WORLD TRADE
ORGANIZATIONWT/DS177/R
WT/DS178/R
21 December 2000
(00-5361)
Original:  English
UNITED STATES – SAFEGUARD MEASURES ON
IMPORTS OF FRESH, CHILLED OR FROZEN
LAMB MEAT FROM NEW ZEALAND AND
AUSTRALIA
Report of the Panel
The report of the Panel on United States - Safeguard Measures on Imports of Fresh, Chilled or Frozen
Lamb Meat from New Zealand and Australia is bein g circulated to all Members, pursuant to the DSU.
The report is being circulated as an unrestricted document from 21 December 2000 pursuant to the
Procedures for the Circulation and Derestricti on of WTO Documents (WT/L/160/Rev.1).  Members
are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report.
An appeal shall be limited to issues of law covered in the Panel report and legal interpretations
developed by the Panel.  There shall be no ex parte  communications with the Panel or Appellate Body
concerning matters under consideration by the Panel or Appellate Body.
Note by the Secretariat:  This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the
date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report .
If the Panel Report is appealed to the Appellate Body, it sha ll not be considered for adoption by the DSB until after the
completion of the appeal.  Information on the current status of the Panel Report is available from the WTO Secretariat.WT/DS177/R
WT/DS178/R
Page i
TABLE OF CONTENTS
Page
I. INTRO DUCTION ................................................................................................................. ...1
A. COMPLAINT OF NEW ZEALAND ....................................................................................................1
B. COMPLAINT OF AUSTRALIA .........................................................................................................1
C. ESTABLISHMENT AND COMPOSITION OF THE PANEL ...................................................................1
D. PANEL PROCEEDINGS ...................................................................................................................2
II. FACTUAL ASPECTS ............................................................................................................. .2
III. FINDINGS REQUESTED BY THE PARTIES .....................................................................3
A. AUSTRALIA ............................................................................................................................... ...3
B. NEW ZEALAND .............................................................................................................................5
C. UNITED STATES ............................................................................................................................6
IV. ARGUMENTS OF THE PART IES ........................................................................................6
V. PRELIMINARY ISSUES.........................................................................................................6
A. PARTIES ' REQUESTS FOR PRELIMINARY RULINGS BY THE PANEL ...............................................6
1. Australia .................................................................................................................... ................6
2. New Zealand.................................................................................................................. ............6
3. The United States............................................................................................................ ..........7
B. A LLEGED INSUFFICIENCY OF PANEL REQUEST ............................................................................7
1. Initial arguments of the parties ............................................................................................. ..7
2. Written response and request fo r comments by the Panel....................................................8
3. Comments of the parties...................................................................................................... .....9
4. Ruling by the Panel.......................................................................................................... .......10
5. Reasoning.................................................................................................................... .............10
C. R EQUEST FOR THE EXCLUSION OF THE US S TATUTE FROM THE PANEL 'S TERMS OF
REFERENCE ............................................................................................................................... .18
1. Arguments of the parties..................................................................................................... ...18
2. Ruling at the first substantive meetin g of the Panel with the parties.................................19
3. Reasoning.................................................................................................................... .............19
D. S UBMISSION AND PROTECTION OF CONFIDENTIAL INFORMATION ...........................................19
1. Arguments of the parties..................................................................................................... ...19
2. Ruling at the first substantive meetin g of the Panel with the parties.................................20
3. Reasoning.................................................................................................................... .............20
VI. INTERIM  REVI EW.............................................................................................................. .21
A. A USTRALIA 'S REQUESTS FOR INTERIM REVIEW .......................................................................21WT/DS177/R
WT/DS178/RPage ii
B. N EW ZEALAND 'S REQUESTS FOR INTERIM REVIEW .................................................................21
C. T HE UNITED STATES ' REQUESTS FOR INTERIM REVIEW ..........................................................22
VII. SUBSTANTIV E ISSU ES........................................................................................................2 4
A. S TANDARD OF REVIEW ..............................................................................................................24
B. T HE EXISTENCE OF "UNFORESEEN DEVELOPMENTS "...............................................................25
1. General interpretative analysis of Article XIX of GATT 1994...........................................25
2. Examination of "unforeseen developments" in this case ....................................................31
C. D EFINITION OF THE DOMESTIC INDUSTRY ................................................................................33
1. Introduction................................................................................................................. ............33
2. Background ................................................................................................................... ..........34
3. Arguments of the Parties..................................................................................................... ...35
4. Discussion by the Panel ...................................................................................................... ....37
5. Findings on the definition of the domestic industry.............................................................53
6. "Judicial economy" and the anal ysis of additional claims..................................................53
D. T HREAT OF SERIOUS INJURY .....................................................................................................53
1. The Safeguard Agreement's standard for analysing threat  of serious injury....................53
2. Whether the USITC evaluated in this investigation all injury factors listed in
SG Article 4.2(a).............................................................................................................. ........58
3. The USITC's analysis of threat  of serious injury in this invest igation ...............................64
4. Representativeness of  data collected .....................................................................................69
5. Conclusions concerning the USITC's th reat of serious injury determination in
this case ...................................................................................................................... ..............72
E. C AUSATION STANDARD AND NON-ATTRIBUTION OF FACTORS OTHER THAN IMPORTS ..........73
1. Introduction................................................................................................................. ............73
2. General interpretative analysis of causation and non-attribution of "other
factors" ....................................................................................................................... .............74
3. The USITC’s investigation of causation and non-attribution of "other factors" .............784. Conclusions on causation and non-attribution of "other factors" .....................................83
F.
CLAIMS UNDER SG ARTICLES 2, 3, 5, 8, 11 AND 12, AND GATT 1994 ARTICLES I AND  II.........83
VIII. CONCLUSIONS AND RECOMMENDAT IONS................................................................84
ANNEX 1-1 FIRST SUBMISSI ON OF AUSTR ALIA.......................................................... A-1
ANNEX 1-2 LETTER FROM  AUSTRAL IA....................................................................... A-56
ANNEX1-3 COMMENTS OF AUSTRALIA REGARDING THE REQUEST
BY THE UNITED STATES FO R PRELIMINARY RULINGS..................... A-57
ANNEX 1-4 ORAL STATEMENT OF AUSTRALIA CONCERNING USA'S
REQUEST FOR PRELIMI NARY RULI NGS ................................................ A-67WT/DS177/R
WT/DS178/R
Page iii
ANNEX 1-5 ORAL STATEMENT OF AUSTRALIA CONCERNING
AUSTRALIA'S REQUEST FOR PRELIMINARY RULINGS...................... A-70
ANNEX 1-6 FIRST ORAL STAT EMENT OF AUS TRALIA............................................. A-72
ANNEX 1-7 ANSWERS BY AUSTRALIA TO  QUESTIONS BY THE PANEL.............. A-87
ANNEX 1-8 SECOND SUBMISSI ON OF AUSTR ALIA................................................. A-103
ANNEX 1-9 OPENING STATEMENT BY AUSTRALIA AT THE SECOND
SUBSTANTIVE ME ETING ......................................................................... A-141
ANNEX 2-1 FIRST SUBMISSI ON OF NEW ZE ALAND................................................ A-150
ANNEX 2-2 LETTER FROM  NEW ZEAL AND............................................................... A-194
ANNEX 2-3 NEW ZEALAND'S RESPONSE TO UNITED STATES' REQUEST
FOR PRELIMINAR Y RULINGS ................................................................. A-195
ANNEX 2-4 ORAL STATEMENT OF NEW ZEALAND CONCERNING
REQUESTS FOR PRELIMI NARY RULI NGS ............................................ A-204
ANNEX 2-5 FIRST ORAL STATEM ENT OF NEW ZEALAND .................................... A-208
ANNEX 2-6 ORAL RESPONSE OF NEW ZEALAND TO UNITED STATES'
COMMENTS ON EXHIBI T NZ-13.............................................................. A-221
ANNEX 2-7 CLOSING STATEMEN T OF NEW ZE ALAND.......................................... A-222
ANNEX 2-8 NEW ZEALAND'S RESPONSES TO QUESTIONS BY THE PANEL ...... A-223
ANNEX 2-9 SECOND SUBMISSION OF NEW ZE ALAND........................................... A-238
ANNEX 2-10 NEW ZEALAND'S ORAL STATEMENT AT SECOND
PANEL HEAR ING........................................................................................ A-266
ANNEX 3-1 LETTER FROM THE UNITED STATRES REQUESTING
PRELIMINARY RU LINGS .......................................................................... A-281
ANNEX 3-2 FIRST WRITTEN SUBMISSI ON OF THE UNITED  STATES .................. A-287
ANNEX 3-3 ORAL STATEMENT OF THE UNITED STATES CONCERNING
PRELIMINARY ISSUES .............................................................................. A-345
ANNEX 3-4 FIRST ORAL STATEMEN T OF THE UNITE D STATES.............................. 349
ANNEX 3-5 CLOSING STATEMENT OF THE UNITED STATES AT THE
FIRST MEETING OF THE PANEL ............................................................. A-357
ANNEX 3-6 UNITED STATES' REPLIES TO QUESTIONS FROM
AUSTRALIA ................................................................................................. A-360
ANNEX 3-7 REPLIES BY THE UNITED STATES TO QUESTIONS
FROM THE P ANEL...................................................................................... A-365
ANNEX 3-8 SECOND SUBMISSION OF THE UNITED STATES ................................ A-411
ANNEX 3-9 ORAL STATEMENT OF THE UNITED STATES AT THE
SECOND MEETING OF THE PANEL ........................................................ A-444
ANNEX 4-1 WRITTEN SUBMISSI ON OF C ANADA .................................................... A-455
ANNEX 4-2 WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES .......... A-461
ANNEX 4-3 ORAL STATEM ENT OF C ANADA ............................................................ A-472
ANNEX 4-4 ORAL STATEMENT OF TH E EUROPEAN COMM UNITIES.................. A-474
ANNEX 5-1 UNITED STATES - SAFEGUARD MEASURE ON IMPORTS OF
FRESH, CHILLED OR FROZEN LA MB FROM NEW ZEALAND .......... A-477
ANNEX 5-2 UNITED STATES - SAFEGUARD MEASURE ON IMPORTS OF
LAMB MEAT FROM  AUSTRALIA............................................................ A-479WT/DS177/R
WT/DS178/R
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I. INTRODUCTION
A. COMPLAINT OF NEW ZEALAND
1.1 On 16 July 1999, New Zealand requested consultations with the United States pursuant to
Article 4 of the Dispute Settleme nt Understanding ("the DSU"), Article XXII:1 of GATT 1994 and
Article 14 of the Agreement on Safeguards ("the Safeguards Agreement", "SG") with regard to adefinitive safeguard measure imposed by the United States on imports of lamb meat.
1
1.2 On 26 August 1999, New Zealand and the United States held the requested consultations, but
failed to resolve the dispute.
1.3 On 14 October 1999, New Zealand requested the establishment of a panel to examine the
matter.2
B. COMPLAINT OF AUSTRALIA
1.4 On 23 July 1999, Australia requested consultations with the United States pursuant to DSU
Article 4, GATT Article XXII:1 and SG Article 14 with regard to the definitive safeguard measure
imposed by the United States on imports of lamb meat.3
1.5 On 26 August 1999, Australia and the United States held the requested consultations, but
failed to resolve the dispute.
1.6 On 14 October 1999, Australia requested the establishment of a panel to examine the matter.4
C. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.7 At its meeting of 19 November 1999, in accordance with DSU Article 9 the Dispute
Settlement Body ("the DSB") established a single Panel, pursuant to the requests made by New
Zealand and Australia.
1.8 At that meeting, the parties to the dispute also agreed that the Panel should have standard
terms of reference, as follows:
"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/DS178/5 and 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 inmaking the recommendations or in giving the rulings provided for in those
agreements".
1.9 On 21 March 2000, the parties agreed to the following composition of the Panel:
Chairman: Professor Tommy Koh
Members: Professor Meinhard Hilf
Mr. Shishir Priyadarshi
                                                     
1 WT/DS/177/1.
2 WT/DS/177/4.
3 WT/DS/178/1 and Corr.1.
4 WT/DS/178/5 and Corr.1.WT/DS177/R
WT/DS178/RPage 2
1.10 Australia (in respect of New Zealand's complaint), Canada, the European Communities,
Iceland, Japan and New Zealand (in respect of Australia's complaint), reserved their rights to
participate in the panel proceedings as third parties.
D. PANEL PROCEEDINGS
1.11 The Panel met with the parties on 25-26 May 2000 and 26-27 July 2000.  The Panel met with
third parties on 25 May 2000.
1.12 On 24 October 2000, the Panel provided its interim report to the parties.  See Section VI,
infra .
II. FACTUAL ASPECTS
2.1 This dispute concerns the imposition of a definitive safeguard measure by the United States
on imports of fresh, chilled and frozen lamb meat, imported under 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.
2.2 On 7 October 1998, a safeguard petition was filed with the United States International Trade
Commission ("USITC") by the American Sheep Industry Association, Inc., Harper Livestock
Company, National Lamb Feeders Association, Winters Ranch Partnership, Godby Sheep Company,
Talbott Sheep Company, Iowa Lamb Corporation, Ra nchers' Lamb of Texas, Inc., and Chicago Lamb
and Veal Company.  On 23 October 1998, the USITC published a notice of institution of a safeguards
investigation on lamb meat.  The United States notified the Committee on Safeguards of the initiation
of the investigation in a communication dated 30 October 1998.5
2.3 On 9 February 1999, the USITC unanimously found that increased imports of lamb meat were
a substantial cause of threat of serious injury to an industry in the United States.  The United States
notified this determination to the Committee on Safeguards in a communication dated 17 February
1999.6
2.4 The USITC forwarded its threat of injury determination and its remedy recommendations to
the President of the United States on 5 April 1999.  The USITC published its determination andrecommendations in April 1999.
7  In a communication dated 13 April 1999, the United States
submitted a revised notification concerning its threat of injury determination, and describing the
proposed safeguard measure.8
2.5 The United States held consultations pursuant to SG Article 12.3 with New Zealand on 28
April and 14 July 1999, and with Australia on 4 May and 14 July 1999.  The United States notifiedthe results of these consultations to the WTO Council for Trade in Goods on 21 July 1999.
9
                                                     
5 G/SG/N/6/USA/5 (Exh. US-3).
6 G/SG/N/8/USA/3 + Corr.1 and Corr.2 (Exh. US-4)
7 USITC Publication 3176, "Lamb Meat", Investigation TA-201-68, April 1999. ("USITC Report",
Exh. US-1.)
8 G/SG/N/8/USA/3/Rev.1 (Exh. US-5).
9 G/L/313, G/SG/19 (Exh. US-8).WT/DS177/R
WT/DS178/R
Page 3
2.6 On 7 July 1999, the United States imposed a definitive safeguard measure, effective
22 July 1999, on imports of lamb meat.10  The United States notified the measure to the Committee on
Safeguards in a communication dated 9 July 199911 and provided a supplemental notification
concerning the measure in a communication dated 13 August 1999.12
2.7 The measure takes the form of a tariff-rate quota, as follows:
Country Allocations
Year Tariff Rate
QuotaCountry Allocations
Australia New Zealand Other Countries
Year 1 31,851,151 kg 17,139,582 kg 14,481,603 kg 229,966 kg
Year 2 32,708,493 kg 17,600,931 kg 14,871,407 kg 236,155 kg
Year 3 33,565,835 kg 18,062,279 kg 15,261,210 kg 242,346 kg
Tariff Duties
Year In-Quota Out of Quota
Year 1 9% 40%
Year 2 6% 32%
Year 3 3% 24%
2.8 The safeguard measure does not apply to imports from Canada, Mexico, Israel, beneficiary
countries under the Caribbean Basin Economic Recovery Act or the Andean Trade Preference Act, ordeveloping countries described in the US notification under SG Article 9, footnote 2.
13
III. FINDINGS REQUESTED BY THE PARTIES
A. AUSTRALIA
3.1 In its first submission, Australia claims:
(1) that the United States acted incons istently with GATT Article XIX and the
Safeguards Agreement because the USITC Report failed to discuss and demonstrate that
increased imports of lamb meat were threatening to cause serious injury to the "domesticindustry" ". . . as a result of unforeseen developments and of the effect of the obligations
                                                     
10 Proclamation 7208 of 7 July 1999, "To facilitate positive adjustment to competition from imports of
lamb meat".(Exh. US-2.)
11 G/SG/N/10/USA/3 (Exh. US-6).
12 G/SG/N/10/USA/3/Suppl.1 (Exh. US-7).
13 G/SG/N/11/USA and G/SG/N/11/USA/3/Suppl. 1 (Exh. US-6 and –7).WT/DS177/R
WT/DS178/RPage 4
incurred by a Member under this Agreement, including tariff concessions . . . "14  as required
by GATT Article XIX:1;
(2) that the United States acted inconsistently with the requirements of SG Article 5.1 for
a determination that the measure is applied only to the extent "necessary to prevent or remedyserious injury and to facilitate adjustment"; 
(3) that the United States acted inconsistently  with SG Article 3.1 by failing to publish a
report justifying the measure imposed;
(4) that to the extent the United States carried out any investigation subsequent to the
report of the USITC, it was in breach of the requirements of SG Article 3.1 and SG
Article 12.2 and 12.6;
(5) that the USITC's determination of threat of serious injury being caused to the
domestic industry was inconsistent with the provisions of SG Article 4 in a number of
respects, principally that the USITC's determination of the relevant "domestic industry" was
inconsistent with the provisions of SG Article 4.1(c) through the inclusion of enterprises that
do not produce the like or directly competitive products, and that the United States did not
demonstrate that increased imports were threatening to cause serious injury to the "domestic
industry", in particular because
• the data were inadequate and did not support the determination as required under SG
Article 4.2;
• the USITC did not meet the requirements of SG Article 4.1(b) that for a finding of threat
of serious injury the serious injury must be imminent and "[a] determination of theexistence of a threat of serious injury shall be based on facts and not merely on allegation,
conjecture or remote possibility;
• the determination of threat of serious injury, by attributing to increased imports injury
caused by other factors, was contrary to SG Article 4.2(b);  and
• the USITC failed to consider all the factors in SG Article 4.2(a);
(6) that the United States acted inconsistently with its obligations under SG Article 8.1
and SG Article 12.3, which require a Member to endeavour to maintain a substantially
equivalent level of concessions and other obligations and to enter into consultations in good
faith to achieve that objective;
(7) that the United States acted inconsistently  with SG Article 2.2 to apply the measure to
all imports irrespective of source.  In particular, no WTO justification was given for the
inclusion of Canada, Mexico, Israel and be neficiary countries under CBERA and ATPA in
the injury investigation but their exclusion from the measure, which also was inconsistent
with SG Article 4;
(8) that the United States breached its obligations under SG Article 11.1(a) because the
measure was not emergency action and did not conform to the provisions of GATT Article
XIX and other provisions of the Safeguards Agreement;
                                                     
14 GATT 1994 Article XIX:1WT/DS177/R
WT/DS178/R
Page 5
(9) that since the United States acted incons istently with the other provisions of the
Safeguards Agreement, in particular SG Article 4, it also is in breach of SG Article 2.1; and
(10) that the United States is in breach of GATT Article II, since the measure is
inconsistent with the United States' tariff bindings on lamb meat.
According to Australia, these errors cannot be cure d, and the United States can bring the measure into
conformity with the Safeguards Agreement and GA TT 1994 by revoking the measure without delay.
3.2 Australia requests that the Panel therefore:
(a) find that the measure is inconsistent with the Safeguards Agreement and GATT 1994 
and that the US has acted inconsistently with its obligations under the Safeguards
Agreement and under GATT 1994;
(b) find that therefore the US is in violation of its obligations under the Safeguards
Agreement and GATT 1994;  and
(c) recommend that the US bring the measure into conformity with the Safeguards
Agreement and GATT 1994.
B. NEW ZEALAND
3.3 In its first submission, New Zealand requests the Panel to find that:
(a) The United States measure is not a response to "unforeseen developments" within the
meaning of GATT Article XIX and thus does not comply with SG Article 2.1 and SG
Article 11.
(b) The United States has failed to demonstrate that its "domestic industry that produces
like or directly competitive products" has been threatened by "serious injury" as
required by SG Article 2.1.
(c) The United States has failed to demonstrate that any threat of serious injury to its
domestic industry has been caused by increased imports as required by SG Article 2.1
(d) The United States has applied a safeguards measure that is neither necessary to
prevent serious injury nor necessary to facilitate adjustment, contrary to SG
Article 5.1 , and has failed to publish its findings and reasoned conclusions on the
necessity of its measure as required by SG Article 3.1 .
(e) The United States has failed to apply a safeguard measure to all imports irrespective
of source as required by SG Article 2.2 and GATT Article I .
(f) The United States has applied a safeguard measure that places it in violation of its
obligations under GATT Article II.
3.4 Accordingly, New Zealand requests the Panel to recommend that the United States bring its
treatment of imports of lamb meat from New Zealand into conformity with its obligations under the
Safeguards Agreement and GATT 1994.WT/DS177/R
WT/DS178/RPage 6
C. UNITED STATES
3.5 The United States requests the Panel to reject Australia's and New Zealand's claims.
IV. ARGUMENTS OF THE PARTIES
4.1 With the agreement of the parties, the Panel has decided that in lieu of the traditional
descriptive part of the Panel report setting forth the arguments of the parties, the parties' submissionswill be annexed in full to the Panel's report.  Accordingly, the parties' written submissions concerning
the requests for preliminary rulings by the Panel, the parties' first and second written submissions and
oral statements, along with their written answers to questions, are attached at Annex 1 (Australia),
Annex 2 (New Zealand), and Annex 3  (United States).  The written submissions, oral statements and
answers to questions of the third parties are attached at Annex 4 .  The full texts of Australia's and
New Zealand's ("the complainants'") requests for the establishment of a panel also are attached
respectively at Annex 5 .
V. PRELIMINARY ISSUES
A. 
PARTIES ' REQUESTS FOR PRELIMINARY RULINGS BY THE PANEL
1. Australia
5.1 In its first submission, Australia requests that the Panel request the United States to produce
the following information for revi ew by the Panel and Australia:15
(a) all confidential information in the USITC Report on which its determination and
recommendation were based; and
(b) all information, including details of any deliberations and analysis, and documents
taken into account by the US Administration or the US President in the course of thetaking a decision to apply the measure in dispute.
5.2 In Australia's view, this information is rele vant to the Panel's responsibility to make an
objective assessment of the matter before it under DSU Article 11.
16
2. New Zealand
5.3 In its first submission, New Zealand addresses the problem of the use of confidential
information, but does not request a preliminary ruling.17  New Zealand argues that once the
complainants have established a prima facie  case, the United States has to demonstrate that the
safeguard determination and the measure actually imposed are based on reasoned conclusions to
which the Panel must have access.
                                                     
15 Australia's first submission, Annex 1-1, at paragraphs 15ff.
16 Article 11 of the DSU:  "… Accordingly, a panel should make an objective assessment of the matter
before it, including an objective assessment of the facts of the case and the applicability of and conformity withthe relevant covered agreements, and make such other findings as will assist the DSB in making therecommendations or in giving the rulings pr ovided for in the covered agreements. …"
17 New Zealand's first submission, Annex 2-1, at paragraphs 7.22ff.WT/DS177/R
WT/DS178/R
Page 7
3. The United States
5.4 In a letter, dated 5 May 2000, the United States requests preliminary rulings on the following
issues:  (a) alleged insufficiency of the panel requests;  (b) exclusion of the US [Safeguards] Statute
from the Panel's terms of reference;  (c) protec tion of Business Confidential Information (BCI).
B. ALLEGED INSUFFICIENCY OF PANEL REQUEST
1. Initial arguments of the parties
5.5 The United States submits that the claims referred to by Australia and New Zealand in their
respective requests for the establishment of a panel are insufficient to satisfy the requirements of DSU
Article 6.2 .  The United States alleges in particular:
"Every legal provision cited in both Australia's and New Zealand's panel requests
contains multiple obligations, yet neither request identifies the specific obligations at
issue.  Neither the listing of articles nor any other material in the panel requests
clarifies which of the multiple obligations potentially at issue is actually implicated.18
…The United States does not assert substantial prejudice … with respect to the claims… under Articles I, II and XIX of GATT 1994 and Articles 5, 11 and 12 of the
[Safeguards] Agreement, as it was possible for us to discern those sub-provisions that
would be implicated on the basis of the context of this proceeding.  However, the
mere listing of Articles 2, 3 and 4 of the [Safeguards] Agreement, without any
elucidation of the actual claims at issue, fails to meet the standards 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.
19 …
… 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 (1) [the definition of] threat of serious injury as that term is defined in
Article 4.1(b);  (2) domestic industry [producing like or directly competitive
products] as that term is defined in Article 4.1(c);  (3) any or all of the economicfactors to be evaluated that are set out in Article 4.2(a);  (4) causation (Article 4.2(b));
or (5) the published analysis of the case required by Article 4.2(c)".
20
Because of the inadequacy of the panel requests, it was not until Australia and NewZealand filed their first written submissions that the United States was able to know
their actual legal claims.
21
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 U.S. 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 ofthe United States to begin the task of preparing its defense.  The dispute resolution
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
                                                     
18 US request for preliminary rulings, 5 May 2000, Annex 3-1, at paragraph 5.
19 Id. at paragraph 6.
20 Id. at paragraph 7.
21 Id. at paragraph 8.WT/DS177/R
WT/DS178/RPage 8
the fairness of the entire process.  It effectively stacks the deck against the responding
party."22
5.6 On this basis, the United States seeks a pre liminary ruling from the Panel that dismisses this
proceeding in its entirety because, lacking a legal basis in valid panel requests, the proceeding cannotgo forward.  In the alternative, the United States requests a preliminary ruling that the claims made by
Australia and New Zealand under SG Articles 2, 3 and 4 fail to comply with DSU Article 6.2 and thus
lack a legal basis and cannot be considered in a proceeding based upon the panel requests at issue.
23
The United States argues that Australia and New Zealand could then decide whether to renew theircomplaints on the basis of new legally proper panel requests , or in the alternative, pursuing theircomplaints on the basis of the remaining claims.
5.7 The United States further requests, in the event that the Panel decides to proceed and to
consider the claims under SG Articles 2, 3 and/or 4, an extension of at least two weeks for filing its
first written submission, to enable it to respond to the claims and arguments in the first written
submissions of Australia and New Zealand so as to mitigate in part the prejudice to the United Statesresulting from the inadequate request.
5.8 In letters dated 9 May 2000, New Zealand and Australia ask the Panel to dismiss all the US
requests for preliminary rulings and not to extend the deadline for the first US written submission.
Australia points out, inter alia , that the United States only chose to make these requests two weeks
after receipt of the complainants' first submissions.  Both complainants request the Panel to defer its
consideration of the US requests for preliminary rulings until the first substantive meeting of the Panel
with the parties.
2. Written response and request for comments by the Panel
5.9 In a letter, dated 10 May 2000, the Panel communicated to the parties the following:
"The Panel has taken note of the 5 May 2000 request by the United States for
preliminary rulings and for an extension of the deadline for its first submission, and
the 9 May 2000 letters in response by New Zealand and Australia.
The Panel has also taken note of Australia's request for a preliminary ruling in
paragraph 15 of Australia's first submission of 20 April 2000 and of New Zealand's
statements in paragraphs 7.22ff of New Z ealand's first submission of 20 April 2000.
In accordance with paragraph 13 of the Panel's working procedures, Australia and
New Zealand are invited to submit their views on the request by the United States for
preliminary rulings in written form by Wednesday, 17 May 2000.  Also in accordance
with that paragraph, the United States is invited to submit in its first submission any
further views on the request by Australia.
The parties to this dispute should be prepared to present their views on the substance
of the points raised in the communications mentioned above on the first day of the
Panel's first substantive meeting with the parties, i.e., 25 May 2000.
In the meantime, and without prejudice to the Panel's decisions in respect of the
preliminary issues, the Panel has decided to extend the deadline for the filing of the
                                                     
22 Id. at paragraph 9.
23 Id. at paragraph 14.WT/DS177/R
WT/DS178/R
Page 9
first submission by the United States [from Thursday, 11 May 2000] to Monday, 15
May 2000.  For this reason, the deadline for third parties to make their written
submissions also is extended, to Friday, 19 May 2000.  Otherwise, the Panel's
previously-announced timetable remains unchanged."
3. Comments of the parties
5.10 In their written responses of 17 May 2000 and in their oral statements at the first substantive
meeting, Australia and New Zealand request the Panel to dismiss the US requests because their panel
requests  were sufficiently specific to meet the requirements of DSU Article 6.2 and the United States
did not show that it suffered any prejudice in preparing its defence.
5.11 The complainants stress that in Korea – Dairy the Appellate Body ruled that while the
identification of the treaty provisions claimed to have been violated was always necessary , and while
it might  not always be enough  to simply list the articles at issue, it also might suffice in the light of
attendant circumstances and the particular background of each specific case .  That is, the Appellate
Body did not say that the mere listing of those provisions would in all cases not be enough.  In
addition, it was the claims  of the complainant, not detailed arguments  which must be set out with
sufficient clarity.
5.12 The complainants concede that SG Articles 2, 3 and 4 contain multiple  obligations.  But they
emphasise that it would have been redundant for them to specify that they claim US breaches of all
subparagraphs of these provisions, i.e., SG Articl es 2.1, 2.2, 4.1(a), 4.1(b), 4.1(c), 4.2(a), 4.2(b) and
4.2(c).  As to SG Article 3, the complainants argue that their claim obviously refers to the first
paragraph, i.e., the obligation to publish a report setting forth the findings and reasoned conclusions
reached on all pertinent issues of fact and law because the second paragraph deals with the treatmentof confidential information in domestic proceedings.  The complainants conclude that the reference in
their panel requests to SG Articles 2, 3 and 4 in their entirety accords completely with their actual
claims  in this case.  The Appellate Body's interpretation of DSU Article 6.2 did not require them to set
out detailed arguments  in their panel requests.
24
5.13 Australia and New Zealand allege that the United States failed to raise its objections to the
panel requests at the appropriate time, i.e., when the request was filed or discussed in DSB meetings
in October and November 1999, at the organizational meeting of the Panel, or at least briefly after
receipt of the first written submissions by the Compla inants, and instead raised this issue for the first
time only one week before the first US submission was due.  Australia noted that the case should not
be dismissed on the basis of time-wasting, litigation techniques.
5.14 In New Zealand's view, the United States has not offered sufficient " supporting particulars ",
as the Appellate Body put it in the Korea – Dairy dispute, of how it has suffered prejudice  from the
mere listing of articles in the panel request.  Thus the US objections against the panel requests should
be rejected on the same grounds as the Appellate Body had refused to sustain Korea's procedural
objections in the Korea - Dairy case.  The complainants argue that the ability of the United States to
defend itself was not prejudiced given the actual course of the panel proceedings.  Any prejudice
suffered by the United States has been mitigated by  the Panel's decision to extend the deadline for the
first US submission.
                                                     
24 New Zealand also pointed out that the US practice with respect to the level of detail it provides in its
panel requests was similar in the disputes concerning Canada – Measures Affecting the Importation of Milk and
Exportation of Dairy Products (WT/DS103/R and WT/DS103/AB/R, panel and Appellate Body reports adopted
on 27 October 1999, and Mexico – Antidumping Investigation of High Fructose Corn Syrup (HFCS) from the
United States , (WT/DS132/R), panel report adopted on 24 February 2000.WT/DS177/R
WT/DS178/RPage 10
4. Ruling by the Panel
5.15 At the first substantive meeting of the Panel with the parties on 25 May 2000, the Chairman
gave the following preliminary ruling:
"United States' Request for a Ruling on Alleged Insufficiency of the Panel Requests
of Australia and New Zealand
1. The Panel has carefully considered the written submissions, the oral
statements and supplementary comments of the United States, Australia and New
Zealand concerning the alleged insufficiency of the panel requests of Australia and
New Zealand.
2. The Panel has also considered the relevant aspects of the decisions of the
Appellate Body in the Korea – Dairy Safeguards  case and the United States –
Foreign Sales Corporations  case concerning Article 6.2 of the DSU.
3. The Panel has also taken into account all the relevant attendant circumstances
of this case.
4. In the light of the above, the Panel has decided that it is unable to accept the
request which the United States has submitted to it.
5. A more detailed statement of the Panel's decision and reasoning will be
provided to the parties in due course."
5. Reasoning
5.16 We have arrived at this ruling that Australia’s and New Zealand’s respective requests for the
establishment of a panel25 are sufficient on the basis of a number of considerations, as set forth below.
(a) Sufficient specificity of the panel requests
5.17 We turn first to the text of DSU Article 6.2 which states the following:
"The request for the establishment of a panel shall be made in writing.  It shall
indicate whether consultations were held, identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly. …"
We recall that in Korea – Dairy , the Appellate Body separated Article 6.2 into its constituent parts,
i.e., that the request must:
(i) be in writing;(ii) indicate whether consultations were held;(iii) identify the specific measures at issue; and
                                                     
