the panel request.  Australia and New Zealand first argue that the United States should have
challenged the panel requests when the panels were requested in October 1999, or alternatively at the
DSB meetings in November 1999.  Their argument ignores the fact that the Appellate Body only
issued its decision in Korea–Dairy  in December 1999.
10. They also argue that the United States could have objected to the panel requests at the
organizational meeting of the Panel on 28 March 2000.  The purpose of that meeting was in part to
determine when it would be proper for parties to  request preliminary rulings.  In its working
procedures, the Panel determined that requests for preliminary rulings should be submitted not later
than in a party’s first written submission.  The United States did not know (and could not have
known) how deficient the panel requests were, and the degree to which the United States was
prejudiced, until Australia and New Zealand filed their First Written Submissions.  The United Stateschallenged the adequacy of the panel requests as soon as possible thereafter, and even before it filed
its own first written submission.
11. Finally, the United States notes that complainants base much of their argument on the
Appellate Body’s statements in United States – Tax Treatment for “Foreign Sales Corporations”
(FSC) .  Their argument is wholly misplaced, as the issue in the FSC case related to the adequacy of a
request for consultations , not a request for a panel.  A consultation request clearly presents different
timing issues and different opportunities to raise objections.  The circumstances here are entirely
different.
12. Finally, the gist of complainants’ argument here is that once a panel request is filed, the
burden of perfecting any defects in the request shifts to the  responding member .  Nothing in
Article 6.2 or elsewhere in the DSU shifts the burden to the responding member; the burden at all
times lies with the complaining member.WT/DS177/R
WT/DS178/R
Page A-347
13. Accordingly the United States respectfully submits that the Panel should dismiss this
proceeding in its entirety, or, in the alternative, exclude those claims that were not adequately set out
in the complainants’ panel requests.
Exclusion of the US Statute from the Panel’s Terms of Reference
14. I would now like to turn briefly to our request that the Panel rule that the consistency of the
US statute with US obligations under the Safeguards Agreement is not within the Panel’s terms of
reference and is thus outside the scope of this dispute.  Australia and New Zealand each concede that
they are not seeking a finding that the US statute is inconsistent with the Safeguards Agreement.
New Zealand claims, however, that it is challenging the USITC’s application of the “substantial
cause” test.  This is in essence challenging the statute itself.  New Zealand is free to claim, as it does,that the USITC’s report does not adequately establish a causal link as required by Article 4.  But it
cannot challenge the application of the US statutory standard without having referenced the statute in
its panel request.
15. Indeed, as the United States noted in its First Written Submission (at ¶ 110), the USITC found
that factors other than increased imports played no significant role in causing the threat of serious
injury.  This being the case, New Zealand’s challenge can only concern the fact that the USITC stated
its conclusions in the terms mandated by the US statute.  Such a challenge asks the Panel to rule on
the validity of the US statute regardless of the actual content of the authority’s findings.  Since
New Zealand appears to agree that its panel request does not notice such a challenge, the Panel shouldregard this aspect of New Zealand’s submission as beyond the terms of reference.
16. Accordingly, we urge the Panel to rule that the consistency of the US statute with US
obligations under the Safeguards Agreement in not w ithin the Panel’s terms of reference and is thus
outside the scope of this dispute.
Request to Produce Information
17. I will now turn briefly to address Australia’s request in its First Written Submission (at ¶¶ 15-
18) that the Panel make a preliminary ruling reques ting the United States to produce all confidential
business information that the USITC gathered in it s lamb meat investigation and information taken
into account by the Administration and the President of the United States in the course of deciding
whether to apply the US measure.  This is not in truth a request for a preliminary ruling, because there
is nothing to rule on.  The Panel is not being asked to make any finding, but merely to exercise its
authority to request information.  The Panel has the ability to request information at any time during a
proceeding.
18. The United States explained in its May 5th letter why the release of business confidential
information collected by the USITC is a complex issue, and suggested an appropriate procedure that
was best designed to help the US authority obtain consent for disclosure to the Panel of confidential
information that the Panel might request.  The United States recognizes, as the Appellate Body
indicated in Canada -- Aircraft , that under DSU Article 13.1, a Panel may seek information from any
body it deems appropriate and the United States is fully prepared to assist the Panel if it should make
such a request.  However, the complainants’ blanke t requests for all information in the USITC record
does not justify the Panel’s seeking business confidential information presented to the USITC, nor are
those requests reasonably calculated to allow the US authority to obtain the consent necessary to
disclose any such information to the Panel.
19. Article 3.2 of the DSU recognizes the fundamental principle that the DSU “serves to preserve
the rights and obligations of Members under the covered Agreements” and that “recommendations
and rulings of the DSB cannot add to or diminish the rights and obligations provided in the coveredWT/DS177/R
WT/DS178/R
Page A-348
agreements.”  Accordingly, the Panel’s authority under Article 13.1 of the DSU to seek information
reaches its limit when providing the information requested would cause a Member to violate its
obligations under another covered Agreement.
20. Article 3.2 of the Safeguards Agreement governs treatment of business confidential
information that an authority obtains in the course of its investigation.  Article 3.2 states thatconfidential information submitted to the comp etent authority “shall not be disclosed without
permission of the party submitting it.”  This provision makes no exception for the disclosure of
confidential information in Panel proceedings.
21. Consequently, in order for the United States to assist the Panel in obtaining access to
confidential information submitted to its authority, it must obtain the submitters’ consent.  The USITC
received information in this investigation from about 100 questionnaire recipients.  The indiscriminaterequest that Australia, as well as New Zealand, make for all confidential information obtained by the
authority almost ensures that it will be impracticable to obtain consent from the multitude of different
firms involved.
22. Moreover, neither complainant has stated how any of the information they are seeking would
be relevant to the Panel’s consideration of issues they have raised, much less why it would be
essential for the Panel to make an objective assessment of the facts of this case.  This failure impedes
the United States’ ability to explain to the submitters of the information why they should consent to
the further disclosure of their business confidential information and what particular information is
required.  The question for the Panel is whether the USITC determination sets forth under Articles 3.1and 4.2(c) reasoned conclusions on the pertinent issues of law and fact and provides a detailed
explanation showing the relevance of the factors examined.  The complainants have shown no reason
why this question cannot be answered without recour se to confidential business information.  Indeed,
Article 4.2(c) expressly contemplates that the published report will omit confidential business
information, because it requires that the report be published in accordance with the provisions ofArticle 3, and Article 3.2 prohibits disclosure wi thout permission.  As stated by the Panel in Argentina
-- Footwear at ¶ 8.126, it is not the job of the Panel to conduct its own assessment of the underlying
evidence as contained in the entire record before the competent authority, because that would
effectively be engaging in a de novo  review.
23. Finally, the United States explained in the cover letter to its First Written Submission that
Australia’s request for “all information” that the Administration and President took into account in the
course of deciding whether to apply the US measure is without legal foundation.  Any requirement
that would seek to reveal the reasons why a Member decided between alternative measures, or
between applying a measure and refraining from doing so, would inappropriately intrude on the
Member’s deliberative process regarding the application of safeguard measures.  There is no basis in
the Safeguards Agreement for such an enquiry.  Australia’s request should be rejected.
24. This concludes our presentation.  We would be pleased to receive any comments that you may
have.WT/DS177/R
WT/DS178/R
Page A-349
ANNEX 3-4
FIRST ORAL STATEMENT OF THE UNITED STATES
(25 May 2000)
1. On behalf of the United States delegation, I would like to thank the Panel for this opportunity
to comment on certain issues raised by Australia and New Zealand in their First Written Submissions.
We do not intend to offer a lengthy statement today; you have our written submission, and we will not
repeat all of the comments that we made there.  We will be pleased to receive any questions you may
have at the conclusion of our statement.
2. I will first make some general comments concerning the importance of this proceeding.
Mr. Gearhart of the USITC, the US competent authority, will then briefly address topics raised by
Australia and New Zealand concerning the USITC’s injury determination, the USITC’s identification
of the domestic industry, and its demonstration of unforeseen developments.  I will then return toAustralia’s and New Zealand’s claims regarding the safeguard measure that United States applied and
certain procedural complaints they have made as well.  For brevity, we will refer to Australia and
New Zealand together as the "complainants".
3. Mr. Chairman, this proceeding squarely presents the question of whether Members of the
World Trade Organization can seek meaningful, temporary relief for industries seriously injured, or
threatened with serious injury, due to a surge in imported products that are the subject of tariff
concessions those Members have made.  Article XIX,  the so-called “safeguards” provision, has been a
fundamental component of multilateral trading rules for more than 50 years.  Article XIX was
elaborated upon and strengthened in the Agreement on Safeguards, negotiated during the Uruguay
Round, but its fundamental purpose has not changed.   From the very beginning, Article XIX has been
an essential component of the GATT because it has allowed the Contracting Parties, whether
developed or developing countries – and now the Me mbers of the WTO – to make tariff concessions
with the confidence that they can take temporary actio n to assist their industries in the event that those
concessions lead to import surges that seriously inju re or threaten to injure their domestic industries.
Article XIX sets high standards -- for example, ther e must be "serious injury" instead of the lower
"material injury" standard that applies in antidumping and countervailing duty cases.  But if those
standards are met, Article XIX states explicitly that  Members "shall be free" to take action to prevent
or remedy the serious injury.   If this avenue did not exist, or was unduly limited, Members would
make fewer concessions in the first place, and would be more likely to respond to injury caused by
increased imports by either permanently modifying or withdrawing concessions under Article XXVIII
of the GATT,  or resorting to “grey-area” measures, such as voluntary restraint agreements, instead.
4. Prohibiting grey-area measures was a principal achievement of the Safeguards Agreement.
Members were willing to agree to accept the greater disciplines imposed by the Safeguards
Agreement in the expectation that if they followed the rules set out in that Agreement, they would be
able to provide meaningful, short-term relief to  domestic industries suffering or threatened with
serious injury due to increased imports subject to their tariff concessions.
5. This is a case where the United States scrupulously observed the disciplines imposed by the
Safeguards Agreement and has sought to provide modest short-term import relief for an industry, US
lamb meat producers, threatened with serious injury resulting from a sudden jump in imports fromAustralia and New Zealand.  As the Safeguards  Agreement provides, the USITC conducted a
thorough, transparent investigation, open to the participation of all interested parties (including the
exporting countries’ producers and governments), held  public hearings, and gathered detailed
information from importers, producers, consumers, and publicly available sources.  Based on theWT/DS177/R
WT/DS178/R
Page A-350
information it collected, the USITC carefully reviewed the condition of the domestic lamb meat
industry over the most recent five-year period and determined that it had experienced a severe
downturn at the end of that period, specifically in 1997 and the first nine months of 1998.
Mr. Gearhart will describe some of the USITC’s detailed injury findings.  The USITC concluded that
the industry’s condition had deteriorated to the point where serious injury was clearly imminent.  The
USITC next looked at each of the factors that might have accounted for the industry’s decline andfound that only one, a surge in imports during the period from Australia and New Zealand, played an
important role.
6. Based on the USITC’s determination, the United States was fully entitled to apply temporary
safeguard measures -- both to ensure that the industry did not deteriorate further into serious injury
and to give the domestic industry short-term breathing room in which to adjust to import competition.
The safeguard measure that the United States selected is limited in scale and duration.  It takes theform of  a three-year tariff-rate quota (TRQ), tailored to address the threat of serious injury that the
USITC had found, and structured to facilitate the industry’s adjustment to import competition.
7. The TRQ is specifically designed to raise US market prices, and limit import levels, just
enough to return the domestic industry to minimally profitable levels during the three-year period.The import relief is phased down over the second and third years, allowing both imports and import
competition to increase. Moreover, the United States did not place the entire burden of relief on
imports.  The United States also committed substantial financial and regulatory assistance to the US
lamb industry to assist in its recovery.
8. As it was considering an appropriate safeguard measure, the United States heard repeatedly
from both Australia and New Zealand and took their views into account to the extent possible.  Most
importantly, the TRQ is structured to ensure that lamb meat imports into the United Stats can continue
at the highest level they achieved before their all-time peak in 1998.  Moreover, the United States
limited the application of the TRQ to just three years.  By contrast, the USITC had recommended fouryears of import relief.
9. The United States took pains to minimize the measure’s effects on producers in Australia and
New Zealand in other ways as well.  For example, at the complainants’ request, the United States
agreed to provide separate quota allocations to New Zealand and Australia and also agreed toimplement the TRQ through an export permit system.  Also at the complainants’ request, the
United States delayed implementation of the TRQ, allowing approximately 1.5 million extra pounds
of Australian and New Zealand lamb meat to enter the United States without being subject to the
safeguard  measure.  In each of these ways, the United States sought to ensure that the safeguard
measure would restrict Australian and New Zealand lamb meat imports to the minimum degree
compatible with preventing serious injury and facilitating the domestic industry’s adjustment.
10. In sum, the United States has faithfully adhered to the letter and spirit of Article XIX and the
Safeguards Agreement, both in the conduct of its serious injury investigation and in the application of
a temporary safeguards measure.  By contrast, in their innumerable claims, Australia and
New Zealand are asking this Panel at every turn to read Article XIX and the Safeguards Agreement in
such a constricted or contorted way that recourse to Article XIX would effectively be renderedunavailable.  This is unjustifiable.  In Wool Shirts  (at p. 16), the Appellate Body described the
transitional safeguard mechanism provided in Article 6 of the Agreement on Textiles and Clothing as
a fundamental part of the rights and obligations of WTO Members.  Article XIX, which has been part
of the GATT for over half a century, and the Safegu ards Agreement, are no less a fundamental part of
Members’ rights and obligations.
11. If the complainants’ approach in this proceeding is credited, then Members may well
conclude that, despite their plain text, the WTO safeguard provisions cannot be relied upon.  That
could raise doubts about  the continued willingness of Members to make difficult market accessWT/DS177/R
WT/DS178/R
Page A-351
commitments in the multilateral trade negotiations th at lie ahead.  We urge the Panel to reject the
excessively narrow interpretations that the co mplainants are proposing in this case.  Instead
Article XIX and the Safeguards Agreement should be given effect based on their plain meaning, their
context, and the object and purpose they serve.
12. I will now ask Mr. Gearhart to address the USITC determination.13. While the USITC’s findings are discussed at considerable length in the United States’ First
Written Submission, I would like to highlight a few key points.  The USITC’s report demonstrates
that it properly considered all relevant factors during its investigation.  In their First Written
Submissions to the Panel, neither Australia nor New Zealand disputes the core facts that led the
USITC to determine that the US lamb meat industry was threatened with serious injury caused by
increased imports, and that serious injury was imminent.  In reaching its affirmative determination,the USITC found that imports of lamb meat from Australia and New Zealand surged late in the period
of investigation.  Although the USITC examined imports and the condition of the domestic industry
over the full 1993 to September 1998 period of investigation, the USITC based its determination on
the most recent data for 1997 and the first nine months of 1998, which the USITC referred to as
"interim 1998."  The USITC’s focus on 1997 and 1998 was consistent with the Appellate Body’sdecision in Argentina -- Footwear,  which held that the competent authority should concentrate on the
most recent period.  Focusing on that period, the USITC found that lamb meat imports increased by
19 per cent in 1997 over the previous year, and by another 19 per cent in interim 1998 over the same
period in 1997.  Since imports actually declined between 1993 and 1994 and were otherwise steady
early in the period of investigation, the sharp increases in imports in 1997 and thereafter were, interms used by the Appellate Body in Argentina -- Footwear (at ¶ 131), "recent enough, sudden
enough, sharp enough, and significant enough, both quantitatively and qualitatively" to cause threat of
serious injury.
14. The ITC Report demonstrates that these developments were unforeseen.  The import surge
coincided with an unexpected change in the type of  lamb meat being imported into the United States.
This change in the market was unforeseen at the time the United States negotiated its Uruguay Round
tariff concession on lamb meat in 1992 and 1993 or granted that concession in 1995.  Prior to 1995,
most imported lamb meat was frozen and comprised of smaller cuts, while US lamb meat was sold as
fresh or chilled in larger cuts.  However, the mix in imported products shifted after 1995 – particularlyin 1997 and interim 1998 -- from frozen lamb meat to fresh or chilled lamb meat, and to larger cuts.
Consequently, the imported product unexpectedly became more similar to the domestic like product.
Imported lamb meat competed more vigorously with domestic lamb meat in the US market and
eroded US market share.  In fact, US market shar e held by imports nearly doubled during the period
of investigation, with most of the increase occurring in 1997 and 1998.  At the end of the period, the
direct effect on the US product was apparent as the USITC found that a 9.7 million pound increase in
imports came at the direct expense of an 8.4 million pound decline in US lamb shipments.  Bothdomestic and foreign producers told the USITC that they expected these trends to continue and even
accelerate in the imminent future.
15. Although Australian and New Zealand producers claimed that some of the imports were
filling new demand in US markets created as a result of their promotional efforts and differentiatedmarketing, the USITC concluded, instead, that demand had stabilized and the change from smaller
frozen products to larger fresh cuts had made imports more similar to US products, not more
differentiated.  The surge in imports and change in the mix of the imported products caused prices to
fall sharply in 1997 and interim 1998.  The USITC made explicit the correlation between the fall in
US lamb meat prices and price pressure from increased imports.  Data the USITC gathered forindividual cuts showed that imported lamb meat had undersold domestic lamb meat by wide margins
in most quarters, often by more than 20 per cent.WT/DS177/R
WT/DS178/R
Page A-352
16. Moreover, the USITC found serious injury was imminent.  Projections by Australian and
New Zealand producers in response to USITC questionnaires showed that their exports to the
United States would increase by an additional 21 per cent in 1999, that is, at an even faster rate than in
1997 and interim 1998.  Further, they told the USITC that the major portion of the 1999 increase
would be in fresh or chilled lamb meat, the product most similar to domestic lamb meat.  The USITC
concluded that this increase in import volume was "likely to have further negative effects on thedomestic industry’s prices, shipment volumes, and financial condition in the imminent future."
17. The USITC considered all of the evidence with  regard to the impact of the surging, low-
priced imports on the domestic lamb meat industry and concluded that the industry as a whole was
threatened with serious injury, and that serious injury was clearly imminent.  The USITC determined
that the domestic industry included growers and feeders of live lambs, as well as packers and breakers
of lamb meat.  As the USITC found, packers and breakers are essentially "finishers" of lamb meat,adding only a small proportion of  value-added.  The USITC’s industry definition reflected (1) a
continuous line of production from the raw to the processed product in which lambs are substantially
devoted to lamb meat production; and (2) a substantial coincidence of economic interests between the
growers and the processors.  Indeed, some lamb growers both feed and slaughter their lambs.  In such
circumstances, the USITC properly found that firms in all four segments of the line of productionwere producers.  The alternative would have led to an artificial definition of the domestic industry not
in keeping with the injury analysis required by the Safeguards Agreement.
18. Even if the USITC had defined the domestic industry more narrowly to include only packers
and breakers as Australia and New Zealand suggest, the complainants have not shown that this wouldhave made a difference in the injury determination the USITC reached.  To the extent practicable, the
USITC obtained data on each of the economic factors for all four segments of the industry and found
that packers, like other segments of the industry, experienced deteriorating profits during 1997 and
interim 1998.  Furthermore, firms in the packer and breaker segments reported difficulties in
recouping new investments in plant and equipment a nd in repaying loans.  The USITC also found that
the operating income for most packers and breakers during the period of investigation fell to its lowest
point in 1997 and interim 1998, consistent with the decline registered by other segments of the
industry at that time.
19. Contrary to Australia’s and New Zealand’s claims, the USITC’s determination also fully
satisfied the requirement of Article 4.2(b) not to attribute to increased imports injury caused by other
factors.  Australia and New Zealand would have the Panel believe that the US lamb meat industry was
not threatened with serious injury from increased imports but was in a long-term decline brought
about by falling demand and made worse by the termination in 1996 of Wool Act support payments to
lamb growers and feeders.  The complainants are simply asking this Panel to undertake a de novo
review of the evidence on this point.  The USITC found, to the contrary, that termination of the wool
subsidy payments did not have much influence on events after 1996.  This is because payments underthe Wool Act were phased-out principally in 1994 and 1995, and ended in 1996, before  the surge in
imports occurred in 1997 and interim 1998.  The USITC found that consumption had stabilized by
1996 – after the termination of the Wool Act – and any lingering residual effect of termination of the
payments receded each month after 1996.  Moreover, the payments never went to the packers and
breakers.  The USITC reasonably concluded that it was the surge in imports in 1997 and interim 1998that explained the imminent worsening of the entire domestic industry’s condition at the end of the
period of investigation -- not the cessation of payments made under the Wool Act.  The USITC found
no factor other than increased imports that would have a significant impact on the deterioration of the
US industry in the imminent future.  Thus, the USITC did not and could not have attributed to
increased imports the effects of other factors, because it found no other factors of significance in therelevant period, 1997 and interim 1998.
20. Australia and New Zealand also wrongly question the objectivity of the evidence on which
the USITC relied in making its safeguard determination.  We note that their objections do not go toWT/DS177/R
WT/DS178/R
Page A-353
the USITC’s evidence on packers and breakers, whom the complainants insist should have constituted
the entirety of the domestic industry.  In evaluating the condition of the grower segment of the
industry, the USITC relied on data obtained both from responses to USITC questionnaires and from
the US Department of Agriculture (USDA).  The USITC noted that the sheer size of the domestic
industry, which comprised 70,000 growers nationw ide in 1997 alone, made it impossible for it to
develop a statistically valid sample.  Consequently, the USITC prudently relied on the morecomprehensive USDA data when possible.
21. Although the complainants allege that the us e of two data sets from different sources in
analyzing injury can allow an authority to pick and choose which set to use arbitrarily to support an
outcome, it is clear that the USITC did not do so here.  In evaluating factors such as financial
conditions -- for which there were no USDA data -- the USITC did rely on questionnaire response
data.  Its careful analysis of that information assured that the USITC based its determination onobjective evidence.  Available data suggested that those who answered the questionnaires were, if
anything, doing better than the industry as a wh ole.  Thus, the USITC reasonably concluded that
information from those questionnaire responses sugge sting a downturn in the grower segment was not
likely to be overstated.
22. The complainants have not asserted a violation of the Safeguards Agreement in the USITC’s
approach to the available data.  The Agreement does not require that an authority rely only on
questionnaire data that it finds scientifically valid in a statistical sense or require, as Australia
suggests, the authority to send repeated waves of questionnaires to additional firms if extensive
sampling does not yield responses from each and every addressee.  As the Panel in Korea-Dairy
stated at ¶ 7.31, quoting US -- Shirts and Blouses , the Safeguards Agreement does not  impose on the
importing Member any specific method for collecting data.  Rather, it simply requires the competent
authority to examine all relevant factors of an objective and quantifiable nature, to explain its
findings, and to demonstrate the relevance of the factors it examined.  That is what the USITC did.
23. In summary, an objective assessment of the USITC’s report shows that it properly defined the
domestic industry; it examined all relevant factors concerning its determination of the threat of injury;
it adequately explained why the facts supported its conclusion; and it reached its determination based
on objective evidence in accordance with the Safeguards Agreement.
24. Mr. Ross will now discuss Australia’s and New Zealand’s remaining claims.
25. Mr. Chairman, Members of the Panel, as I noted at the outset of this presentation, I do not
intend to consume a large amount of your time; my remaining comments will be brief.
26. As Mr. Gearhart has discussed, after conducting a thorough, transparent, and well-
documented investigation, the USITC properly found that increased lamb meat imports from Australiaand New Zealand threatened the US lamb industry with serious injury.  The USITC’s findings
demonstrated in detail the deterioration the domestic industry had suffered due to the increased
imports, as well as the basis for concluding that serious injury from those increased imports was
clearly imminent.
27. Under these circumstances, the United States was fully entitled under Article XIX of GATT
1994  and the Safeguards Agreement to apply a temporary safeguard measure sufficient to prevent the
serious injury from occurring and to assist th e domestic lamb meat industry to regain its
competitiveness.
28. Article XIX does not specify or mandate particular safeguard measures.  Decisions regarding
the appropriate safeguard measure have always been understood to be left to the government
concerned, subject to the limitation that the measure -- whatever its form -- should not be appliedWT/DS177/R
WT/DS178/R
Page A-354
beyond the time and extent commensurate with the twin goals of preventing or remedying serious
injury and facilitating the domestic industry’ s adjustment to import competition.
29. Article 5 of the Safeguards Agreement elaborates on the pertinent language of Article XIX.
However, nothing in the text of Article 5 can be read as a departure from the basic rule that the choice
of measures is left to the importing Member.  Article 5.1 mentions the possibility that a Member maychoose to apply a quantitative restriction, using the introduction "If a quantitative restriction is used".
This language suggests that the Member concerned is free to choose among a range of measures.  The
discipline that Article 5.1 imposes is to ensure th at there is a reasonable relationship between the
degree to which a measure is applied, on the one hand, and the objectives that safeguard measures are
intended to achieve, namely preventing or remedying serious injury and providing a short period ofrelief for the domestic industry, on the other.
30. Contrary to the position that New Zealand and Australia advocate, neither Article XIX nor
Article 5.1 says that there can be only one possible safeguard measure in any particular case.  There is
no requirement in either provision that Members must search out and apply the single, theoretical
"least trade restrictive" measure available.  Rather, Article 5.1 calls for a Member to ensure that any
safeguard measure it applies is commensurate with the specific injury findings its competent authorityhas made, both as it seeks to prevent or remedy that injury and to help the industry adjust to import
competition.  To date, New Zealand and Australia have failed to present a prima facie case that the
US measure is inconsistent with this standard.  By  contrast, the United States has made clear why the
import relief it has provided for its lamb meat industry represents a careful, measured response to the
USITC findings, structured to prevent serious injury and facilitate industry adjustment, and no more.
31. Australia’s and New Zealand’s claims regarding Article 3 of the Safeguards Agreement are
also unfounded.  They suggest that the United States was required under that Article to justify its
safeguard measure at the time it was applied.  Article 3 is entitled "Investigation."  By its plain terms,
the obligations in that Article apply to the investigation conducted by a competent authority; here, theUSITC.  Article 3 does not apply to a Member’s subsequent decision on whether to apply a safeguard
measure, and it did not oblige the United States to "justify" its measure or publish an explanation of
why its chosen measure was "necessary".
32. I would next like to comment briefly on the US decision to exclude lamb meat imports from
Canada, Mexico, Israel, and developing countries from the safeguard measure.  The United States was
required to exclude developing country imports under the plain terms of Article 9.1 since they were
negligible.  During its oral statement, Australia asked why the United States did not notify the
safeguard measure under Article 9.  In fact, the United States did notify the measure under Article 9;
the US notification is attached to our First Written Submission as US Exhibit 6.
33. As we noted in our written submission, in their own safeguards legislation, Australia and New
Zealand exclude each other’s imports from their own safeguard measures under the Australia
New Zealand Closer Economic Relations Agreement.  Therefore, they cannot be arguing that the
United States is prohibited from doing likewise unde r its free trade agreements with Canada, Mexico,
and Israel.
34. Instead, they must simply be arguing that a Member cannot base a threat of injury
determination on an increase in imports from all sources, and then apply a safeguard measure to
imports from only some of those sources.  If this is their argument, then it must fail, because
New Zealand and Australian imports constituted approximately 99 per cent of total imports during the
period of investigation, and there was no discernible increase in lamb meat imports from Mexico,Canada, or Israel during the 1997 - interim 1998 period.  Thus, Australia and New Zealand cannot
credibly argue that the USITC’ s injury determination was based on increased imports from Canada,
Mexico, or Israel.WT/DS177/R
WT/DS178/R
Page A-355
35. Australia also raises claims under Articles  8, 11, and 12.  These arguments are unfounded as
well.  One of the primary accomplishments of the Safeguards Agreement was to subject "grey-area"
measures to GATT disciplines.  As part of the overall understanding that made that accomplishment
possible, Article 8.3 permits Members to impose safeguards for a three-year period without fear of
having to "pay" for such action.  Australia’s argument that Article 8.1 obliged the United States to
offer compensation for its three-year safeguard measure jeopardizes the objective of re-establishingmultilateral control over safeguards.  It would encourage Members to find methods outside the
Safeguards Agreement to protect their threatened or injured domestic industries.  Article 8.1 imposes
an obligation on a Member considering a safeguard measure to provide an opportunity for prior
consultations, and the United States satisfied that obligation by meeting with Australia twice.
36. Similarly, the United States did not contravene Articles 11 or 12.  Despite Australia’s claim,
the US safeguard measure fully satisfied the specific prerequisites established in the SafeguardsAgreement for applying import relief.  Article 11, which addresses "grey area" measures, does not
establish any further such requirements, in particular any need for a Member to make an additional
showing that an emergency exists before taking action under the Agreement.  Finally, the
United States provided the Committee on Safeguards all pertinent information required by
Article 12.2; conducted consultations in conformity with Article 12.3; and properly notified its laws,
regulations and administrative procedures as required by Article 12.6.
37. I would now like to turn briefly to one fina l issue.  During this morning’s presentation,
New Zealand submitted a new exhibit NZ13, a report  prepared for the New Zealand Government for
purposes of this dispute.  New Zealand claims that it is submitting the report to show that it is possible
to conduct such an analysis and to demonstrate th at if the USITC had conducted such an analysis, it
would have reached a different conclusion in its investigation.  The United States has obviously not
had any chance to study the report, and therefore our initial comments must necessarily be limited and
confined to the question of the appropriateness of such a report to the Panel’s work.  We do, however,
wish to stress a few important points.
38. First, the United States notes that New Zealand’s point that such a report could have been
prepared is not relevant.  As the United States noted in its First Written Submission (at ¶ 131), the
Safeguards Agreement does not require that a competent authority perform such an analysis.  In fact,
the Agreement does not address any specific methodology that a competent authority must perform.The United States explained in its first written submission (at ¶ 131) why using such studies is
questionable.
39. Second, and more important, New Zealand concedes that its purpose in submitting the report
to the Panel is to demonstrate that the USITC would have reached a different conclusion if it had
conducted such an analysis.  This suggests to the Unit ed States that New Zealand is trying to lead this
Panel to conduct an impermissible de novo  review, something that New Zealand conceded in the
standard of review section of its brief is not appropriate.
40. Indeed, this study was never submitted to the USITC. This must be so, since the report cites
the USITC’s Report, and it plainly was commissioned for purposes of this dispute by a party with a
direct interest in challenging the result of the US ITC investigation.  This is troubling in several
respects.
41. First, as we have already stated, the Report invites an inappropriate de novo  review of the
USITC’s determination.  Second, it is not clear whet her the data it is based on was part of the
USITC’s record.  Third, if New Zealand had submitted the Report to the USITC during the
proceeding, the USITC itself – as well as the US lamb meat industry and other interested parties –
would have had an opportunity to review the Report , the underlying data (if made available), and the
conclusions that it reached.  By failing to submit the Report during the USITC’s proceeding,WT/DS177/R
WT/DS178/R
Page A-356
New Zealand has rendered such scrutiny impossible.  Finally, there are obvious problems with
submitting at this late stage a report done by a party solely for purposes of an adversarial proceeding.
42. Therefore, the United States respectfully submits that the Panel should disregard Exhibit
NZ13.  However, if the Panel is nevertheless inclined to consider the Report, then the United States
respectfully submits that it too be permitted to submit econometric studies commissioned for purposesof this dispute that will analyze the various factors at issue in the USITC’s investigation.  Otherwise,
the United States will be unfairly prejudiced.
43. This concludes our presentation today.  As we noted at the outset, we will be pleased to
receive any questions you may have.WT/DS177/R
WT/DS178/R
Page A-357
ANNEX 3-5
CLOSING STATEMENT OF THE UNITED STATES AT THE
FIRST MEETING OF THE PANEL
(25-26 May 2000)
1. On behalf of the United States delegation, I would like to thank the Panel for taking the time
during the past two days to hear our views on this important proceeding, and for giving us the
opportunity today to make this closing statement.  I have only a few points to make this morning.
2. First, New Zealand and Australia make several claims that find no textual support in the
Safeguards Agreement.  Indeed, it is difficult to see how the complainants are reading the same
Safeguards Agreement as the one agreed to by the Uruguay Round negotiators.  According to the
complainants, the Safeguards Agreement prescribes all manner of detail about the investigation by the
competent authority and the decision on the measure to apply.  However, complainants are unable to
support these claims by any provision in the text.  For example, in the first submissions, New Zealand,
but not Australia, argues that Article 5.1 requires a Member to apply the “least trade restrictive”
measure available.  But the text of Article 5.1 says that a Member shall apply a measure “only to the
extent necessary to prevent or remedy serious injury and to facilitate adjustment,” not that a Member
shall identify and apply the “least trade restrictive” measure.  Similarly, complainants argue that the
United States was required to “justify” its choice of safeguard measures.  But once again, Article 5.1
says nothing of the sort.  Complainants also claim that Article 3.1 requires a Member to publish the
reasons it imposed a particular safeguard measure.  But Article 3.1, by its plain terms, applies to the
investigation conducted by a competent authority, not to a Member’s decision to apply a safeguard
measure.  Finally, Australia suggested in its oral presentation yesterday (at ¶ 71) that the President ofthe United States was somehow required to impose the USITC plurality’s suggested remedy.  But
nothing in the Safeguards Agreement requires a competent authority to recommend a safeguard
measure, let alone requires a Member to adopt such a recommendation.
3. These points are important because the WTO is a treaty-based system, based on the mutual
consent of the Members as reflected in the text of the WTO Agreements.  Therefore, if there is no
textual basis for complainants’ various “tests” and “requirements”, then the Members of the WTO
have not consented to be bound by them.  Accordingly, the United States urges the Panel to interpret
the terms that the drafters actually used, not the terms that Australia and New Zealand wish they had
used.
4. I would now like to respond briefly to certain points raised by complainants regarding the
USITC’s investigation and determination.
5. The USITC’s affirmative threat determination was soundly based on the record developed by
the USITC in its investigation, and the USITC findings and conclusions as set out in its report met all
the requirements of Articles 3 and 4 of the Safeguards Agreement.  The United States’ First WrittenSubmission did not "concoct" or "cobble together" a new version of the USITC’s findings to fill in
"gaps" or create a more defensible decision.  It did not need to.
6. The United States at ¶¶ 79-82 summarized four central findings of the USITC report that were
essentially uncontested by the complainants:
7. First, imports of lamb meat from Australia and New Zealand surged late in the period of
investigation, and this surge was projected to continue through 1999.WT/DS177/R
WT/DS178/R
Page A-358
8. Second, the mix of imported lamb meat imports shifted during the investigation, from frozen
lamb meat to fresh/chilled lamb meat, and from smaller cuts to larger cuts, the form and cut size of
lamb meat most similar to that produced and marketed by domestic lamb meat producers.  This trend
was projected to continue through 1999.
9. Third, this surge in imports, and the change in mix of imported product, led to falling
domestic prices for lamb meat in 1997 and interim 1998, and the USITC found that these trends
would continue in the future.
10. Fourth, economic indicators relating to the health of the domestic industry, which had
stabilized in 1996 after the termination of the US Wool Act payments, deteriorated sharply in 1997
and interim 1998, when imports surged.  This deterioration was predicted to continue into 1999.  In
particular, industry profitability fell sharply in 1997 and interim 1998.
11. Contrary to New Zealand’s contention yesterday, this is all stated in the USITC’s written
findings.  The recent increase in imports and projected further increase was described on pages I-15
and 23 of the USITC report.  The change in product mix and projected further change was described
on pages I-22 and 23.  The fall in prices in 1997 and interim 1998 and linkage to increased imports,and likely impact on prices of further increases in imports, was described on pages I-23-24.  The fact
that the domestic industry had stabilized in 1996 after termination of the Wool Act, the fact that the
condition of the domestic industry had deteriorated and that further deterioration was projected, and
the linkage between the deterioration, the projected further deterioration, and the surge in lamb meat
imports, are all described on pages I-17 to 21 and on I-23 to 26.
12. Thus, the United States had no need to create a revised story.  The story was in the USITC
report.  In case there were any doubt, the United States urges the Panel to rely simply on the USITC
report.
13. I would now like to turn briefly to the USIT C’s causation finding.  In asserting that the
USITC found increased imports to be one of several factors causing the threat of serious injury,
New Zealand fails to consider the USITC’s evaluation of each of those factors.  While the USITC
expressed its finding in terms of the US statute, it is clear from the USITC’s evaluation of the several
possible causes that increased imports were the only cause of any significance  of the deterioration in
the condition of the domestic industry in 1997 and interim 1998, and the projected continuation of this
deterioration in 1999. The USITC did not attribute the effects of other factors to increased imports.
14. Finally, as the United States made clear in its First Written Submission and in its oral
statement yesterday, the USITC report demonstrates –
(1)  that the USITC conducted a thorough investigation that met all the requirements
of Article 4.2(a) of the Safeguards Agreement.  As the United States stated in its First
Written Submission and again yesterday, the Safeguards Agreement does not
prescribe any specific methodology that an authority must follow in demonstrating
the link between increased imports and the threat of serious injury;
(2)  that developments relating to the change in import mix and size were unforeseen
by the United States at the time it negotiated and implemented its most recent tariff
concession on lamb meat imports;
(3)  that the USITC properly defined the domestic industry, and that the USITC
would have reached the same conclusion if it had limited the industry to lamb meat
packers and breakers; and
(4)  that the USITC found that the serious injury was clearly imminent.WT/DS177/R
WT/DS178/R
Page A-359
15. Mr. Chairman, Members of the Panel, I discussed at length yesterday the importance of
Article XIX and the Safeguards Agreement as criti cal components of trade liberalization.  We would
like to close by asking the Panel to keep that perspective in mind in addressing this proceeding, and in
particular when addressing the arguments by Aust ralia and New Zealand that these provisions should
be narrowly construed.
16. Finally, Mr. Chairman, it bears repeating that Australia and New Zealand have the burden of
proof in this proceeding, a burden that the United States considers they have not met in any respect.
We respectfully ask this Panel to so find in the report that it prepares.
17. This concludes our presentation today.WT/DS177/R
WT/DS178/R
Page A-360
ANNEX 3-6
UNITED STATES' REPLIES TO QUESTIONS FROM AUSTRALIA
(22 June 2000)
Injury
Question 1. Does the US rely in this dispute on any data designated as confidential in the public
version of the USITC Report?  If so, where does th is occur?  Could the US please provide any such
confidential data from the USITC Report on which it seeks to rely for justifying the measure and
the US's compliance with Safeguards Agreement and GATT 1994 Article XIX.
Reply
1. We believe that the public report of the USITC provided the detailed analysis and
demonstration of the relevance of the factors examined that are required by Article 4.2(c).  The“views” of the USITC Commissioners, which set out their findings and conclusions on all pertinent
issues of fact and law, contain virtually no confidential data.  The small amount of confidential data in
their views relates to (1) data concerning the proportion of lamb meat imports that are fresh or chilled
(certain Australian data were confidential);
1 (2) data relating to the per cent of the value of packers’
net sales accounted for by carcasses and per cent accounted for by pelts and offal;2 (3) support for the
petition by firms other than those listed in the petition;3 (4) the percentage by which packer
production declined between 1993 and 1997 (but not the fact that production fell);4 (5) the percentage
amount by which the value of net sales of packers and breakers fell (but not the fact that the value of
their net sales fell);5 and (6) certain inventory data (which the USITC did not find particularly relevant
because lamb meat is perishable).6
2. Thus, USITC Commissioners directly cited confidential data in the non-public version of theirviews in only six instances.  In four of the instances, the first, second, fourth, and fifth, the data
support findings and conclusions that are fully stated in the public version of the report.  The data in
the two remaining instances do not relate findings on which the USITC based its affirmative decision(the position of non-petitioner firms, and certain inventory data).
3. With respect to the provision of confidential information, please see the United States’
response to the Panel’s Question 24 to the United States.
Question 2. Does the US agree that one of th e essential requirements under the Safeguards
Agreement for a Member to apply a safeguard measure is that its competent authority has made an
affirmative finding in terms of SG Article 4 that increased imports are causing or are threatening
to cause serious injury to the "domestic industry" specified in SG Article 4.1(c)?
                                                     
1 USITC Report at I-11.
2 USITC Report at I-13.
3 USITC Report at I-14.
4 USITC Report at I-18.
5 USITC Report at I-19.
6 USITC Report at I-20.WT/DS177/R
WT/DS178/R
Page A-361
Reply
4. Yes.  The United States also wishes to call to Australia’s attention its responses to the
questions of the Panel.
Question 3. At paragraph 66 of its First Submis sion, the US refers to "vertical integration of
the industry".  Could the US please provide data on how many growers are feeders, and how many
growers are both feeders and packers.
Reply
5. Approximately 20 per cent of all growers and grower/feeders who responded to USITC
questionnaires indicated they were both growers and feeders.
6. The USITC Report states that at least one grower owns both a feeder and a packer.7  We also
note that one holding company is a major domestic lamb packer that also owns both a major feeder
and a major breaker operation.8  Some lamb producers retain title to their lambs in feedlots, by having
them fed for a fee or in partnership with the feedlot owner.9  The exact number is not known.  Clearly,
lamb producers have a direct interest in slaughter operations as estimates indicate that 70 to 80 per
cent of lambs slaughtered were previously fed in feed lots.10
Question 4. Could the US please also provide the numbers of feeders, packers, packer/breakers,
and breakers in the US, including not only specia list packers and breakers of sheepmeat but also
those that produce meat from other livestock species.
Reply
7. Number of Feeders: 1111
8. Number of Packers: The exact number is not known.  USDA data show that 9
plants accounted for 85 per cent of the sheep and lambsslaughtered in 1997, while 571 plants were certified by
USDA in 1997 to slaughter lamb and sheep.
12
9. Number of Packer/Breakers: Four operators defined themselves as packer/breakers in
response to USITC questionnaires.
10. Number of Breakers: Less than 10 major firms.13
Measure to be applied “only to the extent necessary”
Question 5. Was there a further investigation or inquiry by whatever name carried out by the
US following the USITC reportin g to the President in April 1999?  If so, could the US please
                                                     
7 USITC Report at II-12.
8 USITC Report at I-14.
9 USITC Report at II-12.
10 USITC Report at II-24.
11 USITC Report at II-13.
12 USITC Report at II-15, n. 57.
13 USITC Report at II-15.WT/DS177/R
WT/DS178/R
Page A-362
provide details about it and any new information obtained.  Could the US please also provide copies
of the documentation, if any, setting out the findings and reasoned conclusions of the investigation
or inquiry on WTO issues regarding the measure.
Reply
11. After the USITC issued its affirmative determination that imports of lamb meat were
threatening to cause serious injury to the US industry, the United States considered whether to apply a
safeguard measure and, if so, to what extent.  As part of this process, the United States authorities
conferred with interested parties, including on several occasions with representatives of Australia and
the Australian lamb meat industry, to obtain their views on an appropriate remedy.  Indeed, after the
United States announced its measure, Australia’s Deputy Prime Minister and Minister for Trade
issued a press release crediting “Australia’s intensive lobbying” for delaying and ultimately reducingthe level of the US measure.
14
12. Article 3.1 of the Safeguards Agreement requires competent authorities to publish a report
setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.
By its plain terms, Article 3.1 applies to the competent authority’s investigation, not to the subsequentdecision by a Member on whether to apply a safeguard measure and, if so, the nature of the measure.
Neither Article 3.1 of the Safeguards Agreement nor any of its other provisions  requires a Member to
maintain or publish a record of its deliberations.
13. Australia’s request for “documentation . . . setting out the findings and reasoned conclusions
of the investigation or inquiry on WTO issues regarding the measure” appears to be a request for the
United States to provide a justification of its measure.  The Safeguards Agreement imposes no
requirement of this kind.  As a complainant in this dispute, Australia has the burden of proving its
claim that the United States has applied a safeguard measure beyond the extent necessary to prevent
or remedy serious injury and to facilitate adjustment.  Australia cannot shift that burden to theUnited States.
Question 6. Did the US make a finding on the necessity of the extent of the measure under
SG Article 5.1 before applying the measure?  If so, could the US please provide a copy of the
decision and supporting documentation.
Reply
14. Please see response to question 5.
Question 7. What was the "economic model" re ferred to in paragraphs 216-224 of the US's
First Submission?  Could the US please provide details of the model used.
Reply
15. The United States provided details on the model in footnote 220 of the United States’ first
written submission.
Question 8. What aspect of this model did the US use to ensure that the measure was applied
"only to the extent necessary" in order to satisfy SG Article 5.1?
                                                     
14 Attached hereto as US Exhibit 42.WT/DS177/R
WT/DS178/R
Page A-363
Reply
16. The United States used the model to try to predict the effects of various combinations of
in-quota and out-of-quota tariffs.  The United States explained the model’s predictions in ¶¶ 217-219
of its first written submission.
"Shall endeavour to maintain a substantially equivalent level of concessions and other
obligations"
Question 9. Can the US confirm that, as set out in the last sentence of paragraph 35 of its
Opening Statement on 25 May 2000, it considers that it met its SG Article 8.1 obligations by
meeting with Australia twice and did not endeavour to maintain a substantially equivalent level ofconcessions and other obligations with Australia.
Reply
17. Paragraph 35 of the United States’ opening statement does not state that the United States
“did not endeavour to maintain a substantially equivalent level of concessions and other obligations
with Australia.”  It does, however, note that th e United States consulted with Australia on two
occasions, specifically, on 28 April and 14 July 1999.
18. Australia argues that Article 8.1 required the United States to offer Australia trade
concessions in recompense for the trade effects of the US safeguard measure.  Article 8.1 imposes no
such requirement, a fact that Australia itself appears have acknowledged outside this proceeding.
19. After Australia notified its safeguards regime to the Committee on Safeguards15, Canada
asked whether the safeguard procedures that Australia had notified provided for adequatecompensation under Article 8 and, if not, whether other Australian legislation made provision for
compensation.  Australia’s response was:
No.  That would not be the responsibilit y of the [Australian competent authority].
There is no specific provision for this in Australian legislation.  The issue ofcompensation or concessions would have to be addressed in each case and, if
appropriate , the requisite action taken, which might conceptually involve new
legislation.  Our understanding is that the issue of compensation or concessions,
apart from the issue of the size and administration of quota and tariff quotas has been
rare for safeguard action.
16
20. Australia's response to Canada indicates that, in Australia's view, a Member may choose toaccommodate the interests of other Members through adjustments in the size and administration ofquotas and TRQs, and that compensation under Article 8.1 will rarely be appropriate.  Australia also
appears to view this question as one for the importing Member to decide.
21. The United States has acted in this case in conformity with the approach Australia outlined in
its response to Canada’s question.  Throughout the course of its deliberations on an appropriateremedy, the United States conferred with Australia on an appropriate safeguard measure.  The high
in-quota quantity included in the TRQ, the separate quota allocations for Australia and New Zealand,
and the fact that the TRQ does not establish specific limits for fresh and frozen lamb meat products
are all consistent with requests that Australia (and New Zealand) made to the United States as the
                                                     
