UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974
Document: Report of the Panel
Date: 22 December 1999
Document codes: WT/DS152/R
Complainant: EU
Respondent: U.S.
Third parties: Brazil, Canada, Colombia, Costa Rica, Cuba, Dominica, Dominican, Ecuador, Hong Kong, India, Israel, Jamaica, Japan, South Korea, Saint Lucia, Thailand
Dispute stage: Consultation
Agreements cited: Art. 3, 21, 22, 23  Dispute Settlement Understanding (DSU)Art. I, II, III, VIII, XI  GATT 1994Art. XVI:4  Agreement Establishing the World Trade Organization

UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT
OF 1974
Report of the Panel
The report of the Panel on is being
circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted
document from 22 December 1999 pursuant to the Procedures for the Circulation and Derestriction 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 Pa nel Report is
appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. I nformation on
the current status of the Panel Report is available from the WTO Secretariat.

I. PROCEDURAL BACKGROUND
1.1 This proceeding has been initiated by a complaining party, the European Communities.
1.2 On 25 November 1998, the European Communities requested consultations with the
United States under Article XXII:1 of the General Agreement on Tariffs and Trade 1994
("GATT 1994") and Article 4 of the Understanding on Rules and Procedures Governing the
Settlement of Dispute ("DSU") with regard to Title III, chapter 1 (Sections 301-310) of the
United States Trade Act of 1974, as amended (19 U.S.C., paragraphs 2411-
2420)(). The United States agreed to the request. Dominica Republic, Panama,
Guatemala, Mexico, Jamaica, Honduras, Ja pan, and Ecuador requested, in communications
dated 7 December 1998 (WT/DS152/2), 4 December 1998 (WT/DS152/3), 9 December 1998
(WT/DS152/4, WT/DS152/5 and WT/DS152/ 6), 7 December 1998 (WT/DS152/7), and 10
December 1998 (WT/DS152/8 and WT/DS152/10) respectively, to be joined in those
consultations, pursuant to Article 4.11 of the DSU. Consultations between the European
Communities and the United States were held on 17 December 1998, but the parties were
unable to settle the dispute.
1.3 On 26 January 1999, the European Communities requested the establishment of a panel
pursuant to Article 6 of the DSU (WT/DS152/11).
1.4 In its panel request, the European Communities claims that:
"By imposing specific, strict time limits within which unilateral determinations
must be made and trade sanctions must be taken, Sections 306 and 305 of the
Trade Act of 1974 do not allow the United States to comply with the rules of
the DSU in situations where a prior multilateral ruling under the DSU on the
conformity of implementing measures has not yet been adopted by the DSB.
Where measures have been taken to implement DSB recommendations, the
DSU rules require either agreement between the parties to the dispute or a
multilateral finding on non-conformity under Article 21.5 DSU before any
determination of non-conformity can be made, let alone any measures of
retaliation can be announced or implemented. The DSU procedure resulting in
a multilateral finding, even if initiated immediately at the end of the reasonable
period of time for implementation, cannot be finalised, nor can the subsequent
DSU procedure for seeking compensation or suspension of concessions be
complied with, within the time limits of Sections 306 and 305.
The European Communities considers that Title III, chapter 1 (Sections 301 -
310) of the Trade Act of 1974, as amended, and in particular Sections 306
and 305 of that Act, are inconsistent with, in particular, but not necessarily
exclusively, the following WTO provisions:
(a) Articles 3, 21, 22 and 23 of the DSU;
(b) Articles XVI:4 of the Marrakesh Agreement Establishing the World Trade
Organization; and
(c) Articles I, II, III, VIII and XI of GATT 1994.
Through these violations of WTO rules, this legislation nullifies or impairs
benefits accruing, directly or indirectly, to the European Communities under

GATT 1994. This legislation also impedes important objectives of the
GATT 1994 and of the WTO.
1.5 The Dispute Settlement Body ("DSB") agreed to this request for a panel at its meeting
of 2 March 1999, establishing a panel pursuant to Article 6 of the DSU. In accordance with
Article 7.1 of the DSU, the terms of reference of the Panel were:
"To examine, in the light of the relevant provisions of the covered agreements
cited by the European Communities in document WT/DS152/11, the matter
referred to the DSB by the European Communities in that document and to
make such findings as will assist the DSB in making the recommendations or in
giving the rulings provided for in those agreements".
1.6 Brazil, Cameroon, Canada, Columbia, Co sta Rica, Cuba, Dominica, Dominican
Republic, Ecuador, Hong Kong (China), India, Is rael, Jamaica, Japan, Korea, St. Lucia, and
Thailand, reserved their rights to participate in the Panel proceedings as third parties. Cameroon
later withdrew its reservations as a third party.
1.7 On 24 March 1999, the European Communities requested the Director-General,
pursuant to Article 8.7 of the DSU, to determine the composition of the Panel. On 31 March
1999, the Director-General announced the composition of the Panel as follows:
Chairman: Mr. David Hawes
Member: Mr. Terje Johannessen
Mr. Joseph Weiler
1.8 The Panel had substantive meetings with the parties on 29 and 30 June 1999, and
28 July 1999.
II. FACTUAL ASPECTS
A. B
ASIC STRUCTURE OF MEASURES AT ISSUE1
1. Section 301(a)
2.1 Section 301(a) applies to any case in which "the United States Trade Representative
determines under section 304(a)(1) that (A) the rights of the United States under any trade
agreement are being denied" or "(B) an act, policy or practice of a foreign country – (i) violates,
or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under,
any trade agreement, or (ii) is unjustifiable and burdens or restricts United States commerce".
2
2.2 According to Section 304(a)(1),
"On the basis of the investigation initiated under section 302 and the
consultations (and the proceedings, if applicable) under section 303, the [United
States] Trade Representative shall … determine whether … the rights to which

1 The original text of the Sections 301-310 is attached hereto as Annex I.
2 Section 301(a)(1), 19 U.S.C. §2411(a)(1).

the United States is entitled under any trade agreement are being denied, or any
act, policy, or practice described in sub-section (a)(1)(B) or (b)(1) of section
301 exists".3
2.3 Section 301(a) also provides that if the USTR determines that one of these situations
has occurred, "the Trade Representative shall take action authorized in [Section 301](c), subject
to the specific direction, if any, of the President regarding any such action … to enforce such
rights or to obtain the elimination of such act, policy, or practice".4
2.4 According to Section 301(a)(2)(A), action is not required under Section 301(a) if the
DSB adopts a report finding that United States rights under a WTO Agreement have not been
denied or that the act, policy or practice at issue "(I) is not a violation of, or inconsistent with,
the rights of the United States, or (II) does not deny, nullify, or impair benefits to the United
States under any trade agreement".5
2.5 Section 301(a)(2)(B)(i) also provides that the USTR is not required to take action if "the
Trade Representative finds that the foreign country is taking satisfactory measures to grant the
rights of the United States under a trade agreement". The commitment of a WTO Member to
implement DSB recommendations favourable to the United States within the period foreseen in
Article 21 of the DSB has, for example, been determined by the USTR to be a "satisfactory
measure" justifying a termination of the investigation without taking any action under
Section 301.
6
2.6 According to Section 301(a)(2)(B)(ii) and (iii), the USTR is not required to take action
if the foreign country agrees to "eliminate or phase out the act, policy or practice" 7 at issue or if
it agrees to "an imminent solution to the burden or restriction on United States commerce", 8 or
"provide to the United States compensatory trad e benefits that are satisfactory to the Trade
Representative", when "it is impossible for the foreign country to achieve the results described
in clause (i) or (ii)".9
2.7 Further, according to Section 301(a)(2)(B)(iv) and (v), the USTR is not required to take
action when she finds that:
"(iv) in extraordinary cases, where the taking of action ... would have an
adverse impact on the United States economy substantially out of proportion to
the benefits of such action, taking into account the impact of not taking such
action on the credibility of the provisions of this chapter";10 or

3 Section 304(a)(1), 19 U.S.C. §2414(a)(1).
4 Section 301(a), 19 U.S.C. §2411(a).
5 Section 301(a)(2)(A), 19 U.S.C. §2411(a)(2)(A).
6 The European Communities notes that the USTR terminated on this basis the original
Section 301 investigation concerning the EC banana regime. (See Federal Register, Vol. 63, No. 204,
October 22 1998, page 56688).
7 Section 301(a)(2)(B)(ii)(I), 19 U.S.C. §2411(a)(1)(B)(ii)(I).
8 Section 301(a)(2)(B)(ii)(II), 19 U.S.C. §2411(a)(1)(B)(ii)(II).
9 Section 301(a)(2)(B)(iii), 19 U.S.C. §2411(a)(1)(B)(iii).
10 Section 301(a)(2)(B)(iv), 19 U.S.C. §2411(a)(1)(B)(iv).

"(v) the taking of action under this subsection would cause serious harm to
the national security of the United States".11
2.8 Section 301(a)(3) provides:
"(3) Any action taken under paragraph (1) to eliminate an act, policy, or
practice shall be devised so as to affect goods or services of the foreign country
in an amount that is equivalent in value to the burden or restriction being
imposed by that country on United States commerce".12
2. Section 301(b)
2.9 Section 301(b) applies to an act, policy or practice which, while not denying rights or
benefits of the United States under a trade agreement, is nevertheless "unreasonable or
discriminatory and burdens or restricts United States commerce".13
2.10 Section 301(d)(3)(B) provides examples of unreasonable acts, among them the denial of
opportunities for the establishment of an enterprise, failure to protect intellectual property rights,
export targeting, toleration of anti-competitive practices by private firms and denial of worker
rights.14 "Discriminatory" acts, policies and practices are defined in Section 301(d)(5) as
including those that deny "national or most-favoured-nation treatment to United States goods,
services, or investment".15 If the USTR determines that an act, policy or practice is actionable
under Section 301(b) and determines that "action by the United States is appropriate" the USTR
shall take retaliatory action "subject to the specific direction, if any, of the President regarding
such action".16
B. SCOPE OF AUTHORITY TO TAKE ACTION
2.11 Section 301(c) authorizes the USTR to "suspend, withdraw, or prevent the application
of, benefits of trade agreement concessions", or "impose duties or other import restrictions on
the goods of, and … fees or restrictions on the services of, such foreign country for such time as
the Trade Representative determines appropriate".17 If the act, policy or practice of the foreign
country fails to meet the eligibility criteria for duty-free treatment under the United States'
Generalised System of Preferences, the Caribbean Basin Economic Recovery Act or the Andean
Trade Preference Act, the USTR is also authorized to withdraw, limit or suspend such
treatment. In addition, the USTR may enter into binding agreements with the country in
question.
C. P
ROCEDURES
2.12 Sections 301-310 of the Trade Act of 1974 provide a means by which U.S. citizens may
petition the United States government to investigate and act against potential violations of
international trade agreements. 18 These provisions also authorize the USTR to initiate such

11 Section 301(a)(2)(B)(v), 19 U.S.C. §2411(a)(1)(B)(v).
12 Section 301(a)(3), 19 U.S.C. §2411(a)(3).
13 Section 301(b), 19 U.S.C. §2411(b).
14 Section 301(d)(3)(B), 19 U.S.C. §2411(d)(3)(B).
15 Section 301(d)(5), 19 U.S.C. §2411(d)(5).
16 Section 301(b), 19 U.S.C. §2411(b).
17 Section 301(c), 19 U.S.C. §2411(c).
18 Section 302(a)(2), 19 U.S.C. § 2412(a)(2).

investigations at her own initiative. 19 The USTR is a cabinet level official serving at the
pleasure of the President, and her office is located within the Executive Office of the
President.20 The USTR operates under the direction of the President and advises and assists the
President in various Presidential functions.21
2.13 According to Section 302, investigations may be initiated either upon citizen petition or
at the initiative of the USTR. After a petition is filed, the USTR decides within 45 days whether
or not to initiate an investigation.22 If the investigation is initiated, the USTR must, according to
Section 303, request consultations with the country concerned, normally on the date of initiation
but in any case not later than 90 days thereafter.23
2.14 Section 303(a)(2) provides that, if the investigation involves a trade agreement and a
mutually acceptable resolution is not reached "before the earlier of A) the close of the
consultation period, if any, specified in the trade agreement, or B) the 150 th day after the day on
which consultation commenced", the USTR must request proceedings under the formal dispute
settlement procedures of the trade agreement.24
2.15 Section 304(a) provides that on or before the earlier of "(i) the date that is 30 days after
the date on which the dispute settlement procedure is concluded, or (ii) the date that is 18
months after the date on which the investigation is initiated", 25 "[o]n the basis of the
investigation initiated under section 302 and the consultations (and the proceedings, if
applicable) under section 303, the Trade Representative shall … determine whether" US rights
are being denied. 26 If the determination is affirmative, USTR shall at the same time determine
what action it will take under section 301.27
2.16 If the DSB adopts rulings favourable to the United States on a measure investigated
under Section 301, and the WTO Member concerned agrees to implement that ruling within the
reasonable period foreseen in Article 21 of the DSU, the USTR can determine that the rights of
the United States are being denied but that "satisfactory measures" are being taken that justify
the termination of the Section 301 investigation.
2.17 Section 306(a) requires the USTR to "monitor" the implementation of measures
undertaken by, or agreements entered into with, a foreign government to provide a satisfactory
resolution of a matter subject to dispute settlement to enforce the rights of the United States
under a trade agreement.28
2.18 Section 306(b) provides:
"(1) IN GENERAL.—If, on the basis of the monitoring carried out under
subsection (a), the Trade Representative considers that a foreign country is not

19 Section 302(b), 19 U.S.C. § 2412(b).
20 See 19 U.S.C. § 2171(a), (b)(1) (1998).
21 See 19 U.S.C. § 2171(c)(1) (1998); Reorg. Plan No. 3 of 1979, 44 Fed. Reg. 69273 (1979); 19
C.F.R. § 2001.3(a) (1998).
22 Section 302(a)(2), 19 U.S.C. §2412(a)(2).
23 Section 303(a)(1), 19 U.S.C. §2413(a)(1)
24 Section 303(a)(2), 19 U.S.C. §2413(a)(2).
25 Section 304(a)(2), 19 U.S.C. §2414(a)(2).
26 Section 304(a)(1)(A), 19 U.S.C. §2414(a)(1)(A).
27 Section 304(a)(1)(B), 19 U.S.C. §2414(a)(1)(B).
28 Section 306(a), 19 U.S.C. §2416(a).

satisfactorily implementing a measure or agreement referred to in
subsection (a), the Trade Representative shall determine what further action the
Trade Representative shall take under section 301(a). For purposes of section
301, any such determination shall be treated as a determination made under
section 304(a)(1).
(2) WTO DISPUTE SETTLEMENT RECOMMENDATIONS.—If the
measure or agreement referred to in subsection (a) concerns the implementation
of a recommendation made pursuant to dispute settlement proceedings under
the World Trade Organization, and the Trade Representative considers that the
foreign country has failed to implement it, the Trade Representative shall make
the determination in paragraph (1) no later than 30 days after the expiration of
the reasonable period of time provided for such implementation under
paragraph 21 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes …".
29
2.19 Section 305(a)(1) provides that, "Except as provided in paragraph (2), the Trade
Representative shall implement the action the Trade Representative determines under section
304(a)(1)(B), subject to the specific direction, if any, of the President regarding such action" "by
no later than … 30 days after the date on which such determination is made". 30
2.20 According to Section 305(a)(2)(A), however, "the [USTR] may delay, by not more than
180 days, the implementation" of any action under Section 301 in response to a request by the
petitioner or the industry that would benefit from the Section 301 action or if the USTR
determines "that substantial progress is being made, or that a delay is necessary or desirable to
obtain United States rights or satisfactory solution with respect to the acts, policies, or practices
that are the subject of the action".
31
III. CLAIMS OF PARTIES
3.1 In the light of the considerations set out above and of the general principles laid down in
Article 3.7 of the DSU, the European Communities requests the Panel
to find that:
(a) inconsistently with Article 23.2(a) of the DSU:
- Section 304(a)(2)(A) of Trade Act of 1974 requires the USTR to
determine whether another Member denies US rights or benefits under a
WTO agreement irrespective of whether the DSB adopted a panel or
Appellate Body finding on the matter; and
- Section 306(b) requires the USTR to determine whether a
recommendation of the DSB has been implemented irrespective of
whether proceedings on this issue under Article 21.5 of the DSU have
been completed;

29 Section 306(b), 19 U.S.C. § 2416(b).
30 Section 305(a)(1), 19 U.S.C. §2415(a)(1).
31 Section 305(a)(2)(A), 19 U.S.C. §2415(a)(2)(A).

(b) inconsistently with Article 23.2(c) of the DSU:
- Section 306(b) requires the USTR to determine what further action to
take under Section 301 in the case of a failure to implement DSB
recommendations; and
- Section 305(a) requires the USTR to implement that action,
and this in both instances, irrespective of whether the procedures set forth in
Articles 21.5 and 22 of the DSU have been completed; and
(c) Section 306(b) is inconsistent with Articles I, II, III, VIII and XI of the GATT
1994 because, in the case of disputes involving trade in goods, it requires the
USTR to impose duties, fees or restrictions that violate one or more of these
provisions; and
to rule on these grounds, that the United States, by failing to bring the Trade Act of
1974 into conformity with the requirements of Article 23 of the DSU and of Articles I,
II, III, VIII and XI of the GATT 1994, acted inconsistently with its obligations under
those provisions and under Article XVI.4 of the WTO Agreement and thereby nullifies
or impairs benefits accruing to the European Communities under the DSU, the GATT
1994 and the WTO Agreement; and
to recommend that the DSB request the United States to bring its Trade Act of 1974 into
conformity with its obligations under the DSU, the GATT 1994 and the WTO
Agreement.
3.2 The United States requests that the Panel reject the EC's claims in their entirety, and
find that:
(a) Section 304(a)(2)(A) is not inconsistent with Article 23 of the DSU because the
EC has failed to demonstrate that it requires the Trade Representative to
determine that U.S. agreement rights have been denied in the absence of DSB
rulings;
(b) Section 306(b) is not inconsistent with Article 23 of the DSU because the EC
has failed to demonstrate that it requires the Trade Representative to determine
that U.S. agreement rights have been denied;
(c) Sections 306(b) and 305(a)(1) are not inconsistent with Article 23 of the DSU
because the EC has failed to demonstrate that these provisions require the Trade
Representative to suspend concessions without DSB authorization;
(d) Section 306(b) is not inconsistent with Articles I, II, III, VIII and XI of the
GATT 1994 because the EC has failed to demonstrate that this provision
requires the suspension of concessions in a manner inconsistent with DSB
authorization; and
(e) Sections 301-310 are not inconsistent with Article XVI:4 because they do not
mandate action in violation of any provision of the DSU or GATT 1994, nor do
they preclude action consistent with those obligations.

IV. ARGUMENTS OF THE PARTIES
A. OVERVIEW
4.1 The European Communities argues that Article 23 of the DSU prohibits unilateralism
in the framework of the WTO dispute settlement procedures. Members must await the adoption
of a panel or Appellate Body report by the DSB, or the rendering of an arbitration decision
under Article 22 of the DSU, before determining whether rights or benefits accruing to them
under a WTO agreement are being denied and whether rulings or recommendations by the DSB
or an arbitrator have been implemented.
4.2 The European Communities indicates that Article 23 also requires Members to follow
the procedures of the DSU on the suspension of concessions and to await an authorization by
the DSB before responding to a failure to comply with such rulings or recommendations.
32
4.3 The European Communities states that while Sections 301-310 require the United States
administration to resort to the DSU in respect of WTO matters, they explicitly mandate the
United States administration to proceed unilaterally on the basis of determinations reached
independently of the DSB, and without its authorization, once specified time periods have
lapsed. A law that requires resort to the DSU procedures but expressly stipulates unilateral
determinations and actions before the end of these procedures makes a mockery of the WTO
dispute settlement system.
4.4 The European Communities therefore believes that Sections 301-310 must be amended
to make clear that the United States administration is required to act in accordance with the
United States' obligations under the WTO agreements in all circumstances and at all times.
4.5 The European Communities indicates that the obligation set out in Article 23 of the
DSU is one of the key elements in the negotiated balance of rights and obligations of the
Uruguay Round.
4.6 The European Communities states that th e European Communities itself as well as
many other countries, consistently took the position in the Uruguay Round that a strengthened
dispute settlement system must include an explicit ban on any government taking unilateral
action to redress what that government judges to be the trade wrongs of others.
4.7 The European Communities argues that the creation of automatic dispute settlement
procedures leave no excuse for any government to take the law into its own hands. Article 23 of
the DSU and Article XVI:4 of the WTO Agreement are the principal reflections of the outcome
of the negotiation in the Uruguay Round on these issues.
4.8 The European Communities indicates that its Regulation on the enforcement of WTO
rights adopted after the Uruguay Round meets both the letter and the spirit of Article 23 of the
DSU. This Regulation, generally referred to as the "Trade Barriers Regulation", enables
Member States and Community enterprises to request the European Commission to examine

32 The European Communities notes that an alternative route with the agreement of the parties to
the dispute would be to follow the procedures under Article 25 of the DSU before an authorization to
suspend concessions is sought.

obstacles to trade and to initiate international dispute settlement procedures on such obstacles. 33
However, all actions under the Regulation are "subject to compliance with existing international
obligations and procedures". 34 Specifically, the Regulation provides that "where the
Community's international obligations require the prior discharge of an international procedure
for consultation or for the settlement of disputes" any response to the obstacle "shall only be
decided after that procedure has been terminated". 35 The European Communities has faithfully
implemented its obligations under Article 23 of the DSU and Article XVI:4 of the WTO
Agreement and expects all the other Members of the WTO, including the United States, to do
the same.
4.9 According to the European Communities, although the present complaint was
ultimately prompted by the experience of the Communities with the measures the United States
took under Sections 301-310 in the dispute on the European banana regime, this complaint does
not concern those measures. The European Communities indicates that these measures are
presently the subject matter of a different dispute (WT/DS165/1).
4.10 The European Communities further argues that this experience did however reveal the
seriousness of the inconsistencies between the requirements under which the USTR is mandated
to act under the domestic law of the United States and the requirements for the completion of
dispute settlement procedures under WTO law. It also confirmed that the United States has
implemented ob torto collo the results of the Uruguay Round into its legislation, keeping open
for itself the possibility of resorting to unilateral measures, in clear contradiction with its
obligations under the DSU.
4.11 The European Communities notes that in the statement of administrative action
submitted by the President to the Congress on 27 September 1994 and approved by the
Congress together with the Uruguay Round Agreements Act of 1994
36, the United States
announced that
"[t]he administration intends to use section 301 to pursue vigorously foreign
unfair barriers that violate U.S. rights or deny benefits to the United States
under the Uruguay Round agreements".
37
"… There is no basis for concern that the Uruguay Round agreements in
general, or the DSU in particular, will make future Administrations more
reluctant to apply Section 301 sanctions that may be inconsistent with U.S.
trade obligations because such sanctions could engender DSU-authorized
counter-retaliation. Although in specific cases the United States has expressed
its intention to address an unfair foreign practice by taking action under
Section 301 that has not been authorized by the GATT, the United States has
done so infrequently. In certain cases the United States has taken such action

33 Council Regulation (EC) No. 3286/94 of 22 December 1994, which, according to the
European Communities, lays down Community procedures in the field of the common commercial policy
in order to ensure the exercise of the Community's rights under international trade rules, in particular
those established under the auspices of the World Trade Organization.
34 Ibid., Article 1.
35 Ibid., Article 12.2.
36 Section 101(a) (1).
37 Statement of Administrative Action, reprinted in H.R. Doc. No. 103-316, at 1029 (US
Exhibit 11), Chapter B, subchapter 2, littera b (enforcement of US rights), p. 364.

because the foreign government has blocked adoption of a GATT panel report
against it.
Just as the Unites States may now choose to take Section 301 actions that are
not GATT-authorized, governments that are the subject of such actions may
choose to respond in kind. That situation will not change under the Uruguay
Round agreements".38
4.12 According to the European Communities, this way of implementing the results of the
Uruguay Round multilateral trade negotiations is si mply incompatible with the international
obligations of the United States resulting from the basic deal that was struck in Marrakech in
1994.
4.13 The European Communities argues that it is in exchange for a US commitment not to
resort to unilateral determination of the consistency of foreign trade measures with WTO trade
rules and to section 301-type trade restrictions without multilateral authorization that the
European Communities and other Uruguay Round participants agreed to accept a dispute
settlement system that would allow binding adj udication of all trade disputes coming under the
purview of the WTO and a credible enforcement procedure.
4.14 In the view of the European Communities, th is deal responded to US criticism of the
perceived imperfections of the GATT dispute settlement system which had been discussed at a
special session of the GATT Council on unilateralism in 1989, 39 i.e. the possibility to block the
adoption of adverse panel reports. That possibility has now been removed. Thus, it is only fair
for the European Communities to require the United States to carry out the agreed counterpart
of the deal by refraining from mandating recourse to unilateral section 301-type trade
restrictions. This is the deal for which the European Communities bargained in the Uruguay
Round.
4.15 The European Communities argues that it th erefore resorted to the present dispute
settlement procedures in order to ensure that the United States brings Sections 301-310, as such,
into conformity with Article 23 of the DSU, as required by Article XVI:4 of the WTO
Agreement. It follows from these considerations that the present complaint is not intended in
any way to either foreclose or prejudge the re sort of the European Communities to the DSU
with respect to the discriminatory specific measures that the United States has applied or might
apply in the future to European exports under Sections 301-310 of the Trade Act of 1974.
4.16 Also, the European Communities explains the legislative history of Sections 301-310 as
follows: Under the Trade Expansion Act of 1962, the United States Congress granted the
President the power to take actions against imports under certain conditions.
40 This statute was
replaced and expanded by Title III of the Trade Act of 1974, which granted similar powers to
the President in its Section 301. The Act also established procedures enabling U.S. citizens to
petition the government for action against measures by foreign governments. This part of the
Trade Act of 1974 was amended several times, most recently by the Uruguay Round

38 Statement of Administrative Action, op. cit., Chapter B, subchapter 2, littera b (enforcement of
US rights), p. 366 (emphasis added).
39 GATT doc. C/163 of 16 March 1989 (The European Communities referred to the arguments
for example, contained in paras. 4.75-4.81, and 4.374-4.378 of this Report for a more detailed discussion
of the negotiating history concerning Article 23 DSU).
40 Trade Expansion Act of 1962, § 252, Pub.L. No. 87-794, 75 Stat. 879.

Agreements Act of 1994.41 Title III of the Trade Act of 1974, as amended, entitled "Relief from
unfair trade practices", comprises Sections 301-310 which set out in detail how the
administration is to enforce the United States rights under trade agreements and respond to
certain foreign trade practices.
4.17 The European Communities adds that most of the amendments enacted between 1974
and 1994 were designed to reduce the President's discretion under Section 301. The prevailing
view in Congress was that the President ha d not made sufficient use of the powers under
Section 301 because he had given priority to foreign policy concerns over trade interests. In the
hearings preceding the 1988 amendments, Senator George J. Mitchell stated:
"The history of Section 301 is a history of administration after administration of
both parties refusing to implement the law. Instead, this president and his
predecessors have used the wide discretion provided in the law to deny or to
delay taking action sometimes for close to a decade… The administration will
claim that [the proposed Section 301] reforms limit their discretion. But it is
this very discretion which had led to the disastrous record of enforcement under
Section 301".
42
The Chairman of the Senate Finance Committee, Senator Lloyd Bentsen, took a similar
position:
"We need a trade policy that our trade partners can predict, and I maintain that
requires limits on the President's discretion not to act. He needs plenty of
discretion on what action to take, but limits have to be placed on his discretion
to take no action".43
4.18 The European Communities further states that prior to the 1988 amendments of
Section 301, it was the President who was authorized to determine whether the foreign
government practices were actionable and whether the United States should respond to them
with trade measures. In 1985, the Congress di scussed whether the President's power should be
transferred to the United States Trade Representative ("USTR"). Those in favour argued that it
"will ensure that when decisions are made under Section 301 authority, these decisions will be
made primarily for reasons of trade policy" and that it would "enhance USTR's position as the
lead trade agency and ... make it less likely that trade retaliation would be waived because of
foreign policy, defence, or other considerations".
44 The administration strongly opposed such a
transfer of authority, arguing that the President required discretion to defend the United States
interests effectively, and that the USTR in any case served at the President's pleasure and could
therefore not be expected to act contrary to th e President's views. Moreover, the President was
in a better position to weigh the national and industry-specific interests at stake in a Section 301
investigation. Ambassador Yeutter, the former USTR, wrote to the Chairman of the Committee
on Ways and Means that

41 See the description of the legislative history of Section 301 in. Jackson-Davey-Sykes, Legal
Problems of International Economic Relations, Third Edition (West Publishing Co., 1995), page 818.
42 Quoted from Judith Hippler Bello and Alan F. Holmer, The Heart of the 1988 Trade Act. A
Legislative History of the Amendments to Section 301, in Jagdish Bhagwati and Hugh T. Patrick, Editors,
Aggressive Unilateralism. America's 301 Trade Policy and the World Trading System (Harvester
Wheatsheaf.1990), page 58.
43 Ibid., page 59.
44 Quoted from Bello and Holmer, op. cit., page 51.

"Section 301 is the H-bomb of trade policy; and in my judgement, H-bombs
ought to be dropped by the President of the United States and not by anyone
else".45
4.19 The United States responds that in its request for the establishment of this Panel, the
European Communities defined its legal challenge to Sections 301-310 of the Trade Act of 1974
as follows:
"By imposing specific, strict time limits within which unilateral determinations
must be made that other WTO Members have failed to comply with their WTO
obligations and trade sanctions must be taken against such WTO Members, this
legislation does not allow the United States to comply with the rules of the DSU
and the obligations of GATT 1994 in situations where the Dispute Settlement
Body has, by the end of those time limits, not made a prior determination…".
46
4.20 The United States argues that the European Communities thus from the outset has
acknowledged its burden in this case: since it is challenging a law as such, and no specific
action taken pursuant to the law, it must demonstrate that Sections 301-310 themselves do not
allow the US government to act in accordance with its WTO obligations. As panel reports cited
by the European Communities make clear, a law is not in itself inconsistent with a WTO
Member's obligations unless that law mandates action which violates those obligations, even if
the law does not preclude such action. The question before this Panel is therefore
straightforward: do Sections 304(a)(2)(A), 306(b) and 305(a) of the Trade Act of 1974 mandate
actions that are inconsistent with US obligations under the Understanding on Rules and
Procedures Governing the Settlement of Disputes ("DSU") and the General Agreement on
Tariffs and Trade 1994 ("GATT 1994")?
4.21 According to the United States, the European Communities falls woefully short of
demonstrating that they do. The European Communities ignores key provisions of the statute
and engages in tortured readings of others in an unsuccessful attempt to find even the narrowest
of WTO violations – that if WTO dispute proceedings were to require the maximum time
authorized under the DSU, Sections 304( a)(2)(A), 306(b) and 305(a) would require US
government determinations and actions shortly before formal – and inevitable – adoption of
panel, Appellate Body and arbitral findings which have already been issued. However, not even
this claim is true. Sections 301 - 310 of the Trade Act of 1974 on their face ensure that the US
government may make its determinations and take actions in a manner which is fully consistent
with DSU Article 23 and GATT 1994 Articles I, II, III, VIII and XI. The statute does not
require the USTR to make a unilateral determination that US agreement rights have been
denied, nor does it impose time limits which preclude prior action by the Dispute Settlement
Body either to support US determinations or to authorize actions responding to another
Member's failure to comply with DSB recommendations.
4.22 The United States maintains that the USTR need not and may not, under
Section 304(a)(1), determine that US agreement rights have been denied if there are not adopted
panel or Appellate Body findings to that effect. The requirement to make a determination
within 18 months is not frustrated by the need to comply with the additional statutory
requirement that a determination that agreement rights have been denied must be based on the
results of dispute settlement proceedings. The USTR is required under Section 304(a)(1) to

45 Quoted from Bello and Holmer, op. cit., page 52.
46 Circulated on 2 February 1999 as document WT/DS152/11 (emphasis added).

base a determination of whether agreement rights have been denied on the results of WTO
dispute settlement proceedings. Thus, in the event that a dispute settlement panel were to fail to
complete its proceedings within the time frames provided for in the DSU and Section
304(a)(2)(A), the USTR would not be able to ma ke a determination that US agreement rights
have been denied. On this basis, she could determine that dispute settlement proceedings had
not yet finished, and that a determination concerning US agreement rights would be made
following completion of these proceedings. She could also, for example, terminate the Section
304 investigation on the basis of the fact that information necessary to make her Section
304(a)(1) determination is not available, then reinitiate another case. The USTR has terminated
and reinitiated Section 302 investigations before, including in the Bananas dispute,
47 and has
terminated investigations without making a determination on numerous occasions.48
4.23 The United States adds with respect to Section 306(b) that the European Communities
is simply wrong in asserting that there are "explicit requirements to make a determination within
a specified time frame whether … failure to implement DSB recommendations has occurred".
When the USTR considers non-implementation to have occurred, this is not a determination.
Moreover, there are no "specified time frames" for such a "consideration". Inasmuch as a
consideration is no more than a belief, the USTR may, at any time – before, during or after the
reasonable period of time – consider that another Member has not implemented DSB rulings
and recommendations, just as a Member may consider, may believe, that another Member has
violated its WTO obligations before, during and after the deadline for submitting a request to
establish a panel at a given DSB meeting. Section 306 provides only that if, during the 30 days
following the reasonable period, the USTR considers that non-implementation has occurred, she
shall determine whether to avail herself of Article 22 procedures. Indeed, as Article 22 is
currently drafted, she must avail herself of these procedures within this time frame if the United
States is to preserve its WTO rights. However, nothing prevents her from not considering
during that 30-day period that non-implementation has occurred.
4.24 The United States argues that nothing in Sections 301-310 requires the US government
to act in violation of its WTO obligations. To the contrary, Section 303(a) of the Act requires
the USTR to undertake WTO dispute settlement proceedings when a WTO agreement is
involved,49 and Section 304(a)(1)(A) provides that the USTR will rely on the results of those
proceedings when determining whether US agreement rights have been denied. 50 L i k e w i s e ,
Section 301(a)(2)(A) explicitly indicates that the USTR need not take action when the DSB has
adopted a report finding no denial of US WTO rights. 51 The European Communities
acknowledges that these provisions, the core provisions establishing the relationship between
Sections 301-310 and the WTO dispute settlement process, are "in conformity with the
principles set out in Article 23".
4.25 The United States argues that as the complaining party to this proceeding, the European
Communities bears the burden of presenting evidence and arguments sufficient to establish a
presumption that Sections 301-310 of the Trade Act of 1974 are inconsistent with the DSU and

47 The United States refers to Termination of Investigation; Initiation of New Investigation and
Request for Public Comments: European Union Banana Regime, 60 Fed. Reg. 52026 (1995) (US Exhibit
18).
48 The United States provides a list as US Exhibit 13.
49 Section 303(a), 19 U.S.C. § 2413(a)(2).
50 Section 304(a)(1)(A), 19 U.S.C. § 2414(a)(2)(A).
51 The United States notes that all of these provisions predate the conclusion of the Uruguay
Round.