25 The request made by New Zealand is contained in WTO Document WT/DS177/4, dated 15 October
1999 and the request by Australia is contained in WTO Documents WT/DS178/5 and WT/DS178/5/Corr.1,
dated 15 and 29 October 1999.  As noted, these requests are attached at Annex 5.WT/DS177/R
WT/DS178/R
Page 11
(iv) provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly  26  (emphasis added).
5.18 The only disagreement among the parties concerns element (iv), that the request "provide a
brief summary of the legal basis of the complaint sufficient to present the problem clearly", as the
parties concur that elements (i)-(iii) of DSU Article 6.2 are satisfied.   The parties agree that the
requests (i) are in writing; (ii) indicate that consultations were held; and (iii) refer explicitly to the
measures at issue, being "Proclamation 7208" and the "Memorandum of 7 July" that introduce a
"definitive safeguard measure in the form of a tariff-rate quota on imports of lamb meat effective as of22 July 1999".
5.19 Australia’s request for the establishment of a panel reads in pertinent part as follows:
"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."
5.20 New Zealand’s request reads in pertinent part as follows:
"New Zealand considers that this measure is inconsistent with the obligations of the
USA under the following provisions:
Articles 2, 3, 4, 5, 11 and 12 of the Agreement on Safeguards; and Articles I, II andXIX of the GATT 1994."
5.21 We recall that the United States has asserted that  the requests are insufficiently specific in
respect of only three of the identified provisions, namely SG Articles 2, 3 and 4.  Thus, we do not
need to consider the question of the specificity of the requests in respect of the other provisionsidentified by the complaining parties, namely SG Articles 5, 8, 11 and 12 and GATT Articles I, II and
XIX .
5.22 As discussed above, in making its request for a preliminary ruling, the United States relies
heavily on the decision of the Appellate Body in Korea – Dairy including its reference to several
elements of the decision in EC – Bananas .  The United States notes that, as in the Korea – Diary
dispute, the Panel is confronted with a consideration of the sufficiency of a simple listing  of 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.
5.23 We note in particular the finding by the Appellate Body in Korea – Dairy that a listing of the
provisions alleged to be violated is a minimum  prerequisite for the legal basis of a claim to be
presented at all, and that:
"[t]here may be situations where the simple listing of the articles of the agreement or
agreements involved may, in the light of attendant circumstances , suffice to meet the
standard of clarity   in the statement of the legal basis of the complaint.  However,
there may also be situations in which the circumstances are such that the mere listing
                                                     
26 Appellate Body Report on Korea – Definitive Safeguard Measures on Imports of Certain Dairy
Products , (complaint by the European Communities) , adopted on 12 January 2000, (WT/DS98/AB/R),
paragraph 120.WT/DS177/R
WT/DS178/RPage 12
of treaty articles would not satisfy the standard of Article 6.2.  This may be the case,
for instance, where the articles listed establish not one single, distinct obligation, but
rather multiple obligations .  In such a situation, the listing of articles of an agreement,
in and of itself, may fall short of the standard of Article 6.2 ."27 (emphasis added).
5.24 Drawing on this ruling, the United States asserts that the "mere listing of Articles 2, 3 and 4 of
the Agreement … has substantially prejudiced the United States by compromising its ability to
respond to the claims of the complaining parties".28   That is, the United States argues that it was
unclear whether Australia and/or New Zealand were stating a claim with respect to the definition of
threat of serious injury under SG Article 4.1(b); the domestic industry producing like or directlycompetitive products as defined in SG Article 4.1(c); any or all of the economic factors to be
evaluated that are set out in SG Article 4.2(a); causation (SG Article 4.2(b)); or the published analysis
of the case required by SG Article 4.2(c).
29
5.25 The United States continues that due to this inadequacy, it was not until Australia and New
Zealand filed their first submissions that the United States was able to know their actual legal claims30
and this therefore "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".31  The United States also submits
that "neither the listing of articles nor any other material in the panel requests clarifies which of the
multiple obligations potentially at issue is actually implicated" and that as a result, "these requests are
insufficient under [DSU] Article 6.2".32
5.26 In this context, the United States notes that in Korea – Dairy , the Appellate Body expressly
dealt with an appeal by Korea regarding lack of specificity in a request for a panel based upon allegedviolations of provisions almost identical to thos e at issue here, i.e., SG Articles 2, 4, 5 and 12 and
GATT Article XIX.
5.27 We note that the Appellate Body identified these provisions as an example of a situation in
which the mere listing of articles, in and of itself, may fall short of the standard of DSU Article 6.2
(which seems to imply that it may suffice in other situations).  The Appellate Body’s explanation was
that the paragraphs and subparagraphs of the articles at issue involve not only one single obligation,
but rather multiple  obligations in a "complex multi-phased process [in which] every phase must meet
with certain legal requirements and comply with the legal standards set out in the agreement".
33
5.28 Turning to the deficiencies of the panel requests alleged by the United States in this case, it is
our view that given the nature and scope of the claims by New Zealand and Australia under SGArticles 2, 3 and 4 , the requests for a panel are sufficient in themselves to provide the requisite clarity
and notice to the United States in respect of those claims, as required by DSU Article 6.2.
5.29 As noted, a major element of the United States’ argument is that Australia’s and New
Zealand’s requests raise nearly identical provisions of the Safeguards Agreement and in a nearly-
identical manner, to the request for establishment of the panel in Korea – Dairy , and that Korea's
appeal on this issue failed in Korea - Dairy only  because in asserting that it had sustained prejudice, it
did not offer any "supporting particulars" in its written or oral submissions.  Thus, we understand the
                                                     
27 Id. at paragraph 124.
28 US request for preliminary ruling, Annex 3-1, at paragraph 6.
29 Id. at paragraph 7.
30 Id. at paragraph 8.
31 Id. at paragraph 9.
32 Id. at paragraph 5.
33 Appellate Body Report on Korea – Dairy , paragraph 129.WT/DS177/R
WT/DS178/R
Page 13
United States to argue that the requests for establishment in this dispute are essentially identical to
that in Korea – Dairy , which in the US view must compel us to turn immediately to the question of
prejudice, and "supporting particulars" in respect thereof.
5.30 A careful comparison of the situation in Korea – Dairy  with the situation before us, however,
reveals that the two can be readily distinguished on the basis of the scope of the respective claimsunder the articles in question.  We note in particular that in Korea – Dairy , while the EC’s panel
request listed SG Articles 2 and 4 ( inter alia ) without elaboration, in its first submission the EC
pursued only claims under paragraph 1 of SG Article 2 and under subparagraphs (a) and (b) of SG
Article 4.2 .  In contrast, in the case at hand, while Australia and New Zealand, like the EC in Korea -
Dairy , simply listed SG Articles 2, 3 and 4 in their panel requests, in their first submissions they
raised claims under effectively all of the subparagraphs thereof, i.e., SG Article 2.1, 2.2, 3.1, 4.1(a),
4.1(b), 4.1(c), 4.2(a), 4.2(b) and 4.2.(c)
34.  Thus, as New Zealand and Australia point out, it would
have made little difference for the United States if they had listed all paragraphs and subparagraphs of
SG Articles 2, 3 and 4, given that their claims and argumentation concerned essentially all of them.
5.31 In our view, the fact that the scope of the claims raised by Australia and New Zealand under
SG Articles 2, 3 and 4 effectively cover those articles in their entirety, supports the conclusion that the
requests by Australia and New Zealand for the establishment of this Panel are sufficiently specific to
meet the requirements of DSU Article 6.2.  Bu t as pointed out by the Appellate Body in Korea –
Diary , in assessing whether the simple listing of articles in a panel request ensures sufficient clarity,
the attendant circumstances of the particular case and the question whether the respondent suffered
prejudice in the actual course of the proceedings, ma y also be relevant.  In the following sections, we
first address a number of attendant circumstances that confirm our above consideration, and second,we discuss whether the "supporting particulars" set forth by the United States would persuade us of
the US argument that its ability to defend itself in this dispute had been prejudiced.
(b) Attendant circumstances
5.32 In our view, the attendant circumstances surrounding the panel requests confirm our above
consideration that the panel requests were sufficient in this case.  In particular, we find relevant in thisrespect the discussions in the Committee on Safeguards of the US investigation on lamb meat, the
consultations that were held concerning the investigation and measure, the DSB's consideration of the
requests for a panel and the establishment of the Panel, and the timing of the US request for a
preliminary ruling under DSU Article 6.2.
Discussion in the Committee on Safeguards5.33 Australia and New Zealand point out that the United States was on notice of their main
concerns about the lamb safeguard investigation at issue even before the safeguard measure was
finally imposed.  In particular, at the meeting of the Safeguards Committee on 23 April 1999, the
complainants expressed concerns relating to, inter alia , the determination of threat of serious injury,
the broad definition of the domestic industry, the causation standard applied by the USITC,
35 and the
                                                     
34 We note in particular that the claims raised by Australia and New Zealand cover both subparagraphs
of SG Article 2.1, and all of the relevant subparagraphs of SG Article 4.  As to SG Article 3.2, the only
subparagraph of the listed Articles that is not the subject of a claim, its lack of relevance to this dispute would beclear to the United States, as that provision concerns the treatment of confidential information during the course
of a safeguard investigation, and thus any issue in respect of that provision would arise during the investigationat the national level.
35 We also note that the issue of the "substantial cause" standard provided for in the US safeguards law
was already raised in discussions of the WTO Committee on Safeguards in the course of the general reviewWT/DS177/R
WT/DS178/RPage 14
treatment of factors other than increased imports in the causation analysis.36  These concerns, which
were raised with the United States in the Safeguards Committee before the measure was imposed and
before the initiation of a formal dispute settlement proceeding, largely coincide with the complainants'
allegations made in this case. It is more pertinent to consider whether consultations held between the
parties prior to the establishment of the Panel clarified the claims, the measures and the legal basis ofthe complaint, so as to satisfy specificity requirements under the DSU.
Consultations
5.34 We would note as further pertinent attendant circumstances the two different types of
consultations that were held between the complainants and the United States before the panel requests
were filed.  In the following, we address in turn consultations pursuant to SG Article 12.3, and those
pursuant to DSU Article 4 .
5.35 Consultations under Article 12.3 of the Safeguards Agreement :  This provision requires that
consultations be held before a safeguard measure is applied.  The United States held consultations
under SG Article 12.3 with New Zealand on 28 April 1999, and with Australia on 4 May 1999.  The
complainants state that on 14 July 1999 they submitted written lists of questions in connection withthose consultations, which they have provided to the Panel as exhibits to certain submissions.
37  New
Zealand's questions related to the requirements of SG Article 2.1, the definition of the domestic
industry in accordance with SG Article 4.1(c) and the US "substantial cause" test and the non-
attribution of "other factors" under SG Article 4.2(b ).  Australia's questions also covered the broad
definition of the domestic industry, "significant overall impairment" within the meaning of SG
Article 4.1(a), and the evaluation of factors listed in SG Article 4.2(a) to determine threat of serious
injury, along with alleged violations of notification and publication requirements.  These questions,like the discussion in the Committee on Safeguards, largely coincide with the main elements of the
complainants' claims.
5.36 Consultations under Article 4 of the DSU :  At consultations held between the parties on 26-
27 August 1999 pursuant to DSU Article 4, the complainants submitted further written lists of
questions specifying their concerns regarding the US safeguard measure on lamb meat.
38  N e w
Zealand's list of questions referred to the alleged inconsistency with SG Article 2.2 of the US
exclusion from the safeguard measures of its free trade agreement partners, the United States' alleged
failure to meet transparency requirements under SG Article 3.1 with regard to the actual measure, the
question of the clear imminence of threat of serious injury under SG Article 4.1(b), and the alleged
failure to publish a determination of the relevan ce of the factors examined in accordance with SG
Article 4.2(b).  Australia's questions also dealt with different aspects of SG Articles 2, 3 and 4, e.g.,
the industry definition as well as notification and publication requirements.
5.37 We note that the questions contained in the above lists are quite detailed and thus provide
considerable insight into complainants' allegations concerning specific obligations under specific
paragraphs and subparagraphs of SG Articles 2, 3 and 4.
                                                                                                                                                                    
process of the national legislation of the United States in 1995 and 1996. ( See questions in G/SG/W/39 and US
replies to questions by Australia concerning the noti fication provided by the United States of laws and
regulations under SG Article 12.6 , G/SG/W/160.)
36 See Minutes of the Meeting of the WTO Committee on Safeguards on 23 April 1999, paragraph 60
of G/SG/M/13.
37 Exhs. NZ-11, AUS-25 and AUS-35 .
38 Exhs. NZ-12, AUS-27 and AUS-36.WT/DS177/R
WT/DS178/R
Page 15
5.38 Concerning the notice functions of consultation and panel requests for potential third parties,
we recall that Canada attended consultations under DSU Article 4 because of its substantial interest in
the treatment of US-FTA partners under US safeguards legislation.  We also note that four Members
reserved their third party rights in this dispute, and the complainants' argument that this should be
taken as proof of the fact that the panel requests served their function of giving notice to otherMembers.
39
5.39 The United States has not expressly contested (nor confirmed) the authenticity of the lists of
questions that the complainants claim to have submitted during the consultations under SG
Article 12.3 and DSU Article 4.  The United States does, however, seriously question the
admissibility and the relevance to panel proceedin gs of information from bilateral, confidential
consultations – for which usually no neutral witnesses or written records exist – when ascertaining
whether the specificity requirements stipulated by DSU Article 6.2 for panel requests  are met.
5.40 We are conscious of the US argument that reliance in contentious panel proceedings on
information from consultations could jeopardise their very purpose.  Consultations are held with the
intention of reaching a mutually agreed solution to a dispute.  This purpose is not served if, inlitigation before a panel, parties hold against one another concessions they have made or compromises
they have achieved in the context of consultations.  But we do not consider that the very purpose of
consultations could be defeated if we were merely to take note of documentary evidence concerning
the purely factual question of whether certain issues were raised during consultations.  This is
different from relying on arguments about the substance or the WTO-consistency of views expressed
by parties during consultations.  We believe that our approach is compatible with the requirement of
DSU Article 6.2 that a panel request must indicate "whether consultations were held."  In any event,such concerns are probably less pertinent to consul tations held pursuant to SG Article 12.3 than to
consultations held pursuant to DSU Article 4 , given the requirement in SG Article 12.5 that the
results of the Article 12.3 consultations be notified to the Council for Trade in Goods (implying
circulation thereof to all Members).
Establishment of the Panel by the DSB5.41 We recall that the requests for the establishment of the panel which are the subject of these
preliminary objections
40 were submitted on 14 October 1999 and circulated to Members on 15
October 1999.  The panel requests were discussed at the DSB meetings of 27 October and 3
November 1999.  At its meeting on 19 November 1999, the DSB established a single panel pursuant
to DSU Article 9 .
5.42 At the aforementioned DSB meetings, the complainants referred, inter alia , to the alleged US
breach of the non-discrimination obligation of SG Ar ticle 2.2 due to the exclusion of US FTA-partner
countries from the imposition of the safeguard measure at issue.41  We also note (see below) that
according to the minutes of these DSB meetings, neith er the United States nor any (potential) third
party to this dispute raised any concerns about alleged insufficiencies of the complainants’ panelrequests in the light of the requirements of DSU Article 6.2 .
42
                                                     
39 Appellate Body Report on Brazil – Measures Affecting Desiccated Coconut , (WT/DS22/AB/R),
adopted on 20 March 1997, p. 22.
40 WT/DS177/4 and WT/DS178/5 and Corr.1 (attached at Annex 5).
41 Minutes of DSB meetings, WT/DSB/M/70, dated 15 December 1999, p. 8 and WT/DSB/M/71, dated
11 January 2000, p. 14.
42 We recognize that there is, of course, no requirement under the DSU that allegations concerning the
sufficiency of a panel request be brought to the attention of the DSB and other parties before  or at the DSBWT/DS177/R
WT/DS178/RPage 16
Timing of the US request for preliminary ruling concerning the specificity of the panel requests
5.43 As a final attendant circumstance that in our view would support the conclusion that the panel
requests were sufficiently specific, we note that these requests were dated 14 October 1999, and thus
presumably any lack of specificity therein would have been apparent to the United States as of that
time.  In particular, it was clear at that point that consultations had failed to achieve a satisfactoryresolution, and thus that the United States was likely be required to refute claims in the course of
formal panel proceedings.  We agree with the United States that, according to paragraph 13 of the
panel working procedures,
43 parties may request preliminary rulings on any issue until the first
substantive meeting or even later upon a showing of good cause.  But we also note that this paragraph
does not preclude the raising of procedural objections against allegedly insufficient panel requests atan earlier point in time.  On the contrary, one migh t expect that requests for preliminary rulings of a
very important nature which could lead to the dismissal of an entire case would be raised soon after
the filing of an allegedly insufficient panel request.
5.44 In this respect, we consider it appropriate to recall the Appellate Body's statements in United
States – Tax Treatment for Foreign Sa les Corporations ("US – FSC") that :
" responding Members [should] seasonably and promptly bring claimed procedural
deficiencies to the attention of the complaining Member, and to the DSB or the Panel,
so that corrections, if needed, can be made to resolve disputes. "
44 (emphasis added)
5.45 We note that the Appellate Body made the preceding statements in relation to the "statement
of available evidence" as required by SCM Agreement Article 4.2 in the context of a request for
consultation s, not a request for a panel .  But we nevertheless find the above statement of the
Appellate Body to be relevant to our examinati on of "attendant circumstances" in this case in
connection with the procedural issue before us.  In this regard, we find particularly pertinent the
following statement of the Appellate Body in US – FSC:
"a year passed between the submission of the [EC] request for consultations … and
the first mention of the objection by the United States – despite the fact that the
United States had numerous opportunities during that time to raise its objections.  It
seems to us that, by engaging in consultations on three separate occasions, and not
even raising its objections in the two DSB meetings at which the request for
establishment of a panel was on the agenda, the United States acted as if it had
accepted the establishment of the panel in this dispute, as well as the consultationspreceding such establishment."
45 (emphasis added).
5.46 As in the US – FSC  case, in the case before us there was a lengthy period following the
requests for establishment, during which: (1) the DSB twice considered the requests and the panel was
established at a third DSB meeting, (2) numerous meetings were held concerning the composition of
                                                                                                                                                                    
meeting establishing a panel.  We simply believe that the absence of any objection in the DSB to the specificity
of the panel requests would constitute a further "attendant circumstance" that would be relevant.
43 Paragraph 13:  "A party shall submit any requests for preliminary rulings not later than in its first
submission to the Panel.  If the complaining party requests such a ruling, the respondent shall submit its
response to the request in its first submission.  If the respondent requests such a  ruling, the complaining party
shall submit its response to the request prior to the first substantive meeting of the Panel, at a time to bedetermined by the Panel in light of the request.  Exceptions to this procedure will be granted upon a showing ofgood cause."
44 WT/DS108/AB/R, paragraph 166.
45 Id. at paragraph 165.WT/DS177/R
WT/DS178/R
Page 17
the Panel, and (3) once the Panel was composed (on 21 March 2000) an organizational meeting was
held with the Panel concerning the procedures that  would be followed.  On none of those occasions
did the United States mention its procedural objections against the panel requests.  In fact, it was only
on 5 May 2000, i.e., fifteen days after it received the complainants' first submissions and five days
before the date when its first submission was due, that the United States for the first time  made
known  its procedural objection in respect of the requests for establishment.
5.47 We recognize that at none of the various meetings held prior to that time could any of the
bodies or individuals involved have been expected to resolve  any procedural objections.  This is so
because in dispute settlement practice the DSB has proven ill-suited to rule on preliminary issues and
there is no instance to substitute for the DSB in taking such decisions before a panel is in factcomposed.  The practical difficulties with obtaining a decision  on such procedural issues would not,
however, prevent a respondent party from making its procedural objections known  to the
complainants on those occasions.
(c) Prejudice to due process rights
5.48 Next we discuss whether the "supporting particulars" set forth by the United States would
persuade us of the argument that its ability to defend itself in this dispute had been prejudiced.  As set
out below, it is our view that the United States has not submitted sufficient "supporting particulars" to
demonstrate that it has suffered any such prejudice in preparing its defence in this case.  This confirms
our above consideration that the panel requests in this case were sufficiently specific to ensure that the
due process rights of all parties have been respected in this dispute.
5.49 We recall that the US allegation of prejudice is that the alleged lack of specificity of the panel
requests placed it in the position, before the complainants' first submissions were filed, of merelyguessing which of the obligations of the articles at issue were the subject of claims.  According to the
United States, this severely limited its ability to begin preparing its defense, in particular because it
had only three weeks in which to submit its own first submission following the receipt of the
complainants' submissions.  Concerning the time available for preparing its first submission, the
United States also complains that at the organizational meeting the complainants were given anadditional six days to prepare their first submissions than had initially been proposed by the Panel,
while the United States received only one additional day.
5.50 Concerning the time available, we note in the first instance that at the organizational meeting,
the parties all requested additional time for preparin g their first submissions, beyond that set forth in
the draft timetable that we proposed, and agreed that any such additional time be essentially evenlysplit between the complainants on the one hand and the United States on the other hand.
46  Moreover,
as mentioned above, in response to the US reque st in its request for preliminary rulings for an
extension of time to file its first submission, we decided to extend the due date for that submission
from 11 May to 15 May 2000.  We invited the complainants to respond to the US allegations by 17
                                                     
46 Our initial proposal was that the complainants' first submissions be due on 13 April 2000, that the
United States' first submission be due on 4 May 2000, and that the third party submissions be due on 11 May
2000.  At the organizational meeting, New Zealand proposed that the complainants' submissions be due on 20
April, that the United States' submission be due on 11 May and that the third party submissions be due on 18May.  The United States proposed in response that the complainants' first submissions be due on 18 April, thatthe Unites States' first submission be due on 11 May, and that the third party submissions be due on 18 May.During the course of the discussion, the parties accepte d the following dates, which we incorporated into the
timetable, for filing their first submissions:  complainants' first submissions to be due on 19 April, United States'
first submission to be due on 11 May, and third party submissions to be due on 18 May.WT/DS177/R
WT/DS178/RPage 18
May 2000, and we reserved a separate session of the first substantive meeting to hear the parties'
arguments on the preliminary issues raised.
5.51 We further note that the US first written submission and its oral statement at the first
substantive meeting contain detailed and comprehensive arguments  rebutting the complainants'
arguments  on all claims related to paragraphs and subparagraphs of SG Articles 2, 3 and 4 .  In
particular, these submissions rebut in detail the arguments made by the complainants in their first
submissions concerning the issues listed in th e US request for preliminary rulings of 5 May 2000,47
i.e., (1) the concept of threat of serious injury as that term is defined in SG Article 4.1(b); (2) the
definition of the domestic industry producing like or directly competitive products set out in SG
Article 4.1(c); (3) any or all of the economic factors to be evaluated according to SG Article 4.2(a);(4) causation within the meaning of SG Article 4.2(b); and (5) the published analysis of the case
required by SG Article 4.2(c).  In this context,  we recall the Appellate Body's statements in EC –
Bananas III  and Korea – Dairy  that "Article 6.2 of the DSU requires that the claims , and not the
arguments , must all be specified sufficiently in the request for the establishment of a panel".
48  Thus
the complainants were not required under the DSU to develop their factual and legal arguments  on all
these issues before filing their first submissions to the panel.
5.52 After the first substantive meeting with parties, we posed a significant number of detailed
questions pertaining to the claims before us.  To a llow the parties to take into account in their rebuttal
submissions one another's written answers to these questions, we extended the deadline for the
rebuttal submissions.  In its answers to questions and in its rebuttal submission, the United States
again provided very detailed and comprehensive arguments on the claims before us.
5.53 In light of the foregoing, therefore, we do not believe that the United States has submitted
sufficient "supporting particulars" to persuade us of its assertion that it has been prejudiced in its
ability to defend itself in the actual course of the proceedings in this dispute.  As noted above, as a
matter of fact, the US submissions have been very thorough and detailed.  In addition, by extending
the deadlines for both the first submission of the United States and all parties' rebuttal submissions,
we have ensured that during the course of these proceedings the due process rights of all parties havebeen fully respected.  Our conclusion that the United States has not submitted sufficient supporting
particulars to establish that it suffered prejudice in its ability to defend itself in the actual course of
this proceeding confirms our above consideration that the panel requests in this case were sufficiently
specific to meet the requirements of DSU Article 6.2.
C. R
EQUEST FOR THE EXCLUSION OF THE US S TATUTE FROM THE PANEL 'S TERMS OF REFERENCE
1. Arguments of the parties
5.54 In its letter dated 5 May 2000, the United States notes that in their respective panel requests,
neither Australia nor New Zealand raises the claim that the US safeguards statute, on its face, is
inconsistent with US obligations under the Safeguards Agreement.  However, in the view of the
United States, New Zealand makes that allegation in its first submission.  The United States requeststhe Panel to rule that the US statute is not within its Panel's terms of reference.
5.55 In their submissions of 17 May 2000, New Zeala nd and Australia clarify that they request no
finding by the Panel on the consistency of the US statute with the Safeguards Agreement.  The
                                                     
47 US Request for Preliminary Ruling, Annex 3-1, at paragraph 7.
48 See Appellate Body Report on European Communities – Regime on the Importation, Sale and
Distribution of Bananas (III) , (WT/DS27/AB/R), paragraph 143 and Appellate Body Report on Korea – Dairy ,
paragraphs 123-125.WT/DS177/R
WT/DS178/R
Page 19
complainants specify that their claim is that the United States wrongfully applies a "substantial
cause" test that is not found in the Safeguards Agreement.  It is the application of this test in the
safeguards investigation and determination at issue which the complainants are challenging in this
dispute.
2. Ruling at the first substantive meeting of the Panel with the parties
5.56 At the first substantive meeting of the Panel with  the parties, the Chairman gave the following
ruling on this issue:
"United States' Request for a Ruling on Excl usion of the US Safeguards Statute from
the Panel's Terms of Reference
1. The Panel has given careful consideration to the US request for a preliminary
ruling that the consistency of the US safeguard statute with the Safeguards
Agreement and WTO law is outside the terms of reference of this Panel.
2. The panel agrees with the US that that issue is outside the Panel's terms of
reference.
3. However, the question of "causation" and the more specific question whether
the application in this case of the criterion of "substantial cause" is consistent with the
Safeguards Agreement and WTO law is clearly within this Panel's terms of
reference."
3. Reasoning
5.57 It appears to us that the relevant paragraphs in New Zealand's first written submission allege
that in determining whether a threat of serious injury has been caused  by increased imports, the
United States wrongfully applies a "substantial cause" test, based upon Section 202(b)(1)B of the USTrade Act.  In other words, New Zealand has not claimed , in the portion of the first submission at
issue, that the US Safeguard Statute is on its face inconsistent with WTO law.  Rather, it claims that
the causation test applied by the USITC in the lamb investigation and determination,  pursuant  to that
legislation, is less stringent than and thus inconsistent with the Safeguards Agreement.
5.58 Thus, in our preliminary rulings on 25 May 2000, we ruled that the consistency of the US
safeguards statute with the Safeguards Agreement and WTO law was outside its terms of reference.
However, as we also ruled, the question of "causation", and the more specific question of whether the
application in this case of the criterion of "substantial cause" is consistent with the Safeguards
Agreement, are clearly within our terms of reference.
D. S
UBMISSION AND PROTECTION OF CONFIDENTIAL INFORMATION
1. Arguments of the parties
5.59 In reaction to Australia’s request in its first written submission for the provision of certain
confidential information from the USITC investigat ion, the United States notes in its first written
submission that this information was submitted to the USITC by foreign and domestic producers
under strict assurances of non-disclosure.  In the US view, the private parties concerned would beunlikely to provide their consent to share such information with the Panel and the Complainants
unless adequate procedures for their protection were adopted.WT/DS177/R
WT/DS178/RPage 20
5.60 Australia responded that it was prepared to enter into a "reasonable" undertaking on the
treatment of confidential information.  New Zealand took a similar view.  Australia emphasised that if
the United States was not ready to submit all pertinent information about the investigation and
determination, the Panel should draw negative infe rences within the meaning of the Appellate Body
Report on Canada – Measures Affecting the Export of Civilian Aircraft .49
5.61 At the first substantive meeting of the Panel wi th the parties, the United States stated that
Australia’s request to the Panel for a ruling that the United States produce all confidential business
information was not in truth a request for a preliminary ruling, as it was the Panel’s prerogative to
request parties, in accordance with DSU Article 13, to submit information at any time in the
proceeding.
2. Ruling at the first substantive meeting of the Panel with the parties
5.62 At the first substantive meeting with the parties,  the Chairman of the Panel gave the following
ruling in respect of this issue:
"Australia's Requests Regarding Disclosure of Confidential Information by the US
1. The panel has carefully considered the requests of Australia for preliminary
rulings on the disclosure by the US of confidential information excluded from
the USITC report and information covering the process after the USITC
reported to the President.
2. The Panel does not wish to make such preliminary rulings.
3. Instead, the Panel will consider these issues in the context of particular
requests or questions which the parties or the Panel may wish to submit to the
United States."
3. Reasoning
5.63 In its questions to the parties of 31 May 2000, the Panel requested the United States to submit
certain statistical information which had been redacted from the published version of the USITC's
report on the investigation and determination to protect business confidential information.50
5.64 In its replies to the Panel's questions of 22 June 2000, the United States submitted the
requested information in indexed form, with the first number of each data series assigned a value of100.0 and the ensuing numbers reflecting the percentage change from the starting number.  In their
rebuttal submissions of 29 June 2000, the complainants did not object to that course of action.
5.65 Having carefully reviewed and analyzed the indexed information, we have found that it is
adequate and sufficient for purposes of our review of the USITC's investigation and determination
pursuant to our terms of reference.  As the compla ining parties raise no objection to the US decision
to provide the requested data in indexed form, we consider that Australia's request for information is
moot and does not need to be dealt with further.
                                                     
