UNITED STATES – LAWS, REGULATIONS AND METHODOLOGY FOR CALCULATING DUMPING MARGINS ("ZEROING")
Document: Communication from the United States
Date: 17 May 2006
Document codes: WT/DS294/16; WT/DS294/AB/R
Complainant: EU
Respondent: U.S.
Third parties: Argentina, Brazil, China, Taiwan, Hong Kong, India, Japan, South Korea, Mexico, Norway, Thailand, Turkey
Dispute stage: Implementation & Compliance
Agreements cited: Art. 1, 2.1, 2.4, 5.8, 9.1, 9.3, 9.5, 11  Anti-dumpingArt. VI  GATT 1994Art. 18.4  Anti-dumpingArt. XVI:4  Agreement Establishing the World Trade OrganizationArt. 3  Anti-dumping

UNITED STATES – LAWS, REGULATIONS AND METHODOLOGY FOR
CALCULATING DUMPING MARGINS ("ZEROING")

Communication from the United States

 The following communication, dated 9 May 2006, is circulated at the request of the
delegation of the United States.

Methodology for Calculating Dumping Margins ("Zeroing") , , circulated 18 April
2006 (hereinafter "Appellate Body Report").
1 There are two key aspects of the Appellate Body
Report that should cause Members concern. These are: (1) the Appellate Body's "as applied"
findings regarding the use of so-called "zeroing" in assessment proceedings; and (2) the Appellate
Body's "as such" finding regarding the "methodology" of "zeroing" in anti-dumping investigations.

Zeroing "As Applied"

2. With respect to the "as app lied" findings, the Appellate Body reversed the panel and found
that the use of "zeroing" in assessment proceedi ngs is inconsistent with Article 9.3 of the
Anti-Dumping Agreement and Article VI:2 of the GATT 1994, reasoning that "zeroing" results in an
amount of anti-dumping duty that exceeds the margin of dumping. According to the Appellate Body,
Article 2.1 of the Anti-Dumping Agreement and paragraphs 1 and 2 of Article VI, when read together,
lead to the conclusion that the term "margin of dump ing" always refers to the margin of dumping for
exporters and producers "for the product as a whole. " According to the Appellate Body, the term
"margin of dumping" cannot be interpreted as a pplying on a transaction-specific basis or on an
importer-specific basis.
2

3. The implications of the Appe llate Body's conclusions, as well as the analytical route by which
the Appellate Body reached those conclusions, ar e very troubling. These implications include
rendering without effect important provisions of th e Anti-Dumping Agreement and radically altering
the manner in which dumping margins are calculated, in areas having nothing to do with so-called
"zeroing."3 We will first consider some of the implications.

1 Hereinafter, we refer to the dispute generally as "US – Zeroing (EC)."
2 See, e.g., Appellate Body Report, para. 126.
3 In this regard, it is important to recognize that the Appellate Body's rationale is much more sweeping
than that found in the EC – Bed Linens and US – Softwood Lumber reports. In those disputes, the Appellate
Body's findings against the use of zeroing involved the use of the average-to-average comparison method in
antidumping investigations, and were based on the text of Article 2.4.2 of the Anti-Dumping Agreement. The
US Department of Commerce previously has announced th at it no longer will engage in zeroing when using the
average-to-average method in investigations.

 Targeted Dumping

4. One implication of the Appellate Body's anal ysis concerns Article 2.4.2 of the Anti-Dumping
Agreement and the so-called "targeted dumping" provision. Article 2.4.2 provides as follows:

Subject to the provisions governing fair comparison in paragraph 4, the existence of
margins of dumping during the investiga tion phase shall normally be established on
the basis of a comparison of a weighted average normal value with a weighted
average of prices of all comparable export transactions or by a comparison of normal
value and export prices on a transaction-to-transaction basis. A normal value
established on a weighted average basis may be compared to prices of individual
export transactions if the authorities find a pattern of export prices which differ
significantly among different purchasers, regions or time periods, and if an
explanation is provided as to why such differences cannot be taken into account
appropriately by the use of a weighted av erage-to-weighted average or transaction-to-
transaction comparison.
5. The first sentence of Article 2.4.2 sets forth the normal comparison methods that authorities
should use during the investigation phase of an antidumping proceeding. These methods commonly
are referred to as the average-to-average and tr ansaction-to-transaction comparison methods. The
second sentence, however, permits the use of a diffe rent comparison method "if the authorities find a
pattern of export prices which differ significantly among different purchasers, regions or time
periods." In such cases (which commonly are refe rred to as "targeted dumping"), "[a] normal value
established on a weighted average basis may be comp ared to prices of individual export transactions"
(i.e., the average-to-transaction comparison method) . Some Members who believe that the Anti-
Dumping Agreement generally prohibits zeroing, nonetheless believe that the Agreement permits
zeroing when the targeted dumping provision of Article 2.4.2 is invoked.

6. However, if the Appellate Body is correct that the margin of dumping always must be
calculated for the product as a whole, then the u se of zeroing would seem to be precluded in all
circumstances, including situations in which the av erage-to-transaction comparison method is used to
calculate margins of dumping pursuant to the targ eted dumping provision of Article 2.4.2. And, if
that is the case, then if margins of dumping are calculated without the use of zeroing, it is a
mathematical fact that the margin of dumping cal culated using the average-to-transaction comparison
method will be the same as the margin of dum ping calculated using the average-to-average
comparison method. In other words, if the Appellate Body's reasoning and conclusion are correct,
then the targeted dumping method of the second senten ce of Article 2.4.2 would be deprived of any
effect.

7. Disputing parties that have opposed zeroing have been unsuccessful in their efforts to explain
away the mathematical equivalence prob lem. As the Article 21.5 panel in US – Lumber recently
noted:

In response to a very simple argument of mathematical equivalence, Canada and
certain third parties have provided convolut ed explanations of how the [average-to-
transaction] comparison methodology might be applied, without zeroing, so as to give
results that are mathematically different fro m the results of the [average-to-average]
comparison methodology. Their arguments are essentially based on the notion that
targeted dumping allows investigating author ities to reach their determinations on the
basis of the pricing behaviour in respect of universes of transactions that are narrower
than the initial scope of the investigation, and narrower than those analysed under the
[average-to-average] methodology. Such an approach is at odds with the very text of

the second sentence of Article 2.4.2 and/or other provisions of the AD Agreement. In
other words, Canada and the relevant thir d parties have failed to explain how the
second sentence of Article 2.4.2 might be applied, without zeroing, in a WTO-
consistent manner , so as to give results that are mathematically different from the
results of the [average-to-average] comparison methodology.4
8. However, it would be extraordinary for Memb ers to have negotiated the specific language of
the targeted dumping provision while intending that it have no meaning. The parties had discussed in
the panel proceeding and on appeal the context pr ovided by the targeted dumping provision and the
manner in which it should inform the interpretation of the relevant provisions as well as the problem
of rendering the targeted dumping provision "inutile. " And the Panel in its report had relied on this
language as part of the basis for the legal findings an d conclusions that the Appellate Body reversed.
Yet the Appellate Body did not examine this cont ext and failed to address this implication of its
reasoning. For these reasons, those Members whos e authorities make use of the targeted dumping
method should be particularly con cerned with the implications of the Appellate Body Report. In
addition, all Members who believe that the agreement provisions they so painstakingly negotiate must
be given effect should also be concerned. It is difficult to reconcile the Appellate Body's approach
with the customary rules of interpretation of public international law.