GATT 1994. 52 In this case, the evidence is the language of Sections 301-310 and how this
language is interpreted and applied under United States law. 53 Under well-established GATT
and WTO jurisprudence and practice which the European Communities appears to accept, a law
may be found inconsistent with a Member's WTO obligations only if it precludes a Member
from acting consistently with those obligations. The European Communities must therefore
demonstrate that Sections 301-310 do not permit the United States government to take action
consistent with US WTO obligations – that this legislation in fact mandates WTO-inconsistent
action. The European Communities has failed to meet this burden. Its analysis of the language
of Sections 301-310 ignores pertinent statutory language and relies on constructions not
permitted under US law. Sections 301-310 of the Trade Act of 1974 are fully consistent with
US WTO rights and obligations.
4.26 The European Communities argues that it has basically submitted to the panel's
examination a single, fundamental claim, whic h is supported by a number of arguments: by
adopting, maintaining on its statute book and applying Sections 301-310 (as they are presently
worded) after the entry into force of the Uruguay Round Agreements (i.e. after 1 January 1995)
the United States has breached the historical deal that was struck in Marrakech between the
United States on the one hand, and the other Uruguay Round participants, among them its major
trading partners like the European Communities and the developing countries, on the other
hand.
4.27 The European Communities indicates that that deal, which it has proposed to call the
"Marrakech Deal", has found its expression in the legal texts of the WTO Agreements, inter alia
in Articles 3, 21, 22 and, most importantly, 23 of the DSU and Article XVI:4 of the Marrakech
Agreement. It is the trade-off between the practical certainty of adoption by the DSB of panel
and Appellate Body reports and the authorizations for Members to suspend concessions (an
explicit US request
54) and the complete and definitive abandoning by the United States of its
long-standing policy of unilateral action. The second leg of the deal, which is the core of the
present panel procedure, has been enshrined in the following WTO provisions:
(a) Strengthening of the multilateral system (Article 23 of the DSU and the related
provisions under Articles 21 and 22)
(b) Security and predictability of the multilateral trading system (Article 3 of the
DSU)
(c) Ensuring the conformity of domestic law (Article XVI:4 of the Marrakech
Agreement)
4.28 The European Communities states that Article 23 of the DSU prohibits unilateralism in
the framework of the WTO dispute settlement procedures. Members must await the adoption of

52 Appellate Body Report on United States – Measures Affecting Imports of Woven Wool Shirts
and Blouses from India ("US – Shirts and Blouses"), adopted 23 May 1997, WT/DS33/AB/R, p. 14.
53 Appellate Body Report on India – Patent Protection for Pharmaceutical and Agricultural
Chemical Products ("India – Patents (US)"), adopted 16 January 1998, WT/DS50/AB/R, para. 65.
54 According to the European Communities, the Unit ed States confirmed indirectly the EC views
in the following phrase: "… the United States infrequently expressed its intention to take retaliatory
action, and such action was often a response to a trading partner's decision to obstruct dispute settlement
proceedings". The European Communities does not warrant, of course, the statement of the United States
defining the retaliatory actions also in the past as "infrequent". The reality, as all the third parties have
shown, is quite different.

a panel or Appellate Body report by the DSB before determining that rights or benefits accruing
to them under a WTO agreement are being denied and that rulings or recommendations by the
DSB have not been implemented.
4.29 In the view of the European Communities, Article 23 also requires WTO Members to
follow the procedures of the DSU, including the procedure under Article 21.5, before
determining a failure to comply with such rulings or recommendations and to await an
authorization by the DSB before resorting to the suspension of concessions or other obligations,
where applicable on the basis of the level of such suspension determined by an arbitration
decision under Article 22 of the DSU.
4.30 The European Communities further argues that Article 3 of the DSU describes the
dispute settlement system of the DSU as "a central element in providing security and
predictability to the multilateral trading system". As the Appellate Body has indicated in the EC
– Computer Equipment report,
55 the objective of the "security and predictability of the
multilateral trading system" is also an object and purpose of the WTO Agreements themselves.
It is the reflection of the general principle of public international law " pacta sunt servanda "
(Article 26 of the Vienna Convention of the Law of Treaties), which requires that international
agreements be performed in good faith. According to the Appellate Body report in India -
Patent Protection for Pharmaceutical and Agricultural Chemical Products 56, this means in
practice not merely the possibility for the Members' executive authorities to act consistently
with WTO law, but requires WTO Members to provide "a sound legal basis" in domestic law
for the measures required to implement their WTO obligations. The Appellate Body ruling was
adopted at the request of the United States and should therefore be easily accepted by the United
States as applicable also in the present case.
4.31 The European Communities further states that Article XVI:4 of the Marrakech
Agreement is a fundamental, additional principle of the WTO legal system governing the
relationship between domestic laws, regulations and administrative procedures (i.e. the entire
domestic law of each WTO Member) and WTO law that applies over and above the obligation
under general public international law enshrined in Articles 26 and 27 of the Vienna Convention
on the Law of Treaties. In fact, Article 27 of the Vienna Convention on the Law of Treaties
spells out a negative obligation to refrain from invoking the domestic law in order to justify any
departure from the international obligation undertaken by a State.
4.32 According to the European Communities, Article XVI:4 of the Marrakech Agreement
establishes a positive obligation to ensure the conformity of such domestic law with their WTO
obligations. Therefore, in cases where pre-existing domestic law was inconsistent with the new
WTO obligations, including those under Article 23 of the DSU, Members were required to
amend their domestic laws, regulations or administrative procedures.
4.33 For the European Communities, this also constitutes a fundamental difference from the
pre-existing rules under the Protocol of Provisional Application (PPA) of GATT 1947 and the
protocols of accession that permitted the maintenance of mandatory legislation inconsistent with
the GATT 1947. Article XVI:4 not only confirms the abrogation of the PPA in the Introduction
to the General Agreement on Tariffs and Trade 1994, but requires WTO Members to be pro-

55 Appellate Body Report on European Communities/United Kingdom/Ireland – Customs
Classification of Certain Computer Equipment (" EC – Computer Equipment "), adopted 26 June 1998,
WT/DS62/AB/R - WT/DS67/AB/R - WT/DS68/AB/R.
56 Appellate Body Report on India – Patents (US), op. cit.

active in ensuring, on their own initiative, the conformity of all of their internal law with WTO
law. This task had to be accomplished by the United States no later than 1 January 1995.
4.34 The European Communities argues that the violation by the United States of its
obligations enshrined in the above WTO provisions inevitably entails also a violation of
Articles I, II, III, VIII and XI of the GATT 1994.
4.35 The European Communities maintains that Sections 301-310 breach the above-
mentioned provisions and fundamentally undermine the Marrakech deal. The EC's main legal
grounds supporting this basic claim, which will be examined in turn in more detail below, are
threefold:
(a) Sections 301-310, on their face, mandate unilateral action by the US authorities
in breach of Article 23 of the DSU (and consequently of Articles I, II, III, VIII
and XI of the GATT 1994). This is true both under the former GATT 1947
standards concerning mandatory versus discretionary legislation and the present
standards under the GATT 1994 and the Marrakech Agreement, which the
European Communities considers the relevant sources of law applicable after
the entry into force of the WTO Agreements. The European Communities
recalls that the issue of the standards applicable to determine whether
legislation is genuinely discretionary was examined at length, as shown below.
(b) In addition, Sections 301-310, even if they could be interpreted to permit the
USTR to avoid WTO-inconsistent determinations and actions, could not be
regarded as a sound legal basis for the implementation of the US obligations
under the WTO. The lack of this "sound legal basis" produces a situation of
threat and legal uncertainty against other WTO Members and their economic
operators that fundamentally undermines the "security and predictability" of the
multilateral trading system.
(c) Furthermore, Sections 301-310 are not in conformity with the United States'
WTO obligations since they are an expression of a deliberate policy creating a
pattern of executive action which is biased against WTO-conformity. Even if
Sections 301-310 could be interpreted to provide the USTR with a legal basis
for the implementation of the United States' obligations under the WTO, they
could not be considered to be in conformity with WTO law within the meaning
of Article XVI:4 of the Marrakech Agreement.
4.36 In the view of the European Communities, the arguments presented by the United States
are entirely unconvincing. In particular, it defies common sense when the United States asserts
(a) that the verb "shall" in Sections 301-310 should be read to mean "may";
(b) that definite deadlines like those in Section 306 could be considered an
"invitation" to the executive authorities, without showing a legal basis for such
a reading of the text;
(c) that the legislation always authorizes USTR to determine that rights of the
United States have not been denied and no failure to implement DSB
recommendations has occurred, while the text of Section 304(a)(1) requires the
USTR to base her determinations on the results of the investigation initiated
under Section 302;

(d) that a chapter heading called "Mandatory action" containing a mandatory list of
retaliatory measures or, in the alternative, the possibility of entering into a
bilateral agreement whose main conditions are set by the law, shows that the
executive has broad discretion what action to take;
(e) that the power of the President to give specific directions to the USTR in
individual cases covers also the right to bar the USTR from implementing
actions required by the text of Sections 301-310 and which are qualified as
"mandatory" by the US Congress; and
(f) that the existence of a limited exception left in the hands of the President, which
has never been used so far, conveys to the law the character of discretionary
legislation.
4.37 The European Communities further argues that this is of course by no means a
theoretical debate only. Sections 301-310 were drafted by the United States in the present
convoluted way in order to correspond to a very precise, albeit illegitimate, goal.
4.38 According to the European Communities, eminent scholars have expressed their view
on this particular aspect. For instance, Professor Robert E. Hudec wrote:
"Section 301 is an intricate maze of mandatory commands in one place and
extremely wide loopholes in the other. One needs a wiring diagram to trace
whether mandatory commands given in one part will actually reach their final
target without passing through at least one discretionary exit point. Even with
the aid of such a diagram, one cannot predict actual outcomes".57
4.39 The European Communities also indicates that Professor John H. Jackson testified
before the Senate Foreign Relations Committee as follows:
"Although there are plausible ways to interpret the statutory provisions of
regular Section 301 so as to give the President discretion to act consistently
with the Uruguay Round dispute settlement rules, in a few cases, particularly in
Section 301(a) (mandatory provision) the interpretations to do this are a bit
strained. It would clearly therefore be better if the statute were amended to give
the President and the Trade Representative in all cases under the statute the
discretion to act in a way consistently with U.S. international obligations".
58
4.40 According to the European Communities, these comments were prompted also by the
consideration that the uncertainty about the possible use by the United States of unilateral
measures "inconsistent with the Uruguay Round dispute settlement rules" defeats the purpose
pursued by the Uruguay Round participants when they agreed to adopt the DSU: namely to
provide security and predictability to the multilateral trading system (Article 3.2 of the DSU).
This objective was subsequently confirmed by the Appellate Body in EC – Computer
Equipment case (WT/DS62/AB/R, WT/D S67/AB/R, WT/DS68/AB/R) where it affirmed that

57 Robert E. Hudec, Thinking About the New Section 301: Beyond Good and Evil, in:. Jagdish
Bhagwati and Hugh T. Patrick, Editors , Aggressive Unilateralism. America's 301 Trade Policy and the
World Trading System (Harvester Wheatsheaf 1990), page 122.
58 Senate Committee on Foreign Relations, Hearing on the World Trade Organisation, June 14,
1994 (testimony of Professor John H. Jackson).

security and predictability are "an object and purpose of the WTO Agreement, generally, as well
as of the GATT 1994".
4.41 In the view of the European Communities, despite these comments and well-advised
suggestions of eminent lawyers well versed in international trade law, the statute was adopted
without amendment.
4.42 The European Communities notes that this co mes as no surprise when considering the
legislative history of the 1988 Trade Act which is at the origin in particular of the present draft
of Section 301 (Mandatory action). During the hearings before the Senate Committee on
Finance, 100
th Congress, 1 st session, Robert Strauss, former Special Trade Representative is
quoted in an exchange with Senator Bob Packwood, Chairman of that Committee, as follows:
Sen. Packwood: "Do you think any trade [b ill] that we have should require
mandatory retaliation?"
Mr. Strauss: "Well, I am a little hesitant to require mandatory retaliation …I
hate to make [Section 301] mandatory. I think somewhere in between…[M]ore
mandatory is a bum choice of words".
Sen. Packwood: "But not compulsory".59
The advice to "make retaliation mandatory but not compulsory" was frequently referred to
throughout the debate in the Senate on mandatory retaliation.
4.43 The European Communities thus concludes that everything indicates that the apparent
confusion in Sections 301-310 is nothing else than a deliberate policy. In fact, the European
Communities is convinced that the United States, by maintaining a legislation on the statute
book which on its face and by its intent mandates unilateral determinations and actions in
breach of US obligations under the DSU and the GATT, implements a deliberate policy
pursuing a double objective, which could be called the "Damocles sword effect".
4.44 The European Communities further states that on the one hand, the very existence of
Sections 301-310, with their mixture of clear-cut mandatory provisions inconsistent with the
DSU patched together with convoluted exceptions, creates a climate of legal uncertainty that
entails by itself immediate and very concrete trade effects.
4.45 The European Communities maintains that in particular, the constant threat of
imposition of unilateral measures has an influence on the behaviour and the decisions of the
economic operators. In practice, the fact of the filing of a petition or the simple publication of a
notice in the Federal Register announcing the initiation of an investigation, within the concrete
context of the provisions contained in Sections 301-310 and the publicly known interpretation
given by the US administration and the Congress, creates "chilling" trade effects that may range
from the slowing down of importation of products to the more radical stoppage of any bilateral
trade with the United States in those products. The recent events in the banana dispute, where
retaliatory measures stopping the trade of some specific non-banana related products were
adopted while the procedure for authorization to suspend concessions within the WTO had not
yet been concluded, demonstrate what could happen to practically any trade operator once the
unilaterally set deadlines in Sections 301-310 have expired in a given dispute.

59 Senate Committee on Finance, 100th Congress, 1st session, pt.1, 44-45.

4.46 For the European Communities, on the other hand, the present text and intent of
Sections 301-310 are used by the United States as a "bargaining" tool in order to extract trade
concessions from their trading partners, which they are not bound to make under WTO law, by
threatening the violation of commitments the United States has assumed under WTO law.
Whatever one may think about the legitimacy of this type of action outside the WTO, this is no
longer acceptable in the WTO system, which was established on the basis of multilateralism,
equality and law.
4.47 The European Communities argues that the Damocles sword effect is thus very real.
The European Communities would refer the Panel not only to its own experience, but also to the
cases described in the third party submissions filed by practically all of the most important
trading partners of the United States.
4.48 The European Communities contends that Canada, Korea, Hong Kong China, India,
Japan and Brazil, all insist on the Damocles sword effects - which they experienced themselves
even after the conclusion of the Uruguay Round - and they all concur with the European
Communities in indicating to the panel the unacceptable effects of this legislation with regard to
the security and predictability of international trade.
4.49 In response, the United States claims that the European Communities, confronted
with the need to find a legal basis to justify what is in essence a political case, has been forced
to rely on false assumptions, speculation and miscalculations. Such an approach would be fatal
to any complaining party seeking to meet its burden of proof, and this case is no exception.
4.50 In the view of the United States, the European Communities claims that Sections 301-
310 of the Trade Act of 1974 on their face mandate a violation of US WTO obligations. The
European Communities challenges no particular application of this legislation. Rather, it argues
that the legislation by its terms "does not allow the United States to comply with the rules of the
DSU and the obligations of GATT 1994" because of time frames in the statute.
4.51 The United States maintains that the terms of Sections 301-310 are readily available and
may easily be compared to the requirements of DSU Article 23. Sections 301-310 do not
prevent the United States from following to th e letter the requirements of the DSU. This
legislation provides ample discretion to the United States Trade Representative to pursue and
comply with multilateral dispute settlement procedures in every instance. The United States
notes that the European Communities cites with approval the conclusion of Professor Hudec
that Section 301 includes "extremely wide loopholes", which further reinforces the fact that
Section 301 provides for very broad discretion. The European Communities may not assume
that the USTR will exercise this discretion in a WTO-inconsistent manner, nor may the
European Communities assume away discretionary elements of the statute in order to make its
case. The European Communities has taken on the task of demonstrating that Sections 301-310
mandate a WTO violation, and it has failed.
4.52 The United States explains that as the European Communities made clear, this case does
not call for the Panel to examine whether the actions of either party in connection with the
Bananas case were consistent with their WTO obligations. Nevertheless, the reason this case
has been filed is because the European Communities found itself in the position of having failed
to comply with DSB rulings and recommendations in that matter. The EC's reaction to that
situation was: to bring this case. EC officials publicly and loudly attempted to cast the issue in
Bananas as one of US unilateralism, and declared a case against Section 301 the appropriate
response. In other words, the European Communities decided to bring a political case to
distract attention from itself.

4.53 The United States argues that notwithstanding its political origins, this case must not be
about politics, but about law. The issue before the Panel is not whether Sections 301-310 of the
Trade Act of 1974 are popular or desirable; rather, it is whether the European Communities has
demonstrated that this legislation "does not allow" the United States to comply with DSU rules,
as the European Communities asserts in its panel request.
4.54 In the view of the United States, the European Communities has brought a political case
that is in search of a legal argument. It is apparent that this search continues. Having
unsuccessfully argued that Sections 301-310 mandate violations of DSU Article 23 based on a
comparison of statutory and DSU time frames, the European Communities now argues that
DSU time frames are irrelevant. Indeed, the European Communities appears to argue that the
textual obligations set forth in the DSU and WTO Agreement are irrelevant. In their stead, the
European Communities posits a "new legal environment", in which certain discretionary
legislation may be treated as mandatory, and may be found to violate an unspecified and non-
existent obligation to avoid "uncertainty". The EC's approach to this case is driven by its desire
for a specific result at the expense of sound legal reasoning. This approach reinforces the fact
that its goal is political, and its legal approaches without merit.
4.55 The United States argues that the EC's main objective in, and approach to, this
proceeding is illustrated by two statements in the EC's answers to the Panel's questions:
"It is true that Article 23.2(a) of the DSU was drafted with Sections 301-310 of
the Trade Act of 1974 in mind. But this means, of course, that the Uruguay
Round participants had also in mind the threat to the security and predictability
of the international trade relations created by the text of the Trade Act as it was
drafted in the 1988 version. They had therefore in mind the need to insert in the
covered agreements language that would constitute the second leg of what the
EC has proposed in its oral statement of 29 June to call the 'Marrakesh deal'.
A law that requires a determination in all cases whether a violation of WTO law
has occurred therefore comprises the requ irement to determine in certain cases
that a violation of WTO law has occurred. Such a law therefore mandates
determinations that are inconsistent with Article 23".
4.56 According to the United States, the first quotation illustrates the EC's view of the
purpose of DSU Article 23: as a tool to attack Sections 301-310. However, the EC's intention
to use DSU Article 23 against Sections 301-310 has been hamstrung by the fact that this
legislation does not mandate any violation of DSU Article 23 or any other WTO obligation.
The European Communities itself quotes the conclusions of Professors Jackson and Hudec that,
"there are plausible ways to interpret the statutory provisions of regular Section 301 as to give
the President discretion to act consistently with the Uruguay Round dispute settlement rules",
and that Section 301 includes "extremely wide loopholes". Under the well-established principle
that discretionary legislation is not WTO-inconsistent if it permits WTO-consistent action,
Sections 301-310 cannot be found inconsistent with DSU Article 23. This is because
Sections 301-310 provide adequate discretion for the United States to comply with DSU rules
and procedures in each and every case.
4.57 The United States is of the view that the EC's response to this situation has been to
develop novel and untenable definitions of the term "mandatory", as illustrated by the second
quotation, and to create out of whole cloth new WTO obligations centering on "security and
predictability" where the text of the WTO Agr eement, including the DSU, cannot be stretched
to achieve the EC's political objectives. Appare ntly unwilling to go so far as Hong Kong and

dispense with the distinction between mandatory and discretionary legislation altogether, the
European Communities now argues that the Panel should disregard the clear and consistent
delineation between discretionary and mandatory measures set forth in each and every GATT
and WTO panel report that has dealt with the issue, and instead redefine "mandatory" to include
a law which might "in certain cases" be exercised in violation of DSU Article 23. The
European Communities further asks the Panel to find that avoiding "uncertainty" and ensuring
"security and predictability" are not only objectives of the WTO and DSU, but are obligations,
or else require the Panel to adopt interpretations of DSU Article 23 and WTO Agreement
Article XVI:4 that are at odds with the actual text of those provisions.
4.58 The United States states the Panel must reject these requests. The European
Communities has failed to meet its burden in this dispute on either the law or the facts. The
continued applicability of the rule distinguishing mandatory and discretionary legislation is
clear, as is the ordinary meaning of the text of DSU Article 23 and WTO Article XVI:4. It is
also clear that Sections 301-310 provide more than adequate discretion to the USTR to comply
with DSU Article 23 and other WTO obligations in every case. Section 304 permits the USTR
to base her determinations on adopted panel a nd Appellate Body findings in every case. And
Section 306 permits, in every case, the USTR to request and receive DSB authorization to
suspend concessions in accordance with DSU Article 22. As Japan correctly notes, "laws are
not inconsistent with WTO rules when … discretion [to comply with WTO obligations] is given
to administrators under the laws". Sections 301-310 are thus consistent with DSU Article 23,
WTO Agreement Article XVI:4, and GATT 1994 Articles I, II, III, VIII and XI.
4.59 The United States argues that with respect to WTO Agreement Article XVI:4, it is
important to recognise that a measure must first violate some other WTO commitment in order
to violate Article XVI:4. The ordinary meaning of the text of this provision makes this clear:
"Each Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements". If those laws,
regulations and administrative procedures conform with the obligations in the annexed
agreements, including the DSU, there is no violation of Article XVI:4. The European
Communities may not assume that Sections 301-310 violate the DSU for the purpose of finding
a violation of Article XVI:4.
4.60 The United States asserts that in the end, the legal analysis of whether Sections 301-310
are consistent with US WTO obligations must focus on the text of the provisions setting forth
those obligations. It must focus on the language of the Agreement. Not on objectives, and not
on alleged deals so recently invented that their names have to be "proposed". The rights and
obligations of the Members of the World Trade Organization are found in the text of the
agreements they negotiated. The text reflects, better than any paraphrasing by any Member, the
objectives and purposes of all Members when they negotiated those agreements. The Panel's
analysis must begin, and end with text.
4.61 The United States argues that the question in this dispute, and the only question, is
whether Sections 301-310 command the United States to violate specific WTO obligations
found in the text of DSU Article 23, WTO Agreement Article XVI:4 and GATT 1994 Articles I,
II, III, VIII and XI. The answer to this question is no, and the only way the European
Communities can achieve its desired political result is to assume bad faith on the part of another
WTO Member. This it may not do.
4.62 The United States further states that if ever there were a case which emphasised the
importance of the rule of law, this is that case. The law is the protector of both the weak and the
strong, equally. It protects the small and the large, equally. It protects the popular and the

unpopular, equally. While there are cases where the small and weak are grateful for the
restraints it places on the powerful, there are others in which the law provides a shelter to the
unpopular, whatever its size, when it has done no wrong. The United States knows that
Sections 301-310 are not popular. But the WTO and the DSU are not a club to be used in a
popularity contest against any one Member. If they are credibly to protect the weak, they must
also protect the strong against attacks not on what they have done, but on who they are. And a
statute does no wrong unless it commands authorities to violate their WTO obligations.
4.63 According to the United States, here at the WTO, the law, the substantive provisions of
the WTO Agreement and its annexes, enforced through the provisions of the dispute settlement
system, provides security and predictability to all WTO Members. That security and
predictability rests firmly on a mode of legal analysis which focuses first and foremost on the
text of the Agreement, because that is what the Members have agreed to. It is the text which
they signed; it is the text which they submitted to their legislatures for approval by the
representatives of their people. The Members brought to the negotiation of the text a number of
objectives and purposes, some of which are explicitly listed in the text, and some of which are
not. In either case, however, those objectives and purposes are reflected in the agreement text
itself. There can be no security and predictability in the multilateral trading system if the
explicit rules Members have agreed to may be ignored in favour of a mode of analysis driven by
a desire to achieve a specific result. The law must apply equally to all, and in all cases.
4.64 The United States notes that by its terms of reference, this dispute is not about
something the United States has done. Because of this, it is not proper to speculate about what
the United States might do, any more than it would be proper for the United States to bring a
case based on speculation that another Member will not act in accordance with its obligations.
The only way that a panel may rule on something that a Member might do in the future is if that
Member's law commands it to do it. It may not be assumed that they will not fulfill their
solemn international obligations if they are in a position to do so. Only when a Member has
crossed the line, by enacting a law which does not permit compliance with its international
obligations, has it created a situation in which other Members have a legitimate and non-
speculative basis for assuming that another Member will not abide by its international
obligations. Only then will those Members find the security and predictability of their trade
threatened in a manner distinguishable from the ever-present uncertainty as to whether other
Members will fulfill their obligations.
4.65 The United States contends that as has been clear from the outset of this case,
Sections 301-310 allow the USTR to comply fully with US obligations under the WTO
Agreement and its annexes. This law does not command the USTR to violate the WTO
obligations of the United States. This law by its mere existence violates none of these
obligations. The EC's transparent efforts to turn this proceeding into a forum for making
political attacks on US trade policy only highlight the absolute void at the center of its legal
case. It has none. This Panel must find that the European Communities has failed to meet its
burden of establishing that Sections 301-310 of the Trade Act of 1974 are inconsistent with
DSU Article 23, WTO Agreement Article XVI:4 and GATT 1994 Articles I, II, III, VIII and XI,
and that Sections 301-310 are therefore not inconsistent with these obligations.
B. WTO P
ROVISIONS AT ISSUE - DSU ARTICLE 23.2(A) AND (C)
4.66 The European Communities points out that the parts of Article 23 of the DSU
relevant in this proceeding are:

"1. When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they
shall have recourse to, and abide by, the rules and procedures of this
Understanding
2. In such cases, Members shall:
(a) not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any objective
of the covered agreements has been impeded, except through recourse to
dispute settlement in accordance with the rules and procedures of this
Understanding, and shall make any such determination consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or
an arbitration award rendered under this Understanding;
…
(c) follow the procedures set forth in Article 22 to determine the level of
suspension of concessions or other obligations and obtain DSB authorization in
accordance with those procedures before suspending concessions or other
obligations under the covered agreements in response to the failure of the
Member concerned to implement the recommendations and rulings within that
reasonable period of time".
4.67 The European Communities claims that these provisions clearly oblige the United
States to refrain from unilaterally determining whether another Member has denied rights or
benefits under a WTO agreement to the United States and whether DSB rulings and
recommendations have been implemented. They also leave no doubt that obligations under the
GATT and the GATS may be suspended in response to a failure to comply with DSB rulings
and recommendations only upon the grant of an authorization by the DSB.
4.68 The United States notes that Article 23.2(a) provides that Members shall:
"not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any objective
of the covered agreements has been impeded, except through recourse to
dispute settlement in accordance with the rules and procedures of this
Understanding, and shall make any such determination consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or
an arbitration award rendered under this Understanding".
4.69 The United States argues that thus, for there to be a violation of Article 23.2(a): (1)
there must be a determination that a WTO agreement violation has occurred; and (2) that
determination is not consistent with panel or Appellate Body report findings adopted by the
DSB or an arbitration award rendered under the DSU. Because the European Communities has
not, as part of this case, alleged that a specific US determination violates Article 23.2(a), the
European Communities must show that, under Sections 301-310, the USTR is required to make
a violation determination, and to do so in a ma nner inconsistent with panel or Appellate Body
findings adopted by the DSB.

4.70 The United States states that Article 23.2(c) requires Members to "follow the
procedures set forth in Article 22 to determine the level of suspension of concessions or other
obligations and obtain DSB authorization in accordance with those procedures before
suspending concessions or other obligations" when a Member has failed to implement DSB
rulings and recommendations. Again, no actual case involving the suspension of concessions is
before this Panel. It is thus not possible to determine whether the United States in such a
concrete case actually complied with the requirements of Article 22. The only question, then, is
whether Section 306(b) commands the USTR not to follow Article 22 procedures or to suspend
concessions without DSB authorization. The United States indicates that it manifestly does not.
Nothing in Section 306(b) or in Section 305(a) prevents the USTR from complying to the letter
with Article 22 procedures, including DSB authorization.
4.71 The European Communities adds that international customary law recognises that a
party to a treaty breached by another party may reciprocally suspend proportional obligations
under the treaty.
60 However, it is also recognised that this right may only be exercised in
accordance with any provision in the treaty applicable in the event of a breach.61
4.72 The European Communities maintains that Articles XXII and XXIII of the GATT 1947
were such provisions. Clair Wilcox, a drafter of the Havana Charter for an International Trade
Organisation (ITO), from which these provisions derived, explained their rationale as follows:
"We have introduced a new principle in international economic relations. We
have asked the nations of the world to confer upon an international organisation
the right to limit their power to retaliate. We have sought to tame retaliation, to
discipline it, to keep it within bounds. By subjecting it to the restraints of
international control, we have endeavoured to check its spread and growth, to
convert it from a weapon of economic warfare to an instrument of international
order".
62
4.73 The European Communities states that this idea was forcefully expressed in Article 92
of the Havana Charter:
"Reliance on the Procedures of the Charter
1. The Members undertake that they will not have recourse, in relation to
other Members and to the Organisation, to any procedure other than the
procedures envisaged in this Charter for complaints and the settlement of
differences arising out of its operation.
2. The Members also undertake, without prejudice to any other
international agreement, that they will not have recourse to unilateral economic
measures of any kind contrary to the provisions of this Charter".
4.74 According to the European Communities, in ternational customary law also recognises
that a fundamental change of circumstances not foreseen by the parties to a treaty may, under
certain conditions, be invoked as a ground for terminating or withdrawing from the treaty.
63

60 Vienna Convention on the Law of Treaties, Article 60.1.
61 Ibid., Article 60.4.
62 UN document E/PC/T/A/PV6, page 4.
63 Vienna Convention on the Law of Treaties, Article 62.

However, the right of a party to such action may in principle be exercised only with respect to
the treaty as a whole. 64 International customary law does not entitle a party to a treaty to
perform its obligations selectively on the ground that the balance of interest under the treaty has
shifted to its disadvantage.
4.75 The European Communities argues that in respect of the GATT 1947, the United States
did not consider itself prevented from taking unilateral restrictive trade actions. 65 In its view,
unilateral measures were justified because the dispute settlement procedures of Article XXIII
were based on consensus and the approval of the suspension of obligations in response to
another contracting party's failure to observe obligations could therefore be blocked by the
defendant party.
4.76 In the view of the European Communities, the United States also did not consider itself
bound by the unconditional most-favoured-nation principle of the GATT 1947 because it
enabled contracting parties to obtain the benefit of negotiated market access commitments or
new rules even if they had not contributed to the liberalisation efforts or accepted the new rules.
4.77 According to the European Communities, the United States believed that these features
of the GATT 1947 justified resorting to unilateral trade measures inconsistent with the GATT
whenever the GATT mechanisms did not produce results meeting its expectations. In 1989,
during a special session of the GATT Council of Representatives on unilateral measures, the
United States explained:
"Wherever it could, the United States would challenge unfair practices under
the dispute settlement provisions of the General Agreement or the Tokyo
Round Codes, but where other contracting parties prevented or impeded that
process or blocked efforts to ensure that their practices were covered by
multilateral disciplines, the United States would act to protect its interests. If
such action was considered unilateral, it should be nevertheless recognised as
perfectly justifiable, responsive action necessitated by the failure of bilateral or
multilateral efforts to address a problem. The way to minimise or avoid
unilateralism was to create a credible multilateral system - by strengthening the
existing system".
66
4.78 The European Communities further argues that the Uruguay Round ended with a
considerably strengthened multilateral system:
(a) the possibility of blocking the dispute settlement procedures was eliminated;
(b) the Uruguay Round results were adopted as a "single undertaking" replacing the
GATT 1947. This ensured that, notwithstanding the most-favoured-nation
provisions of the GATT 1947, only those countries that accepted the additional
obligations were accorded the corresponding rights;
(c) as a result, all WTO Members are now bound by agreements similar to the
Tokyo Round Codes and the main areas the United States had found missing in

64 Ibid., Article 44.
65 Cf. Statement of Administrative Action, op. cit.
66 GATT document C/163 of 16 March 1989, page 4.

the GATT 1947 - protection of intellectual property rights and trade in services
- were made subject to enforceable rules.
4.79 The European Communities contends that as a counterpart, the United States accepted
the obligations in Article 23 of the DSU, the introductory clause of which reads:
"When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they
shall have recourse to, and abide by, the rules and procedures of this
Understanding".
4.80 The European Communities considers this provision to be one of the cornerstones of the
multilateral trading system. Security and predic tability in international trade relations is
inconceivable unless each and every WTO Member scrupulously submits all trade disputes to
the DSU procedures.
4.81 According to the European Communities, if Members take the law into their own hands
and unilaterally impose their own views on their rights under the WTO by threatening or taking
measures violating their obligations, they risk provoking spirals of retaliatory actions that would
jeopardise the results of half a century of trade negotiations.
C. E
VIDENTIARY AND OTHER MATTERS
1. Burden of Proof and Fact-finding concerning Domestic Law
4.82 The European Communities argues that according to the Appellate Body's decision in
United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India,
"The foundation of dispute settlement under Article XXIII of the GATT 1994 is
the assurance to Members of the benefits accruing directly or indirectly to them
under the GATT 1994. This was true as well of dispute settlement under the
GATT 1947. If any Member should consider that its benefits are nullified or
impaired as the result of circumstances set out in Article XXIII, then dispute
settlement is available. With respect to complaints of violation of obligations
pursuant to Article XXIII:1(a) of the GATT 1994, Article 3.8 of the DSU
codifies previous GATT 1947 practice:
'In cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered
prima facie to constitute a case of nullification or impairment.
This means that there is normally a presumption that a breach
of the rules has an adverse impact on other Members parties to
that covered agreement, and in such cases, it shall be up to the
Member against whom the complaint has been brought to rebut
the charge'.
Article 3.8 of the DSU provides that in cases where there is an infringement of
the obligations assumed under a covered agreement – that is, in cases where a
violation is established – there is a presumption of nullification or impairment.
Article 3.8 then goes on to explain that "the Member against whom the
complaint has been brought" must rebut this presumption. However, the issue

in this case is not what happens after a violation is established; the issue in this
case is which party must first show that there is, or is not, a violation. …
In addressing this issue, we find it difficult, indeed, to see how any system of
judicial settlement could work if it incorporated the proposition that the mere
assertion of a claim might amount to proof. It is, thus, hardly surprising that
various international tribunals, including the International Court of Justice, have
generally and consistently accepted and applied the rule that the party who
asserts a fact, whether the claimant or the respondent, is responsible for
providing proof thereof. Also, it is a generally-accepted canon of evidence in
civil law, common law and, in fact, most jurisdictions, that the burden of proof
rests upon the party, whether complaining or defending, who asserts the
affirmative of a particular claim or defence. If that party adduces evidence
sufficient to raise a presumption that what is claimed is true, the burden then
shifts to the other party, who will fail unless it adduces sufficient evidence to
rebut the presumption".
67
4.83 The European Communities considers that in the India - Patents (US) case, the
Appellate Body refined its above-mentioned milestone decision by addressing the specific issue
of the authority of Panels and the Appellate Body when interpreting India's municipal law (i.e. a
domestic law of a Member) as follows:
"In public international law, an international tribunal may treat municipal law in
several ways. Municipal law may serve as evidence of facts and may provide
evidence of state practice. However, municipal law may also constitute
evidence of compliance or non-compliance with international obligations. For
example, in Certain German Interests in Polish Upper Silesia , the Permanent
Court of International Justice observed:
It might be asked whether a difficulty does not arise from the
fact that the Court would have to deal with the Polish law of
July 14th, 1920. This, however, does not appear to be the case.
From the standpoint of International Law and of the Court
which is its organ, municipal laws are merely facts which
express the will and constitute the activities of States, in the
same manner as do legal decisions and administrative
measures. The Court is certainly not called upon to interpret
the Polish law as such; but there is nothing to prevent the
Court's giving judgment on the question whether or not, in
applying that law, Poland is acting in conformity with its
obligations towards Germany under the Geneva Convention.
(original emphasis)
In this case, the Panel was simply performing its task in determining whether
India's 'administrative instructions' for receiving mailbox applications were in
conformity with India's obligations under Article 70.8(a) of the TRIPS
Agreement. It is clear that an examination of the relevant aspects of Indian
municipal law and, in particular, the relevant provisions of the Patents Act as
they relate to the 'administrative inst ructions,' is essential to determining