49 Appellate Body Report on Canada – Measures Affecting th e Export of Civilian Aircraft
(WT/DS70/AB/R), adopted 20 August 1999, paragraphs 181-206.
50 Question 24 by the Panel to the United States (Annex 3-7).WT/DS177/R
WT/DS178/R
Page 21
VI. INTERIM REVIEW
6.1 We submitted our interim report to the parties on 24 October 2000.  On 7 November 2000, the
parties requested review, in accordance with DSU Article 15.3 , of precise aspects of the interim
report.  On 14 November 2000, the parties commented in writing on one anothers' requests for interim
review, in accordance with paragraph 17 of the Working Procedures of this Panel.  In response tothese comments, we have made a number of drafting changes to the report, as summarized in the
sections below.  We also have introduced a number of technical and typographical corrections.
A. A
USTRALIA 'S REQUESTS FOR INTERIM REVIEW
6.2 In response to Australia's interim review request, we have modified our descriptions of
complainants' arguments in paragraph 7.14 and footnote159.
B. NEW ZEALAND 'S REQUESTS FOR INTERIM REVIEW
6.3 New Zealand requests us to review certain as pects of our descriptions of New Zealand's
argumentation as well as of our reasoning.
6.4 Concerning its own arguments, New Zealand first requests that we clarify our description of
its position in respect of a "two-step" causation test under GATT Article XIX.  In particular, NewZealand states that its view is that there must be an indication of some developments that were
unforeseen which led to products being imported in such increased quantities and under such
conditions as to cause or threaten to cause serious injury, and that increased imports must "generally
follow" from unforeseen developments, but need not be "caused" by them.  We have in response to
this comment modified our description of New Zeal and's argument in paragraph 7.14 and footnote 58.
6.5 New Zealand also requests that we clarify that it did not argue that there was no separate
section in the USITC report concerning "unforeseen developments", but rather that the report simplydid not address this issue.  We have modified paragraph 7.25 accordingly.
6.6 New Zealand confirms that it did not contest that imported lamb meat was "like" domestic
lamb meat, but requests that we clarify that it did argue that imported lamb meat is not "like" domestic
live lambs.  We have accordingly modified our description of New Zealand's argument on this point
in paragraphs 7.46 and 7.47, and have inserted footnote 76 citing to the relevant section of NewZealand's first written submission.
6.7 Concerning the complainants' arguments in respect of threat of serious injury, New Zealand
objects to a statement by the Panel, in paragraph 7.137 of the interim report, that there was "no basic
disagreement" among the parties concerning the interp retation of the threat of serious injury standard
in the Agreement on Safeguards.  Accordingly, we have deleted that paragraph of the interim report.
6.8 New Zealand also asks us to clarify in paragraph 7.190 that it does not question the relevance
of any data from the past in a threat analysis, stating that its argument instead is that reliable
assessments of what will happen in the future cannot be made on the basis of an analysis of short-term
conditions.  We have modified paragraph 7.190 accordingly.
6.9 We have made two changes to paragraph 7.200 in response to New Zealand's comments.
First, we have corrected a reference, by removing a characterization of testimony on projected price
increases for 1999 as " ex post ".  Second, New Zealand requests that we modify our description of its
views on the information on underselling in the USITC report.  In this regard, we have added
language to paragraph 7.200 to indicate that New Zealand questions the comparability of some of theWT/DS177/R
WT/DS178/RPage 22
products for which price comparisons were made by the USITC.  We note, however, that at least in an
argument in the alternative, New Zealand does appear to acknowledge that the USITC  found some
underselling.  We have modified footnote 220 to this effect.
6.10 Concerning the discussion of the representativeness of data in paragraphs 7.209 and 7.213,51
New Zealand requests that we change the drafting to make clear that the issue raised by complainants
was not the representativeness of the data on a factor-by-factor basis, but rather in respect of the data
on financial performance, on the one hand, and on the industry's production, capacity and capacity
utilisation, etc., on the other.  We have modified these paragraphs accordingly.
6.11 Regarding the question of causation, New Zealand requests that we clarify its position in
respect of the three-step causation test that we applied, set forth in paragraph 7.232.  In particular,New Zealand recalls that it made arguments in respect of the second step, the USITC's consideration
of conditions of competition, as well as in respect of the third step, the USITC's consideration of
"other factors".  We have modified paragraphs 7.232 and 7.256 to more fully reflect New Zealand's
arguments as to the USITC's consideration of conditions of competition.  We nevertheless continue to
believe that the main focus of the causation arguments in this dispute is in respect of the questions ofthe US "substantial cause" standard and the non-attribution of injury caused by "other factors" to
increased imports, and therefore have inserted a statement to that effect in paragraph 7.232.
6.12 Concerning our reasoning, New Zealand requests that we change our reference to "statistics"
in paragraph 7.42.  New Zealand submits that what is being referred to is not limited to statistics, but
rather concerns more generally the questions of change in the product mix of imports and increases in
the cut size of imported lamb meat.  In respect of the latter, New Zealand argues that the claim that
the cut size of imported lamb meat increased does not withstand close analysis.  We have notmodified paragraph 7.42 because our reasoning already distinguishes between statistics and
statements in the USITC report
52.
C. THE UNITED STATES ' REQUESTS FOR INTERIM REVIEW
6.13 The United States requested us to review certain aspects of our description of the
USargumentation as well as of our reasoning.
6.14 In connection with its request for preliminary rulings, concerning the time available to
prepare its first submission, the United States comments in respect of paragraph 5.50 that at the
Panel's organizational meeting it objected to the complainants' request for additional time and also
requested more time for itself, since it was being asked to respond to two separate submissions in the
time normally available for responding to one.  New Zealand objects to this comment, stating that theUnited States did not make known any disagreement with the Panel's timetable once it was
established.  We have modified paragraph 5.50 and inserted footnote 46 to clarify the parties'
positions at the organizational meeting concerning deadlines for their first submissions.  In particular,
we have inserted text to clarify that both sides proposed that all parties receive additional time, to be
essentially evenly split between complainants and the United States, and accepted a schedule underwhich the complainants received six additional days and the United States seven additional days
beyond the dates that we originally proposed for the preparation of the first submissions.
                                                     
51 The United States also requested a modification of paragraph 7.213.
52 The United States, in its comments on New Zealand's request for interim review, objects to New
Zealand's comment on this issue, stating that the Panel distinguished between statistics and statements in the
USITC report.WT/DS177/R
WT/DS178/R
Page 23
6.15 The United States objects to our statement in paragraph 7.73 that it acknowledged that the
term "producers as a whole  of the like or directly competitive products" has to do at least in part with
the respresentativeness of the data concerning the domestic industry at issue.  New Zealand objects to
the US comment, stating that our characterization accurately reflects the US arguments.  To more
fully reflect the US arguments on this point, we have added, in footnote 108, the full text of the USanswer to our question concerning whether the te rm "producers as a whole…" has to do with the
representativeness of data.
6.16 The United States objects to the Panel's statement in paragraph 7.83 that no data are available
for years other than those covered by the safeguard investigation concerning the percentage of live
lamb production dedicated to the production of lamb meat.  In this connection, the United States citesto a 1995 study by the USITC concerning competitive conditions for domestic and imported lamb
meat, which, according to the United States, was before the USITC in the safeguard investigation and
contains such information.  We have modified paragraph 7.83 and have inserted footnote 122 to
indicate that this study was neither before us in this dispute, nor were the statistics contained therein,
to which the United States refers in its interim review comments, reproduced in the USITC report onthe safeguard investigation.  That report merely cites the title of this study.  We also have noted New
Zealand's responses to the US characterization of the statistics in question, and have as well reiterated
our view that, in any case, economic interdepende nce between producers of input and final products is
not relevant to the industry definition under the Safeguards Agreement.
6.17 Concerning the representativeness of the data relied upon by the USITC, in response to
comments by the parties we have clarified the description in paragraph 7.212 of the information
before us on the coverage of the USITC questionnaire data.  In particular, we note that we do notshare the US view that, from the fact that four out of 16 known breakers responded to the USITC's
questionnaire, it can be presumed that the four respondents account for 25 percent of total production
by breakers.  We also reiterated (as stated in paragraph 7.213) that the five responding packers and
packer/breakers accounted for a sizeable majority, of the lambs slaughtered.
6.18 In response to the US objection to our indication in paragraph 7.242 that the United States –
Wheat Gluten  panel report is part of past GATT/WTO dispute settlement practice, given that it is
currently on appeal, we have modified this reference, to distinguish between this report and other,
previous GATT/WTO panel and Appellate Body reports.
6.19 Concerning our findings on the USITC's analysis of "other factors" in the context of
causation, we have accepted the United States suggestion to expand, in paragraph 7.264, the quotefrom the USITC's determination concerning the termination of payments under the National Wool Act
of 1954, to include passages identified by the United States in its interim review comments as relevant
to understand the USITC's determination in its context.  We also have inserted language to more fully
reflect the US view that the USITC's statement that the effects of termination of Wool Act subsidies
were expected to recede further with each passing month were essentially the same as a finding by theUSITC that the termination made no appreciable contribution to the threat of serious injury.
However, we see no need to modify our reasoning or conclusion on this point.  We remain of the view
that the USITC's determination that the loss of Wool Act payments was a less important cause of the
threat of serious injury than imports of lamb meat is not equivalent to a determination that the
termination of the Wool Act payments would not contribute to any appreciable extent to a likely
worsening of the industry's situation.
6.20 In response to the US comment that we should explain why the failure to develop an effective
marketing programme can be an "other" factor within the scope of SG Article 4.2(b), we have added
the contrary US view in footnote 269.  In that f ootnote we also note, however, that SG Article 4.2(b)WT/DS177/R
WT/DS178/RPage 24
is open-ended as to what sorts of "other factors" might be relevant in a given case, and we clarify that
in keeping with our standard of review, we have assessed the USITC's determination concerning this
factor on its own terms, i.e., as a finding in respec t of a possible "other factor" within the meaning of
SG Article 4.2(b) as identified and investigated by the USITC.  We also see no need to modify our
reasoning or conclusion on this point because we re main of the view that the USITC's determination
that the failure to develop an effective marketing programme was a less important cause of the threat
of serious injury than imports of lamb meat is not equivalent to a determination that this failure to
develop such a programme would not contribute to any appreciable extent to a likely worsening of the
industry's situation.
6.21 Concerning our interim findings in respect of remedy under SG Articles 3 and 5, the
United States in its request for interim review argues that, contrary to our characterization in footnote
267 of the interim report, it did elaborate on the fourth step of its four-part approach for determining
the consistency of a measure with SG Article 5.1, in its response to our question 19.  The
complainants object to this US comment and consider that our description of the US argumentation is
accurate.
6.22 The United States also requests a number of modifications to section VII.F.4 of the interim
report, on the remedy imposed by the US President, generally with a view to clarifying (i) that the
parties agreed that the quota quantities under the USITC plurality recommendation and under the
measure applied by the US President were roughl y equivalent (i.e., when the difference between
carcass weight and meat weight is factored in) and that their disagreement was limited to the trade
restrictiveness of the in-quota and out-of-quota tariff rates, (ii) that the plurality recommendation,
while under US law constituting the recommendation of the USITC, nevertheless is not legallybinding, and (iii) that the United States provided in the course of this panel proceeding certain
explanations regarding why it believes the measure is consistent with SG Article 5.1, although
acknowledging that it did not publish these explanations at the time when the determination was
made.  The complainants in their comments on the US  interim review request argue, in essence, that
the explanations of the measure provided by the United States during the course of the dispute were ex
post justifications which in their view do not meet the requirements of  SG Articles 3 and 5.
6.23 We have considered the parties' comments, and upon reflection have decided that our interim
findings on Article 3 and 5 are not necessary to ensure a positive resolution of this dispute.  Therefore
we have deleted section VII.F of the interim repo rt, and have simply noted, in paragraph 7.280, our
decision to exercise judicial economy for the following reasons.  Given our findings in respect of thedefinition of the domestic industry, threat of serious injury and causation, there is no need for us to
reach the remedy issue.  This was made clear in footnote 271 of the interim report, in which it was
noted that our findings under SG Articles 3.1 and 5.1 in any case were based on the assumption
(arguendo ) that the requirements of the Safeguards Agreement in respect of domestic industry, threat
serious injury and causation had been met.  Therefore, even without making findings under SGArticles 3.1 and 5.1, we believe that the findings that we have made in respect of other claims are
sufficient to resolve this dispute.
VII. SUBSTANTIVE ISSUES
A. S
TANDARD OF REVIEW
7.1 We recall that, to abide by our mandate in examining the claims in this case, we must adhere
to the correct standard of review.  We consider the panel and the Appellate Body findings in the
Argentina – Footwear case particularly relevant for the issue of the appropriate standard of review in
a safeguards dispute .  The panel, in examining the Argentine authorities' finding that there had been,WT/DS177/R
WT/DS178/R
Page 25
along with actual serious injury, a threat thereof,  found that "any determination of threat must be
supported by specific evidence and adequate analysis ".53  On appeal, the Appellate Body found that
the Panel was correct in reviewing the details of the safeguards determination  and that the competent
authorities had to adequately  explain  how the facts supported their determination.  The Appellate
Body stated that:
"with respect to its application  of the standard of review, we do not believe that the
Panel conducted a de novo  review of the evidence, or that it substituted its analysis
and judgement for that of the Argentine authorities.  Rather the Panel examined
whether, as required by Article 4 of the Agreement on Safeguards , the Argentine
authorities had considered all relevant facts and had adequately explained how thefacts supported the determinations that were made.  Indeed, far from departing from
its responsibility, in our view, the Panel was simply fulfilling its responsibility under
Article 11 of the DSU in taking the approach it did.  To determine whether the
safeguard investigation and the resulting safeguard measure applied by Argentina
were consistent with Article 4 of the Agreement on Safeguards , the Panel was
obliged, by the very terms of Article 4, to assess whether the Argentine authorities
had examined all the relevant facts and had provided a reasoned explanation of how
the facts supported their determination."54
7.2 Along these lines, the Panel on Korea  – Dairy  emphasised that its task was to "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."55
7.3 Thus we conclude that the standard of review that applies in safeguard disputes, as set out
above, requires us to refrain from a de novo  review of the evidence reflected in the report published
by the competent national authorities.  Our task is limited to a review of the determination made by
the USITC and to examining whether the published report provides an adequate explanation of how
the facts as a whole support the USITC's threat determination.
B. THE EXISTENCE OF "UNFORESEEN DEVELOPMENTS "
1. General interpretative analysis of Article XIX of GATT 1994
(a) Introduction
7.4 Australia and New Zealand claim that the United States violates GATT Article  XIX because
safeguard measures were imposed although increased imports were not a result of unforeseendevelopments.  Rather, for the complainants, increases in imports were in large part a result of decreased
US production as a consequence of the removal of  subsidies under the Wool Act, which could and
should have been foreseen by the United States.
7.5 The United States contends that (i) the change in the product mix of imports from frozen meat
to fresh/chilled meat and (ii) the increase in the size of imported lamb meat cuts were unforeseendevelopments within the meaning of GATT Article XIX.
                                                     
53 Panel Report on Argentina – Safeguard Measures on Imports of Footwear , (complaint by the
European Communities), adopted on 12 January 2000,  (WT/DS121/R), paragraph 8.285 (emphasis added).
54 Appellate Body Report on Argentina – Footwear , WT/DS121/AB/R, adopted 12 January 2000,
paragraph 121 (underline emphasis added; italic emphasis in original).
55 Panel Report on Korea – Dairy,  paragraph 7.55.WT/DS177/R
WT/DS178/RPage 26
7.6 The complainants allege that there is no mentio n in the published USITC report of a separate
consideration of "unforeseen developments" and that the references to changes in product mix and
increasing cut size are contained in sections of that report dealing with different topics.
7.7 The United States responds that neither GATT Article XIX nor SG Article 3.1 provides for a
specific publication requirement with respect to the examination of the existence of unforeseendevelopments.  For the United States it is thus sufficient to demonstrate the existence of unforeseen
developments upon challenge before a WTO panel provided that the relevant factual circumstances
were considered by competent national authorities at the time of the determination and that such
consideration is discernible from the report published by the USITC.
7.8 GATT Article XIX:1(a) on "Emergency Action on Imports of Particular Products" reads:
"If, as a result of unforeseen developments  and of the effect of the obligations
incurred by a Member under this Agreement, including tariff concessions , any
product is being imported into the territory of that Member in such increased
quantities and under such conditions as to cause or threaten serious injury to domestic
producers in that territory of like or directly competitive products, the Member shallbe free, in respect of such product, and to the extent and for such time as may be
necessary to prevent or remedy such injury, to suspend the obligation in whole or in
part or to withdraw or modify the concession."  (emphasis added).
7.9 This Article thus provides for the criteria of (i) "unforeseen developments" and (ii) the "effect
of obligations incurred by a Member under this Agreement, including tariff concessions" in addition
to the conditions for the imposition of safeguard measures as defined in detail in the WTO SafeguardsAgreement.
(b) Relationship between GATT Article XIX and the Safeguards Agreement
7.10 In the WTO disputes on Argentina – Footwear and Korea – Dairy , the Appellate Body ruled
that the requirements of the WTO Safeguards Agreement and of GATT Article XIX apply on a
cumulative  basis:
"Article 1 states that the purpose of the Agreement on Safeguards  is to establish 'rules
for the application of safeguard measures which shall be understood to mean  those
measures provided for in  Article XIX of GATT 1994'  (emphasis added).  The
ordinary meaning of the language in Article 11.1(a) – 'unless such action conforms
with the provisions of that Article applied in accordance with this Agreement' – isthat any safeguard action must conform with the provisions of Article XIX of the
GATT 1994 as well as  with the provisions of the Agreement on Safeguards . Thus,
any safeguard measure
56 imposed after the entry into force of the WTO Agreement
must comply with the provisions of both the Agreement on Safeguards  and
Article XIX of the GATT 1994."57
7.11 Thus the Appellate Body explicitly rejected the idea that those requirements of GATT
Article XIX which are not reflected in the Safeguards Agreement could have been superseded by the
requirements of the latter and stressed that all of the relevant provisions of the Safeguards Agreement
and GATT Article XIX must be given meaning and effect.
                                                     
56 Original footnote 38:  “With the exception of special safeguard measures taken pursuant to Article 5
of the Agreement on Agriculture  or Article 6 of the Agreement on Textiles and Clothing .
57 Appellate Body Report on Korea – Dairy , paragraph 77.WT/DS177/R
WT/DS178/R
Page 27
7.12 Concerning the criterion "as a result … of the effect of the obligations incurred by a Member
under this Agreement, including tariff concessions", the Appellate Body was of the view that this
phrase simply means that it must be demonstrated, as a matter of fact, that the importing Member has
incurred obligations under the GATT 1994, including relevant tariff concessions on the particular
product in question, i.e., in this case the concessions on lamb meat bound by the United States in itsUruguay Round tariff schedule.  This issue is not in dispute between the parties in this case.
(c) Does GATT Article XIX imply a "two-ste p" or "one-step" causation approach?
7.13 The parties disagree, however, on whether increased imports were the result of unforeseen
developments  and threatened to cause serious injury to the relevant domestic industry.
7.14 In our view, the complainants construe this requirement of GATT Article XIX.1(a) as
implying a "two-step causation approach" in the sense that there need to exist (a) unforeseen
developments that (b) lead to a surge in imports under such conditions as in turn to (c) cause (a threat
of) serious injury
58.
7.15 The United States rejects such a two-step causation approach by contending that the term
"unforeseen developments" in GATT Article XIX is grammatically linked not only to importincreases "in such quantities", but also to "under such conditions".
7.16 We do not find, in the ordinary meaning of GATT Article XIX, a textual basis for what we
see as a "two-step causation approach" implied by the complainants' arguments.  The phrase
concerning "unforeseen developments" in Article XIX:1 is grammatically linked to both "in such
increased quantities" and "under such conditions".  Rather than implying a two-step causation, we
view this structure as meaning that while "unforeseen developments" are distinct from increases in
imports  per se , it may be sufficient for a showing of the existence of this "factual circumstance" that
"unforeseen developments" have caused increased imports to enter "under such conditions" and to
such an extent as to cause serious injury or threat thereof.
59  We note that the Appellate Body also
referred to "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."60
(d) What are "unforeseen developments"?
7.17 The question of "unforeseen developments" under GATT Article XIX was first addressed in
the Report on the  Withdrawal by the United States of a Ta riff Concession under Article XIX of GATT
(1951)61 ("Hatters' Fur ") under GATT 1947, and subsequently in two WTO disputes, i.e., on
Argentina – Footwear and Korea – Dairy .
                                                     
58 We note that New Zealand disagrees with a characterization of its position as "imposing a double
causation test", in particular stating that it does not argue that unforeseen developments must cause increasedimports which in turn cause serious injury or threat thereo f.  Rather, New Zealand states, its argument is that "in
order to comply with the requirement that unforeseen developments be demonstrated, the United States mustindicate some developments that were unforeseen th at led to products being imported in such increased
quantities and under such conditions as to cause or threaten to cause serious injury."  (Second Written
Submission of New Zealand, Annex 2-9, at paragraph 2.12.)
59 We note in this context the Appellate Body's statement that "[t]he principle of in dubio mitius  applies
in interpreting treaties, in deference to the sovereignty of states."  See Appellate Body Reports on EC –
Hormones , at footnote 154 to paragraph 165.
60 Appellate Body Report on Korea – Dairy , at paragraph 84 (emphasis added).
61 GATT/CP/106, Working Party Report adopted on 22 October 1951, GATT/CP.6/SR.19.WT/DS177/R
WT/DS178/RPage 28
7.18 As to the content of the obligation to examin e the existence of "unforeseen developments",
the Appellate Body in Korea – Dairy and Argentina – Footwear referred to this concept as a factual
circumstance  which has to be " demonstrated as a matter of fact ":
"The first clause in Article XIX.1(a) – 'as a result of unforeseen developments and of
the obligations incurred by a Member under the Agreement, including tariffconcessions …' is a dependent clause which, in our view, is linked grammatically to
the verb phrase 'is being imported' in the second clause of that paragraph.  Although
we do not view the first clause of Article XIX.1(a) as establishing independent
conditions  for the application of a safeguard measure, additional to the conditions  set
forth in the second clause of that paragraph, we do believe that the first clausedescribes 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."
62
7.19 The Appellate Body's statement does not eluc idate the difference between an "independent
condition"  and a "factual circumstance" .  In our view, the latter term could be read to imply a lesser
threshold than the former.  In any case, the Appellate Body makes clear, and the parties do not
dispute, that a demonstration of the existence of "unforeseen developments" is a legal requirement.
7.20 We next turn to the questions of what  such "unforeseen developments" could be and how in
practice (and at what time) the Member applying safeguard measures has to demonstrate the existence
of this factual circumstance.
7.21 In Korea – Dairy , the Appellate Body addressed the question of what makes "developments"
"unforeseen":
"the dictionary definition of 'unforeseen', particularly as it relates to the word
'developments,' is synonymous with 'unexpect ed'.  'Unforeseeable', on the other hand,
is defined in the dictionaries as meaning 'unpredictable' or 'incapable of being
foreseen, foretold or anticipated'.  Thus it seems to us that the ordinary meaning of thephrase 'unforeseen developments' requires 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'".  (footnotes omitted).
63
7.22 We find the distinction drawn by  the Appellate Body between unforeseen  and unforeseeable
to be important.  In our view, the former term implies a lesser threshold than the latter one.  That is,
what may be unforeseen, as a matter of fact, within the meaning of unexpected by a particular
individual or entity and in a particular situation, may nonetheless be foreseeable or predictable in the
theoretical sense of capable of being anticipated from a general, scientific perspective.   We believethat a panel's review of a Member's safeguard determination must be specific to the factual
circumstances of the particular case at hand, that is, we must consider what was and was not actually
"foreseen", rather than what might or might not have been theoretically "foreseeable".
7.23 As regards the type of facts or events that may be considered as "unforeseen developments",
we deem relevant the report of the Working Party in Hatters' Fur .  This case concerned a complaint
by Czechoslovakia that the United States, in withdrawing a concession on women’s fur hats and hat
                                                     
62 Appellate Body Report on Argentina – Footwear , at paragraph 92.
63 Appellate Body Report on Korea – Dairy , at paragraph 84.WT/DS177/R
WT/DS178/R
Page 29
bodies, had failed to fulfil the re quirements of GATT Article XIX.  The members of that Working
Party (except the United States) agreed
"that the term 'unforeseen developments' should be interpreted to mean developments
occurring after  the negotiation of the relevant tariff concession which it would not be
reasonable to expect that the negotiators of the country making the concession couldand should have foreseen at the time when the concession was negotiated."
64
The members also agreed "that the fact that hat styles had changed did not constitute an
'unforeseen development' within the meaning of Article XIX”,65 but that the effects of the
special circumstances of this case, and “particularly the  degree to which the change in fashion
affected the competitive situation , could not reasonably be expected to have been foreseen by
the United States authorities in 1947, and that the condition of Article XIX that the increase in
imports must be due to unforeseen developments and to the effect of the tariff concessions
can therefore be considered to have been fulfilled."66  (emphasis added).
7.24 Thus, while the Working Party in Hatters' Fur  did not view fashion changes over time per se
as an "unforeseen development", it nevertheless accepted that the scale of the particular change in
fashion and its duration as well as the degree of its impact on the competitive situation was unforeseen
in that case.  In other words, fashion changes in general are foreseeable ("change is the law of
fashion"67), but the extent of the fashion change in the US market relating to women's fur felt hats
(and hat bodies) was unforeseen .
(e) Does the competent national authority have to reach a reasoned conclusion concerning
the existence of "unforeseen developments"?
7.25 In this dispute, it is a main allegation of New Zealand and Australia that the United States
cannot have possibly complied with the requirements of GATT Article XIX because there is no
explicit consideration of the question of "unforeseen developments" in the report published by the
USITC.
7.26 The United States contends that nothing in GATT Article XIX requires that a consideration of
"unforeseen developments" be published at the time when the determination is made and that the
publication requirements of SG Article 3 do not include an examination of "unforeseen
developments".  The United States argues that a demonstration of the existence of "unforeseen
developments" upon challenge in a dispute settlement proceeding is sufficient.  In this respect, theUnited States points to two factual elements which are reflected in the report which the USITC
published at the time when the determination  was made, i.e., (i) a change in product mix of imports
from frozen to fresh/chilled meat and (ii) an increase in the size of the imported cuts of meat, both of
which increased the similarity of the imported product to the domestic product, and thus, according to
the United States, intensified the competition from the imported products in a way that profoundlychanged the US market.  In the US view, the changes in the product mix and size of imported
products constitute developments which it did not and could not foresee.  Thus it claims to have
demonstrated the existence of unforeseen developments and satisfied the requirements of GATT
Article XIX:1.
                                                     
64 GATT/CP/106, report adopted on 22 October 1951, GATT/CP/.6/SR.19, at paragraph 9.
65 Id., at paragraph 11.
66 Id., at paragraph 12.
67 Id., at paragraph 10.WT/DS177/R
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7.27 We note at the outset that GATT Article XIX implies that the fulfilment of the three main
conditions (which need to be met for the imposition of a safeguard measure to be permitted under the
Agreement) have to be the "result" of, inter alia , "unforeseen developments".  This semantic structure
of GATT Article XIX suggests that a demonstration  of the existence of the circumstance of
"unforeseen developments" must be based on factual evidence which was before the competentauthority at the time  when the investigation was carried out and considered by that authority before
the determination to apply a safeguard measure was made.  The United States, while contesting a
publication requirement, seems to accept that a demonstration of the existence of unforeseen
developments upon challenge in a dispute settlement proceeding has to be based on evidence from the
time when the safeguards determination was made.
7.28 We further note that GATT Article XIX does not contain any explicit publication requirement
with respect to the consideration of "unforeseen developments".  In fact, in terms of provision of
information, GATT Article XIX only requires a Member proposing to apply a safeguard measure to
notify other Members with a substantial interest as exporters of the product concerned of the proposed
measure.  In any case, in our view, it is important to distinguish the lack of a requirement to  publishan explicit consideration/finding on "unforeseen developments" as such from the requirement to
examine information from the record of the safeguard investigation as evidence for the existence of
circumstances that were considered by the competent authorities to constitute "unforeseen
developments".
7.29 Nonetheless we feel that GATT Article XIX's lack of a specific publication requirement
concerning "unforeseen developments" has to be vi ewed in the context of the provisions of the
Safeguards Agreement, including SG Article 3.1, which must be interprete d cumulatively with GATT
Article XIX.  In particular, Article 3.1 requires, inter alia, that:
"... The competent authorities shall publish a report setting forth their findings and
reasoned conclusions reached on all pertinent issues of fact and law ." (emphasis
added).
Thus, the requirement in this provision is phrased in a very broad way.  The competent authorities'
"findings and reasoned conclusions" must be in respect of all pertinent issues of fact and law, not on
some  or selected  issues of fact and law.
68  Given that GATT Article XIX:1 makes clear that the
question of unforeseen developments is intertwined with the basic conditions for the application of a
safeguard measure, we conclude that GATT Article XIX:1 read in the context of SG Article 3.1implies that it must be clear from the published re port that the investigating authorities examined the
existence of unforeseen developments and came to a reasoned conclusion in this regard.
7.30 We note that our interpretation of GATT Article XIX:1, read in context with the Safeguards
Agreement, is consistent with the findings of the Working Party report on Hatters' Fur .  In that case,
the records of the national investigation did not contain a separate finding on the existence of"unforeseen developments".  Nonetheless, the Wo rking Party accepted that the competent authority's
discussion of the degree of the fashion change and its impact on the competitive situation as
discernable from the authority's published determination was sufficient proof that the United States
had considered that change as an unforeseen development.  We note that in Korea - Dairy , the
                                                     
68 We note in this context that no party disputes that the published report needs to contain findings
concerning the main conditions  for the lawful imposition of safeguard measures (i.e., (i) increased imports,
(ii) serious injury or threat thereof,  (iii) causal link between the two) and also concerning other issues (e.g., on
the definition of the relevant like or directly competitive products and the pertinent domestic industry), although
these conditions are not mentioned in express terms in SG Article 3.1.WT/DS177/R
WT/DS178/R
Page 31
Appellate Body agreed with the interpretation of the Hatters' Fur  Working Party of "unforeseen
developments".
7.31 On the basis of the foregoing considerations, we conclude (1) that "two-step" causation is not
required under GATT Article XIX:1, i.e., that "unf oreseen developments" may be unforeseen changes
in the conditions of competition which result in th e increased imports causing or threatening to cause
serious injury; and (2) that GATT Article XIX:1 read in the context of SG Article 3.1 requires the
competent national authority, in its determination, to reach a conclusion demonstrating the existence
of "unforeseen developments" in the sense of GATT Article XIX:1.  In our view, this substantive
requirement of GATT Article XIX:1 could be fulfilled even if the conclusion in question did not use
the precise terminology "unforeseen developments".   Nevertheless, no matter how such a conclusion
is presented in an authority's determination, there needs to be a conclusion that makes clear that
changes that had not been anticipated had taken place in the market, and that these changes had
resulted in a situation in which increased imports were causing or threatening to cause serious injury.
2. Examination of "unforeseen developments" in this case
7.32 In this dispute, the United States advances essentially two factual elements as "unforeseen
developments" as a result of which lamb meat was being imported in such increased quantities and
under such conditions as to threaten to cause serious injury to domestic producers of the like or
directly competitive products: (i) the change in the product mix of imports from frozen lamb meat
toward fresh/chilled lamb meat and (ii) the change in cut size of imported lamb meat.
7.33 In light of our finding, above, that a competent authority should reach a conclusion as to the
existence as a matter of fact of unforeseen developments, we need to examine first whether the
United States has reached such a conclusion in respect of the change in product mix and/or the changein cut size, of imported lamb.  In accordance with our standard of review, we confine our
consideration of this issue to the USITC's determination and report.
 69
7.34 The United States argues that a shift in the product mix of imports from frozen lamb meat to
chilled/fresh lamb meat occurred towards the end of the investigation period, and that this change
increased competition between domestic and imported lamb and constituted an "unforeseendevelopment".  Thus, the United States argues, it could impose the safeguard measure consistent with
the requirements of GATT Article XIX:1 and the Safeguards Agreement.  In the US view, in the
terminology of SG Article 2.1 and GATT Articl e XIX:1, the shift in product mix indicated an
unforeseen change in the "conditions" under which increased imports entered the United States.
7.35 On the substance of the argument, the complainants do not contest that as a factual matter the
product mix of imports shifted from frozen to chilled/fresh lamb meat over time.  Rather, they argue
first, that the increase in imports or the composition of those imports cannot itself be an unforeseen
development because increased imports have to result from unforeseen developments.  As noted
above, we do not find such a two-step causation approach to be required, and thus we do not consider
this issue any further.
7.36 The second line of the complainants' arguments is that the shift in the product mix was not
unforeseen for the United States (i) because it wa s a long-term development that already had started
before the investigation period commenced in 1993 as well as before the relevant tariff concessions
were made in 1994/95, and also (ii) because the share of chilled/fresh meat imports remained a minor
proportion of total imports even in most recent years.
                                                     