15 G/SG/N/1/AUS/2, circulated on 2 July 1998.
16 Notification of Laws and Regulations Under Article 12.6 of the Agreement, Replies from Australia
to Questions Posed by Canada and the United States, G/SG/Q1/AUS/3, at 2  (27 April 1999) (emphasis added).WT/DS177/R
WT/DS178/R
Page A-364
measure was under consideration.  Moreover, at Australia’s and New Zealand’s request, the
United States promulgated a regulation to administ er the TRQ through an export certificate system
and agreed to delay the effective date of the measure to permit an additional 1.5 million tons of lamb
meat to enter the United States outside the TRQ.  As noted above in response to question 5,
Australia’s Deputy Prime Minister and Minister for Trade issued a press release crediting “Australia’s
intensive lobbying” for delaying and ultimately reducing the level of the US measure.WT/DS177/R
WT/DS178/R
Page A-365
ANNEX 3-7
REPLIES BY THE UNITED STATES TO
QUESTIONS FROM THE PANEL
Was the "unforeseen developments” provision of Article XIX:1 of GATT 1994 fulfilled?
Question 1
In Korea - Dairy Safeguard and Argentina - Footwear Safeguard , the Appellate Body
stated that "the developments which led to a product being imported in such increased
quantities and under such conditions as to cause or threaten to cause serious injury to domestic
producers must have been 'unexpected"', Australia, New Zealand and the EC  interpret this
statement to mean that there must be  unforeseen developments that cause a surge in imports
which in turn  causes  a threat of serious injury, for the "unforeseen developments" requirement
of Article XIX to be fulfilled.
(a) Please comment on  this interpretation of the Appellate Body's statement.
Answer 1(a)
1. Through their two-step causation approach, Australia, New Zealand, and the EC have
misconstrued both the relevant language of Article XIX and the Appellate Body’s findings.  The error
in this approach is that, contrary to the plain la nguage of Article XIX:1(a), and the Appellate Body’s
characterization, it de-links the “unforeseen developments” both from the “conditions” under whichincreased imports are occurring and from the serious injury (or threat) that the increased imports have
caused.
2. As a preliminary matter, it is worth noting that, unlike the complainants and the EC, the
Appellate Body did not describe the relationshi p between “unforeseen developments” and increased
imports in terms of the former “causing” the latter.  That is because Article XIX:1(a) uses the
expression “If, as a result of
” [emphasis supplied] to describe this relationship, and indeed the
relationship between “unforeseen developments” and both “under such conditions” and serious injury(or threat).   By distinction, paragraph 1(a) uses the expression “as to cause” in linking “such
increased quantities” and “under such conditions” to serious injury.
3. The choice of the expression “If, as a result of” suggests that the framers of Article XIX were
seeking to characterize a situation in which a particular outcome ( “a result”) has followed generally
from earlier occurrences.  By contrast, the expression “as to cause or threaten”, used later in the
paragraph, denotes a considerably more direct, cause-effect relationship.  The words “If, as a result
of” emphasize the end result of “unforeseen developments” (namely, products being imported in such
increased quantities and under such conditions as to  cause or threaten serious injury) rather than the
manner in which those developments produced that outcome.
4. The choice of “If, as a result of” makes plain that, as the Appellate Body concluded in Korea–
Dairy  (at  ¶ 85), “unforeseen developments” do not constitute an additional condition for the
application of a safeguard measure.  Rather, its focus on result rather than causation suggests that the“unforeseen developments” language is meant to characterize the unexpected (“unforeseen”) nature of
injurious import surges of the type described in Article XIX:1(a).  Seen in this light, “unforeseen
developments” are simply a restatement of the “emergency” character of those situations that
Article XIX is designed to address.WT/DS177/R
WT/DS178/R
Page A-366
5. Thus, the complainants’ specific suggestion that Article XIX:1(a) imposes a simple, two step
causation requirement is wrong because it fails to differentiate between “ If, as a result of” and the
causation language used elsewhere in that article.1  It is also wrong because the “result” of unforeseen
developments can be either an increase in imports or a change in economic, financial, or other
“conditions” that apply to such imports, or both.  The text of Article XIX:(1) makes clear that bothincreased imports and such  “conditions” can result from “unforeseen developments,” not merely the
former.
6. Indeed, as the phrasing of Article XIX:1(a) suggests, there may be an interplay between the
conditions under which increased imports affect a domestic industry and the quantity of the increase
that will cause serious injury.  For example, where conditions of competition have unexpectedly
changed, an increase in imports that would not otherwise have been injurious may cause seriousinjury.
7. Moreover, as the Appellate Body recognized in  the quotation that the Panel cites, “unforeseen
developments” of the kind described in Article XIX:1(a) do not merely lead to increased imports or
changes in the conditions under which they are imported.  Rather the result of the “unforeseendevelopments” is those specific types of import increases (“in such quantities”) and circumstances
(“under such conditions”) that cause or threaten serious injury.  Thus, the result of unforeseen
developments is the entire set of consequences addressed by Article XIX:1(a): to wit, an increase in
imports that is “recent enough, sudden enough, sharp enough, and significant enough” as to cause or
threaten serious injury to a domestic industry.2
8. Because this is the case, it would be highly unlikely that a Member would ever have“foreseen” developments of the sort mentioned in Article XIX:1(a) at the time it makes a tariff
concession.  The structure of GATT tariff concessions (incremental reductions phased in over time),
the fact that Members bargain for and schedule tariff concessions on a product-by-product basis, andthe intermittent nature of tariff negotiating rounds  together create an environment in which
governments can grant tariff concessions in a manner that avoids knowingly imperiling their domestic
industries.  Because Members cannot be presumed intentionally to place their industries in jeopardy
through the grant of tariff concessions, it must be presumed that later developments which imperil
their producers are of a kind that were “unforeseen” when the concessions were negotiated.
(b) In the light of the Appellate Body's statement, how does the United States
substantiate its argument that a major "unforeseen development" was increased
import volume combined with a shift in the product mix of imports away from
frozen lamb meat and toward fresh/chilled lamb meat?
Answer 1(b)
9. The facts in this case are similar to those found by the Working Party in Hatters’ Fur  to
constitute unforeseen developments.3  Here, as in Hatters’ Fur , an unforeseen development both
                                                     
1 As the Appellate Body concluded in Hormones , "the implication arises that the choice and use of
different words in different places in the SPS Agreement are deliberate, and that the different words are designed
to convey different meanings.  A treaty interpreter is not entitled to assume that such usage was merelyinadvertent on the part of the Members who negotiated and wrote that Agreement." European Communities -
Measures Concerning Meat and Meat Products , WT/DS26 and 48/AB/R, Report of the Appellate Body, 13
February 1998, at ¶  164, citing  United States - Restrictions on Imports of Cotton and Man-Made Fibre
Underwear , WT/DS24/AB/R, Report of the Appellate Body, 25 February 1997, at 17.
2 Argentina–Footwear , Report of the Appellate Body at ¶ 131.
3 Report on the Withdrawal by the United States of a Tariff Concession under Article XIX of the
General Agreement on Tariffs and Trade , GATT/CP/106, report adopted on 22 October 1951.WT/DS177/R
WT/DS178/R
Page A-367
results in increased imports and contributes to conditions in which the quantity and effects of the
increased imports so affect the domestic industry as to cause or threaten to cause serious injury.  In
fact, the USITC found that both increased imports and a deterioration in the condition of the domestic
industry occurred as a result of the shift in the product mix of imports from frozen to fresh or chilled
lamb meat.
Increased imports
10. The change in the product mix of imported lamb meat resulted in a surge of low-priced lamb
meat into the United States after 1995.  The surge was not foreseen at the time the tariff concession on
lamb meat was negotiated as part of the Uruguay Round.  Lamb meat imports increased by 19 per
cent in 1997 from the same period a year earlier, and imports increased by 19 per cent in the first nine
months of 1998.  Most of the increase in imports between 1995 and 1997 was in fresh or chilled lambmeat, which increased by 101 per cent during that period, as compared to 11 per cent for imports of
frozen lamb meat.
4
Conditions based on quantity and effects  of imports
11. The shift in the product mix of imports away from frozen lamb meat and toward fresh and
chilled lamb meat deeply affected conditions in the US market.  This was true both in terms of
increased quantities of imported lamb meat flooding the US market in 1997 and interim 1998, and in
their effects.  A primary effect of the change in the product mix of imports was an increasing
convergence in the US market of domestic and im ported product.  Consumers were no longer limited
to purchasing fresh or chilled lamb meat only from domestic sources but could purchase competing,
lower-priced imports sold in a form (fresh or chilled) and cut similar to that produced by the domestic
industry.  Since 1996, the majority of lamb meat imports from Australia has been fresh or chilled5,
and an increasing share of imports from New Zealand were fresh or chilled.6
12. The changing conditions of competition in the domestic lamb market during the latter stagesof the period of investigation required US producer s to adjust to a market with increased competition
from imported fresh and chilled lamb meat.
7  Competing imports displaced US product, which
resulted in a higher market share for importers of lamb meat.8  Complainants’ submissions before the
Panel, and their nationals' submissions before the USITC, evidenced that imports displaced domesticlamb meat.  Australia has conceded that about one third of the increase in lamb meat imports over the
period of investigation displaced domestic lamb meat.
9  During the USITC investigation, both
Australian and New Zealand respondents made a similar concession.10
13. Neither the change in the product mix of imports nor the degree to which this change would
affect market conditions for US producers of lamb meat could have been foreseen in 1993 by US
negotiators of the tariff concession on lamb meat.  The change in the product mix of imports, in thisparticular case, both resulted in increased imports and contributed to conditions in the US market
whereby the quantity and effects of the increased imports threatened to cause serious injury to the
domestic industry.
(c) Please explain your apparent view that no  finding of "unforeseen developments"
is necessary for this provision of Article XIX:1 of GATT 1994 to be fulfilled.  If
                                                     
4 USITC Report at I-22.
5 USITC Report at II-16.
6 USITC Report at II-43.
7 USITC Report at I-32.
8 USITC Report at I-31and I-32.
9 Australia’s First Written Submission at ¶ 146.
10 USITC Hearing Transcript at 164, attached hereto as US Exhibit 20.WT/DS177/R
WT/DS178/R
Page A-368
no such finding is necessary, how can compliance with this provision be reviewed
by a panel?
Answer 1(c)
14. The Appellate Body’s decisions in Korea–Dairy and Argentina– Footwear  establish that
“unforeseen developments” do not constitute an “independent condition” for the application of a
safeguard measure.  This conclusion is in keeping with the specific language of Article XIX:1(a) as
discussed above.  It is also consistent with the fact that nothing in Article 3 of the Safeguards
Agreement, which establishes procedures for investigations by the competent authorities, or Articles 2
and 4, spelling out the subject matter of such investigations, requires the establishment of such a
condition.  Nor do any of these provisions furnish a standard on which the competent authorities could
decide on the degree, type, source, and specificity  of evidence necessary to determine whether a
government’s negotiators (or the government as a whole) “foresaw” later developments.  This fact
again suggests that the competent authorities are not required to find the existence of “unforeseen
developments” in the course of their investigation.11
15. This silence reflects the understanding embodied both in Article XIX and arising from thestructure and procedures applicable to GATT tariff  concessions, as discussed above, that Members
should not ordinarily be presumed to intend their tariff concessions to result in serious injury to their
domestic industries.  This conclusion is consistent with the historical context in which Article XIX
was developed.
16. Paragraph 1(a) of Article XIX was inserted in the GATT 1947 at US insistence.  It was
derived virtually verbatim from so-called “escape clause” provisions included in contemporaneous US
trade agreements, specifically the US reciprocal trade agreement with Mexico, negotiated in 1942.
12
17. The United States’ insistence on such provisions, both in bilateral agreements and in theGATT, reflects the restraints that had been placed on the President’s ability to negotiate tariff
concessions.  At the time, the President was negotiating trade agreements under a limited grant of
tariff authority from the Congress provided in the Reciprocal Trade Agreements Act of 1934 (an
amendment to the Smoot-Hawley Tariff Act of 1930).
13  To reassure domestic industries, the
President was constrained under the 1934 Act in the depth of tariff cuts he could commit theUnited States to undertake.  As a result, US tariff concessions in any particular negotiation – including
the original GATT negotiations – were necessarily limited in nature.
18. Moreover, under the terms of an Executive Order issued in February 1947 (between the
GATT preparatory sessions)
14, before negotiating any trade agreement the President was required to
seek written, public advice from the USITC (then the US Tariff Commission) on the probable
economic effect of  tariff reductions on all product categories the President proposed for inclusion in
                                                     
11 If competent authorities were required to make findings with regard to “unforeseen developments”,
they would need to undertake two additional inquiries, one directed at identifying those developments and theirimpact and a second regarding whether they were “fores een”.  The first investigation would take a considerable
time, perhaps as long as the authorities’  injury and causation investigation itself, since much of the evidence to
be collected would be related to and derived from evidence in the injury investigation.  The second investigation
could not begin until the first had been completed, thus substantially delaying issuance of the authorities’ finalreport.  The second inquiry would entail an entirely new additional investigation, based on interviews of and theresults of questionnaires addressed to current and former government and industry officials, plus an examinationof pertinent negotiating, other governmental, and industry records.  Moreover, it is not clear that competentauthorities (which normally perform economic analyses) would have the expertise, or legal authority, to perform
such a task.
12 57 Stat. 833 (1943), E.A.S. 311 (effective 30 January 1943), attached hereto as US Exhibit 21.
13 Attached hereto as US Exhibit 22.
14 See John Jackson, World Trade and the Law of GATT  553 (1969), attached hereto as US Exhibit 23.WT/DS177/R
WT/DS178/R
Page A-369
the negotiations.15  That is, the Commission was to publish its views on the effect that tariff reduction
would have on each product.
19. The net effect of the tariff limitation and public advice provisions included in the 1934 act
and the subsequent executive order was to place the President under legal and political restraints
designed to preclude the negotiation of drastic tariff reductions of a nature that might be expected toresult in a flood of imports and serious injury, or threat of injury, to any domestic industry.  By
contrast, the President was authorized to agree to smaller duty reductions negotiated on a
product-by-product basis to avoid imperiling US producers.  This incremental approach to tariff
reduction was reflected in the relatively modest, phased-in duty reductions provided for under the
original GATT tariff concessions, and was enshrined in GATT Article XXVIII bis, which calls for
periodic rounds of tariff negotiations with a view to progressive duty reductions over time.
20. Given this gradualist approach, while tariff concessions might be expected to lead to modest
import growth in particular sectors, the concessi ons would not normally be expected to unleash a
flood of imports with consequent serious injury, or threat of serious injury, to domestic industries.
Nonetheless, US negotiators recognized that even with limited tariff concessions, it was impossible to
rule out the possibility – especially given the economic dislocations and uncertainty provoked byWorld War II – that future, unforeseen changes in market, financial, or economic conditions might
lead to a surge in imports.  That concern created the need for an “escape clause,” which would be
available to allow “emergency action” to address such situations.  The escape clause provided
reassurance for concerned domestic constituencies and, in turn, enabled the United States (and other
governments) to make tariff concessions that might otherwise have been politically impossible.
21. Viewed in this light, the “unforeseen developm ents” referenced in Article XIX are any later
occurrences that upset a Member’s expectation that its tariff concession will not result in serious
injury or threat of serious injury for its domestic industry.  As the chairman of the Tariff Commission
remarked in a report submitted to the Senate Finance Committee in June 1948 on the Commission’sprocedures for implementing the “escape clause” (then embodied both in an Executive Order and in
GATT Article XIX:1(a)):
The construction which the Commission places on the words ‘unforeseen
developments,’ as concerns the exercise of its functions under the escape clause, isthat when imports of any commodity enter in such increased quantities and under
such conditions as to cause or threaten serious injury to domestic producers, this
situation must, in the light of the objective of the trade agreements programme and of
the escape clause itself, be regarded as the result of unforeseen developments.
16
                                                     
15 See Exec. Order No. 9832 of February 25, 1947, ¶¶ 5-8, attached hereto as US Exhibit 24.
16 Extending Authority to Negotiate Trade Agreements, Hearings before the Committee on Finance,
United States Senate , H.R. 6556, at 128 (1948), attached hereto as US Exhibit 25.  Three members of the
Commission repeated this view in a 1953 report of an escape clause investigation conducted on imports of
hand-blown glassware.  Despite the fact that these Commissioners found that increased imports had not caused
serious injury, they observed that:
In granting trade agreement concessions, the United States fully contemplates that imports
will increase.  It does not, however, intentionally grant concessions of such breadth and depthas to cause (or threaten) serious injury to a domestic industry.  The major purpose of the
escape clause legislation is to provide a reme dy whenever experience under a trade agreement
concession indicates that an error was committed and that imports have in fact increased,either absolutely or relatively to domestic production, to such an extent as to cause or threatenserious injury to a domestic industry.WT/DS177/R
WT/DS178/R
Page A-370
22. Thus, the Tariff Commission made clear as early as 1948 – like the Appellate Body more than
50 years later – that the reference to “ unforeseen developments”  does not create an independent
condition for application of the escape clause.  Rather, the language is a restatement of the
circumstances in which recourse to the escape clause itself is permitted – namely, a situation in which,
following implementation of a negotiated tariff re duction, a surge in imports and serious injury (or
threat) to a domestic industry has unexpectedly occurred.
23. The 1951 Working Party report on Hatters’ Fur provides further support for this conclusion.
The members of the Working Party (with the exception of the United States) considered that
“unforeseen developments” should be understood to be “developments occurring after the negotiation
of the relevant tariff concession which it would not be reasonable to expect that the negotiators of the
country making the concession could and should have foreseen at the time when the concession wasnegotiated".
17
24. As the Working Party report notes, US negotiators in Geneva had been aware in 1947 that hat
styles were subject to change and they had expected some increase in imports following
implementation of the tariff concession.  The members of the Working Party (except theUnited States) considered that US negotiators should have foreseen that hat fashion styles would, in
fact, change.  But the Working Party (except Czechoslovakia) found that US negotiators could not
have foreseen the specific change in style that actua lly occurred, the large scale of that change, or its
prolonged duration.
18
25. Taken as a whole, the Working Party report suggests that future developments ( e.g., later
changes in hat styles) can be understood to have been “foreseen” at the time the tariff concession was
made if they are a direct result of economic factors of which the tariff negotiators had actual
knowledge at the time (hat fashions are subject to change).  But the report also suggests that specific
developments in the marketplace of the type leading to an injurious import surge (a major, sustainedshift to a new hat style) cannot be understood to have been “foreseen”.  Thus, the Working Party
report confirms the conclusion that specific changes in the marketplace that result in an injurious
import surge cannot normally be considered to have been “foreseen”.
26. Since Members can normally be assumed to structure their tariff concessions in a way to
avoid unleashing an injurious import surge, a surge of that nature must presumptively be regarded as
the result of unforeseen developments.  The developments themselves will typically be apparent in the
competent authority’s report of its investigation, as is the case in the USITC report of its lamb meat
investigation.  Their unforeseen character will be implicit in the result they have produced.
27. There may be rare instances in which a Member has specifically contemplated  that a tariff
concession it has made would result in sudden and severe injury, or threat of injury,  to a domesticindustry.  In such a case, parties appearing before the competent authority in its injury investigation
would be free, under Article 3.1 of the Safeguards Agreement, to present evidence to this effect and
argue that the application of safeguard measures would not be “in the public interest.”  Should such
measures be applied nonetheless, a complaining Party in panel proceeding brought under the DSU
would equally be free to point to this evidence and argue that the normal presumption of “unforeseendevelopments” should not apply.
                                                                                                                                                                    
United States Tariff Commission, Hand-Blown Glassware , Report to the President on Investigation No. 22
Under Section 7 of the Trade Agreements Extension Act of 1951, as amended, at 51-52 (1953), attached hereto
as US Exhibit 26.
17 Hatters’ Fur  at ¶ 9.
18 Hatters’ Fur  at ¶ 11.WT/DS177/R
WT/DS178/R
Page A-371
Is the definition of the “domestic industry” that was used in the USITC’s investigation consistent
with the Safeguards Agreement and GATT 1994?
Question 2
 The United States takes the view that - where there is a "continuous line of production
from the  raw to the processed product" and "substantial coincidence of economic interest" -
producers of input products form part of the “domestic industry” producing the processed
product.  Can the United States explain, in the hypothetical situation where the end-product is
composed of and processed from a large number of inputs which are functionally dedicated to
the production of  only that end-product, under which conditions or circumstances input
producers would be excluded from the domestic industry definition even if there is a continuous
line of production and economic interests happen to substantially coincide? Or is it the United
States' view that such input producers would in all cases be a part of the domestic industry?
Answer 2
28. The panel's hypothetical has not arisen before the USITC and will not because of the nature of
the USITC’s test.  Cases in which the USITC considers whether to include producers of the raw
product ( e.g., growers) and processors in the same domestic industry solely involve processed
agricultural products.19  In those investigations, the USITC examines whether the evidence establishes
a continuous line of production from the raw product to the processed product.  As reflected in the
term “raw,” the product moves along the continuum  from unfinished to finished form.  Multiple
inputs are not contemplated in such a situation because the test is reserved for moving a primary
product from being raw to "market-ready."  The US test does not, as the Manufacturing Beef  panel
characterizes the Canadian test at issue there, simply provide for relief to be available to input
suppliers in general when they suffer injury from imports equivalent to that normally suffered by
those who produce end-products.
29. Likewise, the hypothetical the panel poses would not arise because of the second prong of the
USITC's test.  The hypothetical assumes there would be a "substantial coincidence of economic
interest" between the producers of multiple inputs and the processors of the finished product.
However, it is difficult to conceive of a processed product comprised of a mix of raw agriculturalproducts, each of which would be dedicated to only one  end-product.  It is also unlikely there would
ever be a coincidence of economic interests between such multiple input producers and the processors
of the final product.  Such a situation is only liable to occur where, as here, the processing stage
reflects minor value-added components contributing to essentially a finishing operation.
Question 3
We note that Article 4.1(c) focuses on the "output" of the "like or directly competitive
products" (i.e., “firms whose collective output of the like or directly competitive products
constitutes a major proportion of the total domestic production of those products”).  How would
the United States reconcile its definition of  the domestic industry with this provision?
Answer 3
30. The United States’ definition of the domestic lamb meat industry is consistent with
Article 4.1(c) of the Safeguards Agreement.  The USITC defined the domestic industry producing
                                                     
19 See Fresh Tomatoes and Bell Peppers , Inv. No. TA-201-66,USITC Pub.  2985 (Aug. 1996), at
I-9-10, attached hereto as US Exhibit 27; Apple Juice , Inv. No. TA-201-59, USITC Pub. 1861 (June 1986), at
5-10, attached hereto as US Exhibit 28; Certain Canned Tuna  Fish, Inv. No. TA-201-53, USITC Pub. 1558
(Aug. 1984), at 5-7, attached hereto as US Exhibit 29.WT/DS177/R
WT/DS178/R
Page A-372
lamb meat to include growers and feeders of live lambs as well as packers and breakers of lamb
meat.20  The ordinary meaning of the term “product” is defined as the “output” of an industry or
firm21, and the ordinary meaning of the word “production” is defined as the “total output especially of
a commodity or an industry".22  Consistent with these definitions, lamb meat is produced by the
domestic industry through an extended and continuous line of production yielding the output of a
commodity, “lamb meat”.  The plain meaning of the term “output”  refers to “something produced” in
“agricultural or industrial production".23  US growers and feeders of live lambs as well as packers and
breakers of lamb meat all produce an “output” that is an agricultural product.
Question 4
In this context, please discuss the Canada - Manufacturing Beef dispute (SCM/85), in
which the panel rejected Canada's reasoning (w hich was very similar to the USITC's reasoning
in this case) for considering the producers of  live cattle to be among the producers of
manufacturing beef.  Why would that panel's reasoning not be equally persuasive and relevant
in this case?
Answer 4
31. It is important to note at the outset that Manufacturing Beef  was an unadopted decision.  In
Japan–Taxes on Alcoholic Beverages , the Appellate Body discussed the legal status of panel reports,
and in particular unadopted panel reports.   Adopted  panel reports:
are an important part of the GATT acquis .  They are often considered by subsequent
panels.  They create legitimate expectations among WTO Members, and, therefore,
should be taken into account where they are relevant to any dispute.  However, they
are not binding, except with respect to re solving the particular dispute between the
parties to that dispute.24
32. Unadopted  panel reports, by contrast, “have no legal status in the GATT or WTO system
since they have not been endorsed through d ecisions by the CONTRACTING PARTIES to GATT or
WTO Members".25  The Appellate Body’s conclusion is especially pertinent in this case, because the
WTO membership could have “endorsed” the Manufacturing Beef decision by codifying it in the new
WTO Subsidies Agreement.  Their failure to do so should counsel against extending that decision ’s
reasoning to cases under the Subsidies Agreement, much less the Safeguards Agreement.
33. In any event, even if the panel’s decision in Manufacturing Beef were applicable in a
countervailing duty case, it is not relevant to this case.  The panel’s determination that cattle
producers were not “producers” of manufacturing beef was based in large part upon its interpretation
of Article 6.6 of the Subsidies Code, which stated that:
The effect of the subsidized imports shall be assessed in relation to the domestic
production of the like product when available data permit the separate identification
of production in terms of such criteria as: the production process, the producers’
                                                     
20 USITC Report at I-13.
21 Webster’s Third New International Dictionary (Unabridged)  at 1810 (1981), attached hereto as US
Exhibit 30.
22 Webster’s New Collegiate Dictionary at 918 (1977), attached hereto as US Exhibit 31.
23 Webster’s Ninth New Collegiate Dictionary  at 838 (1985), attached hereto as US Exhibit 32.
24 Japan–Taxes on Alcoholic Beverages , Report of the Appellate Body, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996, at 14.
25 Id. at 14-15.WT/DS177/R
WT/DS178/R
Page A-373
realization, profits.  When the domestic production of the like product has no separate
identity in these terms the effects of subsidized imports shall be assessed by the
examination of the production of the narrowest group or range of products, which
includes the like product, for which the necessary information can be provided.26
34. In the view of the Panel, Article 6.6:
indicates a preference for narrowing the analysis of injury to those production
resources directly engaged in making the like product itself.  Applied to a vertical
production process involving several stages, this principle would indicate that the
analysis should likewise be focused on the stage of production devoted to actually
making the like product in question, as opposed to earlier stages devoted to producing
inputs.27
35. The Panel also cited Article 6.6 in distinguishing the panel’s decision in New Zealand –
Transformers  (unlike Manufacturing Beef , an adopted decision), which, as the United States
explained in its First Written Submission (at ¶ 71), supports the USITC’s determination of the
domestic industry in this case.
36. The Safeguards Agreement contains no provis ion equivalent to Article 6.6. Therefore, the
Panel's analysis, which was based on that provision, is inapposite.28
37. As discussed in the United States’ First Written Submission, the USITC’s approach in this
case is supported by the express purposes of the Safeguards Agreement and its remedial provisions,
which are not comparable to provisions of the Tokyo Round Codes.  The resolution of the question athand should be decided on the basis of the text of the Safeguards Agreement, the particular
Agreement at issue, and not by reference to an unadopted decision of a GATT panel interpreting
another Agreement and, in particular, a provision of that Agreement that does not appear in the
Safeguards Agreement.
38. In addition, this case is distinguished from Manufacturing Beef  not only by its legal posture,
but also by its facts.  In Manufacturing Beef , the Panel found boneless manufacturing beef to be a
“by-product” resulting from economic activities whose principal aim was to produce other products
for sale.
29  The EEC had argued that “viewing the entire economic process by which inputs were
produced for transformation into boneless manufacturing beef, it could not be said to involve eithercontinuous production or functional dedication".
30  In contrast, and as confirmed by the USITC, the
production of lamb meat involves both continuous production and functional dedication of the live
lamb to lamb meat.  The USITC found that, in the United States, most sheep and lambs are meat-type
animals kept primarily for the production of lambs for meat.31  Except for lambs withheld for breeding
purposes, virtually all meat-type lambs are shipped to feeders in the fall32 and are then generally
shipped to packers for slaughter.33  Packers then either further process the lamb or ship the carcasses
to breakers who perform a similar processing function.34  The cuts are then sold to wholesalers or
                                                     
26 Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General
Agreement on Tariffs and Trade, Art. 6.6.
27 Manufacturing Beef at ¶ 5.3.
28 In the view of the United States, the Panel's interpretation of Article 6.6 (and thus its conclusion in
Manufacturing Beef ) was erroneous.  Therefore, even if the Safeguards Agreement did include such a provision,
it would not change the fact that the USITC's approach to this issue was correct.
29 Manufacturing Beef at ¶ 5.12.
30 Manufacturing Beef at ¶3.23.
31 USITC Report at I-13 and II-4.
32 USITC Report at I-13 and II-11, II.
33 USITC Report at I-13 and II-14.
34 USITC Report at I-13 and II-14-15.WT/DS177/R
WT/DS178/R
Page A-374
retail outlets.  Obviously, this is not a case where production of the like product results “from
economic activities whose principal aim is to produce other products for sale” as was claimed in
Manufacturing Beef .
39. To the extent Manufacturing Beef  is at all relevant, it is because one of the complainants in
this case – Australia –  took a position in Manufacturing Beef  that was contrary to the position it takes
here.  In Manufacturing Beef , Australia argued it was the gr owers who produced the beef; the
abattoirs were merely finishers who placed the product in a usable form.35  Australia adopted the same
reasoning as the USITC in its lamb meat investigation and agreed that the CCA should include cattle
growers in the domestic industry producing beef.  As Australia there argued, when the processor is
simply making a product “market-ready”, a grower is properly regarded as a producer of the finished
good.  Australia’s position in that case is inconsistent with any conclusion that the ordinary meaning
of the term “producer” can resolve the question at issue here contrary to the United States’ position.Further, if Australia believed in Manufacturing Beef   that cattle growers supplying less than 50 per
cent of a product’s meat input constituted producers of the finished product, then it certainly must also
believe that lamb growers supplying 100 per cent of the product’s meat input are producers of the
product.
40. As Australia argued in Manufacturing Beef
36, such an approach is in keeping with Ad
Article XVI of the GATT 1994 , Section B, paragraph 2, which defines a primary product as “Any
product of farm . . . in its natural form or which has undergone such processing as is customarily
required to prepare it for marketing in substant ial volume in international trade".  Although the
Manufacturing Beef  panel declined to rely on the Ad Article because it and the Tokyo Round
Agreement had different purposes, the Ad Article definition provides further evidence that, in normal
trade parlance, the production of primary products involves both raw and processed forms.
Question 5
Please comment on New Zealand's argument at para. 29 of its oral statement that the
term "as a whole" in Article 4.1(c) has to do with the  representativeness of the data used in an
investigation in respect of the entire industry, and not with the scope or breadth of the domestic
industry itself.
Answer 5
41. The term “as a whole” is not defined by the Safeguards Agreement.  While the United States
supports New Zealand’s view that the purpose of the term may be to ensure that a safeguard
investigation is not limited to selected individual members of an industry, it rejects the claim that “as
a whole” is a qualifying term meant to define the scope of the producers  within  an industry.  Contrary
to New Zealand’s additional assertion, the United States has not used the term “as a whole”  to expandthe membership of an industry beyond those who produce the “like or directly competitive product".
Did the USITC demonstrate that the domestic industry faced a "threat of serious injury" due to
"increased imports"?
Question 6
In its investigation, how did the USITC de termine that the thre atened injury was
"serious" as opposed to some lesser degree of injury?  Where in its determination can this be
found?
                                                     
35 Manufacturing Beef  at ¶ 4.1.
36 Manufacturing Beef  at ¶ 4.1.WT/DS177/R
WT/DS178/R
Page A-375
Answer 6
42. As a preliminary matter, it would appear that the question of whether Article 3.1 of the
Safeguards Agreement required the USITC to stat e in its report why the threatened injury was
“serious” as opposed to meeting some lesser standard, does not appear to be at issue in this dispute
and would be outside the Panel’s terms of reference.  Article 3.1 is the only provision obligating aMember to publish conclusions reached on pertinent issues.  The complainants did not identify this
issue in their panel request, nor did they raise it in their first written submissions.  Those submissions
rely on Article 3 only in challenging the United States’ choice of a safeguard measure, not in
challenging the USITC’s threat of serious injury determination, for which they rely on Article 4.
Consequently, any claim that under Article 3.1 the USITC should have articulated an additional legal
conclusion is outside the terms of reference of this dispute.  However, the United States is pleased to
respond to the Panel’s question.
43. The USITC justified its conclusion that the industry was threatened with injury that was
serious through its findings at pages I-16 through I-21.  That discussion affirmatively explains why
the USITC regarded “the deterioration in [economic] indicators . . . after 1996"
37 as confirming that
the industry was threatened with serious injury.  The USITC explicitly recognized that the requisitestandard for its injury determination was whether there had been “a serious . . . overall impairment in
the position of [the] domestic industry”.
38 which is the definition of serious injury under Article 4.1(b)
of the Safeguards Agreement.  The authority’s conclusion emphasized the declines in the domestic
industry’s “market share, production, shipments, profitability, and prices, among other difficulties that
the domestic industry [was] facing".39  The findings on those factors demonstrate why the USITC
regarded the industry on the verge of a significant overall impairment of its position.
44. The Agreement does not require more.  The WTO Agreements as a whole do not articulate a
precise relationship between the “serious injury” st andard set forth in the Safeguards Agreement and
other standards set forth in other agreements, such as the “material injury” standard used in theAntidumping Agreement.  Although the Safeguards  Agreement defines the term “serious injury”,
neither the Antidumping Agreement nor Article VI  of the GATT 1994 defines “material injury”.
Consequently, the WTO Agreements do not provide the basis for a precise comparison between
different “degrees” of injury, nor do any of the Agreements call for a comparison.
Question 7
Under the causation standard applied by the Unit ed States in this case, can it be determined
that imports of lamb meat in isolation were caus ing or threatening to cause a degree of injury
that is "serious", regardless of the possible ad ditional injury that might be caused by other
factors?  If so, how?  Is such a determination necessary?  Please explain.
Answer 7
45. Underlying New Zealand’s assertion that th e Safeguards Agreement required the USITC to
“isolate” the effects of increased imports is the apparent assumption that the Agreement requires
increased imports to be the sole cause of serious injury or threat of serious injury.  Both the purported“isolation” requirement and the premise on which it is based are unfounded.
Sole Cause
                                                     
37 USITC Report at I-18.
38 USITC Report at I-16, quoting  Section 202(c) of the Trade Act of 1930.
39 USITC Report at I-21.WT/DS177/R
WT/DS178/R
Page A-376
46. Articles 2.1 and 4.2 of the Safeguards Agreement, which respectively set out the conditions
for the application of safeguard measures and requirements for determinations of serious injury or
threat thereof, both employ the verb “to cause” in one form or another.  Webster’s Third New
International Dictionary (Unabridged)  at 356 (1981) defines the verb ‘cause’ as follows:  “to serve as
cause or occasion of.”  Webster’s makes clear that ‘cause’ (in noun form) need not be the sole
determinant of an outcome:
cause indicates a condition or circumstance or combination of conditions and
circumstances that effectively and inevitably calls forth an issue, effect or result or
that materially aids in that calling forth.  (emphasis added.)40
As the preceding definition indicates, while a cause need not be the sole determinant of a result, it
must nevertheless be important.  That is, it must materially  aid in generating the result.41  Webster’s
defines the term ‘material’ as follows: “being of real importance or great consequence: substantial".
47. New Zealand has objected to the fact that the USITC applied a “substantial cause” analysis in
determining whether increased imports threatened se rious injury to the US lamb industry.  But, as
demonstrated above, the expression “substantial cause” (defined under US law as “a cause which is
important and not less than any other cause”) fully accords with the ordinary meaning of  “to cause”as used in the Safeguards Agreement.
48. The fact that the Safeguards Agreement treats “cause” in accordance with its ordinary
meaning, rather than as “sole cause”,  finds support in Article 4.2(b).  That provision requires a
competent authority to demonstrate “the existence of the causal link between increased imports of theproduct concerned and serious injury or threat thereof. ”  The term ‘causal’ has the meaning “of or
relating to, or dealing with a cause” and the term ‘link’, “a unifying element: a means of connecting or
communicating".
42  Contrary to New Zealand’s reading of “to cause”, the manner in which
Article 4.2(b) defines ‘causal link’ suggests that a competent authority is under no obligation to
demonstrate that increased imports alone caused the serious injury or threat of serious injury.  Rather,Article 4.2(b) requires a competent authority simply to demonstrate a connection between the
increased imports and the injury it has found.
49. That the terms ‘cause’ and ‘causal link’ do not require that a cause be the sole cause is
illustrated by the way these terms may ordinarily be used to describe the causes of disease.
43  To use a
medical analogy, the fact that a particular person has experienced coronary heart disease may be
traceable to several “causes”, including high fat intake, sedentary lifestyle, genetic predisposition,
prolonged periods of stress, and so forth.  These factors can act together and in combination to
produce a single medical condition: each, to use the dictionary terms, “materially aids in calling forth”
the disease.
50. Article 2 of the Safeguards Agreement contemplates a similarly synergistic approach to
causation.  Specifically, it calls for an analysis not just of whether a particular product is being
                                                     
40 Webster’s Third New International Dictionary (Unabridged) at 356 (1981), attached as US
Exhibit 33.
41 While the relevant New Shorter Oxford English Dictionary  (“NSOED”)definitions support the
concept of multiple causes, see  NSOED at 355 (defining "cause" as "That which produces an effect or
consequence; an antecedent or antecedents  followed by a certain phenomenon") (emphasis added), they do not
address the "materiality" element of "cause".  See also  NSOED at 355 (defining "to cause" as "Be the cause of,
effect, bring about; occasion, produce; induce, make, bring it about".)
42 Webster’s Third New International Dictionary (Unabridged)  at 355, 1317 (1981), attached hereto as
US Exhibit 33.
43 See Webster’s Ninth New Collegiate Dictionary at 217 (“agent of a disease” used to explain
“causal”), 695 (meaning of ‘link’ illustrated by “sought a . . . between smoking and cancer”) (1985), attachedhereto as US Exhibit 34.WT/DS177/R
WT/DS178/R
Page A-377
imported in such increased quantities, but also “under such conditions”, as to cause or threaten serious
injury.  Thus, Article 2 contemplates an inquiry into those other factors affecting an industry that may
help create the conditions under which increased imports cause serious injury.
51. Moreover, as noted in the United States’ first written submission (at ¶ 116), Article 4.2(b)
recognizes that factors other than increased imports  may be “ causing injury to the domestic industry
at the same time.”  This language makes plain that the serious injury or threat of serious injury that the
domestic industry has experienced need not be traceable exclusively to increased imports.  Thus,
neither the ordinary meaning of the term “to cause” nor the relevant language of Article 4.2 supports
the claim that the Safeguards Agreement requires increased imports to be the sole cause of serious
injury or threat of serious injury.
52. Finally, the negotiating history of the Safeguards Agreement indicates that the drafters did not
intend to impose a “sole cause” requirement.  In 1988, the United States submitted a paper that
explained US procedures for determining injury in Article XIX cases.44  The paper specifically
addressed the US “substantial cause” standard and explained that “the increase in imports must be
both an important cause and a cause that is equal to or greater than any other cause of serious injury or
threat".45  Subsequently, the Secretariat issued a note that summarized the United States’ discussion of
its paper and briefly summarized descriptions by the EEC and Australia of their safeguards regimes.
It also summarized the negotiating group’s discussions on the causation standard:
Many delegations said that it should be demonstrated that the cause of serious injury
and threat thereof derived from sharp increases in imports, and that a major part ofdomestic producers were adversely affected.  Some delegations said that the causal
link between increased imports and the overall decline in the conditions of domestic
producers had to be clearly established.  One delegation said that if there were a
multitude of causes, then it had to be established that increased imports was the
principal cause, not just an important or substantive cause.
46
*     *     *     *     *
The Chairman summed up the discussions . . . .  There seemed to be agreement that
there should be a direct, demonstrable causal link of imports to injury, although there
were various opinions on whether increase in imports should be an essential,substantial, or important cause.
47
Notably, there were no suggestions that imports should be the “sole” cause of the serious injury.
53. The Secretariat’s summary demonstrates that the negotiators of the Safeguards Agreement
were aware that the causation language in Article XIX was susceptible of different constructions,
though none of them included the “sole cause” option that New Zealand apparently advocates.  In the
light of this range of views, it is significant that the negotiators did not seek to specify in theSafeguards Agreement the degree of “causation” required, whether “essential,” “substantial”,
“important”, “principal”, or otherwise.  Consistent with the divergent practice of GATT contracting
parties under Article XIX, the Safeguards Agreement does not seek to impose a rigid benchmark for
causation, but instead treats “cause” in a manner consistent with its ordinary meaning.
                                                     
44 Negotiating Group on Safeguards: United States Procedures for Determining Injury in Article XIX
Cases , MTN.GNG/NG9/W/13 (3 March 1988).
45 Id. at 6.
46 Negotiating Group on Safeguards, Meeting of 7 and 10 March 1988, Note by the Secretariat,
MTN.GNG/NG9/5, at ¶14 (22 April 1988).
47 Id. at ¶ 24.WT/DS177/R
WT/DS178/R
Page A-378
Isolation Requirement
54. Nothing in the Safeguards Agreement requir es that the competent authority examine the
effects of increased imports “in isolation” from other factors, even if such examination were in
general practicable.  The GATT panel in United States -- Imposition of Anti-Dumping Duties on
Imports of Fresh and Chilled Salmon from Norway48 rejected just such a proposition when it was
urged that provisions of the Agreement on Implementation of Article VI of the General Agreement on
Tariffs and Trade (the Tokyo Round Anti-Dumping Code) similar to those of the Safeguards
Agreement required that the effect of subject imports be considered “in isolation".49  The report is also
relevant for purposes of considering whether the Safeguard Agreement imposes an “isolation”
requirement regarding the effects of increased imports.
55. As the panel noted, the Tokyo Round Anti-Dumping Code contained no affirmative guidance
on how other causal factors were to be examined.  Rather, as it found, the primary focus of the
relevant Code provisions concerning injury determinations was on specific factors that authorities
should consider in examining the effects of imports.  It concluded there was no requirement, “in
addition to examining the effects of the imports” under those provisions, that “the USITC should
somehow have identified the extent of injury caused by these other factors in order to isolate theinjury caused by these factors from the injury caused by the imports from Norway".
50
56. Similar to the relevant provision of the Tokyo Anti-dumping Code, Article 4.2(a) sets out
specific factors that the authority is to exam ine in determining whether increased imports have
threatened to cause serious injury.  None of those factors requires the authority to ascertain the extentof harm due to other causes in order to ascertain the effects of imports viewed in isolation.  Indeed,
the specific factors that an authority is to examine under Article 4.2(c) may be influenced by a number
of conditions.  An industry facing increased impor ts may, for example, sacrifice market share and
sales but not cut employment or close facilities.  Or it may seek to protect its market share at the price
of lost profits.  Alternatively, an industry ma y cut production, close facilities and reduce employment
while retaining profitability.  Presumably, other factors will affect the nature of its response.  Since it
is generally the case that multiple factors are affecting a domestic industry at the same time, if the
negotiators had intended to require an isolation analysis in every case, they would have explicitly
required such an analysis.
57. The Panel’s use of the word “somehow” (“the USITC should somehow have identified the
extent of injury . . .”) suggests that the Panel understood that the notion of “isolating” the effects of
increased imports is problematic, at least in many cases.  For example, the multiple factors affecting
an industry are often interdependent and attemptin g to isolate the effects of imports can involve
creating counterfactual constructs based on unverifiable assumptions or broad estimates.  Nothing in
the terms of the Safeguards Agreement can be read to require such constructs.
58. Moreover, economic models that attempt to isolate factors generally assume that a market
remains in price equilibrium, a particularly questionable assumption in the circumstances giving rise
to a safeguards investigation, where imports have suddenly surged.  While equilibrium may be
reached over the long run, threat determinations in particular concern the “imminent” future.
59. The Safeguards Agreement, like the Tokyo Round Antidumping Code, does not mandate an
analysis in which effects of imports are “isolated” from other effects.  It requires authorities to
                                                     
48 See United States -- Imposition of Antidumping Duties on Imports of Fresh and Chilled Atlantic
Salmon from Norway , ADP/87, 30 November 1992, at ¶¶ 544-561 (“United States -- Atlantic Salmon”)
(interpreting provision of Tokyo Round Antidumping Code).
49 The panel report will be discussed further in respon se to Question 10, partic ularly as it addresses the
origin of the second sentence of Article 4.2(b) of the Safeguards Agreement.
50 United States -- Atlantic Salmon  at ¶ 555.WT/DS177/R
WT/DS178/R
Page A-379
examine all relevant factors bearing on the industry’s condition, but it does not instruct them on how
to do so.
Question 8
The United States argues that the fortunes of all segments of the industry as defined in the
investigation rise and fall together although poss ibly at different times.  The data and discussion
in the USITC report seem to indicate that the growers and feeders performed worse during the
period of investigation than the packers and b reakers.  This suggests that the price effects of
increased imports were felt first by the prod ucers of live lambs and only thereafter by the
packers and breakers, i.e., the producers of lamb meat, in spite of the fact that the imports were
of lamb meat.  If this is correct, why would th is be the case, i.e., would such a situation not
depend on the ability of the packers and breakers to immediately  pass along the full price impact
of the imports to the growers?  Where in the USITC ’s report is it demonstrated  that this in fact
happened, and on the basis of what factual information?  Please explain in detail.
Answer: 8
60. This question in effect asks two questions:  (1) which segments of the industry were hurt
worst; and, (2) which segments were hurt first.
61. The USITC did not rank the segments of the domestic lamb meat industry in terms of which
were hurt most.  Thus, it did not find that the grower segment or any other segment was hurt morethan any other.  It found that the price of lamb meat affects all four segments of the industry similarly,
and that all four segments of the domestic lamb meat industry suffered financially during 1997 and
interim 1998 when the surge in imports occurred.  While the USITC cited evidence indicating that the
price effects of increased imports were felt first by the  packers and breakers of lamb meat and later
by the producers of live lambs, it did not find it necessary to find a progression or find that the mostinjured segment was the segment initially impacted.  The facts in a case rarely fall into the perfect
sequence.  Indeed, it is entirely possible that th e grower segment, which was clearly being impacted
by the surge in low priced lamb meats imports, was the most injured of the four segments due in part
to the residual and receding effects of termination of the Wool Act payments.  What is important is
that the USITC looked at the condition of the whole industry – all four segments – and concluded thatthe industry as a whole was threatened with serious injury due to the surge in low priced imports.
62. The principal USITC finding on this point is set out on page I-14 of the USITC report.  The
USITC stated as follows:
There is also evidence that the price of lamb meat affects all four industry segments
similarly – that is, when processors do well, growers and feeders also benefit,  but
when processors confront lower prices, they pass the lower prices back to feeders
and then growers, and all suffer to some extent .  [Emphasis added.]  As described
below, all four segments suffered financially over the period of investigation, and all
experienced significant declines in the unit value of their sales at the end of the
period.  No representatives in any of the four industry segments testified that theeconomic interests of packers and breakers diverged from those of growers and
feeders.
63. The USITC’s finding is amply supported by evidence in the record of the investigation.  For
example, the USITC report shows that the value of  net sales of packers and breakers fell from 1996 to
1997, and between interim 1997 and interim 1998.
51  Operating income for packers was at its lowest
point at the end of the period of investigation.  Representatives of packer and breaker firms reported
                                                     