67 WT/DS33/AB/R, chapter IV, page 12 and following.

whether India has complied with its obligations under Article 70.8(a). There
was simply no way for the Panel to make this determination without engaging
in an examination of Indian law. But, as in the case cited above before the
Permanent Court of International Justice, in this case, the Panel was not
interpreting Indian law 'as such'; rather, the Panel was examining Indian law
solely for the purpose of determining whether India had met its obligations
under the TRIPS Agreement. To say that the Panel should have done otherwise
would be to say that only India can assess whether Indian law is consistent with
India's obligations under the WTO Agreement. This, clearly, cannot be so".
4.84 In the view of the European Communities, more specifically on the issue of which of
the parties bore the burden of determining the interpretation of India's domestic law in order to
assess its conformity with the TRIPs Agreement, the Appellate Body then added the following:
"The Panel states:
'As the Appellate Body report on Shirts and Blouses points out,
'a party claiming a violation of a provision of the WTO
Agreement by another Member must assert and prove its
claim'. In this case, it is the United States that claims a
violation by India of Article 70.8 of the TRIPS Agreement.
Therefore, it is up to the United States to put forward evidence
and legal arguments sufficient to demonstrate that action by
India is inconsistent with the obligations assumed by India
under Article 70.8. In our view, the United States has
successfully put forward such evidence and arguments. Then,
... the onus shifts to India to bring forward evidence and
arguments to disprove the claim. We are not convinced that
India has been able to do so (footnotes omitted)'.
This statement of the Panel is a legally correct characterization of the approach
to burden of proof that we set out in United States - Shirts and Blouses .
However, it is not sufficient for a Pane l to enunciate the correct approach to
burden of proof; a Panel must also apply the burden of proof correctly. A
careful reading of paragraphs 7.35 and 7.37 of the Panel Report reveals that the
Panel has done so in this case. These paragraphs show that the United States
put forward evidence and arguments that India's 'administrative instructions'
pertaining to mailbox applications were legally insufficient to prevail over the
application of certain mandatory provisions of the Patents Act. India put
forward rebuttal evidence and arguments. India misinterprets what the Panel
said about "reasonable doubts". The Panel did not require the United States
merely to raise "reasonable doubts" before the burden shifted to India. Rather,
after properly requiring the United States to establish a prima facie case and
after hearing India's rebuttal evidence and arguments, the Panel concluded that
it had 'reasonable doubts' that the 'administrative instructions' would prevail
over the mandatory provisions of the Patents Act if a challenge were brought in
an Indian court".
4.85 The European Communities finally points out that in the context of the Argentina –
Textiles and Apparel (US) panel procedure, the United States submitted its views on how the
burden of proof should be shared between the parties to the dispute when considering the
interpretation of a Member's domestic law:

"The United States contended that, by any standard, the evidence submitted by
the United States was sufficient to establish a presumption of a violation of
Article II. In fact, the Panel needed look no further than the face of the
Argentine resolutions and decrees imposing the specific duties that were the
subject of this dispute. … Previous GATT jurisprudence had made clear that
this potential, in and of itself, was a sufficient basis for the Panel to find that
Argentina had violated Article II.
The United States also argued that a Panel could condemn Argentina's
mandatory minimum specific import duties even if they were not yet being
applied".68
4.86 The European Communities further argues that the panel in the Argentina – Textiles and
Apparel (US) case assessed the legal situation as follows:
"We consider that when the Appellate Body refers to the obligation of the
complainant party to provide sufficient evidence to establish a "presumption", it
refers to two aspects: the procedural aspect, i.e. the obligation for the
complainant to present the evidence firs t, but also to the nature of evidence
needed. In the present case, we consider that it was for the United States to
raise a presumption that Argentina did violate the provisions of Article II of
GATT. Then, it is for Argentina to provide sufficient evidence to rebut the said
presumption. When, however, Argentina is claiming a specific affirmative
defense, such that its national challenge procedure can be used to correct any
alleged violation of GATT rules, it is for Argentina to raise first a presumption
that such system operates in a way that there is, in effect, no infringement of
GATT/WTO rules".
69
4.87 In the view of the European Communities, it appears from the above mentioned
quotations from earlier Panel and Appellate Body reports that, in the specific case at hand, the
European Communities is subject to the burden of proving the existence of the attacked US
domestic legislation (i.e. Sections 301-310). Moreover, the European Communities bears the
burden to establish the existence of a prima facie violation of the provisions of the covered
agreements invoked in its request for establishment of this Panel.
4.88 The European Communities contends that the Appellate Body therefore concluded that,
while panels cannot interpret domestic law as such, they can examine it to determine whether
the WTO Member has met its obligations. Otherw ise, so the Appellate Body ruled, only the
defendant itself would be able to assess whether its law is consistent with its obligations. This
could clearly not be so. The Appellate Body noted that GATT/WTO panels had conducted a
detailed examination of domestic law to determine its conformity with GATT/WTO obligations.
The Appellate Body cited,
70 as an example, the GATT panel on United States - Section 337 of
the Tariff Act of 1930 71 which conducted a detailed examination of the relevant United States'

68 Panel Report on Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and
Other Items (" Argentina – Textiles and Apparel (US) "), adopted 22 April 1998, WT/DS56/R, paras.
3.199-3.200.
69 Ibid., para. 6.37.
70 Appellate Body Report on India – Patents (US), op. cit., para. 67.
71 Panel Report on United States - Section 337 of the Tariff Act of 1930 ("US – Section 337 "),
adopted on 7 November 1989 , BISD 36S/345.

legislation and practice to determine whether Section 337 was consistent with Article III.4 of
the GATT 1947.
4.89 The European Communities states that it may therefore be concluded that the United
States could not validly claim that only it can interpret its own laws and that the Panel would
consequently have to rely on the United States' interpretation of Sections 301-310 to determine
whether they are in conformity with WTO law.
4.90 The European Communities maintains that with all these elements in mind, it appears
that the interpretation of the burden of proof suggested by the United States itself in the
Argentina – Textiles and Apparel (US) case constitutes an appropriate way forward in the
context of this particular dispute.
4.91 The European Communities argues that it is thus required
(a) to submit the text of the relevant provisions of Sections 301-310 and
(b) to indicate how, on their face, their wording is in contradiction with the US
WTO obligations.
4.92 According to the European Communities, in particular, it has shown and will further
show that the text of Sections 301-310 mandates determinations and actions in violation of
Articles 3, 21, 22 and 23 of the DSU and, conseque ntly, of Articles I, II, VIII and XI of the
GATT 1994; it has shown and will further show that Sections 301-310 do not provide a sound
legal basis for the executive actions necessary to implement US WTO obligations, thus violating
the good faith implementation principle under the Vienna Convention on the Law of Treaties
and Article 3.2 of the DSU; finally, it has shown and will further show that the text, structure,
design and architecture of Sections 301-310 create a pattern of executive practice that
undermines the substantial objectives of the WTO thus also violating Article XVI:4 of the
Marrakech Agreement. This already meets the burden of proof of the European Communities
and therefore shifts the burden upon the United States as the respondent.
4.93 The European Communities then maintains that in any case, ad abundantiam , it
submitted and will submit as further evidence additional contextual documentation and
information concerning the official interpretation by the US executive authorities and the
Congress. Finally, the European Communities also provided, and will continue to provide,
additional proof by submitting contextual evidence concerning the practice followed by the
United States in the practical implementation of Sections 301-310.
4.94 In the EC's view, at the end of this procedure, given the particular context of this case
and having considered the specific obligations of positive action enshrined in Article XVI:4 of
the Marrakech Agreement, a legal uncertainty that might persist with respect to the
interpretation of Sections 301-310 should play to the detriment of the respondent, in its capacity
of WTO Member on which legally lies the obligation to ensure the compatibility of its internal
legislation with WTO obligations as from 1 January 1995.
4.95 The United States responds that as the complaining party, it is the European
Communities, not the United States, that bears the burden of proof in this case.
72 As a result,

72 The United States cites Appellate Body Report on US – Shirts and Blouses , op. cit., p. 14 as
stating that "it is a generally-accepted canon of evidence in civil law, common law and, in fact, most

the European Communities is obligated to establish a prima facie case with respect to each of
the elements necessary to demonstrate the violations alleged. Establishing a prima facie case
requires presenting both sufficient legal arguments and, where factual issues are in dispute,
adequate supporting evidence. The Appellate Body has made this clear, stating that a panel
should begin "its analysis of each legal provision by examining whether the [complaining party]
has presented evidence and legal arguments sufficient to demonstrate that the … measures were
inconsistent with the obligations assumed by the [responding party] under each article of the
[applicable] agreement addressed by the Panel".
73
4.96 The United States further argues that to establish a prima facie case, the European
Communities must provide evidence and arguments sufficient to establish a presumption that
Sections 301-310 violate a provision of a WTO agreement.74 In this regard, the Appellate Body
has stated, "we find it difficult, indeed, to see how any system of judicial settlement could work
if it incorporated the proposition that the mere assertion of a claim might amount to proof . . .
[T]he party who asserts a fact … is responsible for providing proof thereof". 75
4.97 The United States asserts that absent such a showing, the United States, as the
responding party, need not rebut the allegations. The Appellate Body has explained that "[o]nly
after such a prima facie determination has been made by the Panel may the onus be shifted to
the [responding party] to bring forward eviden ce and arguments to disprove the complaining
party's claim".76 The United States notes that, despite this fact, it has nevertheless rebutted each
EC claim.
4.98 According to the United States, the EC's statements in this case with respect to whether
Sections 301-310 mandate determinations and actions violating DSU Article 23 have consisted
of mere assertions, a fact exemplified by the statement of the European Communities that it had
met its burden simply by providing a copy of the text of Sections 301-310. The United States
reiterates that the EC's case rests on numerous unsupported, erroneous assumptions. To meet its
burden, the European Communities must in fact prove why, under US law, each and every one
of the EC assumptions identified by the United States is correct, and why, under US law, the
interpretations of Sections 301-310 put forward by the United States are incorrect.
4.99 The United States points out that in meetin g its burden in this dispute, the European
Communities may not rely on "mere assertions".
77 The European Communities claims that it

jurisdictions, that the burden of proof rests upon the party, whether complaining or defending, who asserts
the affirmative of a particular claim or defence".
73Appellate Body Report on EC – Measures Affecting Meat and Meat Products (Hormones)
("EC - Hormones "), adopted 16 January 1998, WT/DS26/AB/R, WT/DS48/AB/R, para. 109; see also,
Appellate Body Report on US - Shirts and Blouses , op. cit., p. 16 ("a party claiming a violation of a
provision of the WTO Agreement by another Member must assert and prove its claim"); and Appellate
Body Report on India – Patents (US), op. cit., para. 74 (noting that the Panel had "properly requir[ed] the
[complaining party] to establish a prima facie case" before proceeding to the next step of its evaluation of
the claim at issue).
74 Appellate Body Report on US - Shirts and Blouses, op. cit., p. 13.
75 Ibid., p. 14.
76 Appellate Body Report on EC - Hormones, op. cit., para. 109; see also, Appellate Body Report
on US - Shirts and Blouses, op. cit., p. 14.
77 The United States cites Appellate Body Report on US – Shirts and Blouses , op. cit., p. 14 as
stating that "we find it difficult, indeed, to see how any system of judicial settlement could work if it

may meet its burden merely by submitting the text of Sections 301-310, because the statute on
its face mandates a violation. It cites Argentina – Textiles and Apparel (US) for this
proposition. However, in Argentina – Textiles and Apparel (US) , the issue was whether
Argentina's law provided for a tariff in excess of bound rates, and the United States
demonstrated that the law did, in fact, provide for such a tariff. Moreover, contrary to the
impression the European Communities attempts to leave, the United States made its case not
only through an analysis of the law, but also through submission of data and charts relating to
average prices and specific transactions. As a result, the burden shifted to Argentina.
78
2. Relevance of the US Statements before the Panel and Statement of Administrative
Action
4.100 The European Communities indicates the International Court of Justice has, in a
limited number of cases, considered unilateral declarations made by high State representatives
as internationally binding on that State. Moreover, some GATT 1947 panels have attached legal
value to declarations made by a party to a panel procedure concerning the future exercise of the
discretionary power conferred to it domestically by a legislative act.
4.101 In the view of the European Communities, in the East Greenland case,
79 the declaration
at issue was made by the Minister of Foreign Affairs of Norway in a bilateral meeting with a
representative of Denmark. The declaration had to do with a dispute over the territorial
sovereignty with regard to certain parts of Eastern Greenland.
4.102 According to the European Communities, it is clear that this situation is not comparable
with the present situation, because while th e Permanent Court of International Justice
considered that such a declaration was binding on Norway, this declaration had a recipient and
was made in a context similar to that of the conclusion of an international agreement.
4.103 The European Communities considers this case irrelevant for present purposes, because
in the East Greenland case the issue of the application and correct interpretation of a piece of
domestic legislation was not at stake. This could never have been achieved by a declaration
made in private during a bilateral contact between governments. The situation described in the
judgement does not in fact resemble a unilateral declaration of the executive branch of the
Norwegian government, but was made in bilateral contacts aimed at settling a dispute over
territorial sovereignty.
4.104 The European Communities argues that in the Nuclear Tests case,
80 the International
Court of Justice dealt with unilateral public declarations of high representatives of France,
including the President of the French Republic concerning the termination of atmospheric
nuclear tests. In this context, the ICJ states the following:

incorporated the proposition that the mere assertion of a claim might amount to proof . . . [T]he party who
asserts a fact . . . is responsible for providing proof thereof".
78 See Panel Report on Argentina –Textiles and Apparel (US), op. cit., paras. 6.41-6.65.
79 Judgement of the Permanent Court of International Justice of 5 April 1933 on the Legal Status
of Eastern Greenland , PCIJ Reports 1933, p. 21 (cf. specifically p. 71 referring to the reply by the
Minister of Foreign Affairs of Norway to a request by the representative of Denmark).
80 Judgement of the International Court of Justice of 20 December 1974 in the Nuclear Tests
Case, ICJ Reports 1974, 253 (cf. specifically para. 43).

"When it is the intention of the State making the declaration that it should
become bound according to its terms, that intention confers on the declaration
the character of a legal undertaking, the State being thenceforth legally required
to follow a course of conduct consistent with the declaration. An undertaking of
this kind, if given publicly, and with an intent to be bound, even though not
made within the context of international negotiations, is binding".
It appears from the judgement that the ICJ considered the intent of being bound, the public
character of the declaration and the rank of the representatives of France decisive for its finding
that the declaration created international obligations for France.
4.105 The European Communities asserts that in th e circumstances of the present case, the
situation is quite different, because the European Communities is confronted with the issue of
the application and correct interpretation of a piece of domestic US law, i.e. Sections 301-310 of
the US Trade Act of 1974.
4.106 According to the European Communities, even if it were demonstrated ( quod non) that
the executive branch of the US government has broad discretion on how to apply Sections 301-
310 in individual cases, it must be recalled that, as a matter of fact, the United States has already
made an official and public declaration by its President concerning the way in which it intends
to apply Sections 301-310 in cases of disputes under the procedures instituted by the WTO in
form of the Statement of Administrative Action.
4.107 The European Communities states that the Statement of Administrative Action was
approved by the US Congress together with the Uruguay Round Agreements and is thus
domestically binding on the executive branch of the US government. As the United States has
explained itself, the Statement of Administrative Action is "an authoritative expression by the
Administration concerning its views regarding the interpretation and application of the Uruguay
Round agreements, both for purposes of U.S. international obligations and domestic law".
81
4.108 The European Communities points out that as the Panel is aware, the Statement of
Administrative Action contains the following portion:
"There is no basis for concern that the Uruguay Round agreements in general,
or the DSU in particular, will make future Administrations more reluctant to
apply section 301 sanctions that may be inconsistent with U.S. trade obligations
because such sanctions could engender DSU-authorized counter-retaliation.
Although in specific cases the United States has expressed its intention to
address an unfair foreign practice by taking action under section 301 that has
not been authorized by the GATT, the United States has done so infrequently.
In certain cases, the United States has taken such action because a foreign
government has blocked adoption of a GATT panel report against it.
Just as the United States may now choose to take section 301 actions that are
not GATT authorized, governments that are the subject of such actions may
choose to respond in kind. That situation will not change under the Uruguay

81 The European Communities points out that, according to Section 101(a) of the Uruguay
Round Agreements Act of 1994, the US Congress approves (1) the trade agreements resulting from the
Uruguay Round of multilateral trade negotiations and (2) the statement of administrative action that was
submitted to Congress on 27 September 1994.

Round agreements. The risk of counter-retaliation under the GATT has not
prevented the United States from taking action in connection with such matters
as semiconductors, pharmaceuticals, beer, and hormone-treated beef".82
4.109 The European Communities further contends that it is obvious that this portion of the
Statement of Administrative Action provides for an authoritative interpretation of the Uruguay
Round Agreements Act that undermines the security and predictability of international trade
relations. Moreover it announces in very clear terms a policy: the United States will not feel
impeded by its international obligations to have recourse to retaliatory action.
4.110 The European Communities maintains that in the presence of these explicit indications
on the political intentions and the legal texts as they stand, the explanation given by the United
States83 is by no means reassuring.
4.111 In this context, the European Communities reca lls that, after the entry into force of the
Uruguay Round agreements, the United States has as a matter of fact resorted to retaliatory
action without having recourse to WTO dispute se ttlement procedures or without awaiting the
result of the relevant WTO dispute settlement procedure in at least two well-documented cases
(Japan - Autos and EC – Bananas III).84 The assertions made by the United States therefore give
rise to the additional concern that the US administration apparently considers itself to be judge
and jury also with regard to the applicability of the WTO dispute settlement procedures ratione
materiae.
85
4.112 The European Communities goes on to state that it appears thus obvious that the
statements made so far by the US representativ es in the present procedure are of a completely
different nature from the declaration considered binding by the ICJ in the Nuclear Tests case.
4.113 The European Communities further argues that this legal assessment would not change
even if those statements were incorporated into the Panel report. In fact, the statements made in
the present case by the US representatives were not made with the intent to create an
international obligation by a person empowered to undertake a substantial legal commitment on

82 Statement of Administrative Action, op. cit., p. 366 et seq.
83 The European Communities quotes the US following argument: "The last paragraph on page
366 of the Statement of Administrative Action does not relate to a situation in which the United States is
seeking redress for the denial of US WTO rights, and thus is not covered by DSU Article 23, nor is it
otherwise within the terms of reference of this dispute". The European Communities would also underline
that it does not agree with the United States that the terms of reference of this panel include in any way a
limitation of the examination of Sections 301-310. With respect to the EC claims of violation of WTO
provisions listed in doc. WT/DS152/11, Sections 301-310 are under the scrutiny of this panel in their
entirety. The same is also valid for the US comments on a statement from Korea.
84 The European Communities claims that these cases are documented by Japan.
85 According to the European Communities, this concern is corroborated by the following
paragraph from the Statement of Administrative Action (at the top of p. 366):
"Neither section 301 nor the DSU will require th e Trade Representative to invoke DSU dispute
settlement procedures if the Trade Representative does not consider that a matter involves a
Uruguay Round agreement. Section 301 will remain fully available to address unfair practices
that do not violate U.S. rights or deny U.S. benefits under the Uruguay Round agreements and,
as in the past, such investigations will not involve recourse to multilateral dispute settlement
procedures".

behalf of the United States. 86 It is thus obvious that none of the conditions on which the
judgement of the ICJ in that case was based is fulfilled in the present case.
4.114 According to the European Communities, in any event, the problem of the present case
is not the absence of a clearly defined international commitment, because that already exists in
the form of Article 23 of the DSU which clearly was accepted by the United States as part of the
Uruguay Round agreements. Rather, it is the subsequent implementation of that international
obligation into the US legislation by the United States legislature, compounded by the
Statement of Administrative Action, that runs counter to the United States obligation to respect
its international commitments.
4.115 The European Communities further notes that at the same time, US executive
determinations and actions add to the uncertainty as to the willingness of the United States to
respect its international obligations in future.
4.116 The European Communities claims that given the importance of the United States in the
multilateral trade relations and within the institu tional framework of the WTO, this situation is
the source of uncertainty and unpredictability, which is unacceptably detrimental to the
multilateral trading system.
4.117 The European Communities further states that , looking at the panel findings in the
Superfund case,
87 it must be recalled that in that case the panel accepted the statement of the
United States only because it considered that the United States had discretion to act in
accordance with its statement. In addition, that decision was adopted in a legal situation where
the strict interpretation of mandatory legislation under the PPA had a decisive influence on the
examination of domestic legislation.
4.118 According to the European Communities, the only possible way for a panel to "marry"
the limitation of the "existing legislation" clau se of the PPA with the need to control the
implementation of the broadly-defined discretionary legislation was, in cases such as the
"Superfund", to obtain promises or commitments concerning the exercise of the discretionary
power in the future.
4.119 In the EC's opinion, there is no reason for a WTO panel to follow the legal path of the
US - Superfund panel under the new WTO rules. In fact, in the present case, given the new legal
environment after the entry into force of the WTO Agreements and in particular of
Article XVI:4 of the Marrakech Agreement, and given also the public policy statement
contained in the Statement of Administrative Action made by the highest representative of the
executive branch of the US government and approved by its legislative branch, a simple
statement to the Panel in a meeting behind closed doors without revoking the Statement of
Administrative Action in this regard would clearly be insufficient to lift the uncertainty created
by the Statement of Administrative Action.

86 In the EC's view, this power is generally vested in the Head of State, the Head of Government
and the Minister of Foreign Affairs. Any other representative of the State would either have to be
specifically accredited or need full powers to be ab le to make a substantial commitment under public
international law (cf. Art. 7 VCLT).
87 Panel Report on United States – Taxes on Petroleum and Certain Imported Substances ("US –
Superfund"), adopted 17 June 1987, BISD 34S/136, in particular, para. 5.2.9 in fine.

4.120 In the view of the United States, Section 304(a)(1) requires that determinations under
that section be made "on the basis of the investigation initiated under Section 302 and the
consultations (and the proceedings, if applicable, under section 303)". The "proceedings" under
Section 303 are dispute settlement proceedings. 88 Moreover, such proceedings would be
"applicable" in any case involving a trade agreement, since Section 303 requires that dispute
settlement procedures under a trade agreement be invoked in any case involving a trade
agreement, if no mutually acceptable resolution has been achieved.89
4.121 The United States indicates that its Administration has, in the Statement of
Administrative Action approved by Congress, provided its "authoritative expression …
concerning its views regarding the interpretation and application of the Uruguay Round
agreements, … for purposes of domestic law". 90 The Statement of Administrative Action must,
by law, be treated as the authoritative expression concerning the interpretation of the statute in
any judicial proceeding.
91 The Statement of Administrative Action at page 365-366 provides
that the USTR will:
• invoke DSU dispute settlement procedures, as required under current law;
• base any section 301 determination that there has been a violation or denial of
U.S. rights under the relevant agreement on the panel or Appellate Body
findings adopted by the DSB;
• following adoption of a favorable panel or Appellate Body report, allow the
defending party a reasonable period of time to implement the report's
recommendations; and
• if the matter cannot be resolved during that period, seek authority from the DSB
to retaliate.92
4.122 The United States explains that it is an established principle of US statutory
construction that the administering agency's interpretation of a statute is entitled to deference if
the statute is "silent or ambiguous with respect to [a] specific issue". Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc. , 467 U.S. 837, 842-43. In such circumstances, the
court must uphold the agency's interpretation as long as it is based upon a "permissible
construction" of the statute. Ibid. The agency's interpretation need not be the "only possible
construction", Sullivan v. Everhart, 494 U.S. 83, 89 (1990), nor must it be the construction the
court would have selected in the first instance. Chevron, 467 U.S. at 844. A court errs by
substituting "its own construction of a statutory provision for a reasonable interpretation made
by [the agency]". Ibid. The court's duty is not to weigh the wisdom of the agency's legitimate

88 The United States notes that Section 303(a)(2) provides that if dispute settlement consultations
under a trade agreement have not resulted in a mutu ally acceptable resolution, the Trade Representative
shall request "proceedings" under the "formal dispute settlement procedures provided under such
agreement".
89 Ibid.
90 Statement of Administrative Action, op. cit., p. 1.
91 The United States refers to 19 U.S.C. § 3512(d) as stating that "[t]he statement of
administrative action approved by Congress under sec tion 3511(a) of this title shall be regarded as an
authoritative expression by the United States concerning the interpretation and application of the Uruguay
Round Agreements and this Act in any judicial pr oceeding in which a question arises concerning such
interpretation or application".
92 Statement of Administrative Action, op. cit., pp. 365-366 (emphasis added).

policy choices. Suramerica de Aleaciones Laminadas, C.A. v. United States, 966 F.2d 660, 665
(Fed. Cir.. 1992). Thus, under US law, the USTR's interpretations of its authority to undertake
multiple determinations, determinations other than violation/non-violation determinations, or
termination of investigations would receive such deference in a US court – to the extent such
determinations would be subject to judicial review at all. 93 Likewise, the USTR's interpretation
of Section 304(a)(1) as requiring her to rely on DSB-adopted findings in determining that US
WTO agreement rights have been denied would be accorded such deference.
4.123 The United States indicates that it is not merely offering assertions of its legal authority.
Rather, these interpretations are reflected in long standing practice, in investigations predating
this case and predating the WTO. Under US law, these interpretations would be entitled to
deference, and, in examining whether the statute commands WTO-inconsistent action, the Panel
is required to examine the meaning of the statute as it would be interpreted under US law.94
4.124 The United States further argues that an other legal basis for US interpretations of
statutory provisions is the US principle of statutory construction known as legislative
ratification. As the US Supreme Court has stated, this principle provides that Congress is
presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that
interpretation when it re-enacts a statute without change. Lindahl v. Office of Personnel
Management, 470 U.S. 768, 783, citing Albemarle paper Co. v. Moody , 422 U.S. 405, 414 n.8
(1975).
4.125 The United States also states that the multiple determinations in Oilseeds predated the
WTO, and the fact that Congress did not amend the statute to prevent such determinations when
other amendments were made in 1994 supports the view that the Administration's interpretation
is permitted. Similarly, the USTR's practice of applying Sections 301-310 to make
determinations other than simple "yes/no" de terminations on whether agreement rights have
been denied, and to terminate Section 302 investigations before making a determination,
predates 1994. Exhibit 13 describes examples of this long-standing practice since 1988, though
it predates 1988 as well. And, although Congress amended section 301 in 1994, it did not
amend it to undermine the USTR's interpretation or application of Sections 301-310, even
though it was fully aware of how it was being applied.
4.126 The European Communities disagrees with the US introduction of an entirely new
defence at this late stage. The European Communities stresses the fact that the new US
arguments are very similar to those submitted by India in the India - Patents (US) case. They
were rejected by the panel and the Appellate Body at the request of the US as a complainant in
that case.
95
4.127 The European Communities further states that the quotation of the AB report in India -
Patents (US), paragraph 65 [in fact 66], is incorrect. The Appellate Body did not state that "the
Panel is required to examine the meaning of the statute as it would be interpreted under US
law". Rather, the correct quotation, which has an entirely different meaning, is the following:

93 The United States points out that if, in fact, these determinations were not reviewable, the
USTR's interpretations would be definitive.
94 The United States refers to Appellate Body Report on India – Patents (US), op. cit., para. 65.
95 Ibid., para. 69, "… like the Panel, we are not persuaded that India's "administrative
instructions" would prevail over the contradictory mandatory provisions of the Patents Act".

"… as in the case cited above before the Permanent Court of International
Justice, in this case, the Panel was not interpreting Indian law "as such"; rather,
the Panel was examining Indian law so lely for the purpose of determining
whether India had met its obligations under the TRIPS Agreement".
4.128 The United States rebuts the EC argument that the US response raises a new defense,
and that allegedly similar arguments were rejected in India – Patents (US) . Both of the EC’s
contentions are incorrect. First, the United States has not raised a new defense. The US
discussion of judicial deference under U.S. law was directly responsive to the Panel’s request
for the textual or other legal basis which permits the USTR to make multiple determinations – a
factual issue in this dispute. While the textual basis for the USTR’s interpretation is sufficiently
clear, the doctrine of judicial deference would serve as an additional basis under US law were a
US court to consider the statutory language ambiguous.
4.129 The United States also contends that the EC’s references to India – Patents (US) fail to
support its position. The Appellate Body, in paragraphs 65-66 of its report in India – Patents
(US), emphasizes that it was necessary in that case to examine Indian law to determine its
compliance with India’s international obligations. Domestic law consists not only of statutory
provisions, but of domestic legal rules concerning the interpretation of those provisions or, in
the case of India – Patents (US), domestic rules concerning conflicts between laws. In India –
Patents (US), the Appellate Body examined "the relevant provisions of the Patents Act as they
relate to the 'administrative inst ructions'" at issue in that case
96; in other words, the Appellate
Body examined whether there was any support under Indian law for India’s assertion that
unpublished, unwritten administrative instructions would prevail over a conflicting statute
explicitly mandating a WTO violation. India in that case failed to provide sufficient evidence
that, under Indian law, the instructions would prevail.
4.130 In the US view, the doctrine of judicial deference to an agency’s interpretation of its
statute is part of U.S. law, though it would only become relevant in this dispute were the panel
to conclude that there was some ambiguity as to whether a particular provision of Sections 301-
310 commanded specific actions violating a WTO obligation. In fact, as the U.S. has explained
throughout this proceeding, the statute contains no such ambiguity. On its face, the U.S. statute
does not command violation determinations in the absence of DSB-adopted findings, and in fact
requires that any such determinations be based on the results of WTO proceedings.97
4.131 According to the United States, however, should the Panel find the statute ambiguous,
the US Executive Branch interpretation of the statute is of great importance under US law.
First, many Executive Branch determinations are not subject to judicial review. As already
noted, if this were the case with respect to Section 301 determinations, the USTR interpretation
would be definitive under US law. Second, even if a US court were to review such
determinations, and even if that court were to conclude that the statutory language is ambiguous,
it would be required under US law to interpret that language in light of the Chevron standard of
judicial deference.

96 Appellate Body Report on India – Patents (US), op. cit., para. 66.
97 The United States again states that this US legal requirement goes beyond what the EC asserts
are a Member's WTO obligations: "[I]t would be ina ppropriate to interpret Article XVI:4 of the WTO
Agreement so extensively as to require WTO Members to include specific language in their domestic law
precluding WTO-inconsistent action".

4.132 The United States recalls again that the burden in this dispute lies with the European
Communities. As already discussed, the European Communities failed to establish that US law
commands the USTR to take actions which violate Article 23, failed to establish that US rules
of statutory interpretation permit the European Communities and this Panel to interpret
"whether" to mean "that", and failed to establish that it is permissible to disregard entire sections
of the statute providing the USTR with discretion to delay or not take action. Likewise, in its
latest submission, the European Communities failed to establish that the Chevron deference
standard may, under US law, be disregarded.
4.133 The United States points out that the last paragraph on page 366 of the Statement of
Administrative Action does not relate to a situation in which the United States is seeking redress
for the denial of US WTO rights, and thus is not covered by DSU Article 23, nor is it otherwise
within the terms of reference of this dispute. As described in the preceding paragraphs on page
366, there will often be cases not involving WTO rights, or involving a mixture of actions only
some of which are covered by WTO rules. Moreover, this paragraph describes the fact that,
even before establishment of the WTO and its strengthened dispute settlement procedures, the
United States infrequently expressed its intention to take retaliatory action, and such action was
often a response to a trading partner's decision to obstruct dispute settlement proceedings. The
statement that the Administration will not be "more reluctant" to impose sanctions given the
DSU should be read in that context.
4.134 In response to the Panel's question as to the US statement that "[t]he last paragraph on
page 366 of the Statement of Administrative Action does not relate to a situation in which the
United States is seeking redress for the denial of U.S. WTO rights", the United States maintains
that it is clear from their context that neither the last paragraph on page 366 nor the first full
paragraph on page 367 relate to situations in which the United States is seeking redress for
denial of US WTO rights. The Statement of Administrative Action at pages 365-67 addresses
three situations in which Section 301 may be invoked: (1) cases involving a WTO Member and
its denial of US WTO rights; (2) cases involving a WTO Member and non-WTO rights; and, (3)
cases involving non-WTO Members or WTO Members to which the United States does not
apply the Uruguay Round Agreements pursuant to Article XIII of the WTO Agreement.
4.135 The United States also explains that the last paragraph on page 365 deals with the first
type of case, that is, situations involving the denial of US rights under the WTO Agreement.
The following paragraph, the first full paragraph on page 366, introduces the discussion of the
second type of case, those involving WTO Members but not US WTO rights. Each of the first
four paragraphs on page 366 explicitly clarifies the types of situations in which a case may
involve a WTO Member, but not a US WTO right. The next two paragraphs (those addressed in
the question, the last on 366 and the first on 367) follow directly on that discussion and are part
of the section of the Statement of Administrative Action discussion relating to situations not
involving a US WTO right. Finally, the last paragraph of this section of the Statement of
Administrative Action, the second full paragraph on page 367, addresses the third type of case,
that is, cases not involving WTO Members or cases involving WTO Members as to which the
United States does not apply the Uruguay Round Agreements. The organization of the
discussion in the Statement of Administrative Action thus follows precisely the three types of
cases for which Section 301 may be applicable.
4.136 In the view of the United States, the statement in the first paragraph on page 367 may be
reconciled with the earlier bullet points on pages 365-366 of the Statement of Administrative
Action, and are logical, only if understood as referring to two different types of cases, those
involving US WTO rights and those which do not. The paragraph on page 367 should not be
read so as to produce an illogical result.