 Prospective Normal Value Systems

9. A second implication of the Appellate Body's conclusions concerns prospective normal value
duty assessment systems. Prospective normal value systems are expressly contemplated by
Article 9.4(ii) of the Anti-Dumping Agreement, which, in pertinent part, provides as follows:

When the authorities have limited their ex amination in accordance with the second
sentence of paragraph 10 of Article 6, an y anti-dumping duty applied to imports from
exporters or producers not included in the examination shall not exceed:

(ii) where the liability for payment of anti-dumping duties is calculated on the
basis of a prospective normal value, the difference between the weighted
average normal value of the selected exporters or producers and the export
prices of exporters or producers not individually examined ... .
10. As the United States understands it, in a pr ospective normal value system, authorities assess
anti-dumping duties on a transaction-specific basis as imports occur through a comparison between
the export price and the prospective normal value. If the export price is lo wer than the prospective
normal value – i.e., if the transaction is made at a dumped price – the authorities assess duties. If the
export price equals or exceeds the prospective normal value – i.e., if the transaction is made at a non-
dumped price – the authorities do not assess duties. Prospective normal value systems thus calculate
the amount of dumping duties owed in a manner which will yield similar, and in some cases identical,
results as the approach taken by US authorities in assessment reviews. The authorities do not make
offsets to the margins of dumping calculated with respect to the dumped transactions to account for
negative margins of dumping calculated with respect to the non-dumped transactions. Indeed, as
noted by Canada – a Member that uses a prospec tive normal value system – "a prospective normal

4 Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada –
Recourse to Article 21.5 of the DSU by Canada , WT/DS264/RW, circulated 3 April 2006, para. 5.52 (emphasis
in original) (hereinafter "US – Lumber"). The panel in US – Lumber, as well as the panel in the instant dispute –
US – Zeroing (EC) – cited the problem of mathematical equiva lence as a reason why there was no general
prohibition on zeroing by virtue of the phrase "margins of dumping."

value system does not employ the practice of zeroi ng. ... An investigating authority assesses anti-
dumping duties when the export price is lower than the weighted-average normal value, but applies no
anti-dumping duties to non-dumped transactions when the opposite is true."
5

11. However, if, as the Appellate Body posits, ma rgins of dumping must be calculated for "the
product as a whole," it would appear to be impossible for an authority to legitimately assess
anti-dumping duties on a transaction-specific basis using a prospective normal value. As noted by the
panel in US – Lumber:

If the Appellate Body's interpretation of "margins of dumping" were to apply
throughout the AD Agreement in the sense argued by Canada, this provision, which
expressly applies in respect of prospective duty assessment systems, would mean that
a refund becomes payable if an anti-dumping duty is paid in excess of the single
margin of dumping for the product as a whole, calculated by aggregating the results
of all intermediate comparisons, without zer oing. Again, this makes no sense in the
context of a prospective normal value duty assessment system, because (as even
Canada acknowledges) the "margin of dumping" at issue is a transaction-specific
price difference calculated for a specific import transaction. And if other
comparisons for the product as a whole were somehow relevant, offsets would have
to be provided for non-dumped transactions, with the result that one importer could
request a refund on the basis of a margin of dumping calculated by reference to non-
dumped transactions made by other importers.
6
12. It is doubtful that Members that use prosp ective normal value systems contemplated the result
that would flow from the Appellate Body's inte rpretation when they negotiated the Anti-Dumping
Agreement.

 Article 2.2 of the Anti-Dumping Agreement

13. Finally, we would note the implications of th e Appellate Body's conclusions for Article 2.2 of
the Anti-Dumping Agreement, which also contains the term "margin of dumping." Among other
things, Article 2.2 specifies when authorities shall use a constructed normal value as the basis for
calculating dumping margins, and provides as follows:

When there are no sales of the like product in the ordinary course of trade in the
domestic market of the exporting country or when, because of the particular market
situation or the low volume of the sales in the domestic market of the exporting
country, such sales do not permit a proper comparison, the margin of dumping shall
be determined by comparison with a comparable price of the like product when
exported to an appropriate third country, pr ovided that this price is representative, or
with the cost of production in the country of origin plus a reasonable amount for
administrative, selling and general costs and for profits. (Footnotes omitted).
It is the understanding of the United States that most authorities apply Article 2.2 on a sub-group or
model basis in order to minimize reliance on constr ucted normal values, which generally are regarded
as a less accurate measure of dumping than are normal values based on domestic prices.