51 USITC Report at I-19.WT/DS177/R
WT/DS178/R
Page A-380
having to reduce prices, sometimes selling at a lo ss in order to compete with low-priced imports.52
The USITC also cited testimony at its injury hearing on the pass-through effect from witnesses
representing different industry segments.53  The USITC quoted testimony of a rancher to the effect
that “lower import prices forced processors to reduce prices for the carcasses they bought from
packers, who in turn had to reduce the prices they paid to feedlots for live lambs”.  The rancher
explained that because of falling prices at the processor level, feedlot operators sold their lambs in thespring of 1998 for less than they paid for them in the fall of 1997, and had to reduce the price they
could pay for lambs in the fall of 1998.  The USITC further found, quoting the rancher, that “lower
import prices ‘forced the entire US lamb meat industry in successive waves to substantially reduce the
prices they could pay for the lamb’".
54
64. The phrase in the second sentence of the question that refers to performance “during the
period of the investigation” suggests that the question might be premised at least in part on aconsideration or comparison of industry data for some of the four segments during the period that
preceded the surge in imports.  While the USITC examined imports and industry conditions during
the period 1993-September 1998, the full “period of the investigation,” as explained in the
United States’ First Submission, the USITC’s threat determination was based on the surge in imports
that occurred after 1996 and the resulting downturn in industry indicators, and the projectedcontinuation of these trends.
55  The evidence in the USITC’s report concerning the sequence of events
that occurred after the surge in imports fully supports the USITC’s determination.
Question 9
The United States has argued that even if the domestic industry would be defined as
comprising only packers, packers/breakers and breakers, the investigation would have led to a
determination that a safeguard measure is necessa ry to prevent a “threat of serious injury” and
facilitate adjustment.  Could the United States indicate precisely which information in the
published report supports this statement?
Answer 9
65. The USITC stated explicitly that “we find that all sectors show evidence of a threat of serious
injury".56  The USITC gathered data on all four segments of the domestic lamb meat industry so that it
would have the ability to include domestic growers and feeders in the domestic industry if the facts
supported such a finding.  Specifically, the USITC gathered data and other information that directly
related to lamb meat packers, packers/breakers, and breakers with respect to market share, domestic
lamb meat production, shipments, profitability, capacity, capacity utilization, inventories,
employment, productivity, and prices.  In its causation analysis it also considered possible causes of
injury other than imports at the processor level.
                                                     
52 USITC Report at I-19.
53 USITC Report at I-14, n.50.
54 USITC Report at I-14, n.50.  See also  similar testimony of Joseph Casper, Vice President, Chicago
Lamb & Veal Co., a breaker, transcript of injury hearing at 22, attached hereto as US Exhibit 35; testimony of
Harold Harper, owner of a feedlot operation, transcript of injury hearing at 30, attached hereto as US Exhibit 36
(“Here is how it happened.  In the fall of ‘97, I bought lambs for approximately $1 a pound.  However, when Iwent to sell the lambs in the winter of ‘97 and ‘98, I could only get 40 and 60 cents a pound.  Why?  Becausethe packer that I had traditionally supplied with lambs was forced to reduce his prices to me because hiscustomer, the processor, had to lower his prices substa ntially to compete with imports.  The impact of the
incredibly low prices offered by importers was felt throughout the distribution chain as each sector was
compelled to demand price breaks from their suppliers to try to remain competitive.”)
55 See, e.g. , United States’ First Written Submission at ¶¶ 79-82.
56 USITC Report at I-16, n.61.WT/DS177/R
WT/DS178/R
Page A-381
66. The USITC’s findings show why it found evidence of the threat of serious injury if the packer
and breaker sectors were considered alone.  That analysis focused on the 1997-98 period, when
imports’ share of the US lamb meat market rose from 20.7 per cent in 1996 to 24.8 per cent in 1997
and to 30.7 per cent in interim 1998.57  It also found that the 9.7 million pound increase in lamb meat
imports in 1997 was mirrored by a decline in US lamb shipments of 8.4 million pounds.58  Based on
data developed by the US Department of Agricult ure, the USITC found that both domestic production
and shipments of lamb meat fell in 1997, and that production continued to fall in interim 1998.59
67. Based on responses to USITC questionnaires, the USITC found that the value of net sales and
operating income of packers and breakers declined significantly.  The USITC referenced the
percentage decline in its confidential report.  The USITC found that the operating income for most
packers and breakers was at the lowest point at the end of the period of investigation in 1997 and
interim 1998.  The USITC also observed that representatives of packer and breaker firms reportedhaving to reduce prices, sometimes selling at a loss, in order to compete with low priced imports.
60
The USITC also found that firms in the packer and breaker segments reported difficulties in recoupingnew investments in plant and equipment and in repaying loans.
61
68. The USITC found that packer capacity was lower in 1997 than earlier in the investigation,although higher in interim 1998 than in interim 1997.  It found that packer capacity utilization, after
having risen irregularly during 1993-96, fell in 1997 and was at its lowest level of the investigation
period, 73.5 per cent, in interim 1998, significantly below the level the level of 85.7 per cent in
interim 1997.
62  The USITC found that breaker capacity utilization declined significantly, although it
noted that breaker capacity had also increased significantly.63
69. The USITC collected extensive data comparing domestic and imported lamb meat prices.  Itfound that US, Australian, and New Zealand lamb meat prices were in most cases lower in the second
half of 1997 and the first three quarters of 1998 at the time that imports were rapidly increasing.  It
found that further increases in imports would be ex pected to put further downward pressure on prices
in the US market.
64  The USITC found that the financial performance of “the various segments
worsened due to declining sales and falling prices, as a result of the increase in imports".65
70. In examining other possible causes of injury, the USITC made findings specific to the
packer/breaker segments of the domestic industry.  Specifically, it found none of these other possiblecauses – competition from other meat products, increases in input costs, concentration in the packer
segment, and the effectiveness of domestic marketing plans – to be causes of any significance, and
that the only cause of significance of the threat of serious injury was increased imports.  With respect
to competition from other meat products, the USIT C found no evidence that other meat products were
displacing lamb meat, but rather that domestic consumption of lamb meat had been relatively steady
since 1995.
66  With respect to input costs, the USITC found that costs of inputs for packers and
breakers rose moderately in line with production; it thus concluded that there had been no increase ininput costs that explained the sharp decline in industry profits, and that no increase was predicted in
the imminent future.
67  With respect to packer concentration, the USITC noted petitioners’ claim that
concentration had actually fallen during the most recent 5 years.  The USITC also reasoned that an
                                                     
57 USITC Report at I-24, II-50 (Table 32).
58 USITC Report at I-24.
59 USITC Report at I-18.
60 USITC Report at I-19.
61 USITC Report at I-21.
62 USITC Report at I-20.
63 USITC Report at I-20.
64 USITC Report at I-24.
65 USITC Report at I-24.
66 USITC Report at I-25.
67 USITC Report at I-25.WT/DS177/R
WT/DS178/R
Page A-382
undue level of concentration among packers woul d have suggested that they would have been
sheltered from the effects of low-priced imports, and would have been able to pass through lower
prices more readily to feeders and growers.  Instead, packers experienced deteriorating profits and
operated at a loss in interim 1998.68
Is the USITC’s finding that increased imports were  a "substantial cause" of threat of serious
injury consistent with the Safeguards Agreement and GATT 1994?
Question 10
Would the United States agree that Article 4.2 (b) requires that increased imports, even in
isolation from other causal factors, must be demonstrated to  cause a threat of serious injury? If
not, what in your view is the correct reading? Plea se explain. If so, how does the US "substantial
cause" standard applied in this case ("important cause and not less important than any other
single cause") reconcile with this requirement?
Answer 10
71. As demonstrated in response to Question 7, the Safeguards Agreement does not require
increased imports to be the sole cause of serious injury or threat of serious injury.  The “substantial
cause” standard established under US law comports fully with the requirement in Article 4.2(a) to
determine whether increased imports “caused”  serious injury or threat of serious injury.  In the same
response, the United States demonstrated that Article 4.2(a) does not require a competent authority toconduct an isolation analysis and explained why the results of any such analysis would be suspect.
72. Nothing on the face of Article 4.2(b) mandates an isolation analysis of the type the panel
describes.  The second sentence of that article simply requires the competent authority to avoid
attributing to increased imports injury caused by other factors.  That can be done, as the USITC did,simply by examining each possible injury factor in turn to determine its effect, if any, on the
industry’s condition.
73. The derivation of Article 4.2(b), second sentence, argues strongly against construing it to
require an “isolation” analysis.  Prior to the completion of the Uruguay Round, the languageincorporated in that sentence was understood not to impose an isolation requirement.
74. Article 4.2(b), second sentence, is drawn from  similar language in Article 3:4 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (also
known as the Tokyo Round Anti-Dumping Code).  Th e second sentence of Article 3:4 provided that
“[t]here may be other factors which at the same time are injuring the industry, and the injuries caused
by other factors must not be attributed to the dumped imports".
69  Well before the Uruguay Round
negotiations concluded in 1994, a GATT dispute settlement panel interpreted Article 3:4, second
sentence, in a manner that flatly rejected the argument that New Zealand makes here, concluding that
the requirement:
                                                     
68 USITC Report at I-25-26.
69 The second sentence of Article 4.2(b) of the Safeguards Agreement reads, “When factors other than
increased imports are causing injury to the domestic indust ry at the same time, such injury shall not be attributed
to increased imports.”  The dependent clause of this sentence, like the parallel provision in the Tokyo Round
Antidumping Code, recognizes that other factors may, in some cases, but not all, also be causing injury.  The
independent clause substitutes “shall not” for “must not” and, in keeping with the different subjects of theagreements,  “increased imports” for “dumped imports”.  Thus, the changes made in the adoption of thislanguage into the Safeguards Agreement are insubstantial.WT/DS177/R
WT/DS178/R
Page A-383
not to attribute injuries caused by other factors to the imports . . . did not mean that, in
addition to examining the effects of  imports under Article 3:1, 3:2 and 3:3, the
USITC should somehow have identified the extent of injury caused by these other
factors in order to isolate the injury cause d by these factors from the injury caused by
the imports from Norway.70
The Norwegian Salmon  panel held that it was sufficient that the USITC had not ignored other factors
it found had caused adverse effects on the US industry.  In that case, the USITC did not eliminate the
possibility that other factors had caused adverse effects.71
75. As in the current case, the Panel considered  whether the USITC determination had adequately
addressed increased production of other, similar products that might have affected prices for the
subject product.  Although the USITC did not specifically address the issue in its determination, “the
Panel considered that the specific factors discussed by the USITC suggested that the increasedavailability of Pacific salmon could have had only a limited effect on domestic prices in the
United States of fresh Atlantic salmon".
72
76. Likewise, the Panel upheld the USITC’s discus sion of problems unique to the industry as a
possible alternative cause of injury, finding it sufficient that the industry had recently been profitableand its more recent financial performance was worse than would otherwise be expected.
73  Discussing
the USITC’s findings concerning the effects of increases in non-dumped imports as an alternative
cause, the Panel held it sufficient that “it could not, in the view of the Panel, reasonably be found that
the USITC had attributed to the Norwegian imports effects entirely caused by imports from other
supplying countries".74
77. In no instance did the United States -- Atlantic Salmon  panel find that the obligation not to
attribute injury due to other causes to the subject imports required that the authority isolate the effects
of subject imports and determine whether the amount of injury they caused was material.  In the
current case, the USITC determination goes well beyond what the United States -- Atlantic Salmon
panel held was sufficient.  In that case, the panel held that the USITC need not explicitly address the
effects of each proposed alternative cause of injury.  Unlike that case, in the investigation at issue
here, the USITC examined each proposed alternative cause.  The United States -- Atlantic Salmon
panel did not require that the USITC find that the effects, for example, of non-subject imports were
not more important than those of dumped impor ts.  The USITC examination of causation in
safeguards investigations must, under US law, contain conclusions that no other cause is more
important than increased imports.  Thus, the US examination of alternative causes goes beyond what
was held to be sufficient in United States -- Atlantic Salmon  to assure that injury due to other causes is
not attributed to increased imports.
78. If the framers of the Safeguards Agreement had wanted to impose an "isolation" requirement,
they would not have been content with language nearly identical to text that had already beeninterpreted, well before the Uruguay Round concluded, not to impose such a requirement.  The United
States would be deprived of the benefit of its bargain if Article 4.2(b) of the Safeguards Agreement
were interpreted to require an "isolation" analysis.
Question 11
                                                     
70 United States -- Atlantic Salmon  at ¶ 555.
71 See United States -- Atlantic Salmon at ¶ 547, quoting the USITC Report.
72 United States -- Atlantic Salmon at ¶ 558.
73 United States -- Atlantic Salmon  at ¶ 559.
74 United States -- Atlantic Salmon  at ¶ 557.WT/DS177/R
WT/DS178/R
Page A-384
The USITC found that “the increased imports are an important cause, and a cause no less
important than any other cause  of the threat of serious injury to the domestic lamb meat
industry”.  In its first written submission in this  case, the United States argues that the USITC
found no evidence that any other alleged factors might have significantly affected the condition
of the domestic industry during 1997 and interim 1998 (para. 108).  Please explain how you
reconcile the apparent difference between the language of the USITC report and the languageof the US first written submission, i.e., where in the USITC report can the findings referred to
in the US first written submission be found?
Answer 11
79. The findings referred to by the United States in ¶ 108 of its first written submission are in the
USITC’s evaluation of the evidence with regard to each of the other possible causes of injury allegedor identified during the investigation.  While the US ITC framed its finding in terms of the US statute,
its evaluation of the evidence with respect to each of those other possible causes  – termination of the
US Wool Act payments, competition from other meat  products, increased input costs, overfeeding of
lambs, alleged concentration in the packer segmen t, and effectiveness of the industry’s marketing
programme – makes it clear that no asserted cause other than increased imports significantlycontributed to the threat of serious injury.
80. With respect to the impact of termination of the US Wool Act, the USITC found that the
payments under the act were largely phased out in 1994 and 1995 and terminated in 1996, before  the
surge in imports.  It found that the industry had experienced some recovery since full termination ofthe payments, and that remaining effects of termin ation were receding with each month.  Accordingly,
the USITC’s report shows no nexus between the dimi nishing effect of the termination of Wool Act
payments and its conclusion that the domestic industry’s condition would worsen  in the imminent
future.  Although the USITC addressed the Wool Act termination as an alleged “other cause”, it is
clear that the termination was not such an other factor within the contemplation of Article 4.2(b),which requires such a factor to be causing injury “at the same time” as increased imports.  Moreover,
the USITC found that the effects of termination c ould only have had an indirect effect on the packer
and breaker segments of the industry, since firms in those two segments never received payments
under the Wool Act.
75
81. With respect to competition from other meat products, such as beef, pork, and poultry, theUSITC found that domestic per capita consumption of  lamb meat had been relatively steady since
1995, indicating no shift by consumers away from lamb meat to other meat products.
76  The USITC
also found no reason to anticipate such a shift in the imminent future.  Thus, although this factor was
alleged as another cause of injury, the USITC rejected the allegation.
82. With respect to increased input costs, the US ITC found that expenses for growers rose at a
modest rate and then fell in interim 1998, that expenses for feeders increased at a faster pace but not at
a dramatic pace, and that input costs for packers and breakers rose moderately in line with production.
The USITC concluded that there had been no significant increase in input costs that explained the
sharp decline in industry profits, and no increase was predicted in the imminent future.77  In short, the
USITC found no causal link between input costs and the threat of serious injury.
83. The USITC also considered the allegations of the Australian and New Zealand respondents in
the investigation that US feeders in 1997 held lambs unduly long in feed lots and that such
over-weight “fat” lambs depressed prices when sent to slaughter.  Here, too, the USITC rejected the
allegation on the facts.  The USITC noted that US De partment of Agriculture data showed that the fat
                                                     
75 USITC Report at I-24-25.
76 USITC Report at I-25.
77 USITC Report at I-25.WT/DS177/R
WT/DS178/R
Page A-385
content of domestic lambs was lower in 1997 than earlier in the period of investigation.  It also found
that, even if it accepted respondents’ allegations, these “fat” lambs would have accounted for no more
than a small share of total domestic lamb production.  The USITC also noted that respondents did not
allege that such overfeeding was currently taking place or represented a future threat.78  Thus, again,
this was a factor that was not occurring “at the same time.”
84. With respect to concentration in the packer segment, the USITC noted petitioners’ claim,
unrefuted by respondents, that concentration in the packer segment had actually decreased over the
past five years.  Moreover, the USITC found th at undue concentration would have suggested that
packers would have been sheltered from the effects of low-priced imports and better able to pass
through lower prices to feeders and growers.  Instead, packers, like other segments of the domestic
lamb meat industry, experienced deteriorating profits in the latter part of the investigation and
operated at a loss in interim 1998.79  The USITC also rejected this allegation on the facts.
85. Finally, the USITC considered the industry’s failure to develop an effective marketing
programme to expand demand in light of the repeal of Wool Act payments.80  The USITC was not
required to assume that it was appropriate to consider the absence of such a programme to be a factor
causing injury under Article 4.2(b), as opposed to a possible adjustment measure to address injury.  Itwould indeed be a paradoxical interpretation of the Safeguards Agreement to hold that, because an
industry had not earlier applied adjustment measures, it is prevented from obtaining the relief
necessary to make adjustment measures effective.
86. In any event, the USITC found only that development of an effective programme could ( i.e.,
had the potential to) have had an important impact.  It did not find that the industry could have
developed a programme that would have been successful between the end of Wool Act payments and
the onset of the import surge.
81  The USITC did not find the failure to develop programmes to expand
demand, about whose potential benefits it could only have speculated, a factor causing the threat of
injury.  Rather, it referred to its decision as a whole, in which (as mentioned above) it found thatconsumption, which had previously declined, had stabilized since 1996 when Wool Act payments
ended.  It also found that there was no reason to expect consumer preference for lamb to change in the
imminent future.
82  Thus, the USITC found stabilized demand as a condition under which increased
imports would cause US producers to lose sales, lower prices or both in the imminent future.83  I n
short, the report as a whole shows that the USITC did not regard lack of demand enhancementprogrammes as causing worsening conditions in the imminent future.
87. In sum, the USITC’s findings establish why none of the proposed alternative causes of injury
should be considered “factors other than increased imports [that] are causing injury to the domestic
industry at the same time” under Article 4.2(b).  The fact that the USITC stated its conclusions in
terms of whether, in keeping with the US statute, proposed other causal factors were more important
than the increased imports does not change this conclusion.  As is shown elsewhere, even if the
USITC had found them to be relevant alternative causes, its findings under the US standard would
                                                     
78 USITC Report at I-25.
79 USITC Report at I-25-26.
80 USITC Report at I-26.
81 Indeed, the Commissioners’ findings on remedy suggest the contrary.  Three Commissioners
observed that it would “take time” to develop new markets and products that expand demand.  USITC Report atI-34.  Indeed, those Commissioners’ remedy recommendation made clear that a demand-expansion programmealone could not have prevented serious injury in the imminent future, particularly since it recognized thatproduction-side adjustment, as well as marketing, was needed to make the US industry competitive.  USITC
Report at I-34, n.169.  Two Commissioners noted that there was an unavoidable “degree of uncertainty” as to
whether the industry, even with safeguard protection, could effectively implement adjustment. USITC Report at
I-41.
82 USITC Report at I-22, I-25.
83 USITC Report at I-22.WT/DS177/R
WT/DS178/R
Page A-386
have been adequate.  However, even if the Panel holds to the contrary on that issue, the fact that the
USITC stated its conclusions in the terms required by the US statute is not properly at issue in this
case.
88. As is discussed in answer to the Panel’s first question to the United States, the sole
requirement to state legal conclusions appears in Article 3.1 of the Safeguards Agreement, andcomplainants have not attacked the USITC’s determination under that article.  Thus, the only question
on this issue before the Panel is whether the USITC report pursuant to Article 4.2(c) contains a
detailed analysis of the case and demonstrates the relevance of the factors examined such that it shows
compliance with Article 4.2(b).  Regardless of the terms in which the USITC expressed its
conclusions, its examination of other asserted causal factors meets the requirements of Article 4.2(b)
even as interpreted by New Zealand.
Question 12
If in two hypothetical situations increased imports accounted for the same proportion of
serious injury (e.g., 30 per cent), but in the first situation  one of the "other factors" accounted
for more than 30 per cent, while in the seco nd situation no "other factor" individually caused
more than 30 per cent, would the US "substantial  cause" standard permit the imposition of a
safeguard measure in the first situation, but not in the second one?
Answer 12
89. As will be recognized from the answers that the United States has given the Panel in
Questions 7 and 10, this question poses a hypothetical situation that does not accord with the nature of
the USITC analysis under the US statute.  The USITC does not, as this question assumes, isolate the
particular proportion of injury caused by each factor and then compare their percentages.  Rather, it
determines whether increased imports are important within the mix of causes of overall serious injuryand then decides whether other factors are more important.  “Importance” in this sense is seldom, if
ever, reduceable to numerical percentages.
90. Indeed, because Article 4.2 does not set a single benchmark for “measuring” serious injury, it
is difficult to see how, even if the effects of different causes of injury could be isolated, thepercentages of total injury that those effects mi ght represent could be ascertained and compared.
Article 4.2(a) enumerates specific factors that competent authorities are to evaluate.  To the extent that
they have discrete effects, different causal factors may affect different economic indices differently.
Moreover, the various enumerated factors are not commensurate with each other.  For example, a
factor that lowers productivity may raise employment if production is not reduced.  The Agreement
provides no standard according to which such variable effects are to be compared.  The Panel’s
question presupposes a precision in the evaluation of causal factors that is incommensurate with theterms of the Agreement.
91. The Panel’s question is, however, correct in its recognition that the US statute directs the
USITC, in determining whether increased imports are a substantial cause, to evaluate not only
whether their effects are important in themselves, but also whether other causes of injury may be moreimportant causes of the overall serious injury or threat of serious injury.  The United States does not
necessarily contend that this second step in its statutory causation analysis is required by the terms of
the Safeguards Agreement.  This standard is, however, consonant with the objective set out in the
preamble to the Safeguards Agreement that recognizes  the “importance of structural adjustment.”  If
other causes of injury are predominant, it is unlikely that addressing increased imports alone willfacilitate adjustment.  If, on the other hand, increased imports are an important causal factor and no
other is more important, then imposing a safeguard measure on increased imports can be more
reasonably expected to aid an industry in its adjustment efforts.WT/DS177/R
WT/DS178/R
Page A-387
Question 13
Does the United States agree with the charac terization in New Zealand’s oral statement
(para. 51) that the United States “admits” that  a safeguard measure can be applied even where
increased imports are, e.g., only one of three equal causes of a threat of serious injury?  Please
explain.
Answer 13
92. New Zealand’s speculation as to a possible result under US law is irrelevant in  this
proceeding because the USITC did not find that increased imports were one of three equal causes of
the threat of serious injury.  While the USITC framed its finding in terms of US law, finding that none
of the other alleged causes of injury was a more important cause than increased imports, the USITCidentified only increased imports as being an importa nt cause of the threat of serious injury.  Indeed,
the USITC report shows that increased imports were the only cause of any significance of the threat of
serious injury.  New Zealand’s hypothetical question has no bearing on the finding that the USITC
actually made or the measure that the United States applied.
93. Moreover, New Zealand’s hypothetical ignores the fact that, in order to find that increased
imports are a “substantial cause” of serious injury or threat of serious injury, the USITC must under
US law find that increased imports are both an “important” cause and “not less than any other
cause".
84  As the United States stated in ¶ 121 of its First Written Submission, the legislative history
of the US provision makes clear that a cause of inju ry would not be an important cause of injury, and
thus not a “substantial” cause, when it was one of many such causes, even if it was equal to or greater
than any other cause.  The US Senate committee that drafted the substantial cause standard stated,
“The [USITC] Commissioners will have to assure themselves that imports represent a substantial
cause or threat of injury, and not just one of a multitude of equal causes or threats of injury".85
Accordingly, it cannot be said in the abstract that , if the USITC found that increased imports were one
of three equal causes of serious injury, the USITC would see fit to regard any of those causes as
“important”.
94. Moreover, New Zealand’s position, as paraphrased in this question, misstates the manner in
which the US statute operates.  The statute requires the United States to determine whether increasedimports are an important cause of serious injury or threat of serious injury.  Only if it finds increased
imports to be an important cause does the USITC compare their importance to that of other causal
factors.  Thus, it is possible for the USITC to conclude that increased imports are not an important
cause even if, had it proceeded to compare the effects of increased imports to those of multiple other
causes, it would have found no other cause to be more important than increased imports.
How representative are the facts and evidence on which the determination of the USITC and the
decision of the President were based?
Question 14.
Could you indicate the total number of operators in each of the industry segments (i.e., growers,
feeders, grower/feeders, packers, breakers a nd packer/breakers, etc.), how many of those
received questionnaires in each segment, how many responded and which share of the
production by each industry segment is accounted for by the companies that provided usable
questionnaire data? Where in the USITC's report can this information be found? Did the
                                                     
84 19 U.S.C. 2252(b)(1)(B), attached hereto as US Exhibit 37.
85 Trade Reform Act of 1974, Report of the Committee on Finance . . . on H.R. 10710 , S. Rep. No.
93-1298, 93rd Cong., 2d Sess. 120-21 (1974), attached to the United  States’ First Written Submission as US
Exhibit 16.WT/DS177/R
WT/DS178/R
Page A-388
collective output of responding operators in each of the industry segments represent a major
proportion of the total domestic production of  that segment within the meaning of Article
4.1(c)?   Please explain.
Answer 14
95. The evidence of record shows the following numbers of operators in each of the industry
segments:
Growers: 74,710 in 1997.86
Feeders:  1187
Grower/Feeders: 1888  (This number reflects a total of 11 feeders, plus those
growers who reported that they also conduct feeder
operations).89
Packers: The exact number is not known.  USDA data show that 9
plants accounted for 85 per cent of the sheep and lambs
slaughtered in 1997, while 571 plants were certified by
USDA in 1997 to slaughter lamb and sheep.90
Breakers:  Less than 10 major firms.91
Packer/Breakers:  492
96. The number of operators receiving questionnaires in each segment is as follows:
Growers:  11093
Feeders:  See Grower/Feeders
Grower/Feeders:  1194
Packers/Slaughterers: 1795
Breakers:  1696
Packer/Breakers:  497
97. The following responded to USITC questionnaires:98
                                                     
86 USITC Report at I-18, II-11, and II-12.
87 USITC Report at II-13.
88 USITC Report at II-13.
89 USITC Report at II-13.
90 USITC Report at II-15, n.57.
91 USITC Report at II-15.
92 This number is based on USITC questionnaire responses from 4 packer/breakers.
93 USITC Report at I-17 and II-11.
94 USITC Report at II-13.
95 USITC Report at II-14.
96  USITC Report at II-15.
97 This number is based on USITC questionnaire responses received from four packer/breakers.WT/DS177/R
WT/DS178/R
Page A-389
Growers and Grower/Feeders: 7099 (USITC received usable data from 57 growers).100
Grower/Feeders: 18101,102
Packers/Slaughterers: 6103 (USITC received usable data from 5 firms on packing
operations).104
Packer/Breakers: 4105 (USITC received usable data from 2 firms).106
Breakers: 5107 (USITC received usable data from 4 breakers).108
98. The share of production by each industry segment is accounted for by the companies thatprovided usable questionnaire data:
 Growers: }
Feeders: } } All three groups = 57 usable questionnaire
Grower/Feeders
109} responses representing an estimated 6 per cent
of lamb production (lamb crop; the number of
lambs reported to be born during the year) in
1997.110
Packers }Breakers: } } 5 responding packers representing an
Packers/Breakers: } estimated 76 per cent of the sheep and lambs
slaughtered (based on US Department of
                                                                                                                                                                    
98 The number of responses with usable data is also noted, although not each usable response contained
usable information on all items requested.
99 USITC Report at II-11.  The Commission sent questionnaires to approximately 110 firms believed to
be involved in raising lambs.  Responses were received from approximately 70 growers and growers/feeders.
100 USITC Report at I-17 and II-11.
101 USITC Report at II-13.  The Commission sent questionnaires to 11 firms believed to be feeders and
received responses from 18 feeder operations, including several growers that also maintain feeder operations.USITC Report at II-13, n.46 states “[s]ome of the firms identified as feeders are also growers.  Some of thesefirms provided questionnaire responses on their feeding operations and others could not separate the data for the
two operations”.
102 USITC Report at II-13.  The Commission sent questionnaires to 11 firms believed to be feeders and
received responses from 18 feeder operations, including several growers that also maintain feeder operations.USITC Report at II-13, n.46 states “[s]ome of the firms identified as feeders are also growers.  Some of thesefirms provided questionnaire responses on their feeding operations and others could not separate the data for the
two operations”.
103 USITC Report at II-14.
104 USITC Report at II-14.
105 This number is based on USITC questionnaire responses received from four packer/breakers.
106 USITC Report at II-24 and II-33 n. 93.
107 USITC Report at II-15.
108 USITC Report at  II-15.
109 USITC Report at II-29 n.89, regarding the financial condition of the industry, states that “[t]en firms
reported they were grower/feeders; however, the questionnaire responses of seven of the firms indicated thatthey fed only their own live lambs.  Those seven producers were reclassified by Commission staff to growers.[Financial] [d]ata for the three grower/feeders are presen ted separately [in the report] from growers and feeders
because of the difficulty in separating growing operations from feeding operations.”
110 USITC Report at I-17 and II-11.  However, USITC financial data was based on 49 questionnaire
responses of growers representing 5 per cent of the US lamb crop in 1997 (USITC Report at II-24) and USITCfinancial data on feeders represented one-third of the slaughter lambs fed in feedlots in 1997.  (USITC Report atII-24).WT/DS177/R
WT/DS178/R
Page A-390
Agriculture (USDA) data).111  (USDA reported
that 9 plants accounted for 85 per cent of sheep
& lamb slaughtered in 1997).112
Of 16 questionnaires sent to breakers, 5 responded and 4 provided usable data.  The American Meat
Institute estimates that 75 per cent of lamb carcasses currently are processed by breakers.  The other25 per cent are broken by packers at the slaughter plants.
113
Where in the USITC’s report can this data be found?
99. Please see the citations provided in the response to the earlier portion of this question.
Did the collective output of responding operators in each of the industry segments
represent a major proportion of the total domestic production of that segment within the
meaning of Article 4.1(c)?   Please explain.
100. As discussed in the answer to Question 16, the Safeguards Agreement does not set a fixed
proportion as constituting “a major proportion.”  The information received from questionnaires ineach segment was, when combined with other info rmation received by other means, sufficient to
permit the USITC to make objective conclusions about each segment and the industry as a whole.
Question 15
How did the USITC decide to which specific companies to send the questionnaires  (e.g., how
did the USITC select the 110 growers of the ro ughly 70,000 in the United States)?  Did the
USITC send questionnaires only to companies asso ciated with the petitioners, or to other
companies as well?  Please explain and indicate where in the USITC's report this information
can be found.
Answer 15
101. The USITC, based on a listing of all companies that had received Wool Act payments before
the termination of the programme, sought to sele ct a group to receive questionnaires that would be
reasonably calculated to yield both the highest level of response and the greatest proportion of
industry production.
102. Given the total level of production in the industry and the number of firms involved, the
USITC knew that a large number of producers were extremely small, growing fewer than 10 lambs
per year.  As a result, it sought to send questionnaires to the largest producers, recognizing based on
experience that it would be very unlikely to receive any level of response from the large number ofextremely small producers.  The USITC selected the largest producers from the list of all producers
based upon the level of Wool Act payments they had received.
103. All growers in the United States were associ ated with petitioners, since membership in the
petitioning association was automatic based upon receipt of Wool Act payments.
114  Thus, the USITC
                                                     
111 USITC Report at II-14 and II-24.
112 USITC Report at II-14 n.48 and II-15 n.57.
113 USITC Report at II-15 n. 63.
114 The petitioning American Sheep Industry Association, Inc. (“ASI”) is a federation of 50 state
organizations of lamb growers and feeders representing the nation’s approximately 75,000 US sheep producers.
Its membership therefore accounts for virtually 100 per cent of US production of live lambs. See  Petition For
Relief From Imports of Lamb Meat Under Section 201of the Trade Act of 1974, dated 30 September 1998, at 5,attached hereto as US Exhibit 38.WT/DS177/R
WT/DS178/R
Page A-391
could not send questionnaires to “unassociated”  growers.  Only a few growers were named
individually as petitioners, so the great majority of questionnaire recipients consisted of companies
with no particular known view  of the safeguard proceeding.
104. Information describing the USITC’s decision to select these 110 questionnaire respondents is
provided in the USITC Report at I-17.  The USITC identified questionnaire respondents in the otherthree industry segments based on names and addresses which petitioner supplied in the petition
pursuant to USITC regulation 19 C.F.R. § 206.14(b)(3)
115115  The regulation requires that the petition
contain the names and locations of all producers of the domestic article known to the petitioner
(meaning, not simply those supporting the petition), to the extent such information is available from
governmental and non-governmental sources.
105. Information describing the USITC’s decision to select at least the nine feeders named in the
petition is provided in the USITC Report at II-13; its decision to send questionnaires to 17 packers is
provided at II-14; and its decision to send questionnaires to 16 breakers is provided at II-15 of the
USITC Report.
Question 16
Does the United States consider that as long as the USITC undertakes a questionnaire
survey exercise, and as long as some responses are received, the USITC can proceed on the basis
of those responses, regardless of the percentage of total production for which they account?  Or
would there be circumstances in which the resp onse rate to the questionnaires and/or the
percentage of the total industry represented by the questionnaire responses did not account for
a major proportion of the industry?  If the latter, what would those circumstances be, and has
this ever happened?  Please explain.
Answer 16
106. Nothing in the Agreement suggests that a competent authority should not render a decision
simply because it has been unable to obtain questionnaire responses from a particular percentage of
producers in a highly fragmented industry.  Indeed, nothing in the Agreement requires the authority to
issue questionnaires at all.  Thus, the share of domestic production reflected in questionnaireresponses would not be determinative of whethe r the authority can or should proceed with its
investigation.  Article 4.2(a) of the Agreement obligates a member to “evaluate all relevant factors of
an  objective and quantifiable nature"
116 (emphasis added), but it does not state how this is to be done.
It does not prescribe any specific approach that an authority should follow in making its evaluation, or
even refer to the term “questionnaires.”  Consequently, nothing in the Agreement precludes an
authority, in evaluating the relevant factors, from relying entirely on data collected by another
government agency, or information furnished by interested parties.  Thus, the issuance ofquestionnaires may be just one of the methods that an authority chooses, but is not required to used, in
obtaining information.  Provided that the information evaluated is objective and the authority has
conducted an objective analysis, the authority has met its obligation.
107. Although the USITC endeavours in most invest igations to send questionnaires to all known
producers, this approach is impossible when the domestic industry is comprised of a very large
number of small producers.  Moreover, in fragmented industries, communicating directly with a large
proportion of producers may be impracticable in any reasonable time frame, when no producer or
reasonably reachable group of producers accounts for a significant share of production.  In such a
situation the USITC compares, as it did concerning the grower segment of this industry, itsinformation from several sources to assure that the information on which it relies is sufficiently
                                                     
115 Attached hereto as US Exhibit 39.
116 Safeguards Agreement, Article 4.2(a).WT/DS177/R
WT/DS178/R
Page A-392
representative to allow it to make objective inferences about the industry as a whole.  Such an
approach entirely accords with the requirements of Article 4.2(a).
108. Nothing in the use of the phrase “a major proportion” in the definition of the term domestic
industry in Article 4.1(c) of the Agreement affects this analysis.  First, it is Article 4.2(a), not the
definition of “domestic industry”, which sets the standards for investigations.  As indicated above,under Article 4.2(a), it is sufficient that the relevant factors be evaluated on an “objective” basis, a
standard that is satisfied when conclusions are reached on a data set or sets that the competent
authority has reasonably assured is not biased and provides a reasonable basis for making inferences
about the entire industry.  Second, even if, although the agreement does not require questionnaires,
Article 4.1(c) did suggest that some minimum numb er of producers should receive questionnaires, the
words “major proportion” are undefined.  They are preceded by the article “a” (as opposed to the
article “the”), thus indicating that the “ major proportion” means “less than 50 per cent”.  Except thatit may be less than 50 per cent, the phrase gives no fixed percentage.
109. The flexibility of this phrase suggests that the percentage that would constitute a major
proportion could be different for highly fragmented industries than for concentrated industries.  If this
were not the case, the Safeguards Agreement would afford practical relief to concentrated industriesbut not to those industries that are likely to be most highly competitive.  Such a result would be
economically perverse and contrary to the express purpose of the Agreement “to enhance rather than
limit competition in international markets”.  The Ag reement also does not suggest that investigations
be extended in order to achieve some fixed percentage of questionnaire responses because, as the
Appellate Body has recalled, safeguards under GATT Article XIX are designed to address“emergency” situations.  Such investigations cannot be prolonged in order to achieve a fixed ideal of
data coverage.  On these bases too, whether the investigation has been adequate should be evaluated
in terms of whether the competent authority undertook an investigation that was reasonably calculated
to obtain objective information about the industry as a whole.
110. Finally, in this case, it is also important to note that none of the respondents in the
investigation, who had access to the raw grower  questionnaire data under a USITC administrative
protective order, argued that the data were biased or inaccurately portrayed the condition of
growers.
117  Rather, those parties’ representatives urged the USITC to rely on that data.  One of the
evident purposes of Article 3.1, which requires that authorities give interested parties an opportunityto present evidence and their views, including respond ing to the presentations of other parties, is to
help assure that, by exposure to conflicting views, an authority receives an objective picture of the
information before it.  When the parties before it agree that the information the authority has received
is objective, the authority should be able to rely on it.
Is the measure imposed by the US President, which differs from the USITC’s recommendation,
consistent with the United States’ obligations under the Safeguards Agreement and the GATT
1994?
Question 17
Is it reasonable for a Panel to assume that the remedy recommended to the President by a
plurality of the USITC is sufficient to prevent serious injury and facilitate adjustment?  If not,
why not?  If so, on what basis did the Presid ent not adopt the USITC recommendation?  Please
provide the factual basis and reasoning that supports the measure as actually applied in terms
of Article 5.1, first sentence.
Answer 17
                                                     
117 USITC Report at I-17.WT/DS177/R
WT/DS178/R
Page A-393
Plurality Recommendation
111. It would not be reasonable for a Panel to assume that a USITC plurality remedy, if applied,
would be sufficient to prevent serious injury and facilitate adjustment.  Neither US law nor the
Safeguards Agreement provides any basis for such an assumption.  Moreover, the fact that the six
USITC Commissioners split three ways on an appropriate remedy demonstrates that the pluralityrecommendation should not be presumptively regarded as adequate.
112. US law does not intend the USITC remedy recommendation to be understood as a definitive
statement of remedial sufficiency.  Section 203(a)(2)(A) of the Trade Act of 1974, as amended,
requires the President to take the USITC’s recommendation into account (along with other
enumerated factors) in determining what remedy may be appropriate.  But there is no requirement that
he adopt the recommendation, or give it weight.  He is free to apply a different remedy, or no remedyat all.  The same provision of law also requires the President to take the USITC’s report  into account
in fashioning the remedy.  This means the President is to review the USITC’s injury and causation
findings, not just its remedy recommendation, and reach his own conclusion on what remedy would
be most appropriate to address those findings.
113. The USITC plurality recommendation remedy presented the views of just three of the six
USITC Commissioners.  The three other Commissione rs recommended different remedies, and each
concluded that the plurality’s remedy was insufficient to prevent serious injury and facilitate
adjustment.  All six Commissioners considered that four years of import relief were required.  The
President granted relief of three years and one day.
114. The three remedy recommendations also contained various suggestions on appropriate
domestic assistance measures.  The domestic assistance that the President ultimately provided differed
from those recommendations.  As the time they issued their remedy recommendations, the
Commissioners did not know what level of assistan ce the President would provide and thus they did
not (and could not) calibrate their import relief recommendations to take account of that level.
115. The USITC plurality apparently considered that leaving imports at their high-water mark
(1998 levels) would not result in further injury and would place the industry in a position to recover
from the injury it had already sustained.  However, the USITC’s injury analysis suggested that the
industry had suffered progressively severe injury as a result of imports during both 1997 and interim
1998, and the plurality did not explain why injury w ould not continue to mount if imports continued
at 1998 levels, or how, if the industry remained in its current state of injury, it could regain its
competitiveness.  The three other Commissioners examined the same evidence and concluded that the
industry would  sustain serious injury at 1998 import levels.
118  The President was entitled to conclude
that the views of those three Commissioners were correct.
116. There is no requirement under the Safeguards Agreement or Article XIX of the GATT 1994
for a competent authority to recommend a remedy, and there is therefore no legal basis to require a
Member to adopt that recommendation.  Under Article 5.1 of the Safeguards Agreement, the authority
to select and impose a remedy is vested in the Member.  Creating a rule that would require a Member
in all cases to impose a measure that is less than or equal to the competent authority’s recommended
remedy could lead Members to revoke their competent authorities’ mandate to recommend remedies,
thereby denying Members the benefits of their considered opinions.
117. Finally, if the competent authorities’ views are to be regarded as definitive for purposes of
assessing the degree of remedy required in any particular case, this would mean that application of thecompetent authorities’ recommendation would be presumptively consistent with Article 5.1.  That
could result in Members applying safeguard measures that are inadequate or excessive.
                                                     
118 USITC Report at I-40, I-49.WT/DS177/R
WT/DS178/R
Page A-394
Basis for the US Safeguard Measure
1. Introductory Comments
118. Before addressing the factual basis and reasoning supporting the US safeguard measure, the
United States offers two preliminary comments.  First, while the United States is pleased to answer
the Panel’s question, we wish to reiterate that the burden is on New Zealand and Australia to make a
prima facie  case that the US safeguard measure fails to comply with the requirements of Article 5.1,
not on the United States to prove that the measure does comply.  Because Australia and New Zealand
have failed to present a prima facie case, the United States is under no obligation to provide evidence
and reasoning in support of the measure’s consistency with Article 5.1.
119. Second, in evaluating the consistency of the measure with the Safeguards Agreement and
Article XIX, the Panel should reject New Zealand’s and Australia’s pleas to interpret the relevant
terms and provisions “narrowly” or “strictly”.  Their argument, which is based on the purportedly
“exceptional” nature of safeguards remedies, ignores the Appellate Body’s admonition in Hormones
(at ¶ 104) that characterizing a treaty provision as an exception:
does not by itself justify a ‘stricter’ or ‘narrower’ interpretation of that provision than
would be warranted by examination of the ordinary meaning of the actual treaty
words, viewed in context and in the light of the treaty’s object and purpose, or, in
other words, by applying the normal rules of treaty interpretation".119
120. In fact, the Appellate Body has not described Article XIX as an “exception.”  Rather, it is a
right that Members may invoke in exceptional circumstances.  When Members have satisfied the
conditions necessary for the application of safeguard measures, an excessively strict or narrow
reading of Article 5.1 would risk rendering those measures ineffective, thus undermining the
operation of Article XIX and the Safeguards Agreement.
2. Discussion of the US Safeguard Measure
121. Before considering the safeguard measure itself, it is useful to recall the various remedy
recommendations that the USITC forwarded to the Pr esident.  First, a plurality of the Commissioners
recommended a four-year tariff-rate quota with a 20 per cent ad valorem duty on imports over
78 million pounds in the first year (approximately 1998 levels), 17.5 per cent ad valorem  on imports
over 81.5 million pounds in the second year, and 15 per cent and 10 per cent ad valorem  in the third
and fourth years, respectively, on imports above the second-year levels.120
122. The plurality believed that its remedy would increase industry revenues in the first year and
that this degree of import relief, in combination wi th adjustment assistance, would give the industry
time to improve its competitiveness.121  The plurality did not explain how maintaining lamb meat
imports at record levels would generate higher revenues for the domestic industry.
123. The remaining three Commissioners recommended two different safeguard measures to
address the threat of serious injury.  Two Commissioners recommended that the President increase therate of duty on all lamb meat imports for four years to 22 per cent ad valorem in the first year, 20 per
                                                     
119EC Measures Concerning Meat and Meat Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R,
Report of the Appellate Body, 16 January 1998, at ¶ 104.
120 USITC Report at I-29.
121 USITC Report at I-36.WT/DS177/R
WT/DS178/R
Page A-395
cent ad valorem in the second year, 15 per cent ad valorem in the third year, and 10 per cent ad
valorem in the fourth year.122
124. These Commissioners identified depressed domestic prices for lamb meat as the principal
threat posed by the surge in imports and concluded that raising prices from then-current levels needed
to be a “key focus” of an appropriate remedy.  In the view of these Commissioners, “the industry
would experience serious injury caused by imports if import levels and prices continue at
now-existing levels, even if no further price declines occur”.
125. The two Commissioners estimated that under their proposed remedy prices would rise by
approximately 17 per cent in the first year of relief , while import levels would fall to a level  between
1997 and 1998 imports.  They expected that their remedy would allow the domestic industry to
increase production due to the higher prices and to supply more lamb meat at a given price due toefficiency gains.  They also expected that the remedy would result in long-term price stability and
contribute to stable (if not increasing) demand.
126. The sixth Commissioner recommended quotas over four years that, in his view, would help
restore industry profitability by restricting imports to their pre-surge levels.
123  He proposed an initial
quota at 52 million pounds (the average level of imports in 1995-1997), with increases to 56, 61 and
70 million pounds in the second through fourth years of relief, respectively.124  In the view of this
Commissioner, the plurality’s recommended remedy  “would have virtually no discernable impact on
the domestic industry over the four years” beca use it would only hold imports to 1998 levels for one
year, and then allow imports to rise in line with projected increases.125  In this Commissioner’s view,
the tariff remedy proposed by the two other Commissioners provided less relief than was necessary to
facilitate the industry’s adjustment.
127. As the foregoing demonstrates, the six USITC Commissioners all examined the same record
of investigation and yet proposed three widely different remedy recommendations.  The pluralityrecommended a tariff-rate quota.  Two Commissioners recommended a straight tariff.  One
recommended a quantitative restriction.  The various tariff and quota levels proposed as part of these
recommendations differed considerably.  In fact, the sole common denominators of the three
proposals was import relief of four years duration and domestic adjustment assistance.
128. Thus, while each of the three remedy recommendations was aimed at achieving the same
result (preventing serious injury and facilitating adjustment), the Commissioners differed on the
minimum steps necessary to accomplish that result.  This difference of opinion illustrates the point
that decisions regarding the application of safeguard measures cannot be reduced to mathematical
formulas, but rather are based on a mix of analys is, judgment, predictions, and policy preferences.
129. There are likely to be a wide range of reasonable remedy options from which a Member may
choose in any given case.  The remedy that the Member ultimately applies will reflect its views on a
long list of considerations, including the nature of the injury the industry has sustained, which aspects
of that injury the Member considers most important  to address, predictions regarding the likely effect
of particular forms, periods, and levels of relief, how various remedies will interact with any domestic
relief under contemplation, factors affecting the industry’s near-term prospects, trends inmacroeconomic factors, the effects of differing measures on consuming industries, and so forth.
                                                     