4.137 With respect to the substance of these paragraphs, the United States reiterates again that
the last paragraph on page 366 emphasises the infrequency with which the United States took
action under the GATT 1947 which had not been authorized, as well as the fact that such
situations often involved efforts by a losing party (generally the European Communities) to
obstruct multilateral dispute settlement proceedings.
4.138 According to the United States, with respect to the first paragraph on page 367, the
statement only provides that the prospect of counter-retaliation by a trading partner would not
enter into the consideration of whether to take action against that partner in a case not involving
the denial of US WTO rights by that partner. The listed cases are provided only as illustrations
of this point. None of this says anything about the factors which would be taken into
consideration in deciding whether and how to take action when a US WTO Agreement right is
not involved, factors such as the US desire to comply with its international obligations. Again,
the paragraphs indicate that even under the GATT 1947, the instances in which action was taken
were infrequent.
4.139 The United States states that because these paragraphs do not relate to situations
involving US rights under the WTO Agreement, on that basis alone they are irrelevant to an
examination of whether Sections 301-310 are inconsistent with DSU Article 23. Article 23
deals only with situations in which Members "seek the redress of a violation of obligations or
other nullification or impairment of benefits under the covered agreements". 98 However, even
were the statements in the paragraphs on pages 366-367 somehow relevant to Article 23, they
would not be relevant to the analysis of whether the European Communities has demonstrated
that the law itself, Sections 301-310, command the USTR to violate specific US WTO
obligations. The mere existence of the statements is no substitute for the analysis the European
Communities has consistently failed to provide on precisely how specific requirements in
Sections 301-310 mandate actions inconsistent with specific textual obligations in the WTO
provisions set forth in the terms of reference.
4.140 The United States finally notes that the statements speak to no more than the possibility
of WTO-inconsistent action, a possibility which other WTO Members have repeatedly made a
reality through not only their initial decisions to create and implement WTO-inconsistent
measures, but in their decisions to disregard DSB rulings and recommendations with respect to
these measures. Neither the United States nor any other WTO Member is entitled to bring a
successful WTO challenge against another Member because of the mere possibility that it may,
in the future, breach its WTO obligations. There must be a measure which does in fact,
currently breach a specific WTO obligation, or at the least legislation which commands such a
breach in the future.
4.141 The European Communities criticises the United States for introducing a new
argument by asserting that the Statement of Administrative Action, at pages 365-367 "addresses
three situations …". The European Communities recalls its argument: irrespective of the
allegations made by the US concerning its views on the interpretation of the Statement of
Administrative Action (and this latest attempt has no more support in the text of the Statement
of Administrative Action than the previous ones), the examples provided at page 367 of the
Statement of Administrative Action are clearly within the scope of the WTO Agreements and
thus defeat also the latest US argument in this respect.

98 DSU, Article 23.1.

4.142 The United States reiterates that the only logical reading of the statements at pages
366-67 is that they apply only to cases not involving a US WTO right, that this conclusion also
follows from the organization of the Statement of Administrative Action, and that the statements
refer to no more than hypothetical possibilities, as it already argued.
4.143 The United States contends that the European Communities has brought an essentially
political case. The European Communities and several third parties have attempted to leave the
impression that the United States is an implacable foe of the Dispute Settlement Understanding
and of multilateral determinations of WTO Agreement rights. They hope through these
accusations to raise doubts among the panel about how the Trade Representative could be
expected to exercise her discretion under Sections 301-310. However, beyond the lack of
relevance of these accusations to the legal question of whether Sections 301-310 mandate a
WTO violation, they are quite simply untrue. The United States was an early and strong
supporter of the creation of the Dispute Settlement Understanding and of the fundamental
improvements in dispute settlement procedures which have established the credibility of the
new system: the negative consensus rule, strict deadlines and virtually automatic panel
establishment, adoption of reports, and authorization to suspend concessions upon
non-implementation.
4.144 The United States points out that it has brought 49 disputes to the WTO under its
multilateral procedures and has defended itself in 28 others. In five cases, a US measure was
found inconsistent with US obligations. The United States not only committed to bring its
measure into compliance with DSB rulings and recommendations in each of these cases, it did
in fact bring its measure into compliance in three cases, and the reasonable period of time has
yet to expire in the remaining two. The US commitment to multilateral dispute settlement
procedures is thus evident in the US role in developing those procedures, in the active US use of
those procedures, and in US compliance with multilateral decisions when those decisions have
been adverse.
4.145 In the view of the United States, when stripped of political arguments, it is clear that the
European Communities is attempting in this case to challenge a statute based on statutory
provisions which do not exist. The European Communities cannot meet its burden in this case
by assuming such provisions into existence. The United States therefore respectfully requests
that this Panel reject the EC’s speculative arguments in their entirety.
99
4.146 The European Communities, in response to the Panel's question whether
Sections 301-310 would be rendered consistent with US obligations under the WTO, assuming
that the panel were to find that Sections 301-310 leave sufficient discretion to the USTR to
allow it to meet its WTO obligations, claims that this question is of a highly hypothetical
nature, and – as the Panel is aware – the European Communities disagrees with the hypothesis
that is underlying the question.
4.147 According to the European Communities, its complaint concerns Sections 301-310 as
such. The European Communities recalls in this context that both parties agree that the question
of how the USTR enforces Sections 301-310 is irrelevant in this proceeding.
4.148 In the view of the European Communities, in order to address the EC's complaint, the
Panel needs to answer the question of whether Sections 301-310, by their terms or expressed

99 With regard to Statement of Administrative Action, see further the US arguments shown
below (in particular, in paras. 4.534-4.536) and the corresponding EC arguments.

intent, mandate WTO-inconsistent determinations or actions, whether they provide the USTR
with a sound legal basis for the implementation of the United States' WTO obligations and
whether they make certain ("ensure") the conformity with WTO obligations within the meaning
of Article XVI:4 of the WTO Agreement.
4.149 The European Communities contends that any (hypothetical) reassuring statement by
the United States' executive authorities could not change the terms and expressed intent of
Sections 301-310 nor could it create a sound legal basis for WTO-consistent actions in US law
nor could it bring Sections 301-310, as such, into conformity with WTO law. Such a statement
could only relate to the intentions of the current administration on the enforcement of
Sections 301-310.
100
4.150 In the present case, the European Communities considers that the statute compels the
executive branch of the US government to act in contradiction with the US WTO obligations or,
in any case, creates a legal situation which is biased against compatibility with those
obligations. As the European Communities has explained, this legal situation, created by
Sections 301-310 as such, is highly detrimental to the multilateral trading system.
4.151 It is the EC's understanding of the US inte rnal legal order that no statement of the
executive authorities of the United States, however it would be formulated and by whomever it
would be made, could do away with the constraints under which the executive branch of the US
government finds itself under the US Constitution which imposes on the executive authorities to
act in accordance with statutory requirements enacted by the US Congress. In addition, under
US law these statutory requirements take precedence over any international obligation
contracted by the United States under the Uruguay Round agreements pursuant to Section
102(a) of the Uruguay Round Agreements Act of 1994.
4.152 The European Communities recalls once more that the US representative, during the
first substantive meeting with the Panel, could not exclude the possibility of a legal challenge
before the US domestic courts concerning the implementation of Sections 301-310.
4.153 The European Communities reiterates that th e situation of the present case is not
comparable to the situation that was addressed by the ICJ in the Nuclear Tests Case where the
French President and certain highly ranked French representatives made public statements on
behalf of the French Republic that were not in contradiction with any piece of domestic
legislation.

100 The European Communities recalls in this context the rulings of the panel on India -
Protection for Pharmaceutical and Agricultural Products , and states that the assurances that the Indian
government had given to the United States regarding its interpretation and application of the Indian Patent
Act, the fact that no mail box application had been rejected by the Indian authorities and that the Indian
government had informed the Parliament that it would treat the mailbox applications in a WTO-consistent
manner were not considered to be relevant to the panel's finding that the Indian mailbox system lacked a
sound legal basis in the domestic law of India. The European Communities refers to Panel Report on
India – Protection for Pharmaceutical and Agricultural Products (" India – Patents (US) "), adopted 2
September 1998, WT/DS50/R, paras. 4.5 and 4.6.
In the EC's view, the United States sought in that case an amendment of the Patents Act to
achieve greater legal security for its intellectual property right holders notwithstanding the assurances by
the executive authorities. It would be very surprising for the WTO's membership if one standard were
applied to domestic law when the United States is a complainant and another when it is a defendant.

4.154 In rebuttal, the United States points out that the European Communities attempts to
make much of the fact that, in US courts, US law would prevail in the event of a conflict with
the Uruguay Round Agreements. For example, the European Communities cites Professor
D.W. Leebron for this proposition. However, the European Communities fails to quote
Professor Leebron's conclusion on page 232 of the very same work cited in footnote 27 that,
"Nothing, however, in those provisions [that is, the provisions of Section 301] requires the
President or the USTR to act in violation of the Uruguay Round Agreements". In other words,
because there is no conflict between Sections 301-310 and the WTO Agreement, it does not
matter which would prevail in the event of a conflict. In fact, were there actually a conflict, that
is, if a US law mandated a violation of the WTO Agreement, there would be a WTO violation
regardless of whether a US court would apply US law. The EC's discussion of US law on when
actual conflicts are present is thus completely irrelevant to the Panel's analysis.
D. ANALYSIS OF WTO-CONSISTENCY OF MEASURES AT ISSUE
1. Reach of WTO obligations with respect to law authorizing WTO-inconsistent
action, not specific applications
(a) General Arguments
(i) Relevance of GATT/WTO Precedents
4.155 The European Communities first contends that previous GATT panels recognised
that a law requiring the executive authorities to impose a measure inconsistent with a provision
of the GATT can be challenged under the dispute settlement procedure whether or not it had
been applied to the trade of the complaining party. The 1987 panel on United States - Taxes on
Petroleum and Certain Imported Substances reasoned as follows:
"…The general prohibition of quantitative restrictions under Article XI ... and
the national treatment obligation of Article III ... have essentially the same
rationale, namely to protect expectations of the contracting parties as to the
competitive relationship between their products and those of the other
contracting parties. Both articles are not only to protect current trade but also to
create the predictability needed to plan future trade. That objective could not be
attained if contracting parties could not challenge existing legislation mandating
actions at variance with the General Agreement until the administrative acts
implementing it had actually been applied to their trade. Just as the very
existence of a regulation providing for a quota, without it restricting particular
imports, has been recognised to constitute a violation of Article XI.1, the very
existence of mandatory legislation providing for an internal tax, without it being
applied to a particular imported product, should be regarded as falling within
the scope of Article III.2, first sentence. The Panel noted that the tax on certain
imported substances had been enacted, that the legislation was mandatory and
that the tax authorities had to apply it after the end of next year and hence
within a time frame within which the trade and investment decisions that could
be influenced by the tax are taken. The Panel therefore concluded that Canada
and the EEC were entitled to an investigation of their claim that this tax did not
meet the criteria of Article III.2, first sentence".
101

101 Panel Report on US – Superfund, op. cit., para. 5.2.2.

4.156 The European Communities further argues that it follows that a WTO obligation
proscribing a particular behaviour is violated by the adoption of a domestic law mandating such
behaviour. Such a law also violates Article XVI:4 of the WTO Agreement. The European
Communities is therefore entitled to findings and rulings by the Panel on the question of
whether the United States has brought the prov isions of the Trade Act of 1974, as such, into
conformity with its WTO obligations under Article 23 of the DSU.
4.157 According to the European Communities, the 1992 panel on United States - Measures
Affecting Alcoholic and Malt Beverages examined legislation which, by its terms, mandatorily
required the authorities to impose GATT-inconsistent measures, but which was not actually
applied. The United States argued that such legislation did not constitute a measure in respect
of which Article XXIII of the GATT could be invoked. The panel ruled as follows:
"The Panel then proceeded to consider the United States argument that the
provisions in the state of Illinois permitting manufacturers to sell directly to
retailers were not given effect. In this regard, the Panel recalled the decisions
of the CONTRACTING PARTIES on the relevance of the non-application of
laws in dispute. Recent panels addressing the issue of mandatory versus
discretionary legislation in the context of both Articles III.2 and III.4 concluded
that legislation mandatorily requiring the executive authority to take action
inconsistent with the General Agreement would be inconsistent with Article III,
whether or not the legislation were being applied, whereas legislation merely
giving the executive authority the possibility to act inconsistently with
Article III would not, by itself, constitute a violation of that Article. The Panel
agreed with the above reasoning and concluded that because the Illinois
legislation in issue allows a holder of a manufacturer's license to sell beer to
retailers, without allowing imported beer to be sold directly to retailers, the
legislation mandates governmental action inconsistent with Article III.4".
102
4.158 The European Communities notes that with resp ect to a law in the state of Mississippi,
the panel similarly found:
"The Panel then proceeded to consider the United States argument that the
Mississippi law was not being applied. In this regard, the Panel recalled its
previous discussion of this issue. ... The Panel noted that the option law in
Mississippi provides discretion only for the reinstatement of prohibition, but not
for the discriminatory treatment of imported wines. The Panel concluded,
therefore, that because the Mississippi legislation in issue, which permits native
wines to be sold in areas of the state which otherwise prohibit the sale of
alcoholic beverages, including imported wine, mandates governmental action
inconsistent with Article III.4, it is inconsistent with that provision whether or
not the political subdivisions are currently making use of their power to
reinstate prohibition".103
4.159 The European Communities then argues that the panel explained the rationale behind
these rulings when presenting its findings on the maximum price laws in Massachusetts and
Rhode Island:

102 Panel Report on United States - Measures Affec ting Alcoholic and Malt Beverages (" US –
Malt Beverages"), adopted on 19 June 1992, BISD 39S/206, pp. 281-282.
103 Ibid., p. 289.

"In respect of the United States contention that the Massachusetts measure was
not being enforced and that the Rhode Island measure was only nominally
enforced, the Panel recalled its discussion of mandatory versus discretionary
laws in the previous section. The Panel noted that the price affirmation
measures in both Massachusetts and Rhode Island are mandatory legislation.
Even if Massachusetts may not currently be using its police powers to enforce
this mandatory legislation, the measure continues to be mandatory legislation
which may influence the decisions of economic operators. Hence, a non-
enforcement of a mandatory law in respect of imported products does not
ensure that imported beer and wine are not treated less favourably than like
domestic products to which the law does not apply. Similarly, the contention
that Rhode Island only ‘nominally' enforces its mandatory legislation a fortiori
does not immunise this measure from Article III.4. The mandatory laws in
these two states by their terms treat imported beer and wine less favourably
than the like domestic products. Accordingly, the Panel found that the
mandatory price affirmation laws in Massachusetts and Rhode Island are
inconsistent with Article III.4, irrespective of the extent to which they are being
enforced".
104
4.160 The European Communities explains that in the proceedings of the WTO panel on India
- Patent Protection for Pharmaceutical and Agricultural Chemical Products , the United States
claimed that the "mailbox system" for patent applications which India had established by
administrative action did not meet the requirements of Article 70.8 of the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS Agreement), because mandatory
provisions of the India Patents Act required the rejection of the mailbox applications within a
specified delay.
4.161 In the view of the European Communities, India cited provisions of its Constitution on
the distribution of authority between the legislative and the executive branch and court rulings
on the non-binding nature of statutes requiring administrative actions by a specified date, to
argue that a mail box system could be established by administrative action notwithstanding the
mandatory provisions of the Patents Act.
4.162 The European Communities points out that the United States responds to the European
Communities claiming that the GATT 1947 jurisprudence on mandatory legislation made clear
that India was obliged to eliminate the legal uncertainty created by the fact that its
administrative practices were inconsistent with mandatory provisions of the Patents Act. India
was consequently required to amend its Patents Act. Referring to the GATT
 105 and on United
States - Measures Affecting Alcoholic and Malt Beverages (Beer II), the United States argued:
"The mailbox system … had a rationale common to many other WTO
obligations, "namely to protect expectations of the contracting parties as the
competitive relationship between their products and those of other contracting
parties". The Superfund report had established clearly the importance of
"creat[ing] the predictability needed to plan future trade". (…) Despite India's
claim that it had decided for the moment not to enforce the mandatory
provisions of (…) its Patent Act … that "measure continues to be mandatory
legislation which may influence the decisions of economic operators". The

104 Ibid., p. 290.
105 Ibid.

economic operators in the present case - potential patent applicants - had no
confidence that a valid mailbox system had been established … To paraphrase
the Beer II panel, a non-enforcement of a mandatory law that violated a WTO
obligation did not ensure that the obligation was not being broken".106
4.163 The European Communities notes that the United States thus argued that the domestic
law of a Member must not only be such as to enable it to act consistently with its WTO
obligations; the domestic law must also not create legal uncertainty by prescribing WTO-
inconsistent measures.
4.164 For the European Communities, the panel accepted the United States' argumentation. It
examined the provisions of India's Patent Act and then ruled:
"In the light of these provisions, the current administrative practice creates a
certain degree of legal insecurity in that it requires India officials to ignore
certain mandatory provisions of the Patents Act. We recall that the Malt
Beverages panel dealt with a similar issue. There the respondent offered as a
defence that certain GATT-inconsistent legislation was not currently enforced.
The panel rejected this defence by stating as follows:
'Even if Massachusetts may not currently be using its policy
powers to enforce this mandatory legislation, the measure
continues to be mandatory legislation which may influence the
decisions of economic operators. Hence, a non-enforcement of
a mandatory law in respect of imported products does not
ensure that imported beer and wine are not treated less
favourably than like domestic products to which the law does
not apply'.
We find great force in this line of reasoning. There is no denying that economic
operators - in this case the patent applicants - are influenced by the legal
insecurity created by the continued existence of mandatory legislation that
requires the rejection of product patent applications in respect of
pharmaceutical and agricultural chemical products".
107
4.165 The European Communities argues that these findings imply that a law that, by its
terms, mandates behaviour inconsistent with a provision of a WTO agreement, violates that
provision, irrespective of whether and how the law is or could possibly be applied.
4.166 According to the European Communities, this principle is a reflection of the fact that a
law with such terms creates uncertainty adversely affecting the competitive opportunities for the
goods or services of other Members.
4.167 The European Communities points out that one of the basic objectives of the WTO
agreements, however, is to ensure that goods or services of domestic and foreign origin are
accorded equal competitive opportunities. In the framework of a treaty designed to ensure stable
and predictable conditions of competition, a party does not act in good faith if it accepts an
obligation stipulating one behaviour, but adopts a law explicitly stipulating another. The fact

106 Panel Report on India – Patents (US), op. cit., para. 4.4 (footnotes omitted, emphasis added).
107 Ibid., para.7.35.

that it might exceptionally apply that law in a way that is not inconsistent with its WTO
obligations does not affect the above conclusion, particularly where there is no legal entitlement
to obtain such an exceptional "act of grace". This manner of implementing WTO obligations is
simply incompatible with the fundamental requirement of security and predictability in
international trade relations, which is at the basis of the WTO.108
4.168 In the view of the European Communities, the consistent line followed by GATT panels
is therefore essentially an application of the general principle of international law that a treaty
must be interpreted and performed in good faith.
109
4.169 The European Communities goes on to state that Article XVI:4 of the WTO Agreement
turns this principle into a specific legal obligation that can be separately invoked. This provision
and the related panel findings quoted above have important implications for the scope of the
Panel's examination.
4.170 The European Communities maintains that it is sufficient for the Panel to examine
whether Sections 301-310 mandate determinations and actions by the USTR that are
inconsistent with the United States' obligations under Article 23 of the DSU.
4.171 The European Communities further argues that there is no need to examine whether the
USTR has actually implemented Sections 301-310 as mandated, whether Sections 301-310 are
mandatory in the sense that their application could be enforced by domestic courts, or whether
the President would be entitled to instruct the USTR to refrain from taking the actions
prescribed by Sections 301-310.
4.172 The European Communities concludes that it follows from the above that, if the Panel
were to find that certain provisions of Sections 301-310, on their face, mandate determinations
or actions that are inconsistent with Article 23 of the DSU, it would have to rule that these
provisions must be amended.
4.173 The United States responds that GATT and WTO panels have uniformly found that
legislation may be challenged as such only if it mandates action inconsistent with WTO or
GATT obligations. Most recently, the panel in Canada – Measures Affecting the Export of
Civilian Aircraft stated:
"We recall the distinction that GATT/WTO panels have consistently drawn
between discretionary legislation and mandatory legislation. For example, in
United States – Tobacco , the panel "recalled that panels had consistently ruled
that legislation which mandated action inconsistent with the General Agreement
could be challenged as such, whereas legislation which merely gave the
discretion to the executive authority ... to act inconsistently with the General
Agreement could not be challenged as such; only the actual application of such
legislation inconsistent with the General Agreement could be subject to
challenge". (citation omitted)
110

108 Cf. DSU, Article 3.2, first sentence.
109 Vienna Convention on the Law of Treaties, Articles 26 and 31.
110 Panel Report on Canada – Measures Affecting th e Export of Civilian Aircraft (" Canada –
Aircraft"), circulated 14 April 1999, WT/DS70/R, para. 9.124, appeal pending on other grounds, citing

4.174 The United States notes that the European Communities was the beneficiary of the
settled distinction between mandatory and discretionary legislation in EEC – Regulation on
Imports of Parts and Components .111 In that case, the panel found that "the mere existence" of
the anticircumvention provision of the EC's antidumping legislation was not inconsistent with
the EC's GATT obligations, even though the European Communities had taken GATT-
inconsistent measures under that provision.112 The panel based its finding on its conclusion that
the anticircumvention provision "does not mandate the imposition of duties or other measures
by the EEC Commission and Council; it merely authorizes the Commission and the Council to
take certain actions".
113
4.175 The United States further contends that in this dispute, the European Communities is
challenging no specific measures taken under Sections 301-310. 114 It is challenging the mere
existence of Sections 301-310. Thus, for that challenge to succeed, the European Communities
must demonstrate not only that Sections 3 01-310 authorize WTO-inconsistent action, but that
they mandate such action. As the European Communities acknowledges, it must show that this
legislation "does not allow" the US government to follow DSU procedures.
115
4.176 The United States further indicates that in applying the discretionary-mandatory
distinction, panels have found that legislation explicitly directing action inconsistent with GATT
principles does not mandate inconsistent action so long as it provides the possibility for
authorities to avoid such action. For example, in United States – Taxes on Petroleum and
Certain Imported Substances ,116 the Superfund Act required importers to supply sufficient
information regarding the chemical inputs of taxable substances to enable the tax authorities to
determine the amount of tax to be imposed; otherwise, a penalty tax would be imposed in the
amount of five percent ad valorem or a different rate to be prescribed in regulations by the
Secretary of the Treasury by a different methodology. The regulations in question had not yet
been issued. Nevertheless, the panel concluded:
"[W]hether [the regulations] will eliminate the need to impose the penalty tax
and whether they will establish complete equivalence between domestic and
imported products, as required by Article III:2, first sentence, remain open
questions. From the perspective of the overall objectives of the General
Agreement it is regrettable that the Superfund Act explicitly directs the United
States tax authorities to impose a tax inconsistent with the national treatment
principle but, since the Superfund Act also gives them the possibility to avoid
the need to impose that tax by issuing regulations, the existence of the penalty

Panel Report on United States – Measures Affecting the Importation, Internal Sale and Use of Tobacco
("US – Tobacco"), adopted 4 October 1994, BISD 41S/131, para 118.
111 Panel Report on EEC – Regulation on Imports of Parts and Components ("EEC – Parts and
Components"), adopted 16 May 1990, BISD 37S/132.
112 Ibid., paras. 5.9, 5.21, 5.25-5.26.
113 Ibid., para. 5.25.
114 According to the United States, to the contrary, the European Communities has explicitly
acknowledged that its complaint does not address the US measures taken in the context of the EC's failure
to comply with DSB recommendations in the Bananas case. The European Communities has initiated
separate dispute proceedings relating to the Bananas case, and the United States intends in that
proceeding to rebut EC claims specific to that dispute.
115 See WT/DS152/11.
116 Panel Report on US – Superfund, op. cit.

rate provisions as such does not constitute a violation of the United States
obligations under the General Agreement".117
4.177 The United States adds that similarly, in Thailand – Restrictions on Importation of and
Internal Taxes on Cigarettes,118 the panel examined Thailand's Tobacco Act, which established
a higher ceiling tax rate for imported cigarettes than for domestic cigarettes. While the Act
explicitly gave Thai officials the authority to implement discriminatory tax rates, this did not
render the statute mandatory. The panel concluded that "the possibility that the Tobacco Act
might be applied contrary to Article III:2 was, by itself, not sufficient to make it inconsistent
with the General Agreement".
119
4.178 The United States finally points out that in United States – Measures Affecting the
Importation, Internal Sale and Use of Tobacco ,120 the panel found that a law did not mandate
GATT-inconsistent action where the language of that law was susceptible of a range of
meanings, including ones permitting GATT-consistent action. The panel examined the question
of whether a statute requiring that "comparable" inspection fees be assessed for imported and
domestic tobacco mandated that these fees had to be identical for each, without respect to
differences in inspection costs. If so, the statute would be inconsistent with GATT 1947
Article VIII:1(a), which prohibits the imposition of fees in excess of services rendered.
121 The
United States argued that the term "comparable" need not be interpreted to mean "identical",
and that the law did not preclude a fee structure commensurate with the cost of services
rendered.122 The panel agreed with the United States:
"[T]he Panel noted that there was no clear interpretation on the meaning of the
term "comparable" as used in the 1993 legislative amendment. It appeared to
the Panel that the term "comparable", including the ordinary meaning thereof,
was susceptible of a range of meanings. The Panel considered that this range of
meanings could encompass the interpretation advanced by the United States in
this proceeding, an interpretation which could potentially enable USDA to
comply with the obligation of Article VIII:1(a) not to impose fees in excess of
the cost of services rendered, while at the same time meeting the comparability
requirement of [the US law]".
123
4.179 In the view of the United States, the Panel therefore found that the complaining party
had "not demonstrated that [the US law] could not be applied in a manner ensuring that fees
charged for inspecting tobacco were not in excess of the cost of services rendered".124
4.180 In conclusion, the United States states that there is thus a strict burden on a complaining
party seeking to establish that a Member's legislation mandates a WTO agreement violation: the
complaining party must demonstrate that the legislation, as interpreted in accordance with the

117 Ibid., para. 5.2.9.
118 Panel Report on Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes
("Thai – Cigarettes"), adopted 7 November 1990, BISD 37S/200.
119 Ibid., para. 86. The United States notes that the panel found that the actual implementation of
the tax rates through regulations was also consistent with Thai obligations, since these rates were non-
discriminatory. Ibid., para. 88.
120 Panel Report on US – Tobacco, op. cit., footnote 47.
121 Ibid., para. 118.
122 Ibid., para. 122.
123 Ibid., para. 123.
124 Ibid.

domestic law of the Member, precludes any possibility of action consistent with the Member's
WTO obligations. Moreover, where legislation is susceptible of multiple interpretations, the
complaining party must demonstrate that none of these interpretations permits WTO-consistent
action. As described in the following section, the European Communities has failed to meet that
burden in this case.
4.181 The United States adds that the distinction between mandatory and discretionary action
in GATT/WTO jurisprudence was a basic element of the practice of the GATT 1947
Contracting Parties in interpreting the GATT 1947, and remains a basic element of the practice
of WTO Members in interpreting the WTO Agreement. The alternative to this distinction
would be to require Members to write into their domestic laws specific limitations on the
exercise of discretion in order to avoid even the possibility of WTO-inconsistent action. Each
Member would be required to make the WTO Agreement pre-eminent in its legal order – a step
which the European Communities expressly rejected for itself in 1994. 125 No such obligation
now exists in the WTO agreements, and the European Communities has conceded as much in
the current review of the Dispute Settlement Understanding. There, the European Communities
has submitted a proposal which "would remove the current distinction between discretionary
and mandatory measures" 126 and make it possible to establish the WTO-incompatibility of
discretionary measures.127
4.182 The United States argues that when addressing specific provisions of Sections 301-310,
the European Communities generally appears to accept that it must demonstrate that the US
statute actually mandates (and not merely permits) WTO-inconsistent behaviour. Indeed, the
EC's fundamental claim in its request for a panel is that the Section 301 legislation "does not
allow" the United States to comply with its WTO obligations.
128
4.183 In the view of the United States, in its introductory remarks, however, and in statements
scattered throughout its submission, the European Communities suggests that it believes that
WTO Members are under an affirmative obligation to include in their domestic law explicit
limits on discretionary authority. For example, the European Communities states,
"The European Communities … believes that Sections 301-310 must be
amended to make clear that the United States administration is required to act in
accordance with the United States' obligations under the WTO agreements in all
circumstances and at all times". (emphasis added)
4.184 The United States contends that likewise, the European Communities laments
remaining discretion within Sections 301-310 and decries the alleged fact that the United States
is "keeping open for itself the possibility" of resorting to unilateral measures.129
4.185 The United States argues that these formulations of WTO obligations are diametrically
opposed to the principle set forth in each and every panel report which has addressed the issue –

125 The United States refers to Council Decision 94/800, 1994 O.J. (L 336) 1 as stating that "by
its nature, the Agreement establishing the World Trade Organization, including the Annexes thereto, is
not susceptible to being directly invoked in Community or Member State courts".
126 The United States refers to Review of the Disput e Settlement Understanding , Non-Paper by
the European Communities (Oct. 1998) (emphasis added); and also Review of the DSU, Note by the
Secretariat, Compilation of Comments Submitted by Members – Rev. 3 (12 December 1998).
127 Ibid.
128 WT/DS152/11.
129 Ibid., para. 9.

that legislation must require, and not merely leave open the possibility, of GATT or WTO-
inconsistent action. 130 Likewise, they are also inconsistent with the approach taken in other
GATT contexts, for example, working parties examining the legislation of a contracting party or
acceding country to determine whether that legislation mandates GATT-inconsistent results, and
not whether it could deliver such results.131
4.186 In the US view, surely the European Communities understands this. Wholly apart from
the fact that the European Communities in its submissions generally acknowledges this principle
in its analysis, the European Communities has, in the context of the on-going DSU Review,
submitted a proposal which "would remove the current distinction between discretionary and
mandatory measures"
132 and make it possible to establish the WTO-incompatibility of
discretionary measures.133 The European Communities now appears to be asking this Panel to
legislate that very change.
4.187 In the US view, the implications of the EC DSU proposal and of its request to this panel
to establish a rule that all municipal legislation must "make clear" that authorities must act
consistently with their WTO obligations "in all circumstances and at all times" are profound.
The proposed rule would touch on the sovereignty of Members in a manner they have not, to
date, agreed to. One has to ask whether the European Communities has thoroughly considered
the implications of its argument. Would, for example, the European Communities be required
to amend the legislative and Treaty of Amsterdam authority under which it has been
implementing its banana regime in order to include the specific requirement that this regime
must comply with the EC's WTO obligations?
4.188 The United States argues that in fact, under the EC's proposal, the European
Communities would have to amend virtually every piece of European Communities and
Member State legislation to require that it be administered in WTO-consistent fashion, since the
EC's WTO commitments are at present not directly enforceable under EC law.
134 The EC
Council of Ministers stated this clearly at the time it ratified the WTO agreements: "[B]y its
nature, the Agreement establishing the World Trade Organization, including the Annexes
thereto, is not susceptible to being directly invoked in Community or Member State courts".
135
Thus, the European Communities does not differ from the United States in this regard, contrary
to the impression the European Communities attempts to leave.
4.189 The United States further notes that it appears that the European Communities would
have to amend its "Trade Barriers Regulation" to remove discretionary elements, which, in the

130 The United States refers to Panel Report on Canada – Aircraft, op. cit., para 9.124; Panel
Report on US – Superfund, op. cit., para. 5.2.9 ; Panel Report on Thai – Cigarettes, op. cit., para. 86 ;
Panel Report on EEC – Parts and Components, op. cit., paras. 5.25-5.26; Panel Report on US – Tobacco,
op. cit., para. 118; Panel Report on US – Malt Beverages , op. cit., para. 5.39; Panel Report on India –
Patents (US) , op. cit., para. 7.35; GATT Analytical Index/Guide to GATT Law and Practice (6 th ed.
1995), 133-36, 645-49.
131 The United States refers to Report on The European Economic Community , L/778, adopted
on 29 November 1957, 6S/70, 80, para. 10.
132 The United States refers to Review of the Disput e Settlement Understanding , Non-Paper by
the European Communities (Oct. 1998); and also Review of the DSU, Note by the Secretariat,
Compilation of Comments Submitted by Members – Rev. 3 (12 December 1998).
133 Ibid.
134 The United States refers to Case C-280/94, Germany v. Council, 1994 ECJ CELEX LEXIS
2609 (5 Oct. 1994).
135 Council Decision 94/800, 1994 O.J. (L 336) 1.

EC's words, "keep[] open for itself the possibil ity" of WTO-inconsistent action. The "General
Provisions" in Article 15 of the Regulation provide in part:
"[This Regulation] shall be without prejudice to other measures which may be
taken pursuant to Article 113 of the Treaty, as well as to Community
procedures for dealing with matters concerning obstacles to trade raised by
Member States in the committee established by Article 113 of the Treaty".136
4.190 The United States maintains that under Article 133 of the Treaty of Amsterdam
(formerly, Article 113 of the Treaty of Rome), the European Communities appears to have
complete discretion to take any action, for any reason, at any time, in the commercial policy
field without regard to WTO rules or DSB authorization. In fact, despite the implication left by
the European Communities that its Trade Barriers Regulation is the sole mechanism by which it
brings disputes at the WTO, the European Communities has brought only six of 45 WTO
disputes through that regulation.
137 The remainder have been brought through the unpublished,
non-transparent procedures of the Article 133 Committee (if, indeed, any such procedures
exist).138 The United States is not aware of any EC legislation or treaty provision which would
make "retaliatory action of the [European Communities under its Article 133 procedures]
dependent on the authorization of the DSB", nor is the United States aware of any such
provision which creates any "legal entitlement to obtain such an exceptional 'act of grace'".
Presumably, under the EC's requested rule, it would be required to amend the Treaty of
Amsterdam to provide the clarity and further assurances it seeks from the United States.
4.191 In the view of the United States, while the European Communities appears to have lost
its appreciation for the importance of distinguishing between discretionary and mandatory
measures in the context of this dispute, it understood this distinction well in 1957. The 1957
Report on "The European Economic Community" states,
"Following an exchange of views on the provisions of the Rome Treaty in the
field of quantitative restrictions, the Sub-Group noted that these provisions
were not mandatory and imposed on the Members of the Community no
obligation to take action which would be inconsistent with the General

136 Art. 15, Council Reg. 3286/94, 1994 O.J. (L 349) 71.
137 The United States notes that the WTO cases brought through the TBR are: United States –
Measures Affecting Textiles and Apparel Products (DS85); United States – Antidumping Act of 1916
(DS136); Japan – Tariff Quotas and Su bsidies Affecting Leather (DS147); United States – Measures
Affecting Textiles and Apparel Products (II) (DS151); Argentina – Measures Affecting the Export of
Bovine Hides and the Import of Finished Leather (DS155); and United States – Section 110(5) of the U.S.
Copyright Act (DS160).
138 The United States argues that a former Chairman at the Deputies level of the Article 133
Committee has written that its proceedings are form ally confidential (though, in practice, strict
confidentiality is not maintained), and that the Committee does not issue public statements. Michael
Johnson, European Community Trade Policy and the Article 113 Committee, 35 (Royal Institute of Int’l
Affairs 1998). With respect to the operation of the Committee, the author concludes,
"The Committee’s development over a period of forty years – erratic and largely unplanned –
reflects that of the Community itself. On the basis of … political compromises … it has found practical
ways of responding to the escalating demands of international trade relations …. By consent of all
concerned it has grown to exercise an authority well beyond the apparent legal limits set by its vague
remit in Article 113 of the Treaty of Rome. The result is a highly pragmatic body in which most of the
time individuals who recognize each other as experts can settle trade issues in a familiar setting". Ibid. p.
37.