69 We note here that the United States has not argued that we should consider any other documents or
evidence in considering this matter, nor ha s it offered any such documents or evidence.WT/DS177/R
WT/DS178/RPage 32
7.37 We thus need to examine whether the USITC demonstrated, as a matter of fact, that the
product-mix of imports constituted a development in the conditions under which the imports entered
the United States that was unforeseen or unexpected by the United States within the meaning of
GATT Article XIX:1.
7.38 From the statistics in the USITC report it appears that imports of fresh/chilled lamb meat were
relatively small in the first part of the investiga tion period.  In particular, the report shows that much
of the increase in imports between 1995-1997 was in fresh and chilled lamb (i.e., 101 per cent
increase c.f. 11 per cent for frozen product), but that frozen lamb still accounted for 65 per cent of
total lamb imports from Australia and new Zealand over the entire period of investigation. Thus we
note that in 1997 and interim-1998, the share of fresh/chilled meat had risen to 35 per cent of totalimports.  In our view, this constitutes a significant proportion of total imports.  Moreover, the
composition of imports shifted rapidly during the latter part of the investigation period, i.e., after the
relevant tariff concessions on lamb meat were made at the end of the Uruguay Round negotiations.
7.39 However, the United States does not identify in the published USITC report any conclusion to
the effect that the shift in product mix was a development that had a profound effect on the US marketfor lamb meat
70 and was unforeseen. In fact, the USITC's determination addresses the product mix
shift in the contexts of "like product" and "conditions of competition" and simply describes in factual
terms that such a change had occurred.  In the "like product" section, the determination states that:
"We find the differences between imported and domestic lamb meat alleged by the
respondents, to the extent that they exist, to be limited.  While most domestic lamb
meat traditionally has been sold as fresh or chilled and imported lamb meat was sold
frozen, imported lamb meat increasingly enters as fresh or chilled.  Thus, domesticand imported lamb are to a large extent sold in the same form.   The majority of
respondents (10 of 16) to the Commission's purchasers' questionnaire reported that
the grades, cuts, and sizes enumerated in the survey were available from both
importer and domestic sources.  ..."
71
7.40 In the section on "conditions of competition", the question of the change in product mix is
also addressed in a purely descriptive manner, and is not characterized as unforeseen or unexpected,
or in any other way, and seems only to address the degree of substitutability of imported and domestic
lamb meat:
"We find that imported and domestic lamb are somewhat substitutable.  Although
respondents argued that imported lamb meat was distinguishable from domestic lamb
meat in size, taste and consistency of quality and supply, the records shows that
imported and domestic products in fact became more similar during the period of
investigation.  Traditionally, virtually all domestic lamb meat sold in the domestic
market was fresh or chilled, and most imported lamb meat was frozen.  However,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.  Moreover, foreign exporters estimate that the major
portion of their 1999 increase will be in fresh and chilled lamb meat."
72
                                                     
70 See, US Answer to Question 1(c) from the Panel (Annex 3-7):  "The shift in the product mix of
imports … deeply affected conditions in the U.S. market".
71 USITC Report, Exh. US-1, at I-11.
72  Id. at I-22-23.WT/DS177/R
WT/DS178/R
Page 33
7.41 Similarly, the second of the factual elements advanced by the United States as an unforeseen
development, that is the increase in the cut size  of imported meat during the investigation period is
addressed in  the section on "conditions of competition" of the USITC report which contains the
statement:
"In addition, there is evidence that imported cuts have become larger in size and more
comparable to domestic cuts."73
7.42 While the above statistics in the USITC report may suggest that the USITC viewed these
changes as unforeseen developments, it is also obvious that the above quoted statements by the
USITC on the degree of similarity and substitutability of domestic and imported products74 do not
constitute a conclusion  that the shift in the product mix or the increase in the cut size constituted an
unanticipated change that created conditions in which increased imports were causing or threatening
to cause serious injury.  In our view therefore it would not normally be possible to conclude from the
above statements that the USITC demonstrated as a matter of fact that the change in product mix or
the increase in cut size, was an "unforeseen development" in the sense of GATT Article XIX:1.
7.43 Therefore it is our view that these USITC statements concerning the change in product mix or
the increase in cut size, on their face, are simple descriptive statements, and cannot be construed as a
conclusion as to the existence of "unforeseen developments" in the sense of GATT Article XIX:1.
(b) Finding on "unforeseen developments"
7.44 In the light of the foregoing, we conclude that the USITC report does not contain a conclusion
that either the change in product mix or the increase in cut size was an "unforeseen development" in
the sense of GATT Article XIX:1.  In view of this, we need not consider whether any such conclusionwas "reasoned" in the sense of SG Article 3.1.
7.45 We therefore find that the United States has failed to demonstrate as a matter of fact the
existence of unforeseen developments as required by Article XIX:1(a) of GATT 1994.
C. D
EFINITION OF THE DOMESTIC INDUSTRY
1. Introduction
7.46 In its safeguard investigation concerning imported lamb meat, the USITC defined the
domestically-produced product that was "like" the imports at issue as lamb meat.  The respondents in
the investigation did not contest that US-produced lamb meat was "like" the imported lamb meat 75,
but did argue that live lambs are not "like" lamb meat.  In assessing the condition of the domestic
industry producing that like product, the USITC in cluded in the industry the growers and feeders of
live lambs on the one hand, and the packers and breakers of lamb meat on the other, because
according to the USITC’s approach, they are all producers  of lamb meat.
                                                     
73 Id.
74 We note that the remedy section of the USITC's report contains two additional references to the shift
in imports toward fresh/chilled lamb meat.  (USITC Report, Exh. US-1, at I-30 and I-31).  Because thesereferences are made in the context of remedy, which the USITC addressed in a separate hearing several weeksafter having reached its injury and causation determination, they are not relevant to our consideration of whetherthe injury/causation determination contains a conclusion as to the existence of unforeseen developments.
75 USITC Report, Exh. US-1, at  I-11.WT/DS177/R
WT/DS178/RPage 34
7.47 Australia and New Zealand claim that because the USITC included producers of raw
materials and inputs – i.e., growers and feeders of live lambs – as producers of lamb meat, the United
States violated SG Article 4.1(c).  In the view of the complainants, Article 4.1(c) requires that only
producers of the like product, and not producers of raw materials and inputs, can be considered to
constitute the domestic industry producing a like product.  Thus, according to the complainants, theindustry producing the like product should have been limited to packers and breakers of lamb meat, as
live lambs are not "like" lamb meat
76.  In the alternative, Australia and New Zealand argue that even if
live lambs had been defined by the USITC as a "directly competitive" product to lamb meat, any such
definition would not have been legally sustainable.  In  this context, they cite past cases, in particular
those under GATT Article III in which the question of directly competitive products has beenaddressed.
77
2. Background
7.48 The US safeguard statute, section 202(c) (6)(A)(i) of the US Trade Act of 197478 defines the
term "domestic industry" in a manner virtually identical to the relevant text of Article 4.1(c) of the
Safeguards Agreement, namely as
"the domestic producers as a whole  of the like or directly competitive  Article or those
producers whose collective production  of the like or directly competitive
Article constitutes a major proportion of the total domestic production of such
article."
7.49 In the lamb meat investigation, the USITC explained its approach in safeguards investigations
in identifying the producers as a whole  of a product under investigation as follows:
"Most … [safeguard] cases involve firms and workers producing a product at the
same stage  of production as the imported article.  However, in some instances firms
and workers at an earlier stage  of processing have accounted for a significant part of
the value of the product and have been either the primary proponent or a strong
supporter of relief. … Over the years, the Commission generally has taken an
approach similar to that developed, and later codified, under title VII [antidumpingand countervailing duty provisions].  Under that approach, the Commission includes
producers of the raw product in the industry producing the processed product , if it
finds
(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.  (footnotes omitted, emphasis added)."
79
7.50 In the case at issue, the USITC found that these criteria were satisfied.  In particular, on the
basis of these criteria, the USITC found that the domestic producers of lamb meat consisted of the
growers and feeders of live lambs as well as the packers and breakers of lamb meat because:
                                                     
76 See First Written Submission of New Zealand, Annex 2-1, at section VII.G.2(a).
77 First Written Submission of New Zealand, Annex 2-1, at paragraphs 7.42-7.49, First written
submission of Australia, Annex 1-1, at paragraph 113.
78 19 U.S.C. 2252(b).
79 USITC Report, Exh. US-1, at I-12.WT/DS177/R
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Page 35
"[T]he evidence clearly establishes a continuous line of production  from a raw
product, live lambs, to the processed product, lamb meat […]
There is also evidence of a coincidence of economic interests  between lamb growers
and processors.  The value added by lamb growers and feeders ( i.e., the value of
slaughter-ready live lambs) accounts for 88 percent of the wholesale cost of lamb
meat.  Thus, packers and breakers can be viewed largely as finishers  of products for
which the vast majority of value  [88 per cent] has already been created by growers
and feeders. Packers' and breakers' operations are therefore highly affected by the
supply and quality of the live lambs produced by growers and feeders."80 (footnote
omitted, emphasis added).
7.51 The USITC further stated, in respect of its finding of "a coincidence of economic interests",
that there was evidence of some degree of vertical integration ( i.e., that some growers engage in both
feeding and slaughtering of lambs) and evidence that "the price of lamb meat affects all four industrysegments 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)".
81
3. Arguments of the Parties
(a) Australia and New Zealand
7.52 New Zealand and Australia contend that the methodology adopted by the USITC in defining
the domestic industry (i.e., continuous line of production and coincidence of economic interests) findsno basis in the text of the Safeguards Agreement.  They assert that for the purposes of a safeguards
investigation, the determination of what constitutes the "domestic industry" must turn on whether the
producers in question produce  a "product" that is "like or directly competitive with" imported lamb
meat.  That is, the determination of what constitutes the like or directly competitive product drives the
determination of which producers constitute the industry producing that product.  Hence, growers andfeeders of live lambs  would only fall within this definition if the live lambs  produced by them were
deemed a product that is "like or directly competitive" with lamb meat .
82  For the complainants, the
fact that the United States has traditionally used an alternative approach is irrelevant.83
7.53 Thus, the complainants argue, SG Articles 2.1 and 4.1(c) require a determination as to what
industry produces a product that is "like or directly competitive" with imported lamb meat.  Theycontend that, contrary to this, the United States has instead applied a test to determine what constitutes
the abstract class of "producers as a whole".  In their view, the qualifying term "as a whole" defines
the scope of the producers within an industry and is not a term that defines the scope of the industry
itself.
84
7.54 The complainants further point to past dispute settlement cases, which they argue consistently
have rejected the idea that a determination of what  constitutes the relevant industry should be made on
the basis of some notion of vertical integration.85  In this respect, the complainants rely largely on the
reports of the panel on United States – Definition of Industry Concerning Wine and Grape Products
                                                     
80 Id. at I-13.
81 Id. at I-14.
82 New Zealand First Written Submission, Annex 2-1, at paragraph 7.41.
83 New Zealand Oral Statement, First Meeting of the Panel, Annex 2-5, at paragraph 30.
84 Id. at paragraphs 27-29.
85 New Zealand's Second Written Submission, Annex 2-9, at paragraph 3.4.WT/DS177/R
WT/DS178/RPage 36
("US – Wine and Grapes" )86 and the panel on Canada – Imposition of Countervailing Duties on
Imports of Manufacturing Beef from the EEC ("Canada – Beef" ).87
7.55 In the alternative, the complainants oppose th e US argument that, as a factual matter,
extensive integration exists between firms at different stages in the continuous line of production.  In
their view, most of the integration actually foun d by the USITC was between growers and feeders on
the one hand and packers and breakers on the other, and there is little evidence, if any, of firms which
both grow live lambs and engage in packing operations.88  Therefore, the complainants reject the US
argument that the industry is so highly integrated that it is not possible to separate respective sectors
of the production process.89
(b) United States
7.56 The United States approaches the issue of whether the USITC's definition of the "domestic
industry" is consistent with the provisions of the Safeguards Agreement from a different angle.  It
argues that the relevant consideration is not whether live lambs are "like or directly competitive" with
lamb meat, but whether the USITC majority correctly found that growers, feeders, packers and
breakers all can be considered to produce  the like product, i.e., lamb meat.  In the alternative, the
United States contends that in any event, the USITC would have reached the same conclusions as to
threat of serious injury and causation if it had limited the industry to lamb meat packers and
breakers.90
7.57 The United States notes that the USITC drew on its own practice relating to anti-dumping and
countervailing duties in finding that the "domesti c industry" producing lamb meat included the
producers of the raw product.   As noted above, this methodology considers whether (1) there is a
continuous line of production  from the raw material (i.e., live lamb) to the processed product (lamb
meat); and (2) there is a substantial coincidence of economic interest  between the producers of the
raw material (i.e., growers and feeders) and the processors (i.e., packers and breakers).
7.58 In support of this approach, the United States stresses that the growers and feeders together
contribute approximately 88 per cent of the value of the wholesale price of lamb meat.  It claims that
limiting the definition of "producer" to those who contribute only limited value-added toward the finalstages of production would create an artificially defined 'domestic industry' , especially where
extensive vertical integration  exists. The United States argues that such an artificially narrow
approach to defining "domestic industry" in turn would have the negative effect of denying the
possibility of safeguard relief to producers of raw products even where such producers were clearly
suffering from or threatened with serious injury caused by imports of processed end products.
91
                                                     
86 Adopted by the SCM Committee on 28 April 1992, SCM/71, BISD 39S/436.
87 Not adopted, SCM/85, dated 13 October 1987.
88 New Zealand's Responses to Questions by the Panel, Annex 2-8, Response to Question 5.
89 US First Written Submission, Annex 3-2, at paragraph 73.
90 Closing Statement of the United States at the First Meeting of the Panel, Annex 3-5, at paragraph 14.
We note in this regard that footnote 61 of the USITC's determination (Exh. US-1 at. I-16) states that "…we findthat all sectors show evidence of a threat of serious inju ry…", without elaborating.  It is not clear whether the
USITC meant in this statement to equate a finding that there was "evidence" of a threat of injury in respect of all
sectors with a hypothetical finding that all sectors individually were threatened with serious injury.  Even if thiswas the USITC's meaning, we do not consider that such a statement, contained in a single sentence fragmentwith no supporting facts or explanation, can be viewed as constituting a finding by the USITC that all industrysectors individually were threatened with serious injury.
91  The United States argues in particular that "remedial measures that addressed on the effects of
imports on one aspect of a continuous line of production would be inadequate to 'prevent or remedy seriousWT/DS177/R
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7.59 Furthermore, the United States maintains that any attempt to utilise a more narrow approach
to the delimitation of the "domestic industry" would prove difficult since the US lamb industry "is
vertically integrated in such a way that it is virtually impossible  to analyse each segment of the
domestic industry producing lamb meat by focusing on only one, discrete sector.  … [The] inability to
disaggregate the respective sectors producing the like product requires that the definition of domesticindustry include all four sectors contributing to the production of the like product".
92  The United
States relies in this respect on the report of the panel on New Zealand – Imports of Electrical
Transformers from Finland93 ("New Zealand – Transformers ") which rejected that argument that the
transformer industry at issue consisted of four distinguishable ranges of transformers which should
have been considered separately for purposes of the injury and causation determination.
7.60 The United States also submits that it only applies the above USITC approach in
investigations involving "processed agricultural  products."94  Evidence of this is found in the test
applied by the USITC, which provides that there needs to be a continuous line of production from the
raw to the processed product .  The United States concludes that this test does not "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".95
7.61 The United States dismisses the relevance of the past GATT panel report on Canada – Beef96
because it remains unadopted.  Further, the United States also distinguishes the report of the panel on
US – Wine and Grapes from this case on the basis that that panel had decided that grape growers were
not part of the domestic wine-producing industr y because the production of wine grapes was not
wholly dedicated  to wine production, i.e., in a previous USITC investigation it was found that only
42-55 percent of wine grapes were used in the production of wine, and there were other major marketsfor wine grapes, such as table grapes and raisins.  As a result, it was possible to separately identify the
production of wine grapes and the production of wine.
7.62 In contrast, the United States asserts that disaggregation of the lamb industry is extremely
difficult because US lambs are overwhelmingly raised for meat rather than for wool
97 and that the
United States does not conduct trade in live lambs.  Furthermore, unlike wine grapes, which gothrough a process of treatment and fermentation prior to bottling as wine, lamb meat remains
substantially the same during processing and is never transformed into a different article.
98
4. Discussion by the Panel
7.63 The complainants’ claims under SG Article 4.1(c) raise the basic questions of whether the
broad reading of that provision adopted by the United States is permitted, or whether the narrowreading advocated by the complainants is required.  In assessing these claims, we will consider in
detail the text of the provision, taking into account past panel reports that have addressed similar
                                                                                                                                                                    
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".  ( See US First Written
Submission, Annex 3-2, at paragraph 70.)
92 Id. at paragraph 73.
93 Panel Report on New Zealand – Imports of Electrical Transformers from Finland , adopted on
18 July 1985, BISD 32S/55.
94 The United States also argues, however, that it does not in fact limit use of this test to processed
agricultural products, but rather could apply it in any situation in which the two criteria were met.
95 US Response to Question 2 from the Panel, Annex 3-7, at paragraph 28.
96 US First Written Submission, Annex 3-2, at paragraph 72.
97 Id. at paragraph 75.
98 Id. at paragraph 74.WT/DS177/R
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issues as well as relevant negotiating history, in particular with a view to determining whether the text
can support the methodology applied by the USITC as to "continuous line of production" and
"coincidence of economic interests".
(a) The definition of the "domestic industry" in SG Article 4.1(c)
7.64 SG Article 4.1(c) provides in relevant part that a "domestic industry"
"shall be understood to mean the producers as a whole  of the like or directly
competitive  products  operating within the territory of a Member, or those whose
collective output  of the like or directly competitive products constitutes a major
proportion of the total domestic production of those products ."  (emphasis added).
7.65 We recall that in this case, the USITC found that there was a "like product", lamb meat, and
did not make any finding concerning whether live lambs (or any other domestically-produced
product) were "directly competitive" with the imported lamb meat.  Given that the USITC99 only
made a finding concerning "like product" – lamb meat – the question before us is whether the
USITC's broad determination of the producers  of that "like" product is consistent with the Safeguards
Agreement.
7.66 We turn first to the ordinary meaning of the relevant portion of the text, i.e.,
SG Article 4.1(c)'s industry definition:  " producers as a whole  of the like or directly competitive
products … or those whose collective output  of those products constitutes a major proportion  of the
total domestic production of those products" (emphasis added).
(i) "Producers … of the like … products"
7.67 We consider that the basic elements of SG Article 4.1(c)'s industry definition are contained in
the phrase "producers … of the like or directly competitive products".  To us, the ordinary meaning of
this phrase is straightforward:  the producers of an article are those who make that article.  That is, the
determination of the relevant domestic industry is derivative from the identification of the relevant
"like" or "directly competitive" products.  We find no basis in the text of this phrase for considering
that a producer that does not itself make the product at issue, but instead makes a raw material orinput that is used to produce that product, can nevertheless be considered a producer of the product.
7.68 The second part of the definition in SG Article 4.1(c), specifically the reference to the
producers "whose … output " includes "those products", explicitly confirms our reading of the basic
industry definition.  In particular, this part of the definition underscores that the relevant industry
consists of producers that themselves have "output" of the "like" or "directly competitive" products.
7.69 We find further support for our reading of the phrase "producers … of the like … products" in
numerous dictionary definitions:  a " producer " is variously defined as "a person or a thing which
produces something",
100 or "one that produces, especially one that grows agricultural products or
                                                     
99 The USITC investigation covered only imported lamb meat, and excluded imported live sheep and
live lambs. (USITC Report, Exh. US-1, at I-3, footnote 1).  The USITC plurality found that the domestic
product that was "like" the imported lamb meat was domestic lamb meat (Id. at I-12).  Although two individualCommissioners found that domestically produced live sheep were "directly competitive" with imported lambmeat (Id. at I-8-9, footnotes 7-8), the USITC as a whole did not rely on the concept of "directly competitive"products (Id. at I-10, footnote 10).  Rather, the USITC found that the domestic industry producing lamb meatencompassed both 'growers and feeders of live lambs as well as packers and breakers of lamb meat' (Id. at I-13).
100 Oxford English Dictionary, at. 2367.WT/DS177/R
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manufactures articles".101  To "produce " means to "bring a thing into existence, bring about, effect or
cause an action or result",102 or "to give being, form or shape to, make, or manufacture".103  A
"product " is a "thing produced by an action, operation or natural process"104 or "something produced,
or the amount, quantity or total produced".105  T h e  t e r m  " output " means "what is produced by an
industry or process" or "the action or pr ocess of supplying an output, production".106
7.70 The important common element of these dictionary meanings is that there is a clear link and
close connection between the one who undertakes an action to bring an article into existence and the
article resulting from this action.  This supports our view that a given enterprise can be considered as
a producer  of only those goods that it actually makes.  By this logic, a producer that makes primary or
intermediate goods used in the production of further processed goods must be considered a producerof the primary or intermediate good, rather than of the processed good that it does not itself ever
produce.
7.71 Applying this ordinary meaning to the facts of this case – if not to state the obvious – points
to the conclusion that growers and feeders are producers of live lambs, whereas packers and breakers
of lamb carcasses are producers of lamb meat.  This is so because the good produced by growers andfeeders, i.e., live lambs, is not itself the like produc t at issue, i.e., lamb meat.  The lamb growing and
feeding operations give rise to a product which is different from the product that results from the
subsequent processing operations where lambs are slaughtered and carcasses are cut into lamb meat
for final consumption.
(ii) "Producers as a whole"
7.72 We recall that in defending the USITC's decision to include growers and feeders in the lamb
meat industry, the United States relies on the phrase "producers as a whole" from the industry
definition in SG Article 4.1(c).
107  In particular, the United States contends that the growers and
feeders form part of the producers "as a whole" of lamb meat.  We further recall that the complainants
disagree with this construction of the phrase "as a whole", arguing that in fact this phrase has to do
with the representativeness of the data collected from producers in the industry, and not with which
producers should be included in that industry.
7.73 We thus next consider whether the phrase "producers as a whole " can be seen as context
relevant to the interpretation of the basic industry definition, which would permit an industry to be
defined so as to include input producers, as was done by the USITC in this case.  We note in this
regard that the phrase "producers as a whole " is grammatically linked to, and juxtaposed with, the
phrase "or those whose collective output … constitutes a major proportion  of … total … production".
This context implies that the phrase "as a whole"  like the phrase "major proportion" relates to the
representativeness of the data pertaining to the condition of the industry.  That is, pursuant to
SG Article 4.1(c), for purposes of determining injury or threat, the domestic industry to be
investigated consists in the first instance of all producers of the relevant product in their entirety, or –
at a minimum – of those producers accounting for a major proportion of the total production of theproduct.  We recall in this regard that in response to a question from the Panel, the United States
seems to acknowledge that the phrase "as a whole" – at least also – relates to the representativeness of
                                                     
101 Webster's New Encyclopaedic Dictionary, at 805.
102 Oxford English Dictionary, at 2367.
103 Webster's New Encyclopaedic Dictionary, at 805.
104 Oxford English Dictionary, at 2367.
105 Webster's New Encyclopaedic Dictionary, at 805.
106 Oxford English Dictionary, at 2040.
107 See, e.g., US First Submission, Annex 3-2, at paragraphs 63 and 126.WT/DS177/R
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the data concerning the industry,108 not only to the scope of the industry as it claims under its main
line of argumentation.
7.74 We conclude, on the basis of the foregoing analysis, that the phrase "producers as a whole" is
not related to the process of manufacturing or transforming raw materials and inputs into a final
product, and thus provides no contextual support fo r including producers of raw materials or inputs as
part of the industry producing a like product.  In our view, this phrase provides a quantitative
benchmark for the proportion of producers – within an industry properly defined on the basis of the
like output product it makes – which a safeguards investigation has to cover.  We note that – if the
phrase "as a whole" could be used to widen the scope of an industry to include producers of any
upstream products – competent national authorities could "tailor" domestic industries of differentscope as they saw fit simply by choosing between two alternatives under SG Article 4.1(c).
7.75 Another element of relevant context for interpreting the "domestic industry" definition of SG
Article 4.1(c) are the parallel provisions of the WTO Agreements on Subsidies and Countervailing
Measures ("SCM") and on Anti-dumping ("AD").  In particular, the three Agreements' definitions of
the industry producing a like product are essentially identical.
109  We also note that, while the SCM
and AD Agreements refer exclusively to "like products", the SG Agreement also refers to "directly
competitive products", but in the absence of a USITC finding on "directly competitive products" in
this investigation, this issue is not before us.  Thus the distinction between "like" and "directly
competitive" products is not relevant to the complainants' claims under SG Article 4.1(c).  For these
reasons, we consider that particularly in the present safeguard dispute, past panel reports concerning
industry definition in the context of the SCM and AD Agreements are relevant to our interpretation
and application of the industry definition under the Safeguards Agreement.  We discuss the pastdispute settlement practice interpreting these provisions in detail below.
7.76 In our view, this reading of the industry definition is consistent with the object and purpose of
the Safeguards Agreement.  In particular, this reading is consistent with the Agreement's objectives
of, on the one hand, creating a mechanism for effective, temporary protection from imports to an
industry that is experiencing serious injury or threat thereof from imports in the wake of tradeliberalization, and on the other hand, encouraging "structural adjustment", and "clarify[ing] and
reinforc[ing] the disciplines of … Article XIX of GATT", in view of "the need to enhance rather than
limit competition in international markets".
110
                                                     
108 The question posed by the Panel to the United States was:  "Please comment on New Zealand's
argument at para. 29 of its [first] oral statement that the term 'as a whole' in Article 4.1(c) has to do with therepresentativeness of data used in an investigation in respect of the entire industry, and not with the scope orbreadth of the domestic industry itself."  The United States replied:  "The term 'as a whole' is not defined by theSafeguards 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'."  USResponse to Panel Question 5, Annex 3-7 (emphasis added).
109 The respective definitions in AD Article 4.1 and SCM Article 16.1 are identical to one another in
pertinent part, and read as follows:  "…the domestic producers as a whole of the like products or to those of
them whose collective output of the products constitutes a major proportion of the total domestic production ofthose products."
110 See, inter alia  (1) the preamble to the SG Agreement:  " Recognizing  the importance of structural
adjustment and the need to enhance rather than limit competition in international markets"; (2) Articles 5.1 and7.1, which provide that a Member shall apply safeguard measures only to the extent necessary and for the period
necessary to prevent or remedy serious injury and to facilitate adjustment ; and (3) Article 7.2 which permits theWT/DS177/R
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7.77 If WTO law were not to offer a "safety valve" for situations in which, following trade
liberalization, imports increase so as to cause serious injury or threat thereof to a domestic industry,
Members could be deterred from entering into additional tariff concessions and from engaging in
further trade liberalisation.  It is for this reason that the safeguard mechanism in Article XIX has
always been an integral part of the GATT.  Howe ver, we note that SG Article XIX of GATT 1994 as
well as SG Article 11.1 both refer to safeguard measures as "emergency" measures, and the Appellate
Body has characterized them as "extraordinary" remedies111  A conceptual approach to defining the
relevant domestic industry which would leave it to the discretion of competent national authorities
how far upstream and/or downstream the production chain of a given "like" end product to look in
defining the scope of the domestic industry could easily defeat the Safeguards Agreement's purpose ofreinforcing disciplines in the field of safeguards and enhancing rather than limiting competition.
These considerations based on the object and purpose of the Safeguards Agreement thus further
support a reading of the industry definition in SG Article 4.1(c) as not permitting input producers to
be included as part of the industry producing the "like" end-product.
112
(b) Past panel reports
7.78 As we have stated above, given that the industry definitions in the SCM and AD Agreements
are virtually identical to that in the Safeguards Agr eement in so far as "like products" are at issue (as
in this case) we consider that past panel cases concerning the industry definition in disputes on
antidumping, subsidies and countervailing measures are particularly relevant to our examination of
the complainants' claim against the industry definition used by the USITC in this case.113  T h e s e
include in particular the reports of the panels on Canada – Beef114 and US – Wine and Grapes115, but
also the New Zealand – Transformers116 report.  We note in this regard that the parties as well have
extensively referred in their arguments concerning "domestic industry" to interpretations developed in
these past panel reports.
                                                                                                                                                                    
extension of a safeguard measure beyond its initial period of application if in a new investigation it is
determined that the safeguard measure continues to be necessary to prevent or remedy serious injury and thatthere is evidence that the industry is adjusting .
111 Appellate Body Report on Argentina – Footwear , at paragraph 94.
112 Our conclusion is subject to the caveat  that – in a factual situation where a so-called input product
can be considered to be "like" to the final product – pr oducers of that input product could be included in the
domestic industry producing the final product.
113 We note that the reports in the latter two cases were adopted, while that in the Canada – Beef case
was not.  In this regard, we recall the Appellate Body's statements in Japan – Alcohol that "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, ther efore, should be taken into account where they are
relevant to any dispute.  However, they are not binding,  except with respect to resolving the particular dispute
between the parties to that dispute.  (footnote omitted)."  The Appellate Body further agreed with the Panel inthat case that "'a panel could nevertheless find useful guidance in the reasoning of an unadopted panel report that itconsidered to be relevant'".  See Appellate Body Report on Japan – Taxes on Alcoholic Beverages , adopted on 1
November 1996, (WT/DS8/10/11/AB/R ), pp. 14-15, citing the panel report, at paragraph 6.10
114 Report of the Panel on Canada - Imposition of Countervailing Duties on Imports of Manufacturing
Beef from the EEC , dated 13 October 1987, not adopted, SCM/85.
115 Report of the Panel on United States – Definition of Industry Concerning Wine and Grape Products ,
adopted by the Committee on Subsidies and Countervailing Measures on 28 April 1992, SCM/71, BISD39S/436.
116 Panel Report on New Zealand – Imports of Electrical Transformers from Finland , adopted on 18
July 1985, BISD 32S/55.WT/DS177/R
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(i) The United States – Wine and Grapes case
7.79 We find quite pertinent to the question before us the adopted report of the panel on United
States – Wine and Grapes  under the Tokyo Round Subsidies Code, to which the parties also refer.  In
that case, the panel found inconsistent with the Code's industry definition a US law which mandated
specifically that in countervailing duty cases involving imported wine and grape products, thedomestic producers of the principal raw agricultural product (i.e., grapes) were to be included as part
of the industry producing wine and grape products if they alleged injury or threat thereof caused by
imports of those products.
7.80 The parties agreed that wine and grapes are not like  products.  The panel held that the
producers of the like products could be interpreted to comprise only producers of wine.
117  I t  a l s o
considered whether, in the light of the "close relationship" between grape and wine production, the
wine-grape growers could be regarded as part of the industry producing wine.  In this regard, the
panel took into account that the parties agreed that in the United States, wineries did not usually grow
their own grapes, but rather bought them from gr ape growers.  Given this, the panel found that
"irrespective of ownership, a separate identification  of production of wine-grapes from wine … was
possible and that therefore in fact two separate industries existed in the United States…"118  The  Wine
and Grapes  panel concluded that
"[h]aving found that in fact two separate  industries existed in the United States,
namely an industry comprising wine-grape growers  on the one hand and an industry
comprising wineries  on the other and having found that Article 6.5 of the [Subsidies]
Code gave a precise definition of 'domestic industry', a definition which in the view
of the Panel could not be interpreted extensively, … [the law at issue] wasinconsistent with the definition of "domestic industry" contained in …[Subsidies]
Code."
119
7.81 In reaching this conclusion, the panel took the view that "once such a separate identification
was possible (e.g., because of the structure of production), economic interdependence between
industries producing raw material or components  and industries producing the final product" was not
relevant for a like product determination.120  As discussed above, we too find no basis in the text of
the Safeguards Agreement that would permit this consideration of economic interdependence or
coincidence of economic interest to be taken into account in defining the domestic industry.
7.82 The United States distinguishes the present case from the Wine and Grapes  case, inter alia ,
on the basis of certain factual arguments, including that grapes were not wholly dedicated to wine
production.  In that case, the USITC had determined that only 42-55 per cent of wine grapes were
used in the production of wine and that there were other major markets for wine grapes, such as table
grapes and raisins.  In contrast, the United States points out that the USITC found that lambs are
overwhelmingly raised for meat rather than for wool and that the ratio of net sales/revenue forslaughter and feeder lambs in comparison to net sales/revenues obtained by US lamb growers from
any other item including wool increased from 84.6 per cent in 1997 to 88.9 per cent in interim-
1998.
121
                                                     