122 USITC Report at  I-39.
123 USITC Report at I-48.
124 USITC Report at I-47.
125 USITC Report at  I-49.WT/DS177/R
WT/DS178/R
Page A-396
130. The safeguard measure that the United States ultimately applied to lamb meat imports is the
product of a decision-making process of this kind.  It can perhaps best be seen in perspective as falling
within the range of views expressed by the six USITC Commissioners.
131. In form, the safeguard measure is most similar to the plurality recommendation in that it
employs a tariff-rate quota and sets the in-quota amount at roughly 1998 import levels.  However, the
measure differs from the plurality recommendation in two respects.
132. First, the measure has a duration of three years, rather than four.  In this respect, the measure
is plainly less restrictive than the plurality recommendation.
133. Second, the measure includes an in-quota tariff while the plurality recommendation does not.
All six USITC Commissioners had identified low prices as one of the principal reasons for the USindustry’s poor financial health.
126  In particular, the USITC  found that the industry’s financial
performance had worsened largely due to falling prices127 and that, as a result, firms in the industry
had experienced difficulty in generating adequate capital to finance modernization of their domestic
plants and equipment.128  The plurality recommendation was designed to cap first year imports at
1998 levels, with increases over the next three years.  In the plurality’s view, the import cap wouldgenerate higher revenues for the domestic industry.  But the plurality did not explain how that could
be the case given that the industry had experienced threat of serious injury at 1998 import levels.
134. The safeguard measure seeks this same result -- revenue enhancement --  but in a way more
plausibly calculated to achieve it.  In particular, the measure increases duty rates on the in-quotaamount with the object of generating a modest near-term price increase.
129  The measure is thus
structured to provide limited relief from low prices, thereby making it possible for the industry to
return to profitability.  That objective is consis tent both with preventing serious injury and with
facilitating the industry’s adjustment to import competition.
135. The high out-of-quota tariff component of the TRQ makes it likely that imports will not
exceed their 1998 level (the highest import level ever) in the first year of relief.130  T h e  U S I T C
concluded that increased lamb meat imports had directly captured market share from the domestic
producers and that those imports were likely to have a negative impact on the industry’s shipments,
prices, and financial performance.131  Three of the six Commissioners found that the US industry
would suffer serious injury if imports and prices remained at 1998 levels, even if there were no further
price declines.132  The overall effect of the safeguard measure is expected to be a slight reduction in
imports from 1998 levels, with import levels increasing in years two and three as the in-quota amount
expands.
136. The United States accompanied the safeguard measure with a substantial programme of
federal financial and regulatory assistance intended to facilitate the US industry’s adjustment byproviding up to $100 million to assist with market promotion; product and production improvements;
basic sheep research; a scrapie eradication programme; and a lamb surplus removal programme.  Half
of the $100 million is being made available to the industry in the first year.
                                                     
126 USITC Report at I-23-24.
127 USITC Report at I-20.
128 USITC Report at I-21.
129 See United States’ First Written Submission at ¶ 217.
130 Commissioners Miller and Hillman believed that the domestic industry “would experience serious
injury caused by imports if import levels and prices continue at now-existing levels, even if no further pricedeclines occur.”  USITC Report at I-40.  Commission Kopl an found, similarly, that a remedy set at existing
import levels “would not stave off the threatened serious injury, much less provide the industry with the
opportunity to make a positive adjustment to  prepare for the import competition.”  Id. at I-49.
131 USITC Report at I-24.
132 USITC Report at I-40, I-49.WT/DS177/R
WT/DS178/R
Page A-397
137. In summary, the US safeguard measure is commensurate with the goals of preventing the
threat of serious injury facilitating the industry’s adjustment in this case.  In its form and scope, the
measure is similar to the remedy proposed by the USITC plurality except that it corrects for the
plurality remedy’s failure to address low prices in the near term.  It addresses the high volume of
imports and low prices that the USITC identified as responsible for the threat of serious injury to theUS lamb meat industry.
138. The measure avoids the high across-the-board tariff levels that two Commissioners proposed
and the possibility that the price increases they would have generated could have significantly
depressed domestic consumption.  Moreover, as note d above, those Commissioners estimated that the
tariffs they proposed would roll import levels back to between 1997 and 1998 volumes.  By contrast,
the US safeguard measure was expected to generate a more modest import reduction.
133  In addition,
the safeguard measure eschews the substantial reductions in import quantities that the sixth
Commissioner proposed.
139. The safeguard measure is fully degressive, with tariff levels falling and quota levels
increasing in the second and third years.  The remedy has a duration of three years, a year shorter thanproposed in each of the three USITC recommendations.  Given its relatively short duration, the degree
of trade restriction embodied in the measure is no more than that minimally necessary to restore a
modicum of profitability to at least some producers during that period.
Question 18
In Korea–Dairy , the Appellate Body stated that Article 5.1 does not require a Member to
explain at the time of the determination why the safeguard measure chosen was necessary
unless that measure is imposed in the form of a quantitative restriction that reduces imports
below the last representative three-year average level.
(a) What is the implication of this ruling for the case of the imposition of a tariff
rate quota?
Answer 18 (a)
140. The implication of the Appellate Body’s ruling is that there is no need to provide advance
justification for a tariff-rate quota (TRQ), and no need to justify this TRQ in particular.
141. In Korea–Dairy  (at ¶ 100), the Appellate Body rejected the Panel’s broad finding that
Members that apply safeguard measures are required to explain in their recommendations or
determinations how they considered the facts before them and why they concluded that the measurewas necessary to remedy serious injury and facilitate adjustment.  The Appellate Body found (at ¶ 99)
that Article 5.1 imposes a justification requirement only for safeguard measures that take the form of
quantitative restrictions that reduce the quantity of imports below the average of imports in the last
three representative years.
142. TRQs are a type of tariff measure in which the tariff is applied at different rates based on
import levels.
134  TRQs are not “quantitative restrictions” as that term is understood in GATT practice,
which has distinguished between the two.  A primary example of this difference can be seen in the
tariffication provisions of the WTO Agreement on Agriculture .135  One of the main points of that
                                                     
133 See United States’ First Written Submission at ¶ 219.
134 The United States does not understand Australia or New Zealand to be arguing that Article 5.1,
second sentence, applies in this case.
135 See WTO Agreement on Agriculture, Art. 4.2 & n.1.WT/DS177/R
WT/DS178/R
Page A-398
agreement was to require the conversion of quantitative restrictions to TRQs and to distinguish
between them in terms of WTO obligations.  Similarly, when the drafters of GATT  Article XIII
(which governs the administration of quantitative rest rictions) sought to apply its provisions not just
to quantitative restrictions but to TRQs as well, they  felt constrained to say so explicitly in the final
paragraph of that article.136  Because TRQs and quantitative restrictions are understood in GATT
practice to be different types of measures, the obligation in Article 5.1 to justify quantitativerestrictions that reduce imports below the average of imports in the last three representative years does
not apply to TRQs.
143. In any event, even if there were  such an obligation for TRQs, there would be no need to
justify the TRQ applied in this case, because the in-quota amount of the tariff is set at 31,851,151
kilograms of imports in the first year of the TRQ, thus substantially exceeding the 1995-1997 average
(approximately 21,387,924 kilograms)
137, and in-quota levels in the second and third remedy years are
even higher.  Moreover, if the 1997 surge year is excluded as unrepresentative, the average in the last
three representative years (1994-1996) would be only 18,701,821 kilograms.  The Appellate Body’s
ruling in Korea–Dairy (at ¶ 99) should therefore be conclusive on this point:  “a Member is not
obliged to justify in its recommendations or determ inations a measure in the form of a quantitative
restriction which is consistent with ‘the average of imports in the last three representative years forwhich statistics are available’”.
(b) How does the Appellate Body’s ruling in respect of Article 5.1 relate to (i)
Article 3.1 which requires the publication of a report setting out “findings and
reasoned conclusions reached on all pertin ent issues of fact and law”, including
“whether the application of a measure would be in the public interest ”; (ii)
Article 7.2 which requires an investigation and determination by the competent
authorities  that a measure continues to be necessary and that the industry is
adjusting, before that measure can be extended; and (iii) Article 12.2 which
stipulates notification to the WTO Committee on Safeguards of the safeguardmeasure to be applied?
Answer 18(b)
144. Article 5.1 is the only provision of the Safeguards Agreement that requires a Member to
provide written justification for the particular safegu ard measure it applies, and then only for a certain
class of quantitative restrictions not at issue here.  Nothing in Articles 3.1, 7.2, or 12.2 conflicts with
the Appellate Body’s ruling that no additional justifications are required.
(i) Article 3.1
145. New Zealand and Australia  have suggested that Article 3.1 requires competent authorities to
justify, in the reports they are required to publish under that article, the ultimate safeguard measure
that a Member chooses to apply.  The subject matter of the reports referred to in Article 3.1 are the
findings and conclusions the competent authorities reach based on the investigation they conduct
pursuant to that article.
146. The first sentence of Article 3.1 makes plain that a Member may apply safeguard measures
only after  the Member’s competent authorities have concluded their investigation:
                                                     
136 In Korea–Dairy , the Appellate Body noted (at ¶ 96) that the obligation to ensure that a measure is
“commensurate” applies “whether it takes the form of a quantitative restriction, a tariff or a tariff rate quota.”
(emphasis added).  This is a further indication that the Appellate Body distinguishes between quantitativerestrictions and TRQs.
137 See USITC Report at II-19.WT/DS177/R
WT/DS178/R
Page A-399
A Member may apply a safeguard measure only following an investigation by the
competent authorities of that Member . . .
147. Since the investigation must conclude before a Member applies a safeguard measure, the
competent authorities would not be in a position to know – much less justify – the safeguard measure
that the Member ultimately decides to apply.  Equally, the Member would not be in a position to
decide what safeguard measure to apply (if any) un til the competent authorities have finished their
investigation and presented their report setting forth their basis for finding injury or threat thereof.138
In addition, the competent authorities may not be in  a position to know when they conclude their
investigation what type of an assistance package the Member will be able to provide to the domestic
industry, and the nature of the assistance package will likely affect the Member ’s decision on an
appropriate measure.  Accordingly, Art 3.1 does not – and could not – call on competent authorities to
justify in the reports on their investigations the measures that Members ultimately decide to adopt.
148. Article 3.1 establishes the procedural conditions  that a Member must meet before applying a
safeguard measure.  The Member’s competent authorities must conduct an “investigation” that meets
certain specified transparency and due process standards (public notice, hearings, procedures for
submitting evidence and rebuttals, opportunity to speak for or against the application of safeguard
measure, and so forth).  By its plain terms, the subject matter of Article 3.1 is the proceduralconditions necessary to justify the application of a safeguard measure, rather than the nature of the
measure itself.
149. The subject matter of the competent authority’s investigation is whether the conditions for the
application of safeguard measures, as described in  Article 2.1 and elaborated on in Article 4.2(a),
exist.  Article 2.1 requires Members to have “determined” that certain conditions are present before
applying safeguard measures.  Article 4.2(a) makes clear that “the investigation” the competent
authorities are required to conduct is focused on the question of whether those conditions exist:
In the investigation to determine whether increased imports have caused or are
threatening to cause serious injury to a domestic industry under the terms of this
Agreement, the competent authorities shall evaluate . . . .
150. Thus, the context for Article 3.1 make clear that the investigation referenced in that article is
not the nature of the safeguard measure that the Member ultimately adopts, but the procedural
preconditions for applying a safeguard measure in the first place.  If the competent authorities meetthe substantive and procedural conditions specified in Articles 2.1, 3.1, and 4, no further justification
for applying a safeguard measure is required.
151. Article 3.1 states that the investigation by the competent authorities “shall include . . . public
hearings or other appropriate means in which importers . . . could present evidence and their views,
including . . . their views, inter alia , as to whether or not the application of a safeguard measure would
be in the public interest”.  This requirement does not mean that the competent authorities must justifyin their report the eventual measure that the Member applies.  Article 3.1, second sentence, plainly
refers to views regarding the appropriateness of applying “ a safeguard measure” (emphasis added),
rather than “ the” safeguard measure.
152. Questions regarding whether the “public interest” would be served by the application of a
safeguard measure are simply another facet of the competent authority’s investigation concerning
whether the Member would be justified in applyi ng a safeguard measure of some kind.  Article 3.1,
second sentence, contemplates that the competent authorities will hear views regarding whether
                                                     
138 In this context, it should be noted that the Safeguards Agreement draws a distinction between
“Members” (who apply safeguard measures) and competent authorities who conduct investigations.  See, e.g.,
references in Articles 2.1, 3.1, and 5.1.WT/DS177/R
WT/DS178/R
Page A-400
applying a safeguard measure in the particular circumstances would be good public policy.  It does
not, and could not, require the competent authorities to hear views regarding the particular safeguard
measure the Member decides to apply after the competent authorities conclude their investigation.
153. The “issues of fact and law” referenced in Article 3.1 are those that arise in the course of the
competent authority’s investigation.  As demonstr ated above, “the investigation” concerns the
question of whether increased imports have caused or are threatening to cause serious injury to a
domestic industry.  The investigation called for under Article 3.1 need not address the question of
what particular safeguard measure the Member should appl139139 and, as demonstrated above, the
competent authority is not in a position to examine the measure the Member actually decides to adopt.
Thus, the reasons for the Member’s ultimate safeguard measure do not figure among the “pertinent
issues of fact and law” that the competent authorities must include in their reports under Article 3.1.
In any event, considerations of “public interest” are questions of policy, not issues of law or fact.
(ii) Article 7.2
154. Article 7.2, which establishes conditions for extending safeguard measures, does not require
Members to justify their safeguard measures.  Article 7.1 establishes as a general rule that the periodof a safeguard measure shall not exceed four years.  If a Member wishes to extend a measure beyond
that period of time, Article 7.2 imposes an additional obligation for the competent authority to
reexamine the situation of the domestic industry.  Even if Article 7.2 were interpreted to give rise to
an obligation to “justify” the extension  of a safeguard measure, a question that we are not addressing
here, it does not create an obligation to justify the measure itself.
155. When a competent authority determines whether a basis exists to extend a measure under
Article 7.2, it is in essence predicting the effect on the domestic industry if the measure were revoked.
To make this determination, it is not necessar y for the competent authority to know what the
Member’s reasons were four years earlier for choosing the particular measure it did.  Rather, it simplyexamines the remedy that is already in place.
(iii) Article 12.2
156. Similarly, nothing in Article 12.2 suggests that Members must justify their safeguard
measures. Article 12.2 requires Members to provide the Committee with  “all pertinent information,
which shall include evidence of serious injury or threat thereof caused by increased imports, precise
description of the product involved and the proposed measure, proposed date of introduction,
expected duration and timetable for progressive liberalization”.  The types of information listed in
Article 12.2 are all factual in nature, and do not require legal or economic judgments or conclusions of
the type that would be needed to justify a safeguard measure under Article 5.1.
157. Given the list of examples, the “pertinent information” called for in Article 12.2 is of a type
that would inform the Committee of particular  facts  arising either out of the competent authority’s
investigation (product, evidence of serious injury) or the decision to apply a safeguard measure (form
of the measure, its duration, and so forth).  A “justification” by contrast would not be a factual
description, but rather a kind of argumentation.  Article 12.2 specifically requires Members to provide“evidence ” of serious injury or threat thereof, but does not mention “evidence” of compliance with
Article 5.1.  This suggests that the drafters did not vi ew such evidence as “pertinent information” and
adds to the conclusion that Article 12.2 does not impose a justification requirement.
(c) In the light of the transparency and notification requirements under the
Safeguards Agreement which at a minimum apply to the investigation, how does
                                                     
139 In this respect, the USITC practice of soliciting public views on an appropriate remedy goes beyond
what Article 3.1 requires.WT/DS177/R
WT/DS178/R
Page A-401
the United States substantiate its apparent view that the Safeguards Agreement
effectively contains no transparency and explanation requirements concerning
the application of Article 5.1?  How in your view should the burden of proof be
allocated under Article 5.1?
Answer 18(c)
158. The United States disagrees with the premise of the panel’s first question.  The Safeguards
Agreement does contain transparency and explanation requirements concerning the application of
Article 5.1, in that Article 12.2 requires  that a Member notifying a safeguard measure provide a
“precise description of the product involved and the proposed measure, proposed date of introduction,
expected duration and timetable for progressive liberalization”.
159. This transparency requirement marks an important advance from the situation that pertained
in the past.  The notification requirements in Article XIX of the GATT 1947  were minimal, amounting
to little more than the need to “give notice” of the intention to take action under the article and to give
other parties an opportunity to consult.  There were, of course, no notification requirements
whatsoever for “grey-area” measures.  The Safeguards Agreement addresses this situation byestablishing a minimum level of required transparency that applies to all safeguard measures.
160. Moreover, Article 5.1, second sentence, contains a justification requirement for certain
safeguard measures.  Article 5.2(b) contains a similar justification requirement for “ selective”
allocation of quantitative restrictions.  The fact that the drafters of the Safeguards Agreement felt aneed to include these particularized justification requirements in Article 5 suggests that they did not
consider that any other provision of the Safeguards Agreement imposed a general justification
requirement.
161. Finally, given the requirement in Article 3 to publish a report of the competent authority’s
investigation (which must include findings and re asoned conclusions on the injury factors contained
in Article 4.2(c)) and the requirement in Article 12.2 to provide a precise description of the safeguard
measure, there is no compelling need for Members also to provide written justifications of their
safeguard measures.  The question of whether a Member has applied a safeguard measure that is
commensurate with the serious injury or threat of serious injury that domestic producers havesustained should be discernible by examining the measure in light of the findings and determinations
set out in the competent authority’s report.
162. Regarding the Panel’s second question, it is well established that the complainant has the
burden of presenting a prima facie  case of noncompliance with the terms of a covered agreement.
140
Therefore, in this case, the burden is on Australia and New Zealand to demonstrate that the US
safeguard measure was not applied “only to the extent necessary to remedy or prevent serious injury
and to facilitate adjustment.”  The United States discussed its view of an appropriate analytical
framework at ¶ 210 of its first written submission.  If Australia and New Zealand were to meet their
burden, the United States would then be obliged to bring evidence and argument to rebut their prima
facie case.  In no event, however, would the United States be obliged to “ justify” the US measure.
New Zealand and Australia have not begun to meet their burden on this issue, which is not surprisinggiven the restrained nature of the measure the United States put in place.
                                                     
140 See Report of the Appellate Body in Wool Shirts  (at 16)  (stating that it “was up to India to present
evidence and argument sufficient to establish a presumpt ion that the transitional safeguard determination made
by the United States was inconsistent with its obligations under Article 6 of the ATC.  With this presumption
thus established, it was then up to the United States to bring evidence and argument to rebut the presumption.”).See also id . at 17 (“[W]e find it difficult, indeed, to see how any system of judicial settlement could work if it
incorporated the presumption that the mere asse rtion of a claim might amount to proof. . . .”)WT/DS177/R
WT/DS178/R
Page A-402
163. Australia’s and New Zealand’s argument that the United States was required to “justify” its
safeguard measure is in essence an improper attempt to shift the burden of proof under Article 5.1 to
the United States.  Their approach in this regard is reminiscent of the Panel’s conclusion in Hormones
that the SPS Agreement allocated the “evidentiary burden” to the Member imposing an SPS measure.
The Appellate Body (at ¶ 99 et seq .) rejected the Panel’s conclusion on the grounds that:
[i]t does not appear to us that there is any necessary (i.e. logical) or other connection
between the undertaking of Members to ensure, for example, that SPS measures are
“applied only to the extent necessary to protect human, animal or plant life or health .
. .”, and the allocation of burden of proof in a dispute settlement proceeding.  Article
5.8 [of the SPS Agreement] does not purport to address burden of proof problems; it
does not deal with a dispute settlement situation. . . .141
164. Like Article 5.8 of the SPS Agreement, Article 5.1 of the Safeguards Agreement “does not
purport to address burden of proof problems; it doe s not deal with a dispute settlement situation”.
Therefore, the United States submits that the Appellat e Body’s ruling with respect to Article 5.8 of the
SPS Agreement is equally valid with respect to Article 5.1 of the Safeguards Agreement.  As the
Appellate Body stated in Wool Shirts  (at 19), “a party claiming a violation of a provision of the WTO
Agreement by another Member must assert and prove its claim”.
Question 19
In its first submission, in paragraphs 210 et seq.  the United States proposes a four-step
test for examining compliance with the requireme nts of Article 5.1 and applies the first three
steps thereof to the lamb safeguard measure.  Co uld the United States complete the application
of its test with respect to item (iv), i.e., an as sessment of “whether the measure, in its totality, is
more restrictive than required both to prevent se rious injury from occurring and to assist the
industry in adjusting to import competition”?  Where in its submission or any published source
can information be found on that item, including economic modelling, if any?
Answer 19
165. Please see response to Question 17.  The United States would add two additional points on the
specific questions posed here.
166. While Article 5.1 plainly prohibits Members from applying measures that are manifestly
excessive, it cannot be interpreted as imposing a requirement to identify and apply a hypothetically
perfect import remedy.  Because it is an uncertain  enterprise, in which Members are called upon to
make predictions about the economic effect of a measure that has not yet been proposed, the
application of a safeguard measure simply is not capable of that degree of fine tuning.  This point was
recognized by the Committee that reviewed the United States’ application of an Article XIX measurein the case on Hatters’ Fur :
the Working Party considered that it is im possible to determine in advance with any
degree of precision the level of import duty necessary to enable the United States
industry to compete with overseas suppliers in the current competitive conditions ofthe United States market, and that it would be desirable that the position be reviewed
                                                     
141 EC Measures Concerning Meat and Meat Products (Hormones) , WT/DS26/AB/R,
WT/DS48/AB/R, Report of the Appellate Body, 16 January 1998, at ¶ 102.WT/DS177/R
WT/DS178/R
Page A-403
by the United States from time to time in the light of experience of the actual effect of
the higher import duties . . . .142
167. The Working Party’s observation on the impossibility of predicting the future with any degreeof precision raises another factor that militates against an overly rigid approach to interpreting
Article 5.1:  Article 7.4 of the Safeguards Agreement requires Members progressively to liberalize
their safeguard measures over time and, by corollary, not to increase them – even if events after themeasures are imposed indicate that they are failing to prevent or remedy serious injury and facilitate
adjustment.  New Zealand and Australia have urged a reading of Article 5.1 that would require
Members to apply theoretically ideal safeguard measures, with import restraints set at levels just shy
of the line of ineffectiveness.  That reading would risk frustrating the purpose of the Safeguards
Agreement and Article XIX of GATT 1994 by withholding the latitude that Members must have to
ensure that the measures they apply have a real prospect of success.
168. Finally, the United States notes the Panel’s reference in its question to the economic model
that the United States used in attempting to predict the effects of its safeguard measure.  Article 4 of
the Safeguards Agreement establishes that an injury finding requires the examination of a number of
factors, none of which is dispositive, and all of which may respond differently to a particular type of
safeguard measure.  Consequently, no amount of modelling can establish the necessity or lack thereofof any particular measure.  While the United States did use a model to test the possible effects of its
measure, nothing in Article 5.1 required modelling or makes the results of such models a sound basis
for judging a measure’s compatibility with that article.
169. Given that the application of safeguard measures is fundamentally a predictive -- and thus
necessarily speculative and imprecise -- exercise, Article 5.1 cannot be read to require Members to
achieve scientific exactitude in calibrating those measures.  No economic model is infallible – there
are simply too many economic variables (changes in exchange rates, consumer tastes, macroeconomic
or fiscal conditions, technology) for a model to serve as anything other than an imperfect tool in
deciding how a particular measure should work if all other variables are held constant.
170. In sum, safeguard measures cannot be applied with scientific certainty, and Article 5.1 cannot
be fairly read to require it.  Rather, as the United States stated in its first written submission, the
proper inquiry under Article 5.1 is whether there is an evident mismatch between the safeguard
measure, taken in its totality, and the finding and determinations set out in the competent authority’s
report.  The burden of demonstrating a failure to comply with Article 5.1 is on New Zealand and
Australia.  To-date, they have failed to meet their burden.
Question 20
Assuming that the application of a safe guard measure other than a quantitative
restriction has to be justified under Article 5 if it is challenged as exceeding the extent necessary
to prevent threat of serious injury and to facilitate adjustment, (i) should such justification be
based on information contained in the published report, (ii) would it suffice to show that the
justification presented is based on information available to the competent authority at the time
of the determination, or (iii) could a justification be based on information submitted ex post
during a WTO dispute?
Answer 20
171. The United States believes that it will be possible to discern in most (if not all) cases whether
there is a substantial mismatch between the safeguard measure applied and the relevant findings and
                                                     
142 Report on the Withdrawal by the United States of a Tariff Concession under Article XIX of the
General Agreement on Tariffs and Trade, GATT/CP/106, report adopted on 22 October 1951, ¶ 35.WT/DS177/R
WT/DS178/R
Page A-404
determinations in the competent authority’s report, and therefore whether the measure is
“commensurate with the goals of preventing or remedying serious injury and facilitating
adjustment".143  However, it is up to the complainant to establish a prima facie  case that such a
mismatch exists, at which time the defendant will be obliged to come forward with evidence and
argument sufficient to rebut the prima facie  case.
Question 21
Is it the US interpretation of Article 5 that:(a) this article allows Members to freely choose between different types of safeguard
measures (e.g., tariff surcharges, tariff rate quotas, quantitative restrictions)?
Answer 21 (a)
172. As a preliminary matter, the United States notes that New Zealand and Australia have not
questioned the United States’ selection of a TRQ, a nd indeed have suggested that they approve of the
USITC plurality’s recommended safeguard measure, which also took the form of a TRQ.
173. Turning to the Panel’s question, the United States considers that a Member is permitted to
choose between tariff surcharges, tariff rate quotas, and quantitative restrictions provided that the
selected measure is applied “only to the extent necessary to prevent or remedy serious injury and to
facilitate adjustment”.  This conclusion is supported by the second sentence of Article 5.1, whichstates that “if a quantitative restriction is used,” thereby demonstrating that a Member has discretion
in choosing among measures.
174. Article 6 provides further support for this conclusion, since it states that provisional measures
“should take the form of tariff increases . . . ”.  Article 5, concerning definitive safeguard measures,contains no parallel provision.  Plainly, the drafte rs of the Safeguards Agreement knew how to limit
the universe of permissible measures when they wanted to do so.  The fact that they did not do so in
Article 5 reflects that they did not intend to impose such a limitation as to definitive measures.
175. It is worth observing that early in the negotiation of the Safeguards Agreement some parties
argued that safeguard measures should be limited to tariff increases.
144  The first “chairman’s draft”
reflected a compromise view, stating that safeguard measures “should preferably take the form of
tariff increases, but may also take the form of quantitative restrictions".145  In the final text, the
preference for tariff increases was deleted, appare ntly in favour of the admonition in the third
sentence of Article 5.1 that Members should choose measures “most suitable” for the achievement of
the objectives in the remainder of the paragraph.146  The outcome of the negotiations on this point
reflected Member practice in choosing among a wide variety of safeguard measures.147
176. Finally, in Korea– Dairy , the Appellate Body stated (at ¶ 96) that “[w]hether it takes the form
of a quantitative restriction, a tariff or a tariff rate quota, the measure in question must be applied
                                                     
143 Korea–Dairy , Report of the Appellate Body at ¶ 96.
144 See, e.g., Elements for a Comprehensive Understanding of Safeguards, Communication from Brazil ,
MTN.GNG/NG9/W/3, ¶ 6 (25 May 1987).
145 MTN.GNG/NG9/W/25 at 4.
146 Compare  Negotiating Group on Safeguards, Draft Text of an Agreement ,
MTN.GNG/NG9/W/25/Rev. 3 (31 October 1990), ¶ 6 (containing the preference for tariff increases but not
referencing the “most suitable” measures) with Safeguards Agreement, Art. 5.1.
147 See Guide to GATT Law and Practice (GATT Analytical Index), vol. I, at 522-23 (discussing the
wide variety of safeguard measures notified under Article XIX).WT/DS177/R
WT/DS178/R
Page A-405
“only to the extent necessary . . . ”.  This suggests at a minimum that the Appellate Body views these
three types of measures as permissible under Article 5.
(b) once a measure other than a quantitative restriction has been chosen, if
challenged by another Member, the Me mber imposing the safeguard measure
has to show that, in its totality, e.g., the size of the tariff rate quota, its duration,the in-quota and out-of-quota tariffs, etc., the measure is no more restrictive
than required to achieve the dual objectives of Article 5.1?
Answer 21(b)
177. The burden is on the complaining party to demonstrate that the measure was  not applied “only
to the extent necessary to prevent or remedy the serious injury and to facilitate adjustment”.  If thecomplainant establishes a prima facie  case that the measure was not applied “only to the extent
necessary”, the defendant will then be obliged to provide facts and evidence sufficient to rebut the
prima facie   case.
178. As the Appellate Body stated in Wool Shirts  (at 16), “it was up to India to present evidence
and argument sufficient to establish a presumption that the transitional safeguard determination made
by the United States was inconsistent with its obligations under Article 6 of the ATC.  With this
presumption thus established, it was then up to the United States to bring evidence and argument to
rebut the argument”.  To paraphrase the Appellate Body ( id. at 19-20), the Safeguards Agreement is a
fundamental part of the rights and obligations of  WTO Members.  Consequently, a party claiming a
violation of a provision of the Safeguards Agreement must assert and prove its claim.
Question 22
Article 5.1 provides that “a Member shall appl y safeguard measures only to the extent
necessary to prevent . . . serious injury and to facilitate adjustment”.  In order to fulfill that
standard, does a Member imposing a safeguard measure have to apply, e.g., (i) an “effective”
measure, (ii) the least-trade restrictive measure,  (iii) a “proportionate” measure, or something
else?
Answer 22
179. In the view of the United States, a Member applying a safeguard measure is not obliged to
apply an “effective” measure.  While a Member presumably will seek to do so, Article 5.1 imposes no
such legal obligation.  A Member may choose to apply a measure that may not be fully effective if,
for example, the Member concludes that the public interest, or broader economic concerns, supports
such an approach.  In addition, since a Member may elect to apply both a safeguard measure and
domestic adjustment measures, it is possible that the import relief may not be fully “effective” on its
own.
180. As the United States explained in its first written submission (at ¶¶ 182-191), a Member is not
obliged to apply the single “least trade restrictive measure”.
181. Finally, in Korea–Dairy , the Appellate Body stated that a safeguard measure should be
“commensurate” (or, more properly for purposes of this proceeding, not “incommensurate”) with the
goals of preventing or remedying serious injury and facilitating adjustment.  That appears to be a
somewhat more appropriate way to describe the standard that Article 5.1, first sentence imposes thanthe concept of “proportionality.”  The latter might be understood as suggesting that remedy decisions
can be reduced to simple mathematical exercises, while the former better captures the complexities
and judgments inherent in selecting a safeguard measure.WT/DS177/R
WT/DS178/R
Page A-406
Is the exclusion of Canada, Mexico and Israel fr om  the safeguard measure consistent with the
Safeguards Agreement and GATT 1994?
Question 23
Is it factually correct that the United States included imports from NAFTA countries in
its analysis of threat of serious injury and causation, and yet excluded those imports from the
application of the measure?  If not, please explain.  Please indicate whether the approach taken
by the United States in this case is consistent wi th the "parallelism principle" as endorsed by the
Appellate Body in Argentina - Footwear, and if so, please indicate whether this is because (i)
NAFTA Article 802 would exclude imports from other NAFTA countries de jure from the
injury and causation investigation; or (ii) because the imports from other NAFTA countries
were negligible in this case; or for some other reason.  Was the decision to exclude imports fromcertain sources based on a purely static analysis  of import shares, or did the USITC also take
into account the potential increase of imports from sources of supply that were exempted from
the application of the safeguard measure relative to imports from sources that were subject to
the safeguard measure?
Answer 23
182. As a factual matter, the only lamb meat imports from Mexico during the investigatory period
were 202,000 pounds in 1995, accounting for approximately 0.4 per cent of total imports in that year.
There were no imports from Mexico during the final three years of the investigatory period, andtherefore no imports to include in the USITC’s analysis of threat of serious injury and causation.
Similarly, imports from Canada ranged from a low of approximately 0.005 per cent of total imports
(in 1993) to a high of approximately 0.3 per cent of total imports (in 1997).
183. Thus, imports of lamb meat from Canada were negligible throughout the investigatory period.
At no time during 1993-98 did imports from Mexico and Canada collectively exceed even one-half of
one per cent of total imports.  Thus, as a practical matter Canadian and Mexican imports did not
figure into the USITC’s analysis of the effect of increased imports – for the simple reason that they
remained at negligible levels throughout.
184. The United States does not understand the Appellate Body to have established a broad
requirement of “parallelism” given the fact-specific nature of the Footwear dispute.  Nevertheless, the
procedures contemplated by NAFTA Article 802, and em ployed by the United States in the case of its
lamb meat safeguard, satisfy the purpose of the “parallelism” notion the Footwear  Panel articulated.
That idea is to ensure that when a Member attribut es serious injury to increased imports originating in
the territory of a country that is a party to a customs union (or FTA, in this case), those imports should
be included in the safeguard measure the Member determines to apply.  NAFTA Article 802, and USlaw implementing that provision, provide for the inclusion of FTA imports in a US safeguard measure
in such cases.
185. In the case at issue, due to the fact that imports from Canada and Mexico were either zero or
considerably less than one per cent in each year investigated, the United States could not have actedinconsistently with any “parallelism” principle.
Request for information
Question 24
Please provide the following documents:WT/DS177/R
WT/DS178/R
Page A-407
(a) The confidential version of the USITC' s determination (i.e., pages I-7 to I-27 of
the USITC report).
(b) The following tables from Section II of the USITC's report:   Tables 3, 4, 8, 9, 14,
16, 18, 21, and 38-43.
Please indicate what sort of procedures would be necessary in your view to protect the
business confidential information contained in the above-requested documents.
Answer 24
186. The United States proposes that the panel accept the requested information in indexed form.
In brief, the United States proposes to assign an index of 100.0 to the first number in a series andexpress each subsequent number as a ratio to the first, multiplied by 100.  While such an approach is
not available in all proceedings, the USITC investigative staff has concluded that in this case almost
all of the requested information can be so conv erted and provided to the panel without risking
disclosing any firm’s confidential information.   Accordingly, by following this method, the
United States can provide the panel the substance of the data requested in a form that need not besubject to special confidentiality procedures.  The indexed numbers would permit the panel to
recognize trends and calculate per cent changes between any two periods, consecutive or
non-consecutive.  This procedure has been applied to all data in the requested tables, and the results of
that indexing accompany this submission.  As to the requested information in the report, in most
instances, confidential data are percentage changes based on data in the tables.  The Panel cancalculate these percentage changes from information obtained from the USITC’s indexing of the
tables.
187. This submission allows the Panel access to the requested data without requiring the competent
authority, as required by Article 3.2 of the Safeguards Agreement, to seek consent for disclosure ofthe actual confidential data to the Panel.  USITC investigative staff have expressed concern that
making such requests will impede the USITC’s ability to obtain updated confidential data as part of
the agency’s “mid-point review” of the safeguard action on lamb meat.  Section 204 of the Trade Act
of 1974, as amended, requires the USITC to monitor developments with respect to any safeguard
action so long as it remains in effect.
148  Specifically, the USITC is to monitor the progress and efforts
made by the domestic industry to make a positive adjustment to import competition under the
safeguards action149, and, if the action remains in effect for more than three years, the USITC is to
prepare a report on its findings.150  The USITC is to submit its report to the President and the
Congress no later than the date that is the mid-point of the initial period during which the action is in
effect.151
188. USITC staff are beginning investigative work in connection with the “mid-point review” ofthe safeguard on lamb meat.  They believe that asking companies who submitted information in
confidence to the USITC during the original investig ation to disclose that information in the Panel
proceeding will have a chilling effect on the agency’s ability to gather new information. This is
particularly the case because disclosure in unindexed form of much of the data the panel requested
would require consent from companies, includin g importers and foreign producers, who, in the
original investigation, did not support the requested relief.  Many were already reluctant to provide
confidential business information.  Consequently, there is reason to believe that the necessary
consents might well not be forthcoming and, even if they were, would be liable to lead firms to resist
making further disclosures to the USITC.  In brief, the United States believes that submitting the
                                                     
148 19 U.S.C. § 2254(a)(1), attached hereto as US Exhibit 40.
149 19 U.S.C. § 2254(a)(1).
150 19 U.S.C. § 2254(a)(2), attached hereto as US Exhibit 40.
151 19 U.S.C. § 2254(a)(2).WT/DS177/R
WT/DS178/R
Page A-408
requested information to the Panel in indexed form optimally satisfies the Panel’s request while not
compromising the competent authority’s ability to conduct further investigative efforts.152
189. If the Panel believes that accepting the requested information in indexed form is not
satisfactory, then the United States respectfully suggests that procedures similar to those that the Panel
in the Wheat Gluten  dispute proposed on February 24, 2000 would be most likely to enable the
United States to obtain the necessary consent from the information submitters.153
                                                     
152 The indexed information is attached hereto as US Exhibit 41.
153 See Fax from Jasper Wauters, Rules Division,  to Mr. J. J. Bouflet and Mr. D. Brinza , dated
24 February 2000.  The proposal suggested in pertinent part that:
No more than two representatives of the United States would bring the requested information
to a designated location at the premises of the WTO in Geneva on [date].  The Panel, two
professional staff of the WTO Secretariat, and no more than two representatives of theEuropean Communities would review the information exclusively in camera.  No photocopiesof the information would be permitted.  The Panel, the two professional staff of the WTOSecretariat, and the representatives of the European Communities may take written summary
notes of the information for the sole purpose of the Panel process.  These individuals would be
under an obligation not to disclose the information, or to allow it to be disclosed, to any
person.  Any such notes would be destroyed at the conclusion of the Panel.  While the Panelwould be under an obligation not to disclose the information in its report, it could makestatements of conclusion drawn from such information.WT/DS177/R
WT/DS178/R
Page A-409
LIST OF US EXHIBITS
United States – Safeguards Measures on Imports
of Lamb Meat from New Zealand and Australia
US Exhibit Description
20. USITC Hearing Transcript at 164
21. 57 Stat. 833 (1943), E.A.S. 311 (effective 30 January 1943)22. Reciprocal Trade Agreements Act of 193423. John Jackson, World Trade and the Law of GATT  553 (1969)
24. Exec. Order No. 9832 of 25 February 1947
25. Extending Authority to Negotiate Trade Agreements, Hearings before the
Committee on Finance, United States Senate , H.R. 6556, at 128 (1948)
26. United States Tariff Commission, Hand-Blown Glassware , Report to the
President on Investigation No. 22 Under Section 7 of the Trade AgreementsExtension Act of 1951, as amended, at 51-52 (1953)
27. Fresh Tomatoes and Bell Peppers , Inv. No. TA-201-66, USITC Pub. 2985
(Aug. 1996), at I-9-10
28. Apple Juice , Inv. No. TA-201-59, USITC Pub. 1861 (June 1986), at 5-10
29. Certain Canned Tuna  Fish, Inv. No. TA-201-53, USITC Pub. 1558
(Aug. 1984), at 5-7
30. Webster’s Third New International Dictionary (Unabridged)  at 1810 (1981)
31. Webster’s New Collegiate Dictionary at 918 (1977)
32. Webster’s Ninth New Collegiate Dictionary  at 838 (1985)
33. Webster’s Third New International Dictionary (Unabridged)  at 355, 356,
1317 (1981); New Shorter Oxford English Dictionary  (1993) at 355, 356.
34. Webster’s Ninth New Collegiate Dictionary at 217, 695 (1985)
35. Testimony of Joseph Casper, transcript of injury hearing at 2236. Testimony of Harold Harper, transcript of injury hearing at 3037. 19 U.S.C. 2252(b)(1)(B)
38. Petition For Relief From Imports of Lamb Meat Under Section 201of the
Trade Act of 1974, dated 30 September 1998, at 4, 5
39. 19 C.F.R. § 206.14(b)(3)WT/DS177/R
WT/DS178/R
Page A-410
40. 19 U.S.C. § 2254(a)(1), (2)
41. Indexed Tables42. Media Release of 7 July 1999 by Deputy Prime Minister and Minister for
Trade Tim Fischer.WT/DS177/R
WT/DS178/R
Page A-411
ANNEX 3-8
SECOND SUBMISSION OF THE UNITED STATES
(29 June 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ............................................................................................................. 413
II. THE “UNFORESEEN DEVELOPMENTS” PROVISION OF ARTICLE XIX:1 OF
THE GATT 1994 WAS FULFILLED.............................................................................. 413
A. A RTICLE XIX D OES NOT REQUIRE A FINDING OF “UNFORESEEN DEVELOPMENTS ” ......... 413
B. C OMPLAINANTS FAIL TO CHALLENGE THE FACTS DEMONSTRATING THE EXISTENCE OF
UNFORESEEN DEVELOPMENTS ............................................................................................ 416
III.  THE DEFINITION OF “DOMESTIC INDUSTRY” USED IN THE USITC’S
INVESTIGATION WAS CONSISTENT WITH THE SAFEGUARDS AGREEMENTAND GATT 1994................................................................................................................ 41 7
IV. THE USITC DEMONSTRATED THAT THE DOMESTIC INDUSTRY FACED A
“THREAT OF SERIOUS INJURY” DUE  TO “INCREASED IMPORTS” ............... 419
A. C
OMPLAINANTS ’ ARGUMENTS TO THE CONTRARY IGNORE THE REQUIREMENT TO EXAMINE
THE MOST RECENT TRENDS AND ARE BASED ON ALTERNATIVE THEORIES NEITHER
REQUIRED BY THE SAFEGUARDS AGREEMENT NOR SUPPORTED BY THE EVIDENCE OF
RECORD ............................................................................................................................... . 419
B. N EW ZEALAND ’S EXHIBIT NZ13 IS INADMISSIBLE AS AN ATTEMPT TO HAVE THIS PANEL
ENGAGE IN DE NOVO  REVIEW AND DEMONSTRATES NEW ZEALAND ’S FAILURE TO ADDRESS
THE USITC’ S FINDINGS CONCERNING THE CHANGE IN THE IMPACT OF IMPORTS ............. 422
1. The Factual Conclusions Drawn By Exhibit NZ13 Are Inadmissible Before This
Panel.......................................................................................................................... .......... 422
2. NZ13 Fails To Take Into Account The Ch ange In Product Mix That The USITC Found
Changed the Nature of the Effects of Imports ................................................................ 424
V. THE USITC’S CAUSATION DETERMINATION WAS CONSISTENT WITH THE
SAFEGUARDS AGREEMEN T AND THE GA TT 1994............................................... 425
A. T HE NEGOTIATING HISTORY OF THE SAFEGUARDS AGREEMENT DEMONSTRATES THAT THE
DRAFTERS DID NOT INTEND TO CREATE A “SOLE CAUSE ” OR IMPORT “ISOLATION ”
REQUIREMENT ...................................................................................................................... 425
B. N EW ZEALAND PRESENTS NO COLOURABLE ARGUMENT WHY AN AUTHORITY MUST
“ISOLATE ” THE EFFECTS OF IMPORTS AND DETERMINE THAT THEY ALONE ARE THE CAUSE
OF SERIOUS INJURY .............................................................................................................. 433
C. A USTRALIA PRESENTS NO COLOURABLE ARGUMENT WHY AN AUTHORITY MUST OBTAIN
A“PROSPECTIVE ANALYSIS ” OF EFFECTS OF IMPORTS IN ORDER TO REACH A THREAT
DETERMINATION .................................................................................................................. 434WT/DS177/R
WT/DS178/R
Page A-412
VI. THE US SAFEGUARD MEASURE COMPLIES WITH US OBLIGATIONS UNDER
ARTICLE 5.1 OF THE SAFEGUARDS AGREEMENT AND ARTICLE XIX OF THE
GATT 1994 ...................................................................................................................... ... 434
A. B URDEN OF PROOF ............................................................................................................... 435
B. “N ECESSARY ” DOES NOT MEAN “LEAST TRADE RESTRICTIVE ”........................................ 435
C. N EW ZEALAND AND AUSTRALIA HAVE FAILED TO ESTABLISH A PRIMA FACIE  CASE........ 436
1. New Zealand’s Arguments Are Based on a False Premise............................................. 436
2. Australia’s Further Argument Fails to Demonstrate that the US Measure is Being
Applied Beyond “the Extent Necessary” ......................................................................... 439
VII. THE UNITED STATES PROPERLY EXCLUDED CANADIAN AND MEXICAN
IMPORTS FROM ITS SAFEGUARD ME ASURE ....................................................... 440
VIII. CONCLUSION ................................................................................................................ .. 442
LIST OF US  EXHIBITS ............................................................................................................ .... 443WT/DS177/R
WT/DS178/R
Page A-413
I. INTRODUCTION
1. Australia and New Zealand have failed to demonstrate that the United States’ safeguard
measure on lamb meat is inconsistent with US obligations under the Agreement on Safeguards  and
Article XIX of the GATT 1994 .  In its first written submission, and in its response to the Panel’s
written questions, the United States demonstrated that the findings and economic conclusions of the
USITC in this matter were carefully reasoned and amply articulated, and that the safeguard measure
applied by the United States is fully in accordance with US obligations under the Safeguards
Agreement and the GATT 1994 .  The United States also demonstrated that it fully satisfied the
notification and consultation provisions of the Safeguards Agreement.
2. The United States does not intend to duplicate its earlier arguments in this second written
submission.  Instead, this submission will focus on issues raised by New Zealand and Australia in
their first oral statements and in their responses to the Panel’s Questions.1  For the Panel’s
convenience, this submission is structured in accordance with the order of the Panel’s questions to the
United States.
II. THE "UNFORESEEN DEVELOPMENTS" PROVISION OF ARTICLE XIX:1 OF
THE GATT 1994 WAS FULFILLED
3. The Appellate Body has confirmed that the reference to “unforeseen developments” in the
first clause of Article XIX:1(a) does not establish an independent condition for the application ofsafeguards measures.  Therefore, contrary to the arguments of Australia and New Zealand, the USITC
was not required to make a finding of “unforeseen developments” in its report.  The Panel should
reject their attempt to read such a requirement into the text.
A. ARTICLE XIX DOES NOT REQUIRE A FINDING OF "UNFORESEEN
DEVELOPMENTS"
4. The United States has explained at length why Article XIX:1(a) does not require competent
authorities to make a specific finding of “unforeseen developments."
2  Basic rules of treaty
interpretation affirm the United States’ view.
5. Article 31 of the Vienna Convention  states that a treaty “shall be interpreted in good faith in
accordance with the ordinary meaning to be given to th e terms of the treaty in their context and in the
light of its object and purpose.”  Moreover, in accordance with Article 31.3, a treaty interpreter shall
also take into account “any subsequent practice in the application of the treaty which establishes the
agreement of the parties regarding its interpretation."3  As the International Law Commission
observed:
The importance of such subsequent practice in the application of the treaty, as an
element of interpretation, is obvious; for it constitutes objective evidence of the
understanding of the parties as to the meaning of the treaty.4
                                                     