5 US – Lumber, para. 5.55.
6 US – Lumber , para. 5.57. As with the problem of mathematical equivalence, the panel in US –
Lumber cited the problems posed for prospective normal value systems as a reason why there was no general
prohibition on zeroing by virtue of the phrase "margins of dumping." Like the problem of mathematical
equivalence, the Appellate Body also was presented with the problem of prospective normal value systems, but
failed to address the problem and provided no explanation as to why.

14. However, if, as the Appellate Body posits, the term "margin of dumping" always means a
margin of dumping for "the product as a whole," then authorities must apply Article 2.2 with respect
to "the product as a whole," and not on the basis of sub-groups or models. The result of such a
different approach would be that "a constructed normal value would necessarily be used in all aspects
of the determination of the margin of dumping for the product as a whole." 7 As explained by the
panel in US – Lumber:

In our view, Canada's suggestion that Artic le 2.2 may be applied on a model basis to
increase the accuracy of the calculation methodol ogy is not consistent with its view
that investigating authorities must calculate a single margin of dumping for the
product as a whole. For example, if there were ten models of the like product, and
the Article 2.2 trigger conditions applied with respect to only one model, Canada
asserts that an investigating authority ma y use a constructed normal value for only
that one model (by making a "sub-group calculation"). However, Article 2.2
stipulates that the "margin of dumping" shall be established using a constructed
normal value whenever the trigger conditions are fulfilled. If "margin of dumping" in
Article 2.2 means a single margin of dum ping for the product as a whole (and not for
a specific model), this must mean that the margin of dumping for the product as a
whole must be calculated using a constructed normal value for all models, even if the
trigger conditions only apply in respect of one model. In other words, there would
never be a "sub-group calcula tion" of the sort envisaged by Canada. We can see
nothing in the text of Article 2.2 that would require this result, and, as Canada
indicates, investigating authorities do not unde rstand it to require this result. Indeed,
the use of different methods for establishing normal value for different models or sub-
groups of product is an integral part of model averaging, which itself is permitted
under Article 2.4.2 of the AD Agreement . Moreover, such mandatory use of
constructed normal value in respect of all models would run counter to the principle
that constructed normal value is an alte rnative to be used only in the limited
circumstances provided for in Article 2.2. It would also increase the burden on
respondents, who would be required to produce cost data for all models, rather than
just one or a few for which constructed normal value is necessary.
8
15. These are the anomalies that flow from the Appellate Body's "product-as-a-whole" line of
reasoning that neutral and impartia l experts have identified thus fa r and with which Members should
be concerned. There may be others.

 The Lack of Analysis

16. Equally disturbing, however, is the fact th at, as has been noted above, these anomalies were
before the Appellate Body, but the Appellate Body fa iled to address them in its report. The Appellate
Body did not confront at all the implications of its reasoning for the targeted dumping provision and
Article 2.2. With respect to the implications for prospective normal value systems, the Appellate
Body's discussion consists of a single sentence in a footnote, in which it merely asserts – without any
explanation – that "the product as a whole" concept does not preclude assessments based on
prospective normal values.9

7 US – Lumber, para. 5.61.
8 US – Lumber , para. 5.62. As was the case with its discussion of mathematical equivalence and
prospective normal value systems, the panel was discussing the implications for Article 2.2 in order to explain
why "the product as a whole" interpretation of "margin of dumping" could not possibly be correct.
9 Appellate Body Report, note 234.

17. The United States agrees with the proposition that panels and the Appellate Body are not
required to respond to every
 argument made by a party. However, any sort of meaningful analysis
requires that they deal with significant arguments raised by parties. The implications of "the product
as a whole" line of reasoning described above constitute the very sort of significant arguments that the
Appellate Body should have addressed. The A ppellate Body's failure to do so undermines the
credibility of its analysis. To paraphrase the Appe llate Body itself, "[t]he brevity of the [Appellate
Body's] analysis of this issue is, in our view, di fficult to reconcile with its duty to conduct a critical
and searching analysis."10 It is particularly regrettable that the Appellate Body was reviewing a panel
report that, on the issue of zeroing in post-inves tigation phases, had performed a rigorous analysis
citing to multiple reasons for the conclusion. Th e Appellate Body appears to have ignored that
rigorous analysis and decided that it need not set out a rigorous analysis of its own in overturning the
panel's legal reasoning and conclusion.