117 Panel Report on United States – Wine and Grapes , op. cit., paragraph 4.2.
118 Id., at paragraph 4.3.
119 Id., at paragraph 4.6 (emphasis added).
120 Id., at paragraph 4.5.
121 US First Written Submission, Annex 3-2, at paragraph 75; USITC Report, Exh US-1, at II-4, II-26.WT/DS177/R
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7.83 We recall the Wine and Grapes  panel's finding, with which we agree, that the factor of
economic interdependence between producers of raw, intermediate and final products is not relevant
for the industry definition.  Even assuming arguendo , that nevertheless criteria such as "continuous
line of production" and "inputs wholly dedicated to the production of a single end-product" were at all
relevant, we note that the USITC report contains no information as to the percentage of live lambproduction dedicated to the production of lamb meat other than for the years covered by the safeguard
investigation. It thus is unclear to what extent such predominant dedication to meat as opposed to
wool production was a temporary result of the removal of the wool subsidies.
122
7.84 Moreover, as in Wine and Grapes , where alternative uses for grapes were found to exist, the
USITC report makes clear that there are alternative uses for live lambs, including growing maturesheep for mutton meat as well as for wool pr oduction or growing ewes for breeding purposes.
123  The
extent to which these alternatives are actually used may depend on amounts of imports, but also on
market conditions, consumer preferences and the possibility to generate equivalent profits with these
alternative uses.  Thus, even assuming arguendo  in the alternative that the degree of an input's
dedication to a final product were relevant for the industry definition, we find no factual evidence thatthe situation of lamb growers and feeders in respect of the availability of alternative uses for live
lambs in the longer run is fundamentally different from that of the grape growers as described in the
Wine and Grapes  report.
7.85 The United States also submits that unlike grapes, which undergo a process of treatment and
fermentation prior to bottling as wine, lamb meat remains substantially the same during processing
and is never transformed into a different article.  Here again, however, in our view no such factual
distinction can be drawn.  In the case of both lamb and wine, we note that the agricultural inputproduct (i.e., grapes and live lambs, respectively) is transformed into a different end-product (i.e.,
wine or meat, respectively).
7.86 In the light of the foregoing, we consider that the reasoning of the Wines and Grapes  panel is
both directly relevant to, and fully consistent with, our conclusion that the domestic industry in the
lamb case should be limited to packers and breakers.  Analogous to Wine and Grapes , live lambs and
lamb meat not being like products to one another, producers of live lambs cannot be included as
producers of lamb meat.
(ii) The Canada – Beef case
7.87 We also find that the reasoning of the panel in the Canada – Beef
124 case is highly relevant to,
and strongly supports, our reading of SG Article 4.1(c).  In Canada – Beef , the EC challenged a
                                                     
122 In its interim review comments, the United States argues that information on this point was
contained in a 1995 USITC study on lamb meat ("Lamb Meat: Competitive Conditions Affecting the US andForeign Lamb Industries") which was before the USITC in the safeguard investigation.  We note however that
this study was not part of the record before us, nor was information derived from it reproduced in the USITC's
report on the safeguard investigation.  Rather, only the title of the study was cited in the USITC Report.Furthermore, while in its interim review comments the United States argues that this study shows that incomereceived by live lamb producers from shorn  wool declined from 12 percent in 1990 to 5 percent in 1993, New
Zealand in its comments on the US comments argues that the very same study shows that income from shorn
wool plus the Wool Act payments was higher during that period, declining from 30 percent to 23 percent, and
would be even higher if income from wool pelts and slipe wool were included.  In any case, we recall our viewthat economic interdependence between producers of inputs and final products is not relevant for industrydefinition, and thus see no reason to further consider these statistics.
123 USITC Report, Exh. US-1, at I-30.
124 Report of the Panel on Canada – Imposition of Countervailing Duties on Imports of Manufacturing
Beef from the EEC , dated 13 October 1987, not adopted, SCM/85.WT/DS177/R
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Canadian countervailing duty investigation in which the producers and feeders of live cattle  were
treated as part of the domestic industry producing manufacturing beef .  The factual and legal issues
arising in Canada – Beef  are strikingly similar to those of the present dispute.
7.88 The parties were in agreement that the "like" product was manufacturing beef, but differed on
whether the domestic industry producing manufacturing beef included the producers and feeders oflive cattle.  Likewise, in the lamb case, the parties agree that the "like" product is lamb meat, but they
disagree as to whether the industry producing lamb  meat includes the growers and feeders of live
lamb.
7.89 The Canada – Beef  panel agreed with the parties that the like product was manufacturing
beef, and that live cattle produced by ranchers and feedlots constituted a product different  from the
like product.  The panel also observed that the relevant provision of the Tokyo Round Subsidies Code
(Article 6:5)
125 did not define the term "producers", but that "in common usage, one is normally
considered the 'producer' of only those goods one actually makes and sells; one who produces a raw
material is not normally regarded as a 'producer' of the end-product.126
7.90 Before the Canada – Beef  panel, Canada argued that a narrow definition of the domestic
industry was not appropriate where there was (i) a continuous sequential process of production
involving the use of only one raw material input which, by undergoing relatively little processing
prior to becoming an end-product, accounted for a substantial proportion of the value of the end-
product; (ii) an input which was functionally dedicated to the manufacture of only one end-product
and which had no economically viable alternative uses; and (iii) a situation of economic
interdependence in which end-product producers were able to "pass-back" to input producers a
decrease in the price of the end-product resulting from competition from subsidized imports.127  We
note that these criteria are very similar to those under the two-pronged test applied by the USITC in
the lamb investigation.
7.91 The Canada - Beef  panel articulated concerns with respect to Canada's criteria for deciding in
which cases to include input producers as producers of a processed product.  Concerning the criteria
used by Canada, that panel understood that these were meant to identify situations in which all ormost of the adverse economic impact from subsidized imports would be concentrated on the raw
material supplier.
 128  It found, however, that this interpretation by Canada would
                                                     
125 The industry definition in Article 6.5 of the Tokyo Round Subsidies Code is identical to that in
Article 16.1 of the WTO SCM Agreement
126 See, Canada – Beef , op. cit. at paragraph 5.2.  In that case, virtually all of the processing operations
were under separate ownership from the live cattle operations.
127 See, Canada –  Beef, op. cit., at paragraph 3.12.   The reasons for the Canadian Import Tribunal to
define the industry in this way were that (i) "the production of manufacturing beef in Canada was a continuoussequential process commencing with the live cattle and ending with the boxed grinding beef"; (ii) "there was ahigh degree of functional dedication and economic dependence in this sequential process"; (iii) "no one disputedthat the primary purpose of raising beef cattle was to produce beef, and that grinding beef was merely one of theproduct forms produced by the cattlemen".  See, Canada – Beef , op. cit., at paragraph 2.2.
128 The Canada – Beef  panel also recalled that although there had been proposals in the negotiations
leading to the Anti-dumping Code of 1967 to allow a certain flexibility in defining the domestic industry, so asto encompass producers whose products were "competitive" or in "close competition" with the importedproduct, in the end the "narrow" definition of domestic industry based on the like product concept was adoptedin the 1967 Code.  The panel noted that that definition was imported unchanged into the Tokyo Round Code.See Canada – Beef , op. cit., at paragraph 5.11.  As noted, the same definition was subsequently introduced,
again unchanged, into the WTO Agreements on Anti-dumping, Subsidies and Safeguards.WT/DS177/R
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"introduce an element of open-endedness in to the Code's definition of 'domestic
industry'  of the kind that the code drafters had been concerned to avoid.  The
principle underlying the Canadian interpretation was that relief ought to be made
available to input  suppliers when they suffered injuries  from subsidised imports
equivalent  to the injuries normally suffered by those who produce end-products .  …
Canada was asserting that this principle applied only to the situation described  [in the
criteria applied by Canada] above.  The Panel was not persuaded, however, that this
situation was so unique  that it could be distinguished from many other claims for
relief that could be advanced under the same principle.  There was no reason to
believe that the degree of injury suffered by input suppliers meeting the Canadiancriteria would be any greater than the degree of injury subsidized imports might
cause to input suppliers in any number of other cases .
129  Nor was any greater-than-
normal degree of injury required to satisfy these criteria.  In the present case, for
example, the criteria had been satisfied by a 'threat of injury' finding involving a
product which was only one of several products produced by the same productionfacilities … Nor, finally, was there any basis for limiting  this exception to cases
involving processed agricultural  products.  Although all the cases called to the
Panel's attention had involved processed agricultural  products, there was nothing in
the text  or in the negotiating history of the Code that could justify a special rule  for
such products.  The Panel did not, of course , question Canada's declared intention to
limit the exception to cases meeting the three main criteria indicated.  The Panel's
decision, however, could only rest on principles of general applicability .  In the
Panel's judgment, any principle justifying the Canadian exception would open the
door  to claims of standing by a substantial number of other input suppliers ."
130
7.92 The argumentation of the parties in the lamb dispute is largely similar to that before the
Canada – Beef  panel.  The complainants argue that the USITC's above-mentioned two-prong test
could lead to competent national authorities devising open-ended industry definitions, without
objective limitations in practice.  In contrast, the United States (as Canada did) argues that it applies
its test only in the case of processed agricultural products where the inputs are wholly dedicated to the
production of the processed product, and thus would no t open the door to large scale tailor-making of
industry definitions.
7.93 We are not however persuaded by US argumentat ion in the present dispute, and we too are
concerned by the possibility of "open-endedness" in defining domestic industries that was highlighted
by the Canada – Beef panel.  We see no basis in the text of the Safeguards Agreement, nor has the
United States put forward any principles of general applicability , to effectively limit the inclusion of
input producers as producers of an end-product to cases involving processed agricultural products, orto any subgroup of cases.
7.94 The Canada – Beef  panel also rejected the argument that industry definitions based on the like
end product could cause outcomes to vary according to the degree of vertical integration which
                                                     
129 See, Canada – Beef , original footnote 5 to paragraph 5.12:  "The criterion requiring that the input in
question account for 'a substantial portion of the value of the end-product' has nothing to do with the severity of
the economic harm that subsidized imports may cause to any particular input supplier.  In addition, while thefact that an input has 'no economically viable alternative uses' is certainly relevant, the existence of analternative market will cushion the impact of subsidized imports only to the extent that prices in the alternativemarket are equal to or higher than the impor t-depressed price in the principal market."
130 Panel Report on Canada – Beef , op. cit., at paragraph 5.12.  Emphasis added, footnotes in part
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happened to exist at a particular time or in a particular country because, the panel found, the definition
of "domestic industry" involves two criteria, neither of which depends on vertical integration as such:
"First, there must be a determination of which product or range of products
constitutes the ‘like product’.  If the production process for that ‘like product’
happens to be subdivided into two or more separate stages, that fact will not meanthat each stage must be considered a separate ‘domestic industry’; as long as the
products at the various stages are enough ‘like’ each other to be considered different
forms of the same ‘like product’, the separate production stages will all be part of the
same ‘domestic industry’.  The second criterion - whether the production process for
the ‘like product’ can be separately identified - is likewise independent of verticalintegration.  If the process of production for one ‘like product’ can be separately
identified, it will be treated as a separate industry whether or not it is owned in
common with parallel, earlier or subsequent production lines.  The only case in
which the fact of common ownership will affe ct the definition of industry will be the
case in which common ownership results in such a complete integration ofproduction processes that it is impossible to analyze each one separately ."
131
7.95 We agree that the factors of vertical integration or common ownership are not in themselves
determinative or even particularly relevant for the scope of the domestic industry.  Rather, the issue is
(i) whether the products at various stages of production are different forms of a single like product  or
have become different products ; and (ii) whether it is possible to separately identify  the production
process for the like product at issue, or whether instead common ownership results in such complete
integration  of production processes that  separate identification and analysis of different production
stages is impossible . 132
7.96 In the present dispute, the parties agree and the USITC found that the production process
from live lamb to lamb meat has resulted in separate  products, not products that are different forms of
a single like  product.  Likewise, assuming arguendo  that vertical integration and common ownership
were at all relevant for the defining the scope of an industry, there is little vertical integration of
growing and feeding operations with packing and breaking operations, and in any case it is clearly
possible to separately identify  the different physical stages of the production process.  Moreover,
according to the information contained in the US ITC report, there is relatively little vertical
integration in the sense of common ownership betw een growers, feeders, packers and breakers of
lamb.133  Furthermore, to the extent that there is an overlap in activities between companies, this
overlap occurs predominantly between growing and feeding operations, or between packing and
breaking operations,134 but it does not occur between growers and feeders on the one hand and packers
and breakers on the other.135  In other words, we find no evidence to support the US assertion that the
US lamb industry "is vertically integrated in such a way that it is virtually impossible to analyze eachsegment … " and that "[t]he inability to disaggregate the respective sectors requires that the definition
of domestic industry include all four sectors contributing to the production of the like product."
136  We
thus conclude that in this case it is possible to separately identify the physical production processes
involved in producing live lambs on the one hand and lamb meat on the other, and, in addition,
                                                     
131 Id., at paragraph 5.14 (emphasis added).
132 Id.
133 USITC Report, Exh. US-1, at II-11ff, II-12, I-14.
134 Id. at II-29, II-33.
135 Id. at II-11-16.
136 First Written Submission of the United States, Annex 3-2, at paragraph 73.WT/DS177/R
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separate data clearly are available for the four industry segments, as evidenced by the fact that the
USITC collected such data.137
7.97 We recall that the United States argues that the reasoning of Canada – Beef  and US – Wine
and Grapes  are irrelevant to the lamb case at hand because these panels applied provisions138 of the
Tokyo Round SCM and Anti-dumping Codes narrowin g the scope of the domestic industry which the
Safeguards Agreement does not provide for.  In our view, this difference does not make these past
panel reports inapposite to the present case because the provisions referred to by the United States do
not address the question of the definition of the domestic industry.  Rather they deal primarily with
the data collection in an investigation so as to ensure that the data reflect as closely as possible the
operations pertaining to the like product, where separate identification of those operations in aproducer's records is difficult or impossible.  The parallel article of the WTO SCM Agreement
139
makes it even clearer that this provision does not detract from the fact that the industry definition mustbe based on the "like" product and on the ability to separately identify the production processes.
Thus, we find the Canada – Beef  and Wine and Grapes  cases to be factually similar to the case before
us, and the legal reasoning of those panels to be both relevant and persuasive
140.
(iii) The New Zealand – Transformers case
7.98 We note that the United States argues that there is support for its broad definition of the US
lamb meat industry in the statement of the panel in New Zealand – Transformers141 that the domestic
industry in that case should not be restricted to two kinds of transformers located along the spectrum
of transformer types, because "each segment of the industry's operation made a contribution to the
overall viability and profitability of a producer of transformers" and that to "allow the possibility to
grant relief through anti-dumping duties to individual lines of production of a particular industry orcompany … would clearly be at variance with the concept of industry in Article VI."
142
7.99 In our view, however, the factual and legal issues before the Transformers  panel were rather
different from those arising in the present dispute.  First, Transformers  involved a claim under
Article VI:1 of GATT, not under the Tokyo Round Anti-dumping Code.  Article VI:1 does not
contain any reference to the concept of "like product", and thus its language is quite different fromthat in the Safeguards Agreement (as well as that in the parallel provisions of the WTO SCM and AD
                                                     
137 "A major US packer (Transhumance) also owns both a breaker operation and Superior Farms, which
is a lamb feeder". ( See USITC Report, Exh. US-1, at I-14, footnote 47, II-14).  Apparently, these commonly
owned companies are legally separate entities and therefore, separate business operations can be identified.
138 Article 6.6 of the Tokyo Round Subsidies Code:  "The effect of subsidized imports shall be assessed
in relation to the domestic production of the like product where available data permit the separate identificationof production in terms of such criteria as:  the production process, the producers' realization, profits.  When thedomestic production of the like product has no separate identity in these terms the effects of subsidized importsshall 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."
139 Article 15.6 of the WTO SCM Agreement:  "The effect of subsidized imports shall be assessed in
relation to the domestic production of the like product when available data permit the separate identification ofproduction on the basis of such criteria as the production process, the producers' sales and profits.  If suchseparate identification of that production is not possible,  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."
140 We recall our reference to the Appellate Body's statement in Japan – Alcohol in footnote 113,
above.
141 Panel Report on New Zealand – Imports of Electrical Transformers from Finland , adopted on 18
July 1985, BISD 32S/55.
142 Panel Report on New Zealand – Transformers , op. cit., at paragraph 4.6.WT/DS177/R
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Agreements).143  The arguments of New Zealand in Transformers  pertained, if anything, more to the
question of the relevant domestic product to be analyzed (i.e. an issue akin to identifying the "like
product") rather than to the second-step question of how broadly to define the producers of that
product once identified.  Second, the factual situation in Transformers  was very different from that in
the lamb case.  In Transformers , New Zealand's domestic transformer industry essentially consisted of
a single  company that produced the full range of power transformers144, and the product
differentiation at issue was as between different kinds of finished transformers produced by that
company, i.e., differentiated kinds of the same  product (transformers) at the same  stage of production.
By contrast, in the lamb case, there are many companies involved, most of which operate at only a
single step in the production chain, and the product differentiation at issue is as between different
products at different  stages of production.
7.100  Moreover, to the extent that Transformers  is at all relevant to the issue before us, it supports
rather than undercuts our reading of SG Article 4.1(c).  In particular, it appears to us that one of the
primary concerns of the Transformers  panel was the possibly artificial picture of the relevant
company's/industry's condition that could result from looking at only one small slice of thatcompany's/industry's product range, where there were no clear dividing lines either between the
products themselves or between the production processes used to produce them.  In our view, this is
fully consistent with our view, confirmed by the Canada – Beef panel, that separability of production
processes is a key factor in identifying the domestic producers of a like product.
(iv) Criteria of continuous line of production and substantial coincidence of economic interests
7.101  We also share the concerns of the Canada – Beef  panel about the "open-endedness" of an
industry definition if it is based on criteria such as (i) continuous line of production and (ii) substantial
coincidence of economic interests.  It is true for most processed products that there is a continuous
line of production from raw materials or inputs to the final product and thus economic
interdependence between operators at different stages of production.  But we do not see how raw
materials or inputs which are agricultural  differ in this respect from industrial  raw materials or inputs.
7.102  Concerning the coincidence of economic interests, moreover, whether there is a single input
transformed or incorporated into a final product, whether an input is wholly dedicated to the
production of a final product, or whether there are viable alternative uses at equivalent profit for that
input cannot in itself be determinative of the degree of economic interdependence among industry
segments.  In the case of final products composed of a larger number of inputs, producers of those
inputs may just as easily be highly economically dependent on the producers of the final product.  Butdepending on the allocation of market power in the manufacturing and processing chain of a particular
end-product, the opposite may also be true and producers of the final product may be dependent on
producers of raw materials or intermediate inputs rather than vice versa .
7.103  Furthermore, the interests of producers in different industry segments may coincide,
regardless of whether they are involved in a continuous line of production, whether there is a single ormore inputs into a final product, and whether an input is wholly dedicated to a single final product.
Interests may happen to coincide even if producers are engaged in entirely unrelated economic
activities.  Likewise, there is no certainty that economic interests of producers necessarily coincide
even if there is a continuous line of production fro m an input which is wholly dedicated to one final
                                                     
143 The language in the Tokyo Round Code in respect of like product and the domestic industry
definition (Article 4.1) is identical to that in the WTO Anti-dumping Agreement (also Article 4.1), which asdiscussed above is essentially identical to the part of the language of Article 4.1(c) of the Agreement onSafeguards which is relevant to this case.
144 Panel Report on New Zealand – Transformers , op cit., at paragraph 4.6.WT/DS177/R
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product which is composed of only that input.  Thus, we see nothing in the USITC's approach that
limits its open-endedness.
7.104  We note that the USITC traditionally applies the two parts of its test (continuous line of
production and substantial coincidence of economic interests) on a cumulative basis and not as
alternative justifications for widening the industry definition.  However, we are not persuaded thatthese are objective principles capable of general application that would in fact restrict the ability to
include input producers to only a narrow set of clearly defined cases.  Moreover, we cannot see a
textual or logical basis in the Safeguards Agreem ent for applying different tests in the fields of
agricultural as opposed to manufactured products.
(v) Value added at different stages of the production chain
7.105  In the specific factual constellation of this investigation, we nonetheless consider the US
argument significant that the inputs (live lambs) constitute a high percentage of the value added (e.g.,
88 per cent of the wholesale value) and that the final product (i.e., lamb meat) derives essentially from
a single input (i.e., live lambs).  The US position seems to be that in such a situation, defining the
industry as finishers only would mean, inter alia , that remedial measures that addressed only the
effects of imports on one aspect of a continuous line of production would be inadequate to "prevent or
remedy serious injury and to facilitate adjustment" since any adjustment by that industry segment
would not insulate the other (higher value-added) segments from the effects of increased imports.
145
This argument seems to depend on the ability of the processors to pass back any injury from increasedimports to the input producers.  Indeed, the US ITC found that "…when processors confront lower
prices, they pass the lower prices back  to feeders and then growers, and all suffer to some extent."
146
7.106  In our view, however, the pass-back argument in favour of broadly defining a domestic
industry to include input producers does not necessarily hold true.  As noted above, a high degree of
economic interdependence between upstream  producers and downstream  processors is a
commonplace in most manufacturing and processing chains.  In such situations the US argument
would only hold if the finishing  segment in the production chain is able to "pass back" to input
producers any serious injury caused or threatened by imports.  In the absence of such "pass-back"effects, there is reason to assume that serious injury caused by increased imports, if any, will be felt
(at least inter alia ) in the finishing  segment.  In such a case, if a safeguard measure were applied in
respect of imports of the finished  product by definition this should also benefit the input  producers.
 147
7.107  In this regard, the US "pass-back" argument could be seen to some extent as internally
inconsistent.  On the one hand, the argument is that the fortunes of the packers/breakers andgrowers/feeders rise and fall together.  This is a major part of the USITC's justification for a broad
industry definition, even though it does not explai n why profits/losses of growers/feeders declined
prior to those of packers/breakers.
148  On other hand, assuming that it is true that the fortunes of all
industry sectors move in tandem, a safeguard measure to assist packers/breakers would be likely also
                                                     
145 US First Written Submission, Annex 3-2, at paragraphs 69-70.
146 USITC report,  Exh. US-1, at I-14 (emphasis added).
147 We note that the United States does allude to this possibility, but argues that if such benefits were to
reach input producers, such safeguard actions woul d escape multilateral control.  (See US First Written
Submission, Annex 3-2, at paragraph 70.)  We do not see why this would be the case, as any safeguard measurethat would benefit a domestic industry, to be permitted, would have to comply with all of the relevant WTOrules, including those pertaining to defining the domestic industry.  We note that the WTO rules on safeguardmeasures do not concern the effects of safeguard measures on any economic actors other than the domesticproducers of the like or directly competitive products.
148 See Question 8 by the Panel to the United States and US Response, Annex 3-7.WT/DS177/R
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to assist growers/feeders.  Thus a narrow indu stry definition would not necessarily preclude the
benefits of a safeguard measure on the finished products from "trickling upstream" to the input
producers.  In other words, the "pass-back" ar gument suggesting that growers/feeders must be
included in the industry definition only holds true if the fortunes of packers/breakers and
growers/feeders do not move in the same direction (the opposite of what the USITC found and what
the United States argues before us).
7.108  Furthermore, the extent to which earlier stages of input production as opposed to processing
of the final product contribute to the product's total value may change over time and may depend on
the allocation of market power in the manufacturing, processing and distribution chain, rather than on
any inherent characteristics of the products involved.  The availability of viable alternative uses forinputs, their ability to generate equivalent revenue and the degree to which the inputs contribute to the
value of the final product are parameters which determine, depending on market conditions, the extent
of economic interdependence between input producer s and processors.  We believe, however, that
these parameters are not easily quantifiable or susceptible of objective assessment and cannot serve as
principles of general applicability for purposes of defining a domestic industry in a safeguardinvestigation.  Thus, even if we were to accept arguendo  that a criterion of value-added at different
stages of the production chain were relevant to the definition of a domestic industry in a safeguards
investigation, we do not see how a cut-off percentage for such a test could be defined, nor at what
level.
(vi) Concluding remarks on past panel reports
7.109  In the light of the foregoing, we conclude that the reasoning of the panels in New Zealand –
Transformers , US - Wine and Grapes  and Canada – Beef  support the interpretation that the domestic
industry should be defined as the producers as a whol e of the like end-product, i.e., lamb meat in this
case.  We also concur with the reasoning of those panels that separability of operations and data
between different stages of production, rather than vertical integration, common ownership,
continuous lines of production, economic interdependence or substantial coincidence in economic
interests are relevant for determining the scope of the industry in consistency with SG Article 4.1(c).
(c) Negotiating history
7.110  In accordance with Article 32 of the Vienna Convention on the Law of Treaties, we refer to
records of the Uruguay Round negotiations as supplementary means of interpretation in order to
confirm the meaning of the text of Article 4.1(c) resulting from application of Article 31 of the
Vienna Convention.  Before doing so, we recall that the Canada – Beef  panel's conclusion that
"both the text and the negotiating history of the relevant Code provisions made it
impossible to accept Canada's contention that governments intended the concept of
'domestic industry' to be interpreted with su fficient flexibility to permit treating input
suppliers as 'producers' of the like product when economic circumstances
warranted … The only way such an interpretation could be adopted would be toamend the Code through negotiation ." (emphasis added
 ).149
7.111  We thus turn to the question of whether our interpretation of SG Article 4.1(c) is confirmed
by the records of the multilateral round of trade negotiations concerning contingent trade remedies
following the issuance of the above-mentioned panel reports.
                                                     
149 Panel Report on Canada – Beef,  at paragraph 5.13.WT/DS177/R
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7.112  The Uruguay Round negotiating history reveals that the above-mentioned panel reports
formed part of the basis of the discussions during the negotiations.  There seems to have been a
general understanding among negotiators – as suggested by the Canada – Beef  panel – that
broadening the industry definition standard would have required an amendment of the treaty law or at
least the adoption of an agreed interpretation by negotiators.150  Given that the Canada – Beef and US
– Wine and Grapes  reports concerned countervailing measures, the industry definition was primarily
discussed in the Negotiating Group for Subsidies and Countervailing Measures, but this question was
addressed in the negotiations on anti-dumping and safeguards as well.
7.113  There were a number of specific negotiating proposals to redress the findings of the panels on
Canada – Beef and US - Wine and Grapes , including from Canada , the United States and Australia.
These proposals were intended to broaden the industry definition to encompass producers of inputs, at
least in the case of processed agricultural products.151  However, a number of countries such as the
EEC and other developed and developing countries submitted negotiating proposals in opposition to
such amendment or agreed interpretation.  These proposals favoured maintaining a narrow industry
definition based upon like (or directly competitive) products for purposes of applying contingent traderemedies.
152  While these proposals were made in the framework of the negotiations on countervailing
and anti-dumping measures, the issue was briefly considered in the negotiations on safeguards as
well.153
                                                     
150 For example, Canada proposed that a "special provision" be made to clarify the term 'domestic
industry', and Australia proposed to "develop an agreed and more reasonable interpretation" of the definition of"domestic industry" in the case of agricultural products.
151 Canada noted that the industry definition "under current rules" could preclude the use of
countervailing duties, particularly in respect of processe d agricultural products, even where subsidized imports
were shown to be directly causing injury.  Canada thus proposed introduction of "special provisions" to clarify
the term "domestic industry" in such situations. ( See MTN.GNG/NG/10/W/25, Framework for Negotiations –
Communication from Canada, 28 June 1989, at Section 2(c).  Canada made an identical proposal later in 1989 inthe context of the anti-dumping negotiations.  See MTN.GNG/NG8/W/65, dated 22 December 1989.)  The US
proposal explicitly referred to "at least two disputes" over what constitutes the 'domestic industry' incountervailing duty investigations involving processed agricultural products, and suggested a review of the
relevant provisions focusing on the relationship between primary and processed product producers where the
production of the primary product was wholly or primarily dedicated to production of the processed product.(See MTN.GNG/NG10/W/1, Communication from the United States, dated 16 March 1987, at section II.E.  The
United States made an identical proposal in the anti-dumping negotiations later in 1987.  See
GNG.MTN/NG8/W/22, dated 14.12.87.)  Australia's propos al voiced concern over a panel's "unduly narrow"
interpretation of the term "domestic industry", which in Australia's view would deny any remedy against
injurious subsidization to producers of agricultural and other raw materials destined for transformation into acommonly traded form, and proposed the development of an agreed interpretation of the domestic industrydefinition, in relation to this type of product. (MTN.GNG/NG10/W/15, Communication from Australia, 30November 1987, at paragraphs 14-15).
152 See MTN.GNG/NG10/W/7, Communication from the EEC, 11 June 1987; MTN.GNG/NG10/W/30,
Communication from the Nordic Countries, 27 No vember 1989; MTN.GNG/NG10/ W/11, Communication from
Korea, 22 October 1987, as well as MTN.GNG/NG10/W/36 and MTN.GNG/NG8/W/10, dated 30.09.87), alsofrom Korea; MTN.GNG/NG10/W/14, Communication from Egypt, 30 November 1987;MTN.GNG/NG10/W/24, Communication from Braz il, 10 November 1988; MTN.GNG/NG10/W/33,
Communication from India, 30 November 1989.
153 A note by the Secretariat reporting on the 7 and 10 March 1988 meeting of the negotiating group on
safeguards indicates that "[m]any delegations stressed that 'domestic producers' and 'like or directly competitive
products' had to be clearly defined in order to avoid the abusive use of safeguard actions.  One delegation saidthat there should be limits on both the upstream and downstream of products to qualify as like or directly
competitive products". ( See MTN.GNG/NG9/5, dated 22.04.98).WT/DS177/R
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7.114  We thus conclude that the Uruguay Round proposals for and objections against changing the
'domestic industry' definition demonstrate that the issue was extensively discussed in the Uruguay
Round negotiations, especially in the context of s ubsidies, but also in respect of anti-dumping and
safeguards.  These negotiating documents also demonstrate that the discussion was heavily influenced
by the panel reports on Canada – Beef and US – Wine and Grapes .  However, in the end the relevant
Uruguay Round negotiating groups did not agree to any broadening of the industry definitions in the
texts of the Anti-dumping, SCM and Safeguards Agreements, and the relevant provisions remained
unchanged from the predecessor provisions in the Tokyo Round Codes.
(d) "Directly competitive products"
7.115  We recall, and wish to emphasize, that our analysis of the industry definition adopted by the
USITC, and of the methodology applied by the USITC in arriving at that definition, have to do only
with that part of SG Article 4.1(c) that pertains to the "like product" and the domestic industry
producing it.  That is, our analysis does not address the issue of "directly competitive" products and
the industry producing them.  Because the USITC explicitly did not make any determination
concerning "directly competitive" products,154 this issue is not before us and we do not speculate as to
whether live lambs conceivably could be considered "directly competitive" with imported lamb
meat.155  Nor does the United States argue before us that they could.
7.116   Given that the USITC plurality did not make  a finding on whether lamb meat and live lamb
may be considered as "directly competitive",  if we were to address this issue, we would substitute our
own analysis and judgment for that of the USITC and would thus violate the principle that panels in
disputes under the Safeguards Agreement must not engage in a de novo  review of the evidence before
a competent national authority.
7.117  This being said, it is clear on the face of the Safeguards Agreement that the product coverage
of a safeguard investigation can potentially be broader than in an anti-dumping or countervail case, to
the extent that "directly competitive" products are involved.  In our view, this apparent additional
latitude that exists under the Safeguards Agreement may be related to the basic purpose of the
Safeguards Agreement and GATT Article XIX, namely to provide an effective safety valve forindustries that are suffering or are threatened with serious injury caused by increased imports in the
wake of trade liberalization.
                                                     