1 In particular, although it was one of the issues that the Panel identified as crucial at the First
Substantive Oral Session, this submission will not further discuss the representativeness of the USITC’s data.The United States has addressed that issue at length in both its First Written Submission and its response to thePanel’s questions, and Australia and New Zealand have raised no new arguments on the matter.
2 See US Responses to Questions by the Panel at ¶¶ 1-8, 14-27.
3 Vienna Convention , Art. 31.3(b).
4 Report of the International Law Commission on the Work of its Eighteenth Session , Yearbook of the
International Law Commission, 1966, vol. II, at 221, attached hereto as US Exhibit 43.WT/DS177/R
WT/DS178/R
Page A-414
Subsequent practice by GATT Contracting Parties confirms that the reference to “unforeseen
developments” in Article XIX was not meant to require a finding on this subject as a precondition for
the application of safeguard measures.
6. In 1973, the GATT Secretariat prepared a factual note that discussed existing safeguard
provisions, including the safeguard provision embodied in GATT Article XIX.5  The Secretariat
explained that “a contracting party having recourse to Article XIX must show that:
(a) the product in question is being imported in increased quantities;(b) the increased imports are the result of unforeseen developments and of the effect of
obligations under the GATT; and
(c) the imports enter in such increased quantities and under such conditions as to cause or
threaten serious injury to domestic producers of like or directly competitive
products."
6
7. The Secretariat observed, however, that:
The most important case for the interpretation of these conditions is the first recourse
to Article XIX by the United States on women’s fur felt hats and hat bodies . . .  It is
fairly clear from this and subsequent cases that the conditions under (b) above do not,in fact, place any significant constraint on the freedom of action of a contracting party
wishing to invoke the Article.  The conditions under (a) and (c), on the other hand,
limit this freedom of action."
7
8. Illustrative of the Secretariat’s observation that the GATT Contracting Parties did not viewthe  “unforeseen developments” language of Article XIX as constraining their application ofsafeguard measures is the safeguard practice of Au stralia and New Zealand.  A table prepared by the
GATT Secretariat in 1995 indicates that Australia was responsible for 38 of the 150 Article XIX
actions notified to the Secretariat between 1950 and 1995.
8 Based on an examination by the United
States in connection with this proceeding, in 37 of those 38 cases Australia failed to identify any
“unforeseen developments” underlying its action.
9. Similarly, the single safeguard action notified by New Zealand (in 1975) makes no mention of
“unforeseen developments”.  Thus, practice by the complainants themselves suggests that they
perceived no need for their competent authorities to stake their affirmative determinations under
Article XIX on a finding of “unforeseen developments”.  Indeed, as New Zealand observes in
response to Panel Question one:
[a] Member need not prove that in the particular case it could not have foreseen or did
not foresee a given development occurring after it incurred obligations under GATT
1994.  It is not required that the developments be ‘unforeseeable’, or ‘incapable of
being foreseen or anticipated.'9
                                                     
5  Safeguards, Factual Note by the Secretariat, Revision, COM.IND/W/88/Rev.1 (18 January 1973).
6 Id. at ¶ 6.
7 Id.
8 See Guide to GATT Law and Practice, vol.I, at 539-559 (1995) (GATT Analytical Index).
9 New Zealand's Response to Panel Question One at 2.WT/DS177/R
WT/DS178/R
Page A-415
10. United States practice under Article XIX has been similar.  As noted by a US
negotiator of the ITO Charter and GATT 1947 in connection with the Hatters’ Fur  case:
“ . . .At that time one of the difficulties facing the United States hat industry was the
increasing practice of going without hats.  Czechoslovakia and other countries argued
that this trend, as well as the increase in imports presumptively resulting from thetariff concession, could reasonably have been foreseen and hence that the escape
clause was not applicable.  The answer to this argument is simple: under United
States trade-agreements procedures, whatever may be the practices of other countries,
trade-agreements concessions are not made if future developments such as to cause
injury to flow from the concession are in fact foreseen. Therefore, the reference to
“unforeseen developments” in GATT was meaningless as far as United States
obligations were concerned . . ."
10
11. The negotiating history of the Safeguards Agreement demonstrates that the Negotiating
Group on Safeguards did not intend to change the prevailing view that safeguards measures need not
be based on a finding of unforeseen developments.  The initial Chairman’s draft text included among
the conditions for applying safeguards measures a requirement that the increase in imports must have
been “unforeseen”.11  In the Chairman’s 15 January 1990 revised text, the term “unforeseen” was
replaced with the term “unexpected”.  12  In a 23 January 1990 submission, Mexico proposed certain
modifications to the draft text, including the reinsertion of “unforeseen” for “unexpected” and a
rephrasing of the entire sentence to read as follows:
there has been an unforeseen, sharp and substantial increase in the quantity of such
product being imported; as a result of unforeseen developments and of the effect
of the obligations, including tariff conc essions, incurred by a contracting party
under the General Agreement;13
12. Mexico’s proposed changes were not adopted.  Indeed, in a subsequent meeting of the
Negotiating Group, it was proposed that the term “unexpected” be deleted entirely.14  The term was
dropped in the Chairman’s July 1990 draft text, and it did not reappear.
13. In summary, the practice of the Contracting Parties under the GATT 1947 reflected an
understanding that safeguard measures under Article XIX did not need to be based on findings of
“unforeseen developments.”  The decision of the Negotiating Group not to carry the “unforeseendevelopments” language of Article XIX:1(a) forward into the Safeguards Agreement was consistent
with this long-established practice.  Based on that practice, there is no reason to conclude that
                                                     
10  J. Leddy, “The Escape Clause and Peril Points under the Trade-Agreements Program,” pp. 124-173
in W.B. Kelly (ed.), Studies in United States Commercial Policy  (1963), at p. 136, attached hereto as US Exhibit
44.  Mr. Leddy notes:  “One may wonder why, if the ph rase is meaningless, it was inserted in the escape clause
in the first place. The best explanation seems to be that  the administrators of the trade-agreements program who
were responsible for originating the clause in 1942 were fearful that omission of the phrase might lead Congress
to believe that injury from tariff concessions was anticipated.  In short, the words were a form of semantic
window dressing.”  Id. at n.34.
11See, e.g., Negotiating Group on Safeguards, Safeguards, Draft Text by the Chairman,
MTN.GNG/NG9/W/25, at ¶ 4 (27 June 1989).
12See, e.g, Negotiating Group on Safeguards, Safeguards, Draft Text by the Chairman,
MTN.GNG/NG9/W/25/Rev.1, at ¶ 4 (15 January 1990).
13 Negotiating Group on Safeguards , Communication from Mexico , MTN.GNG/NG9/W/28, at ¶ 4(a)
(23 January 1990) (emphasis in original).
14 See Negotiating Group on Safeguards, Meeting of 29 and 31 January, 1 and 2 February 1990, Note
by the Secretariat, MTN.GNG/NG9/NG9/14, comments on ¶  4(a) (6 March 1990).WT/DS177/R
WT/DS178/R
Page A-416
Article XIX should be interpreted in a manner today that would require an “unforeseen
developments” finding as a precondition for the imposition of a safeguard measure.
B. COMPLAINANTS FAIL TO CHALLENGE THE FACTS DEMONSTRATING THE
EXISTENCE OF UNFORESEEN DEVELOPMENTS
14. The submissions of Australia and New Zealand in response to the Panel’s written questions
are striking in the extent to which, both by affirmative statements and by their omissions, they support
the United States’ position that the USITC’s report demonstrates the existence of unforeseen
developments.  As the United States has previous ly noted, the USITC found that the mix in imported
products shifted, particularly in 1997 and interim 1998, from frozen lamb meat to fresh or chilled
lamb meat, and to larger cuts.  The imported products became more similar to those produced by the
US industry and consequently more likely to displace domestic lamb meat in the domestic market anddepress US prices. These changes in market conditions were contrary to what prior conditions would
have indicated.
15
15. Although New Zealand asserts that “the unforeseen developments must relate to the
importation of the product in terms of quantity and conditions, and must be the unexpected events or
circumstances which lead to that importation,"16 it fails to address the facts cited by the United States
as showing that the standard even as New Zealand has articulated it has been met.  As the USITC’s
analysis demonstrates, the change in the nature of imports allowed them both to increase and to do so
in conditions under which they would have a greater impact on the US industry.
16. For the same reason, Australia is simply wrong in stating that the unforeseen developments
alleged here “would apply in any increase in imports."17  It is not true that imports increase only when
there has been a change in their nature which permits them to supplant domestic production that they
previously complemented.  The United States agre es, however, with Australia’s observation that the
circumstances establishing “unforeseen developments” will differ from case to case.18  In this case,
the uncontested findings of the USITC establish such developments.
17. Australia and New Zealand in fact contest none of the findings that underlie the
United States’ analysis.  Although Ne w Zealand claims that the extent of fresh or chilled lamb meat
from New Zealand in particular did not rise by the end of the period to above the proportion that freshor chilled imports from New Zealand had reached in 1990, it does not contest that the USITC’s
conclusion was correct when one views increased imports as a whole (which is the relevant inquiry
under Article 2 of the Safeguards Agreement).  It also does not contest that between 1995 and 1997
imports of fresh or chilled lamb meat increased by 101 per cent, while imports of frozen lamb meat
increased by only 11 per cent during this same period.
19   Nor does it contest that foreign exporters
projected that the major portion of their 1999 increase would be in the form of fresh or chilled lamb
meat."20
18. Failing to contest the unforeseen developments cited by the United States on the facts,Australia and New Zealand instead argue that the United States cannot rely on the USITC report
because it did not reach a separate legal conclusion concerning unforeseen developments.
21
New Zealand specifically asserts that Article 3.1 of the Safeguards Agreement required the USITC to
                                                     
15 See United States First Written Submission at ¶¶ 47 to 60.
16 New Zealand’s Response to Panel Question 3 at 6.
17 Australia’s Response to Panel Question 4 at 5.
18 See Australia’s Response to Panel Question One at 1.
19 USITC Report at I-31.
20 USITC Report at I-22.
21 Australia’s Response to Panel Question Two at 2-3; New Zealand’s Response to Panel Question Two
at 5.WT/DS177/R
WT/DS178/R
Page A-417
include its “findings and reasoned conclusions” of unforeseen developments in its report.22  As th e
United States has previously noted, this allegation is beyond the scope of this proceeding.  In their
first written submissions, the complainants raised claims under Article 3.1 only with respect to the US
safeguard measure itself, not with respect to the USITC’s treatment of unforeseen developments.
19. Moreover, the Appellate Body made clear that “unforeseen developments” is not a separate
condition for the imposition of safeguard measures that must be the subject of distinct legal
conclusions.  As the panel noted in its second question to Australia and New Zealand, the Appellate
Body in Korea-Dairy23 and Argentina-Footwear2424 explicitly stated that “unforeseen developments”
do not constitute an “independent condition” for the application of a safeguard measure but rather
constitute a “circumstance ”, the existence of which “must be demonstrated as a matter of fact.”  To
the extent there is a requirement to demonstrate the circumstances of ‘unforeseen developments’ as a
matter of fact, the USITC report was replete with ev idence demonstrating such circumstances.  The
USITC report recounts in detail the unforeseen changes in market conditions that resulted in increased
imports of fresh or chilled lamb meat entering the US market after 1995.  The unforeseen
developments which led to increased quantities of imported lamb meat, and the change in the
conditions under which they were imported, were discussed at length in the USITC report.
20. In response to the Panel’s third written question, Australia claims that “to demonstrate”
unforeseen developments (as opposed to “discerning ” them) means “to ‘establish by logical
reasoning or argument, or by practical proof; prove beyond doubt.’"25  Australia is simply attempting
to insert into the Safeguards Agreement a new “burden of proof” that must be met to demonstrate
unforeseen developments.  The Appellate Body in Korea-Dairy  and Argentina Footwear  resolved that
unforeseen developments constitute a “circumstance,” not an independent condition based on a new
legal requirement that must be read into the Safeguards Agreement.  The USITC report demonstrated
the existence of circumstances constituting unforeseen developments.  No further showing is required.
III. THE DEFINITION OF "DOMESTIC INDUSTRY" USED IN THE USITC'S
INVESTIGATION WAS CONSISTENT WITH THE SAFEGUARDS AGREEMENT
AND GATT 1994
21. The United States has previously addressed the legal basis for the USITC’s domestic industry
finding.  It will not repeat those arguments here, as New Zealand’s and Australia’s latest submissionshave not raised any new contentions not previously addressed.  Suffice it for present purposes to note
that the arguments of New Zealand and Australia simply assume the correctness of their result, and
that Australia in particular has not established why its current argument, as opposed to the position it
took in Canada -- Manufacturing Beef
26, and the conclusion that its own competent authority reached
in a 1998 safeguard investigation in Pig and Pigmeat , is correct.
22. Once again, Australia and New Zealand contest little of the factual basis for the United
States’ definition of the domestic industry.  They  do not contest the facts on which the USITC found a
continuous line of production from the raw product, live lambs, to the processed product, lamb meat.27
Nor do they contest most of the findings underlying the USITC’s finding of a coincidence of
economic interest between lamb growers and processors.  They do not contest that the value added by
                                                     
22 New Zealand’s Response to Panel Question Two at 5.
23Korea-Dairy -- Definitive Safeguard Measure on Imports of Certain Dairy Products,
WT/DS98/AB/R, Report of the Appellate  Body adopted 14 December 1999, at ¶ 85.
24 Argentina–Footwear -- De finitive Safeguard Measure on Imports of Footwea r, WT/DS121/AB/R,
Report  of the Appellate Body adopted 14 December 1999, at ¶ 92.
25 Australia’s Response to Panel Question 3, at 3.
26 Canada -- Imposition of Countervailing Duties on Imports of Manufacturing Beef From the EEC,
SCM/85, 13 October 1987, at ¶ 4.1 (Manufacturing Beef).
27 USITC Report at I-13.WT/DS177/R
WT/DS178/R
Page A-418
growers and feeders accounts for about 88 per cent of th e wholesale cost of lamb meat or that packers
and breakers are largely finishers.
23. Although Australia contests any implication by the United States that there is a high degree of
vertical integration throughout the four i ndustry segments constituting the industry28, neither Australia
nor New Zealand alleges there is no integration.  The USITC found that “some lamb meat operationsare vertically integrated, which also supports a finding of a coincidence of economic interests between
different industry segments."
29  It is not in dispute that some growers both feed and slaughter lambs.30
A major lamb packer is also an owner of a major feeder and a major breaker operation.31
24. Complainants’ chief objection is that this one packer opposed the petition.  That fact,however, in no way detracts from the objectivity of the USITC’s findings.  The chief executive officer
of that firm, Transhumance Holding Company, testified before the USITC that:
Transhumance is the largest US packer, slaughtering and processing lamb, the largest
marketer of US lamb, one of the largest US lamb feeders, and an importer of chilled
lamb from Australia.  Last year, [one Transhumance subsidiary] slaughtered and
distributed the meat from more than 900,000 US lambs, thereby bringing to marketapproximately 30 per cent of the domestic industry's production.
32
25. In short, Transhumance’s own operations represent an extensive degree of verticalintegration.  The fact that it opposed the petition (having interests in Australian imports), as the
USITC noted
33, does not change the objectively observable facts.
26. As the USITC also noted, no representatives of any of the four industry segments (including
Transhumance) testified that the economic interests of packers and breakers diverged from those of
growers and feeders.  To the contrary, the tes timony before the USITC was unanimous.  The USITC
quoted testimony of a rancher to the effect that “lower import prices forced processors to reduce
prices for the carcasses they bought from packers, wh o in turn had to reduce the prices they paid to
feedlots for live lambs."34  The USITC cited similar testimony from witnesses at other stages in the
production process.
27. As counsel for petitioner stated at the injury hearing during the investigation,
What is helpful, from my perspective, is that all the data reinforce one another; that
no matter where in the chain you look, you will find injury or serious injury. The only
question is at what time you look. . . .  So, frankly, I think it  -- Your -- analysis has to
be almost temporal, as opposed to focusing on -- particular segments.  If you focus on
                                                     
28 Australia’s Responses to Panel Question Five, at 6.
29 USITC Report at I-13.
30 USITC Report at II-12.
31 USITC Report at I-14.
32 USITC Transcript of Injury Hearing at 258-259, attached hereto as US Exhibit 45.
33 USITC Report at I-14.
34 USITC Report at I-14, n.50.  See also  similar testimony of Joseph Casper, Vice President, Chicago
Lamb & Veal Co., a breaker, transcript of injury hearin g at 22, US Exhibit 35; testimony of Harold Harper,
owner of a feedlot operation, transcript of injury hearing at 30, US Exhibit 36 (“Here is how it happened.  In thefall of ‘97, I bought lambs for approximately $1 a pound.  However, when I went to sell the lambs in the winterof ‘97 and ‘98, I could only get 40 and 60 cents a pound.  Why?  Because the packer that I had traditionally
supplied with lambs was forced to reduce his prices to me  because his customer, the processor, had to lower his
prices substantially to compete with imports.  The impact  of the incredibly low prices offered by importers was
felt throughout the distribution chain as each sector wa s compelled to demand price breaks from their suppliers
to try to remain competitive.”)WT/DS177/R
WT/DS178/R
Page A-419
the period from the fall of ’97 to the present and you understand the chain . . . that’s
the overlay you need to do the analysis.35
28. As the United States reflected in its responses to the Panel’s questions, in the 1997-98 period,operating results for all industry segments fell as imports surged.  As will be discussed further below,
Australia and New Zealand seek, without legal basis, to disregard the facts pertinent to this surge
period.
29. Indeed, the Australian authority appears to take substantially the same approach as the USITC
in deciding whether to include growers in the in dustry producing the processed product, and in fact
included growers in the industry producing the processed product in a 1998 investigation.  In that
investigation, the Australian authority (the Productivity Commission) found that the domestic
processed product was like or directly competitive with the imported processed product, and then
concluded that the domestic industry included pig producers as well as primary processors ofpigmeat.
36
30. Finally, the United States notes that Australia, in its response to the fifth written question
from the Panel, erroneously states that “out of  the 49 firms growers and grower/feeders providing
financial information as growers, 42 were not even integrated with feeder operations, let alone packerand/or breaker operations."
37  Based on USITC questionnaire responses received from 70 growers and
grower/feeders, approximately 20 per cent indicated they were both growers and feeders.  In its
response to the same question, Australia also incorrectly infers that certain packer/breaker activities of
growers and feeders were not part of the USITC’s questionnaire survey.  In fact, growers and/or
feeders who were also packers and/or breakers did respond to the USITC’s questionnaires.38
IV. THE USITC DEMONSTRATED THAT THE DOMESTIC INDUSTRY FACED A
"THREAT OF SERIOUS INJURY" DUE TO "INCREASED IMPORTS"
A. COMPLAINANTS' ARGUMENTS TO THE CONTRARY IGNORE THE REQUIREMENT
TO EXAMINE THE MOST RECENT TRENDS AND ARE BASED ON ALTERNATIVE
THEORIES NEITHER REQUIRED BY THE SAFEGUARDS AGREEMENT NOR
SUPPORTED BY THE EVIDENCE OF RECORD
31. Australia’s and New Zealand’s arguments about the USITC’s threat of injury determination
disregard the standard of review applicable in this proceeding and the substantive requirements of the
Safeguards Agreement.  Much of their argumentation is devoted to developing an alternative view of
the evidence.  As will be shown, that alternative view would bypass the analysis required by the
Safeguards Agreement and  posits the existence of facts for which there is no evidence.  Even if
complainants’ views of the facts were potentially correct, the fact that another finder of fact might
reach a different conclusion does not establish that a country’s competent authority violated the
Safeguards Agreement.
32. In particular, Australia and New Zealand continue to ignore the impact that the surge in lamb
meat imports had on the US lamb meat industry in 1997 and interim 1998 and projections for an
acceleration of that surge in 1999.  Both complainants continue to urge the Panel to find that the
USITC should have relied on trends all the way back to 1993.39,40   Neither complainant, however,
                                                     
35 USITC Transcript of Injury Hearing at 130-131, attached hereto as US Exhibit 45.
36 Productivity Commission, Pig and Pigmeat Industries: Safeguard Action Against Imports , Rept. No.
3 (11 November 1998), at xxi, attached hereto as US Exhibit 46.
37 Australia’s Response to Panel Question 5 at 6.
38 USITC Report at II-12.
39 Indeed, New Zealand in its response to Question 8 bases part of its reasoning on events that allegedly
occurred in the US lamb meat market between the mid-1970's and 1993, a period that is totally outside theWT/DS177/R
WT/DS178/R
Page A-420
explains how such reliance is consistent with the finding by the Appellate Body in Argentina –
Footwear  that the increased imports of relevance under the Safeguards Agreement must be recent and
that reliance on trends over an extended period may be improper.  Moreover, these arguments
disregard the fact that the USITC’s determination concerned the threat  of serious injury in the
imminent future.  The most recent trends are clearly most relevant to that inquiry, even if
complainants were correct that such trends could be disregarded for serious injury determinations.
33. While the USITC examined conditions over the whole period that it investigated, its findings
concerning the earlier part of the period provided background for its examination of the changes of
conditions in the most recent period, changes that complainants’ long-term analyses disregard.  For
example, evaluating contentions that the industry’ s difficulties were caused by a long-term decline in
demand, the USITC found US lamb meat consumption was stable in 1997 and interim 1998.41  It also
found growers had largely absorbed the effects of the termination of Wool Act payments, showing
signs of recovery by 1996, and that the termination of such payments would have diminishing effects
in the imminent future.  Failing to address these findings, the complainants fall into self-contradictory
contentions.  As the Panel suggests in its Ques tion 8, the arguments made by New Zealand and
Australia to the effect that a decline in domestic demand for lamb meat caused domestic production to
fall contradict their argument that domestic producers were unable to meet strong domestic demandand this caused imports to increase.
34. Moreover, their second argument, that imports did not displace domestic lamb meat,
contradicts admissions made by Australia that imports displaced one-third of the decline in US
production.  The fact that US lamb meat prices fell sharply in 1997 and prices continued to bedepressed in interim 1998, while imports surged, is further evidence of such displacement.  While
New Zealand and Australia acknowledge that lamb meat prices in the US market fell in 1997 at the
same time that the surge in imports occurred, they never attempt to provide a credible explanation of
why lamb meat prices in the US market fell sharply in 1997 and remained depressed in interim 1998.
Their only explanation is that prices were higher previously and that the decline might be the result ofa lamb cycle.  The USITC, however, found no evidence of such a cycle and noted that no party argued
that it existed.
42  Complainants do not point to any evidence contradicting the USITC’s finding; they
simply invent an alternative theory out of whole cloth.
35. Similarly unfounded on any evidence is the new claim that Australia now advances in its
response to the Panel’s Question 8.  Australia alleges that US lamb production has declined because
the grower segment is “inefficient with high co sts, low returns and consequently low investment
relative to other US agriculture production systems”, and that as a result US lamb production
resources shifted to other uses, “especially beef production.”  Australia did not raise these claims in
either its first written submission or its first oral statement, nor has Australia cited in its response to
question 8 any support in the USITC’s record for su ch claims.  In fact, Australia’s new theory that
lamb production shifted to other uses is contrary to evidence in the USITC’s report, which indicatesthat sheep and lambs are the only suitable agricultural crop in many areas of the West, where
production is concentrated.
43  Accordingly, the Panel should disregard these new claims.
                                                                                                                                                                    
period of the USITC’s investigation and beyond the three- year period that New Zealand says that its authority
examines.
40 Australia’s position here is contrary to actual practice in Australia, where the competent authority, in
its only safeguard investigation conducted since the Uruguay Round Agreements entered into force, made an
affirmative determination of present  serious injury based principally on developments over the most recent
12 months.  The authority based its determination, made in November 1998, on a decline in prices sinceOctober 1997 and a decline in the condition of the domestic industry during the first half of 1998.  ProductivityCommission, Pig and Pigmeat Industries: Safeguard Action Against Imports,  Inquiry Report No. 3
(11 November 1998) at xxiii, attached hereto as US Exhibit 46.
41 USITC Report at I-22.
42 USITC Report at I-14.
43 USITC Report at II-11.WT/DS177/R
WT/DS178/R
Page A-421
36. New Zealand likewise raises a new and untimely claim in its response to Question 11 that the
decline in capacity utilization in the packing segm ent of the industry “must have been solely due to
the expansion of capacity.”  New Zealand states that this was “probably” occurring in the largest firms
as they sought to increase their market share.  In fact, however, the USITC found that packer capacity
fell over the period of investigation.44  Thus, the fact that capacity utilization in interim 1998 reached
its lowest level in the period of investigation cannot have been the result of capacity increase.  New
Zealand offers no evidence in support of its claim: its claim is based on sheer speculation.
37. Australia paints a similarly bold picture that ignores all details when, in its response to
Question 9, it makes the sweeping assertion that “any” decline in the apparent profitability of
domestic lamb growers was “entirely” due to the termination of the Wool Act payments.  Australia
makes this allegation without reference to any particular year or years or supporting data.  Australia’sargument simply disregards the USITC’s findings examining the changes over time in the effects of
the termination of Wool Act payments.  In particular, Australia does not address the USITC’s finding
that the termination of the Wool Act payments would have decreasing effects in the imminent future
and consequently could not explain likely imminent deterioration in the industry’s position.  Its
arguments are therefore irrelevant as challenges to the competent authority’s threat determination.
38. New Zealand’s argument in response to Panel Question 8 that the end of Wool Act payments
caused a shortfall in domestic supply which in turn stimulated an increase in imports both fails to
address the basis for the USITC’s threat of injury findings and contradicts the testimony of
New Zealand producers before the USITC.  A repr esentative of those producers clearly disavowed at
the USITC injury hearing any connection between the phase-out of Wool Act payments and the
increase in imports in 1997-98.  Mr. Malashevich, an economic consultant representing Meat New
Zealand, stated:
We, too, believe that the phase-out of Wool Act subsidies over the 1993-96 period
very clearly was a cause of arguably serious injury to the industry at that time.  But
significantly, any such injury caused by the phase-out occurred before the increase in
imports about which Petitioners are now complaining.  There is a disconnect in time
between the increase in imports complained of and when the damage occurred to the
industry.
45
39. Thus, New Zealand now presents as if it were a fact a causal connection that its industry’s
experts specifically rejected before the USITC.
40. Moreover, New Zealand’s current argument does not take into account the specific facts
about pricing and projected import volumes on which the USITC threat determination relied.  As the
USITC found, prices fell in the course of 1997 as imports rose.46  New Zealand does not explain how
this would have occurred if the increased supply we re simply filling a shortage in the marketplace.
41. Indeed, despite the fact that prices by interim 1998 were lower than in comparable quarters in
1996 and the first half of 1997, the USITC found that Australian and New Zealand firms projected
that their exports to the United States in 1999 would be 21 per cent above their projections for 1998.47
Thus, the facts cited by the USITC do not support the conclusion that in the imminent future, imports
would be drawn into the United States market by ri sing prices due to shortages.  Rather, New Zealand
and Australian firms expected their imports to the United States to rise at an accelerating rate despite a
fall in United States prices.
                                                     
44 USITC Report at I-20.
45 USITC Transcript of Injury Hearing at 217, attached hereto as US Exhibit 45.
46 USITC Report at I-24.
47 USITC Report at I-23.WT/DS177/R
WT/DS178/R
Page A-422
42. To the extent that complainants attempt to address the 1997-98 period, their arguments are
misleading.  Indeed, New Zealand’s attempt in response to Panel Question 11 to minimize the extent
of increased imports in 1997-98 confirms the USITC’s findings about import trends.  New Zealand
observes that the share of the domestic market captured by imports rose from 11.2 per cent in 1993 to
23.3 per cent in interim 1998.  New Zealand then observes that 45 per cent of that increase occurredduring 1993-1996, and 55 per cent in 1997 and interim 1998.  The 5.4 per cent increase over the three
years 1993-96 represents a 1.15 per cent per year growth in import penetration.  In contrast, the
6.5 per cent increase over the following year and three-quarters represents almost a 4 per cent per year
growth in import market share.
43. As New Zealand’s own figures demonstrate, imports took market share during the 1997-98
period at more than three times the rate that they had done previously.  In fact, since this acceleratingrate of increase is from a larger and larger and la rger base, the market share increase reflects that
imports were increasing in ever greater quantitative terms as well.  Thus, insofar as New Zealand uses
its calculations to attempt to show that the USITC should not have concentrated on 1997-98 as
reflecting a surge in imports, the figures that it introduces demonstrate the reasonableness of the
USITC’s conclusions.
48  Moreover, as is reflected in the Annex that New Zealand introduced in the
Panel ’s first oral session, New Zealand ignores the change in conditions that led increased imports
later in the investigative period to have greater im pacts on the US industry than imports early in the
period.
44. In summary, complainants continue to fail to address the basis for the USITC’s threat
determination.  To the extent that they proffer alternative explanations, those explanations are not
based on evidence, are based on theories repudiated by representatives of their own industry, and in
any event do not detract from the USITC’s findings.
B. NEW ZEALAND'S EXHIBIT NZ13 IS INADMISSIBLE AS AN ATTEMPT TO HAVE
THIS PANEL ENGAGE IN DE NOVO  REVIEW AND DEMONSTRATES
NEW ZEALAND'S FAILURE TO ADDRESS THE USITC'S FINDINGS CONCERNING
THE CHANGE IN THE IMPACT OF IMPORTS
45. Like complainants’ other arguments, New Zealand’s Exhibit NZ13, the Annex to its First
Oral Statement, fails as a challenge to the USITC’s threat of injury determination because it ignores
the findings supporting that determination.  In particul ar, it fails to take into account the change in the
mix of imported product that the USITC found led im ports to take greater market share from the US
industry and depress prices for the US product.  Before addressing that exhibit’s analysis on the
merits, however, the United States renews and expands its objections to the acceptance of NZ13 as
evidence in this proceeding.
1. The factual conclusions drawn by Exhibit NZ13 are inadmissible before this Panel
46. As the United States argued at the first oral session when New Zealand sought to introduce
NZ13, the Panel may not properly entertain the factual analysis which that exhibit purports to present.
Since the exhibit was never submitted to the USITC, accepting it in this proceeding would beprejudicial and contrary to the applicable standard of review.
47. As the Appellate Body recently confirmed, in examining a serious injury determination, a
Panel must address three questions: (1) whether the competent authority considered all relevant facts,
                                                     
48 If New Zealand intends by this discussion to suggest that the USITC erred in finding the 1997-98
surge to reflect “increased imports” within the meaning of Article 2 of the Safeguards Agreement, theUnited States objects to the introduction of such an issue, which was not identified in New Zealand’s PanelRequest nor in its First Written Submission.WT/DS177/R
WT/DS178/R
Page A-423
including each factor listed in Article 4.2(a); (2) whether its published report contains an adequate
explanation of how the facts support the determination made; and (3) whether the determination made
is consistent with the Safeguards Agreement.  A panel should not conduct a de novo  review, and it is
accordingly inappropriate for a panel to attempt to conduct its own assessment of the raw data
reviewed by the competent authority during its investigation.
48. The Korea–Dairy  panel, whose application of the standard of review the Appellate Body
endorsed, articulated (at ¶  7.30) the consequences of the fact that review in the WTO is not de novo
for arguments based on evidence not before the competent authority.  As that panel stated,  “the Panel
should examine the analysis performed by the national authorities at the time of the investigation on
the basis of the various national authorities’ determinations and the evidence it has collected.”  In
short, the question before the Panel is the adequacy of the ITC’s determination as it was made at the
time, and the Panel’s review is limited to the record that the ITC gathered in its investigation.  NewZealand’s presentation of new economic analysis based on information from outside the USITC’s
record is a clear and deliberate violation of that principle.
49. These decisions are in keeping with Article 11 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (“DSU”), which states that a panel “should make an objective
assessment of the matter before it, including an ob jective assessment of the  facts of the case and the
applicability of and conformity with the relevant covered agreements . . . .”  The “facts” that are the
subject of a WTO panel proceeding are different from the “facts” that are the subject of a competent
authority’s investigation under the Safeguards Agreement.  A competent authority determines whether
a domestic industry has been seriously injured by increased imports.  A panel resolves a disputebetween Members about whether, in doing so, the competent authority violated the Safeguards
Agreement.  The “facts” examined by the competent authority concern the economic condition of the
domestic industry.  The “facts” to be examined by a panel concern whether the Member’s actions
complied with the Safeguards Agreement.  Since, under the Safeguards Agreement, injury
determinations are made by competent authorities, the facts before the Panel concern what thecompetent authority did and the findings it made.
50. Under these principles, NZ13 and the arguments based on it are inadmissible and inapposite
for a number of reasons.  New Zealand seeks to present to this Panel analysis based on evidence that it
concedes was not before the USITC.  For example, New Zealand concedes that certain data used inconstructing its analysis for graph 3 in NZ13 was downloaded by New Zealand from the web sites of
the US Bureau of Labor Statistics, the US National Agricultural Statistical Service, and the US
Department of Agriculture.  New Zealand does not in dicate when such data were downloaded, or even
whether such data were available at the time of the USITC investigation.
51. Even assuming the data were publicly available, it does not excuse New Zealand’s failure to
submit the data to the USITC in the first instance.  In accordance with Article 3.1, all interestedparties (which in the United States included New Zealand and Australia) had the opportunity to
present evidence and argument to the USITC.  Article 3 makes clear that it is Members’ competent
authorities that are authorized to conduct investigations of whether increased imports have caused
serious injury.  There is nothing in the DSU that su ggests that it was intended to operate in derogation
of the fact-finding responsibilities reserved by the underlying WTO Agreements to the Members andtheir competent authorities.
52. Article 3 likewise establishes conditions for these investigations, including notice and public
hearings, that guarantee interested parties, incl uding both domestic and foreign commercial interests,
the opportunity to present evidence and comment on the other presentations and evidence received bythe competent authority.  The government-to-government procedures established in the DSU do not
create any equivalent process in panels.  Governments should not be allowed to bypass the process
mandated by the Safeguards Agreement and present evidence for the first time to a Panel that they or
their citizens could have presented to the competent authority.  If Members know that they canWT/DS177/R
WT/DS178/R
Page A-424
withhold such information from the scrutiny and evaluation of the interested parties and the
competent authority during the investigation and then introduce it for the first time before a WTO
panel, then it will be in a party’s interest  to engage in such strategic gamesmanship.49  Countenancing
such practices at the WTO will undermine proceedings before competent national authorities.
2. NZ13 fails to take into account the change in product mix that the USITC found
changed the nature of the effects of imports
53. New Zealand’s arguments based on NZ13 are sim ilar to those that it and Australia have made
in response to the Panel’s questions in contending that viewing the facts in a different framework
would have led the competent authority to a diff erent result.  Such argumentation is, however,
inadequate to show a violation of the Agreement.  New Zealand must show that a failure to use the
framework it advocates is a failure under the Agreement to evaluate the relevant factors objectively.
54. The Agreement on its face does not mandate any particular approach to evaluating the
relevant factors, enumerated or unenumerated.  On its face, the Agreement does not require economic
modelling.  New Zealand’s original argument was that the USITC had in an earlier investigation used
an economic model to analyze the lamb industry.  The United States pointed out in its first writtensubmission that the earlier modelling was used by the USITC for a different kind of investigation,
serving quite different purposes than those required by the Safeguards Agreement.  New Zealand has
not contested that response and provides no ar gument about why economic modelling, even if
possible, is required.
55. Moreover, the purported economic analysis that New Zealand has obtained from the author of
NZ13 is inapposite as a challenge to the USITC’s determination because it ignores the findings of fact
in the USITC’s report.  Because it does so, the author’s conclusion that, with import prices rising
faster than domestic prices after 1993, “it is absolutely untenable to believe that imports could have
been the slightest reason of any economic difficulties”, is an economic non sequitur .  The USITC
report makes why this is the case perfectly plain.  Between 1995 and 1997, the mix of products being
imported changed.  Imports were dominated early in the period by smaller, frozen cuts that sold at low
prices but occupied a niche that had little impact on sales of US products.  The increase in imports
was dominated by fresh or chilled product, increasingly of larger cuts, that had much more effect on
US products.  Import prices rose because a greater proportion of imports came as higher valueproduct.  Nevertheless, those products now competed with the comparable US product at prices lower
than the US product, taking market share and pulling down prices.
56. In economic terms, New Zealand’s purported economic analysis assumes, contrary to fact,
that the price elasticity of substitution between imports and domestic product did not change from
1993 to 1997.  By doing so, the analysis literally begs the question: it assumes the result that it wants
to reach.  As an argument against the USITC’s determination, even if admissible, NZ13 is irrelevant.
57. Indeed, if one takes into account the economic fallacy that underlies NZ13, its admission that
“comparing only 1997 and 1998 it might be claimed, as the US does, that the producer prices on the
US market between these two years has, to some extent, possibly also been caused by imports”, is
compelling.  The only reason that the exhibit gives fo r rejecting such a causal link is that import prices
in 1998 were above 1993 levels.  The findings of fact in the USITC report concerning the change in
product mix, however, account for that relationship.  Thus, the analysis in NZ13, which does not
challenge the finding of fact, admits the existence of a causal link between imports and the threat of
injury to the domestic industry.
                                                     
49 These are precisely the types of concerns that the underlay the Appellate Body's recent concerns and
findings on a procedural issue in the FSC dispute.  See United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, Report of the Appellate Body at ¶ 166 (24 February 2000).WT/DS177/R
WT/DS178/R
Page A-425
58. Finally, the economic analysis that New Zealand presents proves too much.  It concludes that,
because world market prices for agricultural prices have a well-known tendency to fluctuate, one year
of import price decline could not be said to be a th reat of serious injury.  The Appellate Body has held
that, under the Safeguards Agreement, injury findings must be based on recent trends creating an
emergency condition.  New Zealand’s position, take n on face value, would thus make safeguards
unavailable generally for agricultural products.  The Safeguards Agreement cannot rationally beinterpreted to exclude the entire agricultural sector.
59. Indeed, the premise of the last paragraph of NZ13 – that the kind of price fluctuation observed
here is normal in international agricultural industries – is inconsistent with New Zealand’s other
arguments in this case.  New Zealand contends that the US industry’s problems were due to internal
problems in the US market.  NZ13's suggestion that 1997-98 US lamb meat prices were consistent
with a “well-known tendenc y” for “world market prices for agricultural products” to fluctuate
contradicts its attempt to portray the US market as subject to unique conditions.
60. In this case, the USITC established why the conditions it observed were not simply cyclical
and expected conditions in the market for lamb meat.  New Zealand’s observation, citing the cereal
industry, that prices for other agricultural products may decline by more than 12 per cent in a year isan utterly irrelevant response to these findings.  To the extent that New Zealand’s argument is an
attempt to create a legal presumption about level of harm that should be regarded as
“non-threatening”, it has no support in the Safeguards Agreement and New Zealand cites none.
61. In short, NZ13 is (1) inadmissible since it is based on extra-record evidence, which is not a
proper subject for Panel review under the Safeguards Agreement, (2) irrelevant because it fails to
address the USITC’s analysis, (3) inapposite because it assumes contrary to Article 4 that only one
form of analysis is permissible and contradicts any reasonable interpretation of  “threat of serious
injury”, and (4) inconsistent with New Zealand’s positions in this case. To the extent that NZ13 has
any relevance whatsoever, it constitutes an admission by New Zealand supporting the USITC’sconclusions about trends in 1997-98.
V. THE USITC'S CAUSATION DETERMINATION WAS CONSISTENT WITH THE
SAFEGUARDS AGREEMENT AND THE GATT 1994
62. The parties’ dispute concerning what showing of causation is appropriate when there are
multiple causes of serious injury is, in the current case, academic.  As the United States has
demonstrated in its first written submission and answers to the Panel’s questions, the USITC’s
findings establish that no other asserted factor could be regarded as a “factor . . . causing injury to the
domestic industry at the same time” within the meaning of Article 4.2(b).  As demonstrated above, the
additional factors that complainants have asserted in this proceeding are disproved by unchallenged
findings of the USITC or based upon an unfounded a ssumption that only trends over the entire period
investigated may be examined.  Accordingly, resolution of the dispute between the parties concerning
the propriety of the United States’ statutory test for causation is unnecessary for the resolution of this
matter.  Nevertheless, because of the importance of the issues that have been raised, the United States
will extend its prior discussion of the causation standard, focusing here on the negotiating history to
Article 4 of the Safeguards Agreement.
A. THE NEGOTIATING HISTORY OF THE SAFEGUARDS AGREEMENT
DEMONSTRATES THAT THE DRAFTERS DID NOT INTEND TO CREATE A "SOLE
CAUSE" OR IMPORT "ISOLATION" REQUIREMENT
63. In response to Question 13 from the Panel, New Zealand has confirmed its view that the
Safeguards Agreement requires Members to “isolate” the effects of imports and determine that theyWT/DS177/R
WT/DS178/R
Page A-426
are the “sole” cause of serious injury or threat.50  In addition, although it had not done so in its
previous submissions, Aust ralia now appears to endorse New Zealand’s position.51  The United States
has discussed in its previous submissions why these arguments are wrong.52
64. The United States’ most recent submission on this topic briefly discussed how the negotiating
history of the Safeguards Agreement demonstrates that the drafters of the Safeguards Agreement didnot intend to establish a “sole” cause or “isolation” requirement.
53  Given New Zealand’s
confirmation of its views on this issue, and Australia’s adoption of New Zealand’s position, it is
worthwhile to discuss the negotiating history in greater detail.  As the United States explains in the
following paragraphs, that history is devoid of any indication that the drafters of the Safeguards
Agreement sought to impose a radical new causation paradigm of the type the complainants urge.
65. Section II of the Secretariat’s note of 28 April 1988, which the United States cited in its
previous submission, memorializes the views of the Chairman of the Negotiating Group on
Safeguards expressed at meetings on 7 and 10 March 1988, regarding how the negotiations should
progress.  On the issue of causation, he stated that:
After the subject matter [of the negotiations] was identified, the Group should then
address related questions such as whether imports were to be considered as a cause, a
substantial cause or a necessary cause of serious injury or threat thereof.54
66. The Chairman plainly recognized that there might be varying views regarding the degree of
causation that could be reflected in a revised Article XIX or new agreement on safeguards.  Notably,
however, the Chairman did not include “sole cause,” or an isolation requirement, among the field ofpossible choices.
67. Discussion of causation among delegations at  the meeting reflected this same approach:
Many delegations said that it should be demonstrated that the cause of serious injury
and threat thereof derived from sharp increases in imports, and that a major part of
domestic producers were adversely affected.  Some delegations said that the causal
link between increased imports and the overall decline in the conditions of domestic
producers had to be clearly established.  One delegation said that if there were a
multitude of causes, then it had to be established that increased imports was theprincipal cause, not just an important or substantive cause.
55
*     *     *     *     *
The Chairman summed up the discussions . . . .  There seemed to be agreement that
there should be a direct, demonstrable causal link of imports to injury, although there
were various opinions on whether increase in imports should be an essential,
substantial, or important cause.56
                                                     
50 New Zealand’s Response to Panel Question 13 at 18.
51 Australia’s Response to Panel Question13 at 16-17.
52 See United States’ First Written Submission at ¶¶ 112-122; US Responses to Questions from the
Panel at ¶¶ 45-59, 71-78.
53 See US Responses to Questions from the Panel at ¶ 52.
54 Negotiating Group on Safeguards, Meeting of 7 and 10 March 1988, Note by the Secretariat,
MTN.GNG/NG9/5, at ¶  3 (22 April 1988).
55 Negotiating Group on Safeguards, Meeting of 7 and 10 March 1988, Note by the Secretariat,
MTN.GNG/NG9/5, at ¶ 14 (22 April 1988).
56 Id. at ¶ 24.WT/DS177/R
WT/DS178/R
Page A-427
68. The subsequent course of negotiations shows that the negotiating group declined to adopt any
one of these various formulations of the necessary degree of causation and that it never considered
establishing a “sole” cause or “isolation” requirement.
69. In a note dated 31 October 1988, the Secretariat provided a synopsis of proposals that
delegations had presented to the group.57  Proposals on the subject of injury (and causation) were set
out in paragraphs 33 through 52 of the note.  The United States has reproduced all of the potentially
relevant proposals below.  None of them evinced an intention to create a “sole cause” or import
isolation requirement for serious injury:
34. The determination of serious injury or threat thereof shall depend on the
establishment of a direct causal link between increased imports and an overall decline
in the condition of domestic producers.  In making such a determination, the relevantfactors to be taken into account include, inter alia, output, sales, export performance,
inventories, profits, productivity, return on investment, utilization of capacity,employment and wages.  No one or several of these factors can necessarily give
decisive guidance.  However, serious injury cannot be deemed to exist where factors
such as technological changes or changes in consumer preference or similar factorsare instrumental in switches to like and/or  directly competitive products made by the
same domestic producers.
58
35. Factors such as market share, diversion of trade, technological changes andchanges in consumer preferences, overall competitiveness of industry and its ability
to generate capital, could also be included in determining injury on a case-by-casebasis.
59
36. … "Substantial cause" was defined as "a cause which is important and notless than any other cause."
60
*     *     *     *     *
38. It was unrealistic to set quantitative standards or automatic criteria for the
determination of injury because not all factors were quantifiable and mathematical
formulae could not be applied to all sectors of industry.  Instead, economic factors
and indices should be considered together with some subjective parameters.  It was
not possible to determine the order of priority for various factors when determininginjury or threat thereof.
61
*     *     *     *     *
43.  The principal cause of serious injury or threat thereof must be increase in
imports, while other economic factors relating to the sectors concerned should be
taken into account in a comprehensive manner.62
*     *     *     *     *
                                                     
57Negotiating Group on Safeguards, Synopsis of Proposals, Note by the Secretariat,
MTN.GNG/NG9/W/21 (31 October 1988).
58 Id. at ¶ 34.
59 Id. at ¶ 35.
60 Id. at ¶ 36.
61 Id. at ¶ 38.
62 Id. at ¶ 43.WT/DS177/R
WT/DS178/R
Page A-428
46.  If there were a multitude of causes, then it had to be established that increased
imports was the principal cause, not just an important or substantive cause.63
*     *     *     *     *
49.  While the causal link between imports and injury is an essential feature of the
objective criteria for action, there are limitations to what extent it is possible to
objectively quantify the degree of injury attributable to imports and other factorsaffecting the industry in question.  Consequently, there may be arguments in favour
of establishing the causal link in individual cases primarily on the basis of sufficient
factual information regarding both the development of imports and other factors
applied to determine injury to be provided when notifying the introduction of
safeguard measures.
64
70. On 27 June 1989, the Chairman of the Negotiating Group tabled a draft text of a safeguardsagreement, based on proposals from the participants in the Negotiating Group.
65  Paragraph 4 of the
text set out the basic conditions for applying a safeguard measure, including that “the competent
national authorities of the importing contracting party have established that such increase is causing
serious injury . . . .”  Paragraph 8 of the draft stated that:
In the determination of whether or not serious injury or threat thereof exists, all
relevant factors of an objective and quantifiable nature having a bearing on the
position of the domestic industry shall be taken into account . . . ; but serious injury or
threat thereof not causally linked to increased imports shall not weigh in the process
of determination.
71. The reference in the text to the need for serious injury or threat of serious injury to be
“causally linked” to increased imports should be read  in the light of the Chairman’s earlier view,
noted above (at ¶ 67), that the reference to “causal link” was not intended to fix the degree  of
causation that might be required.
72. A Secretariat note of 24 October 1989  summarized the Negotiating Group’s discussions on
the draft text.66  Among other things, the note observes that:
Several delegations said that the causal link between the increase in imports and
serious injury needed to be more clearly established.  Increased imports should be the
principal and predominant cause of injury.
73. This summary makes clear that members of the Negotiating Group recognized that the
language in the text related to the causal link did not by itself establish a particular degree of
causation.  Moreover, although some members wished to have the issue of degree of causation
addressed, none proposed a “sole cause” or isolation requirement.67
                                                     