Agreement. On the other hand because of the very general scope and
competence conferred on the institutions of the Community, it could be within
their powers to take measures which could be inconsistent with the GATT
whatever the interpretation given to the provisions of Article XXIV. The Six
pointed out that many contracting parties had permissive domestic legislation of
a general character which, if implemented in full, would enable them to impose
restrictions in a manner contrary to Article XI. These countries were not,
however, required to consult with the
CONTRACTING PARTIES about their
possible intentions as regards the implementation of such legislation. The six
could not accept that any contracting party by virtue of its adherence to the
Rome Treaty should be subjected to additional requirements or obligations as to
the consultations about the use of quantitative restrictions".139
4.192 The United States argues that however much the European Communities may now wish
to amend WTO treaty terms to authorize panels to find discretionary legislation inconsistent
with WTO rules, no such term now exists. Th e European Communities refers to Article XVI:4
of the WTO Agreement, which requires each Member to "ensure the conformity of its laws,
regulations and administrative procedures with its obligations as provided in the annexed
Agreements".
140 However, inasmuch as Sections 301-310 neither mandate action in violation of
any provision of the DSU or GATT 1994 nor precl ude action consistent with those obligations,
Sections 301-310 are in conformity with those obligations and with Article XVI:4 as well.
Likewise, because Sections 301-310 do not preclude the USTR from having recourse to, and
abiding by, the rules and procedures of the DSU, Sections 301-310 are not inconsistent with
DSU Article 23.1.
4.193 The United States emphasises the applicable legal standard, which the European
Communities appears to recognise. That is the proposition that, where a law itself is challenged
under WTO rules, that law must mandate action which is inconsistent with a Member's
obligations. A law which provides discretion which may be exercised in a manner either
consistent or inconsistent with the Member's obligations does not in itself violate those
obligations. The EC panel request recognises this standard when it asserts that the Section 301
legislation "does not allow" the USTR to adhere to DSU procedures as a result of time frames in
the statute. In addition, the EC proposal in th e DSU review to "remove the current distinction
between discretionary and mandatory measures" also reinforces the fact that the European
Communities appreciates that WTO Members have never, to date, consented to limitations on
their right to adopt discretionary legislation.
4.194 The United States argues that in the US – Tobacco case, the panel not only affirmed this
rule, it clarified that where statutory language is ambiguous and is susceptible of multiple
readings, the complaining party must demonstrate that none of those readings permits action
consistent with the defending party's obligati ons. This approach follows logically from the
applicable burden of proof in dispute settlement proceedings, since a complaining party is
responsible for proving that the statute does no t permit the defending party to comply with its
international obligations. One may not assume th at a party will not act in good faith to comply
with its obligations. Only in cases where the party adopts legislation which does not allow its
authorities to comply with its WTO obligations may that legislation be found inconsistent with
those obligations.

139 The United States cites Report on The European Economic Community, L/778, adopted on 29
140 Marrakesh Agreement Establishing the World Trade Organization, Art. XVI:4.

4.195 In the view of the United States, no panel under the GATT or the WTO has diverged
from this rule. Contrary to the claims of some that only GATT panels have applied this rule, the
WTO panels in the Canada – Aircraft and Turkey – Clothing and Textile cases have also applied
it. Moreover, as just noted, the European Communities has, in the context of the DSU review,
recognised the rule's continued applicability. There is nothing in the WTO Agreement or its
annexes which alters this practice.
(ii) Relevance of Protocol of Provisional Application
4.196 In response, the European Communities argues that the distinction between
mandatory and discretionary legislation in GATT 1947 practice was a reflection of the fact that
the contracting parties to GATT 1947, under the existing legislation clause in the Protocol of
Provisional Application (PPA) and the protocols of accession, were bound by their obligations
under the GATT 1947 only to the extent that their domestic legislation permitted the executive
authorities to perform those obligations.
4.197 The European Communities points out that according to paragraph 1(b) of the PPA,
"The Governments of … undertake … to apply provisionally on and after
January 1, 1948 … Part II of that Agreement to the fullest extent not
inconsistent with existing legislation" (emphasis added)
4.198 In the view of the European Communities, this clause allowed the government of the
United States and other governments to accept the GATT 1947 without submitting it for
ratification by their legislature. Under the GATT 1947 there was thus an assumption and the
clear expectation that pre-existing legislation stipulating measures contrary to the provisions of
the GATT 1947 could continue.
4.199 The European Communities contends that the notion of mandatory legislation under the
GATT 1947 was adopted in this particular context of a conflict between an existing legislation
and a new GATT-Part II obligation: the existing legislation clause required each contracting
party to resolve such a conflict in favour of the former and to the detriment of the latter.
4.200 In the EC's view, already in its deliberations in 1947, i.e. before the provisional
application of the GATT 1947, the Tariff Agreement Committee stated the following:
"the intent is that it should be what the executive authority can do - in other
words, the administration would be requ ired to give effect to the general
provisions to the extent that it could do so without either (1) changing the
existing legislation or (2) violating existing legislation. If a particular
administrative regulation is necessary to carry out the law… that regulation
would, of course, have to stand; but to the extent that the administration had the
authority within the framework of existing laws to carry out these provisions, it
would be required to do so".141 (emphasis added)
4.201 The European Communities points out that after the GATT 1947 was provisionally
applied by means of the PPA, a 1949 GATT Working party, examining, in the course of its
work, measures that could be permitted to be exempted under the "existing legislation" clause of
the PPA, confirmed this view:

141 EPCT/TAC/PV.5 page 20

"The working party agreed that a measure is so permitted, provided that the
legislation on which it is based is by its terms or expressed intent of a
mandatory character - that is, it imposes on the executive authority
requirements which cannot be modified by executive action" 142 (emphasis
added).
4.202 The European Communities notes that the contracting parties therefore had no right to
expect that the legal uncertainty arising from the existence of such legislation would be
eliminated. All they could expect was that the executive authorities would use the discretion
available to them under the legislation in a GATT-consistent manner.
4.203 The European Communities argues that this explains the need of a restrictive
interpretation of mandatory legislation with the aim to allow a rapid entry into force of the
GATT 1947. The intention was in fact to limit the scope of the "existing legislation" clause of
the PPA thus allowing an effective application of GATT 1947. A more open reading of the PPA
clause would have de facto reduced considerably the achievement of the objectives of the
GATT.
4.204 The European Communities further maintains that the GATT panels had no option but
to apply the same standard to all domestic legislation, whether it was adopted before or after the
entry into force of the GATT. The working parties and Panels under GATT 1947
143 therefore
faced a dilemma: adopting a narrow definition of "mandatory" legislation furthered the
objectives of the GATT with respect to existing legislation144 but had exactly the opposite effect
when applied to new legislation. The findings of the 1987 United States - Taxes on Petroleum
and Certain Imported Substances show that this Panel was aware of this dilemma145:
"… These regulations have not yet been adopted. Thus, whether they will
eliminate the need to impose the penalty tax and whether they will establish
complete equivalence between domestic and imported products, … remain open
questions. From the perspective of the overall objectives of the General
Agreement it is regrettable that the Superfund Act explicitly directs the United
States tax authorities to impose tax inconsistent with the national treatment with
respect to that case … The Panel noted with satisfaction the statement of the

142 BISD Vol. II/49, para. 99
143 Panel Report on Belgium - Family allowances , adopted on 7 November 1952, BISD 1S/59,
para. 6; Reports of the Working Parties on Organizational and Functional Questions , adopted on 28
February, 5 and 7 March 1955, BISD 3S/231, para. 58; and Report of the Working Parities on Import
Restrictions of the Federal Republic of Germany , adopted on 30 November 1957, BISD 6S/55, para. 12;
Panel Report on Norway - Restrictions on Imports of Apples and Pears (" Norway – Restrictions on
Apples and Pears "), adopted on 22 June 1989, BISD 36S/306, para. 5.6; Panel Report on Thai –
Cigarettes, op. cit., para. 83; Panel Report on Canada - Import, Distribution and Sale of Certain
Alcoholic Drinks by Provincial Marketing Agencies, adopted on 18 February 1992, DS17/R, para. 5.9;
and Panel Report on US - Malt Beverages, op. cit., para. 5.44.
144 The European Communities notes that in the "Belgian Family Allowances" case, paragraph 6,
a Panel explicitly stated what follows: "the Panel noted, however, that, in another case ["Brazilian Internal
Taxes" case], the Contracting Parties agreed that the Protocol of Provisional Application had to be
construed so as to limit the operation of the provisions of paragraph 1 (b) of the Protocol to those cases
where "the legislation on which [the measure] is based is, by its tenor or expressed intent, of a mandatory
character - that is, it imposes on the executive authorities requirements which cannot be modified by
executive action"
145 Panel Report on US – Superfund, op. cit., para. 5.2.9

United States that, given the tax authorities' regulatory authority under the Act,
'in all probability the 5 per cent penalty rate would never be applied'" (emphasis
added)".
4.205 In the EC's view, along the same lines, the 1990 EEC - Parts and Components panel
report stated that
"…the mere existence of the anti-circumvention provision in the EEC's anti-
dumping Regulation is not inconsistent with the EEC's obligations under the
General Agreement. Although it would, from the perspective of the overall
objectives of the General Agreement, be desirable if the EEC were to withdraw
the anti-circumvention provision, the EEC would meet its obligations under the
General Agreement if it were to cease to apply the provision in respect to
contracting parties".
146
4.206 The European Communities adds that more explicitly referring to the PPA, the 1989
Norway - Restrictions of Imports of Apples and Pears panel report reaffirmed the 1947
understanding that a legislation should be considered to
 "be mandatory in character by its terms or expressed intent".
4.207 The European Communities further argues that the 1990 panel report's findings on
Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes were expressly
based on the two earlier precedents, i.e. the 1989 Norway - Apples and Pears panel report and
the 1949 Working party on 'Notifications of existing measures and procedural questions’ . The
European Communities draws the attention of the Panel to the fact that, consistently with the
Norway - Apples and Pears panel report and the 1949 - Working party report, the Thai -
Cigarettes panel report dealt with the issue of mandatory versus discretionary legislation
exclusively in the context of the interpretation of a clause in Thailand's Protocol of accession
identical to paragraph 1(b) of the PPA.
4.208 The European Communities maintains that the 1992 United States - Measures Affecting
Alcoholic and Malt Beverages, the panel again had to assess as a matter of priority the scope of
application of the PPA with respect to state legislation in the United States. In that context, it
came to the conclusion that
"the record does not support the conclusion that the inconsistent state liquor
legislation at issue in this proceeding is 'mandatory existing legislation' in terms
of the PPA".
4.209 The European Communities recalls the 1992 United States - Denial of Most-Favoured-
Nation Treatment as to Non-Rubber Footwear from Brazil panel report. The context was again
provided by the PPA:
"2.6 This legislation, in effect at the time the United States acceded to the
GATT in 1947, was inconsistent with Article VI:6(a), which proscribes the levy
of countervailing duties without a determination of injury. However, Section
303 was covered by the "existing legislation" clause of paragraph 1(b) of the
Protocol of Provisional Application of the General Agreement (the "PPA").

146 Panel Report on EEC – Parts and Components, op. cit., para. 5.26

Paragraph 1(b) of the PPA states that GATT contracting parties shall apply
Part II of the General Agreement (which includes Article VI) "to the fullest
extent not inconsistent with existing legislation". Section 303 remains in effect
today and applies to dutiable imports from all countries that are not signatories
to the Subsidies Agreement.
2.7 It was under Section 303 that the countervailing duty order on
non-rubber footwear from Brazil was imposed in 1974, without the benefit of
an injury test.
2.8 In 1974, the United States enacted Section 331 of the Trade Act
of 1974,
147 amending its countervailing duty law to apply also to imports of
duty-free products. The United States acknowledged that this provision was not
in existence in 1947 and, therefore, was not sheltered by the PPA. Accordingly,
the United States law provided that, with respect to imports of duty-free
products from a GATT contracting party, the United States would provide an
injury test before the imposition of countervailing duties". (emphasis added)
4.210 The European Communities contends that the only legislation that was therefore under
the scrutiny of the Panel was Section 331 of the Trade Act of 1974. This provision, which is part
of the Trade Act of 1974 that includes also Sections 301-310 that are the subject-matter of the
present dispute settlement procedure, was drafted, in relevant part, as follows:
"(a)(2) In the case of any imported article or merchandise which is free of duty,
duties may be imposed under this section only if
 there is an affirmative
determination by the Commission under subsection (b)(1) ...
 (b) Injury Determination With Respect to Duty-Free Merchandise; Suspension
of Liquidation.—(1) Whenever the Secretary makes a final determination under
subsection (a) that a bounty or grant is being paid or bestowed with respect to
any article or merchandise which is free of duty and a determination by the
Commission is required under subsection (a)(2), he shall—
(A) so advise the Commission, and the Commission shall determine within
three months thereafter, and after such investigation as it deems necessary,
whether an industry in the United States is being or is likely to be injured, or is
prevented from being established, by reason of the importation of such
article or merchandise into the United States; and the Commission shall notify
the Secretary of its determination; ...
(c) Application of Affirmative Determination.--An affirmative
determination by the Secretary under subsection (a) with respect to any
imported article or merchandise shall apply with respect to articles entered ... on
or after the date of the publication in the Federal Register of such
determination. In the case of any imported article or merchandise which is free
of duty, so long as a finding of injury is required by the international
obligations of the United States, the preceding sentence shall apply only if the
Commission makes an affirmative determination of injury under
subsection (b)(1)".

147(Original footnote ) 19 U.S.C. Section 1303(a)(2)

4.211 The European Communities underlines the very similar wording used by Section 331
and Sections 301-310 of the same Trade Act. With respect to the above mentioned provisions in
Section 331, the 1992 "Non-Rubber Footwear" Panel found that
"6.13 Having found that Section 331 of the 1974 Act and Section 104(b) of
the 1979 Act are applicable to like products, the Panel examined whether this
legislation as such is consistent with Article I:1. The Panel noted that the
CONTRACTING PARTIES had decided in previous cases that legislation
mandatorily requiring the executive authority to impose a measure inconsistent
with the General Agreement was inconsistent with that Agreement as such,
whether or not an occasion for the actual application of the legislation had
arisen. The Panel recalled that the backdating provisions of the two Acts are
mandatory legislation, that is they impose on the executive authority
requirements which cannot be modified by executive action, and it therefore
found that these provisions as such, not merely their application in concrete
cases, have to be consistent with Article I:1". (footnote omitted)
4.212 The European Communities notes that, under the United States’ countervailing duty
law, the administration has discretion whether or not to apply a countervailing duty on
subsidised products. The requirement that the Administration not apply the injury criterion if it
decides to apply a countervailing duty was nevertheless regarded to be "mandatory".
4.213 In the view of the European Communities, in the case of the 1994 United States -
Measures Affecting the Importation, Internal Sale and Use of Tobacco panel report,
148 its
findings were based, on the one hand, on the " Superfund" and the Thai - Cigarettes panel
reports (thus confirming the past GATT 1947 practice). On the other hand, the panel explicitly
indicated that the discriminatory measures in Section 1106(c) of the 1993 US Budget Act had
not been followed by the promulgation of the implementing rules required by the Act.
4.214 The European Communities contends that further "useful guidance" 149 for this Panel
could also be found in the unadopted panel report on EEC - Member States' Import Regimes for
Bananas150, paragraphs 342 to 349.
4.215 The United States responds by recalling that the European Communities argues that
GATT 1947 panels implicitly relied on a "restrictive interpretation of mandatory legislation"
because such an interpretation was necessary in light of the Protocol of Provisional Application.
According to the European Communities, because the Protocol exempted from GATT 1947
coverage existing legislation, "effective application of GATT 1947" required that this
exemption have a limited scope. The European Communities states, "[t]he contracting parties
therefore had no right to expect that the legal uncertainty arising from the existence of such
[mandatory] legislation would be eliminated". According to the European Communities, GATT
panels in fact either implicitly or explicitly relied on the existence of the Protocol in those cases
finding discretionary legislation non-actionable.

148 Panel Report on US – Tobacco, op. cit., in particular, para. 118.
149 Appellate Body Report on Japan – Taxes on Alcoholic Beverages (" Japan – Alcoholic
Beverages"), adopted 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R, and WT/DS11/AB/R, page
15.
150 Panel Report on EEC - Member States' Import Regimes for Bananas, adopted 3 June 1993,
DS32/R.

4.216 The United States then contends that the EC's logic is flawed and hard to follow, and it
is not clear what "legal uncertainty" arose from "the existence of" pre-existing mandatory
legislation. The European Communities apparently is attempting to claim that "uncertainties"
existed and had to be tolerated under the GATT 1947 in order to support its argument that they
may no longer be tolerated under the WTO Agreement. The United States will address the EC's
arguments regarding "uncertainty" in more detail shortly. For now it is sufficient to note that
the distinction between the consistency of discretionary and mandatory legislation arose for
reasons having nothing to do with the Protocol of Provisional Application or any "uncertainties"
the Protocol created.
4.217 The United States notes that the European Communities claimed that the panel reports
which developed this doctrine either cited the Protocol or cases citing the Protocol, but it fails to
establish this in its analysis of these panel reports. To the contrary, these cases never once
reference the Protocol or cases citing the Protocol when dealing with the issue of whether the
mere existence of discretionary legislation is actionable. The analysis of these cases confirms
this. It also confirms that there has been no change in the application of this doctrine in WTO
jurisprudence, nor any reference in that jurisprudence to the fact that the Protocol was
eliminated. The EC's assertions concerning the relationship between the development of this
doctrine and the Protocol are completely without foundation.
4.218 The United States notes that the European Communities purports to demonstrate how
the doctrine of the non-actionability of discretionary legislation arose in connection with the
Protocol of Provisional Application. The European Communities stated that the panels which
developed this doctrine either cited the Protocol or cases citing the protocol. The following
analysis of these cases reveals that this is not true, and that the EC’s discussion of these cases is
highly distorted, inaccurate and misleading.
4.219 The United States argues that the first panel to find that the mere existence of
discretionary legislation is not actionable was the 1987 US - Superfund panel.
151 In its analysis
of this case, the European Communities makes the bald assertion that this panel "was aware of"
the dilemma allegedly created by the Protocol. It offers absolutely no support for this assertion.
The EC offers no evidence that the Superfund case so much as references the Protocol, because
there is no such reference. The Superfund panel referred neither to prior panel reports, nor to
the Protocol, in making its finding regarding discretionary legislation.
152
4.220 The United States argues that after referencing US - Superfund , the European
Communities next introduces, with the phrase "[a]long the same lines", a quotation from the
1990 panel report on EEC - Parts and Components applying the mandatory/discretionary
distinction, as if the leap it made with respect to the Superfund panel may be transferred to yet
another case. However, the EEC – Parts and Components case makes no reference to the

151 Panel Report on US – Superfund, op. cit., para. 5.2.9.
152 See Panel Report on US - Superfund , op. cit., para. 5.29. The United States notes that
elsewhere in the Superfund report, the panel cited Japan Leather in support of its finding that mandatory
legislation is actionable even if not yet in effect. Ibid., para. 5.22. The Japan Leather panel made no
reference to the Protocol or to any cases citing the protocol. Rather, the panel found that a quantitative
restriction was actionable even if an exporting country had not filled its quota. Panel Report on Japanese
Measures on Imports of Leather, adopted 15/16 May 1984, BISD 31S/94, para. 55.

Protocol, or to cases citing the Protocol. Instead, it refers to the Superfund panel report which,
as we have seen, makes no reference to the Protocol or to cases citing the Protocol.153
4.221 In the view of the United States, the European Communities next juxtaposes a reference
to the 1989 panel on Norway -- Restrictions on Imports of Apples and Pears, a case which does,
indeed, refer to the Protocol and the question of whether certain mandatory legislation was, by
virtue of the Protocol, exempt from GATT coverage. This case did not, however, involve the
question of whether the mere existence of discretionary legislation is actionable.154
4.222 According to the United States, the European Communities identifies a case which
discusses both the Protocol and the question of whether the mere existence of discretionary
legislation is actionable: Thai - Cigarettes. However, the European Communities incorrectly
states that the Thai - Cigarettes panel report "dealt with the issue of mandatory versus
discretionary legislation exclusively in the context of the interpretation of a clause in Thailand’s
Protocol of accession identical to paragraph 1(b) of the PPA".
4.223 The United States contends that in fact, the issue of mandatory versus discretionary
legislation arises three times in Thai – Cigarettes . The first is in the context of addressing
whether Thailand’s Protocol exempted a provision of the Tobacco Act (Section 27) from the
application of Article XI:1 of the GATT 1947. 155 The Panel’s discussion of this point
references Norway Apples, but makes no reference to US - Superfund or to EEC - Parts and
Components.156 The next reference to a discretionary/mandatory distinction comes in the
context of determining whether the mere existence of excise tax provisions allowing for the
possibility of a violation of GATT 1947 Article III:2 could be said to violate that provision. 157
The panel found it did not, relying on the US – Superfund and EEC – Parts and Components
panel reports. 158 Despite the fact that the Panel had one paragraph earlier applied the
discretionary/mandatory distinction in the context of the PPA, the panel did not refer to this
finding or to the Protocol. 159 Likewise, when the panel for a third time addressed a
mandatory/discretionary distinction, this time to determine whether the existence of a provision
"enabling the executive authorities to levy [a] discriminatory [business and municipal tax]"
violated Article III, the panel concluded that it did not.
160 In making this finding, the panel
referenced its finding with respect to excise taxes (which referenced the US – Superfund and
EEC – Parts and Components reports), but made no reference to its earlier findings with respect
to the Protocol. 161 The panel thus drew no connection between the non-actionability of
discretionary legislation and the exemption of pre-existing mandatory legislation under the
Protocol, despite the opportunity presented by the fact that the dispute dealt with both issues.
4.224 The United States notes that the EC citation to US - Malt Beverages is equally without
support. The European Communities notes that this panel report addressed the question of
whether legislation was exempt from the GATT 1947 because it was covered by the Protocol
(the panel found it was not), but neglects to point out that the Protocol is not so much as
mentioned in the separate discussion in that report of whether the non-enforcement of

153 See EEC – Parts and Components, op. cit., paras. 5.25-5.26.
154 Panel Report on Norway – Restrictions on Apples and Pears, op. cit., paras. 5.6-5.13.
155 Panel Report on Thai – Cigarettes, op. cit., paras. 82-83.
156 Ibid.
157 Ibid., para. 84.
158 Ibid.
159 See ibid.
160 Ibid., paras. 85-86.
161 See ibid.

mandatory legislation rendered legislation non-actionable. 162 That discussion again references
Thai - Cigarettes, EEC Parts and Components and US - Superfund, but not the Protocol or
cases citing the Protocol. 163 The Protocol issue cited by the European Communities is clearly
unrelated to the issues presented here.
4.225 The United States notes that the European Communities next discusses the 1992 panel
report on United States - Non-Rubber Footwear . The European Communities asserts that "the
context was again provided by the PPA", an assertion which is at best misleading. While issues
relating to the PPA were responsible for the fact that the United States was applying multiple
countervailing duty regimes to countries in different circumstances, the exemption of various of
these regimes under the PPA was not at issue. 164 Rather, the issue related to the comparative
treatment different countries received under each of these regimes, which the panel found to
violate GATT 1947 Article I:1.165 The panel found that the specific provisions of these regimes
granting more or less favorable treatment were mandatory because they could not be modified
through executive discretion, and were therefore actionable as such. 166 In a footnote to this
finding omitted by the European Communities, the panel cited US - Superfund and EEC – Parts
and Components.167 There is no reference to the Protocol or to cases citing the Protocol.
4.226 The United States points out that the European Communities also draws false
comparisons between Sections 301-310 and the laws at issue in Non-Rubber Footwear. First,
the EC focuses on only one of the laws under examination in that case, an amendment to a
1930s law included in the Trade Act of 1974. That amendment, like the other laws at issue
dating to the 1930s and 1979, related to countervailing duties and had nothing to do with
Sections 301-310. Second, the EC quotes with emphasis references in the 1974 amendment to
"determinations" and the word "shall", and states, "the EC cannot help but underline the very
similar wording used by Section 331 and Sections 301-310 of the same Trade Act".
4.227 The United States argues that the European Communities ignores the fact that the
"determinations" on which it focuses had absolutely nothing to do with the finding in the case.
The issue in Non-Rubber Footwear was the timing and procedures under each of the laws for
lifting existing countervailing duty orders. Existing countervailing duty orders on products of
countries newly granted GSP benefits were automatically given an injury review. If that review
was negative, the order was revoked, "backdated" to the date these countries were granted GSP
benefits. On the other hand, countervailing duty orders on dutiable products from countries
acceding to the Subsidies Code were given an injury review only upon application within three
years of accession, and the revocations were "backdated" only to the date of the application.
The differential treatment was the basis for the panel's Article I:1 finding; that finding had
nothing to do with the language highlighted in the EC description.

162 The United States refers to Panel Report on US – Malt Beverages , op. cit., paras. 5.39, 5.57,
5.60.
164 The United States refers to Panel Report on Denial of Most-favoured Treatment as to Non-
Rubber Footwear from Brazil (" Brazilian Non-Rubber Footwear "), adopted 19 June 1992, BISD
39S/128, paras. 2.6, 2.8 (explaining that the United States did not contest the fact that while a
countervailing duty law dating to the 1930s was exempt under the PPA, a 1974 amendment to that law
was not).
165 Ibid., paras. 6.14, 6.17.
166 Ibid., para. 6.13.
167 Panel Report on Brazilian Non-Rubber Footwear, op. cit., paras. 6.4, 6.5, 6.14, 6.17.

4.228 In the US's view, the European Communities further attempts to draw false parallels
between the 1974 countervailing duty law amendment and Sections 301-310 by stating that,
under the countervailing duty law,
"the administration has discretion whether or not to apply a countervailing duty
on subsidized products. The requirement that the Administration not apply the
injury criterion if it decides to apply a countervailing duty was nevertheless
regarded to be mandatory".
4.229 According to the United States, the only problem with the EC's analysis is that it bears
no relationship to that of the panel. "The requirement that the Administration not apply the
injury criterion" was (1) not at issue in the case, if for no other reason than (2) no such
requirement is in the law. Again, the issue in the case was the timing and procedures for injury
reviews and for revocation of existing countervailing duty orders. Because the case dealt with
existing orders, the Administration had already
 in each of these cases determined that a
countervailable subsidy existed, years before the issue of revocation, and the application of
different revocation regimes, ever arose. Thus, even were it accurate to describe such
determinations as discretionary (the procedures and methodologies for making the
determination are detailed in statutory and regulatory provisions, and allow for limited
discretion), these determinations were never at issue in the case, and were completely irrelevant
to the "backdating provisions" which the panel considered mandatory and therefore actionable
as such.
4.230 The United States points out that the European Communities fails to include any
discussion of how this practice allegedly changed under the WTO because the Protocol was no
longer in effect. The non-actionability of di scretionary legislation (or the actionability of
mandatory legislation) was again at issue in Canada – Civil Aircraft, Turkey - Textiles and
Argentina – Textiles and Apparel (US) , but the European Communities addresses only the last
of these. In its discussion of that case the European Communities provides no demonstration
that the panel applied a new definition of "mandatory", or that the panel referred to the Protocol
of Provisional Application. Instead, the panel found that Argentina’s specific duties were
mandatory measures, relying on the consistent line of GATT and WTO cases establishing the
mandatory/discretionary distinction.
168 The panel stated, "GATT/WTO case law is clear in that
a mandatory measure can be brought before a Panel, even if such an adopted measure is not yet
in effect".169 In a footnote omitted from the EC’s discussion, the panel cited US - Superfund.
The panel also noted that the U.S. Tobacco report confirmed this interpretation.170
4.231 According to the United States, had the EC bothered to address the Canada – Aircraft
and Turkey - Textile cases, it would have found that neither of these cases did anything other
than apply the GATT distinction on discretionary/mandatory legislation. For example, in
Canada – Aircraft, the panel stated:
"We recall the distinction that GATT/WTO panels have consistently drawn between
discretionary legislation and mandatory legislation. For example, in United States
Tobacco, the panel 'recalled that panels had consistently ruled that legislation which
mandated action inconsistent with the General Agreement could be challenged as such,
whereas legislation which merely gave the discretion to the executive authority ... to act

168 Panel Report on Argentina – Textiles and Apparel(US), op. cit., para. 6.45.
169 Ibid.
170 Ibid.

inconsistently with the General Agreement co uld not be challenged as such; only the
actual application of such legislation inconsistent with the General Agreement could be
subject to challenge'".171 (citation omitted)
4.232 The United States considers that neither Canada - Aircraft nor Turkey - Textiles
redefined the meaning of "mandatory" or refer to the Protocol of Provisional Application to do
so.172 The EC’s claim that the definition of mandatory has changed because of the elimination
of the Protocol of Provisional Application is thus pure fantasy. Neither the GATT cases
establishing the actionability of mandatory legislation nor the WTO cases which have continued
to apply this rule relied on the existence, expiration, or anything else regarding, the Protocol of
Provisional Application.
173
(iii) Marrakech Agreement
4.233 The European Communities also argues that Article XVI:4 of the Marrakech
Agreement provides for a more far-reaching and novel obligation upon WTO Members when
compared to Articles 26 and 27 of the Vienna Convention on the Law of Treaties or to the legal
situation existing under the GATT 1947,
"each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations [under the WTO agreements]".
4.234 The European Communities points out that in particular, the provision requires a
positive action by the WTO Member ensuring the conformity of its domestic law, which
includes not only legislation but also regulations and administrative procedures.
4.235 The European Communities further indicates that through Article 3.2 of the DSU, the
Uruguay Round participants when they agreed to adopt the DSU explicitly pursued the
objective of providing security and predictab ility to the multilateral trading system. This
objective has been subsequently confirmed by the Appellate Body in EC – Computer Equipment
case
174 as
"'an object and purpose of the WTO Agreement , generally, as well as of the
GATT 1994'".
4.236 The European Communities finally contends that the existing legislation clauses in the
PPA and the protocols of accession have been explicitly excluded from the definition of the
General Agreement on Tariffs and Trade 1994.
4.237 In the view of the European Communities, four sets of important consequences derive
from the above-mentioned new legal environment:

171 Panel Report on Canada – Aircraft, op. cit., para. 9.124 , citing Panel Report on US –
Tobacco, op. cit., para. 118.
172 See Canada – Aircraft, op. cit., para. 9.124; Panel Report on Turkey – Restrictions on Imports
of Textile and Clothing Products, circulated 31 May 1999, WT/DS/34/R, para. 9.37.
173 The United States adds that even if the distinction between mandatory and discretionary
measures had originated in the distinction drawn in the Protocol of Provisional Application, it is difficult
to understand how the definition of "mandatory" could change. Either legislation "mandates" –
commands or obliges - a violation, or it does not.
174 Appellate Body Report on EC – Computer Equipment, op. cit.

(a) Unlike under the GATT 1947, a conflict between a pre-existing incompatible
legislation and any obligation under the covered agreements must be resolved
in favour of the latter and to the detriment of the former. As the Appellate Body
has decided in the India - Patents (US) case175, this new rule is applicable with
no exceptions as from 1 January 1995;
(b) The obligations under Article XVI:4 encompass not only legislation but also
regulations and administrative procedures and thus include the type of law that
is normally adopted and amended by actions of executive authorities. The
distinction between law that binds the executive authorities and law that can be
modified by them is thus no longer relevant.
(c) As was recalled in the EC's oral statement of 29 June 1999, the terms "ensure"
and "conformity" in Article XVI:4, taken together in their context, indicate that
that provision obliges all WTO Members not merely to grant their executive
authorities formally the right to act cons istently with WTO law but to structure
their law in a manner that "makes certain" that the objectives of the covered
agreements will be achieved.176
(d) Article 3.2 of the DSU and the principle of "good faith" implementation of
international obligations under Article 26 of the Vienna Convention on the Law
of Treaties no longer allow the existence of legal situations, under domestic
legislation, regulations, administrative procedures or under any combination of
them, which could seriously impair the security and predictability of the
international trading system. A domestic law, regulation or administrative
procedure whose structure and architecture is specifically designed to create
uncertainty for the trade with other Members could therefore never be deemed
to ensure conformity with WTO law.
4.238 The European Communities further argues that in this new legal environment it is then
no longer justified to apply as such the standards developed under the GATT 1947 to domestic
legislation. According to Articles XVI:4 of the WTO and 3.2 of the DSU together with the
principle of "good faith" implementation under Article 26 of the Vienna Convention on the Law
of Treaties Members' domestic law cannot be considered to be WTO-consistent merely because
it does not formally preclude WTO-consistent actions. WTO Members must now go further and
ensure that their domestic law is not designed to frustrate the implementation of their WTO
obligations.
4.239 The European Communities argues that the Panel practice after the entry into force of
the WTO is either inconclusive (and therefore does not stand in the way of the above-described
interpretation) or supports the EC's views.