154 In particular, the USITC plurality defined lamb meat as the like product, and identified the growers,
feeders, packers and breakers as producers of that like product.  The USITC plurality did not define any product
as "directly competitive" with lamb meat, and indeed explicitly stated that it had not made such a determinationin respect of live lambs. ( See USITC Report, Exh. US-1, at I-11).  Therefore, it is not relevant to this Panel's
review of the domestic investigation and determination that two individual Commissioners stated their view thatdomestically produced live sheep were "directly competitive" with imported lamb meat (Id. at I-8-9, footnotes7-8) because the USITC as a whole did not rely on the concept of "directly competitive" products (Id. at I-10,
footnote 10).
155 The interpretation of the phrase "directly competitive products" in SG Article 4.1(c) has not been
addressed by any panel to date.  Indeed, GATT Article III is the only context in which the concept of directly
competitive products has been addressed in GATT/WTO dispute settlement practice ( See Panel Report on Chile
– Taxes on Alcoholic Beverages , adopted on 12 January 2000, WT/DS87/110/R, paragraphs 7.14ff.  Appellate
Body Report on Japan – Taxes on Alcoholic Beverages , adopted on 1 November 1996, WT/DS8/10/11/AB/R,
paragraph 6.28;  Panel and Appellate Body reports on Korea – Taxes on Alcoholic Beverages , adopted on 17
February 1999, WT/DS75/84/R and WT/DS75/84/AB/R, paragraph 10.38;  Report of the Panel on Japan –
Customs Duties, Taxes and Labelling Practices  on Imported Wines and Alcoholic Beverages , adopted on 10
November 1987, BISD 34S/83;  Report of the Working Party on Border Tax Adjustment , adopted on 2
December 1970, BISD 18S/97, paragraph 18).  But it is not clear whether or to what extent the interpretation of
this concept in the context of GATT Article III would necessarily be relevant to SG Article 4.1(c).WT/DS177/R
WT/DS178/R
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5. Findings on the definition of the domestic industry
7.118  In the light of our considerations above, we find that the USITC's inclusion in the lamb meat
investigation of input producers (i.e., growers and feeders of live lamb) as producers of the like
product at issue (i.e. lamb meat) is inconsistent with Article 4.1(c), and thus also with Article 2.1 of
the Agreement on Safeguards.
6. "Judicial economy" and the anal ysis of additional claims
7.119  A finding that the industry definition used by the USITC is inconsistent with SG
Article 4.1(c) would appear to compromise the investigation and determination overall.  In this
respect, we recall the statements of the Appellate Body on "judicial economy" in the dispute on
United States – Shirts and Blouses .156  But we also note that in a subsequent dispute on Australia –
Measures Affecting the Importation of Salmon , the Appellate Body focuses on the need for panels to
address all claims and/or measures necessary to secure a positive solution to a dispute and adds that
providing only a partial resolution of the matter at issue would be false judicial economy.157  It is in
the spirit of the Appellate Body's statements in Australia – Salmon  that we continue with an analysis
of other claims in the alternative, assuming arguendo  either (1) that the USITC's industry definition
were consistent with the Safeguards Agreement or (2) that, as the United States argues in the
alternative, the USITC would have made a finding of threat of serious injury even if the industry
definition had been limited to packers and breakers.
D. THREAT OF SERIOUS INJURY
1. The Safeguard Agreement's standard for analysing threat  of serious injury
(a) Introduction
7.120  According to SG Article 4.1(b):
"’threat of serious injury’ shall be understood to mean serious injury that is clearly
imminent, in accordance with the provisions of paragraph 2.  A determination of the
existence of a threat of serious injury shall be based on facts and not merely on
allegation, conjecture or remote possibility;"
                                                     
156 In United States – Shirts and Blouses , the Appellate Body stated:
"Nothing in this provision or in previous GATT practice requires a panel to examine all  legal claims
made by the complaining party.  Previous GATT 1947 and WTO panels have frequently addressed only thoseissues that such panels considered necessary for the resolution of the matter between the parties, and havedeclined to decide other issues.  Thus, if a panel f ound that a measure was inconsistent with a particular
provision of the GATT 1947, it generally did not go on to examine whether the measure was also inconsistent
with other GATT provisions that a complaining party may have argued were  violated.  …".   (Footnotes
omitted).  See Appellate Body Report on United States – Measures Affecting Imports of Woven Wool Shirts and
Blouses , adopted 23 May 1997, WT/DS33/AB/R, at.18.
157 In Australia – Salmon , the Appellate Body stated:
"The principle of judicial economy has to be applied keeping in mind the aim of the dispute settlement
system.   This aim is to resolve the matter at issue and 'to secure a positive solution to a dispute'.  To provide
only a partial resolution of the matter at issue would be false judicial economy.  A panel has to address thoseclaims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendationsand rulings so as to allow for prompt compliance by a Member with those recommendations and rulings 'inorder to ensure effective resolution of disputes to the benefit of all Members.'"  (Footnotes omitted).  See the
Appellate Body Report on Australia – Measures Affecting the Importation of Salmon , adopted on 6 November
1998, WT/DS18/AB/R, paragraph 223.WT/DS177/R
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"serious injury" in turn is defined in SG Article 4.1(a) as "… a significant overall
impairment in the position of a domestic industry."
7.121  SG Article 4.2(a) enumerates relevant injury factors for safeguard investigations:
"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 factors of an
objective and quantifiable nature having a bearing on the situation of that industry, in
particular, the rate and amount of the increase in imports of the product concerned inabsolute and relative terms, the share of the domestic market taken by increased
imports, changes in the level of sales, production, productivity, capacity utilisation,
profits and losses, and employment."
7.122  The USITC's determination concerning threat  of serious injury reads as follows:
"In view of the declines during the period of investigation in the domestic industry's
market share, production, shipments, profitability and prices among other difficulties
that the domestic industry is facing, we conclude that it is threatened with imminent
serious injury."
158
7.123  Australia and New Zealand criticise this determination as equivalent to a finding that –
because there was not actual serious injury at the time of the USITC's determination – there must havebeen necessarily a threat of serious injury.
159  The complainants submit that this is not a sufficient
basis for a finding of imminent threat and that in fact increased imports caused neither actual injury of
a serious degree nor threat thereof.
7.124  For the complainants, a finding of declines in certain indicators by itself, with no further
explanation substantiating why these declines constitute a threat of a "significant overall impairmentin the position of the domestic industry", is not sufficient to demonstrate the existence of imminent
serious injury.
160  The complainants argue in particular that the USITC's analysis of threat of serious
injury is flawed because it was not "prospective", i.e., it was rather based on past data, and should, in
line with the Korea – Resins  panel findings161, instead have been based on projections as to how the
industry was likely to perform in the immediate future.
7.125  The United States contends that the threat finding concerning declines in various indicators
and "other difficulties" demonstrates why the USITC regarded the industry as being on the verge of a
                                                     
158 USITC Report, Exh. US-1, at I-21.
159 Australia and New Zealand state that the USITC found that there was no present serious injury,
citing, in answer to question 11 from the Panel, the following statements which were made in the USITC’s
remedy recommendations:  "[W]e have taken into account that the US lamb industry is not currentlyexperiencing serious injury, but rather is threatened wi th serious injury" (USITC Report, Exh. US-1, at I-29);
and "[W]e found a threat of serious injury … as opposed to present serious injury" (USITC Report, Exh. US-1,at I-33, fn 166).
The United States contends that there was no express statement by the USITC that there was no actual
serious injury.
160 For example, Australia argues that "[t]here is no analysis in the USITC Report how 'the declines'
and 'other difficulties' during the period of investigation proved that serious injury was clearly imminent inFebruary 1999…".  Australia's Response to the Panel's Question 7.
161 Panel Report on Korea – Anti-dumping Duties on Imports of Polyacetal Resins from the United
States  (ADP/92), adopted by the Committee on Anti-dumping Practices on 27 April 1992, BISD 40S/205.WT/DS177/R
WT/DS178/R
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significant overall impairment of its position.  The United States also submits that it based its threat
determination on the most recent data available, in particular the year 1997 and interim 1998
(January - September), which reflects the most recent trends and is clearly most relevant for whether
significant overall impairment of the domestic industry is imminent.
(b) Interpretation by the Panel
7.126  Before discussing the USITC determination on the existence of threat of serious injury
resulting from the lamb investigatio n in this dispute, we address the question of the relevant legal
standard for a competent national authority to appl y in determining threat of serious injury, and the
benchmark for assessing the data gathered in an investigation against that standard.
7.127  The Safeguards Agreement contains no explicit guidance on any specific methodology that a
competent national authority must employ when establishing threat of serious injury.  The first
sentence of SG Article 4.1(b) merely states that domestic industry must face "serious injury" –
defined with reference to the injury factors listed in SG Article 4.2(a) – which is clearly "imminent".
The ordinary meaning of "imminent" connotes that the industry's significant overall impairment needs
to be "ready to take place"162 or "be impending, soon to happen … event, especially danger or
disaster".163  The imminent injury that is threatened must be "serious".
7.128  In line with this emphasis on the imminent nature of threat, the article's second sentence
requires that such a determination has to be based on facts and not on allegation, conjecture, or remote
possibility.  "Allegation" means "an assertion, especially one made without proof".164  "Conjecture"
connotes "an opinion or conclusion based on insufficient evidence or on what is thought probable,
guesswork, guess".165  In turn, remote "possibility" means "contingency, likelihood, chance".166
7.129  From these elements of SG Article 4.1(b), i.e ., the emphasis on clear imminence of significant
overall impairment, the requirement to base a threat determination on objective facts, and the rejection
of "assertions", "opinions" and "conclusions" that are not based on sufficient factual evidence, it is
possible to draw at least some inferences on how to conduct a threat analysis.  These elements suggest
(i) that a threat determination needs to be based on an analysis which takes objective and verifiable
data from the recent past (i.e. the latter part of an investigation period) as a starting-point so as toavoid basing a determination on allegation, conjecture or remote possibility ; (ii) that factual
information from the recent past complemented by fact-based projections concerning developments in
the industry's condition, and concerning imports, in the imminent future needs to be taken into
account in order to ensure an analysis of whether a significant overall impairment of the relevant
industry’s position is imminent  in the near future; (iii) that the analysis needs to determine whether
injury of a serious  degree will actually  occur in the near future unless safeguard action is taken .
7.130  Contextual guidance for safeguards cases may be found in the provisions of the Agreements
on Antidumping (AD) and Subsidies and Countervailing Measures (SCM) providing specific rules for
the determination of a threat of material injury in anti-dumping and countervailing duty
investigations.
167
                                                     
162 Webster's New Encyclopaedic Dictionary (1994), at 496.
163 Oxford English Dictionary, at 1316.
164 Oxford English Dictionary, at 54.
165 Oxford English Dictionary, at 480.
166 Oxford English Dictionary, at 2302.
167 These provisions refer, inter alia , to those factors which the USITC took into account in its
causation analysis (and which the US argues are relevant to its threat finding).WT/DS177/R
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7.131  In particular, AD Article 3.7 and SCM Article 15.7 state that in making a determination of
threat of material injury, investigations "should consider, inter alia , such factors as a significant rate
of increase in imports indicating a likelihood of substantially increased importation; sufficient freely
disposable capacity in the exporting countries or an imminent substantial increase therein; the prices
of the imported goods, as an indication of whether the imports are likely to suppress or depress thedomestic producers' prices; and inventories of the product being imported".
168  These provisions go on
to say that the totality of the factors must lead  to the conclusion that further dumped or subsidized
imports are imminent, and that unless protective action is taken , material injury will occur.
7.132  The overall object and purpose of the Safeguar ds Agreement, as discussed in the section on
domestic industry above, is to provide a mechanism for  "emergency action" where, in the wake oftrade liberalization, increased imports cause or threaten to cause serious injury to the domestic
industry producing like or directly competitive products.  This objective to provide for a remedy only
in this type of emergency situation applies a fortiori  when the relevant domestic industry is threatened
with significant overall impairment of an imminent  nature, but does not presently suffer serious injury.
We cannot see how a future-oriented analysis of whether, in the absence of any safeguard action,injury of a serious degree is soon to occur could be carried out if it were not based on the most recent
data available, combined with factual information as to expected future developments concerning
imports and the condition of the domestic industry.
7.133  The parties refer to the reports of the panels on Korea – Resins,  US – Softwood Lumber , and
Mexico – Syrup
169 as relevant for developing an interpretation of the standard that is required in an
analysis of threat of serious injury under the Safeguards Agreement, although these reports concerned
threat analyses in antidumping disputes.  We find these reports relevant as well, and in our view, theystand for the general proposition that in contingent trade remedy cases an evaluation of whether threat
of injury is clearly imminent  requires a fact-based, future-oriented  analysis.
7.134  The Korea – Resins  panel found that:
"… a proper examination of whether a threat of material injury was caused by dumped
imports necessitated a prospective  analysis of a present situation with a view to
determining whether a 'change in circumstances' was 'clearly foreseen and imminent'.
… [such] determination … required an analysis of relevant future developments with
regard to the volume, and price effects of  the dumped imports and their consequent
impact on the domestic industry ."
170
                                                     
168 The list in the  SCM Agreement also includes the "nature of the subsidy or subsidies", and the likely
trade effects thereof (presumably referring to whether th e subsidies are export subsidies or import subsidies, as
opposed to production or other "domestic" subsidies).  The AD Agreement in a footnote provides as an example"though not an exclusive one", "convincing reason to believe that there will be, in the near future substantially
increased importation of the product at dumped prices".
The Tokyo Round Anti-dumping Code under which the Korea - Resins  dispute was adjudicated did not
elaborate on the nature of the factors to be examined in a threat case except to cite as a possible example the
convincing reason to believe that there would be substantially increased dumped imports.  The Tokyo RoundSubsidies Code in the context of threat cited only the nature of the subsidy and its likely trade effects.  Thus, it
was in the Uruguay Round that the more elaborated framework for assessing threat, which refers almost
exclusively to future developments in imports, and which closely resembles the analysis set forth in Korea -
Resins  was explicitly introduced into the relevant provisions concerning anti-dumping and countervailing duty
investigations.
169 Panel Report on Mexico – Anti-Dumping Investigation Of High Fructose Corn Syrup (HFCS) from
The United States , WT/DS132/R and Corr.1, not appealed, adopted 24 February 2000.
170 Panel Report on Korea – Resins , op. cit. at paragraph 271.WT/DS177/R
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The prospective analysis referred to by the Korea - Resins  panel concerned the industry's
current condition as well as future trends in import volumes and prices.
7.135  The panel report on US – Softwood Lumber171 affirms that such threat analysis needs to be
based on objective factual evidence.  It stated that "this concept had been interpreted as requiringfactual evidence of a clearly foreseen and imminent change in circumstances in which subsidised
imports would cause material injury.  Thus a determination of threat of material injury could not be
based on mere speculation as to possible future events."
172  Applying this reasoning to the safeguards
context, the prospective analysis of the factual evidence would need to establish that a significant
overall impairment of the industry's condition would happen soon unless safeguard action weretaken.
173
7.136  The panel on Mexico – Syrup  made a similar finding, namely that a threat determination
means that "material injury would occur in the absence of an anti-dumping duty or price
undertaking".174  It also makes clear that the "threat" factors enumerated in the Antidumping
Agreement must be considered in addition to , and not instead of , the factors concerning the state of
the domestic industry.175  Thus, at least in the context of anti-dumping and countervailing
investigations, the threat analysis must take into account, in addition to the state of the industry,
factors relating to the likelihood of increased imports in the immediate future at prices that are likely
to suppress or depress domestic producers' prices.  The Safeguards Agreement does not provide for a
list of particular "threat" factors.  Thus the factors for evaluating actual serious injury listed in SG
Article 4.2(a) need also to be basis for an investigation of threat of serious injury.  However, we
believe that the above statement of the Mexico – Syrup  panel provides useful guidance also for
safeguards disputes, and note that it confirms our view that an examination of the existence of  threat
of serious injury implies a future-oriented analysis of the domestic industry’s condition which is
distinct from an examination of whether actual  serious injury exists.176
7.137  In the present dispute, the complainants have raised a number of interrelated questions
concerning the analytical approach used by the USITC’s threat findings.  In this regard, thecomplainants have argued (1) that the USITC fa iled to consider all of the factors listed in
SG Article 4.2(a); (2) that the USITC failed to conduct a "prospective" analysis in reaching its
conclusion that a threat of serious injury existed; and  (3) that the time period focused on by the
USITC in reaching this conclusion was not the correct one.  In addition, the complainants have argued
that the data on which the USITC relied was not sufficiently representative of the industry as a whole.Moreover, and as addressed in another section, the complainants claim that the industry definition
used by the USITC is overly broad.
                                                     
171 Panel Report on United States – Measures Affecting Imports of Softwood Lumber from Canada ,
adopted by the Committee on Subsidies and Countervailing Measures on 27-28 October 1993, SCM/162, BISD40S/358.
172 Panel Report on US – Softwood Lumber , op.cit., at paragraph 402.
173 In the context of safeguard measures under the Agreement on Textiles and Clothing, the panel on
US – Underwear  noted that a threat finding has to "demonstrate that unless action is taken, damage will most
likely occur in the near future."  That panel also  affirmed the need for a prospective analysis.  See Panel Report
on United States – Restrictions on Imports of Cotton and Man-Made Fibre Underwear , WT/DS24/R, adopted
on 25 February 1997, at paragraph 7.55.
174 Panel Report on Mexico – Syrup , op. cit., at paragraph 7.125.
175 Panel Report on Mexico – Syrup , op. cit., at paragraph 7.131 et seq.
176 See, also Argentina – Footwear , op. cit., at paragraph 8.284, in which the Panel found that an
analysis of threat of serious injury in the safeguards context is separate from an analysis of actual serious injury:
"[t]he question of threat, whether instead of or in addition to a finding of present serious injury, must be
explicitly examined in an investigation and supported by the eviden ce in accordance with Article 4.2(a-c).WT/DS177/R
WT/DS178/RPage 58
7.138  As we noted above, in view of our findings in respect of industry definition, we could
exercise judicial economy in respect of the claims concerning the USITC’s threat finding.  We further
recognize that depending on our findings regarding representativeness of the data, an issue that we
take up below, there might be no need to address the analytical issues that have been raised
concerning the USITC’s threat finding.  However, we consider it important for our task "to make suchfindings as will assist the DSB"
177 in carrying out its dispute settlement functions that we  address the
threat claims as well.  We do so by taking at face value, arguendo,  the data and reasoning contained in
the USITC’s report, and without prejudice to our above finding concerning the definition of the
domestic industry in this investigation.  Furthermore, while recognising the interconnectedness of the
various issues raised in the context of the threat claims, we choose, again for the sake of clarity, toaddress these issues separately.
2. Whether the USITC evaluated in this investigation all injury factors listed in
SG Article 4.2(a)
(a) Introduction
7.139  SG Article 4.2(a) requires that the competent authorities "shall evaluate all relevant factors of
an objective and quantifiable nature having a bearing on the situation of that industry, in particular,
…" the factors listed in that provision.  The language in this provision is mandatory ("shall…").  Also,
this list is preceded by the term "in particular…".  On the basis of the wording of the provision, we
therefore concur with the shared view of the parties that all of the factors listed in SG Article 4.2(a)
must be evaluated,
178 and, moreover, we consider that factors not enumerated in SG Article 4.2(a) that
are "relevant" must be examined.  An examination of any one of those factors in a given case may
lead the investigating authority to conclude, however, that a particular factor is not of an objective orquantifiable nature or probative in the circumstances of a particular industry (or segment) in a
particular case.
7.140  In examining the USITC's threat of serious inju ry determination we examine, first, whether
the USITC evaluated " all relevant factors of an objective and quantifiable nature having a bearing on
the situation of [the] industry", in particular, the factors listed in SG Article 4.2(a), as well as anyother relevant factors.  Second, we examine whether the approach  followed by the USITC consisted
of a fact-based, future-oriented consideration of increased imports and of the condition of the US
domestic industry.
179
7.141  An initial issue before us is whether, accepting arguendo  the USITC's industry definition, all
factors need to be investigated in detail for all identified industry segments  (i.e., growers, feeders,
packers and breakers) or whether an investigation of certain injury factors with respect to particular
                                                     
177 See Article 7.1 of the DSU.
178 We find support for our view in the Appellate Body Report in Argentina – Footwear, op. cit.
There, the Appellate Body stated:  "We agree with the Panel's interpretation that Article 4.2(a) of the Agreement
on Safeguards  requires a demonstration that the competent authorities evaluated, at a minimum, each of the
factors listed in Article 4.2(a) …".  Appellate Body Report, Argentina-Footwear , paragraph 136;  Panel Report,
Argentina-Footwear , op. cit., at paragraph 8.123.  See also Panel Report on Korea – Dairy, op. cit., at paragraph
7.55.  Regarding disputes concerning safeguard measures under the Agreement on Textiles and Clothing, the
panel and Appellate Body Reports on US – Underwear  and US – Shirts and Blouses follow the same line
holding that at least all the injury factors applicable under the Textiles Agreement need to be examined.
179 Here again we emphasize that for purposes of our analysis of this question we accept, arguendo , the
facts in the USITC report at face value, without prejudice to our consideration of the issues before us, including
industry definition and representativeness of data.WT/DS177/R
WT/DS178/R
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segments only would be sufficient to meet the requir ements of SG Article 4.2(a).  In the light of the
general standard of review, as it applies to contingent trade remedy cases, we consider the latter as
sufficient if there is an adequate explanation in the report published by the USITC, of (i) why
conclusive inferences from the data concerning one industry segment can be drawn for another
industry segment,180 or (ii) why the factual constellation in particular industry segment in the given
case does not permit data collection (i.e., not a "factor of a objective  and quantifiable  nature"), or (iii)
renders a certain injury factor not probative in the circumstances of a particular industry segment (i.e.,
not a factor " having a bearing  on the situation of that industry" within the meaning of SG
Article 4.2(a).
(b) Summary of the injury data collected by the USITC
7.142  A review of the data, factor by factor, and industry segment by segment shows the following
for the period from the end of 1996 to September 1998 (the part of the investigation period which the
USITC stated formed the basis of is threat finding):
(i) Production and shipments
7.143  For growers, production and shipment volume of lambs increased between 1996 and interim
1998 annualised.181  Total shipment value and average unit value declined.
7.144  For feeders, production, shipment volume and value, and average unit value declined between
1996 and 1998 interim annualised.182
7.145  For packers, production, shipment volume, value and average unit value all declined between
1996 and interim 1998 annualised.183  Shipment volume declined between 1996 and 1997, then
increased slightly in interim 1998. Shipment value declined steadily throughout the period.184
7.146  For breakers, production and shipment volume and value increased between 1996 and interim
1998 annualised, and average unit value declined.185
(ii) Capacity and capacity utilisation
7.147  As regards growers, the USITC did not collect data on capacity and utilisation because it was
considered impractical given the variability in land conditions from ranch to ranch.
7.148  For feeders, data on capacity and capacity utilisation was also not collected because it was
considered impractical given the difficulty of measuring a number of variables including length of
time that lambs are kept by feeders, which may vary with market conditions.
                                                     
180 "In considering each of the factors listed in SG Article 4.2, and any others found to be relevant by
the authority, the investigating authority has two options:  for each factor, the investigating authority canconsider it either for all segments, or if it decides to ex amine it for only one or some segment(s), it must provide
an explanation of how the segment(s) chosen is (are) objectively representative of the whole industry".  See
Panel Report on Korea – Dairy , op. cit., at paragraph 7.58.
181 Table 1, USITC Report, Exh. US-1, at  II-12.
182 Table 2, Id. at II-13.
183 Tables 8 and 9, USITC Report, Exh. US-1, at II-22 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
184 Table 5, USITC Report, Exh. US-1, at  II-17.
185 Tables 3 and 4, USITC Report, Exh. US-1, at II-16 (indexed data, Annex 3-7, US Answer to Panel
Question 24).WT/DS177/R
WT/DS178/RPage 60
7.149  For packers, capacity increased and production and capacity utilisation decreased between
1996 and interim 1998.186
7.150  For breakers, capacity increased by 30 per cent between 1996 and interim 1998.  Capacity
utilisation declined by 17 per cent.187  The USITC states that the decline in capacity utilisation
resulted from the increase in capacity which was outpaced by the increased production reported to theUSITC by breakers.
(iii) Employment
7.151  In respect of growers, the USITC notes that US Department of Agriculture ("USDA") data
show a 20 percent decline in the number of growin g establishments and that the sharp declines in
slaughter suggest that employment indicators (such as the number of workers and the number of hoursworked) declined during the period of investigation.
7.152  In respect of growers/feeders, the report also notes, however, that the questionnaire data show
increases in the number of workers and the number of  hours worked of both growers and feeders.  The
data also show small to moderate increases in these indicators between 1996 and interim 1998.
188
7.153  In respect of packers/breakers, no employment data were provided.  The USITC report states
only that data were requested from growers and feeders, and does not mention packers and breakers in
this context.  It is not clear whether the USITC even requested data from packers/breakers.
(iv) Market share
7.154  For growers/feeders, no market share data were collected or calculated as they hold 100 per
cent off market for live lambs.
7.155  For packers/breakers, the US producers' share of the US lamb meat market declined from
83.4 per cent in 1996 to 80.3 per cent in 1997 and to 76.9 per cent in interim-1998.  In 1993, it hadbeen at 88.8 per cent.  Thus, imports' market share increased from 16.6 per cent in 1996 to 19.7 per
cent in 1997 and to 23.3 per cent in interim 1998.
189
(v) Productivity
7.156  In terms of growers and feeders, productivity remained "relatively constant" during the period
of investigation.190
7.157  In terms of packers and breakers, the USITC characterised productivity as "relatively
constant" during the period of investigation, on the basis of information on direct labour costs.191
                                                     
186 Table 8, USITC Report, Exh. US-1, at II-22 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
187 Table 4, USITC Report, Exh. US-1, at II- 16 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
188 Table 11, USITC Report, Exh. US-1, at II-23.
189 Table 32, USITC Report, Exh. US-1, at II-50.
190 Productivity was calculated from questionnaire data, referenced in the USITC Report (Exh. US-1)
in footnote 97, at I-20.
191 Referenced in USITC Report, Exh. US-1, footnote 98, at I-20.WT/DS177/R
WT/DS178/R
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(vi) Inventories
7.158  For growers and feeders, according to the USITC report, inventory data were not collected or
discussed, but this factors is also not listed in SG  Article 4.2(a).  In any case, growers and feeders of
live lamb are unlikely to have inventories of lamb meat.
7.159  Inventories of packers decreased during the 1993-1995, then increased between 1995 and
1997, before decreasing in interim 1998.  Inventories were apparently at a low level (i.e., "remained
under" an undisclosed percentage) throughout that period of investigation.  The USITC also found
that inventories were a not particularly probative injury factor in this case due to the perishability of
fresh lamb meat.192
(vii) Financial performance (profit and loss)
7.160  Regarding growers, net sales value increa sed between 1996 and 1997, then decreased in
interim 1998 compared to interim 1997.  Net income increased between 1996 and 1997, although it
remained well below the levels of 1993-1995193.  Net income decreased between interim periods.  As
a percent of sales, net income increased from 0.7 percent in 1996 to 2.8 percent in 1997, and (for the
smaller group of companies that reported data for the interim periods) declined from 22.2 percent to13.5 percent between interim 1997 and 1998.
194
7.161  Regarding feeders, net sales value increase d between 1996 and 1997, then declined between
interim periods.  Net income went from positive to negative between 1996 and 1997, with the loss
increasing several-fold in interim 1998.  As a percent of net sales, net income declined from a profit
of 3 percent to a loss of 0.7 percent between 1996 and 1997, and to a loss of 8.4 percent in interim
1998.195
7.162  Regarding grower/feeders, no data were reported for the interim periods. Net sales value
increased between 1996 and 1997, and total expenses also increased, more rapidly than did net sales.
No indexed data were provided by the USITC for profits and losses.  The unit value of sales for
slaughter lambs declined, while it increased for feeder lambs and cull ewes.196
7.163  Regarding packers, total net sales declined between 1996 and 1997, and continued to decline
in interim 1998.  The unit value of sales decreased between 1996 and 1997 and continued to decreasein interim 1998.  Operating income dropped from positive to negative between 1996 and 1997, and
the losses deepened in interim 1998.
197
7.164  Regarding breakers, there was only one reporting company.  For purposes of protecting
business confidential information, the panel did not request, and the United States did not submit this
information, also not in indexed form.198
                                                     
192 USITC Report, Exh. US-1, at I-20.
193 Complainants attribute this decline in income to the elimination of the Wool Act subsidies.
194 Table 12, USITC Report, Exh. US-1, at II-25. We note that only 27 of 49 producers provided
interim period data, so these are not comparable to the full year data.
195 Table 15, USITC Report, Exh. US-1, at II-30-32.
196 Table 14, USITC Report, Exh. US-1, at II-29 (indexed data, Annex 3-7, US Answer to Panel
Question 24).  No data were provided for the interim periods.
197 Table 16, USITC Report, Exh. US-1, at II-33 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
198 Table 20, USITC Report, Exh. US-1, at II-34.WT/DS177/R
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7.165  Regarding packer/breakers, net sales value decreased steadily between 1996 and interim
1998.  Operating income in 1997 and interim 1998 declined sharply from the 1996 level.  The unit
value of sales also declined during this period.199
(viii) Difficulty of generating capital
7.166  For growers/feeders, the USITC report indicates that a number of them reported difficulties in
generating adequate capital to finance the modernisation of their plant and equipment (i.e.,
cancellation/rejection of expansion plans, reductions in the size of capital investments, bank rejection
of loans, reduced credit ratings, and difficulty in repaying loans).200
7.167  For packers/breakers, the USITC indicates that a number of them reported difficulties in
recouping new investments and in repaying loans.201
(ix) Prices and price trends
7.168  The USITC collected data on a number of specific products202 and also examined USDA
wholesale price data on various products.203  The data collected by the USITC data generally show US
producers' prices at a lower level at the end of the interim-1998 than during 1997, although these
prices generally turned upward during interim 1998.  A similar finding is made with respect to theimport prices.
7.169  The USITC states that some packers and breakers reported having to reduce prices to compete
with low-priced imports.
7.170  USDA data on prices for live lambs purchased for slaughter also were lower in interim 1998
than in 1997, although they increased somewhat over the course of the interim 1998 period.  The
USDA data also show some upturns in the interim pe riod for certain cuts of lamb meat, although here
again the prices at the end of the interim period remained below the 1997 level.
7.171  The USITC data on prices included as well prices of imported lamb meat, as well as margins
of under/overselling by the imported product over the domestic product.
204  The report on the
investigation notes that the imported lamb consistently undersold the domestic lamb for all products
except one, and that the average margins of underselling by the Australian product ranged from 29.0
to 42.0 percent.  Underselling by the New Zealand product ranged from 19.7 to 36.5 percent. TheUSITC determination does not refer to these price differentials, but rather notes the declining trends in
the unit values and prices of imports.
                                                     
199 Table 18, USITC Report, Exh. US-1, at II-33 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
200 USITC Report, Exh. US-1, at I-21, Appendix F.
201 USITC Report, Exh. US-1, at I-21.  The data show that packers made large capital investments in
1997, and packer/breakers in 1995 and 1996.
202 Tables 39-43, USITC Report, Exh. US-1, at II-75-76 (indexed data, Annex 3-7, US Answer to Panel
Question 24).
203 USITC Report, Exh. US-1, figures 5-10, at II-58 to II-61.
204 USITC Report, Exh. US-1, at II-51ff.WT/DS177/R
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(c) Evaluation by the Panel
7.172  We emphasize again here that our evaluation of the USITC's consideration of the factors
listed in SG Article 4.2(a) is based on our acceptance, arguendo , of the industry definition that in fact
was used by the USITC in the investigation.  That is, taking at face value the industry defined as
encompassing growers, feeders, packers and breakers, the question that we address here is whether theUSITC adequately addressed all of the SG Article 4.2(a) factors in respect of the industry so defined.
Of course, this in no way alters our finding above in respect of that industry definition as such.
7.173  We recall that the USITC stated that for growers and feeders of live lamb, by definition there
can be no inventories  of lamb meat and that for packers and breakers, while inventories of packers
rose slightly, this factor is not particularly probative for the industry's condition due to theperishability of meat.
7.174  The USITC report in this case also states that collection of capacity  data from growers and
feeders was impractical due to measurement variations among individual growers.  For similar
reasons, the USITC did not place much em phasis on the information on increasing capacity  of
packers and breakers.  The USITC acknowledges though that declines in capacity utilisation  were
also due to the fact that capacity increased at a faster rate than production.
205
7.175  Moreover, the treatment of employment  in respect of packers and breakers is very cursory,
essentially consisting of an inference drawn from these establishments’ financial information as to
labour productivity.206
7.176  Furthermore, we note that "total net sales" are only one of the possible indicators for an
industry's financial performance .  It is clear from the USITC report that this factor was indeed
investigated for the different industry segments.  We recall that we did not request such informationregarding breakers  for reasons of protecting business confidentiality, but we consider that the
financial information before us was sufficient for a review of the industry's profits and losses.
7.177  We emphasise that more thorough treatment of these factors (i.e., capacity utilisation and
employment) would have been better.  However, we also note that the USITC has investigated all the
relevant injury factors listed in SG Article 4.2(a), consistent with WTO dispute settlement practice.
207
We also consider that, where the USITC did not collect  data concerning a particular injury factor with
respect to all industry segments, the USITC report provides an adequate explanation for that.  Either
the USITC report explains how inferences can be  drawn from the data collected with regard to one
segment for another  segment for which data were not collected, or it explains why, in the
circumstances of the particular industry segment at issue, the collection of data of an objective andquantifiable nature was not possible, or it explains why a specific injury factor is not probative for that
segment.
7.178  However, these preliminary considerations about the analysis of injury factors are subject to
our discussions concerning the analytical approach taken by the USITC in reaching its threat
determination as well as to whether the data collected are representative of a "major proportion" of the
                                                     