63 Id. at ¶ 46.
64 Id . at ¶ 49.
65 Negotiating Group on Safeguards, Safeguards, Draft Text by the Chairman, MTN.GNG/NG9/W/25
(27 June 1989).
66 Negotiating Group on Safeguards, Meeting of 11, 12 and 14 September 1989, Note by the
Secretariat, MTN.GNG/NG9/12 (24 October 1989).
67 Id. at ¶ 11.WT/DS177/R
WT/DS178/R
Page A-429
74. On 15 January 1990, the Chairman tabled a revised version of his draft text in response to
comments from delegations.  The language regarding the causal link included in the revised draft was
unchanged from the earlier, June 1989, version.68
75. In March 1990, the Negotiating Group examined the revised text, paragraph by paragraph,
and the Chairman invited delegations to make proposals for specific drafting suggestions.69  T h e
suggestions relating to the causation requirements in paragraphs 4 and 9 (formerly paragraph 8) of the
draft text are set out below in their entirety.  None of them suggests an intention to impose a sole
cause or isolation requirement for imports:
Paragraph 4(b)  "the competent national authorities of the importing contracting party
have established that such increase is causing or is threatening to cause serious injury
to the domestic industry that produces like or directly competitive products."
Suggestions:
(i) Add "directly" before "causing or is threatening ...".
(ii) Replace "or" by "and" in "like or directly competitive products".(iii) "an independent body has established, through a public domestic investigation and
decision which included notice to interested parties, public hearings where importers
and other interested parties could present evidence and their views, and a published
report of the decision describing the factors considered, criteria applied and rationaleused, that such increase is causing or is threatening to cause serious injury to the
domestic industry that produces like or directly competitive products."
(iv) Minimum domestic guidelines will have to be developed.
(v) The "national authorities" should be an independent body.
(vi) "the competent national authorities ... that such increase is direct and principal cause
of the serious injury and threat thereof to the domestic industry that produces like or
directly competitive products."
*     *     *     *     *
Paragraph 9  "In the determination of whether or not serious injury or threat thereof
exists, all relevant factors of an objective and quantifiable nature having a bearing on
the position of the domestic industry shall be taken into account, such as:  output,
inventories, utilization of capacity, productivity, employment, wages, sales, marketshare, exports, domestic prices, import and export prices, pace of import increase,
return on investment, profits and losses.  This list is not exhaustive;  neither one of
these factors alone, nor even several of them may necessarily be decisive in the
process of determination;  but serious injury or threat thereof not causally linked to
increased imports shall not weigh in the process of determination."
                                                     
68Negotiating Group on Safeguards, Safeguards, Draft Text by the Chairman,
MTN.GNG/NG9/W/25/Rev.1 (15 January 1990).
69 Negotiating Group on Safeguards, Meeting of 29 and 31 January, 1 and 2 February 1990, Note by
the Secretariat, MTN.GNG/NG9/14 (6 March 1990).WT/DS177/R
WT/DS178/R
Page A-430
Suggestions:
(i) First sentence remains as it is.  First phrase of second sentence remains intact.  Next
phrase would be replaced by the following  idea:  "A minimum requirement for a
finding of serious injury would be that certain, specified factors (such as lost sales
and reduced profits, for discussion purposes) must be demonstrated.  These factorswould be necessary but not sufficient for injury to be found".  Last phrase (on
causality) should be clarified as follows:  "Factors other than increased imports, in
particular the prevailing market conditions in the domestic industry, shall be taken
into account in determining whether injury is caused by increased imports".
(ii) Paragraph 9 bis  Consideration could also be given to indicators of the existence of
serious injury such as the following:  significant idling of productive capacity
(including plants closures and significant under-utilization of production capacity);
significant unemployment across the domestic industry;  a significant number of
firms carrying out domestic production operations at a reduced level of profit;  and,
significant decline in the proportion of the domestic market supplied by domestic
products as compared to imports of a like or directly competitive product.
(iii) Wages, domestic prices, import and export prices should be deleted.(iv) Add to the list "overall economic situation and consumption".
(v) Modification of last phrase starting with "but serious":  "The determination of
principal cause shall be based on an examination of the effect of imports on one hand
and on the other hand, all other relevant factors which, individually or in
combination, may be adversely affecting the domestic industry".
(vi) Replace last phrase starting with "but serious" by:  "Furthermore, serious injury or
threat thereof cannot be deemed to exist where factors such as technological change
or changes in consumer preference or similar factors are instrumental in switches to
like and/or directly competitive products made by the same domestic industry".
(vii) Delete "Market share".
(viii) Add "competitiveness" to the list of factors.
76. In July 1990, the Chairman tabled another draft text.  While the relevant portions of the
agreement were slightly restated in this version of the text, there continued to be no indication of an
intention to establish a “sole” cause or isolation requirement, and the earlier proposal for imposing thenotion of “principal cause” was not incorporated.  Article 4 of the revised draft read as follows:
A contracting party may apply a safeguard measure only on the conditions that the
importing contracting party has established, pursuant to the provisions set out in
paragraphs 4 and 7 below, that a product is being imported into its territory in suchincreased quantities, actual or relative to domestic production, and under such
conditions as to cause or threaten serious injury to the domestic industry that
produces like or directly competitive products.
77. Article 9 (renumbered as Article 7) read:
7. (a) In the investigation to determine whether or not serious injury or threat
thereof to a domestic industry exists under the terms of this Agreement, the
competent authorities shall take into accoun t all relevant factors of an objective andWT/DS177/R
WT/DS178/R
Page A-431
quantifiable nature having a bearing on the situation of that industry, in particular, the
rate and amount of the increase in imports of the product concerned in absolute and
relative terms, the share of the domestic market taken by increased imports, changes
in the level of sales, production, productivity, capacity utilization, profits and losses,
and employment.
(b) No serious injury or threat thereof shall be found to exist unless this investigation
demonstrates, on the basis of objective evidence, that there is a causal link between
increased imports of the product concerned and such injury or threat.
78. Finally, on 31 October 1990, the Chairman of the Negotiating Group tabled a safeguards text
with the statement that, “This text represents the level of agreement that could be reached at this
stage."70  This version of the text, which was sent forward and included in the Draft Final Act of the
Uruguay Round circulated for the Brussels Ministerial Meeting, contained language identical to that
found in Articles 2.1 and 4.2(b) of the final Safeguards Agreement:
A contracting party1 may apply a safeguard measure to a product only if the
importing contracting party 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.
*      *     *     *     *
7. (a) In the investigation to determine whether increased imports have caused or
are threatening to cause serious injury to a domestic industry under the terms
of this agreement, the competent authorities shall evaluate all relevant factorsof an objective and quantifiable nature having a bearing on the situation of
that industry, in particular, the rate and amount of the increase in imports of
the product concerned in absolute and relative terms, the share of the
domestic market taken by increased imports, changes in the level of sales,
production, productivity, capacity utilization, profits and losses, andemployment.
(b) The determination referred to in sub-paragraph 7(a) shall not be made unless
this investigation demonstrates, on the basis of objective evidence, the
existence of the causal link between increased imports of the product
concerned and serious injury or threat thereof.  When factors other than
increased imports are causing injury to the domestic industry at the sametime, such injury shall not be attributed to increased imports.
79. The last sentence of this text was borrowed from Article 3.4 of the Tokyo Round Dumping
Code and provided an elaboration of the “causal link” requirement that precedes it.  The second
sentence requires Members to ensure that they distinguish between different causes of injury ratherthan simply making the assumption that increased impor ts are responsible for all of the injury that the
industry has experienced.  Stated otherwise, the second sentence instructs Members that they should
not jump from the establishment of the “causal link ” between increased imports and serious injury to
the conclusion that the sole source of the industry ’s injury is attributable to those imports.
                                                     
70 Negotiating Group on Safeguards, Draft Text of an Agreement, MTN.GNG/NG9/W/25/Rev.3
(31 October 1990).WT/DS177/R
WT/DS178/R
Page A-432
80. In the course of the negotiations, no delegation suggested the introduction of a “sole cause” or
“isolation” requirement.  The parties could not agree on various proposals for imposing a specific
modifier before “cause”, thus leaving the preexistin g differences in approach intact.  Therefore, the
second sentence of Article 4.2(b) cannot be understood as incorporating a requirement to isolate the
effect of imports to determine whether they were the sole cause of serious injury.  Rather, an
antecedent of the second sentence may be seen in a May 30, 1988, communication from the Nordiccountries:
The causal link between imports and injury is reflected in Article XIX:1(a) by the
reference to the "effect of the obligations incurred by a contracting party ...".  While
this causal link is an essential feature of the objective criteria for action, there are
limitations to what extent it is possible to objectively quantify the degree of injury
attributable to imports and other factors affecting the industry in question.Consequently, there may be arguments in favour of establishing the causal link in
individual cases primarily on the basis of sufficient factual information regarding
both the development of imports and other factors applied to determine injury to be
provided when notifying the introduction of safeguard.
71
81. The communication notes the impracticability of attempting to isolate the extent of injury
attributable to particular causes.  Instead, the Nordic countries proposed establishing the “causal link”
between increased imports and injury by developing information on the range of factors that may be
contributing to the overall injury the industry has experienced.
82. It is important to note that the safeguards regimes of other WTO Members – including
Australia – reflect the US view that the Safeguards Agreement does not contain a “sole cause”
requirement.  For example, the Canadian global safeguards legislation requires that increased imports
be “a principal cause” of serious injury or threat of serious injury.72  The definition of “principal
cause” in the Canadian law is “an important cause that is no less important than any other cause of the
serious injury or threat."73  This definition is virtually identical to the US definition of “substantial
cause,”  which is “a cause which is important and not less than any other cause."74
83. Similarly, under Article 70 of the regulations pertaining to the Mexican safeguards regime,
safeguards may be applied only if imports constitute a “substantial” cause of serious injury or threat,
not a “sole” cause.75
84. Perhaps most instructive for purposes of this dispute is the causation analysis used by theAustralian competent authority in a post-Uruguay Round safeguards investigation.  In its
November 1998 decision in Pig and Pigmeat Industries: Safeguard Action Against Imports , the
Australian authority concluded as follows:
The [Productivity] Commission considers that increased imports from Canada since
mid-1996 have caused serious injury to the industry as defined above.  Moreover, the
Commission considers that increased imports were the primary cause  of low pig
prices and negative rates of return (lower than could be expected given rebuilding of
domestic production over 1997-98) in 1998, which, in turn, caused a significant
                                                     
71 Negotiating Group on Safeguards, Communicatio n by the Nordic Countries, MTN.GNG/NG9/W/16,
at ¶ 10 (30 May 1988).
72 Canadian International Trade Tribunal Act, Sec. 20 (1994), attached hereto as US Exhibit 47.
73 Id., Sec. 19.01(1).
74 19 U.S.C. 2252(b)(1)(B), attached hereto as US Exhibit 48.
75 Committee on Safeguards, Replies to Questions Posed by the United States Concerning the
Notification of Laws and Regulations of Mexico Under Article 12.6 of the Agreement, G/SG/W/131, at 3,question 7 (circulated 27 February 1996).WT/DS177/R
WT/DS178/R
Page A-433
overall impairment in the position of the domestic industry.  There does not appear to
be any other factor capable of explaining the large fall in demand for local pigmeat
and consequent prolonged and pronounced fa ll in pigmeat prices which has occurred
since October 1997.76
This approach is strikingly similar to that of the USITC in its lamb meat investigation.
85. The United States, Canada, Mexico, and Australia were all active participants in the
negotiation of the Safeguards Agreement.  The fact that none of these countries adopted a “ sole
cause” or “isolation” causation standard after the conclusion of the Safeguards Agreement suggests
that they did not understand the Agreement to impose such a standard.
86. In sum, the negotiating history shows that the framers of the Safeguards Agreement declined
to establish a requirement regarding whether increased imports should be a “substantial” cause ofinjury, an “important” cause, a “necessary” cause, a “principal” cause, and so forth.  Moreover, no
proposal was advanced during the negotiations requiring increased imports to be the “sole cause” of
serious injury, or imposing an “isolation” requirement.  Ultimately, the Negotiating Group chose not
to address the issue of degree of causation.  Instead, the negotiators established an evidentiary
framework for establishing injury and causation, listing the factors to be considered and requiringcompetent authorities to develop and report on objective evidence establishing the causal relationship
between increased imports and serious injury or threat.  This approach is consistent with the
longstanding US statutory causa tion standard, “substantial cause.”
B. NEW ZEALAND PRESENTS NO COLOURABLE ARGUMENT WHY AN AUTHORITY
MUST "ISOLATE" THE EFFECTS OF IMPORTS AND DETERMINE THAT THEY
ALONE ARE THE CAUSE OF SERIOUS INJURY
87. The United States has discussed in Section IV.B of this submission why New Zealand’s
exhibit NZ13 is inadmissible, and therefore not relevant to this proceeding.  It is worth noting,however, that the analysis contained therein cont radicts New Zealand’s position on the appropriate
standard for causation under the Safeguards Agreement.  The author of NZ13 admits therein that, in
real world markets, it may not always be easy to distinguish between import growth and domestic
supply considerations as causes of injury.  Indeed, the author admits that developments in the real
world can be a combination of both sets of factors.  Although he asserts that a price analysis such asthe one he proposes “can help” to identify which may have prevailed, he does not contend that it can
help identify more than which was “the primary factor” or that it can do so reliably.
77
88. Thus, the most that the author of NZ13 claims is that economic analysis of the kind it
advocates can help discern which of two purported causes of injury is primary.78  Yet New Zealand
claims that such an analysis would be legally inadequate, because it considers that the effects of
increased imports must be “isolated” from other factors causing injury.  The views of the author inNZ13 support the scepticism of the GATT panel in United States -- Atlantic Salmon , noted in the
United States’ answers to the Panel’s questions, that an “isolation ” analysis is practicable.
89. Accordingly, although New Zealand contends that the effects of increased imports must be
“isolated” and, when viewed in isolation, found sufficient to cause serious injury, it has not allegedthat there is a method for doing so in many cases (or that such a method, if available, is required by
the Safeguards Agreement).  New Zealand has failed to provide analysis of the ordinary meaning of
the terms of the Agreement on which it relies for its insistence on an isolation analysis or the legal
                                                     
76 Productivity Commission, Pig and Pigmeat Industries: Safeguard Action Against Imports,  Inquiry
Report No. 3, at section 4.6 (11 November 1998) (emphasis added), attached hereto as US Exhibit 46.
77 NZ13 at § 3.1.
78 The author of NZ13 does not attempt to extend his analysis to multiple causes.WT/DS177/R
WT/DS178/R
Page A-434
precedent applicable to the interpretation of the relevant provisions.  In short, New Zealand has
provided no basis for holding that the United States’ interpretation of its obligations under Article 4.2
is incorrect.
C. AUSTRALIA PRESENTS NO COLOURABLE ARGUMENT WHY AN AUTHORITY
MUST OBTAIN A "PROSPECTIVE ANALYSIS" OF EFFECTS OF IMPORTS IN ORDERTO REACH A THREAT DETERMINATION
90. Although it has contended that the USITC’s dete rmination is flawed for failure to rely on a
“prospective analysis”, Australia fails to respond to Panel Question 7 regarding how a prospective
analysis might be conducted and which factors, if an y, would be more important to a finding of threat.
Instead, Australia merely asserts that the USITC effort was insufficient.  Australia ignores the
extensive evaluation in the USITC report with respect to the required factors and the evidence withrespect to each of those factors, the evidence about projected further increases in imports made by
Australian and New Zealand firms, and the effect that such increases are likely to have on US lamb
meat prices and production.
79
91. Australia does not answer the question of which factors might be more important.  Instead, itasserts that a safeguard measure should not be applied “[i]f firms in the ‘domestic industry’ are unable
to come forward with prospective facts to allow an evaluation to determine that serious injury will
occur imminently.”  Australia does not state what prospective facts would be relevant to such an
evaluation, or indicate a basis in the Safeguards Agreement for concluding that “firms in the domestic
industry” have an obligation to come forward with such facts.  Nor does Australia indicate how anauthority might rely on such “prospective facts” supplied by firms in the industry without basing its
determination “on allegation, conjecture or remote possibility” in violation of Article 4.1(b) of the
Agreement.
92. Indeed, New Zealand’s description of its steps in analyzing the evidence in making threat
determinations contradicts Australia’s position and supports the US position.  At page 11 of its
response to the Panel’s questions, New Zealand states that its competent authorities:
would examine the factual evidence of the position of the domestic industry in the
past and extrapolate how it was likely to develop in the future.  They would payparticular regard to trends in the domestic and imported prices of the product and,
based on these past trends and on any evidence of forward contract prices, how prices
were likely to develop in the future.
93. Thus, New Zealand, like the United States, relies primarily on demonstrable trends based on
the evidence to extrapolate what will be done in the future.  Both countries, then, take an approach
contrary to the one that Australia claims is required.
VI. THE US SAFEGUARD MEASURE COMPLIES WITH US OBLIGATIONS UNDER
ARTICLE 5.1 OF THE SAFEGUARDS AGREEMENT AND ARTICLE XIX OF THE
GATT 1994
94. The United States has discussed (in its first written submission and its first appearance before
the Panel) why New Zealand and Australia have failed to meet their burden of establishing a prima
facie  case that the US safeguard measure is inconsistent with Article 5.1 of the Safeguards
Agreement.
80  Nothing in the complainants’ responses to the Panel ’s questions regarding the US
measure change the fact that their burden remains unmet.
                                                     
79 USITC Report at I-23-26.
80 See United States’ First Written Submission at ¶¶ 172-209 (15 May 2000); United States’ Opening
Statement to the Panel at ¶ 30 (25 May 2000).WT/DS177/R
WT/DS178/R
Page A-435
A. BURDEN OF PROOF
95. In response to the Panel’s Question 15, New Zealand concedes the burden is on Australia and
New Zealand to demonstrate that the US safeguard measure is not being applied consistently with
Article 5.1.81  Australia, on the other hand, argues that the burden of proof “depends on the
obligation” and that, in this case, the United States has the burden of proving that its safeguard
measure complies with Article 5.1.82  Australia’s argument is similar to the conclusion of the Panel in
Hormones that the SPS Agreement allocated the “evidentiary burden” to the Member imposing an
SPS measure.  The Appellate Body rejected this conclusion on the grounds that:
[i]t does not appear to us that there is any necessary (i.e. logical) or other connection
between the undertaking of Members to ensure, for example, that SPS measures are“applied only to the extent necessary to protect human, animal or plant life or health .
. .”, and the allocation of burden of proof in a dispute settlement proceeding.
Article 5.8 [of the SPS Agreement] does not purport to address burden of proof
problems; it does not deal with a dispute settlement situation. . . 
83
96. Like Article 5.8 of the SPS Agreement, Article 5.1 of the Safeguards Agreement “does not
purport to address burden of proof problems; it doe s not deal with a dispute settlement situation.”
Therefore, the United States submits that the Appellat e Body’s ruling with respect to Article 5.8 of the
SPS Agreement is equally valid with respect to Article 5.1 of the Safeguards Agreement.  As the
Appellate Body stated in Wool Shirts  (at 19), “a party claiming a violation of a provision of the WTO
Agreement by another Member must assert and prove its claim.”
97. In the view of the United States, New Zealand and Australia have not begun to meet their
burden of proof on this issue.  Their claim that the US safeguard measure is inconsistent with Article
5.1 rests almost exclusively on the claim that th e United States was precluded from applying any
import relief that, in the complainants’ view, is more trade restrictive than that the USITC pluralityrecommended.  Thus far, the complainants have pointed to no provision of the Safeguards Agreement
that requires a Member to apply import relief at the level recommended by the Member’s competent
authority, or demonstrated why the relief that the plurality recommended was adequate.
84
B. "NECESSARY" DOES NOT MEAN "LEAST TRADE RESTRICTIVE"
98. Both New Zealand and Australia are incorrect in reading into Article 5.1 of the Safeguards
Agreement a “least trade restrictive” requirement as a matter of law.  They appear to base their
interpretation on the use of the word “necessary” in Article 5.1.  As the United States has noted
previously, in Article 5.1 the term “necessary” refers to the application of a measure, not the initial
choice of the measure.  Furthermore, there is no basis in the text of Article 5.1 to substitute “leasttrade restrictive” for the term “necessary,” nor do the complainants offer any textual basis to supporttheir interpretation.
99. The Appellate Body has made it clear on numerous occasions that the rights and obligations
of WTO Members are to be found in the actual text of the WTO Agreement and not in layers of
“interpretation” that are “read into” that text.  As they have stated:
                                                     
81 New Zealand’s Response to Panel Question Fifteen at 19.
82 Australia’s Response to Panel Question Fifteen at 18.
83 EC Measures Concerning Meat and Meat Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R,
Report of the Appellate Body, 16 January 1998, at ¶ 102.
84 New Zealand’s claim that the United States violated Article 12.2 of the Safeguards Agreement is
simply an attempt to make the United States “justify” its safeguard measure.  The United States explained in itsfirst written submission (at ¶¶ 269-78) that Article 12.2 imposes no such requirement.WT/DS177/R
WT/DS178/R
Page A-436
“The legitimate expectations of the parties to a treaty are reflected in the language of
the treaty itself.  The duty of a treaty interpreter is to examine the words of the treaty
to determine the intentions of the parties.  This should be done in accordance with the
principles of treaty interpretation set out in Article 31 of the Vienna Convention .  But
these principles of interpretation neither require nor condone the imputation into a
treaty of words that are not there or the importation into a treaty of concepts that
were not intended  ."85
100. Yet complainants ask the Panel to do precisely what the Appellate Body has cautioned
against.  They ask the Panel to impute into Article 5.1 words that simply are not there (“least trade
restrictive”) and to import into the Safeguards Agreement concepts from other WTO texts (in
particular, as noted below, the Agreement on the Application of Sanitary and Phytosanitary Measures
and Agreement on Technical Barriers to Trade ) that do not appear in the Safeguards Agreement and
were not intended to be there.
101. In addition, the interpretation of treaty text is to begin with the ordinary meaning of the terms
used, in their context and in light of the text’s object and purpose.  If the ordinary meaning of the term
“necessary” was “least trade restrictive” then it would appear redundant that the drafters of both theAgreement on the Application of Sanitary and Phytosanitary Measures  (“SPS Agreement”) and the
Agreement on Technical Barriers to Trade  (“TBT Agreement”) included both the term “necessary”
and a separate obligation that measures not be “more trade restrictive than” required or necessary86
Accordingly, interpreting “necessary” as meaning “least trade restrictive” would not only be contrary
to the ordinary meaning of “necessary”, it would al so be contrary to the principle of interpretation
known as the principle of treaty effectiveness whereby an interpreter is not to assume that terms in a
text are purely redundant and have no meaning. The SPS and TBT Agreements also demonstrate that
where WTO drafters intended to impose a “least trade restrictive” obligation, they did so explicitly.
The absence of these terms in the Safeguards Agreement is significant and should not be ignored by
the interpreter.
C. NEW ZEALAND AND AUSTRALIA HAVE FAILED TO ESTABLISH A PRIMA FACIE
CASE
1. New Zealand's arguments are based on a false premise
102. In response to a question from the Panel about how a Member could ever identify the single
“least trade restrictive” safeguard measure87,  New Zealand now allows that there may be several
measures in any given case that achieve the objectives set out in Article 5.1 and that “more than one”
of these measures may be equally least trade restrictive.88
103. As an initial matter, New Zealand’s claim that there may be more than one “equally leasttrade restrictive” safeguard measure is a non sequitur .  The term “least” connotes an absolute: the New
                                                     
85India - Patent Protection for Pharmaceutical and Agricultural Chemical Products
(AB-1997-5)(WT/DS50/AB/R), para. 45 (emphasis added).
86 For the SPS Agreement, compare Article 2.2 which contains language similar to Article 5.1 SA
(“ensure that any sanitary or phytosanitary measure is applied only to the extent necessary...”) and Article 5.6
(“shall ensure that measures are not more trade-restrict ive than required...”).  For the TBT Agreement, compare
Article 2.2’s prohibition on technical regulations being “unnecessary” obstacles to trade with its additionalrequirement that technical regulations “not be more trade-restrictive than necessary.”
87 See Question 16 by the Panel to New Zealand and Australia.
88 Notably, Australia disagrees with New Zealand’s claim that a Member is required to identify the
least trade restrictive safeguard measure, noting that a Member “could not” make such a determination.  See
Australia’s Response to Panel Question Sixteen at 19.WT/DS177/R
WT/DS178/R
Page A-437
Shorter Oxford English Dictionary  defines the term as “Smallest; less than any other in size or degree;
colloq . fewest”.  It is not clear how several different measures could be  “least” trade restrictive.
104. More importantly, New Zealand’s view that there may be several “least trade restrictive”
potential safeguard measures is based on a false assumption.  New Zealand assumes that Members
can identify from among the potentially huge range of permutations and combinations of potentialsafeguard measures those that are at once:
(1) trade-restrictive enough to meet the objectives of Article 5.1;(2) precisely equivalent in trade restrictiveness to other such measures; and(3) less restrictive than the entire remaining field of potential measures.
105. New Zealand assumes that Members can identify from among all potential safeguard
measures those that perfectly straddle the line between excess trade restrictiveness and ineffectuality.
That degree of scientific perfection is simply unachievable.  That is because identifying an appropriate
safeguard measure is an inherently uncertain enterprise.  It requires Members to make forecasts offuture market conditions and to predict firm behaviour in response to a measure that has yet to be
imposed.
106. The Committee that reviewed the US measure in the Hatters’ Fur case recognized this point:
the Working Party considered that it is im possible to determine in advance with any
degree of precision the level of import duty necessary to enable the United States
industry to compete with overseas suppliers in the current competitive conditions of
the United States market, and that it would be desirable that the position be reviewed
by the United States from time to time in the light of experience of the actual effect ofthe higher import duties . . . 
89
107. Not surprisingly, New Zealand provides no standards by which a Member could ferret out theleast trade restrictive safeguard measure(s).  In this proceeding, New Zealand has not identified the
least trade restrictive measure(s) available to the United States but instead has condemned the US
safeguard measure simply by comparing it to the USITC plurality recommendation.  ButNew Zealand has never demonstrated why the US ITC plurality recommendation (assuming, without
agreeing with New Zealand, that it is less trade restrictive)
90 would have been both: (1) sufficient to
                                                     
89 Report on the Withdrawal by the United States of a Tariff Concession under Article XIX of the
General Agreement on Tariffs and Trade, GATT/CP/106, report adopted on 22 October 1951, ¶ 35.
90 New Zealand argues that the US measure is more trade restrictive than the plurality’s proposed
remedy despite the fact that the former is one year shorter in duration than the latter.  New Zealand argues thatthe difference in duration is irrelevant since the United States is free under US law and the SafeguardsAgreement to extend the measure by an additional year.  As a preliminary matter, it should be noted that thePresident is also authorized under US law, and the Agreement, to shorten the duration of the measure.  So it ispossible that the US measure may ultimately prove even less restrictive than it is at the present.  Both
eventualities – lengthening and shortening the measure – depend on speculation about future events.  If review
of safeguards measures is to be meaningful, they must be judged in terms of the measure as imposed.
Furthermore, New Zealand is wrong in suggesting that the United States can simply “extend”
the duration of the US measure.  Under Article 7.2 of the Safeguards Agreement, a Member cannot extend ameasure unless its competent authorities determine through a new investigation that the measure “continues tobe necessary to prevent or remedy serious injury and that there is evidence that the industry is adjusting.”
Similarly, before the President may extend a safeguard measure under US law, the USITC must conduct a new
investigation to determine whether safeguards relief “continues to be necessary to prevent or remedy seriousinjury and whether there is evidence that the industry is making a positive adjustment to import competition.”19 U.S.C. § 2254(c)(1), attached hereto as US Exhibit 48.  The USITC must publish a notice of its investigation,WT/DS177/R
WT/DS178/R
Page A-438
prevent serious injury and facilitate industry adjustment; and (2) less trade restrictive than any other
possible effective remedy.
108. On the first point, New Zealand simply offers the bald assertion that “a recommendation by a
Member’s competent authorities, familiar with all th e facts, must be considered to be a measure that
will achieve the goals of preventing injury and facilitating adjustment."91  The Panel rightly
questioned this assumption in Question 17 to the United States.  In response, the United States
explained that there were ample grounds for c oncluding (as the three other USITC commissioners
did) that the plurality recommendation would have  done little to shield the domestic lamb meat
industry from serious injury or to facilitate its adjustment to import competition.92  Thus, there is no
basis for assuming that the import relief that the plurality  proposed was adequate.93
109. Moreover, there is nothing in the USITC record to suggest that the plurality considered, muchless ruled out, every other alternative remedy that might have prevented serious injury to the domestic
lamb industry and assisted in the industry’s adjustment efforts.  Thus, there is no assurance that had it
                                                                                                                                                                    
hold a public hearing, give interested parties an opportunity to appear and be heard, and issue a new report.  19
U.S.C. § 2254(c)(2)-(3).  The President must then review the report and, if it is affirmative, decide whether to
extend the measure.  19 U.S.C. § 2253(e)(1)(B), attached hereto as US Exhibit 48.  Given all of the legal andprocedural prerequisites for extending a safeguard measure, the likelihood of the United States doing so in thiscase is conjectural at best.
The US measure has a duration of three years and a day, while the plurality recommended that
its proposed remedy remain in effect for four years.  In this sense, the US measure is indisputably less restrictive
than the USITC plurality recommendation.
To bolster its claim that the US measure is more trade restrictive than the USITC plurality
recommendation, New Zealand points to the fact that the US measure establishes higher out-of-quota duty rates
and contains an in-quota tariff above the normal bound rate.  Neither argument conclusively establishes that theshorter US measure is more trade restrictive than four-year USITC plurality recommendation.
With respect to the out-of-quota tariff, New Zealand takes issue with the United States’
observation that there is no effective difference between the 20   per cent ad valorem  rate proposed by the
plurality and the 40 per cent rate imposed under the US measure.  New Zealand argues that out-of-quota importsare more likely with a 20 per cent rate than with a 40 per cent rate.  This argument fails to recognize that bothtariff rates were designed to be import-preclusive and thus, by definition, were expected to result in no
over-quota imports.
New Zealand attacks the in-quota aspect of the US measure on the ground that it will impose
costs on lamb imports not contemplated under the plurality recommendation.  New Zealand bases this argument
on the unsupported and economically dubious assumption that all or most of these duty costs will be borne byNew Zealand producers and exporters, rather than by US importers and consumers.  Moreover, contrary toNew Zealand’s apparent further assumption, duty pa yments cannot be directly translated into “trade
restrictions.”  The United States has estimated that the actual trade restrictive effect  of its declining in-quota
tariffs on lamb imports will be very small.  See United States’ First Written Submission at ¶¶ 217-219.  Nothing
in New Zealand’s analysis suggests that this small restraint on imports over three years would be morerestrictive than the effect of the plurality’s remedy, which has a duration of four years.
91 New Zealand’ s Response to Panel Question Sixteen at 20.
92 See US Responses to Questions by the Panel at ¶¶ 111-117.
93Indeed, there is no presumption in New Zealand’s own safeguard law that the remedy
recommendation of its competent authorities are to be a dopted, or even accorded any particular weight, in the
remedy that the New Zealand Minister of Economic Development applies.  See, e.g., Ministry of Commerce,
Wellington,  Trade Remedies in New Zealand, A Discussion Paper , at 19 (1998) (“Following receipt of a
recommendation from an Authority, it is up to the Minist er of Commerce to determine what action, if any, shall
be taken, i.e. an Authority’s recommendations are not binding.”), attached hereto as US Exhibit 49; Replies to
Questions Posed by Canada, the European Community, Korea, and the United States to New Zealand
Concerning the Latter’s Notification of Laws and Re gulations Under Article 12.6 of the Agreement ,
G/SG/W/175, at 2 (circulated 5 June 1996) (“The decision whether temporary safeguard action should be taken,the nature of any such action and its duration, is at the discretion of the Minister of Commerce.”) (The Ministryof Commerce was renamed the Ministry of Economic Development in February 2000).WT/DS177/R
WT/DS178/R
Page A-439
imposed the plurality’s recommended import relief the United States would have satisfied
New Zealand’s standard for applying Article 5.1.
110. In the US view, Article 5.1 does not mandate a comparison between the safeguard measure
that a Member applies and the vast range of other potential measures that the Member might have
selected.  Rather, it calls for an examination of whether the measure the Member has chosen to applyis appropriately gauged to the specific injury a nd causation findings that the competent authorities
have made – both as the measure addresses serious injury and industry adjustment efforts.  As the
United States has demonstrated, the US safeguard measure fully meets this test.
2. Australia's further argument fails to demonstrate that the US measure is being applied
beyond "the extent necessary"
111. While Australia properly rejects the view that Members are required to identify the “least
trade restrictive” safeguard measure, its complaints regarding the extent of the US safeguard measure
otherwise largely track those of New Zealand.  Ho wever, Australia makes the further argument in
response to Question 15 from the Panel that the US measure was more restrictive than necessary
because it restricted first-year imports to 1998 levels or below.
112. In Australia’s view, since the domestic industry had not yet experienced serious injury at
1998 import levels, there was no reason for the United States to cap imports there.  For the same
reason, Australia asserts that there could be no justification for an in-quota tariff that might reduce
imports to below 1998 levels.
113. At the outset, it is worth observing that even the USITC plurality sought to limit first year
imports to 1998 levels.  Thus, Australia’s criticism of the import cap established by the US measure is
equally a condemnation of the USITC plurality recommendation that Australia elsewhere embraces.
This criticism reinforces the US view that the compliance with Article 5.1 cannot be measured byreference to the competent authority’s recommendation, or any other potential safeguard measure.
114. More pointedly, as the United States explained in its first written submission, three of the six
USITC commissioners concluded that the US lamb m eat industry would suffer serious injury even if
import levels remained at 1998 levels.  Commissioners Miller and Hillman stated that:
It is our view that the industry would experience serious injury caused by imports ifimport levels and prices continue at now-existing levels, even if no further price
declines occur.
94
Commissioner Koplan found, similarly, that a remedy set at existing import levels “would not staveoff the threatened serious injury, much less provid e the industry with the opportunity to make a
positive adjustment to prepare for the import competition."
95
115. The USITC plurality did not address these ar guments or demonstrate how, if it continued to
face imports at low prices and record levels, the industry would be a position to recover its
competitiveness.  Under these circumstances, the United States had ample grounds for selecting an
alternative form of import relief that held out at least some promise of being effective.
                                                     
94 USITC Report at I-40.
95 USITC Report at I-49.WT/DS177/R
WT/DS178/R
Page A-440
VII. THE UNITED STATES PROPERLY EXCLUDED CANADIAN AND MEXICAN
IMPORTS FROM ITS SAFEGUARD MEASURE
116. New Zealand and Australia do not contest the fact that participants in free-trade arrangements
may exclude from their safeguard measures, consistent with their obligations under the Safeguards
Agreement and GATT 1994 , imports from their free-trade partners.96  Instead, the complainants
suggest that the United States applied the wrong procedure in excluding Mexican and Canadian
imports from its lamb meat tariff-rate quota.
117. New Zealand and Australia claim that the sole procedure under which imports from a
free-trade partner may be excluded from a safeguard measure is by excluding them from the
competent authority’s injury and causation investigation.  However, the complainants point to no
provision  of the Safeguards Agreement that calls for the exclusion of any imports – regardless ofsource – from the competent authority’s investigation.
118. In fact, the opposite is true.  Article 4.2(a) requires the competent authorities to examine “all
relevant factors” having a bearing on the conditi on of the industry “including the rate and amount of
the increase in imports of the product concerned” and “the share of the domestic market taken byincreased imports”.  Plainly, imports from free-trade partners may have a direct effect on the rate,
amount, and market share of increased imports, and thus may have a significant impact on the
industry’s condition.  For that reason, Article 4.2(a) requires that they be included, rather than
excluded, from the competent authorities’ injury and causation investigation.
119. Australia and New Zealand have not cited an y provision of the Safeguards Agreement that
creates an exception to the requirement imposed by Article 4.2(a).  Moreover, any such exception
would have to take account of Article 9.1, which requires Members to exclude imports from
developing countries for so long as they have a minor share of the domestic market, both individually
and collectively.  Presumably, any requirement in the Safeguards Agreement to exclude free-tradeimports from the competent authorities’ investigation where they are excluded from the ultimate
safeguard measure would apply with equal force to imports from these developing countries.  But
there would be no way for the competent authorities to know during the course of their investigation
which developing countries, individually or collectively, would remain (or become) eligible for
exclusion from the safeguard remedy over its full lifetime.
                                                     
96 Since Australia and New Zealand agree with the United States that members of free trade agreements
are entitled to exclude each others’ imports from safeguard measures, the United States will not elaborate in thistext its view of why such an exclusion is permissible.  Australia and New Zealand both appear to no longerchallenge the exclusion of products from Israel.  To avoi d any implication that the United States has not invoked
footnote 1, Article XXIV of GATT 1994 , and its status as a participant in a free-trade agreement with Canada
and Mexico for purposes of making exclusions in this case, the United States appends and makes a part of itsargument in this proceeding its discussion of this is sue in the context of the ongoing panel proceeding on Wheat
Gluten .  See United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European
Communities , WT/DS166, Response of the United States to Questions from the Panel and the European
Communities, at Question 30 (17 January 2000), attached hereto as US Exhibit 50.  The NAFTA is a free-trade
area for purposes of Article XXIV of the GATT that was notified as such to the CONTRACTING PARTIES to
the GATT 1947 on 1 February 1993 and referred to the Committee on Regional Trade Agreements under theWTO.  As the United States has demonstrated in th is proceeding, requiring the inclusion of products from
Canada and Mexico would prevent the formation of the free-trade area.  The following documentation wasprovided to the Committee:
L/7176 Notification of the Agreement (trade in goods)
L/7176/Add.1 Text of the AgreementS/C/N/4 Notification of the Agreement (trade in services)WT/REG4/ Questions and replies and related documents.WT/DS177/R
WT/DS178/R
Page A-441
120. In sum, nothing in the Safeguards Agreement suggests that its framers sought to mandate the
exclusion from the competent authorities’ investigation of those imports eventually excluded from a
Member’s safeguard remedy.  The plain language of the Agreement makes clear that the competent
authorities must examine all sources of imports in order to make an objective assessment of the
industry’s condition and the reasons for that condition.  Indeed, excluding products originating from
certain sources could skew the relative importance of other factors, in particular imports from thirdcountries, in affecting the industry’s condition.
121. By contrast, the procedure that the United States employs with regard to imports from its
NAFTA partners ensures that neither imports from third countries nor other non-import factors  are
held responsible for injury attributable to imports from Canada and Mexico.  Using this case as an
example, the USITC determined increased imports from all sources were threatening to cause serious
injury to the domestic lamb meat industry.  Having reached an affirmative determination, the USITCthen considered whether imports from Canada or Mexico (1) accounted for a substantial share of total
imports; and (2) contributed importantly to the serious injury or threat.  Since imports from Canada
were negligible throughout the period of investigation (reaching a high point of 0.3 per cent of total
imports in 1997), and there were no imports from Mexico after 1995, the USITC reached negative
determinations on both questions.
97
122. Thus, Australian or New Zealand can mount no serious claim in this case that their importswere subject to a safeguard measure based on injury attributable to imports from Mexico or Canada.
98
Moreover, the US legislation prevents such a result in other cases as well, since it contemplates thatimports from a NAFTA country will be included in the safeguard remedy whenever they aresubstantial and a significant factor in the injury or  threat of injury the industry has sustained.  The
legislation further provides that NAFTA imports may be considered collectively in appropriate
cases.
99  This avoids the possibility that NAFTA imports might be excluded from a safeguard measure
in the unusual case in which they are individually insignificant in scale and impact but together have
an appreciable effect.
123. In sum, nothing in the Safeguards Agreement compelled the United States to exclude NAFTA
imports from the investigation of its competent authorities.  Indeed, when it included those imports in
its investigation the USITC was fulfilling the requirement of Article 4.2(a) to examine all relevant
factors having a bearing on the industry’s condition.  The USITC’s examination of the scale and effectof NAFTA imports at the conclusion of its primary investigation and its determination that they were
not significant in either respect satisfy any concern that Australian and New Zealand lamb imports
were – or could have been – restricted based on th e injurious effects of NAFTA imports.  In this way,
the US procedure fully satisfied the principle of “parallelism” that Australia and New Zealand seek to
read into the Safeguards Agreement.
124. Finally, it is worth observing that Members that participate in free-trade areas are subject to
the relevant provisions of Article XXIV of GATT 1994 .  Article XXIV:5(b) provides that the creation
of a free-trade area must not result in the imposition of higher or more restrictive “duties and other
regulations of commerce” on the trade of Members that are not part of the free-trade area than would
                                                     
97 USITC Report at I-27.
98 It is worth noting that US law protects against the possibility that imports from excluded free trade
agreement partners will surge to fill demand previously filled by third country imports.  If the President were todetermine that a “surge” in imports of Canadian lamb meat was undermining the effectiveness of the lamb meatsafeguard measure, he could include those imports under the TRQ.  19 U.S.C. §3372(c), attached hereto as USExhibit 51.  Canadian imports were negligible throughout the period of investigation, and US law defines the
term “surge” as “a significant increase in imports over the trend for a recent representative base period”. 19
U.S.C. §3372(c)(3).  Thus, any appreciable increase in imports of Canadian lamb meat could subject thoseimports to inclusion in the US safeguard measure.
99 19 U.S.C. § 3371(a)(2).WT/DS177/R
WT/DS178/R
Page A-442
have been the case in the absence of the free-trade agreement.  By virtue of footnote 1 of the
Safeguards Agreement, it is the relevant provisions of Article XXIV, rather than any provision of the
Safeguards Agreement, that govern issues related to the application by participants in free-trade areas
of safeguard measures.
125. In the US view, Article XXIV:5(b) would prevent a Member from applying a safeguard
measure exclusively against third countries in a situation in which the serious injury or threat of
serious injury the domestic industry was experiencing was attributable to increased imports from its
free-trade partners.  Article XXIV:5(b) does not mandate any particular procedure for ensuring such a
result.  The US legislation applicable to the treatment of NAFTA imports for safeguards purposes
fully ensures that third party imports will not be penalized for serious injury or threat of serious injury
attributable to imports from NAFTA countries.  US  law accomplishes this objective by requiring the
USITC to determine whether NAFTA imports have play ed an important role in any serious injury or
threat of serious injury the USITC found and by limiting the exclusion of NAFTA imports from
safeguard measures to situations in which those imports have not made an important contribution.
VIII. CONCLUSION
126. For the foregoing reasons, the United States respectfully submits that its safeguard measure
applied to imports of lamb meat satisfies US obligations under Article XIX of GATT 1994  and the
Safeguards Agreement.  Australia’s and New Zealand’s claims to the contrary are without merit and
the Panel should reject them.WT/DS177/R
WT/DS178/R
Page A-443
LIST OF US EXHIBITS
United States – Safeguards Measures on Imports
of Lamb Meat from New Zealand and Australia
US Exhibit Description
43 Report of the International Law Commission at 221
44 Leddy, The Escape Clause , at 136
45 USITC Transcript at 130-31, 217, 258-59
46 Productivity Commission, Pig Meat , at xxi, xxiii, Section 4.6
47 Canadian International Trade Tribunal Act, Secs. 19.01(1), 2048 19 U.S.C. §§ 2252(b)(1)(B), 2253(e)(1)(B), 2254(c)(1)-(3),49 Ministry of Commerce, Wellington, Trade Remedies in New Zealand, A
Discussion Paper , at 19 (1998)
50 United States – Definitive Safeguard Measures on Imports of Wheat Gluten
from the European Communities , WT/DS166, Response of the United States
to Questions from the Panel and the European Communities, Question 30
(17 January 2000)WT/DS177/R
WT/DS178/R
Page A-444
ANNEX 3-9
ORAL STATEMENT OF THE UNITED STATES AT
THE SECOND MEETING OF THE PANEL
(26 July 2000)
1. On behalf of the United States delegation, I would like to thank the Panel for giving us this
second opportunity to appear before you to comment further on the matters at issue in this dispute.  In
our written submissions and answers to the Panel’ s questions, the United States  has explained in
considerable detail why New Zealand and Australia have failed to meet their burden of proof that the
conduct of the USITC’s investigation and the implementation of the US safeguard measure fail tosatisfy US obligations under the Safeguards Agr eement and the GATT 1994.  For this reason, we will
focus today on a few key issues, and not simply reiterate all that we have said before.  We will be
pleased to receive any questions you may have at the conclusion of our statement.
2. For the convenience of the Panel, our statement today – like our second written submission –
will follow the format that the Panel used in settin g out its written questions to the United States.
Thus, Mr. Gearhart of the USITC will first discuss the issues relating to the USITC’s investigation,
including unforeseen developments, the USITC’s definition of the domestic industry, its threat of
serious injury determination, and its causation determination.  I will then discuss Australia’s and
New Zealand’s claims regarding the safeguard measure that the United States applied.  For brevity,we will refer to Australia and New Zealand together as the "complainants."
3. I will now ask Mr. Gearhart to address the USITC’s determination.
1. Unforeseen Developments
4. The Appellate Body has stated that unforeseen developments are not an independent
condition for the application of safeguard measures, but rather “circumstances that must be
demonstrated as a matter of fact”.  The Appellate Body’s statement suggests that, in demonstrating
such circumstances, competent authorities are not required to conduct a separate inquiry or make aseparate “unforeseen developments” finding.  In other words, the unforeseen developments language
of Article XIX addresses circumstances that will normally be demonstrated through the competent
authority’s injury and causation investigation and determination.
5. Mr. Chairman, the USITC’s determination demonstrates the existence of unforeseen
developments.  New Zealand continues to misread the United States’ argument as to what was
unforeseen.
1  What was unforeseen by the United States was not just the surge in imports, but also
both the significant change in product mix from frozen  to fresh, chilled, and the increase in cut size.
These changes allowed the increase in imports and resulted in importation of lamb meat products
more like, and thus more competitive with, those traditionally produced by US lamb meat producers.
Neither New Zealand nor Australia contests that such a shift in product mix from frozen to fresh,
chilled occurred, nor does either seriously contest the fact that imported lamb meat cuts increased insize.
6. Contrary to New Zealand’s contention
2, hard evidence before the USITC showed that a
change in product mix from frozen to fresh, chilled made the imported product more directly
competitive with the domestic product, and the USITC also had hard evidence that the importedproduct became more comparable in size with the domestic product.  While nine of 16 purchasers
                                                     