18. Also of concern is the fact that the Appell ate Body's legal conclusions are based on provisions
that did not change as a result of the Uruguay Round. Paragraphs 1 and 2 of Article VI of the GATT
1994 were taken unchanged from the corresponding provi sions of the GATT 1947, and Article 2.1 of
the Anti-Dumping Agreement was taken uncha nged from Article 2.1 of the Tokyo Round
Anti-Dumping Code. The Appellate Body goes so far as to assert that these provisions "clearly"
support the notion that "dumping" is defined in relation to "the product as a whole."
11

19. Regardless of one's views as to the desirability of zeroing, it simply is not credible to assert
that Article VI and Article 2.1 "clearly" indicate that dumping is defined in relation to the product as a
whole. Indeed, with respect to Article VI, in 1960 a Group of Experts concluded that the "ideal
method" for imposing anti-dumping duties was to make a dumping determination "in respect of each
single importation of the product concerned."
12 If a Group of Experts familiar with anti-dumping
matters concluded that a transaction-specific appro ach is the "ideal method" under Article VI, it is
difficult to understand how the Appellate Body could c onclude over forty years later that Article VI
"clearly" calls for a "product as a whole" approach.

20. Moreover, if it is so clear that these provisions preclude zeroing, it is difficult to fathom why
so many Contracting Parties to the GATT 1947 and signatories to the Tokyo Round Anti-Dumping
Code engaged in zeroing. It is equally difficult to understand how the panel in the Audiocassettes
case could have upheld the use of zeroing if zeroing were so clearly prohibited by Article VI and
Article 2.1. Indeed, the panel rejected a claim th at zeroing was inconsistent with Article 2.1 of the
Tokyo Round Anti-Dumping Code.
13

Zeroing "As Such"

21. Turning to the Appellate Body's "as such" fi nding, it is important to understand at the outset
what the United States appealed. The panel found that the US Department of Commerce ("USDOC")
applied an unwritten "norm" of zeroing that suppo sedly was "the root of the WTO-inconsistent
behaviour". In the view of the United States, th e panel's finding was in error because, among other
things, the panel's finding of a "norm" was based on nothing more than a description of what the
USDOC had done in the past.

10 Appellate Body Report, United States – Investigation of the International Trade Commission in
Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada , WT/DS277/AB/RW,
circulated 13 April 2006, para. 124.
11 Appellate Body Report, para. 126.
12 BISD 9S/194, para. 8.
13 Panel Report, European Communities – Anti-Dumping Duties on Audio Tapes in Cassettes
Originating in Japan , ADP/136, circulated 28 April 1995 (panel established under the 1979 Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade) (unadopted).