175 Appellate Body Report on India - Patents (US), op. cit., para. 81
176 The European Communities notes that it is interesting to note that in a different factual
context, the Human Rights Committee - established by Article 28 of the International Covenant on Civil
and Political Rights - followed a logic that, mutatis mutandis, is comparable to the logic suggested by the
European Communities in this case. In the "Mauritian Women" case, it held with respect to the possibility
of a direct violation of a right by a law that "it must in any event be applicable in such a way that the
alleged victim's risk of being affected is more than a theoretical possibility
" (emphasis added). (35/1978,
paragraph 9.2)

4.240 The European Communities points out that the 1998 Report of the Panel Japan –
Measures Affecting Agricultural Products dealt in particular with the interpretation of paragraph
1 of Annex A to the SPS Agreement. That provision reads as follows:
"phytosanitary measures include all relevant laws, decrees, regulations,
requirements and procedures".
4.241 In the view of the European Communities, this provision has a function similar to that
of Article XVI:4 of the Marrakech Agreement. It defines the domestic law related to
phytosanitary measures, not merely actions taken under such law, as a phytosanitary measure.
This means that each Member must ensure that that its domestic law related to phytosanitary
measures is in conformity with its obligations under the SPS Agreement. Japan essentially
argued that its domestic law is in conformity with the SPS Agreement because it does not
mandate actions inconsistent with the SPS Agreement. The Panel rejected this argument on the
following grounds:
"8.111 Even though the varietal testing requirement is not mandatory – in that
exporting countries can demonstrate quarantine efficiency by other means – in
our view, it does constitute a "phytosanitary regulation" subject to the
publication requirement in Annex B. The footnote to paragraph 1 of Annex B
refers in general terms to "phytosanitary measures such as laws, decrees or
ordinances".
177 Nowhere does the wording of this paragraph require such
measures to be mandatory or legally enforceable. Moreover, Paragraph 1 of
Annex A to the SPS Agreement makes clear that "phytosanitary measures
include all relevant laws, decrees, regulations, requirements and procedures". It
does not, in turn, require that such measures be mandatory or legally
enforceable. The interpretation that measures need not be mandatory to be
subject to WTO disciplines is confirmed by the context of the relevant SPS
provisions, a context which includes provisions of other WTO agreements and
the way these provisions define "measure", "requirement" or "restriction"
178, as
interpreted in GATT and WTO jurisprudence. 179 This context indicates that a

177 [original footnote] In accordance with Article 3.2 of the DSU and established WTO
jurisprudence, we shall interpret these terms in paragraph 1 of Annex A in accordance with the
interpretative rules of the 1969 Vienna Convention on the Law of Treaties ("Vienna Convention"), in
particular Article 31 thereof which provides in relevant part as follows: "1. A treaty shall be interpreted
in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in light of its object and purpose".
178 [original footnote] For example, the Illustrative List of Trade-Related Investment Measures
("TRIMs") contained in the Annex to the Agreement on TRIMs indicates that TRIMs inconsistent with
Articles III:4 and XI:1 of the GATT include those which are "mandatory or enforceable under domestic
law or under administrative rulings, or compliance with which is necessary to obtain an advantage "
(emphasis added).
179 [original footnote] Recently, for example, the Panel on Japan – Measures Affecting
Consumer Photographic Film and Paper (adopted on 22 April 1998, WT/DS44/R), addressing a claim of
non-violation nullification and impairment under Article XXIII:1(b) of the GATT, stated the following (at
paragraph 10.49):
a government policy or action need not n ecessarily have a substantially binding or
compulsory nature for it to entail a likelihood of compliance by private actors in a way
so as to nullify or impair legitimately expected benefits within the purview of
Article XXIII:1(b). Indeed, it is clear that non-binding actions, which include sufficient

non-mandatory government measure is also subject to WTO provisions in the
event compliance with this measure is necessary to obtain an advantage from
the government or, in other words, if sufficient incentives or disincentives exist
for that measure to be abided by". (emphasis added)
4.242 The European Communities considers that the above reasoning can be transposed to
Article XVI:4 of the WTO Agreement because the rationale of that provision is similar to that of
paragraph 1 of Annex A to the SPS Agreement: what is relevant are the trade effects of the law
at issue and the incentives or disincentives it creates, not merely whether it is mandatory.
4.243 The European Communities further notes that in its 1997 report on Argentina -
Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items,
180 a panel found
what follows:
"6.45 In respect of the Argentine argument that the US claim should not be
considered because it addresses only a potential violation - in support of which
it refers to the Tobacco Panel report – we note that the Argentine measures, the
specific duties, are mandatory measures. Argentina admits that its customs
officials are obligated to collect the specific duties on all imports. GATT/WTO
case law is clear in that a mandatory measure can be brought before a Panel,
even if such an adopted measure is not yet in effect, and independently of the
absence of trade effect of such measure for the complaining party:
'[T]he very existence of mandatory legislation providing for an
internal tax, without it being applied to a particular imported
product, should be regarded as falling within the scope of
Article III:2, first sentence'.
We are also of the view that the Tobacco Panel report merely confirms this
principle.
6.46 Moreover, in Bananas III , the Appellate Body confirmed that the
principles developed in Superfund were still applicable to WTO disputes and
that any measure, which changes the competitive relationship of Members,
nullifies any such Members' benefits under the WTO Agreement.
'Article III:2, first sentence, cannot be interpreted to protect
expectations on export volumes; it protects expectations on the

incentives or disincentives for private parties to act in a particular manner, can
potentially have adverse effects on competitive conditions of market access.
See also the Panel Report on Japan – Trade in Semi-Conductors ("Japan - Semiconductors"), adopted on
4 May 1988, BISD 35S/116, where the Panel found (at paragraph 109) that although measures are not
mandatory, they could be considered as "restrictions " subject to Article XI:1 of the GATT in the event
"sufficient incentives or disincentives existed for non-mandatory measures to take effect". Similarly, the
Panel on EEC – Regulation on Imports of Parts and Components (adopted on 16 May 1990, BISD
37S/132) considered (at paragraph 5.21) that the term "laws, regulations or requirements" contained in
Article III:4 of the GATT included requirements "whi ch an enterprise voluntarily accepts in order to
obtain an advantage from the government".
180 Panel Report on Argentina – Textiles and Apparel (US), op. cit.

competitive relationship between imported and domestic
products. A change in the competitive relationship contrary to
that provision must consequently be regarded ipso facto as a
nullification or impairment of benefits accruing under the
General Agreement'.
We consider that this principle is also appropriate when dealing with the
application of the obligations contained in Article II of GATT which requires a
'treatment no less favourable than that" provided in a Member's Schedule. In
the present dispute we consider that the competitive relationship of the parties
was changed unilaterally by Argentina because its mandatory measure clearly
has the potential to violate its bindings, thus undermining the security and the
predictability of the WTO system'". (emphasis added).
4.244 In the view of the European Communities, the panel's decision fully supports the EC's
approach as well.
4.245 The United States contends that the European Communities claims that panel practice
after entry into force of the WTO "is either inconclusive (and therefore does not stand in the
way of the [the EC's "new legal environment" theory]) or supports the EC's views". In support
of this statement, the European Communities cites Japan – Measures Affecting Agricultural
Products181 and Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and
Other Items. However, the Argentina – Textiles and Apparel (US) panel does no more than
reaffirm that mandatory legislation is actionable, without redefining the term "mandatory" as the
European Communities seeks to do here.
4.246 The United States points out that as for Japan – Agricultural Products , the European
Communities refers to a panel discussion involving the publication requirement in paragraph 1
of Annex B of the Agreement on Sanitary and Phytosanitary Measures. This discussion did not
involve the question of whether discretionary measures are actionable, nor did the issue arise at
any point in Japan – Agricultural Products. Japan did not, as the European Communities would
have it, "essentially argue[] that its domestic law is in conformity with the SPS Agreement
because it does not mandate actions inconsistent with the SPS Agreement". 182 Rather, Japan
argued that its varietal testing requirement did not come within the specific terms of the
definition of "sanitary and phytosanitary regulations" provided in Annex B of the SPS
Agreement.183 The panel rejected Japan's argument, finding that the definition in the Annex was
not limited as proposed by Japan.
4.247 The United States notes that according to the European Communities, the Japan –
Agricultural Products panel's reasoning "can be transposed to" WTO Agreement Article XVI:4
"because the rationale of that provision is similar to that of paragraph 1 of Annex A to the SPS
Agreement". This conclusion is absurd. The rationale of paragraph 1 of Annex B – publication
of SPS measures – cannot be equated with that of WTO Agreement Article XVI:4 – to ensure
that domestic laws permit compliance with international obligations. Moreover, a panel's

181 Panel Report on Japan – Measures Affecting Agricultural Products (" Japan – Agricultural
Products"), adopted 19 March 1999, WT/DS76/R.
182 Ibid. page 10.
183 Footnote 5 to Annex B provided that the annex covered "phytosanitary measures such as
laws, decrees or ordinances". See Agreement on the Application of Sanitary and Phytosanitary Measures,
Annex B, footnote 5.

examination of an explicit definition of "measures" cannot be equated to the question of whether
the mere existence of non-mandatory legislation can result in a finding of WTO inconsistency.
4.248 The United States further argues that the European Communities also claims that the
Japan – Agricultural Products panel's reliance on a line of GATT cases which pre-date the
WTO184 somehow supports the EC's claim that the advent of the WTO changed the definition of
"mandatory". Beyond the issue of timing, the European Communities is confusing two separate
lines of GATT cases which stand for very different propositions: (1) the Superfund line of cases,
which stand for the mere existence of legislation which grants governmental authorities the
discretion to comply or not comply with th eir GATT/WTO obligations is not grounds for a
finding of inconsistency; and (2) the Italian Machinery/FIRA line of cases, which stand for the
proposition that a measure which nominally does not mandate compliance by private actors may
nevertheless be considered a government "requirement" or "restriction" subject to the
requirements of GATT 1947 Article III or XI if it creates sufficient incentives or disincentives
for those private actors to comply.185
4.249 The United States claims that the EC's confusion recalls that of the panel in India -
Patents (US), which "merge[d], and thereby confuse[d], two different concepts from previous
GATT practice". 186 In similar fashion, the European Communities posits a theory of "not
genuinely discretionary" measures it has pieced together from assumptions, inferences and
misreadings of unrelated panel findings, the Protocol of Provisional Application and
miscellaneous DSU and WTO objectives. Like the theories at issue in India - Patents (US) and
US - Shrimp, the EC's theory has no textual basis and must be rejected. The analysis of whether
Sections 301-310 are consistent with DSU Arti cle 23 and WTO Agreement Article XVI:4 must
be based on the text of those provisions.
4.250 In response to the Panel's question as to what standards should be used in order to
determine whether a Member has ensured the conformity of its laws, regulations and
administrative procedures with its WTO obligations, the European Communities contends
that as demonstrated above, it is no longer correct to rely on the distinction between mandatory
and discretionary legislation along the legal path followed by the GATT 1947 practice.
However, this does not mean that all domestic law that does not preclude WTO-inconsistent
measures and thus provides for the possibility of actions deviating from WTO law (a "potential
deviation") is WTO-inconsistent. It is now necessary to distinguish between
(a) domestic law that is merely meant to transfer decision-making authority from
one constitutional body (most often the Parliament) to another constitutional
body (most often the executive authorities) within specified parameters, and

184 These cases include Panel Report on Japan – Semiconductors , op. cit., para. 109 and Panel
Report on EEC – Parts and Components, op. cit., para. 5.21.
185 See Panel Report on Italian Discrimination Against Imported Agricultural Machinery
("Italian Machinery"), adopted 23 October 1958, BISD 7S/60; Panel Report on Canada – Administration
of the Foreign Investment Review Act ("Canada - FIRA"), adopted 7 February 1984, BISD 30S/140, para.
5.4; EEC – Parts and Components , para. 5.21; Panel Report on Japan –Semiconductors , op. cit., para.
109.
186 Appellate Body Report on India - Patents (US) , op. cit., para. 36. According to the United
States, the India - Patents (US) panel confused the concept of protecting expectations of parties as to the
competitive relationship between their products and those of other parties with the concept of protecting
reasonable expectations of parties relating to market access concessions, all in the service of developing a
theory of "protection of legitimate expectations" not found in the text of the TRIPs Agreement. Ibid.

(b) domestic law that does not preclude the executive authorities from acting
consistently with WTO law but that is - by its design, structure and architecture
- manifestly intended to encourage violations of WTO law or is otherwise
biased against WTO-consistent action.
4.251 In the view of the European Communities, the first type of domestic law is genuinely
discretionary. It is simply a consequence of the legislator's decision to delegate decision-
making power to the administration. WTO Members are free to decide how to distribute
decision-making authority on trade policy matters between the legislature and executive
authorities. Article XVI:4 positively requires WTO Members to ensure that their domestic law
is in conformity with their obligations under the covered agreements and therefore does not
frustrate the objectives of the WTO. However, nothing in Article XVI:4 requires Members to
transfer all decision making to the legislator. For these reasons, it would be inappropriate to
interpret Article XVI:4 of the WTO Agreement so extensively as to require WTO Members to
include explicit language in their domestic law precluding WTO-inconsistent actions.
4.252 The European Communities goes on to state that the second type of legislation is not
genuinely discretionary. It is not intended to transfer decision-making authority within
specified parameters from one branch of the government to another but to frustrate the
implementation of specific WTO obligations. It creates, for no legitimate reason, legal
uncertainty and unpredictability for the trade w ith other Members. A Member that maintains
such law has not ensured the conformity of its law with its WTO obligations even if the law
does not preclude the theoretical possibility of WTO-consistent actions.
4.253 The European Communities recalls its argume nt that in order to determine whether
legislation that does not preclude WTO-consistent actions is genuinely discretionary, Panels
should concentrate their examination as a matter of priority on the text of the domestic law or
regulation.
4.254 In the view of the European Communities, this analysis on the text should focus firstly
on verifying whether that domestic legislation leaves a large degree of liberty of action to the
administration to develop a policy within certain predetermined parameters 187 or whether it

187 The European Communities notes that the United States quoted the still unadopted Panel
Report on Canada – Aircraft , op. cit., as an evidence of the continuing application of the GATT 1947
practice concerning the definition of mandatory and discretionary legislation after the Uruguay Round.
The European Communities disagrees. The European Communities is of the view that this recent Panel
report supports fully the EC's suggested approach. When considering the legal nature of Canada's Export
Development Act (EDA), Section 10, the Panel reached the correct conclusion that "a mandate to support
and develop Canada's export trade does not amount to a mandate to grant subsidies, since support and
development could be provided in a broad variety of ways" (para. 9.127, in fine ). The reading of the
relevant provision of Canada's EDA confirms it as a clear example of a genuine discretionary legislation
within the criteria suggested here by the European Communities:
"Purposes and Powers
10. (1) The Corporation is established for the purposes of supporting and developing, directly or
indirectly, Canada's export trade and Canadian capaci ty to engage in that trade and to respond to
international business opportunities.
Powers.
(1.1) Subject to any regulations that may be made under subsection (6), in carrying out its purposes under
subsection (1), the Corporation may
(a) acquire and dispose of any interest in any property by any means;
(b) enter into any arrangement that has the effect of providing, to any person, any insurance, reinsurance,

induces the executive to act systematically in conflict with the Member's WTO obligations and
that it is at the very least sufficiently constraining and well-defined. In the latter situation, the
measure should not be considered genuinely discretionary.
4.255 In the view of the European Communities, in addition, Panels should consider the
design, structure and architecture of the domestic legislation under examination. Any domestic
legislation or regulation whose structure, design or architecture is biased against compatibility
with the Member's WTO obligations, or that is designed to create uncertainty and
unpredictability in the trade relations among WTO Members, or that is structured so as to render
difficult, unlikely or practically impossible for the executive to pursue a WTO compatible
implementation could not be considered genuinely discretionary.
4.256 The European Communities points out in this respect that, as the very recent Panel
Report on Chile - Taxes on Alcoholic Beverages188 rightly indicates at paragraph 7.119
"Statements by a government against WTO interests (e.g. indicating a
protective purpose or design) are most probative. Correspondingly, it is less
likely that self-serving comments by a government attempting to justify its
measure would be particularly probative".
4.257 The European Communities further explains that finally, an additional guiding principle
to be used in order to determine whether a domestic law or regulation corresponds to a
genuinely discretionary measure is the definition by Dailler and Pellet of the public international
law principle of "good faith" implementation: "[L]'exécution de bonne foi, exige positivement
fidélité et loyauté aux engagements pris" and should therefore exclude "toute tentative de
'fraude à la loi', toute ruse".189
4.258 In response to the Panel's question as to whether the standards applicable under WTO
law in general and Article XVI:4 of the WTO Agreement in particular are met by legislation
that mandates discriminatory tax but at the same time allows for "some limited exceptions in
special circumstances subject to discretionary powers", the European Communities argues that
this specific issue raised by the Panel can be resolved by applying the criteria suggested by the
European Communities above.

indemnity or guarantee;
(c) enter into any arrangement that has the effect of extending credit to any person or providing an
undertaking to pay money to any person;
(d) take any security interest in any property;
(e) prepare, compile, publish and distribute information and provide consulting services;
(f) procure the incorporation, dissolution or amalgamation of subsidiaries;
(g) acquire and dispose of any interest in any entity by any means;
(h) make any investment and enter into any transaction necessary or desirable for the financial
management of the Corporation;
(i) act as agent for any person or authorize any person to act as agent for the Corporation;
(j) take such steps and do all such things as to it appear necessary or desirable to protect the interests of
the Corporation; and
(k) generally, do all such other things as are incidental or conducive to the exercise of its powers, the
performance of its functions and the conduct of its business.
188 Panel Report on Chile - Taxes on Alcoholic Beverages , circulated 15 June 1999, WT/DS87/R
- WT/DS110/R.
189 Droit International public, (1994), paragraph 143.

4.259 The European Communities points out that a ccording to the Oxford English Reference
Dictionary, a rule is "a principle to which an action conforms or is required to conform". An
exception is "an instance that does not follow the rule". In practice, the existence of exceptions
is considered to be the confirmation of the existence of the rule.
4.260 The European Communities argues that in th e example submitted by the Panel to the
parties, the fact that the administration is granted, in some limited circumstances, with the
power to act by exception to the rule should therefore be interpreted in the following way:
(a) The administration is required to follow as a matter of principle the (WTO-
inconsistent) rule;
(b) The use of the exception is limited to specific and limited cases;
(c) The existence of the exception confirms the existence of the (WTO-
inconsistent) rule in the first place.
(d) Consequently, the exceptions could not be implemented in such a way as to
systematically replace the rule without amending the law itself and, in any case,
without defeating its overall (WTO-inconsistent) purpose that the legislative
body intended to achieve.
4.261 In the EC's view, therefore, a Member's legislation providing for a (number of) rule(s)
that are inconsistent with one or more of the obligations under a WTO Agreement should be
deemed to violate as such that Member's WTO obligations irrespective of whether the
legislation was actually implemented and also independently from the existence of some
"limited exceptions in special circumstances subject to discretionary powers".
4.262 The European Communities then contends that the design, structure and architecture of
such legislation (i.e. its objectively expressed "intent") would be dominated by the (WTO-
inconsistent) rule. It would be a legislation purposefully biased against WTO compatibility and
thus could not be mended by the existence of some "limited exceptions" to the (WTO-
inconsistent) rule. Moreover, the mere existence of such a legislation imposing (WTO-
inconsistent) rules would inevitably create a pattern of uncertainty, insecurity and
unpredictability in the trade relations among the Members and could by no means constitute a
"good faith" implementation of the Member's WTO obligations under Article 26 of the Vienna
Convention on the Law of Treaties or (even less so) under the more demanding standard set out
in Article XVI:4 of the Marrakech Agreement.
4.263 The European Communities further argues that this is, if at all possible, even more
relevant in instances where only a remote possibility to obtain an "act of grace" in a specific
case, a kind of waiver, to be granted by the highest political authorities of the WTO Member
concerned190 and where such an "act of grace" is subject to a number of objective criteria that
may, in practice, require the targeted WTO Member to give in to WTO-inconsistent pressure.

190 The European Communities notes that in a different factual context, the European Court of
Human Rights followed a logic that, mutatis mutandis , is comparable to the logic suggested by the
European Communities in this case. In the " Soering" case (1/1989/161/217), the ECHR stated the
following:
"In the independent exercise of his discretion the Commonwealth's attorney has himself decided
to seek and to persist in seeking the death pe nalty because the evidence, in his determination

4.264 The United States points out that the European Communities suggested that WTO
Agreement Article XVI:4, read together with DSU Article 3.2 and the elimination of the
Protocol of Provisional Application, have create d a "new legal environment". According to the
European Communities, "In this new legal environment it is then no longer justified to apply as
such the standards developed under the GATT 1947 to domestic legislation". Rather, "WTO
Members must now go further and ensure that their domestic law is not designed to frustrate the
implementation of their WTO obligations". Panels must therefore apply new standards in
distinguishing among discretionary legislation to determine which are "not genuinely
discretionary". According to the European Communities, a law is not genuinely discretionary if
it "does not preclude the executive authorities from acting consistently with WTO law but that is
- by design, structure and architecture - manifestly intended to encourage violations of WTO
law or is otherwise biased against WTO-consistent action". Such a law "creates, for no
legitimate reason, legal uncertainty and unpredictability for the trade with other Members".
4.265 According to the United States, the European Communities claims to derive this test
from "Article 3.2 of the DSU and the principle of 'good faith' implementation of international
obligations under Article 26 of the Vienna Convention on the Law of Treaties", which "no
longer allows" legal situations "which could seriously impair the security and predictability of
the international trading system". Leaving aside the fact that the language of Article 3.2 dates to
the 1989 Montreal Rules, and thus predates the EC's "new legal environment", the European
Communities is seeking to create from a WTO provision relating to the objectives of the
Dispute Settlement Understanding, and its own notions of "good faith" and "uncertainty", an
entirely new obligation not found in any provision of the WTO Agreement or its annexes.
4.266 The United States puts forth that the Appellate Body has confronted such a situation
before. The European Communities even alludes to one such situation in its oral statement,
when it refers to the US endorsement in India - Patents (US) of panel findings that the
"protection of legitimate expectations of WTO Members regarding conditions of competition is
as central to trade relating to intellectual property as it is to trade in goods that do not relate to
intellectual property". What the European Communities fails to mention is that the Appellate
Body squarely reversed the panel on this point.
4.267 The United States points out that the India - Patents (US) panel found that "the
legitimate expectations of WTO Members" must be taken into account, and that the "protection
of legitimate expectations of Members regarding the conditions of competition is a well
established GATT principle" derived in part from GATT 1994 Article XXIII, the basic dispute
settlement provisions of the GATT and WTO, and GATT 1947 panel reports relating to GATT
1947 Article III.
191 Further, based on Article 31 of the Vienna Convention, which provides for
"good faith" interpretation of treaty terms in accordance with their ordinary meaning in their
context and in light of their object and purpose, the Panel stated,

supports such action. (…) The Court's conclusion is therefore that the likehood of the feraed
exposure of the applicant to the "death row phenomenon" has been shown to be such as to bring
Article 3 into play".
191 Panel Report on India – Patents (US), op. cit., paras. 7.20, 7.22. The panel reports which the
panel cited included Panel Report on Italian Machinery , op. cit., paras. 12-13; Panel Report on US –
Superfund, op. cit., para. 5.22, and Panel Report on US – Section 337, op. cit., para. 5.13.

"In our view, good faith interpretation requires the protection of legitimate
expectations derived from the protection of intellectual property rights provided
for in the Agreement".192
4.268 The United States further notes that the Appellate Body rejected this approach, noting
that the panel had "merge[d], and thereby confuse[d], two different concepts from previous
GATT practice,193 and had misapplied VCLT Article 31:
"The Panel misunderstands the concept of legitimate expectations in the context
of the customary rules of interpretation of public international law. The
legitimate expectations of the parties to a treaty are reflected in the language of
the treaty itself. The duty of a treaty interpreter is to examine the words of the
treaty to determine the intentions of the parties. This should be done in
accordance with the principles of treaty interpretation set out in Article 31 of
the Vienna Convention. But these principles neither require nor condone the
imputation into a treaty of words that are not there or the importation into a
treaty of concepts that were not intended".194
4.269 The United States indicates that the Appellate Body went on to refer to DSU
Article 3.2, which provides, "Recommendations and rulings of the DSB cannot add to or
diminish the rights and obligations provided in the covered agreements", and DSU Article 19.2,
which provides, "In accordance with paragraph 2 of Article 3, in their findings and
recommendations, the panel and Appellate Body cannot add to or diminish the rights and
obligations provided in the covered agreements".
195 The Appellate Body stated, "These
provisions speak for themselves. Unquestionably, both panels and the Appellate Body are
bound by them".
196
4.270 According to the United States, the European Communities in this case is attempting to
engage in even more dramatic fashion in the "imputation into a treaty of words that are not there
or the importation into a treaty of concepts that were not intended", 197 the approach which the
Appellate Body rejected in India - Patents (US) . Nowhere is the EC's "not genuinely
discretionary" test found in WTO Agreement Article XVI:4, DSU Article 3.2, or any other
provision of a covered agreement. Indeed, the European Communities does not claim that it
does. Its test is based on extrapolation from the concept of "security and predictability" in
Article 3.2 – an objective, not an obligation – and from a vague explanation of the "good faith"
obligation in the VCLT – not a covered agreement.
4.271 The United States notes that Article 3.2 opens with the statement, "The dispute
settlement system of the WTO is a central element in providing security and predictability to the
multilateral trading system".
198 This enunciation of the purpose of the DSU contains within it
the understanding that it is the DSU itself which achieves this purpose. In other words, the
substantive obligations in the text of the WTO Agreement and its annexes, enforced through the
DSU, provide security and predictability. "The legitimate expectations of the parties to a treaty

192 Panel Report on India - Patents (US), op. cit., para. 7.18.
193 Appellate Body Report on India - Patents (US), op. cit., para. 36.
194 Ibid., para. 45. (emphasis added)
195 Ibid., para. 47, citing DSU Arts. 3.2 and 19.2.
196 Ibid.
197 Ibid., para. 45. (emphasis added)
198 The United States notes that this language is derived from the 1989 Montreal Rules.

are reflected in the language of the treaty itself".199 As the Appellate Body underlined in India -
Patents (US), interpretations which go beyond the text to make up obligations out of thin air and
aspirations can threaten the legitimacy of the dispute settlement system. Article 3.2 draws a line
between dispute settlement and legislation, and directs that panels abstain from the latter.
4.272 The United States further contends that similarly, in United States – Import Prohibition
of Certain Shrimp and Shrimp Products , the Appellate Body stated, "A treaty interpreter must
begin with, and focus upon, the text of the particular provision to be interpreted. It is in the
words constituting that provision, read in their context, that the object and purpose of the states
parties to the treaty must first be sought" .200 I n US – Shrimp , the Appellate Body rejected a
panel's interpretation of the chapeau of Article XX that focused not on the ordinary meaning of
the words of the chapeau and its immediate object and purpose, but instead on the general object
and purpose of the GATT and WTO Agreement. Just as the European Communities now seeks
to derive new obligations from the general notion of security and predictability, the US – Shrimp
panel concluded that the chapeau included a general obligation "not to undermine the WTO
multilateral trading system". According to the panel,
"we must determine not only whether the measure on its own undermines the
WTO multilateral trading system, but also whether such type of measure, if it
were to be adopted by other Members, would threaten the security and
predictability of the multilateral trading system".201
4.273 The United States emphasises that the Appellate Body rejected this approach. The
Appellate Body explained that, rather than examining the consistency of the measure in question
with the chapeau of Article XX, the panel focused repeatedly on " the design of the measure
itself".202 The Appellate Body referred to this as:
"a standard or a test that finds no basis either in the text of the chapeau or in
that of either of the two specific exceptions claimed by the United States. The
panel, in effect, constructed an a priori test that purports to define a category of
measures which, ratione materiae , fall outside the justifying protection of
Article XX".203
4.274 In the view of the United States, the Appellate Body therefore reversed the panel's
analysis and the findings based on that analysis. 204 It described the panel's analysis as
"abhorrent to the principles of interpretation we are bound to apply".205
4.275 The United States argues that the European Communities is proposing a mode of
analysis strikingly similar to one already rejected by the Appellate Body in US - Shrimp. Based
on the same generalized notion of "security and predictability", the European Communities is
proposing a test not found in DSU Article 23 or WTO Agreement Article XVI:4, a test focusing

199 Appellate Body Report on India - Patents (US), op. cit., para. 45.
200 Appellate Body Report on United States – Import Prohibition of Certain Shrimp and Shrimp
Products ("US - Shrimp"), adopted 6 November 1998, WT/DS58/AB/R, para. 114. (emphasis added)
201 Panel Report on United States – Import Prohibition of Certain Shrimp and Shrimp Products ,
adopted 6 November 1998, WT/DS58/R, para. 7.44 (underlining added), quoted in Appellate Body
Report on US - Shrimp, op. cit., para. 112.
202 Appellate Body Report on US - Shrimp, op. cit., para 115. (emphasis in original)
203 Ibid., para. 121.
204 Ibid., para. 122.
205 Ibid., para. 121.

on "the design of the measure itself": whether a discretionary domestic law's "design, structure
and architecture" is "manifestly intended to encourage violations of WTO law or is otherwise
biased against WTO-consistent action". The Panel must reject this test. The analysis of whether
Sections 301-310 are consistent with DSU Article 23 and WTO Agreement Article XVI:4 "must
begin with, and focus upon, the text of"206 these provisions.
4.276 In this respect, further, the United States responds to the Panel's request for comments
on the following statement in the third-party submission by Hong Kong, China:
"The question is consequently raised as to how international obligations can be
implemented in good faith if the possibility of deviation exists in a domestic
legislation? Are there expectations that the international obligations will be
observed and not impaired when the possibility of deviation is expressis verbis
provided for in a domestic legislation? Is the predictability, necessary to plan
future trade as the Superfund panel acknowledged, not affected when trading
partners know ex ante that their partners have enacted legislation which allows
them to disregard their international obligations?"
4.277 The United States answers that the question Hong Kong raises in the first sentence
quoted above is a non sequitur. Parties to an international agreement have, by becoming parties,
committed to implement their agreement obligations in good faith. It is this very fact that leads
to the conclusion that one cannot assume that authorities will exercise discretion under domestic
legislation so as to violate international obligations.
4.278 In the view of the United States, if authorities exercise their discretion such that they
actually deviate from their international obligations, they may then be found to have violated
those obligations. Until that point, however, it may not be assumed that they will exercise their
discretion in this manner. It may not be assumed that parties will act in bad faith. Certainly the
European Communities should accept this: in the Article 21.5 proceedings in the Bananas
dispute and again in its recent proposal to amend Article 21, the European Communities has
taken the position that there is a presumption of compliance in all WTO proceedings, even in
Article 21.5 proceedings to determine whether a Member has brought into compliance a
measure already found to be WTO-inconsistent.
207
4.279 The United States adds that with respect to the relevance of whether legislation provides
expressis verbis for the "possibility of deviation" from international obligations, the United
States notes that any legislation which does not explicitly limit the exercise of discretion
provides for such a possibility, and the United States doubts that Hong Kong authorities lack

206 Appellate Body Report on US - Shrimp, op. cit., para. 114.
207 See Panel Report on European Communities – Regime for the Importation, Sale and
Distribution of Bananas – Recourse to Article 21.5 by the European Communities , WT/DS27/RW/EEC,
paras. 2.19, 4.13 (12 April 1999) (The United States points out that according to the European
Communities, implementing measures "must be presumed to conform to WTO rules unless their
conformity has been duly challenged under appropria te DSU procedures" (para. 4.13); also according to
the European Communities, a trading system based on a presumption of inconsistency would not be based
on security and predictability of international tr ade relations and thus would be the opposite of the
multilateral trading system envisaged by the Marrakesh Agreement (para. 2.19)); DSU Review,
Discussion Paper from the European Communities dated 30 June 1999, Document No. 3864, para. 5,
circulated on 1 July 1999 ("In the multilateral procedure to determine the conformity of implementing
measures, the task of bringing a challenge and the burden of proof are on the party arguing non-
conformity".) (US Exhibit 12).

such discretion. 208 This does not change the fact that WTO Members with discretionary
legislation, whatever the form, have made a bi nding legal commitment to comply with their
WTO obligations – in other words, to exercise their discretion in a WTO-consistent manner. As
discussed further in response to the following question, there is no greater assurance that a
Member will act in accordance with its WTO obligations if it exercises broad, undefined
discretionary authority than if it must exercise discretion not to undertake WTO-inconsistent
action explicitly provided for in legislation.
4.280 In the view of the United Stat es, Hong Kong's reference to the Superfund209 panel's
discussion of "predictability" ignores the facts and findings of that case, which contradict Hong
Kong's position. There, the legislation in question specifically did, expressis verbis, provide for
action which, if delegated discretion were not exercised in a particular manner, would have been
inconsistent with US obligations under the GATT 1947. The 1986 Superfund Act required
importers to supply sufficient information regarding the chemical inputs of taxable substances to
enable the tax authorities to determine the amount of tax to be imposed; otherwise, a penalty tax
would be imposed in the amount of five percent ad valorem or a different rate to be prescribed
in regulations by the Secretary of the Treasury by a different methodology.
210 The five per cent
penalty tax, which was to go into effect on January 1, 1989 if regulations to the contrary were
not issued, would have been inconsistent with GATT 1947 Article III:2.
211 At the time of the
panel proceedings in 1987, the regulations in question had not yet been issued. Nevertheless,
the panel concluded:
"[W]hether [the regulations] will eliminate the need to impose the penalty tax
and whether they will establish complete equivalence between domestic and
imported products, as required by Article III:2, first sentence, remain open
questions. From the perspective of the overall objectives of the General
Agreement it is regrettable that the Superfund Act explicitly directs the United
States tax authorities to impose a tax inconsistent with the national treatment
principle but, since the Superfund Act also gives them the possibility to avoid
the need to impose that tax by issuing regulations, the existence of the penalty
rate provisions as such does not constitute a violation of the United States
obligations under the General Agreement".212
4.281 According to the United States, it is worth emphasising the US – Superfund panel's
reliance on the fact that there were "open questions" regarding the Superfund regulations which
would have to be answered before a panel could determine the GATT-inconsistency of the
penalty tax provision. On the one hand, this illustrates the fact that the panel would not assume
that the United States would ultimately exercise its discretion in bad faith. However, it also
illustrates the fact that, even where a statute is discretionary, the actual exercise of that
discretion remains open to challenge. In Superfund, the regulations in that case – once issued –
would have been subject to challenge if they violated GATT rules. Likewise, it remains open to
WTO Members, including the European Communities, to challenge the US exercise of
discretion under Sections 301-310 in particular cases if they believe it to be inconsistent with

208 The United States moreover notes that even were specific limits on discretion included in a
country's domestic laws, this would not eliminate the possibility that authorities might exercise their
power in violation of both these limits and their international obligations.
209 Panel Report on US – Superfund, op. cit.
210 Ibid., para. 5.2.9.
211 Ibid.
212 Ibid. (emphasis added)

US WTO obligations.213 Thus, for this Panel to confirm the consistent findings of every GATT
and WTO panel to date regarding the mandatory/discretionary distinction would in no way deny
the European Communities or other Members the ability to challenge US actions taken under
Sections 301-310.214
4.282 The United States further contends that the Superfund panel's discussion of
"predictability" came in the context of explaining why mandatory legislation may be challenged
even if it will not go into effect until a fixed time in the future. 215 As described above, the
Superfund Act was enacted in 1986 but the penalty tax provision would not become effective
until 1989. According to the panel, the fact that legislation is not yet in effect would not excuse
any GATT-inconsistent acts which the legislation mandates. 216 However, the panel went on to
conclude that the penalty tax provisions of the legislation were not mandatory because they also
included discretion to implement regulations consistent with US GATT obligations.
217 As the
panel indicated, the legislation gave US authorities "the possibility" to avoid GATT-inconsistent
action.218 Thus, as the United States has emphasized, it is the possibility of compliance, and not
the possibility of deviation, which is the proper question for panels examining whether the mere
existence of legislation as such is consistent with a Member's obligations. This has uniformly
been the analysis which GATT and WTO panels have applied to date.
4.283 The United States claims that Hong Kong's attempt to subject to WTO findings of
inconsistency discretionary legislation which "allows WTO-inconsistent action to be taken" also
ignores the fact that domestic legislation may be applicable not only to WTO Members in
connection with rights under covered agreements, but also to countries which are not WTO
Members, and to WTO Members with respect to matters not subject to a covered agreement.
The WTO Agreement and its annexes by definition are not applicable to such cases. Thus, even
if discretionary legislation were to "leave open the possibility" of determinations which would
violate DSU Article 23 if applied to a WTO Member regarding rights under a covered
agreement, DSU Article 23 may not be read so as to circumscribe the exercise of a Member's
rights with respect to non-WTO Members and non-WTO matters.
4.284 The United States indicates that to put another way, international agreements are made
between contracting parties. The actions of those parties towards one another may or may not
violate the obligations they have undertaken vis-à-vis one another. However, the actions taken
towards non-parties are not relevant to this analysis. It is one thing to conclude that a
contracting party may challenge legislation mandating action towards all if that action violates
an obligation with respect to contracting parties. However, if legislation permitting such action