1 See New Zealand’s Second Written Submission at ¶ 2.11.
2 New Zealand’s Second Written Submission at ¶¶ 2.19-2.20.WT/DS177/R
WT/DS178/R
Page A-445
who responded to the USITC questionnaire reported that frozen and fresh lamb meat are used in the
same way, seven of the nine said that quality decreases with freezing and that fresh commands a
higher price, while frozen is sold as a “B-class” item.  Other purchasers stated that customers prefer
fresh, and that grocery stores generally purchase fresh.3
7. Similarly, ten of the 16 responding purchasers said that the various grades, cuts, and sizeswere available from more than one source.  The USITC Commissioners also examined this issue
during its public hearing, and they heard live testimony from an official of a domestic breaker that
supported a finding that the size of imported lamb meat cuts was increasing and that imported cuts
were becoming more directly competitive with domestic cuts.  The Commissioners examined samples
of Australian and domestic lamb loins presented at the hearing.
4
8. New Zealand’s assertion that the USITC pricin g data undercut the USITC’s finding that the
imported products became more similar to the domestic products misses the point of the pricing data.5
The fact that three of the eight products on which the USITC gathered pricing data were identifiedeither as imported or domestic products has nothing to do with product similarity or dissimilarity.
The USITC gathered information on specific cuts to make direct price comparisons.  These data have
nothing to do with whether imported cuts generally were becoming larger.
9. New Zealand’s response that certain lamb m eat products from New Zealand, such as racks,
have been “commonly” smaller than domestic racks does not mean that all New Zealand or all
imported racks  were smaller, or that the average size of racks exported to the United States from New
Zealand and other sources was not increasing, or that the size of New Zealand racks wasrepresentative of all US imports of racks.  In fact, purchasers told the USITC that Australian cuts tend
to be larger in size than New Zealand cuts.
6  And even New Zealand acknowledges that evidence
before the USITC showed that the size of Australian lamb carcasses increased between 1993 and
1997.7  In summary, the important point here is not whether New Zealand and Australian cuts were
smaller than US cuts, but whether the evidence before the USITC supported its finding that theimported cuts were becoming larger in size and thus more directly competitive with the domestic cuts.
The USITC record contained just such evidence.
10. New Zealand makes the unsupported claim that much of the increase in imports of fresh and
chilled lamb meat was the result of “new demand” in the US market for New Zealand lamb meat as aresult of the decision of a major US restaurant chain and of grocery store “warehouse clubs” to
purchase New Zealand lamb meat.  New Zealand points to no evidence that such purchases were due
solely to any specific quality of the New Zealand product.  While the USITC found that imports had
found new customers for lamb meat, nothing in th e record shows that the US industry could not
compete for those customers for lamb meat.  Moreover, the USITC also found that previously
established domestic customers were increasing their purchases of imported lamb meat.
11. New Zealand’s claim is contrary to the evidence before the USITC with respect to the
importance of price, and does not explain the overall surge in imports, from Australia as well as
New Zealand.  The USITC heard live testimony from an official of a domestic breaker firm who
recounted how his firm had lost a major grocery chain account in January 1998 because his company
could not match substantially lower prices offered by importers.  He said that the grocery chain wasable to buy imported loins at $1.80 to $2.00 a pound, at less than half his price of $4.04 to $4.41 a
pound.  He said that while his firm kept a few of the grocery chain’s smaller divisions as customers, at
                                                     
3 USITC Report at II-72.
4 Transcript of USITC injury hearing at 20, 73 (Mr. Casper).
5 New Zealand’s Second Written Submission at ¶ 2.18.
6 USITC Report at II-72.
7 New Zealand’s Second Written Submission at ¶ 2.19.WT/DS177/R
WT/DS178/R
Page A-446
reduced volumes, the major accounts switched entire ly to imports because of the price differential.8
Moreover, the whole notion of “new demand” raised here by New Zealand is a complete misnomer,
as restaurants and grocery stores have always been among the principal purchasers of lamb meat.
While New Zealand and Australia may wish the USITC had found otherwise, the USITC’s objective
examination is supported by evidence gathered in its investigation.
12. Finally, New Zealand’s argument here that the surge in New Zealand imports supplied “new
demand” is inconsistent with arguments made by economist Susan Manning on behalf of Meat and
Livestock Australia, Ltd. (“MLA”) at the USITC injury hearing that the surge in imports satisfied a
shortfall in domestic supply caused by the exit of  domestic lamb growers from the market due to the
termination of the US Wool Act support programme.9
13. Mr. Chairman, the USITC’s report fully satisfies the requirements of Article XIX with regardto unforeseen developments.  The United States ex plained in its previous s ubmissions that past GATT
practice supports the US view that there is no requirement to make a separate finding on this issue.  In
the time since the United States filed its second written submission, it has reviewed the Article XIX
notifications that GATT parties made under the GATT 1947.  In 145 notifications, there was no
description of "unforeseen developments".  The absence of such descriptions reflects the fact thatArticle XIX does not require a separate finding.
14. The conditions for imposing safeguard measures set out in Article XIX:1(a) are elaborated
and expanded upon in considerable detail in the Safeguards Agreement.  Notably, the unforeseen
developments language is not only not elaborated upon, it is not even mentioned in the Safeguards
Agreement.  The decision of the drafters not to address unforeseen developments indicates that they
did not intend to depart from existing GATT practice on that subject.
15. In Hatters’ Fur , the Tariff Commission – the forerunner to the USITC – made a series of
factual findings that led it to conclude that increased imports were causing serious injury to thedomestic industry.  The Commission found that a particular change in hat style, which occurred after
the tariff concession was made, had greatly favoured a type of hat in which imports had a comparative
advantage.  The Tariff Commission did not, however, make a separate finding that this change (or any
other change) was an "unforeseen development".  Although Czechoslovakia claimed that the United
States should have foreseen the style change, because hat styles were known to change, it did notobject that the Tariff Commission had failed to identify which facts constituted "unforeseen
developments".  This suggests that there was no expectation that the existence of  unforeseen
developments needed to be demonstrated as a separate finding.
16. Furthermore, as the United States showed in its previous submissions, the Hatters’ Fur
working party concluded the United States could not have been expected to anticipate changes in
market conditions influencing the sale of felt hats of a scale and duration that would lead to aninjurious import surge.  Those market changes, the working party concluded, constituted “unforeseen
developments" – despite the fact that US negotiators were specifically aware of the propensity for hat
fashions to change.  The working party’s report suggests that even if a Member has direct knowledge
of how a particular marketplace functions it cannot be held to anticipate a change in the market
conditions of a type that leads to an injurious import surge.
17. In sum, Article XIX does not require a competent authority to independently find and report
on the developments that led to the injurious import surge, or threat of serious injury, and explain why
they were “unforeseen”.  The USITC’s determination is thus fully consistent with the requirements of
Article XIX.
                                                     
8 Transcript of USITC injury hearing at 21-22.
9 Transcript of USITC injury hearing at 177-179.WT/DS177/R
WT/DS178/R
Page A-447
2. Definition of Domestic Industry
18. In their second submissions, New Zealand and Australia continue to misrepresent the
USITC’s definition of the domestic industry.  The USITC’s finding in the lamb meat case does not, as
New Zealand claims, mean that the domestic industry will include the producers of inputs in every
case.10  Indeed, both the strict requirements of the test employed by the USITC and USITC practice
show that this is not the case.  The USITC must find that both elements of the test are met – there
must be a continuous line of production from the raw to the processed product, and there must be a
substantial coincidence of economic interest between the producers of the raw product and the
processors.  In 70 investigations under the US Trade Act of 1974, the USITC has found such a test to
be satisfied in only three instances  – the other two were in 1976 and 1984.  The USITC has not found
the test to be satisfied when a significant portion of the raw product was sold in other markets.
Contrary to New Zealand’s claim11, the USITC in the lamb meat case looked at other possible uses of
lambs, and concluded that most sheep and lambs in the United States are meat-type animals kept
primarily for the production of lambs for meat.12  Had the USITC found to the contrary, the outcome
would have been different.
19. New Zealand continues to suggest that the Panel in the unadopted report in Canada –
Manufacturing Beef13 suggested that producers of the raw product could be considered to be part of
the industry producing the processed product only when common ownership between the producers of
the raw and processed products makes it impossible to analyze each process separately.  The Panel did
not say this, and it is contrary to what Australia has argued and contrary to Australian practice in its
most recent safeguard decision.
3. Threat of Serious Injury
20. On the question of threat of serious injury, the complainants’ second submissions largely
repeat arguments made earlier.  New Zealand in particular continues to reject the finding of the panelin Argentina – Footwear  that the increase in imports must be “sudden” and “recent,” but it does so
with some new twists.  In urging the panel to find  that the USITC should have based its finding on the
impact of imports over a much longer time period than 1997-September 1998, New Zealand now
claims that the threat finding must “reflect [the condition of] the industry as a whole over a
representative period".
14  Nothing in the Safeguards Agreement requires anything of the sort, nor does
New Zealand even attempt to provide a basis for this claim.  Nor does anything in the Safeguards
Agreement or the Appellate Body’s decision in Argentina – Footwear  require or even remotely
suggest, as New Zealand claims, that an authority mu st consider a longer period in deciding whether a
threat  of serious injury exists than in deciding whether present  serious injury exists.15
21. New Zealand adds a special twist for agricultural industries.  It claims in effect that the
Safeguards Agreement requires that authorities should view agricultural industries differently fromother industries, on the premise that a recent period, such as the 21-month period on which the USITC
finding was based, “can be no more than a measurement of a fluctuation”.
16  A 21-month period
would reflect far more than a “fluctuation.”  Moreover, the USITC found no evidence of a “ lamb
cycle” that might affect the length of the relevant period examined, and no party before the USITC
alleged that such a cycle existed.  Again, nothing in the Safeguards Agreement even remotelysuggests a special test for agricultural industries, and New Zealand provides no basis for this claim.
                                                     
10 New Zealand’s Second Written Submission at ¶ 3.8.
11 New Zealand’s Second Written Submission at ¶ 3.7.
12 USITC Report at I-13, citing for support additional evidence in the report at II-4.
13 New Zealand’s Second Written Submission at ¶ 3.5.
14 New Zealand’s Second Written Submission at ¶ 4.6.
15 New Zealand’s Second Written Submission at ¶ 4.7.
16 New Zealand’s Second Written Submission at ¶ 4.5.WT/DS177/R
WT/DS178/R
Page A-448
Moreover, New Zealand’s claim here and similar claims made by Australia are inconsistent with the
approach that Australia took in its recent safeguard action involving the Pig and Pigmeat Industries .
As the United States indicated in its Second Submission, the Australian authority in that case based its
determination, made in November 1998, on a decline in prices from October 1997, and a decline in
the condition of the domestic industry during the first half of 1998.17  Thus, the decision of the
Australian authority was based on developments dur ing a period that was approximately half as long
as the period upon which the USITC decision was ba sed.  The Safeguards Agreement does not specify
a specific period.  What the USITC did in making its threat determination was to rely on recent trends,
which is precisely what the decision in Argentina – Footwear  said was required.
23. Complainants’ insistence that the USITC should have relied on long-term trends is
paradoxical in view of their complaint that the USITC did not adequately find that serious injury is“imminent.”  As the United States has noted in previous submissions, the term “imminent” is not
defined in the Safeguards Agreement .  The Agreement does not require the national authority to
project a date by which serious injury will occur, or  require that it engage in any specific analysis in
order to find that a threat exists.  As is clear from the USITC’s report, the USITC based its finding of
threat of serious injury on the surge in imports th at occurred in 1997 and interim 1998; the decline in
industry indicators that coincided with this surge in imports; the projections of Australian and New
Zealand exporters that this surge in exports to the United States would continue through 1999 at an
even faster pace; and the conclusion that such increases in import volume would have further negative
effects on the domestic industry’s prices, shipment volumes, and financial condition in the imminent
future.
18
24. Most of the parties’ remaining arguments are simply efforts to have the Panel reweigh theevidence.  New Zealand’s inference, based on a review of indexed USITC data, that packer/breaker
operations were doing well in interim 1998 is both of little relevance and incorrect.
19  Packer/breaker
operations involve just a subset of processor operations, so they do not reflect overall processoroperations.  Moreover, as to packer/breakers, the indexed data show operations in interim 1998 that
are in very bad shape relative to the period prior to 1997.
25. New Zealand claims the USITC just looked at price gaps between imported and domestic
lamb meat.
20  New Zealand ignores the fact that the USITC also looked at the decline in lamb meat
prices that occurred during the surge in imports.  The USITC found that US, Australian, and New
Zealand lamb meat prices were in most cases lower for the products surveyed in the second half of
1997 and the first three quarters of 1998, when the surge in imports and decline in domestic industry
indicators occurred, than in the comparable quarters in 1996 and the first half of 1997.21
26. New Zealand cites no evidence to support its claim that the decline in US lamb meat prices
may have been due to a decline in domestic pork prices.22  While New Zealand does not identify the
year in which pork prices declined or the amount of the decline, New Zealand’s claim completely
ignores the impact of surging lamb meat imports in 1997 and interim 1998.  Moreover, New Zealand
makes no effort to explain why Australian and New Zealand exporters of lamb meat would have
accelerated their shipments to the United States at the time domestic lamb meat prices were falling.
New Zealand fails to support its claim.
                                                     
17 United States Second Written Submission at ¶ 32, note 40.
18 USITC Report at I-23-24.
19 New Zealand’s Second Written Submission at ¶ 4.23.
20 New Zealand’s Second Written Submission at ¶ 4.11.
21 USITC Report at I-24.
22 New Zealand’s Second Written Submission at ¶ 4.12.WT/DS177/R
WT/DS178/R
Page A-449
27. New Zealand’s claim that the USITC relied on the stabilization of US lamb meat
consumption in 1996-1998 as an indication of the domestic industry’ s health is simply not correct.23
What the USITC said was that the domestic lamb meat industry had experienced “some recovery”since full termination of the Wool Act payments in 1996.
24   The USITC found that imports surged in
1997 and interim 1998 and that this surge resulted in a sharp deterioration of the condition of the
domestic industry and caused the threat of serious injury.  The USITC thus found a direct linkbetween the surge in imports in 1997 and interim 1998 and the threat of serious injury.
28. There is simply no requirement in the Safeguards Agreement that an authority “determine
how prices would develop in the future,” as New Zealand claims.
25  Prices are not even one of the
factors listed in Article 4.2(a) that an authority must evaluate.  The USITC found that any further
increases in the volume of imports would be likel y to put further downward pressure on US prices in
the imminent future in the US market.26  The USITC did all that it was required to do, and more.  The
USITC analysis properly avoided reliance on “allegation, conjecture or remote possibility ”, which
Article 4.1(b) expressly prohibits.
29. Also, contrary to New Zealand’s contention27, as the United States indicated in its response to
the Panel’s written question 9, the USITC made a finding of threat of serious injury for each of thefour industry sectors and found that the requisite causal link existed.  Thus, as to each sector, the
USITC made the findings that would be required if each were an entire industry.
4. Causation
30. I would like to turn now to the issue of causation.  As the United States has demonstrated in
its written submissions and in its answers to the written questions from the Panel, the USITC’s
causation determination was consistent with the Safeguards Agreement and the GATT 1994.
31. Mr. Chairman, neither the text of the Safeguards Agreement nor its negotiating history
suggest that the drafters intended to mandate a specific degree of causation that Members must find.
Nor did the framers impose, or even discuss, a requirement under which Members must determine
what quantum of injury should be assigned to each "cause".  In the real world, in which no event is
truly "isolated", such artificial analysis does not lead to a reliable result.
32. I will turn first to the issue of whether the Safeguards Agreement specifies a particular degree
of causation.  It is apparent from the negotiating history of the Safeguards Agreement, which the
United States set out in its second written submission, that the negotiators held differing views of the
degree of causation that it might be appropriate to enshrine in a new Safeguards Agreement.  These
included "a cause", "a primary cause", "a substantial cause ", "an essential cause", and so forth.  It is
equally clear from the record that the negotiators were not able to reach agreement on any particular
level of causation.  Consequently, nothing in the Safeguards Agreement dictates a specific level ofcausation that Members must apply.
33. New Zealand attempts to derive a degree of causation standard from the reference in
Article 4.2(b) to "the causal link" between increased imports and serious injury.  New Zealand argues
that this language establishes that imports must be "the" cause or the "sole" cause of serious injury.But New Zealand’s interpretation rewrites history.  The debate in the Negotiating Group over the
appropriate degree of causation was never resolved.
                                                     
23 New Zealand’s Second Written Submission at ¶ 4.15.
24 USITC Report at I-24-25.
25 New Zealand’s Second Written Submission at ¶ 4.18.
26 USITC Report at I-24.
27 New Zealand’s Second Written Submission at ¶ 4.19.WT/DS177/R
WT/DS178/R
Page A-450
34. That debate contrasted with, and was quite separate from, the discussion in the Negotiating
Group regarding the causal link. That discussion concerned the need to provide objective evidence
establishing the connection – the link – between increased imports and serious injury or threat.  As a
result, the first sentence of Article 4.2(b) requires the competent authorities to provide detailedevidence of that connection.  It does not address, and was never intended to address, the required
degree of causation.  Indeed, in the debate over degree of causation no party ever suggested that theappropriate degree should be "the cause" or the "sole cause" of serious injury, much less that the
reference to "the causal link" was intended to accomplish such a purpose.
35. New Zealand’s reliance on the phrase "the causal link" as establishing a degree of required
causation is misplaced.  In fact, the reference in the first sentence of Article 4.2(b) to "the causal link"
(as opposed to "a" causal link) does not mean that increased imports must be the "sole cause" of
serious injury.  Rather, as a matter of English grammar, in the expression "the causal link", the word"the" modifies the noun "link", not the adjective "causal".  Moreover, the dictionary definition of
"link" is "a unifying element:  a means of connecting or communicating."  Thus, Article 4.2(b) does
not address the required degree of causation.  Article 4.2(b) simply requires a competent authority to
demonstrate, through objective evidence, the connection between the increased imports and the injury
it has found.
28
36. Read in context, and given its plain meaning, the subject of the first sentence of Article 4.2(b)is the need for objective evidence of causation, not the degree of causation required.  The sentence
serves to preclude Members from simply assuming that where increased imports and serious injury
occur at the same time, the former must have caused the latter.
37. New Zealand and Australia similarly misinterpret the second sentence of Article 4.2(b).  They
claim that this sentence creates an obligation for Members to consider the effects of imports in
isolation – that is, to determine whether, standing alone, they are causing a degree of injury that is
"serious".  It makes little sense to read Article 4.2(b) as imposing an isolation requirement, however,because Article 4.2(a) requires Members to evaluate "all relevant factors" having a bearing on the
situation of the industry.  There would be no need to examine every factor  responsible for the
industry’s condition if Article 4.2(b) required Members to isolate the specific injurious effects caused
by imports and then decide whether that quantum of injury was "serious".  By rendering Article 4.2(a)
superfluous, the complainants’ reading of the second sentence of Article 4.2(b) violates the principleof effectiveness in treaty interpretation.
38. Moreover, crediting the complainants’ "isolation" argument would suggest that the
United States and other governments agreed to abandon their traditional approaches to causation and
embrace an entirely different paradigm.  Under an isolation analysis, there would be no need for a
Member to look at the overall condition of the industry or establish a degree of causation attributable
to increased imports.  Instead, the Member would look solely at the injurious effect of increasedimports and determine whether they were “serious.”
39. If the Negotiating Group had in fact agreed to impose such a different approach, there surely
would be at least some evidence of discussion, debate, and competing textual provisions on this point
in the negotiating record.  Instead, the record of the Negotiating Group suggests the opposite.  Theparticipating governments framed the causation issue in front of the Negotiating Group as one of
degree of causation, an approach that it not based on an "isolation" analysis.
40. The second sentence of Article 4.2(b) should be interpreted in light of its plain meaning and
in its context.  Read in that way, the second se ntence simply completes the evidentiary requirement
set out in the first sentence.  That is, in additio n to specifically documenting the connection between
increased imports and serious injury or threat, the competent authorities must also examine the other
                                                     
28 See United States’ Responses to Questions from the Panel at ¶¶ 48-49.WT/DS177/R
WT/DS178/R
Page A-451
factors that may be causing injury to the industry and ensure that increased imports are not blamed for
that injury.  That, of course, is exactly what the USITC did in its lamb meat investigation.
41. Mr. Chairman, I have two final points on this issue.  First, the United States is puzzled that
New Zealand criticizes it for turning to the dictiona ry in seeking to determine the meaning of the term
“cause”.  Under the customary rules of interpretation of public international law, reflected inArticle 31 of the Vienna Convention , a treaty “shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context and in the light of its object
and purpose.”  It is well established that reference to dictionary definitions is an appropriate way to
determine ordinary meaning.
42. Finally, New Zealand is simply wrong when it claims that the expression "to cause"
invariably carries the meaning of being the “sole cause”.  Plainly there are circumstances in which “tocause” can apply to more than one cause.  For example, design defects, operating errors, and
substandard construction may all work together "to cause" a dam to collapse.  Thus, the verb "to
cause" as used in the Safeguards Agreement plainly embraces the concept of more than one cause.
43. Mr. Ross will now discuss Australia’s and New Zealand’s remaining claims.44. Mr. Chairman, Members of the Panel, in the remainder of my presentation, I will focus on
whether the lamb meat safeguard measure is being applied beyond the extent necessary, in
contravention of Article 5.1 of the Safeguards Agreement, and the exclusion from the US measure of
imports of lamb meat from Canada, Mexico, and Israel.  I will focus primarily on arguments that NewZealand and Australia made in their second written submissions.
5. The US Measure is Commensurate with the Goals of Preventing or Remedying Serious
Injury and Facilitating Adjustment
45. I would first like to discuss New Zealand’s and Australia’s argument that the lamb meat
safeguard measure exceeds the limits prescribed by Article 5.1 for safeguard measures.
46. The Appellate Body stated in Korea–Dairy  that a safeguard measure must be "commensurate"
with the goals of preventing or remedying serious injury and facilitating adjustment.  New Zealandand Australia have failed to demonstrate how the lamb meat safeguard measure can reasonably be
considered "incommensurate" with the goals that the Appellate Body identified.  That is not surprising
given that the measure has a duration of just three years, permits imports in the first year at their
second highest level ever, and allows imports to exceed surge levels in years two and three.
47. Rather than explain how the safeguard measure is excessive on its own merits, the
complainants seek to show that the measure is more restrictive than the USITC plurality’srecommended remedy would have been.  Thus far, however, the complainants have not pointed to any
provision of the Safeguards Agreement requiring a Member to apply the import relief its  competent
authorities recommend.  Indeed, the Agreement does not require competent authorities to provide
remedy recommendations in the first place.  Nor ha ve the complainants demonstrated that the relief
that the USITC plurality recommended was adequate to prevent serious injury from occurring or tofacilitate the industry’s adjustment.
48. Moreover, both New Zealand and Australia ignore the fact that three of the six USITC
commissioners disagreed with the plurality recommendation and suggested remedies that would have
placed greater burdens on imports than the remedy that the President ultimately applied.  It is not clearwhy, for purposes of the Safeguards Agreement, the US safeguard measure should be judged by
comparison to the plurality’s remedy recommendation, but the views of the other three commissioners
are to be ignored.WT/DS177/R
WT/DS178/R
Page A-452
49. New Zealand claims that the United States has placed the Panel on the "horns of a dilemma"
by arguing, on one hand, that the Panel cannot engage in a de novo  review of the USITC’s
investigation, and on the other hand that the Panel cannot presume that the USITC plurality’s
recommended remedy was adequate.  But New Zeala nd mischaracterizes the US position.  The US
position is that the recommendations of the USITC (and it would have to be the recommendations of
all six Commissioners, not just the plurality) do not constitute a benchmark for purposes ofdetermining compliance with Article 5.1.  Neither New Zealand nor Australia has provided any
textual basis or evidence supporting the use of these recommendations as a benchmark.
50. New Zealand and Australia both claim that the burden is on the United States to demonstrate
that the USITC plurality’s recommended remedy was not adequate.
29  This is wrong for at least two
reasons.  First, as already noted, the USITC remedy recommendations are legally irrelevant under
Article 5.1.  The measure to be examined is the measure actually applied by the United States, not themeasure proposed by the USITC.  Second, even if such a comparison were  appropriate, the burden of
proof would be on complainants to demonstrate that the plurality’s remedy was adequate to prevent
serious injury and facilitate adjustment, not on the United States to demonstrate the opposite.  Thus
far, the complainants have made no effort to do so.
51. In any event, the United States has shown why the USITC plurality’s remedy cannot be
assumed to be adequate.  Six USITC Commissioners – each equally familiar with the facts –
examined the record and split three ways on an appropriate remedy.  Three Commissioners concluded
that the plurality’s remedy was insufficient to prevent serious injury and facilitate adjustment.  The
fact that there was a split of views on an adequate remedy demonstrates that the pluralityrecommendation should not be presumptively regarded as adequate.
30
52. New Zealand has shifted ground in its second written submission by stating that the "least
trade restrictive" test it believes is written into Article 5.1 is really a "proportionality" standard.  In
fact, the two concepts are not the same.  Of course, as the United States has already explained, thereference to "necessary" in Article 5.1 refers to the application of a measure, not the measure itself.  A
"least trade restrictive" test would require a comparison between the measure actually applied and
some other "ideal" measure.  According to New Zealand, its "proportionality" test would require a
"degree of proportionality between ends and means".  Even accepting, arguendo, New Zealand’s
proportionality test, New Zealand has provided no evidence to establish that the application of the USmeasure is not proportional.  In any event, there is no "proportionality" test under Article 5.1.  The
term "proportional" is never used in Article 5.1, and there is no textual basis for reading it into that
article.
53. Mr. Chairman, in its first written submission, and in its responses to the written questions
from the Panel, the United States explained why the measure it put in place was an appropriate one.
31
By contrast, New Zealand and Australia have provided virtually no analysis of the measure.
New Zealand has limited itself to comparing the measure to the USITC plurality’s recommended
remedy.  Australia criticizes the measure for reducing first year imports to below the surge level, but
ignores the findings of the three USITC Commissioners who concluded that serious injury would
occur if imports continued at surge levels.
54. Moreover, both complainants ignore the USITC’s unanimous finding that the industry’s
worsening condition was largely due to falling prices.  Given the USITC’s findings, it was reasonable
for the United States to conclude that if imports continued at 1997 - interim 1998 surge levels and
prices, the US lamb meat industry would quickly decline into serious injury.  The US measure is
                                                     
29 New Zealand’s Second Written Submission at ¶ 6.8; Australia’ s Second Written Submission at ¶ 55.
30 See US Responses to Questions from the Panel at ¶¶ 111-117.
31 See United States’ First Written Submission at ¶¶  213-224; US Responses to Questions from the
Panel at ¶¶ 121-139, 165-170.WT/DS177/R
WT/DS178/R
Page A-453
designed to address these findings by capping first-year imports at just below surge levels, and by
addressing the falling prices.
55. In sum, because New Zealand and Australia have not pointed to any way in which the TRQ is
excessive in the manner in which it addresses the USITC’s findings for purposes of preventing serious
injury and facilitating adjustment, whether in terms of degree, scope, or duration, they have failed tomeet their burden of proof to demonstrate that the US measure is inconsistent with Article 5.1.
6. The Exclusion of Imports from Canada, Mexico, and Israel
56. Finally, I would like to address the question of how the United States treated lamb meat
imports from Canada, Mexico, and Israel for purposes of the USITC’s investigation and the safeguard
measure.  New Zealand and Australia agree with the United States that parties to a free-tradeagreement are entitled to exclude each other’s products from safeguard measures.  Accordingly, the
only remaining claim for the Panel is their challenge to the procedure that the United States used in
deciding to exclude products of its free trade partners.  However, as footnote 1 to the Safeguards
Agreement makes clear, this issue is governed by the GATT 1994, not by the Safeguards Agreement.
Therefore, complainants’ reliance on Article 2.2 of the Safeguards Agreement is misplaced.  Thatarticle cannot be read to require any particular procedure for deciding to exclude the products of free
trade partners.
57. New Zealand and Australia appear to attach great importance to this issue, which is surprising
given that there were no imports of lamb meat fr om Israel during the period of investigation, no
imports from Mexico after 1995, and Canadian imports peaked in 1997 at approximately one third of
one per cent of total imports that year.  By contrast, imports from Australia and New Zealand
constituted some 98.3-99.9 per cent of total imports over the period of the investigation.  The United
States does not believe that it committed any procedural errors in the way it treated imports from the
three countries.  But even if it did, they plainly could not have affected the outcome of the USITC’sinvestigation and thus the Panel need not address this issue.
58. In essence, Australia’s and New Zealand’s procedural complaint is that the United States used
the wrong approach for excluding imports from its free trade agreement partners from the safeguard
measure.  In the complainants’ view, the USITC should first have excluded those imports from itsinjury and causation investigation.  But the United States does not understand how they reconcile their
position with Article 4.2(a), which requires competent authorities to examine "all relevant factors" in
making their determinations.
59. New Zealand and Australia say that the US procedures for dealing with imports from its free-
trade agreement partners fails to achieve “parallelism” .  The United States questions whether the
Safeguards Agreement sets out a rule of “parallelism” as such.  But the United States does  notdisagree with the notion that a Member must ensure that if imports from its free-trade agreement
partners are excluded from a safeguard measure, the affirmative injury determination that its
competent authorities have reached was not predicat ed on injury attributable to increased imports
from those sources.
60. The relevant US safeguards procedures accomplish this result.  In this case, after making its
initial affirmative threat of serious injury determination, the USITC considered whether imports from
Canada or Mexico accounted for a substantial share of total imports and contributed importantly to the
serious injury or threat.  Since imports from Canada never amounted to more than 0.3 per cent of total
imports and there were no imports from Mexico after 1995, the USITC reached negativedeterminations on both questions.  It also considered whether, and to what extent, any of its findings
or recommendations applied to imports from Israel, and determined that they did not, because there
were no imports from Israel during the period of the investigation.  Thus, Australia and New ZealandWT/DS177/R
WT/DS178/R
Page A-454
can mount no serious claim in this case that their imports were subject to a safeguard measure based
on injury attributable to increased imports from Mexico, Canada, or Israel.
7. Conclusion
61. Mr. Chairman, I have a few final points to make  today.  A principal objective of the Uruguay
Round was to negotiate a workable safeguards agreement.  Ultimately, those negotiations were
successful.  Members agreed that grey-area measures would be prohibited, but they also agreed that if
they followed the rules set out in the Safeguards  Agreement, Members would have a right to take
short-term steps to provide their industries with a modicum of relief from injurious import surges.
62. In this proceeding, New Zealand and Australia have sought to convince the Panel that the
framers of the Safeguards Agreement mandated a series of radically new standards and requirementsthat are not embodied in Article XIX.  These include a new "isolation" requirement for injury
causation, an impossibly burdensome "least trade restrictive" test for safeguard measures, and a new
safeguard "justification" requirement.  None of these purported obligations appears in the plain
language of the Safeguards Agreement.
63. By attempting to convince the Panel to read their new standards into the agreement, and by
seeking to shift the burden of proof in this proceeding to the United States, New Zealand and
Australia are urging the Panel in effect to deny Members the right to impose safeguard measures
under the terms set forth in the Safeguards Agreement and Article XIX.  We urge the Panel to reject
the approach that the complainants are proposing in this case.  Instead Article XIX and the SafeguardsAgreement should be given effect based on their plain meaning, their context, and the object and
purpose they serve, which, we’d recall, includes an important trade liberalization component, by
giving Members the assurance they need to be able to accept tariff cuts.
64. This concludes our presentation.  As we noted at the outset, we will be pleased to receive any
questions you may have.WT/DS177/R
WT/DS178/R
Page A-455
ANNEX 4-1
WRITTEN SUBMISSION OF CANADA
(19 May 2000)
I. INTRODUCTION
1. Canada is a third party in these proceedings and is appreciative of the opportunity to provide
its views to the Panel on certain matters arising in the dispute.
2. The dispute concerns a safeguard measure imposed by the United States in the form of a tariff
quota on imports of fresh, chilled, and frozen lamb meat effective as of 22 July 1999.1
3. The dispute was initiated by the requests for consultations submitted by New Zealand2  on
16 July 1999, and Australia3 on 23 July 1999, in respect of the safeguard measure imposed by the
United States on imports of lamb meat.  Such consultations with the United States were held in
Geneva on 26 August 1999, but no mutually satisfactory solution was reached.
4. On 14 October 1999, New Zealand and Australia requested the establishment of a panel.4  
Pursuant to these requests, the Dispute Settle ment Body (DSB) established a single Panel on
19 November 1999, with the standard terms of reference.5  The Panel was constituted on
21 March 2000.
5. Canada, Australia (in respect of New Zealand’s complaint), the European Communities (EC),
Iceland, Japan and New Zealand (in respect of Australia’s complaint) reserved their rights to
participate as third parties pursuant to Article 10.3 of the DSU.
6. Canada has a substantial interest in the matter,  particularly with respect to the Complaining
Parties’ claims regarding the exclusion of Canada from the application of the safeguard measure
imposed by the United States.
7. Canada has had an opportunity to review those portions of the First Submission of the
United States pertaining to this particular issue, and is fully supportive of the points made by the
United States.
8. Canada maintains that the United States International Trade Commission (USITC) findings
and recommendations regarding imports of lamb meat from Canada, as well as the subsequent US
decision to exempt Canada from the safeguard measure on lamb meat, are consistent with US
obligations under the WTO agreements, in particular Article 2 of the Agreement on Safeguards .
                                                     
1  Proclamation 7208 of 7 July 1999 – To Facilitate Positive Adjustment to Competition from Imports
of Lamb Meat, amended by Proclamation 7214 of 30 July 1999 - To provide for the Efficient and FairAdministration of Action Taken With regard to Imports of Lamb Meat and for Other Purposes, submitted as USExhibit 2.
2 WT/DS177/1.
3   WT/DS178/1 and Corr.1.
4 WT/DS177/4; WT/DS178/5 and Corr.1.
5 WT/DS177/5; WT/DS178/6.WT/DS177/R
WT/DS178/R
Page A-456
Canada further maintains that the Complaining Parties’ claim to the contrary is unfounded and as such
should be rejected by the Panel.
II. EXEMPTION OF CANADA FROM THE US SAFEGUARD MEASURE ON LAMB
MEAT
9. Pursuant to the obligations of the United States under the  North American Free Trade
Agreement  (NAFTA), Canada was exempted from the safeguard measure imposed by the
United States after the USITC found that imports of lamb meat from Canada and Mexico did not
individually account for a substantial share of the total imports of lamb meat and were not
contributing importantly to the threat of serious injury.6   Article 802 of the NAFTA provides that
“any [NAFTA] Party taking an emergency action under Article XIX or any such agreement shall
exclude imports of a good from each other Party from the action unless:
(a) imports from a [NAFTA] Party, considered individually, account for a substantial
share of total imports;  and
(b) imports from a [NAFTA] Party, considered individually, or in exceptional
circumstances imports from Parties considered collectively, contribute importantly to
the serious injury, or threat thereof, caused by imports."7
Thus, unless affirmative findings on both conditions are made, NAFTA Parties must be exempted
from a safeguard measure taken by another NAFTA Party.  Article 802 of the NAFTA wasincorporated into US law through Sections  311 and 312 of the NAFTA Implementation Act.
8
10. The USITR found that imports from Canada and Mexico during the period of investigation
were negligible.  Indeed, the USITC explicitly stated:
Imports from Canada accounted for less than 1 per cent of total lamb meat imports in
each year of the period of investigation.  At their highest level of the period of
investigation, 209,000 pounds, in 1997, imports from Canada accounted for only
0.3 per cent of total US lamb meat imports.9
Therefore, the USITC concluded that imports from Canada did not account for a substantial share of
the total imports of lamb meat and were not contributing importantly to the threat of serious injury
caused by imports, and recommended that the President exclude Canada (and Mexico10 ) from any
relief action.  The definitive safeguard measure imposed by the United States in the form of tariff-rate
quota on imports of fresh, chilled, or frozen lamb meat, effective as of 22 July 1999, excluded imports
of lamb meat from Canada, as well as imports from certain other countries.11
                                                     
6 Proclamation 7208 of 7 July 1999, amended by Proclamation 7214 of 30 July 1999, submitted as US
Exhibit 2; USITC Report, Investigation No. TA-201-68, Publication 3176, April 1999, submitted as US Exhibit
1, pp. I-3/5 and I-26/27.
7 NAFTA, Art. 802.  The full text is reproduced in Annex 1.
8 19 U.S.C. 3371, 3372 (Supp. 1993).
9 USITC Report, submitted as US Exhibit 1, pp. I-27 and II-18, n. 73.
10 USITC Report, submitted as US Exhibit 1, pp. I-27 and II-18, n. 73; the USITC investigation noted
that imports of lamb meat from Mexico accounted for less than 1 per cent of total imports in the year during the
period of investigation for which the data was available (1995); the USITC therefore found that imports of lambmeat from Mexico did not account for a substantial share of the total imports of lamb meat and were not
contributing importantly to the threat of serious inju ry and recommended that the President exclude Mexico
from any relief action.
11   Proclamation 7208 of 7 July 1999, amended by Proclamation 7214 of 30 July 1999, submitted as
US Exhibit 2.WT/DS177/R
WT/DS178/R
Page A-457
III. ARGUMENT
11. The Complaining Parties raise legal claims under both the GATT 1994 and the Agreement on
Safeguards  regarding the US decision to exclude imports from Canada from the application of the
safeguard measure on lamb meat.  The Complaining Parties assert that, by doing so, the United States
has failed to apply the safeguard measure to all imports irrespective of source as required byArticle 2.2 of the  Agreement on Safeguards .  New Zealand adds that this failure contravenes also the
basic “most favoured nation” obligation of Article I of the GATT 1994.
12  Australia further claims
that the inclusion of imports from Canada, Mexico, and Israel in the injury determination was
inconsistent with Article 4 of the Agreement on Safeguards.13
12. Neither Australia nor New Zealand can be suggesting that the Agreement on Safeguards  or
the GATT 1994 precludes members of a free trade area from excluding each other’s imports from theapplication of their safeguard measures.  This is consistent with the provisions of the Australia
New Zealand Closer Economic Relations Agreement  (ANZCERTA), which prohibit Australia and
New Zealand from taking safeguard actions in regard to goods covered by ANZCERTA.  This is also
consistent with the provisions of the Agreement on Safeguards , which leave open the possibility that
members of an FTA may exclude other members from the application of a safeguard measure.  Wewish to underscore that the Complaining Parties canno t be challenging this possibility since they are
themselves bound by it.
14
13. The interpretation of any particular article of a WTO Agreement cannot be conducted in
isolation.  It is a well-established principle that the WTO Agreements form a single undertaking.Therefore, all WTO obligations are cumulative and Members must comply with all of them
simultaneously.
15
14. The text of the Agreement on Safeguards  itself indicates that its provisions, and its Article 2.2
in particular, are not to be considered in isolation from Articles XIX and XXIV of GATT 1994.Footnote 1 to Article 2.1 of the Agreement states, inter alia, that "Nothing in this Agreement
prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV
of GATT 1994."
16  The negotiators of the Agreement on Safeguards  clearly recognized that there was
a special relationship between Articles XIX and XXIV:8 of GATT 1994 and that the Agreement on
Safeguards  was to be interpreted consistently with that relationship as it stood.  Thus the Agreement
on Safeguards , read in conjunction with the other relevant WTO provisions, leaves open the
                                                     
12 New Zealand First Submission, para. 1.8, 6.1(V) and 7.112-7.114.
13 Australia First Submission, para. 11 and 259-265.
14 The Appellate Body, faced with a similar situation, stated that, “as the issue is not raised in this
appeal, we make no ruling on whether, as a general principle, a member of a customs union can exclude other
members of that customs union from the application of a safeguard measure”;  Argentina - Safeguard Measures
on Imports of Footwear  (Argentina – Footwear ), Report of the Appellate Body, WT/DS121/AB/R, adopted on
12 January 2000, para. 114.
15 Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products , Report of the
Appellate Body, WT/DS98/AB/R, 14 December 1999, para. 74;  Argentina – Footwear  , Report of the
Appellate Body, para. 76-98.  This finding of the Appellate Body is of course consistent with the fundamental
rule of treaty interpretation as set out in Article 31(1) of the Vienna Convention on the Law of Treaties , done at
Vienna, 23 May 1969, 1155 U.N.T.S. 331.
16  We note that the Appellate Body in Argentina - Footwear , para. 106-108, commented that the
footnote only applies where customs unions take action,  not the Member State.  A plain reading of the text
indicates that these comments would not apply to the last sentence of the Footnote, the language of which
clearly suggests a general application to all provisions of the Agreement on Safeguards , with no exception.  In
any event, the Appellate Body’s reasoning in para. 84-95 in Argentina – Footwear would confirm that the
Agreement on Safeguards  does not change or overrule the established meaning of Article XIX of GATT 1994,
including its relationship with to Article XXIV:8.WT/DS177/R
WT/DS178/R
Page A-458
possibility that, as the United States has done in this case pursuant to Article 802 of the NAFTA,
members of an FTA may exclude other members from the application of a safeguard measure.
15. Both Complaining Parties rely on a specific passage from the recent decision of the Appellate
Body in Argentina - Safeguard Measures on Imports of Footwear17  (Argentina - Footwear ) to sustain
their claim that the United States has failed to apply the safeguard measure to all imports irrespectiveof source as required by Article 2.2 of the Agreement on Safeguards .
16. Canada’s view is that the facts in the Argentina – Footwear case are fundamentally different
from those under consideration here.
18  I n  Argentina - Footwear , MERCOSUR members were
excluded  from the safeguard action despite the fact that they were the source of more that half of the
imports used to determine the injury.  The Appellate Body decision in the Argentina – Footwear  case
concluded that:
“In applying safeguard measures on the basis of this investigation in this case ,
Argentina was also required under Article 2.2 to apply those measures to imports
from all sources, including those from othe r MERCOSUR states.  On the basis of this
reasoning, and on the facts of this case, we find that Argentina's investigation, whichevaluated whether serious injury or the threat thereof was caused by imports from
all sources, could only lead to the imposition of safeguard measures on imports from
 all sources.  Therefore, we conclude that Argentina's investigation, in this case,
cannot serve as a basis for excluding impor ts from other MERCOSUR member States
from the application of the safeguard measures."
19  (emphasis added )
17. “This investigation in this case” refers to the fact that Argentina had investigated and found
injury from all sources, including and in partic ular, MERCOSUR sources. Argentina did not conduct
any separate analysis with respect to its MERCOS UR partners.  Therefore, under Article 2.2 of the
Agreement on Safeguards , Argentina had to apply its safeguard measure to injury from those sources.
In contrast, in the present case, the United States found, on the basis of its investigations, thatCanadian imports were negligible and, therefore, did not account for the threat of serious injury.
Accordingly, it is fully consistent with Article 2.2 of the Agreement on Safeguards , interpreted in
accordance with Footnote 1 and the decision in Argentina - Footwear , for the United States to exclude
Canadian imports from the application of its safeguard measure on lamb meat.
IV. CONCLUSION
18. Accordingly, Canada respectfully submits that the USITC findings and recommendations
regarding imports of lamb meat from Canada, as well as the subsequent US decision to exempt
Canada from the safeguard measure on lamb meat, are fully consistent with the WTO obligations of
the United States.
                                                     
17 Argentina - Footwear , Report of the Appellate Body, para. 113-114.
18  MERCOSUR imports of footwear in Argentina accounted in 1991 for only 1.90 million pairs of
8.86 million total imports (i.e. 21.4 per cent) and in 1995, for ro ughly 1/4 of the total imports, i.e. 5.83 of
19.84 million pairs; in 1996, MERCOSUR supplied the larg est percentage (55.7 per cent) of total imports of
13.47 million pairs, i.e. 7.5. million pairs (as oppose to 5.97 million pairs from third countries); Argentina -
Footwear , Report of the Panel, WT/DS121/R, adopted on 12 January 2000, as modified by the Report of the
Appellate Body, footnote 474.
19 Argentina - Footwear , Report of the Appellate Body, para. 113.WT/DS177/R
WT/DS178/R
Page A-459
ANNEX 1
FULL TEXT OF ARTICLE 802 OF THE NAFTA
Article 802: Global Actions
1. Each Party retains its rights and obligations under Article XIX of the GATT or any safeguard
agreement pursuant thereto except those regarding compensation or retaliation and exclusion from an
action to the extent that such rights or obligations are inconsistent with this Article.  Any Party taking
an emergency action under Article XIX or any such agreement shall exclude imports of a good fromeach other Party from the action unless:
(a) imports from a Party, considered individually, account for a substantial share of total
imports; and
(b) imports from a Party, considered individually, or in exceptional circumstances
imports from Parties considered collectively, contribute importantly to the serious
injury, or threat thereof, caused by imports.
2. In determining whether:
(a) imports from a Party, considered individually, account for a substantial share of total
imports, those imports normally shall not be considered to account for a substantial
share of total imports if that Party is not among the top five suppliers of the good
subject to the proceeding, measured in terms of import share during the most recentthree-year period; and
(b) imports from a Party or Parties contribute importantly to the serious injury, or threat
thereof, the competent investigating author ity shall consider such factors as the
change in the import share of each Party, and the level and change in the level ofimports of each Party. In this regard, imports from a Party normally shall not be
deemed to contribute importantly to serious injury, or the threat thereof, if the growth
rate of imports from a Party during the period in which the injurious surge in imports
occurred is appreciably lower than the growth rate of total imports from all sources
over the same period.
3. A Party taking such action, from which a good from another Party or Parties is initially
excluded pursuant to paragraph 1, shall have the right subsequently to include that good from the
other Party or Parties in the action in the event th at the competent investigating authority determines
that a surge in imports of such good from the other Party or Parties undermines the effectiveness of
the action.
4. A Party shall, without delay, deliver written notice to the other Parties of the institution of a
proceeding that may result in emergency action under paragraph 1 or 3.
5. No Party may impose restrictions on a good in an action under paragraph 1 or 3:
(a) without delivery of prior written notice to the Commission, and without adequate
opportunity for consultation with the Party or Parties against whose good the action is
proposed to be taken, as far in advance of taking the action as practicable; andWT/DS177/R
WT/DS178/R
Page A-460
(b) that would have the effect of reducing imports of such good from a Party below the
trend of imports of the good from that Party over a recent representative base period
with allowance for reasonable growth.
6. The Party taking an action pursuant to this Article shall provide to the Party or Parties against
whose good the action is taken mutually agreed trade liberalizing compensation in the form of
concessions having substantially equivalent trade effects or equivalent to the value of the additional
duties expected to result from the action. If the Parties concerned are unable to agree on
compensation, the Party against whose good the action is taken may take action having trade effects
substantially equivalent to the action taken under paragraph 1 or 3.WT/DS177/R
WT/DS178/R
Page A-461
ANNEX 4-2
WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
(19 May 2000)
SECTION I – INTRODUCTION
1. The European Communities (hereafter “ the EC”) welcomes this opportunity to present its views
in the proceeding brought by Australia and New Zealand over the consistency with Articles I, II and
XIX of the GATT 1994 and with Articles 2, 3, 4, 5, 11 and 12 of the Agreement on Safeguards  with
regard to the definitive safeguard measure imposed by the United States (hereafter “the US”) on
imports of lamb meat.
2. The EC has decided to intervene as third party in the present case because of its systemic interest
in the correct interpretation of provisions of the GATT 1994 and the Agreement on Safeguards , as
well as in the correct application of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (hereafter “DSU”).  Many of the issues in dispute relate to questions of fact onwhich the EC is not in a position to comment. Accordingly, the EC will limit its submission to a
number of issues of legal interpretation which it considers to be of particular interest.
3. As a general matter, it is the view of the EC  that the safeguard mechanism should only be relied
upon in exceptional circumstances and thus in emergency  situations only, as the title of Article XIX
GATT 1994 already sets out clearly. In the Appellate Body’s words, « Article XIX is clearly, and in
every way, an extraordinary remedy ».
 1 It should only be invoked when all of the strict requirements
which are set out in WTO law have been fulfilled, in particular because the reliance on the safeguard
mechanism interferes with the fair conduct of trade performed by competitive exporters.  It is against
this general background that the EC intends to ma ke certain comments regarding the present case.
The EC therefore concurs with the statement in New Zealand's First Written Submission, at
paragraph 7.19 that "the safeguard provisions be interpreted strictly".
4. With regard to the appropriate standard of review, the EC considers that the role of the Panel is
not to engage itself in a de novo  exercise.  Instead, what the EC expects from the Panel is that it make
an objective assessment of the matter in accordance with Article 11 DSU. 2  In line with the Appellate
Body's recent interpretation of this provision, this would mean that the Panel's review should belimited to an objective assessment of whether the USITC had considered all relevant facts in its
possession or which it should have obtained in accordance with Article 4 of the Agreement on
Safeguards (including facts which might detract from an affirmative determination in accordance with
the last sentence of Article 4.2 of the Agreement on Safeguards ), including an examination of each
factor listed in Article 4.2(a), of whether the published report on the investigation contained adequateexplanation of how the facts supported the determ ination made, and consequently of whether the
                                                     