22. In considering the panel's "as such" finding, the Appellate Body began its analysis with the
following statement:

We agree with the United States that a pane l must not lightly assume the existence of
a "rule or norm" constituting a measure of general and prospective application,
especially when it is not expressed in the form of a written document. If a panel were
to do so, it would act inconsistently with its obligations under Article 11 of the DSU
to "make an objective assessment of the matter" before it.
When an "as such" challenge is brought agains t a "rule or norm" that is expressed in
the form of a written document—such as a la w or regulation—there would, in most
cases, be no uncertainty as to the existence or content of the measure that has been
challenged. The situation is different, however, when a challenge is brought against a
"rule or norm" that is not expressed in the form of a written document. In such
cases, the very existence of the challenged "rule or norm" may be uncertain.
In our view, when bringing a challenge against such a "rule or norm" that constitutes
a measure of general and prospective appli cation, a complaining party must clearly
establish, through arguments and supporting evid ence, at least that the alleged "rule
or norm" is attributable to the responding Member; its precise content; and indeed,
that it does have general and prospective app lication. It is only if the complaining
party meets this high threshold, and puts forward sufficient evidence with respect to
each of these elements, that a panel would be in a position to find that the "rule or
norm" may be challenged, as such. This evidence may include proof of the
systematic application of the challenged "rul e or norm". Particular rigour is required
on the part of a panel to support a conclusion as to the existence of a "rule or norm"
that is not expressed in the form of a written document. A panel must carefully
examine the concrete instrumentalities that evidence the existence of the purported
"rule or norm" in order to conclude that such "rule or norm" can be challenged, as
such.
14
23. To the extent that the analy tical framework set out by the Appellate Body is read to require
that the rule or norm in question is part of an act or instrument of the defending Member 15, whether
written or unwritten, the United States does not disa gree. Thus, the question before the Appellate
Body – as articulated by the Appellate Body itself – was whether the panel had correctly applied this
analytical framework. Unfortunately, the Appellate Body ignored this question, and instead embarked
on its own de novo analysis regarding the "norm" of zeroing.

24. Recall again that the US claim of error essentially was that the panel's finding of a norm of
general and prospective application was based on nothing more than evidence of what the USDOC

14 Appellate Body Report, paras. 196-198 (footnote omitted; italics in original).
15 The Appellate Body recognized that any act or omission attributable to a WTO Member can be a
measure of that Member for purposes of WTO dispute settlement, and that measures subject to WTO dispute
settlement can include "acts setting forth rules or norms that are intended to have general and prospective
application" and "instruments of a Member containing rules or norms." Appellate Body Report, para. 188. To
the extent this is intended to reflect that the measure mu st be attributable to a Member, this is consistent with
Articles 3.3 and 4.2 of the DSU, which refer to measures "taken" by a Member. At the same time, the Appellate
Body's discussion appears to blur the concept of a "measure" that is of general and prospective application and a
"rule or norm" of general and prospective application. Part of the difficulty may be that the Appellate Body's
discussion is based on a construct by the Appellate Body – none of that discussion is based in the text of the
WTO agreements. The WTO agreements do not purport to define "measure" (nor do they contain the term "rule
or norm" that the Appellate Body itself puts in quotation marks).

had done in the past. In rejecting the US claim, however, the Appellate Body did not limit itself to
facts that were either undisputed or had been f ound by the panel, but instead relied upon evidence that
– according to the Appellate Body – the panel simply "had before it".
16 In particular, the Appellate
Body cited the following evidence:17

 (a) "standard computer programs used by the USDOC to calculate margins of dumping"

 The panel did not rely on this fact, and the Appellate Body did not explain the
relevance of this fact to the issue before it.

 (b) "the USDOC Antidumping Manual"

 While the panel noted that the EC had relied on the Antidumping Manual as
evidence,
18 the panel itself did not cite to the Manual in its findings. Moreover, the
United States contested the significance of the Antidumping Manual, explaining, with
evidence, that it has no prescr iptive value, and that, in fact, it refers to methodologies
that the USDOC no longer uses.19

 (c) "expert opinions"

 The so-called "expert opinions" consisted of nothing more than statements as to what
the USDOC had done in the past.
20 Moreover, the "expert" was nothing more than a
paid employee of a consulting firm hired by counsel to one of the third parties.

 (d) "the Standard Zeroing Procedures (lines of computer code)"

 The panel had recognized that the lines of computer code "do not create anything" but
instead "are simply a reflection of something else."
21 In other words, the fact that the
USDOC had used certain computer code to implement zeroing had no explanatory
value as to the measure that was causing the USDOC to use zeroing in the first place.

 (e) "the fact that the United States had not contested that the USDOC's zeroing
methodology reflect a deliberate policy"

 However, the United States explained to the Appellate Body that the question of
whether the USDOC's use of zeroing in the p ast reflected a "deliberate policy" never
arose during the panel proceedings, and the pa nel did not even specify what it was in
the record that the United St ates was supposed to contest.
22 The Appellate Body did
not even bother to address this discrepancy in the panel's reasoning.