213 The United States notes that likewise, if it believes the European Communities is exercising
its broad discretion under Article 133 of the Treaty of Amsterdam to regulate or restrict international
commerce in a manner inconsistent with the EC's WTO obligations, or its broad discretion under the
Treaty of Amsterdam to create WTO-inconsistent banana import regimes, it may challenge the European
Communities in dispute settlement proceedings. However, the United States, like the European
Communities, must wait until such discretion is actually exercised in a given case, and may then only
challenge that specific exercise of discretion.
214 The United States emphasises again that no such specific action, of the recent or more distant
past, is within the terms of reference of this Panel. Unlike the situation in EEC – Parts and Components,
op. cit., this case does not include a challenge both to the exercise of statutory discretion in a given case
and to the "mere existence" of the statute. See ibid., paras. 5.25-5.26. It only includes the latter.
215 Panel Report on US – Superfund, op. cit., paras. 5.2.1-5.2.2.
216 Ibid.
217 Ibid., para. 5.2.9.
218 Ibid.

could also be challenged, contracting parties would effectively be precluded from exercising
sovereign powers with regard to non-parties, except by establishing parallel sets of laws
applicable to parties and non-parties, or by explicitly providing for limits in their domestic laws
as to how discretion may be exercised towards parties. There is absolutely no indication in the
WTO Agreement or its annexes that Members agreed to this degree of interference with the
exercise of national sovereignty.
4.285 In response to a question posed by the Panel, the United States further agues that no
distinction can or should be made between different types of discretionary legislation for
purposes of determining whether the mere existence of that legislation violates a Member's
WTO obligations. In either case, authorities may exercise their discretion in a manner
consistent or inconsistent with their international obligations. One may not assume that
authorities will fail to implement their international obligations in good faith.
4.286 The United States contends that leaving aside the fact that it may not be assumed that a
Member will fail to act in good faith to comply with its obligations, it would be impossible to
distinguish "good" and "bad" discretionary legislation. The Panel's question implies that it may
be possible to distinguish based on whether the legislation provides for general, non-specific
discretion to achieve certain goals, rather than discretion not to undertake a specified course of
action which would violate a country's international obligations. However, if this were the test,
it could lead to the odd result that legislation providing for broad discretion could not be
reviewed as such even if authorities repeatedly exercise their discretion in a WTO-inconsistent
manner, while legislation providing for discretion not to take WTO-inconsistent action could be
found inconsistent even if authorities always exerci se that discretion so as to be consistent with
their WTO obligations.
4.287 The United States further points out that on the other hand, if the means of
distinguishing discretionary legislation were based on whether there were a pattern of exercising
that discretion in a WTO-inconsistent manner, as the European Communities suggests, this
would present other problems. For example, the first requirement of any such test would be that
a particular incident could not be included in the pattern unless there were panel or Appellate
Body findings of a violation with respect to that incident. Complaining parties could not merely
assert that violations had taken place in the past, and panels could not merely accept these
assertions. However, if no such findings exist, the panel could itself make these findings only if
the subject matter of each incident were within the panel's terms of reference, and involved a
violation of a covered agreement.
219 Moreover, incidents occurring prior to entry into force of
the covered agreements – before 1995 – could not be considered as part of the "pattern".
4.288 The United States adds that such a "pattern of conduct" test would imply a presumption
that a Member will not comply with its WTO obligations. If experience under the WTO
Agreement has established any pattern, it is that the European Communities has persistently
failed to comply with its obligations with respect to its banana import regime, and any
presumption of non-compliance could be expected to apply in this case. Yet, as noted above, in
the Article 21.5 proceedings in the Bananas dispute and again in its recent proposal to amend
DSU Articles 21, 22 and 23, the European Communities has taken the position that there is a
presumption of compliance in all WTO procee dings, even in Article 21.5 proceedings.
Article 21.5 proceedings will only take place if there is a disagreement on the existence or
consistency of measures taken to implement DSB rulings or recommendations, in other words
if, after the DSB has at least once already adopted findings that a Member has violated its WTO

219 See DSU, Article 7.

obligations, there remain doubts as to whether the Member has fulfilled its commitment
pursuant to Article 21.3 to bring its measure into compliance. Nevertheless, even under these
circumstances (and in the Bananas dispute, the DSB rulings had been preceded by adverse
rulings by two GATT panels), the European Communities insists that there remains a
presumption that a Member is complying with its obligations. It is difficult to square this
position with one suggesting that, after a pattern of violations has been demonstrated, one may
assume that a Member will violate its obligation to implement in good faith.
4.289 The United States goes on to state that in addition, in order to find a pattern of conduct,
it would be necessary to define a "pattern". How many actions inconsistent with WTO rules
would establish such a pattern? Moreover, if such a pattern were established and a violation
found, how could a Member bring itself into compliance? For example, if the EC's pattern of
violating its international obligations in connection with its banana import regime were
sufficient to establish that the Treaty of Amsterdam authority for this regime is WTO-
inconsistent, would the European Communities have to amend its Treaty authority to preclude
any further WTO violations?
4.290 In the view of the United States, all of this illustrates the complexity of this issue. It is a
proper subject of debate in the DSU Review, since any change from current practice would
require an amendment under Article X of the WTO Agreement or interpretation under
Article IX of the WTO Agreement. In that connection, the United States again notes that the
European Communities has in those discussions c onceded that there currently is a distinction
between mandatory and discretionary legislation in GATT/WTO jurisprudence and practice, by
offering a proposal to "remove the current distinction between discretionary and mandatory
measures",
220 thereby making it possible to establish the WTO-incompatibility of discretionary
measures.221
4.291 In rebuttal, the European Communities argues that according to consistent GATT
1947 practice, a law that mandates a measure inconsistent with an obligation under the GATT is
deemed to be inconsistent with that obligation even if it has not yet been applied. The GATT
1947 panels were of the view that the objective of predictability could not be achieved if a
GATT 1947 contracting party adopted domestic legislation stipulating actions at variance with
its obligations.
4.292 The European Communities asserts that even in applying the standard developed by the
GATT 1947 panels,
 the obligations of the United States set out in Article 23 of the DSU and
Articles I, II, III, VIII and XI of the GATT 1994 are violated by Sections 301-310 because they
mandate the executive authorities of the United St ates to act inconsistently with these DSU and
GATT provisions.
4.293 In the view of the European Communities, the United States recognises that
Sections 301-310 must meet the standard developed under GATT 1947 practice. Its principal
argument is that Sections 301-310 do not require the USTR to determine that a WTO Member is
denying the United States' rights under a WTO agreement or is failing to implement DSB
recommendations. In its view, Sections 301-310 therefore do not "preclude" WTO-consistent
action and are consequently not mandatory within the meaning of the GATT 1947 practice.

220 Review of the Disput e Settlement Understanding , Non-Paper by the European Communities
(Oct. 1998) (US Exhibit 12)(emphasis added); see also , Review of the DSU, Note by the Secretariat,
Compilation of Comments Submitted by Members – Rev. 3 (12 December 1998) (US Exhibit 12).
221 Ibid.

4.294 According to the European Communities, the United States further claims that the
USTR is not required to determine that United States' rights under a WTO agreement are being
denied and that a failure to implement DSB recommendations occurred and that, consequently,
Sections 301-310 do not mandate determinations inconsistent with Article 23 of the DSU.
However, these determinations must be based on the investigation initiated by the USTR under
Section 302 or the monitoring conducted by the USTR under Section 306(a).
(b) Arguments specific to distinction between mandatory law and discretionary law
4.295 The European Communities is of the view that the US arguments are based on a
misinterpretation of the legal standard developed by GATT 1947 panels.
4.296 In the view of the European Communities, under the GATT 1947, the United States
maintained provisions of its countervailing duty law, pre-dating the provisional application of
the GATT 1947, that required its executive authorities to impose countervailing duties without
an injury criterion, which was inconsistent with Article VI of the GATT. The United States
consistently claimed that these provisions constitute mandatory legislation, even though the
executive authorities of the United States could theoretically have acted consistently with
Article VI by not making the affirmative determinations required for the imposition of
countervailing duties. The GATT Panel on United States - Denial of Most-Favoured-Nation
Treatment as to Non-Rubber Footwear from Brazil endorsed the US claim and considered on
this basis that part of the relevant US legislation, i.e. Section 303 of the Tariff Act of 1930, was
covered by the "existing legislation" clause of the GATT Protocol of Provisional Application.
222
4.297 The European Communities points out that the United States countervailing duty law
that was at issue in that case is comparable to Sections 301-310 to the extent that it also required
the executive to make a negative or affirmative determination on the basis of specified factual
criteria and mandated a GATT-inconsistent action if the determination was affirmative.
4.298 The European Communities further notes that the fact that the countervailing duty
legislation did not preclude GATT-consistent action because there was the possibility for the
USTR to determine that there was no basis to impose countervailing duties did not, in the view
of United States and the GATT 1947 panel, turn this legislation into discretionary legislation.
4.299 The European Communities is thus of the view that this conclusion was compelled by
the fact that there was no basis under the US countervailing duty law to exercise the discretion
available under it for the purpose of avoiding inconsistencies with the provisions of Article VI
of the GATT 1947 on injury findings. In addition, such an exercise of the discretion would have
frustrated the objectives pursued by the US law.
4.300 The European Communities argues that as for the US countervailing duty law, the mere
fact that Sections 301-310 provide for the possibility to determine that rights of the United
States have not been denied and no failure to implement DSB recommendations has occurred
and that these provisions therefore do not "preclude" WTO-consistency does not turn them into
discretionary legislation: the discretion in making determinations was not given to the USTR to
ensure the WTO-consistency but only to the limited effect to take into account the results of her
investigations under Section 302 or the monitoring of implementation under Section 306(b),
which constitute the compelling basis of her decisions.

222 Panel Report on Brazilian Non-Rubber Footwear, op. cit., para. 2.3.

4.301 In rebuttal, the United States points out that the European Communities appears to be
unwilling to go so far as Hong Kong in disc arding the distinction between mandatory and
discretionary legislation. Further, the European Communities opposes the notion that
discretionary legislation must include explicit language limiting that discretion so as to
"preclud[e] WTO inconsistent actions". 223 The European Communities thus rejects Hong
Kong's argument that legislation which allows for "a potential deviation" from WTO obligations
is WTO-inconsistent.224 Indeed, the European Communities would have significant difficulty
complying with such an obligation to avoid "p otential deviations". Having recognised the
danger to the WTO system of embarking upon such an interpretation, the European
Communities nonetheless seeks a case-specific, results-driven approach to the definition of
"mandatory" to ensure that Sections 301-310 be found mandatory. The EC's approach denies
the meaning of GATT/WTO jurisprudence based on the spurious claim that these cases relied
on the now inapplicable Protocol of Provisional Application, and argues that the term
"mandatory" – and the language of Sections 301-310 – must be interpreted by reference to a
new-found obligation to avoid uncertainty and to ensure "security and predictability".
4.302 The United States argues that the European Communities clearly and correctly sets forth
the distinction between discretionary and mandatory legislation in its panel request: legislation
is mandatory, and actionable, if it "does not allow" a Member's authorities to comply with its
WTO obligations.
225 Having offered this clear formulation and using it as the basis for its
analysis, the European Communities now appears to realize that Sections 301-310 do, indeed,
allow the United States to comply with DSU rules and procedures in every case. The European
Communities therefore attempts to walk away from its earlier formulation, arguing that the
United States overstates the conclusion of GATT and WTO panel reports when it points out that
laws are not inconsistent with WTO obligations when those laws do not preclude compliance, or
may reasonably be interpreted to permit compliance .
4.303 In the view of the United States, to say that a law "does not allow" WTO-consistent
action is no different than saying that the law "precludes" such action. A law allows authorities
to comply with their WTO obligations if, under domestic law, there is an interpretation of that
law which permits WTO-consistent action. The US formulation follows directly from that set
forth by the European Communities. Moreover, it is solidly grounded in GATT/WTO
jurisprudence and applicable international practice in construing national and international law.
4.304 The United States argues that several statements from the panel reports it cited
demonstrate the clear line drawn between mandatory and discretionary legislation. In US –
Tobacco, the panel found against the complaining party because it had "not demonstrated that
[the US law at issue] could not be applied in a [GATT-consistent] manner".
226 In other words,
the complaining party had not demonstrated that the law precluded authorities from complying
with their GATT obligations. Moreover, the Tobacco panel's finding turned on the fact that the
term "comparable" in the US legislation was "susceptible of a range of meanings", including

223 The United States quotes the EC following argument: "[I]t would be inappropriate to interpret
Article XVI:4 of the WTO Agreement so extensively as to require WTO Members to include specific
language in their domestic law precluding WTO-inconsistent action".
224 The United States points out, according to the European Communities, "[T]his does not mean
that all domestic law that does not preclude WTO inconsistent measures and thus provides for the
possibility of actions deviating from WTO law (a "potential deviation") is WTO inconsistent".
225 See EC Panel Request, Circulated on 2 February 1999 as document WT/DS152/11.
226 Panel Report on US – Tobacco, op. cit., para. 123. (emphasis added)

one which permitted GATT-consistent action. 227 T h e US – Tobacco panel report thus rests
squarely on a finding that the burden is on the complaining party to demonstrate that domestic
law does not allow an interpretation permitting a party to comply with its international
obligations.
4.305 The United States further contends that likewise, in US – Superfund , the panel found,
"since the Superfund Act also gives [US authorities] the possibility to avoid the need to impose
[a GATT-inconsistent penalty] tax by issuing regulations [not yet issued or drafted], the
existence of the penalty rate provisions as such does not constitute a violation of the United
States obligations under the General Agreement".228 It is difficult to conceive of any reading of
this finding other than that drawn by the United States, namely, that a law which provides for
the possibility of GATT-consistent action provides authorities with adequate discretion to
comply with their GATT/WTO obligations. Again – unlike Sections 301-310 – the Superfund
Act explicitly provided for a GATT-inconsistent tax; yet the panel found it sufficient that the
statute also provided for the possibility that authorities might
 take action in the future that would
be GATT-consistent. The panel did not assume that they would not.
4.306 The United States also points out that similarly, in Thai – Cigarettes , the panel was
unfazed by a provision in the statute explicitly authorizing a tax which would, if implemented,
have constituted a violation of Thailand's GATT obligations. The panel concluded that "the
possibility that the Tobacco Act might be applied contrary to Article III:2 was, by itself, not
sufficient to make it inconsistent with the General Agreement".
229 Again, the possibility of
deviation from a party's international obligations does not render mean that law is WTO
inconsistent. To the contrary, the very fact that there is a possibility of compliance is dispositive
of whether the law is discretionary, and its mere existence is not a WTO violation. If the law
permits a party to comply with its international obligations, it must be assumed that it will.
4.307 The United States is of the view that all of these GATT findings are consistent with the
ordinary meaning of "mandatory", which is "obligatory in consequence of a command,
compulsory".230 If a law does not make it compulsory for authorities to act so as to violate their
international obligations, that law may not be said to command such action. This can be
illustrated through a simple example. A law which provides, "the Trade Representative shall
take a walk in the park on Tuesdays, unless she chooses not to" does not oblige the USTR to
walk in the park on Tuesdays. She has complete discretion not to take a walk in the park on
Tuesdays; the law in no way obliges or commands her to do so. This remains true despite the
use of the word "shall" in that law.
4.308 The United States maintains that the clear distinction in GATT/WTO jurisprudence
between discretionary and mandatory legislation is also consistent with general international
practice in interpreting domestic legislation in light of international law, and of US practice in
particular. Under the principles set forth in India - Patents (US), the relevant facts of this case
are to be found in US municipal law, which includes not only the language of Sections 301-310,
but also how those provisions would be interpreted under US law. 231 It is both general
international practice and that of the United States that statutory language is to be interpreted so

227 Ibid.
228 Panel Report on US – Superfund, op. cit., para. 5.2.9. (emphasis added)
229 Panel Report on Thai – Cigarettes, op. cit., para. 86.
230 The New Shorter Oxford English Dictionary, at 1683 (1993).
231 Appellate Body Report on India – Patents (US), op. cit., para. 65.

as to avoid conflicts with international obligations. There is thus a presumption against a
conflict between international and national law. In general,
"[A]lthough national courts must apply national laws even if they conflict with
international law, there is a presumption against the existence of such a conflict.
As international law is based upon the common consent of the different states, it
is improbable that a state would intentionally enact a rule conflicting with
international law. A rule of national law which ostensibly seems to conflict
with international law must, therefore, if possible always be so interpreted as to
avoid such conflict".
232
4.309 The United States further notes that in US law, it is an elementary principle of statutory
construction that "an act of Congress ought never to be construed to violate the law of nations if
any other possible construction remains". Murray v. Schooner Charming Betsy , 6 U.S. (2
Cranch) 64, 118 (1804). While international obligations cannot override inconsistent
requirements of domestic law, "ambiguous statutory provisions . . . [should] be construed,
where possible, to be consistent with international obligations of the United States". Footwear
Distributors and Retailers of America v. United States , 852 F. Supp. 1078, 1088 (CIT), appeal
dismissed, 43 F.3d 1486 (Table) (Fed. Cir. 1994), citing DeBartolo Corp. v. Florida Gulf Coast
Building and Trades Council, 485 U.S. 568 (1988).
4.310 In the view of the United States, GATT jurisprudence distinguishing between
mandatory and discretionary legislation does no more than apply the general practice of nations,
including the United States, that there is a pr esumption against conflicts between national and
international law. If a law provides discretion not to violate international obligations, there is a
presumption that domestic authorities will interpret that law so as to avoid a conflict with those
obligations. Likewise, this presumption may be seen as underlying the US – Tobacco panel's
finding that a domestic law susceptible of multiple interpretations would not violate a party's
international obligations so long as one possible interpretation permits action consistent with
those obligations.
233
4.311 The United States explains that the manda tory/discretionary distinction in GATT/WTO
jurisprudence is clear and unequivocal: a law which allows WTO-consistent action is not
WTO-inconsistent. The EC's attempt to qualify this principle to satisfy its political objectives
would have the Panel presume bad faith on the part of the United States in its observance of its
international obligations. Such a presumption wo uld clearly be contrary to this jurisprudence
and to the international practice underlying it.
4.312 In support of its argument, the United States refers to the text of DSU Article 23.2(a).
That Article deals with "determinations to the effect that a violation has occurred". It prohibits
Members from making these determinations without following DSU rules and procedures, and
these determinations must be consistent with findings in panel and Appellate Body reports
adopted by the DSB.
4.313 In the view of the United States, there is no "determination to the effect that a violation
has occurred" before the Panel in this case. The European Communities does not challenge a
determination which has actually been made. It is therefore not possible to analyze whether
such a determination meets the requirements of Article 23.2(a). One cannot say whether, in

232 Oppenheim's International Law, 9th ed., at 81-82 (footnote omitted).
233 Panel Report on US – Tobacco, op. cit., para. 123.

making such a determination, the United States followed DSU rules and procedures, nor
whether the United States made a determination consistent with DSB-adopted findings. Neither
the findings nor the determination exist.
4.314 The United States asks how the Panel can perform its analysis under these
circumstances. In the absence of a concrete determination, how is it possible to know whether a
Member has breached its obligations under Article 23.2(a)? It is not permissible to speculate
about how the Member will make its determination in the future. It is not permissible to look at
determinations made in the past which are not within the terms of reference. It is not
permissible to assume that certain Members are not to be trusted. It is not permissible to assume
that they will act in bad faith. Under these circumstance, must the conclusion be that without a
concrete determination, there can be no violation of Article 23.2(a)?
4.315 The United States points out that over 10 years ago, in 1987, a GATT panel wrestled
with this type of question. It looked at a statute which would not go into effect for another three
years and asked, may a panel determine whether this law is inconsistent with a party's GATT
obligations when it is possible that the party may change the law before it goes into effect? The
panel's conclusion was that it could, but it was very careful in how it drew this conclusion. The
panel found that only if a statute commands a party's authorities to violate a specific GATT
obligation could that statute be found inconsistent with that obligation. In enacting such
legislation, the party crossed a line. It left itself with no choice but to violate its obligations,
even if only at some point in the future. Conversely, the panel found, if a statute does not
command the party's authorities to violate a specific GATT obligation, it is not possible to
conclude that the statute violates that obligation. The party may exercise its discretion so as to
comply with its international obligations. Any other conclusion would be speculation as to
whether the party will act in bad faith, speculation with no more foundation than if the statute
did not exist at all.
4.316 The United States again states that the reasoning of the Superfund panel made very
good sense. It was so good that at least five GATT panels adopted it as their own. At least
three WTO panels have also adopted it. And none of those panels in any way revised the core
question asked by the Superfund panel: does the statute command, does it mandate, a violation
of a specific agreement obligation?
4.317 The United States further argues that the Superfund analysis is not an analysis of
character. It is not necessary to examine whether the character of the Member enacting the
legislation is bad, whether that party had a WTO-inconsistent motive. Nor is it necessary to
examine whether the "character" of the legislation is bad, whether the legislation reflects an
intent to breach WTO-obligations. All that matters is whether the law commands an action
which violates a specific textual obligation. Absent such a command, the Panel is left with the
fundamental problem – there is nothing that can be said to violate a specific textual obligation.
Legislation which leaves open the possibility of a violation cannot be considered a violation,
any more than may a constitutional system which provides broad authority to act. However, by
including a specific command in legislation to violate a specific obligation, the legislation itself
becomes that violation.

(c) Arguments specific to "Security and Predictability"
4.318 The European Communities claims that the second legal standard that Sections 301-
310 must meet has been developed by two panels 234 and the Appellate Body in the India –
Patents (US) case. In this case, the Appellate Body interpreted Article 70:8(a) of the TRIPS
Agreement to require Members "to provide a legal mechanism for the filing of mailbox
applications that provides a sound legal basis to preserve both the novelty of the inventions and
the priority of the applications as of the relevant filing and priority dates".235
4.319 The European Communities contends that there was in this case no dispute that India
had a "mailbox" system based on administrative instructions in place. The dispute was on the
question whether this system rested on a legal basis in Indian law sufficiently sound to ensure
that the patent applications could not be invalidated by Indian courts.
4.320 In the view of the European Communities, one of the issues before the panel was
whether a provision in India's Patent Act requiring the rejection of certain patent applications
permitted the Patent Office to act consistently with the TRIPS Agreement by simply not acting
on the patent application.
4.321 According to the European Communities, another issue was whether, under Indian law,
the competitors of a patent applicant had the right to challenge a patent application in the courts
or whether they had to wait until the patent was actually granted.
4.322 The European Communities contends that the panel ruled against India because, based
on the evidence submitted by the parties, "it had reasonable doubts that the administrative
instructions would prevail over the mandatory provisions of the Patents Act if a challenge were
brought in an Indian court".
236 As the United States correctly stated before the Appellate Body
in this case:
"Protection of legitimate expectations of WTO Members regarding conditions
of competition is as central to trade relating to intellectual property as it is to
trade in goods that do not relate to intellectual property".237
4.323 The European Communities argues that there must consequently be a sound legal basis
in domestic law for the executive actions required to implement WTO obligations also in the
area of trade in goods.
4.324 The European Communities further points out that the India – Patents (US) Appellate
Body report sets an important precedent that should guide the resolution of the present case if
the Panel were to conclude that Sections 301-310 do not mandate WTO-inconsistent
determinations or actions.
4.325 According to the European Communities, in this case, the question would arise whether
Sections 301-310 provide the USTR with a sufficiently sound legal basis for the implementation
of the US obligations under the DSU and the GATT 1994. The European Communities submits

234 Panel Report on India – Patents (US) , op. cit. and Panel Report on India – Patent Protection
for Pharmaceutical and Agricultural Chemical Products ("India – Patents (EC) "), adopted 2 September
1998, WT/DS79/R.
235 Appellate Body Report on India – Patents (US), op. cit., para. 58.
236 Ibid., para. 74.
237 Ibid., para. 15.

that, to the extent that there is uncertainty on the mandatory nature of Sections 301-310, this
legislation does not provide a sound legal basis for the implementation of the US obligations
under the DSU and the GATT 1994 by the USTR.
4.326 The European Communities cites Professor Robert E. Hudec as writing:
"Section 301 is an intricate maze of mandatory commands in one place and
extremely wide loopholes in the other. One needs a wiring diagram to trace
whether mandatory commands given in one part will actually reach their final
target without passing through at least one discretionary exit point. Even with
the aid of such a diagram, one cannot predict actual outcomes".
238
4.327 The European Communities also points out that Professor John H. Jackson testified
before the Senate Foreign Relations Committee as follows:
"Although there are plausible ways to interpret the statutory provisions of
regular Section 301 so as to give the President discretion to act consistently
with the Uruguay Round dispute settlement rules, in a few cases, particularly in
Section 301(a) (mandatory provision) the interpretations to do this are a bit
strained …". 239
4.328 According to the European Communities, if the United States' two foremost scholars on
international trade law are unable to identify a sound legal avenue in Sections 301-310
permitting the USTR to act consistently with the DSU and the GATT 1994, nobody else can do
it.
4.329 The European Communities maintains that the legislative history of the 1988 Omnibus
Trade and Competitiveness Act, which is at the origin in particular of the present version of
Sections 301-310, demonstrates that the lack of a sound legal avenue was deliberate.
4.330 In the view of the European Communities, the United States now attempts to benefit
from the creation of this legal "maze" by clai ming that it is for the European Communities to
prove that it is not possible to interpret Sections 301-310 as permitting WTO-consistent
implementation.
4.331 The European Communities contends that the fundamental objective of the WTO -
namely to create security and predictability in international trade relations - could not be
achieved if WTO Members were permitted to maintain domestic legislation that fails to provide
the executive authorities with a sound legal basis for the measures required to implement their
WTO obligations.
4.332 The European Communities is therefore of th e view that, in a panel's examination of
whether domestic legislation stipulates WTO-inconsistent determinations or action, the
defendant should not be able to hide behind legal uncertainties arising from its own law, in
particular if these uncertainties have been deliberately created. In accordance with the approach

238 Robert E. Hudec, Thinking About the New Section 301: Beyond Good and Evil, in:. Jagdish
Bhagwati and Hugh T. Patrick, Editors , Aggressive Unilateralism. America's 301 Trade Policy and the
World Trading System (Harvester Wheatsheaf 1990), p. 122.
239 Senate Committee on Foreign Relations, Hearing on the World Trade Organization, June 14,
1994 (testimony of Professor John H. Jackson).

endorsed by the Appellate Body in India - Patents (US), a panel should rule against the
defendant if it concludes, on the basis of the evidence before it, that there is an objective (and
thus reasonable) uncertainty on whether the domestic law permits WTO-consistent
determinations or actions.
4.333 The European Communities argues that if the panel has reasonable doubts, so will
economic operators planning their future trade. No legitimate interest would be protected if
Members were entitled to retain law lacking such a basis. In fact, as the case before the Panel
demonstrates, this would be an invitation to Members to restrict trade by exposing it
deliberately to legal uncertainties.
4.334 The European Communities further contends th at each Member is required to perform
its WTO obligations in good faith. No additional policy constraint is therefore imposed on
Members by requiring them to create a sound legal basis in their domestic law for the
performance of their WTO obligations. If it is the intention of the United States to perform its
WTO obligations in the framework of the Section 301-310 procedures, why does it object to the
EC's demand to create a sound legal basis for the performance of these obligations? If the legal
uncertainties under Sections 301-310 are an expression of the contrary intention, why should
they nevertheless be considered to be a sound legal basis for a good faith performance of the
United States' WTO obligations?
4.335 In the view of the European Communities, the legal standard applicable to domestic law
that the United States defended so vigorously when Indian patent law was at issue is equally
applicable to United States trade law.
4.336 The European Communities indicates that it would be extremely regrettable if the
unjustifiably low standard for the evaluation of the WTO-consistency of domestic law that the
United States opportunistically defends in the present proceedings were to be endorsed as the
generally applicable standard. United States law should be adapted to WTO law, not vice versa.
Otherwise, the considerable legal progress of the WTO legal system endorsed by the Appellate
Body in India - Patents (US) would be lost.
4.337 The United States argues that the Statement of Administrative Action and
accompanying legislation are the definitive congressional materials with respect to the WTO-
consistency of Sections 301-310 before the adoption of the Uruguay Round Agreements Act by
the Congress. Page 360 of the Statement of Administrative Action (US Exhibits 3 and 11)
outlines the changes considered necessary to ensure compliance. In addition, the United States
directs the Panel's attention to the testimony on this topic of Professor John Jackson when he
appeared before the Senate Finance Committee.
240
4.338 The United States points out that Professor Jackson concluded that, "There may need to
be some alterations to some time limits, or transition measures, but the basic structure of 301 is
not necessarily inconsistent with the Uruguay Round results". He also concluded that even
when Section 301 is considered "in its current statutory form" (i.e. before the 1994
amendments), "the Executive appears to have the discretion to apply actions under Section 301
in a manner consistent with the proposed new rules of the Uruguay Round dispute settlement

240 Results of the Uruguay Round Trade Negotiations : Hearings Before the Senate Committee on
Finance, 103d Cong. 195 (1994) (statement of Professor John Jackson) (US Exhibit 24). The European
Communities excerpts this testimony.

understanding".241 Professor Jackson thus considered that with only minor changes, Section 301
would be clearly consistent with the WTO obligations of the United States. Moreover, his
emphasis on the fact that the Executive had adequate discretion to apply Section 301 in a WTO-
consistent manner reflects the fact that he took for granted that the reasoning applied in the
Superfund line of cases would continue to apply under the WTO.
4.339 The United States notes that Professor Jackson believed that sufficient clarity could be
provided to the interpretation of the statute through the inclusion of language in the Statement of
Administrative Action.
242
4.340 The United States further points out that the India - Patents (US) discussion of a "sound
legal basis" comes in the context of an analysis of the specific textual obligation at issue in that
case, TRIPs Article 70.8(a). This provision affirmatively requires Members to provide in their
domestic legal systems a mechanism for the filing of applications for patents which protects
their novelty and priority. India instead had on its books a law explicitly prohibiting such
applications, that is, specifically mandating a violation of India's TRIPs obligations. India
claimed that unwritten, unpublished "administrat ive instructions" never produced for the panel
took priority over the mandatory law, but the panel and Appellate Body found nothing to
support this claim. It was in this context, the context of TRIPs Article 70.8(a)'s requirement for
a domestic legal mechanism accomplishing specific ends, that the panel and Appellate Body
concluded that the "administrative instructions" failed to provide a sound legal basis. The
concept was not analyzed in the abstract as somehow derived independently of Article 70.8(a)
and, as noted, the Appellate Body reversed panel findings relating to "legitimate expectations"
generally and removal of "reasonable doubts" because these findings were not textually based.
4.341 In response to the Panel's request for clarification on the US reference to "security and
predictability" as an objective, not an obligation, the United States notes that Article 31(1) of the
Vienna Convention on the Law of Treaties provides:
"1. A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context and in
the light of its object and purpose".
4.342 The United States also notes that the Appellate Body explained the proper role of an
examination of an agreement's object and purpose in US - Shrimp as follows:
"A treaty interpreter must begin with, and focus upon, the text of the particular
provision to be interpreted. It is in the words constituting that provision, read in
their context, that the object and purpose of the states parties to the treaty must
first be sought. Where the meaning imparted by the text itself is equivocal or
inconclusive, or where confirmation of the correctness of the reading of the text
itself is desired, light from the object and purpose of the treaty as a whole may
usefully be sought".243
4.343 The United States then concludes that while the terms of an agreement are to be
examined in light of the object and purpose of the agreement, it is the ordinary meaning of those
terms which must first be analyzed in interpreting an agreement provision, and relied upon in

241 Ibid. at 200.
242 Ibid.
243 Appellate Body Report on US – Shrimp, op. cit., para. 114. (emphasis added)

applying that provision to a given set of facts. The object and purpose cannot change the
ordinary meaning of the agreement terms. Where the terms are ambiguous, and their meaning is
not clear on their face or in their context, a consideration of the object and purpose of the
agreement can be productive. However, a consideration of the object and purpose of an
agreement is secondary to, and cannot serve as substitute for, an analysis of the ordinary
meaning. Nor can an examination of the object and purpose of an agreement be made to the
exclusion of an analysis of the ordinary meaning of the agreement text.
4.344 The United States further states that in US - Shrimp the Appellate Body chastised the
panel in that case for not examining the ordinary meaning of the words of the chapeau of GATT
1994 Article XX, the chapeau's context within Article XX, or the chapeau's object and purpose,
and for instead focusing on the "object and purpose of the whole of the GATT 1994 and the
WTO Agreement".244 Just as the European Communities asks the Panel to focus on "security
and predictability", the US - Shrimp panel focused on the very same concept of security and
predictability in the context of its discussion of an overall goal of the WTO Agreement to avoid
"undermin[ing] the multilateral trading system". According to the US - Shrimp panel, "we must
determine . . . whether [the type of measure in US - Shrimp ] would threaten the security and
predictability of the multilateral trading system".245
4.345 The United States further notes that in response, the Appellate Body drew the clear
distinction between objectives and obligations that the United States is asking the Panel to
recognise again in this dispute. According to the Appellate Body:
"Maintaining, rather than undermining, the multilateral trading system is
necessarily a fundamental and pervasive premise underlying WTO Agreement;
but it is not a right or obligation, nor is it an interpretive rule which can be
employed in the appraisal of a given measure under the chapeau of
Article XX".246
4.346 According to the United States, just as maintaining the multilateral system is a premise
– an objective – underlying the WTO Agreement as a whole, "security and predictability" are
explicitly set forth in Article 3.2 as a premise, an objective, underlying the DSU: "The dispute
settlement system of the WTO is a central element in providing security and predictability to the
multilateral trading system".
247 Security and predictability are thus the objective which the DSU
itself helps to achieve.
4.347 In the view of the United States, to put this in its most fundamental terms, Article 3.2
does not state "Members shall provide security and predictability to the multilateral trading
system". This would impose an obligation. Rather, Article 3.2 states, the DSU is a central
element in providing security and predictability to the multilateral system. In other words, the
DSU is premised on the need for security and predictability, and itself helps to provide it.
4.348 The United States points out that the European Communities does not claim that
Sections 301-310 are inconsistent with Article 3.2 precisely in recognition of the fact that it does

245 Panel Report on US - Shrimp , op. cit., para. 7.44 (underlining added), quoted in Appellate
Body Report on US - Shrimp, op. cit., para. 112.
246 Appellate Body Report on US - Shrimp, op. cit., para. 116 (underlining added).
247 DSU Article 3.2 (emphasis added).

not impose an obligation to provide security and predictability. However, neither does DSU
Article 23 impose such an obligation.
4.349 The European Communities stresses that the US comparison of this case with the US
- Shrimp case is incorrect. The legal error which the panel committed in that case was that it
formulated a broad standard or an a priori test which found no basis in the text 248 of the Treaty.
By contrast, in the present case, the Panel's task is to provide an interpretation of the text of
several provisions of the WTO agreements (i.e. Article 3.2 of the DSU, Article XVI:4 of the
Marrakech Agreement, Article 23 of the DSU).
4.350 The United States challenges the EC claim that while US – Shrimp involved a panel
formulating a new, broad test which found "no basis in the text of the Treaty", the EC proposal
in this case for a new, broad test involves "an interpretation of the text of several provisions".
However, as explained earlier, there is no basis in the text of any of these provisions to conclude
that Article 23 imposes an obligation to provide "security and predictability". The situation is
thus precisely analogous to that in US – Shrimp, and the EC’s proposal to create new obligations
must be rejected for the same reasons.
4.351 In response to the Panel's further question whether providing "security and
predictability" to other Members in respect of avoiding determinations and actions prohibited
under Article 23 of the DSU – read in light of Article 3.2 of the DSU and Article XVI:4 of the
WTO Agreement – is part of the legal obligation imposed in Article 23, the United States
indicates that providing security and predictability to other Members is not part of the obligation
set forth in DSU Article 23. Rather, the obligation set forth in DSU Article 23 itself helps to
provide that security and predictability. Any reading of Article 23 which creates an obligation
to provide security and predictability would repeat the error of the panel in US - Shrimp.
4.352 In the view of the United States, the consideration of the object and purpose of an
agreement cannot serve as a substitute for an analysis of the ordinary meaning. Even worse
would be the consideration of the object and purpose of an agreement to the apparent exclusion
of an analysis of the ordinary meaning of the te xt of an agreement provision. Yet that is what
the European Communities asks the Panel to do. Without regard to the ordinary meaning to be
ascribed to the term "determination to the effect that a violation has occurred", read in the
context of requirements in Article 23.2(a) applicable to that specific type of determination, the
European Communities instead asks this Panel to find an obligation "to provide security and
predictability", and to analyze whether the very act of making a determination would breach this
new-found obligation.
4.353 The United States notes that DSU Article 23.2(a) does not state, "Members shall
provide security and predictability". Nor does this provision even state, "Members should
provide security and predictability". Nor does Article 23.2(a) state, "Members shall/should
make determinations so as to provide security a nd predictability", or "so as to avoid insecurity
and unpredictability". The WTO Members agreed to none of these formulations. They agreed
that they "shall not make determinations to the effect that a violation has occurred" unless
specified conditions have been met. That is all they agreed to. Nowhere does the term "security
and predictability" appear in Article 23, nor is Article 3.2 cross-referenced. Like the rest of the
substantive obligations of the WTO Agreement, the provisions of DSU Article 23 itself,
enforced through the dispute settlement system, help to provide security and predictability.