1  Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 93 (hereinafter also Argentina – Footwear ); Report
by the Appellate Body on Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products ,
WT/DS98/AB/R, 14 December 1999 at pa ragraph 86 (hereinafter also Korea – Dairy Products ).
2 Report by the Appellate Body on EC Measures Concerning Meat and Meat Products (Hormones) ,
AB-1997-4, WT/DS26/AB/R, WT/DS48/AB/R, 16 January 1998, at paragraph 117.WT/DS177/R
WT/DS178/R
Page A-462
determination made was consistent with the US's obligations under the Agreement on Safeguards  and
the GATT 1994. 3
5. Section II  addresses the requests for preliminary rulings by the parties.  Section III considers
some of the claims submitted by Australia and New Zealand.
SECTION II -- REQUESTS FOR PRELIMINARY RULINGS
The Article 6.2 DSU standard for requests for the establishment of a panel
6. In its letter dated 5 May 2000 the US has requeste d the Panel to issue a preliminary ruling with
regard to the requests for the establishment of a Panel by Australia and New Zealand, because these
requests were in its view "insufficient as a matter of law" to satisfy the requirement of Article 6.2DSU, given that the complaining parties failed to provide any indication of the legal basis for their
claims.  In particular, the US objects to the fact that neither Australia nor New Zealand in its request
provides "any other information that would in itself further clarify exactly which of the obligations in
[Articles 2, 3 and 4 of the  Agreement on Safeguards
 4] is alleged to be infringed." 5
7. Article 6.2 DSU sets the standards for the request for the establishment of a panel.  It provides,
in the relevant part, that:
“The request for the establishment of a panel shall be made in writing.  It shall
indicate whether consultations were held, identify the specific measures at issue andprovide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly.”
8. In Korea - Dairy Products ,
 6 the Appellate Body has recently refined its previous findings on the
exact requirements of Article 6.2 DSU.  In EC - Bananas , in fact, it had held that it was sufficient for
the complainants “to list the provisions of the sp ecific agreements alleged to have been violated
without setting out detailed arguments as to which specific aspects of the measures at issue relate to
which specific provisions of those agreements". 7  On that occasion the Appellate Body had also
specified that the panel request needs to be “sufficiently precise” for two reasons: because it forms the
basis for the terms of reference of the panel, and because “it informs the defending party and the third
parties of the legal basis of the complaint” . 8
                                                     
3 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 121. Report by the Panel on Korea – Definitive
Safeguard Measure on Imports of Certain Dairy Products , WT/DS98/R, 21 June 1999, at paragraph 7.30
(hereinafter Korea – Dairy Products ).
4 The US does not assert substantial prejudice to the US with respect to the claims of the complainants
under Articles I, II and XIX of the GATT 1994 and Articles 5, 11 and 12 of the Agreement on Safeguards , as it
was possible for the US to discern those subprovisions that would be implicated on the basis of the context of
this proceeding (see US letter dated 5 May, at page 3, pa ragraph 6).  Therefore, the EC's comments above relate
only to the three provisions of the Agreement on Safeguards  to which the US referred to ( i.e. Articles 2, 3 and
4).
5 Letter by US dated 5 May 2000, at page 2, paragraph 1.
6 Report by the Appellate Body on Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products , WT/DS98/AB/R, 14 December 1999.
7Report by the Appellate Body on European Communities - Regime for the Importation, Sale and
Distribution of Bananas , AB-1997-3, WT/DS27/AB/R, 9 September 1997, at paragraph 141 (hereinafter EC -
Bananas ).
8Id., at paragraph 142.WT/DS177/R
WT/DS178/R
Page A-463
9. Revisiting the same issue in Korea - Dairy Products , the Appellate Body has clarified that the
identification of the treaty provisions alleged to be violated is “always necessary” and constitutes a
“minimum prerequisite” to present the legal basis of the complaint.  If this might, in some cases, be
enough to meet the standard of Article 6.2 DSU, in other cases, for instance when an article contains
more than one distinct obligation, the mere listing of articles of an agreement is likely to be not
sufficient to inform the defending party and any third parties of the legal basis of the complaint. 9  In
Korea - Dairy Products , these considerations led the Appellate Body to find that, although the articles
listed contained each several distinct obligations and the request of the panel by the complainant
should have been more detailed, the defendant had failed to demonstrate that the mere listing of the
articles alleged to have been violated had prejudiced its ability to defend itself.
10. In their requests for the establishment of this Panel, both New Zealand and Australia have
merely listed the relevant articles claimed to have been violated by the US, without taking intoaccount the fact that each of the articles listed, in particular Articles 2, 3 and 4 of the Agreement on
Safeguards  , are all composed of many paragraphs, each of them setting out distinct obligations.
11. As it could only rely on the panel establishment requests, the EC has not been able to know the
exact legal basis of Australia’s and New Zealand’s claims under Articles 2, 3 and 4 until it receivedtheir First Written Submissions.  This has impaired th e EC’s ability to exercise its procedural rights in
this proceeding to the fullest extent.
12. The EC has had by definition no knowledge of the developments prior to the request for the
establishment of the panel, in particular the conduc t of the consultations between the main parties to
the dispute, and of other specific circumstances of this case that suggest that the United States was
informed of the exact legal basis of th e complaint in keeping with Article 6.2 DSU .  Those
circumstances, therefore, cannot have improved at a ll the possibility for the EC to effectively protect
its rights as third party.  Given the Appellate Body’s finding in EC – Bananas  that the objective of
panel requests is to inform both the defending party and third parties ,
 10 it is clear that that objective
needs to be fulfilled for the benefit of all participants  in dispute settlement proceedings.
Finally, with regard to the exact time when the US should have raised the issue, the EC notes
that rule 13 of the working procedures for the Pane l sets out that "[a] party shall submit any requests
for preliminary rulings not later than  in its first submission to the Panel."  Therefore, the US has been
given the opportunity to submit preliminary rulings up until and including the day that it had to submit
its First Written Submission.  The EC notes that the US submitted its request before that date, i.e. on
5 May 2000.
Having submitted the above legal considerations with respect to Article 6.2 DSU , the EC
leaves it to the Panel to come to an appropriate conclusion for the present case.
Exclusion of US Statute from Panel Terms of Reference
12. In Section B of its letter dated 5 May 2000 the US raises another issue on which it requests the
Panel to rule as a preliminary matter.  In partic ular, the US requests that the Panel rule that "the
consistency of the US Statute with US obligations under the Agreement on Safeguards  is not within
the Panel's terms of reference and is thus outside the scope of this dispute". 11
13. Article 6.2 of the DSU requires identification of the measure alleged to violate the WTO.  This
requirement is concerned with claims .  The Appellate Body has recalled how this obligation applies
                                                     
9 Report by the Appellate Body on Korea - Dairy Products , at paragraphs 114 ff.
10 Report by the Appellate Body on  EC - Bananas , at paragraph 141.
11 Letter by US dated 5 May 2000, at page 2.WT/DS177/R
WT/DS178/R
Page A-464
not only to individual implementing measures but also to normative measures.12  N e i t h e r  i n
New Zealand's nor in Australia's request for the establishment of the Panel does the EC read a claim
made in respect of the US Safeguard Statute as such .  Instead, both complainants limit their claims to
the specific safeguard measure imposed on imports of lamb meat.  Therefore, the EC agrees with the
United States’ view 13 that the WTO-consistency of the US Safeguard Statute is not within the Panel’s
terms of reference.  The EC submits however that this in no way prevents a complainant fromreferring to the text of the US Statute constituting the legal basis of the challenged measure in order to
support a claim with respect to the latter.  In th e present case, therefore, the application of the
"substantial cause" test by the USITC falls within the Panel's terms of reference, even though the US
Safeguard Statute is not mentioned in the request for the establishment of the Panel.
14. New Zealand and Australia seem to agree with the EC on this matter.  New Zealand in its
reaction to the letter by the US dated 5 May 2000 first states that it "requests no finding from thePanel on the consistency of the United States' statute with the Safeguard Agreement."
 14  However,
New Zealand considers that "the issue of consistency of the substantial cause test used by the USITC
with the Safeguard Agreement falls squarely  within the Panel's terms of reference." 15  Australia too
makes clear that it "is not asking the Panel to make a finding that the US legislation itself is
inconsistent with the USA's obligations under the Safeguard Agreement, GATT 1994 and WTOArticle XVI:4."
 16  Like New Zealand, Australia asks the Panel to find that this measure  is inconsistent
with the requirements of the Safeguard Agreement and GATT 1994 Articles II and XIX.
Business Confidential Information
15. Some of the data on which the USITC findings are based have been omitted from the public
report which is available for scrutiny.  In certain parts of the report where facts are discussed which
may be relevant for determining whether a WTO consistent safeguard measure is taken (or not) 'stars'
replace actual figures and data, making the USITC’s findings -- which are based on these secret data -
- unverifiable for the parties and third parties in this dispute as well as for the Panel.
16. Australia has asked the Panel to give a preliminary ruling on whether the US should produce
certain confidential information omitted from the USITC Report. 17  Australia argues that if the US is
not prepared to provide such information, then the Panel should draw adverse inferences from the
unwillingness of the US to co-operate in the provision of information.  New Zealand, although notrequesting the Panel to make a preliminary ruling, argues that "a Member cannot rely on undisclosed
information to show that it is complying with its obligations under the Safeguard Agreement or under
GATT 1994."
 18
17. The EC submits that a Member should, as a matter  of legal principle, not be allowed to rely on
undisclosed facts as a basis for taking a safeguard measure if those facts cannot be reviewed by the
parties, third parties and a Panel within a dispute settlement procedure.  The EC agrees withNew Zealand's comment that Article 3.2 Agreement on Safeguards  does not absolve a Member from
disclosing information in the course of proceedings under the DSU when a safeguard measure that it
                                                     
12Panel Report, European Communities - Customs Classification of Certain Computer Equipment ,
WT/DS62/R, WT/DS67/R, WT/DS68/R, 5 February 1998, at paragraph 65.
13 US’ request for preliminary ruling, 5 May 2000, at paragraph 17.
14 New Zealand's reaction dated 17 May 2000, at paragraph 47.
15 Id., at paragraph 53.
16Australia's reaction dated 17 May 2000, at paragraph 49.
17 Australia's First Written Submission, at paragraphs 15-18.
18 New Zealand's First Written Submission, at paragraphs 7.22 - 7.25.WT/DS177/R
WT/DS178/R
Page A-465
has imposed is challenged by another Member. 19  The US authorities are required to provide "a
detailed analysis of the case under investigation as well as a demonstration of the relevance of the
factors examined" (Article 4.2(c) Agreement on Safeguards ) and the United States cannot escape this
multilateral obligation by referring to domestic law requirements.
18. The EC considers that a Panel is free, if it is convinced that the DSU rule on confidentiality is
insufficient in the present case, to adopt Supplemental Working Procedures -- including on the basis
of reasonable proposals made by the parties to this dispute.  The EC considers that the adoption of
such procedures, if needed, could be a means of balancing the US concerns relative to confidential
information with the need to respect due process and the principle of equality of arms.  The EC
submits that if such Supplemental Working Procedures are not adopted by the Panel in the present
case, the Panel should proceed with its examination on the basis of the record as it stands, which has
the logical consequence that facts or other informat ion which is not disclosed should be considered as
"not examined" by domestic authorities.
19. Finally, the EC notes that the US has requested the aid of New Zealand and Australia in
obtaining consent from the producers which have provided confidential information to the USITC. 20
Even if the complaining parties were to accept this request by the US, it is clear that they  cannot
subsequently be held responsible or otherwise be put in a more disadvantageous position if the
consent of the relevant producers is not given.
SECTION III -- LEGAL CLAIMS AND ARGUMENTS
The US has not demonstrated "unforeseen developments"
20. The EC submits that it fully supports the reasoning set out by the Appellate Body in Argentina -
Footwear  and Korea - Dairy Products  with regard to the "unforeseen developments" requirement
contained in Article XIX:1(a) GATT 1994.  As the Appellate Body stated, "the developments which
led to [lamb meat] being imported in such increased quantities and under such conditions as to cause
or threaten to cause serious injury to domestic producers must have been 'unexpected'." 21  A l s o ,
according to the Appellate Body "the first clause [in Article XIX:1(a) of the GATT 1994] describes
certain circumstances which must be demonstrated  as a matter of fact in order for a safeguard
measure to be applied consistently with the provisions of Article XIX of the GATT 1994." 22
21. Therefore, the USITC was under an obligation to demonstrate in its investigation that the
increased imports in this case occurred "as a result of unforeseen developments and of the effect of
the obligations incurred by a Member under this Agreement, including tariff concessions…". 23  It is
the view of the EC that such a demonstration  requires a verifiable description, i.e. a determination in
the record of the investigation, stating clearly which "unforeseen developments" had caused ("led to"
in the words of the Appellate Body) an increase in imports of lamb meat, which in turn caused the
                                                     
19Id., at paragraph 7.23.
20US’ request for preliminary ruling, 5 May 2000, paragraph 23.
21 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 91; Report by the Appellate Body on Korea –
Definitive Safeguard Measure on Imports of Certain Dairy Products , AB-1999-9, WT/DS98/AB/R,
14 December 1999, at paragraph 84.
22 Report by the Appellate Body on Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products , AB-1999-9, WT/DS98/AB/R, 14 December 1999, at paragraph 85; Report by the Appellate Body on
Argentina – Safeguard Measures on Imports of Footwear , AB-1999-7, WT/DS121/AB/R, 14 December 1999,
at paragraph 92 [emphasis added].
23 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 98 [emphasis added].WT/DS177/R
WT/DS178/R
Page A-466
(alleged) threat of serious injury.  The Appellate Body's finding makes clear that such a demonstration
can not be made ex post facto , for example in a written submission in the framework of a dispute
settlement procedure.  In addition, Article 3.1 Agreement on Safeguards  requires the competent
authorities to set out in their report 'their findings and reasoned conclusions reached on all pertinent
issues of fact and law'.  The EC has found no specific reference in the USITC Report of a
determination setting out which "unforeseen developments" caused the surge in imports of lamb meat.
22. Even if the Panel were to come to the conclusion that the USITC Report did contain such a
determination, the developments cited by the US do not, in the EC's view, support such a
determination: the US in its First Written Submission essentially points to an increase in imports in a
different mix in the later period as compared to the beginning period, 24 resulting in a higher market
share for importers.  The EC submits that a surge in lamb meat imports (in whatever mix) cannot be
the cause of an increase in lamb meat imports.  The US authorities cannot comply with their
obligations under Article XIX GATT 1994 by referr ing to the nature of the increased imports
themselves.  To conclude otherwise would lead to a circular reasoning.
23. The complaining parties have put forward arguments as to developments that took place that
could have been foreseen in 1995, such as a long-term decline in domestic lamb production and theelimination of the subsidies under the Wool Act.  As a Third Party to the present dispute the EC does
not need to take a position on whether these  developments could be regarded as "unforeseen" or
"unexpected".
The US has incorrectly determined its "domestic industry"
24. The EC submits that the textual structure of Articles 2.1 and 4.1(c) of the Agreement on
Safeguards  makes clear that the relevant domestic industry is determined solely by the imported
product at issue.  Thus, in order to confirm which industry can be included in the injury analysis, the
basic starting point is to determine the relevant "product" which is imported in increased quantities.The second step is to analyse, on the basis of this product, which industry produces either "like"
products or "directly competitive" products.  The text of the above-mentioned articles should be read
strictly (as has been argued earlier by the EC) in the sense that only those   producers can be
considered as constituting the "domestic industry" if they produce either "like" or "directly
competitive" products.  Thus, if a producer does not produce either of those, it can by definition  not be
considered relevant for the "domestic industry".
25. In the present case, imports of New Zealand and Australian lamb meat have increased during the
period of investigation.  Therefore, the relevant question is what US "domestic industry" produces a
product which is "like" or "directly competitive" with imported lamb meat.  The USITC found that the
"domestic product 'like' the imported lamb meat is domestically produced lamb meat." 25  However,
when turning to examine the live-lamb industry, the USITC did not continue by determining whetherthat industry also produced "like" or "directly competitive products" but instead applied a test not
found in the Agreement on Safeguards .  It examined whether (1) there is a continuous line of
production from the raw to the processed product, and (2) there is a substantial coincidence of
economic interest between the growers and the processors.
26. The EC is unable to find such a test in the  Agreement on Safeguards and considers that the wide
interpretation of Article 4.1(c) as suggested by the US in paragraph 69 of its First Written Submission
is not in line with the strict wording of the Agreement, which simply refers to 'the producers as a
whole of the like or directly competitive products'.  Therefore, the test to apply is whether a producer
                                                     
24Between 1995 and 1997 imports of fresh or chilled lamb meat increased 101 per cent while imports
of frozen lamb increased by 11 per cent.  See paragraph 56 of the US First Written Submission.
25 USITC Report, at I-12.WT/DS177/R
WT/DS178/R
Page A-467
produces either a 'like' product or a 'directly competitive product'.  The EC cannot but conclude that
the USITC in its Report did not conduct this analysis in respect of the live-lamb industry.
The standard to be set for "threat of serious injury" should be high
27. The EC will not comment on the highly factual arguments which are put forward by the parties
in the present dispute with respect to the USITC finding of "threat of injury" and the underlying
analysis.  However, the EC would like to use the opportunity presented by this Third Party
Submission to make a general comment with regard to  the standard that the Panel will set with respect
to this issue.
28. The EC submits that, since a safeguard measure is an extraordinary measure which negatively
interferes with the fair trade conducted by competitive exporters, any interpretation given by the Panelof the term "threat of serious injury" should reflect the highest standard.  As the Appellate Body stated
in Argentina - Footwear : "In perceiving and applying this object and purpose to the interpretation of
this provision of the  WTO Agreement , it is essential to keep in mind that a safeguard action is a "fair"
trade remedy.  The application of 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 areimposed on products of exporting Members when a safeguard action is taken must be seen, as we
have said, as extraordinary.  And, when construing the prerequisites for taking such actions, their
extraordinary nature must be taken into account."
 26
29. The EC requests the Panel to consider that the standard which it will set in the present case willstrongly influence the interpretation that future Panels will give to the notion of 'threat of serious
injury', which is defined in the Agreement on Safeguards   as 'serious injury that is clearly imminent'.
The EC urges the Panel to decide on this matter in light of the above-mentioned statements by the
Appellate Body.
USITC has incorrectly applied the "causation" test
30. The EC will limit its comments regarding causation to a concern it has with respect to the
application by the USITC of Article 4.2(b) Agreement on Safeguards , which sets out requirements
regarding causality.  This provision reads as follows:
"The determination referred to in subparagraph (a) shall not be made unless the
investigation demonstrates, on the basis of objective evidence, the existence of the
causal link between increased imports of the product concerned and serious injury or
threat thereof.
When factors other than increased imports are causing injury to the domestic industry
at the same time, such injury shall not be attributed to increased imports."
31. In the present case the USITC has proceeded as follows: it has first determined that increased
imports are "an important cause of the threat of serious injury" and second, it has determined whether
increased imports are "a cause that is equal to or greater than any other cause".  The EC is concerned
that these determinations are not sufficient to show that the high standard set by Article 4.2(b) is met.
32. This provision requires that the threat of serious injury which the safeguard measure is to
remedy is caused by increased imports in isolation .  Although other causes may aggravate the threat
of serious injury, if those other causes are subtracted, increased imports by themselves  must still be
shown to cause a threat of serious injury.  Article 5.1 Agreement on Safeguards imposes that the
                                                     
26 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 94.WT/DS177/R
WT/DS178/R
Page A-468
safeguard measure is confined to prevent or remedy the serious injury caused by imports, to the
exclusion of other factors contributing to the injury.33. Indeed, in case of concurring causes of injury, the USITC is prevented from investigating the
only important issue, i.e. whether increased imports are in isolation  the cause of threat of serious
injury.  The USITC however investigates a different issue, i.e. whether there is a single cause "more
important" than increased imports.
34. If increased imports are no more than a "substantial cause" of the threat of serious injury, even if
more important than any other cause, there is at least a possibility that the threshold level of
"causation" as required by the  Agreement on Safeguards is not met.  The legislative history cited by
the US in its First Written Submission
 27 does not eliminate the EC's concern, since an "important"
cause of injury could still fall short of the threshold that increased imports  by themselves  cause
serious injury or the threat thereof.  Accordingly, the EC supports the argument set out by
New Zealand 28 that the US has applied a less stringent test  irrespective of whether, in the present
case, the end result might be that no actual violation of Article 4.2(b) Agreement on Safeguards  is
found, an issue on which the EC does not take a position here.
The correct interpretation of the term "Necessary" in Article 5.1
35. The main parties to this dispute disagree with respect to the meaning of the term "necessary" in
the first sentence of Article 5.1 Agreement on Safeguards .  Article 5.1 provides that: “A Member shall
apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.” 29  The EC submits that from the wording of this provision it is clear that it is
the application  of the measure -- not the measure as such -- which should be kept within the limits of
what is "necessary" to prevent or remedy serious injury and to facilitate adjustment.
36. The EC notes that the term "necessary" is used elsewhere in the WTO Agreement -- notably in
provisions derogating from the liberalization principle embodied therein.  Article XIX itself embodies
virtually identical language and authorises safeguard measures “to the extent and for such time as may
be necessary to prevent or remedy serious injury”.  Furthermore, Article XX of GATT 1994 allows
measures to be taken if e.g. “(a) necessary to protect public morals” , “(b) necessary to protect human,
animal or plant life or health”.
37. The EC submits that the purpose of the “necessity” requirement is to avoid that safeguard
measures, which are recognized as “limitative and deprivational in character or tenor and impact upon
Member Countries and their rights and privileges and upon private persons and their acts” 30 be
abused.  In the light of that characterisation, in United States – Restrictions on Imports of Cotton and
Man-Made Fibre Underwear , the Appellate Body drew the co nclusion that an importing Member
should not be allowed “an enhanced ability to restrict the entry into its territory of goods in theexportation of which no unfair trade such as dumping or fraud or deception of origin is alleged or
proven”
 31 by taking safeguard action beyond the strict limits laid down in the relevant WTO
provisions, if that action would result in “excluding more goods from the territory of the importing
Member.” 32
                                                     
27  US First Written Submission, at paragraph 121.
28 New Zealand's First Written Submission, at paragraph 7.73.
29 Emphasis added.
30 See Appellate Body Report in United States - Restriction on Imports of Cotton and Man-Made Fibre
Underwear , 10 February 1997, WT/DS24/AB/R, p. 9 (emphasis added).
31 Id. (emphasis added).
32 Id. (emphasis added).WT/DS177/R
WT/DS178/R
Page A-469
38. The Appellate Body set out in Korea - Dairy Products that a Member must apply a measure
which in its totality is "not more restrictive than necessary." 33  Therefore, if the measure that was
applied were to surpass the threshold level of what was necessary, the Member would violate
Article 5.1  Agreement on Safeguards .  In other words, if there were a measure available which would
be less restrictive and would at the same time accomplish the goal of preventing or remedying serious
injury, then that measure should be applied.  This, in fact, is nothing more and nothing less than a"least trade restrictive test", which the EC has no diff iculty in reading in the text of the first sentence
of Article 5.1 Agreement on Safeguards .
39. An important question with respect to the "necessity" test in Article 5.1 is whether the US should
have justified, explained or otherwise demonstrated that the measure it applied "is commensurate with
the goals of preventing or remedying serious injury and of facilitating adjustment."
 34  T h e
complainants make the argument that the US was under such obligation as a result of Article 3.1Agreement on Safeguards , which sets out that "[t]he competent authorities shall publish a report
setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law".
40. The EC considers that, although nothing prevents the competent authorities from doing so in
their investigation report, the last sentence in Article 3.1 does not oblige these authorities to publish inthat report information explaining how the measure applied falls within the requirements set out in the
first sentence of Article 5.1.  The title of Article 3.1, as well as its content, concern solely the
investigation, not the measure itself nor its application.  Furthermore, as the Appellate Body made
clear in Korea - Dairy Products , the first sentence of Article 5.1 does not impose an obligation to
present a "clear justification" of compliance with it in the framework of that provision.  The Appellate
Body stated "we reverse the Panel's broad finding […] that Article 5.1 requires a Member to explain,
at the time it makes its recommendations and determinations concerning the application of a
safeguard measure, that its measure is necessary to remedy serious injury and to facilitate
adjustment."
 35
41. How then, are Members (or a Panel in the framework of a dispute settlement procedure) able toverify on what grounds the Member taking the safeguard measure has based itself in order to comply
with the "necessity" test?  The EC considers that relevant elements to that effect could usefully be
contained in the notification document submitted to the Committee on Safeguards in the framework of
Article 12.2 Agreement on Safeguards .  This provision requires the Member which proposes to apply
a safeguard measure to provide the Committee (and thus all WTO Members) with "all pertinent
information", which includes -- but is not limited to -- information regarding the proposed measure,
the proposed date of introduction, expected duration and timetable for progressive liberalization, so as
to allow WTO Members to verify whether the proposed measure is in compliance with the Agreement
on Safeguards .  As the Panel in Korea - Dairy Products stated with respect to the object and purpose
of Article 12:
"… the notification serves essentially a transparency and information purpose.  In
ensuring transparency, Article 12 allows Members through the Committee on
Safeguards to review the measures.  Another purpose of the notification of the finding
of serious injury and of the proposed measure is to inform Members of the
circumstances of the case and the conclusions of the investigation together with theimporting country's particular intentions.  This allows any interested Member to
                                                     
33 Report by the Appellate Body on Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products , AB-1999-8, WT/DS98/AB/R, 14 December 1999, at paragraph 103.
34Report by the Appellate Body on Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products , AB-1999-8, WT/DS98/AB/R, 14 December 1999, at paragraph 96.
35Id., at paragraph 103.WT/DS177/R
WT/DS178/R
Page A-470
decide whether to request consultations with the importing country which may lead to
modification of the proposed measure(s) and/or compensation." 36
42. Therefore, the content of the Article 12.2 notification should allow Members to review themeasure and all pertinent information regarding its application, which can certainly include
information enabling Members to review whether the "necessity" requirement contained in Article 5.1
has been complied with.  During subsequent consultations, which take place before  the measure is
applied, the information set out by the Member proposing to apply the measure can be further
discussed, including with regard to why the Member considers it is "commensurate with the goals of
preventing or remedying serious injury and of facilitating adjustment" and thus considers it complies
with the first sentence of Article 5.1.  As  recognized by the Appellate Body in Korea - Dairy
Products , "[p]roviding [all pertinent information] to the Committee on Safeguards does not place an
excessive burden on a Member proposing to apply a safeguard measure as such information is, or
should be, readily available to it."
 37
Inappropriate exclusion of certain count ries from the scope of the measure
43. The Appellate Body in its Report on Argentina-Footwear 38 concluded that "Argentina, on the
facts of this case, cannot justify the imposition of its safeguard measures only on non-MERCOSURthird country sources of supply on the basis of an investigation that found serious injury or threat
thereof caused by imports from all sources, including imports from other MERCOSUR member
States."
44. The EC submits that the principle of parallelism  as set out by the Appellate Body in the
Footwear  case should apply to the present case as well.  The USITC investigation found that serious
injury was threatened by imports from all sources, including imports from countries with which the
US had concluded free trade areas, including Canada, Mexico and Israel.  The US then imposed its
safeguard measure only on non-FTA countries, t hus excluding Canada, Mexico and Israel.
45. The EC submits that, as a consequence of the above-mentioned reasoning of the Appellate Body,
the US could either have found a threat of serious injury based on all imports  or , in the alternative,
exclude imports from those countries with which the US has constituted a free trade area from the
scope of the investigation and find a threat based on the imports from all other countries.  If a causal
link is established, then the issue of the application of the safeguard measure consistent with the
principle of parallelism  is relevant 39.  Under the first option, the safeguard measure will have to be
applied also vis-à-vis the products originating from the other members of the free trade area.  Under
the second option, the products originating from the other members of the free trade area will not be
subject to the measure.
46. The EC considers that a determination of threat of serious injury caused by imports from all
sources, followed by an exclusion of certain countries from the safeguard measure based on theimportance of their individual contribution has no basis in the Agreement on Safeguards .  The only
exception in this respect is with regard to developing country members, as set out in Article 9.1.  No
similar exception however can be found for countries which are members of a free trade area.  The EC
                                                     
36Report by the Panel on Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products ,
WT/DS98/R, 21 June 1999, at paragraph 7.126.
37 Id., at paragraph 111.
38Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 114.
39See, confirming this approach, Report by the Appellate Body on Argentina – Safeguard Measures on
Imports of Footwear , AB-1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 111 ff.WT/DS177/R
WT/DS178/R
Page A-471
submits that the Panel has no reason to take a different decision in the present case than the Appellate
Body took in the Argentina - Footwear   case.
US misinterprets the obligation contained in Article 8.1 Agreement on Safeguards
47. The US claims in its First Written Submission that "the only obligation that Article 8.1
imposes on a Member considering a safeguard measure is to provide an opportunity for prior
consultations.  The United States satisfied that obligation."   40  The EC disagrees with such narrow
reading of this provision.  The obligation to provide an opportunity for prior consultations is
contained in Article 12.3, which requires a Member proposing to apply a safeguard measure "to
provide adequate opportunity for prior consultations …".  Article 8.1 obliges ("shall") a Member to
endeavour to maintain a substantially equivalent level of concessions and other obligations […] to
exporting Members which would be affected by such a measure."
48. The EC submits that the term "endeavour" must have some meaning -- a meaning which goes
further than the pure procedural requirement of offering consultations, which is already contained in
Article 12.3.  The New Shorter Oxford English Dictionary 41 explains this term as "to exert oneself",
"try, make an effort for a specified object, attempt strenuously", underlining that a Member is requiredin good faith to make an effort to maintain a substantially equivalent level of concessions and other
obligations […] to exporting Members which would be affected by such a measure.  The EC
considers that such an effort should be more than merely offering consultations, and thus should
constitute a clear indication (which entails at least an initial offer) of how the Member proposing to
take the measure would suggest to maintain a substantially equivalent level of concessions and otherobligations […] to exporting Members which would be affected by such a measure."
49. Finally, the EC does not consider that this interpretation of the requirement contained in
Article 8.1 would, as the US suggests, in any way "encourage Members to find methods outside of the
Safeguard Agreement to protect their injured domestic industries."
 42  Indeed, if their industries were
seriously injured or were facing a threat of being seriously injured, an initial offer of how the Member
proposing to take the measure would suggest to maintain a substantially equivalent level of
concessions and other obligations to exporting Members which would be affected by such a measure
would rather strengthen  the multilateral support for the safeguard mechanism.
                                                     
40US First Written Submission, at paragraph 262.
41 New Shorter Oxford English Dictionary (1993), at page 816.
42 US' First Written Submission, at paragraph 266.WT/DS177/R
WT/DS178/R
Page A-472
ANNEX 4-3
ORAL STATEMENT OF CANADA
(25 May 2000)
INTRODUCTION
The Government of Canada appreciates this opportunity to provide its views to the Panel on
certain issues arising in this dispute.  Canada rese rved its right to participate as third party in these
proceedings because of its substantial interest in the matter, particularly with respect to the claim ofthe Complaining Parties regarding the exclusion of Canada from the application of the safeguard
measure on lamb meat imposed by the United States.
We are fully supportive of the position of the United States on this particular issue.  We
maintain that the United States International Trade Commission (USITC) findings andrecommendations regarding imports of lamb meat from Canada, as well as the subsequent US
decision to exempt Canada from the safeguard measure on lamb meat, are consistent with US
obligations under the WTO agreements, in particular Article 2 of the Agreement on Safeguards .  We
further maintain that the Complaining Parties’ clai m to the contrary is unfounded and as such should
be rejected by the Panel.
ARGUMENT
The Complaining Parties raise legal claims under both GATT 1994 and the Agreement on
Safeguards  regarding the US decision to exclude imports from Canada from the application of the
safeguard measure on lamb meat.  The Complaining Parties assert that, by so doing, the United States
breached its obligations under Article 2 of the Agreement on Safeguards .  In addition, Australia
claims a breach of Article 4 of the Agreement on Safeguards  while New Zealand further alleges a
breach of Article I of the GATT 1994.
Canada was exempted from the safeguard measure imposed by the United States, after the
USITC found that imports of lamb meat from Canada and Mexico did not individually account for a
substantial share of the total imports of lamb meat and were not contributing importantly to the threat
of serious injury.  This was done in accordance with US obligations under the North American Free
Trade Agreement  (NAFTA), more particularly Article 802.
For the reasons explained fully in our written submission, Canada asserts that neither the
Agreement on Safeguards  nor the GATT 1994 precludes members of a free trade area from excluding
each other’s imports from the application of their safeguard measures.  We doubt that the
Complaining Parties would dispute this assertion, given that such an exclusion is consistent with the
provisions of the Australia New Zealand Closer Economic Relations Agreement .
To sustain their claim that the United States failed to apply its safeguard measure to all
imports irrespective of source as required by Article 2.2 of the Agreement on Safeguards , Canada
notes that the Complaining Parties rely on a specific passage from the recent decision of the Appellate
Body in Argentina - Safeguard Measures on Imports of Footwear  (Argentina – Footwear).
1
                                                     
1 Report of the Appellate Body on Argentina - Safeguard Measures on Imports of Footwear ,
WT/DS121/AB/R, adopted on 12 January 2000, at paragraphs 113-114.WT/DS177/R
WT/DS178/R
Page A-473
As set out clearly in our written submission, Canada’s view is that the facts in the Argentina -
Footwear case are fundamentally different from those under consideration here.  Allow us to take this
opportunity to highlight the key differences.
In Argentina - Footwear , Argentina had investigated and found injury from all sources,
including and in particular, MERCOSUR sources.  However, Argentina did not conduct a separateanalysis with respect to its MERCOSUR partners.  As a result, pursuant to Article 2.2 of the
Agreement on Safeguards ,  the Appellate Body found that, “on the basis of this investigation in this
case"
2, Argentina had to apply its safeguard measure to imports from all sources, including those from
MERCOSUR.  In contrast, in the present case, th e United States found, on the basis of a separate
analysis, that Canadian imports were negligible and, therefore, did not account for the threat of
serious injury.  Accordingly, Canada submits that it is fully consistent with Article 2.2 of the
Agreement on Safeguards , interpreted in light of Article XXIV of the GATT 1994 and the decision in
Argentina - Footwear , for the United States to exclude Canadian imports from the application of its
safeguard measure on lamb meat.
Finally, we noted that the EC, in its third party submission, asserts that the principle of
parallelism  - a legal test proposed by the EC in another dispute - should apply to the present case.
The EC maintains that the Appellate Body confirmed this so called principle  in its Argentina -
Footwear  Report.  However, it is clear that the Appellate Body's legal conclusions regarding this issue
are directly linked to the particular facts of the Argentina - Footwear case, and therefore cannot be the
basis of such confirmation.
CONCLUSION
Accordingly, we respectfully submit to the Panel that the USITC findings and
recommendations regarding imports of lamb meat from Canada, as well as the subsequent US
decision to exempt Canada from the safeguard measure on lamb meat, are fully consistent with theWTO obligations of the United States.
                                                     
2 Report of the Appellate Body on Argentina - Footwear , supra , at paragraph 112.WT/DS177/R
WT/DS178/R
Page A-474
ANNEX 4-4
ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
(25 May 2000)
Mr. Chairman, distinguished Members of the Panel,
Thank you for providing the European Communitie s [EC] with a chance to present its views
in this proceeding today.
1. This case provides an opportunity to draw the appropriate consequences from the Appellate
Body’s broad statement that
“[I]t is essential to keep in mind that a safeguard action is a "fair" trade remedy.  The
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 action is taken
must be seen (…) as extraordinary . And, when  construing the prerequisites for taking
such actions, their extraordinary nature must be taken into account .” 1
2. This case raises several systemic issues re lating to the interpretation of the Agreement on
Safeguards as well as of the WTO Agreement’s annexes at large.  The EC has addressed the most
important ones its Third Party Submission and refers  the Panel to its argumentation therein.  The EC
further regrets that, after having its deadline for commenting on the 80 page US First WrittenSubmission curtailed from 7 to 4 days given the additional unexpected and extremely late change in
the Panel’s schedule, it is not in a position to elaborate further before you today.
3. There is, however, one aspect on which the EC would like to comment today, in view of
Canada’s Third Party Submission.  In its submission Canada first argues that
“the Agreement on Safeguards , read in conjunction with the other relevant WTO
provisions, leaves open the possibility that, as the United States has done in this case
pursuant to Article 802 of the NAFTA, members of an FTA may exclude other
members from the application of a safeguard measure.” 
2
The “other relevant WTO provisions” to which Canada refers are Articles XIX and XXIV:8
of GATT 1994.
4. Canada further argues that the facts in Argentina – Footwear  were different from those at
issue in this dispute. 3
5. The EC strongly disagrees with both points.  The EC would like to recall that in Argentina -
Footwear  the Appellate Body found that
                                                     
1 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 76 (emphasis added).
2 Canada’s First Written Submission, paragraph 14.
3 Canada’s First Written Submission, paragraph 17.WT/DS177/R
WT/DS178/R
Page A-475
“Argentina, on the facts of this case, cannot justify the imposition of its safeguard
measures  only on non-MERCOSUR third country sources of supply on the basis of
an investigation  that found serious injury or threat thereof caused by imports from all
sources, including imports from other MERCOSUR member States.”  4
6. The EC submits that the principle of parallelism  as set out by the Appellate Body in the
Footwear  case stands and applies in this case too, irrespective of the question as to the relationship
between the Agreement on Safeguards and GATT Articles XIX and XXIV.  In making the above
finding the Appellate Body also made clear that the issue of the relationship between the Agreement
on Safeguards and GATT 1994 is a separate one which it considered was not necessary to address in
that case.  To recall, the Appellate Body found that
“we also are not persuaded that an analysis of Article XXIV of the GATT 1994 was
relevant to the specific issue that was before the Panel.  This issue, as the Panel itselfobserved, is whether Argentina, after including imports from all sources in its
investigation of "increased imports"  of footwear products into its territory and the
consequent effects of such imports on its domestic footwear industry, was justified in
excluding other MERCOSUR member States from the application of the safeguard
measures .” 
5
7. Contrary to Canada’s assertion the facts of this case are strikingly similar to the ones at issue
in Argentina – Footwear , on the basis of which the Appellate Body ruled.  In fact, the USITC
investigation was based on imports from all sources,6 including imports from countries with which the
US had concluded free trade agreements, like Canada, Mexico and Israel.  The US then imposed its
safeguard measure only on non-FTA countries, t hus excluding Canada, Mexico and Israel.
8. Canada suggests that this case is different from the one reviewed in Argentina – Footwear
because the USITC made a separate analysis with respect to its FTA partners, and notably “found, on
the basis of the investigations, that Canadian imports were negligible  and, therefore , did not account
for the threat of serious injury.” 7
9. Whether imports from FTA partners accounted for a larger or a smaller share of total importsis not a relevant fact which can distinguish this case from the factual and the legal arguments set forth
in Argentina – Footwear .
10. In the first place, the Argentine authorit ies did not exclude imports from MERCOSUR from
the safeguard measure on the basis of their relative importance, they did not even weigh that factor to
make their decision.  They simply spared ME RCOSUR imports from the measure after including
imports from all sources in their investigation of “increased imports”.
11. Likewise, the USITC investigated imports from all sources and then excluded FTA partners
imports from its measure.  If imports from FTA countries were considered not to threaten seriousinjury, it was only because the USITC  applied the WTO-inconsistent “substantial cause” test, on
which the EC has already commented in its Third Party Submission.
                                                     
4 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 114 (emphasis added).
5 Report by the Appellate Body on Argentina – Safeguard Measures on Imports of Footwear , AB-
1999-7, WT/DS121/AB/R, 14 December 1999, at paragraph 109 (emphasis added).
6 See USITC Report, at page I-15 (last paragraph) and USITC Report, Table 7, at page II-21.  The
figures on which the 'increased imports' finding on page 15 is based are the 'total US imports' in Table 7.
7 Canada’s First Written Submission, paragraph 17 (emphasis added).WT/DS177/R
WT/DS178/R
Page A-476
12. In any event, even if imports from MERCOSUR  had been more than “negligible”, this fact
was given no relevance by the Appellate Body in its finding.
13. The only relevant factor is whether the investigating authority concluded that the
requirements for the imposition of a measure are met by investigating and taking into account the
effect of inter alia  imports from countries with which it has a FTA.
14. In view of the foregoing, Canada’s arguments can in no way support the USITC’s omission of
imports from FTA partners from the scope of its measure.  Accordingly, the EC confirms the position
expressed in its Third Party Submission and submits that the US measure is not consistent with WTO
law.
15. Mr. Chairman, distinguished Members of the Panel, this concludes the EC’s intervention.
The EC will be happy to reply in writing to any further questions that may be addressed to it.
Thank you for your attention.WT/DS177/R
WT/DS178/R
Page A-477
ANNEX 5-1
(WT/DS177/4)
UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF FRESH, CHILLED OR
FROZEN LAMB FROM NEW ZEALAND
Request for the Establishment of a Panel by New Zealand
The following communication, dated 14 October 1999, from the Permanent Mission of New
Zealand to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the
DSU.
_______________
My authorities have asked me to submit the following request on behalf of New Zealand for
consideration at the next meeting of the Dispute Settlement Body.
Under the “Proclamation 7208 of 7 July 1999 - To Facilitate Positive Adjustment to
Competition From Imports of Lamb Meat” and the “Memorandum of 7 July 1999 - Action Under
Section 203 of the Trade Act of 1974 Concerning La mb Meat” by the President of the United States
of America, published in the Federal Register Vol. 64, No. 131, pp. 37389 to 37392 on 9 July 1999
and the Federal Register Vol. 64, No. 132, pp. 37393 to 37394 on 12 July 1999 respectively, the
United States of America imposed a definitive safeguard measure in the form of a tariff-rate quota onimports of fresh, chilled, or frozen lamb meat
8  effective as of 22 July 1999.9
New Zealand considers that this measure is inconsistent with the obligations of the United
States of America under the following provisions:
(i) Articles 2, 3, 4, 5, 11 and 12 of the Agreement on Safeguards; and
(ii) Articles I, II and XIX of the GATT 1994.
In a communication dated 16 July 1999 (as circulated in WT/DS177/1), the Government of
New Zealand requested consultations with the Government of the United States of America pursuant
to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU), Article 14 of the Agreement on Safeguards and Article XXII:1 of the GATT 1994 with regard
to the safeguard measure imposed by the United States of America on imports of lamb meat.Consultations were held on 26 August 1999, but did not result in a resolution of the dispute.
Accordingly, New Zealand requests the establishment of a panel pursuant to Article 6 of the
DSU and Article 14 of the Agreement on Safeguards to examine the measure in question, with the
standard terms of reference as set out in Article 7 of the DSU.
                                                     
8 As provided for in subheadings 0204.10.00, 0204.22.20, 0204.23.20, 0204.30.00, 0204.42.20, and
0204.43.20 of the Harmonised Tariff Schedule of the United States.
9 Some of this information has also been contained in the United States Article 12.1(c) Notification to
the Committee on Safeguards (G/SG/N/10/USA/3, G/SG/N/10/USA/3/Suppl.1, G/SG/N/11/USA/3 andG/SG/N/11/USA/3/Suppl.1).WT/DS177/R
WT/DS178/R
Page A-478
As indicated above, New Zealand asks that this request for the establishment of a panel be
considered at the next meeting of the Disput e Settlement Body scheduled for 27 October 1999.WT/DS177/R
WT/DS178/R
Page A-479
ANNEX 5-2
(WT/DS178/5)
UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF
LAMB MEAT FROM AUSTRALIA
Request for the Establishment of a Panel by Australia
The following communication, dated 14 October 1999, from the Permanent Mission of
Australia, to the Chairman of the Dispute Settlement  Body, is circulated pursuant to Article 6.2 of the
DSU.
_______________
My authorities have instructed me to request the establishment of a panel pursuant to
Article XXIII of the General Agreement on Tariff s and Trade 1994 (GATT 1994), Articles 4 and 6 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and
Article 14 of the Agreement on Safeguards, with regard to the definitive safeguard measure imposed
by the United States of America (USA) on imports of lamb meat.10, 11
Under the "Proclamation 7208 of 7 July 1999 – To Facilitate Positive Adjustment to
Competition From Imports of Lamb Meat" and the "Memorandum of 7 July 1999 – Action Under
Section 203 of the Trade Act of 1974 Concerning Lamb Meat" by the President of the United States
of America, published in the Federal Register Vol. 64, No. 131, pp. 37389-37392 on 9 July 1999 andthe Federal Register Vol. 64, No. 132, pp. 37393-37394 on 12 July 1999 respectively, the United
States of America introduced a definitive safeguard measure in the form of a tariff-rate quota on
imports of lamb meat effective as of 22 July 1999.
12
On 23 July 1999 Australia requested consultations with the USA with a view to reaching a
mutually satisfactory solution.  The request was circulated in Document WT/DS178/1 (and Corr.1)
dated 29 July 1999.  Such consultations, which were held on 26 August 1999 in Geneva, did not lead
to a satisfactory resolution of the matter.
Australia considers that the measure, and associated actions and decisions taken by the USA,
are inconsistent with the obligations of the USA under the Agreement on Safeguards and GATT 1994,
in particular:
(b) Articles 2, 3, 4, 5, 6, 11, and 12 of the Agreement on Safeguards, and
(c) Articles I, II, and XIX of GATT 1994.
                                                     
10 G/SG/N/10/USA/3-G/SG/N/11/USA/3, and G/SG/N/10/USA/3/Suppl.1-G/SG/N/11/USA/3/Suppl.1.
11 Covering fresh, chilled, or frozen lamb meat, provided for in subheadings 0204.10.00, 0204.22.20,
0204.23.20, 0204.30.00, 0204.42.20, and 0204.43.20 of the Harmonized Tariff Schedule of the United States.
12 Subsequently modified by the "Proclamation 7214 of 30 July 1999 – To Provide for the Efficient and
Fair Administration of Action Taken With Regard to Imports of Lamb Meat and for Other Purposes" by thePresident of the United States of America published in the Federal Register Vol. 64, No. 149, pp. 42265-42267on 4 August 1999.WT/DS177/R
WT/DS178/R
Page A-480
Australia requests that the panel to examine the matter be established with the standard terms
of reference.
Australia asks that this request be placed on the agenda for the meeting of the Dispute
Settlement Body to be held on 27 October 1999.
__________