25. In short, instead of reviewing whether the pane l's analysis of the EC's "as such" claim was in
error, the Appellate Body made its own findings based upon its own consideration of evidence that
either was not relied upon by the panel or that was contested by the parties. In so doing, the Appellate

16 Appellate Body Report, para. 213.
17 Appellate Body Report, para. 201.
18 Panel Report, para. 7.107.
19 See Appellee Submission of the United States of America , 13 February 2006, paras. 203, 207. See,
also, Exhibit EC-36.8, page 95 (an Antidumping Manual reference to the discontinued "99.5% test).
20 Other Appellant Submission of the United States of America , 1 February 2006, para. 36 & note 34
(hereinafter "US Other Appellant Submission").
22 US Other Appellant Submission, note 38.

Body deviated from the role assigned to it by the DSU. As a result, the "rigorous" standard for an "as
such" claim proclaimed by the Appellate Body in para graph 198 of the report turned out to be not so
rigorous after all. At the end of the day, the identity of the measure of general and prospective
application that allegedly causes the USDOC to zero remains unknown.

26. Another element of the US appeal was that the panel had improperl y failed to apply the
mandatory/discretionary distinction. This was a claim of legal error, for the mandatory/discretionary
distinction is a tool for analysing whether a me asure, as such, breaches a specific obligation. If a
measure does not, as such, mandate a breach of a pa rticular obligation, then it does not, as such,
breach that obligation. Indeed, it is the very fact that a measure, in its application, requires a Member
to breach its obligations that underpins the purpose and the value of an "as such" finding. As the
Appellate Body correctly noted in paragraph 189 of the report, "complaining parties bringing ‘as such'
challenges seek to prevent Members ex ante from engaging in certain conduct." However, the means
by which this goal has been achieved in successful "as such" challenges to date has been a finding that
a measure as such mandates ex ante inconsistent conduct. In other words, a measure was not
considered to be the "the root of the problem" merely because a Member had in the past exercised
discretion under the measure in a WTO-inconsiste nt manner. Rather, the measure required the
Member to act in a WTO-inconsistent manner (now, and in the future).

27. Notwithstanding this critical element of the US legal argument and of the legal analysis
regarding an "as such" claim, the Appellate Body ne ver addressed it, except to note that it had not yet
pronounced generally on the manda tory/discretionary distinction.
23 Moreover, the Appellate Body
seemingly characterized the US argument as one relating to the panel's handling of the facts under
DSU Article 11,24 despite the central legal role played by the distinction.

28. By failing to apply the mandatory/discretionary distinction, the Appellate Body found an as-
such breach without finding that the so-called "measure" actually caused the Member to breach its
obligations. It is highly problematic as to how a Member is to respond to such a finding. If a measure
is not causing a Member to breach, removing the meas ure will have no impact. And if there is no
measure at all, how is a Member to remove or modify it?

Conclusion

29. In conclusion, we would note the observati on on the Appellate Body Report from a supporter
of the outcome in the dispute: "This ruling is an important development in the WTO jurisprudence.
In a sense, the AB made a huge contribution to free trade, which could not be made by negotiation
alone." (Emphasis added). 25 It is troubling that even supporters of the outcome in this dispute thus
perceive that it did not result from the negotiated text of the agreement, nor could it be expected to
result from subsequent negotiation among the Members. The perception that the dispute settlement
system is operating so as to add to or diminish ri ghts and obligations actually agreed to by Members,
notwithstanding DSU Articles 3.2 and 19.2, is highly corrosive to the credibility that the dispute
settlement system has accumulated over the past 11 years.

30. Again, the United States considers the issues presented by this report to be important not
simply to the substantive outcome in this dispute, but also to the manner in which the WTO dispute
settlement system is to perform its task, and to the continued effectiveness and credibility of that
system. We welcome a discussion of these issues with Members.