205 USITC Report, Exh. US-1, at I-20.
206 Tables 16-20, USITC Report, Exh. US-1, at II-33-34 (indexed data, Annex 3-7, US Answer to Panel
Question 24).  USITC Report, Exh. US-1, at I-20.
207 See Panel and Appellate Body Reports on Argentina – Footwear , op. cit., at paragraph 8.123 and
paragraph 136, and Panel Report on Korea – Dairy , op. cit., at paragraph 7.55 in respect of the Safeguards
Agreement.WT/DS177/R
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producers in the relevant industry segments, and whether the USITC properly defined the domestic
industry (see section VII.C above).
3. The USITC's analysis of threat  of serious injury in this investigation
(a) Projections relevant to a threat of injury finding
7.179  The complainants claim that the USITC approach to examining whether threat of serious
injury exists does not meet the standard set by SG Article 4.1(b) for a prospective analysis of the
industry's condition.  In particular, New Zealand208 argues that there should be an examination of the
trends in supply and demand in the domestic market, of the factual evidence of the position of the
domestic industry in the past and an extrapolation into the future, and of trends in domestic and
imported prices of the product.  Based on these past trends and any evidence of forward contractprices, there should be an analysis of how prices were likely to develop in the future.  This is
particularly important in the case of seasonal or agricultural products because of seasonal fluctuations,
and such an analysis should be based on at least three years' worth of data.  In New Zealand’s view, a
price analysis based on "a single season's data" as it characterises the USITC's price analysis, does not
provide the basis for an objective determination "based on facts".
7.180  Australia argues that a threat analysis supported by facts must demonstrate that the situation
of the domestic industry will change markedly and that such a change is imminent.  For Australia it is
necessary that "facts are prospective" so as to allo w an evaluation to determine that serious injury will
occur imminently.  The complainants do not provide further elaboration of the nature of "prospective
facts", nor concerning how such facts should be obtained or evaluated for reliability.
7.181  The complainants do not define in further detail a specific methodology for how a prospective
analysis of future developments in the industry's condition should, in practice, be conducted, whatkind of data or trend extrapolations would be relevant and reliable as the basis for such an analysis,
and how an analysis based solely on projections of industry performance would avoid being
"allegation, conjecture or remote possibility" which SG Article 4.1(b) prohibits.
7.182  The United States points as proof of the USITC's prospective analysis of future developments
in the industry’s condition to its causation finding, in particular to the projections obtained in theinvestigation that lamb meat exports from Australia and New Zealand to the United States would
continue to increase in 1999.  It also refers to the declining trend in import and domestic prices for
lamb meat at the end of the period of investigation.
7.183  The complainants criticise the USITC approach first as inadmissible because the United
States invokes elements of its causation analysis as a demonstration of the existence of a threat ofinjury.
7.184  We recall that the Safeguards Agreement does not set out a particular methodology to be
followed by competent national authorities in determining serious injury or threat and causation.  We
do not consider it decisive how the USITC itself structured analytically its report on the investigation
and determination, as long as the competent authority 's threat and causation analysis in their totality
establish the existence of threat of serious injury as well as of a causal link between increased imports
and such threat consistent with the Safeguards Agreement.
209
                                                     
208 Question 7 from the Panel to Australia and New Zealand (Annexes 1-7 and 2-8).
209 From a contextual perspective, we also note that "threat" determinations under the AD and SCM
Agreements, too, blend the trends and projections for imports and for the domestic industry indicators.WT/DS177/R
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7.185  The complainants further claim that the US reference to projections of future increases in
imports in defending its threat analysis amounts to equating a "threat of increased imports" with a
"threat of serious injury", which the Argentina – Footwear panel found not to be permissible.
7.186  We deem the reliance on the Argentina – Footwear  findings as inapposite, because in that
case imports were declining at the time that the Argentine authorities made their determination, sothat the threat finding was based on a projection that imports would begin  to increase if a safeguard
measure were not imposed.  The Safeguards Agreement requires of course as a basic prerequisite for
the application of a measure, that imports be increasing.  In the present dispute, there is no
disagreement that US lamb meat imports were increasing steadily at the time of the USITC's
determination.  The projected increases in 1999 thus were of further increases , not the
commencement of an increase.
7.187  We agree in general with the complainants’ argument that a threat of increased imports  as
such cannot be equated with threat of serious injury .  However, in our view, this is not what the
USITC has done in this case.  Moreover,  we also deem it possible that imports continuing on an
elevated level for a longer period without further in creasing at the end of the investigation period may,
if unchecked, go on to cause serious injury (i.e., may threaten to cause serious injury).  That is, if
increased imports at a certain point in time cause less than  serious injury, it is not necessarily true that
a threat of serious injury can only be caused by a further  increase, i.e., additional  increased imports.
In our view, in the particular circumstances of a case, a continuation of imports at an already recently
increased level may suffice to cause such threat.
7.188  In our view, the same logic applies to the complainants' arguments that the aggravated decline
in other injury factors such as prices,
210 or financial performance211 in the most recent past (i.e., 1997
and interim-1998) has to be seen in the context of the industry's "long-term secular decline"212 or does
not concern some of the firms operating in the industry.  Again, we do not exclude that in the
particular circumstances of a case, e.g., prices remaining at a depressed level for a longer period may
be sufficient for a determination on the whole that an industry is threatened with serious injury even if
a given injury factor does not show a recent, sharp and sudden decline.  Also, a threat finding does notrequire that, e.g., financial performance of each individual firm operating in the industry show a
decline.  A competent national authority may arrive at a threat determination even if the majority of
firms within the relevant industry is not facing declining profitability, provided that an evaluation of
the injury factors as a whole indicates threat of serious injury.
(b) Relevant time-period for the threat analysis
7.189  While the USITC collected data for five full years (1993-1997 and interim-1998) and in
addition for the first nine months of 1997 and 1998 (the "interim periods"), it based its determination
of threat of threat of serious injury on declines at the end of that period (i.e., 1997 and interim
1998).
213
7.190  We do not share the complainants' criticism that the time-frame used by the USITC for it is
analysis is too short.  More specifically, New Zealand in this connection characterises the data on
which the USITC based its determination as "a single season's data", and argues that the analysis of
                                                     
210 First Written Submission of New Zealand, Annex 2-1, at paragraph 7.59.
211 Id., and First submission of Australia, Annex 1-1, at paragraphs 153-164.
212 First submission of New Zealand, Annex 2-1, at paragraph 7.62.
213 The USITC report (Exh. US-1) at I-18 states that "In mid-1997, economic indicators relating to the
industry began to fall.  As described below, the deterioration in these indicators that occurred after 1996
confirms that the industry is threatened with serious injury".WT/DS177/R
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projected import volumes and prices should have been based on a minimum of three years of past
data.214
7.191  In this respect, we also note that, in offering their own interpretations and explanations of the
USITC data, the complainants frequently refer to the investigation period as a whole.  For example,
the complainants argue that over that period, the increase in imports was considerably smaller than thedecline in domestic production/shipments.  Th e USITC's finding of "displacement" of domestic
production by imports, however, is based on the end of the investigation period.
7.192  In our view, due to the future-oriented nature of a threat analysis, it would seem logical that
occurrences at the beginning of an investigation period are less relevant than those at the end of that
period.  While the SG Agreement does not specify the appropriate duration of the time-period to beconsidered in an investigation, the Panel and Appellate Body in Argentina – Footwear both
considered this issue to some extent.  Both concluded that (for an actual  serious injury finding) the
most recent data were clearly the most relevant.  In particular, the Appellate Body stated that "the
relevant investigation period should not only end in the very recent past, the investigation period
should be the recent past".
215
7.193  Given that a threat of serious injury pertains to imminent  significant overall impairment, i.e.,
an event to take place in the immediate future, the same principle should hold true  a fortiori  for threat
determinations compared with present serious injury  determinations.  This supports the view that the
USITC was correct to focus on the most recent data available from the end of the investigation period.
We also consider that data from 1997 and interim-1998 cover an adequate and reasonable time-period
if complemented by projections extrapolating existing  trends into the imminent future so as to ensure
the prospective analysis which a threat determination requires.
7.194  Therefore, we consider that, by basing its determination on events at the end of the
investigation period (i.e., one year and nine months) rather than over the course of the entire
investigation period, the USITC analysed sufficiently recent data for making a valid evaluation of
whether significant overall impairment was "imminent" in the near future.  By the same token, we
also consider that, by basing its determination at all on data about events from the recent past, ratherthan relying exclusively on projections for the vari ous industry indicators into the future, the USITC
made its threat determination on the basis of objective and quantifiable facts, and "not merely on
allegation, conjecture or remote possibility".
7.195  In the light of the foregoing considerations, we see no conceptual fault with the USITC's
analytical approach used in its threat of serious in jury determination, in particular with respect to the
prospective analysis and the time-period used.
(c) Evaluation of data pertaining to the pe riod from January 1997 to September 1998
7.196  Next, we examine whether the USITC's determination of threat of serious injury, the factual
findings and explanations that the data show decl ines in various indicators (i.e., market share,
production, shipments, profitability and prices) for the industry's performance, particularly during1997 and interim 1998, and the projections concerning future import volumes and prices (as contained
in the causation section of the USITC) are sufficiently fact-based and sufficiently forward-looking to
meet the requirements of SG Article 4.1(a) and (b) and 4.2(a).
                                                     
214 Response of New Zealand to Question 7 from the Panel (Annex 2-8).
215 Appellate Body Report on Argentina – Footwear , op. cit., at footnote 130.WT/DS177/R
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7.197  This review is different from the complainants' challenges against the representativeness of
the data, and is separate as well from the issues raised by complainants concerning the interpretation
of the data such as the time-periods that they consider most relevant, and the alternative explanations
that they have put forward for the various trends in the data.
7.198  The parties are not in disagreement on the fact that the imports of lamb meat had increased
significantly, especially during the latter part of the period of investigation (by 19 per cent in 1997 as
well as in interim-1998), and were projected to continue to increase in 1998 and 1999.
7.199  We note that the complainants do not, as such, challenge the USITC's findings that there were
declines in 1997 and interim-1998 for most of the indicators referred to by the USITC in its
determination.
7.200  New Zealand appears to acknowledge explicitly that there were declines in market share,
production volume and value, prices, number of growing establishments, sales by packers and
breakers, and revenue of packers, breakers and feeders. 216  New Zealand also implicitly acknowledges
(in pointing to an increase in gross profits of  packer/breakers in interim-1998) that operating
profitability declined for all segments of the industry in 1997 and interim 1998.217  New Zealand,
while acknowledging that prices in the interim period were lower than during 1997, also argues that
prices rose from the latter part of 1998 and that the United States has now disclosed that those price
increases continued in 1999218.  New Zealand also cites to testimony of a professor of agricultural
economics concerning USDA projections of price increases in 1999.219  Concerning underselling,
New Zealand questions the validity of the USITC's data.  New Zealand argues that some of the
products for which price comparisons were made by the USITC are not comparable, and thus that
there was less underselling than was identified by the USITC.  New Zealand nevertheless seems toacknowledge, at least as part of an argument concerning the significance of those findings, that the
USITC found some underselling.
220
7.201  With regard to the other factors examined by the USITC which it did not identify as forming
part of the basis of its threat finding, the complainants view the increases in capacity and production
by breakers including in 1997 and interim-1998, along with the increases in capacity of packers inthese periods, as evidence of positive performance.  They also point to a decrease in packers'
inventories during interim 1998 as evidence of an im proved ability to make sales.  According to New
                                                     
216 First Written Submission of New Zealand, Annex 2-1, at paragraph 7.56.
217 Second Written Submission of New Zealand, Annex 2-9, at paragraph 4.23.
218 The basis for New Zealand's argument concerning price trends in the United States in 1999 is a
7 July 1999 press release by Australia's Deputy Prime Minister denouncing the safeguard measure, in which Mr.Fischer refers to a "recent increase in lamb prices in the United States".  Thus, this is not a statement by theUSITC as to the trend in prices in 1999.  The United States submitted this document as an exhibit in a different
context.  Given that we are not engaging in a de novo  review of the national investigation, we note that this
argument is not relevant to our examination of the USITC investigation, because it is based on a document datedwell after the investigation was finished, which thus was no t part of the record of the investigation, and because
it pertains to actual events following the period of investigation, as opposed to projections concerning whatwould happen in the months following the investigation.
219 Exh. NZ-16, and footnote 49 to the second written submission of New Zealand, Annex 2-9.
220 Second Written Submission of New Zealand, Annex 2-9, at paragraphs 2.18, 4.10 and 4.11.  See,
New Zealand's statements that "meaningful comparisons are possible for only 3 of 8 products surveyed and inone of those, the domestic product actually oversold the imported product" (Second Oral Statement of New
Zealand, Annex 2-10, at paragraph 36), and that "the so-called 'underselling' tended to reduce  over the period of
investigation and in any case was present throughout  that period" (Second Written Submission of New Zealand,
Annex 2-9, at paragraph 4.11.  Emphasis in original.)WT/DS177/R
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Zealand, the USITC "dismissed" as "mixed evidence" the data on capacity, capacity utilisation,
inventories and productivity.221
7.202  Australia submits that for growers, production and sales increased, that productivity
apparently increased, that capacity utilisation was not examined, that net income without subsidies
was positive in 1998 compared with 1993-1996, and that employment increased.  It appears that inmaking these arguments Australia is looking at the entire period of investigation, rather than the end
thereof.  Regarding the end of the period of inve stigation (interim-1998), Australia draws attention to
the increase in shipments of live lambs reported in questionnaire data as well as a slight increase in
shipments of lamb meat as reflected in USDA data.  Australia further notes that the production figures
and the number of workers employed by growers increased during interim-1998.
7.203  We note that in our view SG Article 4.1(b) and 4.2(a) do not require the competent national
authority to show that each listed injury factor is declining, i.e., point in the direction of serious injury
or threat thereof.  The competent national authority is required to make its determination in the light
of the developments of injury factors on the whole  in order to determine whether the relevant
industry's condition is facing "significant overall  impairment" in the industry's condition is imminent.
We agree with the Appellate Body’s statement in Argentina – Footwear  that:
"it is only when the overall position of the domestic industry is evaluated, in the light
of all the relevant factors having a bearing on a situation of that industry, that it can
be determined whether there is 'a significant overall impairment' in the position of
that industry. … An evaluation of each listed factor will not necessarily have to show
that each such factor is 'declining'.  In one case, for example, there may be significant
declines in sales, employment and productivit y that will show 'significant overall
impairment' in the position of the industry, and therefore will justify a finding of
serious injury.  In another case, a certain factor may not be declining, but the overall
picture will nevertheless demonstrate 'significant overall impairment' of the
industry."
222
7.204  Therefore, in the light of the specific evidence, explanations and prospective analysis
reflected in the USITC report, we consider the USITC's reliance, among other difficulties, on factors
including the domestic industry's market share, production, shipments, profitability and prices as a
sufficient basis for determining whether threat of se rious injury exists.  We also consider that the
USITC's analysis of the overall picture of trends re flected in and projected from the most recent data
(especially from 1997 and interim-1998) along with the projections concerning further increases in
imports (assuming arguendo  that the data on which these trends and projections were based were
representative of a major proportion of the producers forming the relevant industry),223 seem to
confirm the USITC determination that a "significant overall impairment" in the overall position of the
domestic industry was clearly imminent.
(d) The complainants' alternative explanations for the decline in the US industry's condition
7.205  In their submissions, Australia and New Zealand offer a number of alternative explanations
for the declines in the US industry's performance at various points during the period of investigation.
Some of these explanations are the "other factors" considered by the USITC in its analysis of
causation (e.g., cessation of the Wool Act subsidies, lack of an adequate marketing and promotion
                                                     
221 First Written Submission of New Zealand, Annex 2-1, at paragraph 7.61.
222 Appellate Body Report on Argentina – Footwear , op. cit., at paragraph 139.
223 See our findings on representativeness of data below, and on industry definition above.WT/DS177/R
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strategy by US lamb producers), while they derive other explanations from the investigation's
record.224
7.206  The United States responds to these alternative explanations by stating that the complainants
are asking the Panel to engage in a de novo   review, by reweighing the evidence and substituting its
own analysis and judgment for the determinations made by the USITC.
7.207  As confirmed in Argentina – Footwear ,225 the standard of review applicable in safeguard
cases limits panels to reviewing whether the competent national authorities have examined all the
relevant facts and have provided a reasoned explanation of how the facts supported their
determinations.  Thus, to the extent that any of the alternative explanations put forward by Australia
and New Zealand are in effect new analyses of the record evidence, they are not relevant to ourreview.  Rather, these factual and legal arguments wo uld be relevant to our review only to the extent
that they were raised in the investigation, in which case we would need to consider whether the
USITC gave a reasoned explanation of why the facts supported its conclusions in respect of them, and
whether that explanation is persuasive.  We note in this regard that there were a number of alternative
explanations for the condition of the industry that were raised by parties and considered by the USITC
during the investigation.  These were the cessation of the Wool Act subsidies, alleged failure to
develop and implement an effective marketing programme for lamb meat, competition from other
meats, alleged increased input costs, alleged overfeeding of lambs, and alleged concentration in the
packer segment.  We discuss  the USITC's consideration of all of these factors under "other factors" in
the section on causation below.
4. Representativeness of data collected
7.208   Australia and New Zealand claim that the data relied upon by the USITC do not represent a
"major proportion" of the industry producing lamb meat as required by SG Article 4.1(c).  They argue
that the responses to the USITC's questionnaires provided an inadequate basis for it to render
judgments about the condition of the indust ry (however broadly defined) as a whole.
7.209  The complainants accept that in general the coverage of responses received from packers and
breakers is much more complete than for growers and feeders.  However, New Zealand points out thatthis coverage is very inconsistent as among the different factors considered, and in particular that the
United States has not provided any information as to the coverage of the questionnaire responses in
respect of financial data.
226  According to New Zealand, only 49 growers, three grower/feeders, and
nine feeders, representing only 5 per cent of the US lamb crop in 1997, provided data on the financial
condition of the live lamb industry227, while the feeders reporting financial data represented
approximately one-third of the slaughtered lambs fed in feedlots in 1997.228  Moreover, no financial
data were provided for interim 1998 by grower/feeders. 229
7.210  New Zealand notes that data on domestic shipments and inventories were provided in
response to questionnaires from five packers, which the USITC estimated to account for 76 per cent
of the sheep and lambs slaughtered in the US in 1997.230  However, information on the financial
                                                     
224 See paragraphs 7.200-7.202, above.
225 Appellate Body Report on Argentina – Footwear , op. cit., at paragraph 121.
226 First Submission of New Zealand, Annex 2-1, at paragraphs 4.6-4.11.
227 USITC Report, Exh. US-1, at II-24.
228 Id.
229 Id. at II-29.WT/DS177/R
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condition of the packers was provided by only four packers, two of whom were also
packer/breakers231, and the USITC's report does not indicate which of these firms were included in the
five packing firms estimated to account for 76 per cent of the sheep and lambs slaughtered in the
United States in 1997.
7.211  Concerning breakers, New Zealand argues that the USITC received usable questionnaire
responses from four firms,232 yet only three firms (including two who were also packers) provided
data on their financial condition,233 and only one of these was solely a breaker.  New Zealand points
out that no information has been provided on the proportion of total breaker output represented by the
one breaker response.  As a result, according to New Zealand, the USITC made findings on the
financial condition of lamb meat packers and breakers on the basis of financial data provided by fivefirms - two packers, two packer/breakers, and only one breaker,
234 and it is not possible to determine
the percentage of each segment's operations that is represented by these questionnaires, and thus to
know whether these firms represent a valid sample of packers.
7.212  The United States describes the number of usable questionnaire responses in very similar
terms:  Out of 74,710 growers (1997), the USITC received usable data from 57 firms or individualsaccounting for an estimated 6 per cent of domestic live lamb production.
235  But the United States
emphasises that the questionnaire coverage of packers and breakers was much higher than for growers
and feeders.  According to the United States, the five responding packers and packer/breakers
accounted for approximately 76 percent, i.e., a sizeable majority, of the lambs slaughtered.236  Th e
United States provides no specific information on the coverage of the four breakers who provided
useable data in response to the questionnaire, however.  Rather, the United indicates that in total, 75
percent of lamb carcasses are processed by breakers while the remaining 25 percent are processed bypackers, and that there are 16 known breakers in the United States of which four were the ones
providing usable data.  Neither the fact that breakers process three times as much lamb meat as
packers, nor the fact that one quarter of the total number  of known breakers provided useable
questionnaire data, indicates however the percentage of total domestic output of breakers that was
represented by the questionnaire data used by the USITC 
237
7.213  Thus, while in total the questionnaire responses received from packers accounted for a sizable
majority of the packers segment, the coverage of the usable data received on production, capacity
utilization, etc., compared with that received on financial indicators is unknown.  Similarly,
information on the overall representativeness of the breakers' questionnaire responses has not been
provided by the United States although it was specifically requested by the Panel.238  As noted above,
the questionnaire data for growers/feeders represents only a small minority of that total segment.
7.214  The complainants further argue that the USITC picked and chose between questionnaire data
and data published by the USDA in a result-oriented way.
7.215  The United States argues that the USITC relied on the USDA data to the extent they were
available because they were more complete than the USITC's questionnaire data.  The USITC report
                                                                                                                                                                    
230 Id. at II-14.
231 Id.
232 Id. at II-15.
233 Id. at II-24.
234 Id. at II-29 to II-34.
235 Id. at I-17, II-11; US Answer to Question 14 of the Panel (Annex 3-7).
236 US Answer to Question 14 of the Panel (Annex 3-7).
237 US Answer to Question 14 of the Panel (Annex 3-7).
238 US Answer to Question 14 of the Panel (Annex 3-7).WT/DS177/R
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itself characterizes the sample represented by the questionnaire respondents from growers and feeders
as not constituting a statistically valid sample.239  Rather, the USITC report indicates that
questionnaires were sent to 110 establishments "believed to be among the larger growers of lambs".
According to the USITC report, the usable data collected through the growers, feeders and
grower/feeders questionnaires represented approximately 6 percent of domestic lamb production.240
7.216  The USDA data used by the USITC include the data on lamb slaughter, which the USITC
used to estimate US production and shipments of lamb meat (quantity and value).241  The USITC also
used USDA data on the prices of live lambs sold for slaughter as well as for certain lamb meat cuts.242
In addition, the USITC relied on USDA data concerning the number of lamb growers for its findingthat the number of growers declined during the period of investigation.  For the remaining indicatorsof the industry's condition, the questionnaire respons es were the USITC's only source of information.
7.217  While we share the complainants' concerns about the representativeness of the questionnaire
response data, their criticism of the USITC's use of USDA data where available seems misplaced.
The sense of SG Article 4.1(c)'s reference to the producers as a whole or those constituting a major
proportion thereof is clearly in favour of the use of the most comprehensive data possible.  Given thatthe USDA compiles and publishes data that according to the USITC have much better coverage than
the questionnaire data, we see no impediment in the Safeguards Agreement to the USITC's having
relied on them.  Indeed, if the USITC had ignored the USDA data and relied exclusively on the scarce
questionnaire data for growers and feeders, the complainants would have had stronger grounds for
complaint.
7.218  Thus, in our view, the crucial problem with the data used by the USITC relates to the
representativeness of the questionnaire data where they were  used (e.g., employment, financial
indicators), and not with the use of USDA data where available.  In particular the low data coverage
for growers and feeders (approximately six per cent) , the lack of financial data for interim 1997 and
1998 for grower/feeders, and the uneven data covera ge for packers and breakers (especially in the
financial data as outlined above) raises serious doubts as to whether the data represent a "major
proportion" of the domestic industry, in the sense of SG Article 4.1(c).
7.219  This lack of representativeness is likely compounded by the fact that the USITC defined the
domestic industry broadly as including growers and feeders, as the conclusions drawn from the data
pertaining to only a small proportion of US growers and feeders are central to the USITC's overall
finding of threat of serious injury.
7.220  We agree with the United States that the Safeguards Agreement does not specify any
particular methodology to ensure the representativeness of data collected in an investigation.
243  But
we also note that the USITC itself concedes that the questionnaire responses do not constitute a
statistically valid sample of the producers which, in the USITC's view, form an essential part of the
domestic industry.244  While, again accepting arguendo the USITC's industry definition,245 we
                                                     
239 USITC Report, Exh. US-1, at I-17.
240 USITC Report, Exh. US-1, at I-17; and US Answer to Question 14 of the Panel (Annex 3-7).
241 Tables 5 and 7, USITC report, Exh. US-1, at II-17.
242 Figures 3 and 5-10, USITC Report, Exh. US-1, at II-55, II-58-II-61.
243 See US Answer to Question 16 of the Panel (Annex 3-7).
244 USITC Report, Exh. US-1, at I-17.
245 Of course, only once the relevant domestic industry has been defined consistently with
SG Article 4.1(c) is it logically possible to select producers representing a "major proportion" of the collectiveoutput of the like or directly product in question, or to develop a valid statistical sample that would ensure that
the data collected are representative of a major proportion of the domestic industry.WT/DS177/R
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recognize that in practical terms it would have been  impossible for the USITC to collect data from all
of the more than 70,000 growers, we nevertheless believe that the USITC could have obtained data
from a larger percentage of the growers than it did or from a statistically valid sample, so as to ensure
that the data collected were representative of growers as a whole.  In any case, petitioners requesting
the initiation of an investigation could not automatically be taken to represent a major proportion ofthe domestic industry.
246
7.221  In the light of the foregoing, we conclude that on the basis of the information made available
by the United States in this dispute (and absent more detailed information on the exact coverage of the
questionnaire responses), by industry segment and by injury factor, we are not persuaded that the data
used as a basis for the USITC’s determination in this case was sufficiently representative  of "those
producers whose collective output … constitutes a major proportion  of the total domestic production
of those products" within the meaning of SG Article 4.1(c).
5. Conclusions concerning the USITC's threat of serious injury determination in this case
7.222  In the light of the foregoing considerations, we see no conceptual fault with the USITC's
analytical approach used in its threat of serious in jury determination, in particular with respect to the
prospective analysis and the time-period used.
7.223  We further emphasise that more thorough treatment of certain injury factors (i.e., capacity
utilisation and employment) would have been better .  But we also note that where the USITC did not
collect data concerning a particular injury factor with respect to all industry segments, it provided an
adequate explanation of how inferences can be drawn from the data collected with regard to one
segment for another  segment for which data were not collected, or why, in the circumstances of the
particular industry segment at issue, the collection of data of an objective and quantifiable nature wasnot possible, or why a specific injury factor is not probative for that industry segment.
7.224  We also consider the USITC’s analysis of threat of serious injury in the present investigation
to be sufficiently fact-based and future-oriented, in that it relied on available factual information as to
expected future developments, notably projected import increases and the likely price effects of those
increases on the domestic industry.  We also see no analytical flaw in the USITC’s decision to rely on
                                                     
246 Growers:  "All growers in the United States were associated with petitioners, since membership in
the petitioning association was automatically based upon receipt of Wool Act payments.  Thus the USITC could
not send questionnaires to 'unassociated' growers.  Only a few growers were named individually as petitioners,
as the great majority of questionnaire recipients consis ted of companies with no particular known view of the
safeguard proceeding.  To obtain financial or other data on grower operations, [the USITC] sent questionnairesto 110 firms and individuals believed to be among the larger growers of lamb. (USITC Report, Exh. US-1, at I-20).  The USITC identified questionnaire respondents in the other industry segments based on names andaddresses which petitioners supplied in the petition pursuant to USITC regulation (Exhibit US-39)" See US
response to Question 15 of the Panel (Annex 3-7).
Feeders: "Nine feeders were identified in the petition.  The Commission sent questionnaires to 11 firms
believed to be feeders and received responses from 18 feeder operations, including several growers that alsomaintain feeder operations." See USITC Report, Exh. US-1, at II-13.
Packers: "The packing segment of the industry is somewhat concentrated, with 5 responding firms
accounting for 76 per cent (based on USDA data) of the sheep and lamb slaughtered in the United States in
1997.  Questionnaires were sent to 17 firms identified as packers/slaughterers of lambs."  See USITC Report,
Exh. US-1, at II-14.
Breakers:  "This segment of the industry is as concentrated as the packing segment.  In addition to
packers who further process lamb into cuts, there are less than 10 major firms in the United States engaged inprocessing lamb carcasses … Questionnaires were sent to 16 firms identified as breakers of lamb meat." See
USITC Report, Exh. US-1, at II-15.WT/DS177/R
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the most recent data (from 1997 and interim 1998) as the basis for reaching its conclusions on threat
of serious injury.
7.225  However, we are not persuaded that the data used as a basis for the USITC’s determination in
this case were sufficiently representative  of "those producers whose collective output … constitutes a
major proportion  of the total domestic production of those products" within the meaning of SG
Article 4.1(c).
7.226  In the light of the foregoing considerations an d conclusions, we find that the USITC's threat
of serious injury determination in the lamb meat investigation is inconsistent with SG Article 4.1(c),
and thus with SG Article 2.1.
E. CAUSATION STANDARD AND NON-ATTRIBUTION OF FACTORS OTHER THAN IMPORTS
1. Introduction
7.227  SG Article 4.2(b) requires for a determination of serious injury or threat thereof that:
"[the] investigation demonstrates on the basis of objective evidence the existence of a
causal link  between increased imports of the product concerned and serious injury or
the 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 ."
7.228  In safeguard investigations, the USITC traditionally applies the so-called "substantial cause"
standard embodied in the US safeguard statute, Sec tion 202(b)(1)(B).  According to this standard, the
USITC determines whether the subject article is being imported in such increased quantities as to be a
"substantial cause" of serious injury or threat of serious injury, i.e., a cause which is " important and
not less than any other cause" .
7.229  New Zealand and Australia claim that the "substantial cause" and "not less than any other
cause" standard of the US safeguards legislation as it was applied in the lamb safeguard determination
is inconsistent with the requirements of SG Arti cle 4.2(b).  The complainants fault this standard
because, they allege, it could be met even if increased imports are only one of many causes of seriousinjury or threat, as long as no single other cause  is more important than increased imports.  For
Australia and New Zealand, increased imports by themselves  must be causing or threatening a degree
of injury that is "serious" for the causation standard of the Safeguards Agreement to be met.
7.230  The United States contends that the complainants’ claims amount in fact to a challenge of the
US safeguards statute per se , which is not within this Panel's terms of reference.  We have issued a
preliminary ruling on 25 May 2000 (see above, paragraphs 5.54-5.56 and pertinent reasoning, see
paragraphs 5.57-5.58) that the application  of the US causation standard by the USITC in this lamb
investigation at issue is within our terms of reference, whereas the US safeguards statute per se  (and
the causation standard as embodied therein in general terms) is not.
7.231  On the merits of these claims, the United States defends the "substantial cause" standard as
applied in this investigation with the following argu ments.  The term "cause" as it is used in, e.g., SG
Articles 2 and 4, in the US view does not imply that increased imports need to be the sole cause of
injury as long as they are a substantial  cause in the connection between imports and injury.  Nor does
the SG Article 4.2(b) require competent national authorities to examine the effects of increased
imports in isolation  from other factors.  In support of that  argument, the United States recalls theWT/DS177/R
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reasoning of the panel on United States – Salmon from Norway247, which dealt with claims under the
Tokyo Round Anti-Dumping Code.  That panel reasoned that there was no requirement "in addition to
examining the effects of imports" that the "USITC  should somehow have identified the extent of
injury caused by these other factors in order to isolate the injury caused by these factors from the
injury caused by the imports from Norway."248
2. General interpretative analysis of causat ion and non-attribution of "other factors"
7.232  In past disputes under concerning the WTO Safeguards Agreement,249 panels have used a
three-step test  in applying the causation standard of SG Article 4.2(b): the analysis focused on
(i) whether upward  trends in imports coincide with downward  trends in the injury factors, and if not,
whether an adequate explanation  is provided as to why nevertheless the data show causation;  (ii)
whether the conditions of competition  between the imported and domestic product as analysed
demonstrate the existence of a causal link between the imports and any injury;  (iii) whether other
relevant factors  have been analysed  and whether it is established that injury caused by factors other
than imports has not been attributed  to imports.  While the complainants do allege that the USITC did
not properly examine the conditions of competition in the marketplace250, in our view the main focus
of the causation issue in this dispute is in respect of  the application of the third step, especially in the
light of the United States' application of its "substantial cause" standard in this investigation.
7.233  Thus, we first consider whether, in conducting its investigation into whether increased
imports were "a cause that is important and not less than any other cause" of any threat of serious
injury to the domestic industry producing lamb meat, the USITC satisfied the requirements in SG
Article 4.2(b)(i) to demonstrate the causal link between the increased imports and the threat of serious
injury, and (ii) not to attribute to imports injury caused by other factors.
7.234  SG Article 4.2(b) limits the application of safeguard measures to circumstances where
increased imports  cause or threaten to cause serious injury.  There can be, of course, no threat of
serious injury attributable to imports at all  if that threat is entirely attributable to other  causes.
However, SG Article 4.2(b) does not preclude Members from attributing threat of serious injury to
increased imports where other factors  have also contributed to that threat251 – as long as they ensure
that increased imports are not blamed for any of the injury caused by other  factors.  In this situation,
the question then arises whether SG Article 4.2(b) requires that increased imports in isolation  or by
themselves  are sufficient to cause a threat of serious injury, although "other factors" may aggravate
that threat.
7.235  We recall that the relevant provisions of the Safeguards Agreement impose a dual obligation:
Members are required (i) to demonstrate the existence of a causal link between increased imports and
serious injury suffered by the domestic industry; and (ii) not to attribute injury being caused by other
factors to increased imports.
                                                     
247 Panel Report on United States – Imposition of Anti-dumping Duties on Imports of Fresh and Chilled
Atlantic Salmon from Norway , ADP/87, BISD 41S/229, adopted by the Committee on Anti-dumping Practices
on 27 April 1994.
248 Id., at paragraph 555.
249 See Panel Report on Argentina - Footwear , op. cit., at paragraph 8.229;  Appellate Body Report on
Argentina – Footwear , op. cit., at paragraph 145; Panel Report on United States – Definitive Safeguard
Measures on Imports of Wheat Gluten from the European Communities  WT/DS166/R, dated 31 July 2000,
appeal pending, at paragraph 8.91.
250 See, e.g., First Written Submission of New Zealand, Annex 2-1, at paragraphs 7.78-7.88.
251 The second sentence of SG Article 4.2(b) explicitly recognizes this possibility, as discussed below.WT/DS177/R
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7.236  We begin our interpretative analysis with the relevant parts in SG Article 4.2’s
subparagraph (a), i.e., "in the investigation to determine whether increased imports have caused or
are threatening to cause serious injury to a domestic industry " and in subparagraph (b), i.e., "[that]
determination … 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 ".
7.237  The word "to cause" means "effect, bring about, occasion, produce, induce, make",252 or also
"to serve as cause or occasion of".  The word "the cause" means "that which produces an effect or
consequence; an antecedent or antecedents followed by a certain phenomenon"; it "indicates a
condition or circumstance or combination of conditions and circumstances that effectively andinevitably calls forth an issue, effect or result or that materially aids in that calling forth."
253
7.238  We agree with the United States that the ordinary meaning of "cause" implies that increased
imports need not be the sole or single cause of serious injury.  But all these dictionary definitions
indicate that serious  injury or threat thereof must result from increased imports, regardless of whether
increased imports are qualified as an "important" cause, or one that "materially aids" in generating theresult.  In other words, the ordinary meaning requ ires a showing of a link (i.e., a unifying element)
between increased imports and injury or threat thereof of a " serious " degree.  It is not enough that
increased imports cause just some injury which may then be intensified to a "serious" level by factors
other than increased imports.  In our view, therefore, the ordinary meaning of these phrases describing
the Safeguards Agreement’s causation standard i ndicates that increased imports must not only be
necessary , but also sufficient  to cause or threaten a degree of injury that is " serious " enough to
constitute a significant overall impairment in the situation of the domestic industry.  We also note thatthere is a difference between a sole cause, on the one hand, and a necessary and sufficient cause, on
the other. Any sole cause is by definition a necessary and sufficient cause, but obviously not any
necessary and sufficient cause is the sole cause, it may coincide with other causes as recognised by
the second sentence of SG Article 4.2(b).
7.239  We believe that the relevant context, in particular the second sentence of SG Article 4.2(b),
confirms the ordinary meaning of these phrases.  On the one hand, the requirement not to attribute to
increased imports injury caused by other factors does not diminish the requirement of the
subparagraph’s first sentence that increased imports by themselves need to be necessary and sufficient
to cause serious injury or threat thereof.  On the other hand, the second sentence of SG Article 4.2(b)
also makes clear, as noted by the United States, that increased imports need not be the sole or
exclusive causal factor present in a situation of serious injury or threat thereof, as the requirement not
to attribute injury caused by other factors by implication recognises that multiple  factors may be
present in a situation of serious injury or threat thereof.
7.240  Our interpretation is also in conformity with the object and purpose of the Safeguards
Agreement which is to provide for temporary relief and to facilitate adjustment to import competitionin emergency situations where increased imports cause serious injury or threat thereof to the domestic
industry producing goods which are like or directly competitive to those imports.  These objectives
could not be accomplished if increased imports are not a necessary and sufficient cause for serious
injury or threat thereof because applying safeguard measures against increased imports would not be
a justifiable or appropriate remedy for serious injury or threat thereof which is in fact caused by otherfactors.
                                                     
252 Oxford English Dictionary, at 355.
253 Webster's New International Dictionary, at 355-356.WT/DS177/R
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7.241  In other words, where a number of factors, one of which is increased imports, are sufficient
collectively  to cause a significant overall impairment of the position of the domestic industry, but
increased imports alone  are not causing injury that achieves the threshold of "seriousness" set up by
SG Article 4.2(a) and 4.2(b), the conditions for imposing a safeguard measure are not satisfied.  While
we believe that a Member remains free to determine any appropriate method of assessing causation,any method that it selects would need to ensure that the injury caused by increased imports,
considered alone, is "serious injury", i.e., causing a significant overall impairment in the situation of
the domestic industry.  Moreover, we cannot see how a causation standard that does not examine
whether increased imports are both a necessary  and sufficient  cause for serious injury or threat thereof
would ensure that injury caused by factors other than increased imports is not attributed to thoseimports.
7.242  We also believe that our interpretation is confirmed by past GATT/WTO dispute settlement
practice, in particular by the panel report on Argentina – Footwear, and is consistent as well with the
findings of the Panel in US – Wheat Gluten  (currently on appeal).
254
7.243  Concerning SG Article 4.2(b)’s the causation standard, the panel in Argentina – Footwear
suggested that, if causes other than imports are subtracted, increased imports by themselves  must still
be shown to cause or threaten to cause serious injury. 255  In Argentina - Footwear , the Appellate Body
upheld the panel's causation analysis, which included an examination of whether relevant other factors
have been analysed and whether it is established that injury caused by factors other than imports has
not been attributed to imports."256
7.244  In the recent dispute on US – Wheat Gluten , the EC criticised the US "substantial  cause" test,
arguing that it prevents the investigating author ity from verifying the only important issue, i.e.,
whether increased imports are per se  causing (or threatening to cause) a "significant overall
impairment of the position of the domestic industry".
7.245  The US – Wheat Gluten  panel concluded that SG Article 4.2(b)’s causation standard requires
that imports in and of themselves  must be capable of causing injury.  That panel also noted that "the
United States is free to determine an appropriate method  of assessing causation" … "or how to go
about ensuring that injury attributable to other factors is not attributed  to imports", but "the method it
                                                     
254 See, Panel and Appellate Body Reports on Argentina – Footwear , op. cit.; Panel Report on United
States – Wheat Gluten,  op cit.; Panel Report on United States – Imposition of Anti-dumping Duties on Imports of
Fresh and Chilled Atlantic Salmon from Norway , adopted by the Committee on Antidumping Practices on 27
April 1994, ADP/87, BISD 41S/229; and Panel Report on United States – Imposition of Countervailing Duties
on Imports of Fresh and Chilled Atlantic Salmon from Norway , adopted by the Committee on Subsidies and
Countervailing Measures on 28 April 1994, SCM/153, BISD 41S/576.
255 Panel Report on Argentina - Footwear , op. cit., at paragraph 8.229.
256 The Appellate Body also adopted the panel's opinion that in an analysis of causation, "it is the
relationship  between the movements  in imports (volume and market share) and the movements  in injury factors
that must be central to a causation analysis and determination" (paragraph 142, Appellate Body Report on
Argentina – Footwear ).  A coincidence between increase in imports and deterioration in injury factors would
normally occur if causation is present, and its absence would create serious doubts as to the existence of thecausal link.  Such a coincidence by itself  cannot prove causation, there is also a need for an adequate explanation
of how the facts support the determination.  But an absence of such coincidence would cast doubt on theexistence of a causal link, it would require a particularly convincing explanation in the ‘findings and reasonedconclusions’ published pursuant to Article 3.1 of the Safeguards Agreement.  ( See, Panel Report on Argentina –
Footwear , op. cit., at paragraph 8.238.)WT/DS177/R
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selects must ensure that the injury caused by increased imports, considered alone , is 'serious'
injury."257
7.246  We are also of the view that our interpretation of the Safeguard Agreement’s causation
approach is consistent with the reasoning of the reports of the panels on US – Salmon from Norway
under the Tokyo Round Subsidies and Antidumping Codes,258 to the extent that these are relevant for
this safeguards dispute.  The United States cites these panel reports in support of its argument that
there is no requirement to isolate and quantify the percentage of injury caused individually by
increased imports and each of the specific other causes.  We agree that this panel rejects the notion
that the USITC "should somehow have identified the extent of injury caused by these other factors in
order to isolate the injury caused by these factors from the injury caused by the imports fromNorway."  However, the panel continues in holding that "the USITC was required to conduct an
examination sufficient to ensure that in its analysis of factors … it did not find that material injury
was caused by imports from Norway when material injury to the domestic industry allegedly caused
by imports from Norway was in fact caused by factors other than these imports".
259
7.247  In our view, this reasoning confirms our interpretation that SG Article 4.2(b) requires that
increased imports by themselves must be a necessary and sufficient cause of serious injury or threat
thereof and injury caused by other factors must not be attributed to increased imports.  The recent
panel on US – Wheat Gluten  shares our reading of the US – Salmon from Norway panels' reasoning
when the former states: "[a] Member is not necessarily required to quantify on an individual basis, the
precise extent of ‘injury’ caused by each other poss ible factor.  However, a Member must conduct an
examination that ensures that any injury caused by such other factors is not attributed to increased
imports."260
7.248  Turning to the US "substantial cause" standard, it seems that this standard focuses on a
somewhat different question than SG Article 4.2(a) and (b) as interpreted by us above.  Under the
"substantial cause" standard, the USITC examines whether imports are an important  cause of injury
and no less important than any other single  cause (or put in other words, whether there is a single
cause more important than increased imports).
7.249  As the following hypotheticals illustrate, this standard could imply, depending on
circumstances, sometimes a higher  and sometimes a lesser  degree of causation than suggested by SG
Articles 2.1 and 4.2(b):  Under the US "substantial  cause" standard it would seem possible that in
cases where increased imports are an important cause of serious injury, no safeguard measure would
be imposed where at least one  other cause is more important  than increased imports.  By the same
token, however, it would also seem possible that in cases where imports are an important cause
contributing more  injury than, or at least the same  amount of injury as, any other  cause individually , a
safeguard measure could be applied because no single other  factor individually is a more important
cause than increased imports.  In the latter situation, a safeguard measure could be imposed even if all
other  factors in combination  cause the predominant  part of injury, and serious injury would not have
been caused by increased imports, if taken alone .
                                                     
257 Panel Report on United States – Wheat Gluten,  op. cit., at paragraph 8.140.
258 Panel Report on United States – Imposition of Anti-dumping Duties on Imports of Fresh Chilled
Atlantic Salmon from Norway , op. cit., and Panel Report on United States – Imposition of Countervailing Duties
on Imports of Fresh and Chilled Atlantic Salmon from Norway , op. cit.
259 Panel Report on United States – Imposition of Countervailing Duties on Imports of Fresh and
Chilled Atlantic Salmon from Norway , op. cit., at paragraph 321.
260 Panel Report on US - Wheat Gluten , op. cit., at paragraph 8.142.WT/DS177/R
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7.250  Thus, when the USITC applies its "substantial cause" test, the question of whether increased
imports by themselves are necessary and sufficient to cause a degree of injury or threat that is
"serious" within the meaning of SG Article 4.2(b) is not addressed by the United States' "substantial
cause" standard, and thus can only be answered on a case-by-case, fact-specific basis.  Similarly, the
US "substantial cause" standard as such does not address the issue of ensuring in all cases that noinjury caused by other factors is attributed to increased imports.
3. The USITC’s investigation of causation and non-attribution of "other factors"
7.251  In the light of our interpretation of the Safeguard Agreement’s causation standard and our
considerations about the US "substantial cause" standard, the question arises whether the USITC
determined in the lamb investigation that increased imports were by themselves  a necessary and
sufficient cause for threat of serious injury and whether injury caused by factors other than increased
imports, if any, was not attributed to those imports.
7.252  During the panel proceeding, the United States has argued that the USITC determined that no
factor other than increased imports contributed in any significant way to the threat of serious injury
faced by the domestic industry.  If the facts before us confirm this argumentation, then even theapplication of a causation standard which does not in all cases ensure consistency with the causation
standard of the Safeguards Agreement could have resulted in no substantive error as far as the
USITC's determination in the lamb investigation is concerned.  Thus, it is important for us to review
the precise wording of the report of that determination published by the USITC and the pertinent
argumentation of the parties in their submissions.
(a) USITC determination of a causal link between increased imports and threat of serious
injury
7.253  We note in respect of causation that the USITC determined that "lamb meat is being imported
into the United States in such increased quantities as  to be a substantial cause of the threat of serious
injury to the domestic industry producing an articl e like or directly competitive with the imported
article".  Thus, the USITC determination clearly states that in the view of the USITC, a causal link
existed between the threat of serious injury that it found and the increased imports of lamb meat.
7.254  Specifically, the USITC found, concerning imports and their past effects, that import volumes
had increased, reaching record levels in 1996 and surpassing those levels thereafter, and that that their
unit values had declined and were continuing to drop.  The USITC also found that the increase in
imports had caused prices to fall, given the inability of growers and feeders to reduce their production
in the short run.  As a result, the USITC found, the financial performance of the various industrysegments worsened due to declining sales and falling prices.
261
7.255  The USITC also found, concerning the likely future effects of imports, that further 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.  Additional increases in imports
were expected, as exporters from Australia and New Zealand projected further increases in exports tothe United States for 1998-1999.
7.256  The complainants argue that the USITC failed to establish any causal link whatsoever
between increased imports and any threat of serious injury experienced by the US industry.  In
making these arguments, the complainants point to a number of alternative explanations for the
declining condition of the US industry, the most important being the termination of the Wool Act
                                                     
261 USITC Report, Exh. US-1, at I-23-24.WT/DS177/R
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subsidies, and the long-term contraction in US sheep production and in US consumption of lamb
meat.  They argue as well that there was little direct competition between imported and domestic lamb
meat.
7.257  While many of the complainants' alternative explanations may conceivably contain some
element of truth, this by no means amounts to a demonstration that imports played  no role
whatsoever in the condition of the US industry.  In our view, the complainants have brought forward
no proof of a complete absence of a causal link between the increased imports and the condition of the
industry.  We recall in this respect that under our standard of review, we are precluded from
performing a de novo  review of the domestic investigation, and from substituting our own judgement
for that of the USITC.
7.258  By the same token, however, we recall our conclusion that, for the requirements of SG
Article 4.2(b) to be met, increased imports must by themselves be a necessary and sufficient cause of
threat of a degree of injury that could be characterized as serious .  Although we find no basis to
conclude that imports had no effect on the condition of the domestic industry, this does not mean that
the USITC's conclusions cited above amount to a finding that imports by themselves were necessaryand sufficient to threaten to cause serious injury.  Thus, as noted above, we must also consider
whether in this particular case the USITC  found that there was no other factor that contributed in any
appreciable way to the declining condition of the indu stry.  If not, we also have to examine whether
the United States did ensure that none of any injury caused by such other factors was attributed to
increased imports.  For this, we must turn to the USITC's determination concerning each of the "other
factors" that it examined.
(b) USITC determination concerning the non-attribution of "other factors"
7.259  As discussed above, SG Article 4.2(b) requires consideration of whether any "factors other"
than increased imports could have caused threat of serious injury, and also requires that any injury
caused by such other factors not be attributed to increased imports.  The USITC identified and
investigated six such potential other causes:  (i) the termination of the US Wool Act payments; (ii)
competition from other meat products; (iii) increase d input costs; (iv) overfeeding of lambs; (v)
alleged concentration in the packer segment of the industry; and (vi) the lack of an effective industry
marketing  programme.
7.260  In this following section, we discuss whether with respect to these six "other factors"
identified in the USITC's investigation, the language of the report published by the USITC confirms
the argumentation of the United States in its submissions to the Panel.  In particular, we note that  theUnited States argues in its submissions that the USITC found that none of the "other factors" made
any appreciable  contribution to the threat of serious injury found to exist.  According to the
"substantial cause" standard applied by the USITC, however, the USITC is required to determine
whether each of the potential "other factors" individually  is a less important  cause of threat of serious
injury than increased imports.
7.261  In this respect, we recall our above consideration that, even if no one  factor individually  is a
more important cause of a threat of serious injury than are increased imports, this does not exclude the
possibility that all other factors collectively  could contribute to this threat to such an extent that the
threat of injury caused by increased imports in and of themselves does not rise to the requisite level of
"seriousness " any more.  In that case (and assuming that injury caused by other factors is not
attributed to increased imports), the residual threat attributable to increased imports does not
constitute a necessary and sufficient cause for threat of serious injury and thus no imposition of a
safeguard measure is justified.WT/DS177/R
WT/DS178/RPage 80
7.262  Thus, we must carefully review the exact nature  of the USITC's determinations in respect of
each of the identified possible "other factors".  If the USITC did not find that none of these factors
made more than a negligible contribution to the threat of serious injury, and if it did not ensure the
non-attribution of injury caused by such other factors to increased imports, then we would have to
conclude that the United States has not fulfilled the requirements of SG Article 4.2(b).
7.263  The USITC's causation determination concerning the "other factors" is as follows:
(i) Termination of payments under the National Wool Act of 1954
7.264  The USITC report states that the phasing out of  the wool subsidies forced some growers to
liquidate stocks, decreased availability and increased prices (e.g., 30 per cent decrease in domestic
supply and associated decreases in breeding stock created difficulty in meeting demand).262  T h e
report indicates that the growers earned a small pr ofit in 1997, which the petitioners cited as evidence
of recovery from the termination of the Wool Act payments.  Concerning the termination of the Wool
Act payments, the USITC states in the causation determination:
"As required by the statute, we considered whether any other causes might be a more
important cause of the threat of serious injury than increased imports.  First, weexamined whether termination of payments under the National Wool Act of 1954
('Wool Act') might be a more important cause.  Congress enacted legislation ending
the Wool Act in 1993, and the support payments were phased out largely in 1994 and
1995, before the increase in imports that began in 1996.  Petitioners claim that the
loss of the payments had been largely absorbed by the growers and feeders before the
increase in imports.  Respondents assert that the industry cannot be expected to
absorb so quickly the effects of the loss of such a longstanding payment programme.
"We have no doubt that the loss of Wool Act payments hurt lamb growers and
feeders and caused some to withdraw from the industry.  We also believe that it is
unrealistic to conclude that the effects of the termination of Wool Act payments had
completely disappeared as of 1997.  However, the industry had experienced some
recovery since full termination in 1996, and the effects of termination of Wool Actpayments can be expected to recede further with each passing month.  In addition, the
termination of the Wool Act could only have had an indirect effect on the financial
condition of the packers and breakers, who never received payments under the Wool
Act.  We find that in the imminent future , the recent loss of Wool Act payments is a
less important cause of the threat of se rious injury than imports of lamb meat."
263
7.265  Before the Panel, the United States argues based on the above USITC statement that the
effects of termination of wool subsidies were expe cted to "recede further with each passing month",
that the USITC found that termination of wool subsidies ceased to be relevant as an "other factor" as
of 1997.  We note, however, that the determination quoted above in fact states that it was "unrealisticto conclude that the effects of the termination of  Wool Act payments had completely disappeared as
of 1997",
264 and that the termination was merely a "less important" cause than increased imports of
the threat of serious injury.  Thus, we cannot see how the USITC's determination could indeed
constitute a finding that the termination of the Wool Act payments did not contribute to any
appreciable extent to the threat of serious injury that the USITC found to exist.
                                                     
262 Id. at II-79.
263 Id. at I-24-I-25.  Footnotes omitted, emphasis added.
264 Id. at I-24.WT/DS177/R
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(ii) Competition from other meat products and demand side factors
7.266  Another causal factor discussed by the USITC is the decline in lamb meat consumption due to
changing consumer tastes and preferences, price ratios between lamb meat and substitute products
(e.g., beef, pork and poultry), and changes in consumer income.  In this regard, the USITC made the
following finding:
"We also considered whether competition from other meat products … might be a
more important cause of the threat of serious injury.  Although such products appear
to compete with lamb to a certain extent, we find no evidence that such competition is
more important cause … than imports of lamb meat.  As noted above, per capita
consumption of lamb meat has been relatively steady since 1995."265
7.267  This finding by the USITC appears to acknowledge that competition from other meats plays
some role in the condition of the domestic lamb industry.  In our view, therefore, this finding that
competition from other meats was not a more important cause  than increased imports cannot be
understood as a finding that such competition made no appreciable contribution to the threat of
serious injury.
(iii) Increased input costs
7.268  The USITC noted that expenses for growers increased 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
"[t]hus, there has been no significant increase in in put costs that explains the sharp decline in industry
profits, and no increase is predicted in the imminent future."266
7.269  Unlike its findings on factors (i) and (ii), here the USITC's determination on its face does
appear to say that the USITC in fact did find that increased input costs played and were expected to
play no appreciable role in the condition of the industry.  That is, the USITC did not couch this
finding in the statutory language of increased input costs not being a "more important" cause than
imports of the threat of serious injury.  We view  this difference in the wording of the USITC's
determination on this factor, as compared with the first two, as undercutting the US argument that the
USITC had in fact determined that none  of the "other factors" had had any impact, but that the USITC
was constrained by the language of the US statute to use the formal construction thereof in setting
forth that determination.
(iv)  Alleged overfeeding of lambs
7.270  Before the USITC, respondents alleged that in 1997 some US feeders held lambs unduly long
in feed lots in order to maximise revenue while prices were high, and that these lambs were heavier
than usual when slaughtered, which pulled down prices generally.  In this respect, the USITC found
that "even if we accept respondents' arguments, these 'fat' lambs would have accounted for no more
than a small share of total domestic lamb production.  In any event, respondents do not allege thatoverfeeding is currently taking place or represents a future threat."
267
7.271  As with increased input costs (factor (iii)), the nature of the USITC's determination in respect
of alleged overfeeding appears to be expressed in different terms than for the factors (i) and (ii).  That
                                                     
265 Id. at I-25.  Footnotes omitted, emphasis added.
266 Id. at I-25.
267 Id. at I-25.  Footnotes omitted.WT/DS177/R
WT/DS178/RPage 82
is, we view the USITC as in fact determining that the contribution of overfeeding to the industry's
condition during 1997, if any, was minimal and that there was no evidence that any overfeeding was
taking place at the time of the determination or would take place in the future.  Thus, again, the fact
that the USITC explicitly made such a finding in respec t of this factor, but not in respect of all of the
"other factors" again undercuts the US argument that the use of the statutory language is simply arequired formality.  If this were in fact the case, that language would have been used in respect of all
of the "other factors" examined.
(v) Alleged concentration in the packer segment of the industry
7.272  The USITC also considered whether concentration in the packer segment of the industry
might be a "more important cause" of the threat of serious injury than increased imports, and citedUSDA data indicating that nine packers accounted for 85 percent of the sheep and lambs slaughtered
in 1997.  According to the USITC, "an undue leve l of concentration" would have suggested that
packers were sheltered from the effects of low-priced imports, and would have been able to pass
through lower prices more readily to feeders and growers.  The USITC noted that petitioners had
claimed that concentration in the packer segment had actually decreased during the period ofinvestigation, and the USITC further found that packers, "like other segments of the lamb meat
industry", had experienced deteriorating profits in the latter part of the period of investigation, and
had operated at a loss in interim 1998.  The USITC concluded that "concentration in the packer
segment of the industry is a less important cause  of the threat of serious injury than increased
imports."
268
7.273  The USITC did not define what it meant by an "undue" level of concentration, and rather
looked to the financial performance of the packers as the basis for its finding that concentration in this
segment was a less important cause of threat than were increased imports.  Moreover, the fact that the
USITC returned to the statutory language in rendering its determination concerning this factor (i.e.,
that this "other factor" is a less important  cause than increased imports) suggests that the nature of its
conclusion was qualitatively different than for the two preceding "other factors" (i.e., increased input
costs and overfeeding).  Here again, we do not believe that the USITC determination that this causewas less important than increased imports can be understood as a finding that such concentration in
the packer segment played no role in the threat of serious injury.
(vi)  Failure to develop and implement an effective marketing programme for lamb meat
7.274  Finally, the USITC also identified, considered as an "other factor", and made a finding in
respect of, whether the failure to develop and implement an effective marketing programme for lambmeat was a more important  cause  of the threat of serious injury than increased imports, "particularly
in light of the repeal of the longstanding Wool Act payment programme".
269  The USITC concluded
that:
                                                     
268 Id. at I-25-26.  Footnotes omitted, emphasis added.
269 In its interim review comments, the United States argues that the failure to develop and implement
an effective marketing programme for lamb meat is not a f actor that falls within the scope of SG Article 4.2(b),
citing its answer to one of our questions.  ( See, US Answer to Panel Question 11, Annex 3-7, at paragraph 85:
"The USITC was not required to assume that it was appropriate to consider the absence of such a program to bea factor causing injury under Article 4.2(b) as opposed to a possible adjustment measure to address injury.").We note that the language of SG Article 4.2(b) is open-ended as to what sorts of "other factors" mightpotentially be causing injury in a given investigation, by implication leaving it to investigating authorities toidentify such potential "other factors" in the light of the facts of each particular case.  In this regard, we note that
it was the USITC that decided to investigate the lack of a marketing programme as one among several possibleWT/DS177/R
WT/DS178/R
Page 83
"while an effective marketing program could have had an important impact on the
industry, in view of the foregoing discussion, we do not find that failure to implement
such a program is a more important cause  of the threat of serious injury than
increased imports." 270
7.275  The USITC does not elaborate on which parts of the "foregoing discussion" lead to its
conclusion concerning the lack of an effective marketing programme, or on how that discussion
demonstrates that the absence of an effective marketing programme was a less important cause than
increased imports of the threat of serious injury.  We note that in respect of this factor, the USITC
again returned to the statutory language in setting forth its determination. As in the case of thetermination of wool subsidies, competition from other meats, and alleged concentration in the packer
segment, we  do not believe that the USITC determ ination that the lack of an effective marketing
programme was not more important than increased imports can be understood as a finding that such
competition made no appreciable contribution to the threat of serious injury.
4. Conclusions on causation and non-attribution of "other factors"
7.276  In the light of the foregoing, we conclude th at the United States has, in applying the
"substantial cause" test (i.e., " important  cause and not less  than any other cause") in the lamb
investigation, not shown, pursuant to SG Article 4.2(b), that increased imports were by themselves a
necessary  and sufficient  cause of threat of serious injury.
7.277  We also conclude, as a matter of fact, that the determinations by the USITC in respect of four
of the six "other factors" examined do not constitute determinations that these factors made no
appreciable contribution to the threat of serious injury.  Rather, the USITC found that these fourfactors were "less important" causes than increased imports of the threat of serious injury, which in
our view means that they were contributing in a more  than insignificant way to that threat.  Therefore,
we conclude that the USITC's application of the "substantial cause" test in the lamb meat investigation
as reflected in the USITC report did not ensure that threat of serious injury caused by other factors has
not been attributed to increased imports.
7.278  Finally, we recall our preliminary ruling of 25 May 2000 and the pertinent reasoning
contained in paragraphs 5.54-5.58 above that the US safeguard statute per se  is not within this Panel's
terms of reference, and that, consequently, our findings are limited to an examination of the US
causation standard as applied  in this investigation concerning imports of lamb meat.
7.279  In the light of the foregoing considerations and conclusions, we find that the USITC's
determination of a causal link between increased imports and threat of serious injury as well as its
determination on "other factors" in this lamb meat investigation is inconsistent with SG Article 4.2(b),
and thus also with SG Article 2.1.
F. 
CLAIMS UNDER SG ARTICLES 2, 3, 5, 8, 11 AND 12, AND GATT 1994 ARTICLES I AND  II
7.280  Bearing in mind the statements of the Appellate Body on "judicial economy" in the disputes
on United States – Shirts and Blouses and Australia – Salmon,271 we believe that in the foregoing
                                                                                                                                                                    
"other factors" that might be threatening to cause injury to the domestic industry.  In the light of this decision by
the USITC, and given that we are precluded from engaging in a de novo  review of the case, we believe that we
can only assess the USITC's determination in respect of this factor on its own terms, i.e., as a finding in respectof a possible "other factor" within the meaning of SG Article 4.2(b).
270 USITC Report, Exh. US-1, at I-26.  Emphasis added.
271.See paragraph 7.119 and footnotes 156-157.WT/DS177/R
WT/DS178/RPage 84
sections we have addressed all those claims and issues which we considered necessary for the
resolution of the matter in order to enable to DSB to make sufficiently precise recommendations and
rulings for the effective resolution of the dispute before us.  Therefore, we see no need to rule on the
complainants' claims under SG Articles 2.2, 3.1, 5.1 and GATT 1994 Articles I and II, or on
Australia's claims under SG Articles 8, 11 and 12.
VIII.  CONCLUSIONS AND RECOMMENDATIONS
8.1 On the basis of the foregoing considerations, we conclude:
(a) that the United States has acted inconsistently with Article XIX:1(a) of GATT 1994 by failing
to demonstrate as a matter of fact the existence of "unforeseen developments";
(b) that the United States has acted inconsistently with Article 4.1(c) of the Agreement on
Safeguards because the USITC, in the lamb meat investigation, defined the domestic industry as
including input producers (i.e., gr owers and feeders of live lamb) as producers of the like product at
issue (i.e. lamb meat);
(c) that the complainants failed to establish that  the USITC's analytical approach to determining
the existence of a threat of serious injury, in particular with respect to the prospective analysis and thetime-period used, is inconsistent with Article 4.1(b) of the Agreement on Safeguards (assuming
arguendo that the USITC's industry definition was consistent with the Agreement on Safeguards);
 (d) that the complainants failed to establish that the USITC's analytical approach (see paragraphs
7.223-7.224) to evaluating all of the factors listed in Article 4.2(a) of the Agreement on Safeguards
when determining whether increased imports threaten ed to cause serious injury with respect to the
domestic industry as defined in the investigation is inconsistent with that provision (assuming
arguendo that the USITC's industry definition was consistent with the Agreement on Safeguards and
that the data relied upon by the USITC were representative within the meaning of Article 4.1(c) of the
Agreement on Safeguards);
(e) that the United States has acted inconsistently with Article 4.1(c) of the Agreement on
Safeguards because the USITC failed to obtain data in respect of producers representing a major
proportion of the total domestic production by the domestic industry as defined in the investigation;
(f) that the United States has acted inconsistently with Article 4.2(b) of the Agreement on
Safeguards because the USITC's determination in the lamb meat investigation in respect of causation
did not demonstrate the required causal link between increased imports and threat of serious injury, in
that the determination did not establish that increased imports were by themselves a necessary and
sufficient cause of threat of serious injury, and in that the determination did not ensure that threat ofserious injury caused by "other factors" was not attributed to increased imports;
(g) that by virtue of the above violations of Article 4 of the Agreement on Safeguards, the
United States also has acted inconsistently with Article 2.1 of the Agreement on Safeguards.
8.2 We therefore recommend that the Dispute Settlement Body request the United States to bring
its safeguard measure on imports of lamb meat into conformity with its obligations under the WTOAgreement on Safeguards and the GATT of 1994.