248 Appellate Body Report on US – Shrimp, op. cit., para. 121.

4.354 The United States claims that the ordinary meaning of the words of Article 23.2(a) are
that it relates only to certain determinations, that is, "determinations to the effect that a violation
has occurred". As Brazil and Canada have noted, it does not apply to determinations that a
violation has not occurred, or even to determinations that a violation of a non-WTO agreement
has occurred. Nothing in the ordinary meaning of "determination to the effect that a violation
has occurred" would permit a panel to examine such other determinations against the
requirements of Article 23.2(a), or to examine the very act of making determinations generally.
4.355 In the view of the United States, likewise, nothing in the ordinary meaning of
Article 23.2(a)'s requirements permits an analysis of whether the very act of making
determinations harms "security and predictability". Article 23.2(a) imposes the requirement that
a determination to the effect that a violation has occurred not be made without recourse to
dispute settlement "in accordance with the rules and procedures" of the DSU, and the
requirement that any such determination be consistent with DSB-adopted findings. Nothing in
the ordinary meaning of the language setting forth these requirements imposes an additional,
independent requirement to provide "security and predictability". There is no "rule" of the DSU
which requires that security and predictability be provided. Again, Article 3.2 states that the
rules themselves help to provide security and predictability.
4.356 The United States further considers that an examination of Article 23.2(a)'s context
supports the conclusion to be drawn from an examination of the ordinary meaning of its
language. The immediate context of Article 23.2(a) is provided by paragraphs (b) and (c) and
by Article 23.1. Like paragraph (a), paragraphs (b) and (c) impose requirements to follow DSU
procedures when undertaking dispute settlement proceedings or when taking action. The
references in these provisions are to specific DSU requirements which must be met, just as
paragraph (a) refers to following DSU rules and procedures and to DSB adopted panel and
appellate body findings. Similarly, Article 23.1 requires recourse to DSU rules and procedures,
none of which impose a separate obligation to provide security and predictability. There is thus
nothing in the context of Article 23.2(a) which supports the notion that there is an independent
obligation to provide security and predictability in making determinations generally.
4.357 The United States argues that given the fact that nothing in "the meaning imparted by
the text itself[, read in its cont ext,] is equivocal or inconclusive",249 there is no need to examine
the object and purpose of Article 23.2(a). However, such an examination confirms the meaning
yielded by the ordinary meaning of the language of that provision. To avoid the mistake of US -
Shrimp,250 it is necessary to look to the object and purpose of Article 23, which is "strengthening
the multilateral system". It does nothing to strengthen the multilateral system to restrict
determinations that a violation has not occurred, or to restrict determinations not relating to
WTO agreement rights and obligations. Looking to the broader purpose of providing "security
and predictability" to the multilateral trading system, security and predictability is affirmatively
harmed when the text of agreement provisions may be disregarded and new obligations created
out of thin air.
4.358 The United States further maintains that th e obligations set forth in DSU Article 23,
enforced through the dispute settlement system, thus themselves help to provide the security and
predictability referred to in Article 3.2. The ordinary meaning of the language of Article 23,

249 Appellate Body Report on US - Shrimp, op. cit., para. 114.
250 See ibid., para. 116 (criticizing the panel for examining the objectives of the WTO Agreement
as a whole (maintaining the multilateral trading system) rather than the object and purpose of the chapeau
to Article XX).

read in its context, is unambiguous that there is no separate obligation imposed by that article to
provide security and predictability.
4.359 The European Communities states the US argument based on the assertion that
nowhere do the terms "'security and predictability' appear in Article 23, nor is Article 3.2 cross-
referenced", is both new and incorrect. All th e provisions of the DSU, including of course
Article 23, must be read in the light of Article 3.2 of the DSU which informs the interpretation
of the obligations of the WTO Members contained in the more detailed provisions. In fact,
Article 3.2 of the DSU is part of the "General Provisions" contained in Article 3 and thus is
applicable throughout the whole dispute settlement understanding without the need for cross-
references in each and every Article.
4.360 The United States rebuts the EC claim that Article 3.2 is a general provision,
applicable throughout the whole dispute settleme nt proceeding. However, as noted earlier,
Article 3.2 does not set forth an obligation to provide security and predictability. Instead,
Article 3.2 explains that the dispute settlement system itself provides security and predictability.
The general applicability of this explanation does not create an obligation
 under Article 23.2(a)
to provide security and predictability. However, Article 3.2 does, in fact, impose a generally
applicable obligation – on panels: not to add to or diminish the rights and obligations under the
covered agreements. This provision mandates that the Panel reject the EC’s proposal to add a
new obligation not found in the text of the WTO Agreement.
(d) Arguments specific to WTO Agreement Article XVI:4
4.361 The European Communities also argues that the third legal standard that domestic
law must meet is set out in Article XVI:4 of the Marrakech Agreement according to which
"each Member shall ensure the conformity of its laws, regulations and administrative procedures
with its obligations [under the WTO agreements]".
4.362 The European Communities contends that by creating a new type of obligation that goes
beyond the commitments under the GATT 1947, this specific provision governing domestic law
sets without any doubt a standard more demanding than the standards that Members' domestic
law must meet under the WTO practice in order to ensure a good faith implementation of their
substantive obligations in accordance with principles codified in Articles 26 and 27 of the
Vienna Convention on the Law of Treaties.
4.363 The European Communities then concludes that this third legal standard would
therefore need to be considered by the Panel onl y if, and to the extent that, it were to conclude
that Sections 301-310 do not mandate WTO-inconsistent determinations or actions and provide
a sound legal basis for the implementation of the United States' WTO obligations.
4.364 The European Communities argues that the United States claims, without any
supporting arguments, that "Sections 301-310 are not inconsistent with Article XVI:4 because
they do not mandate action in violation of any provisions of the DSU or GATT 1994, nor do
they preclude action consistent with those provisions".
4.365 The European Communities recalls that Article XVI:4 of the Marrakech Agreement
requires a positive action by the WTO Member ensuring the conformity of its entire domestic
law. The distinction between legislative and executive actions is not made in this provision. It
covers also regulations and administrative procedures, which can typically be adopted and
modified by the executive branch of the government. The question of whether the domestic law

mandates the executive authorities to take WTO-inconsistent measures is therefore irrelevant
under Article XVI:4.
4.366 The European Communities further maintains that moreover, if Article XVI:4 were
interpreted to merely impose the requirements that arise already under the Vienna Convention
on the Law of Treaties, it would be redundant. As the Appellate Body recognised in the US-
Gasoline case,251 interpretations rendering whole clauses of a treaty redundant are however not
permitted under the principles of interpretations set out in the Vienna Convention on the Law of
Treaties (Articles 31 and 32).
4.367 The European Communities alleges that the Un ited States' reading of Article XVI:4 of
the Marrakech Agreement is therefore clearly in compatible with the ordinary meaning to be
given to its terms in their context and in the light of the object and purpose of the WTO
Agreement to ensure security and predictability in international trade relations.
4.368 In the view of the European Communities, one of the important tasks before this Panel
is to give meaning to the terms "ensure" and "conformity" in Article XVI:4. The principles of
interpretation set out in the Vienna Convention require the Panel to interpret these terms in good
faith in accordance with the ordinary meaning to be given to them in their context and in the
light of the object and purpose of the WTO Agreement.
4.369 The European Communities points out that the ordinary meaning of the term "ensure" is
to "make certain". The ordinary meaning of the term "conformity" is, firstly, "action or
behaviour in accordance with established practice; compliance" and, secondly, "correspondence
in form or manner, likeness, agreement" (Oxford).
4.370 The European Communities repeats its argument that Article XVI:4 must be interpreted
to impose requirements with respect to domestic law additional to the requirements that arise
already from the substantive WTO obligations themselves. This is achieved if Article XVI:4 is
interpreted to stipulate a "correspondence, likeness or agreement" between domestic law and the
relevant WTO obligations.
4.371 In the view of the European Communities, the terms "ensure" and "conformity", taken
together in their context, therefore indicate that Article XVI:4 obliges Members not merely to
give their executive authorities formally the ri ght to act consistently with WTO law, but to
structure their law in a manner that "makes certain" that the objectives of the covered
agreements will be achieved.
4.372 The European Communities notes that one basic objective of WTO law is to strengthen
the multilateral system. Another basic objective is to obtain greater legal certainty in
multilateral trade relations.
4.373 The European Communities claims that a do mestic law, regulation or administrative
procedure whose structure, design and architecture is specifically framed to create uncertainty
for the trade with other WTO Members could therefore never be deemed to ensure conformity
with WTO law.

251 Appellate Body Report on United States – Standards for Reformulated and Conventional
Gasoline ("US - Gasoline"), adopted 20 March 1996, WT/DS2/AB/R.

4.374 The European Communities further argues that the participants in the Uruguay Round
expected the United States not only to commit itself to refrain from unilateral action but also to
bring its domestic law into conformity with that commitment. One of the earliest texts on
dispute settlement submitted on 19 October 1990 by Mr. Julio Lacarte-Muró, Chairman of the
Negotiating Group on Dispute Settlement, contained the following provision:
"The contracting parties shall:
(i) abide by GATT dispute settlement rules and procedures;
(ii) abide by the recommendations, rulings and decisions of the
CONTRACTING PARTIES;
(iii) not resort to unilateral action inconsistent with GATT rules and
procedures; and
(iv) for the purpose of (iii), undertake to adapt their domestic trade
legislation and enforcement procedures in a manner ensuring the conformity of
all measures with GATT dispute settlement procedures".
4.375 The European Communities goes on to state that subsequent drafts of the DSU no
longer contained a provision on the adaptation of domestic legislation. However, a provision to
that effect was included in the proposed draft Agreement Establishing the Multilateral Trade
Organisation. Article XVI:4 of this draft Agreement stated:
"The Members shall endeavour to take all necessary steps, where changes to
domestic laws will be required to implement the provisions of the agreements
annexed hereto, to ensure the conformity of their laws with these
agreements".
252
4.376 The European Communities points out that in an informal note to the Legal Drafting
Group, the Secretariat noted:
"Under general international law, a party to a treaty may not invoke the
provisions of its internal law as justification for its failure to perform a treaty
and according to several GATT panels, laws mandating action inconsistent with
the General Agreement constitute themselves violations of the General
Agreement, whether or not such action has been taken. This paragraph would
therefore provide for a lesser level of obligation under the Multilateral Trade
Agreements than that provided for under the current GATT".
253
4.377 The European Communities further notes that the final version of Article XVI:4 was
therefore drafted not as a "best-endeavours" clause, applicable only to cases where changes to
domestic laws are required, but as an unqualified obligation:

252 Informal note by the Secretariat "Draft Agreement Establishing the Multilateral Trade
Organisation" (No. 462, dated 12 March 1992), page 26.
253 Ibid.

"Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed
Agreements".
4.378 The European Communities explains that the Tokyo Round agreements on government
procurement, subsidies, licensing procedures, civil aircraft and anti-dumping each contained
provisions similar to Article XVI:4. 254 These provisions were taken over into the final
provisions of the corresponding WTO agreements, but not however into the GATT 1994, the
GATS or the DSU.
255 The effect of Article XVI:4 is to extend the explicit requirement of the
WTO-conformity of domestic law to all agreements and legal instruments in Annexes 1, 2 and 3
of the WTO Agreement, including the DSU. 256
4.379 The United States points out that the EC's claims with respect to the GATT 1994 and
WTO Agreement Article XVI:4 each rely on the assumption that the EC's claims with respect to
DSU violations are correct. For example, there can be no violation of GATT 1994 if the United
States takes no action and, for the reasons already discussed, one cannot assume that
Sections 301-310 require such action. Moreover, it cannot be assumed that any action taken
pursuant to Sections 301-310 would not be preceded by DSB authorization.
4.380 The United States argues that with respect to WTO Agreement Article XVI:4, it is
important to recognise that a measure must first violate some other WTO commitment in order
to violate Article XVI:4. The ordinary meaning of the text of this provision makes this clear:
"Each Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements". If those laws,
regulations and administrative procedures conform with the obligations in the annexed
agreements, including the DSU, there is no violation of Article XVI:4. The European
Communities may not assume that Sections 301-310 violate the DSU for the purpose of finding
a violation of Article XVI:4.
4.381 The United States points out that Article XVI:4 of the WTO Agreement provides:
"Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed
Agreements".
4.382 The United States argues that nothing in this provision suggests, let alone dictates, the
redefinition of the concept of mandatory legislation as proposed by the European Communities.
The meaning of the text of Article XVI:4 is straightforward: if a Member's law, regulation, or
administrative procedure does not conform with its obligations as provided in the annexed
Agreements, that Member has an affirmative obligation to bring it into conformity. Conversely,

254 The European Communities refers to Article IX.4(a) of the Agreement on Government
Procurement, Article 19.5(a) of the Agreement on Interpretation and Application of Article VI, XVI and
XXIII, Article 5.4 (a) of the Agreement on Import Licensing Procedures, Article 9.4.1 of the Agreement
on Trade in Civil Aircraft, and Article 16.6(a) of the Agreement on Implementation of Article VI.
255 The European Communities refers to Article XXIV.5(a) of the Agreement on Government
Procurement, Article 32.5 of the Agreement on Subsidies and Countervailing Measures, Article 8.2(a) of
the Agreement on Import Licensing Procedures, Article 9.4.1 of the Agreement on Civil Aircraft, and
Article 18.4 of the Agreement on the Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994.
256 The European Communities refers to Article II.1 of the WTO Agreement.

however, if those laws, regulations and administrative procedures conform with its obligations,
it need undertake no further action.
4.383 The United States claims that Article XVI:4 does not in any way provide that the
definition of "mandatory legislation" may now include "certain discretionary legislation". Nor
does Article XVI:4 create a "new legal environment" which would permit substantive
obligations to be created out of whole cloth.
4.384 The United States notes that the European Communities suggests that Article XVI:4's
inclusion of regulations and administrative procedures as well as laws is part of this "new legal
environment". According to the European Co mmunities, "[t]he distinction between law that
binds the executive authorities and law that can be modified by them is thus no longer relevant".
This EC distinction is baseless. Regulations and administrative procedures have always been
subject to the rules of the GATT 1947, 257 and there is absolutely nothing extraordinary about
their inclusion in Article XVI:4. The obligation with respect to regulations and administrative
procedures is the same as that for laws: if they are not in conformity with the Member's WTO
obligations under the covered Agreements, they must be brought into conformity. However, if
they are in conformity, they need not be changed.
4.385 The United States goes on to state that the European Communities also claims that the
inclusion of the word "ensure" in Article XVI:4 means that laws must be structured in a manner
that "makes certain" that "the objectives of the covered agreements will be achieved". As
discussed above, the objectives of the covered agreements are reflected in their text, and in any
event "objectives" are not themselves "obligations". One may not depart from the text on the
basis of fanciful, results-driven constructions of agreement objectives. A Member may "ensure"
that its laws, regulations and administrative procedures are in compliance with its obligations
through any number of means:
"From the standpoint of international law states are generally free as to the
manner in which, domestically, they put themselves in the position to meet their
international obligations; the choice between the direct reception and
application of international law, or its transformation into national law by way
of statute, is a matter of indifference, as is the choice between the various forms
of legislation, common law, or administrative action as the means for giving
effect to international obligations. These are matters for each state to determine
for itself according to its own constitutional practices".
258
4.386 The United States indicates that one of those means by which a Member may ensure
conformity with its obligations is to ensure that the Member's authorities have adequate
discretion to comply with the Member's obligations. This notion lies at the heart of the doctrine
of the non-actionability of discretionary legislation reflected in the consistent, unmodified
GATT and WTO practice in this area. As Japan noted in responses to the Panel's questions,
"laws are not inconsistent with WTO rules when … discretion [to comply with WTO
obligations] is given to administrators under the laws".
4.387 The United States argues that there is no basis for distinguishing among different forms
of discretionary legislation, or for recharacterising some discretionary legislation as
"mandatory". If legislation provides adequate discretion for a Member's authorities to comply

257 E.g. GATT 1947 Article III:4 covers "laws, regulations and requirements".
258 Oppenheim's International Law, 9th ed., at 82-83 (footnote omitted).

with their obligations, it may not be assumed that the Member will not exercise that discretion
in good faith so as to comply with its obligations. The good faith principle of which the
European Communities speaks is the very reason it may not be assumed that a Member's
authorities will violate its international obligations.
4.388 In the view of the United States, even if there were some conceivable construction of
the text of Article XVI:4 which would permit the redefinition of "mandatory legislation" so as
to include legislation which does not require a Member to violate its international obligations, it
would not be permissible to adopt that construction in interpreting Article XVI:4. The
Appellate Body explained in EC – Hormones that the customary principle of interpretation of
international law known as in dubio mitius is applicable in WTO disputes as a supplementary
means of interpretation. That principle applies
"in interpreting treaties, in deference to the sovereignty of states. If the
meaning of a term is ambiguous, that meaning is to be preferred which is less
onerous to the party assuming an obligation, or which interferes less with the
territorial and personal supremacy of a party, or involves less general
restrictions upon the parties".
259
4.389 The United States argues that the EC's proposed construction of Article XVI:4, even if
it had so much as an ambiguous textual basis, would run afoul of the in dubio mitius principle,
since that construction would interfere with a Member's sovereign right to choose the form by
which it implements its obligations in domestic law, and require each and every Member to re-
examine and potentially revise the form of various pieces of legislation they quite correctly
assumed in 1995 to be consistent with their WTO obligations based on the consistent
application of the doctrine of the non-actionability of discretionary legislation.
4.390 The United States points out that th e European Communities claims that the India -
Patents (US) case and DSU Article 3.2's reference to "security and predictability" support its
claim that Article XVI:4 includes a prohibition against "uncertainty". As discussed above, the
reference to "security and predictability" in DSU Article 3.2 is made in the context of explaining
that the dispute settlement system provides such security and predictability, and it does so
through the substantive obligations in the text of the WTO Agreement and its annexes, enforced
through the DSU. Article 3.2 also provides that DSB rulings and recommendations "cannot add
to or diminish the rights and obligations provided in the covered agreements".
4.391 In view of the United States, neither the facts nor findings of India - Patents (US)
support the EC position. As described above, that case stands strongly for the proposition that
obligations may not be divined from vague and free-standing notions such as "uncertainty"
divorced from the agreement's text.
260 Nor in its specifics does India - Patents (US) support the
EC's position that such an "uncertainty" principle may be found in the text of Article XVI:4.
The India - Patents (US) Appellate Body report refers to Article XVI:4 only in the context of
reinforcing the fact that India's WTO obligations dated from 1 January 1995, and could not be
delayed.261 There is no reference in the report to an obligation in Article XVI:4 to avoid
"uncertainty". Rather, the obligation in Article XVI:4 is to comply with the obligations of the
annexed Agreements.

259 Appellate Body Report on EC – Hormones , op. cit., para. 165 and footnote 154, citing
Oppenheim's International Law, 9th ed., at 1278.
260 The United States refers to Appellate Body Report on India - Patents (US), op. cit., para. 45.
261 The United States refers to id., paras. 78-84.

4.392 The United States argues that the India – Patents (US) discussion of
mandatory/discretionary legislation in no way modifies that doctrine. That case, like the Malt
Beverages case before it, stands for the proposition that the non-application of mandatory
legislation does not render that mandatory legislation non-actionable. 262 The issue in India -
Patents (US) was whether India's unpublished, unwritten "administrative instructions" prevailed
over mandatory legislation which prohibited India from complying with its TRIPs
obligations.263 The Appellate Body found that because of this conflict, the administrative
instructions did not create a sound legal basis to preserve the novelty and priority of patent
applications.264 Even then, however, the Appellate Body emphatically rejected the position that
a Member is required to remove any reasonable doubts regarding whether a patent application
could be rejected.
265
4.393 The United States explains that the India - Patents (US) case thus offers no support for
the EC position that Article XVI:4 provides for a new definition of mandatory legislation to be
determined based on the legislation's "design, structure and architecture". In fact, India -
Patents (US) undermines the EC's position. The analysis of whether Sections 301-310 is
consistent with WTO Agreement Article XVI:4 must be based on the text of that provision. The
ordinary meaning of Article XVI:4 is that a law, regulation or administrative procedure is not
inconsistent with Article XVI:4 unless it is also inconsistent with a separate obligation of a
covered agreement. Sections 301-310 are not inconsistent with any such provision, and are
therefore consistent with Article XVI:4.
4.394 In response, the European Communities argues that as the Appellate Body has
indicated in the Japan - Alcoholic Beverages case following its earlier decision in the US -
Gasoline case, the principle of effectiveness (ut res magis valeat quam pereat) is a
"fundamental tenet of treaty interpretation flowing from the general rule of
interpretation set out in Article 31".
4.395 The European Communities contends that with this rule in mind, the correct
interpretation of Article XVI:4 of the Marrakech Agreement could not be such as to read this
provision just as a useless replica of the obligations under the covered agreements. Such an
interpretation would reach the non-permissible effect of rendering "whole clauses of a treaty
redundant".
4.396 Thus, in the view of the European Communities, the US following assertion cannot be
correct:
"[T]he ordinary meaning of Article XVI:4 is that a law, regulation or
administrative procedure is not inconsistent with Article XVI:4 unless it is also
inconsistent with a separate obligation of a covered agreement".

262 The United States refers to Panel Report on India - Patents (US), op. cit., para. 7.35.
263 The United States refers to Appellate Body Report on India - Patents (US), op. cit., paras. 60-
62.
264 Ibid., paras. 69-70.
265 Ibid., para. 58. The United States notes that the Appellate Body stated, "[W]e do not agree
with the Panel that Article 70.8(a) requires a Memb er to establish a means ‘so as to eliminate any
reasonable doubts regarding whether mailbox applications and eventual patents based on them could be
rejected or invalidated …. In our view, India is obliged, by Article 70.8(a), to provide a legal mechanism
for the filing of mailbox applications that provides a sound legal basis to preserve … novelty … and
priority of the applications …. No more". (Emphasis in original)

4.397 The European Communities argues that "discretionary" legislation is not as such
defined under any of the WTO agreements. There is thus no textual basis in any of the WTO
agreements to distinguish between "discretionary" and other legislation of a WTO Member.
4.398 The European Communities goes on to state that the relevance in the WTO legal system
of a definition of discretionary legislation lies in the fact that WTO Members frequently adopt
open-ended legislation, which delegates powers to the executive branch of government. This
legal phenomenon should not, in our view, be sidelined or underestimated.
4.399 According to the European Communities, in addressing this issue, a balance must be
struck between two basic sets of principles of WTO law and of public international law: on the
one hand, the obligation to ensure the protection of "the security and predictability of the
multilateral trading system" (Article 3.2 of the DSU) by "ensuring the conformity of [domestic]
laws, regulations and administrative procedures" (Article XVI:4 of the Marrakech Agreement)
through a "sound [domestic] legal basis" (Appellate Body Report on India - Patents (US)).
4.400 The European Communities maintains that on the other hand, the (rebuttable)
presumption of compliance according to wh ich one may not assume that WTO-Members'
authorities will fail to implement their WTO obligations in good faith.
4.401 The European Communities argues that in th is legal perspective, it is impossible to
accept the US approach which would require WTO panels to mechanically continue past panel
practice based on a legal situation which is no longer in force. The European Communities
cannot, on the other extreme of the spectrum, go as far as Hong Kong, China has done in
suggesting that any "potential deviation" is in breach of Article 3.2 of the DSU, Article XVI:4
of the Marrakech Agreement and the principles developed by the Appellate Body in the India -
Patents (US) case. This will practically deny any distinction between "discretionary" and other
legislation. In medio stat virtus (The truth lies in the middle ground).
4.402 In the view of the European Communities, there are a number of practical criteria that
would assist panels in discerning the dividing line between a "genuinely discretionary"
legislation and all the other legislation.
4.403 The European Communities recalls that the presumption of compliance would be
overturned by a legislation which, by its terms, design, architecture and revealing structure, is
biased against compatibility or otherwise creates a conflict with the Member's WTO obligations.
4.404 The European Communities maintains that on the other hand, the fewer criteria such
legislation contains and the more freedom it leaves to the executive authorities with regard to
the decision-making process, in principle the le ss problematic such legislation is from a WTO
standpoint.
4.405 According to the European Communities, an additional argument in this issue was
submitted by the United States. In the US's view, all legislation that is not "mandatory" in the
sense of the definition adopted by the 1949 GATT Working Party decision with respect to the
"existing legislation" clause of the PPA must thus be "discretionary" and, by way of
consequence, cannot be construed to be in violation of the relevant WTO obligations. This US
view is obviously incorrect on several counts.
4.406 The European Communities firstly argues that as the Appellate Body has found in the
India - Patents (US) case, the implementation of WTO obligations must take place on a "sound
legal basis". This would not be the case if a given piece of legislation creates a situation biased

against WTO compatibility, because the situation created by such a piece of legislation
undermines the security and predictability of the multilateral trade relations. It could also not be
considered in line with the presumption of compliance, given that its text would already defeat
such a presumption.
4.407 The European Communities further contends that the bias against WTO compatibility
will be discernible in particular where WTO-inconsistent measures are required by the law as a
rule and WTO-consistent action is permitted only as an exception under limited circumstances.
In this way, the competitive opportunities, which the WTO Agreements intend to foster, cannot
be achieved.
4.408 The European Communities secondly supposes that the legislation of a WTO Member
provides that in a given factual situation, desc ribed in some detail in the piece of law, the
executive authorities have the choice between several actions, each of them being WTO-
inconsistent. While such a law may be described as "discretionary", because it allows several
different types of action, such a law must nevertheless be considered WTO-incompatible,
simply because it does not allow for an action of the executive authorities that is WTO-
compatible.
4.409 The European Communities goes on to state that even under the GATT 1947, domestic
legislation which gave the executive branch of government only a choice between several
measures which all were inconsistent with the GATT 1947 would not have qualified as
genuinely "discretionary" legislation. In the view of the European Communities, this is the
situation that characterises the present case. This, of course, does not mean that the panel
practice under the GATT 1947 still holds good under the WTO to the extent that it was based on
the much narrower interpretation of "mandatory legislation".
4.410 The European Communities thirdly contends th at, to come even closer to the legal
situation underlying this case, it may happen that the law requires the executive authorities to
take action on the basis of the results of an investigation. Suppose the fiscal authorities are
required to take WTO-inconsistent action each time they find on the basis of an investigation
that an act of tax fraud has been committed. Of course, the tax authorities are not "free" to
abstain from finding a case of fraud and in th is way avoid WTO-inconsistent action. Any other
reading of such a piece of legislation would defy its intent, as expressed in the law. It should be
noted in this context that it was clearly understood under the GATT 1947 that legislation could
be mandatory not only by its terms but also by its expressed intent.
266
4.411 Fourthly, the European Communities disagrees with the US allegation that a domestic
legislation such as Section 301(a) contains sufficient discretionary powers for the executive
authorities to take WTO consistent action because the highest political authorities of the WTO
Member concerned, in casu the US President, may give directions to the administration. It
would defy the purpose and the spirit of the law to consider this legislation discretionary rather
than mandatory.
4.412 The European Communities recalls that Sections 301-310 provide as a rule strict time
limitations on the actions of the USTR. This is in fact one of the most characteristic features of
this piece of legislation. At the end of these firmly set time frames, the USTR is required to take

266 "Guide to GATT Law and Practice" (Analytical Index), 1995 edition, page 1075, penultimate
paragraph.

action based on the result of the investigation initiated under section 302. Such action shall be
taken "subject to the specific direction, if any, of the President regarding any such action".
4.413 In the view of the European Communities, it is simply not credible that such a clause
should be understood as providing the President with the discretionary power to grant waivers
on a regular basis. This would obviously run counter to the express will of the legislator, in casu
the US Congress, by reversing the relationshi p between rules and exceptions. As a matter of
fact, the President has never granted such a waiver.
4.414 Moreover, the European Communities notes that the vague formulations contained in
Section 301(a) do not mean that the President would be entitled to direct the USTR against what
she is required to do by the law itself. This provision, unlike other US legislation providing for
explicit powers of the President to waive requirements of the law, states that any direction from
the President concerns "any other appropriate and feasible action within the power of the
President". The President does not have the power to ignore a law providing that an action must
be taken within a mandatory time limit.
4.415 The European Communities claims that if on this basis Sections 301-310 were
considered to be entirely discretionary and thus not capable of being challenged as such under
WTO dispute settlement procedures, this would mean that an exception that was never applied
in practice would be considered, from the standpoint of WTO law, as governing the entire
legislation that is under scrutiny, in clear conflict with the design, architecture and revealing
structure of this piece of legislation.
4.416 The European Communities submits that this cannot be correct under WTO law as a
result of its enhanced requirement to "ensure the conformity" of domestic legislation under
Article XVI:4 of the WTO Agreement and the requirement of a "sound legal basis" for
administrative action developed from the provision contained in Article 3.2 of the DSU. These
legal standards, which the United States itself has taken great pains to develop before the panel
and the Appellate Body in the India - Patents (US) case, are of course applicable in other
contexts as well.
4.417 The European Communities then concludes that under WTO law, an ill-defined
exception that is not applied in practice and that goes against the main purpose of a piece of
domestic legislation cannot possibly be the basis of the analysis of that piece of domestic
legislation.
4.418 The United States rebuts the EC claim that Sections 301-310 are inconsistent with
WTO Agreement Article XVI:4. The United States recalls that the European Communities asks
the Panel "to rule":
"that the United States, by failing to bring the Trade Act of 1974 into
compliance with the requirements of Article 23 of the DSU and of Articles I, II,
III, VIII and XI of the GATT 1994 , acted inconsistently with its obligations
under those provisions and under Article XVI:4 of the WTO Agreement … ".
(emphasis added)
4.419 The United States notes that the European Communities thus acknowledges that there
must be a violation of another WTO provision before there can be a violation of Article XVI:4.
Unfortunately, elsewhere the European Communitie s argues that Article XVI:4 forms the basis
of a new set of obligations not derived from the text of that provision.

4.420 In the view of the United States, WTO Agreement Article XVI:4 provides that each
Member "shall ensure the conformity of its laws, regulations and administrative procedures with
its obligations as provided in the annexed Agreements" . By its terms, this provision does not
state that there is now a "new legal environment". Nor does Article XVI:4 by its terms "creat[e]
. . . an obligation to provide certainty and predictability in multilateral trade relations", as the
European Communities asserts. It should be added that Article XVI:4 does not, by its terms,
provide that legal findings of WTO-inconsistency may be based on transparently political
attacks. The EC's contorted formulations cannot change the ordinary meaning of the text of
Article XVI:4.
4.421 According to the United States, that text makes clear that the only obligation set forth in
Article XVI:4 which is independent of the obligations in the annexed Agreements is that a
Member "ensure the conformity" of its laws, regulations and administrative procedures with
those obligations. The European Communities has explained that the definition of "ensure" is
"make certain". According to the Oxford English Dictionary, it also means "make sure".
Members were thus required, as of January 1, 1995, to review and make certain, to make sure,
that existing laws, regulations and procedures conformed with the substantive obligations in the
annexed Agreements, and where they did not, to bring them into conformity.
4.422 The United States claims that this is precisely the meaning ascribed to Article XVI:4 by
the Appellate Body in India - Patents (US). The United States reiterates that the Appellate
Body in India - Patents (US) referenced Article XVI:4 in order to reinforce its finding that
India's obligation to bring itself into conformity with its TRIPs obligations dated from 1 January
1995, and could not be delayed. The European Communities is thus incorrect that the US and
Appellate Body interpretation of this provision re nders it redundant. In reinforcing the date by
which Members had an affirmative obligation to bring measures into conformity, Article XVI:4
makes crystal clear that existing laws and regulations not in conformity had to be changed, that
no such measures would be "grandfathered.
4.423 The United States maintains that the Eu ropean Communities takes two contradictory
positions on Article XVI:4. On the one hand, the European Communities takes the position that
Article XVI:4 obliges Members to structure their law in a manner that "makes certain" that
Agreement violations will not occur. However, the European Communities at the same time
opposes the notion that discretionary legislation must include explicit language limiting
discretion so as to preclude WTO-inconsistent actions. This contradiction highlights how the
EC's arguments are directed towards achieving a particular political result in this dispute,
without regard to generally applicable legal reasoning or principles. The European
Communities apparently wants a panel finding that Sections 301-310 must be amended to
remove "uncertainty", but is unwilling to acc ept panel intervention requiring the European
Communities to limit its unfettered authority to implement WTO-inconsistent banana regimes
or hormone bans, or to stop trade at any time, for any reason, without regard to DSU
requirements, pursuant to Article 133 of the Treaty of Amsterdam.
4.424 The United States notes that the Europ ean Communities claims that Article XVI:4
requires an examination of a statute's structure, design and architecture. The United States
explained the Appellate Body's clear rejection of attempts to create obligations and modes of
analysis based on "the design of the measure" where there is no textual basis for either. The
same reasoning would apply to the EC's attempt to create a generalized obligation to provide a
"sound legal basis" for the implementation of US WTO obligations. The India - Patents (US)
and US - Shrimp Appellate Body reports are clear that new obligations may not be created out
of thin air. The objectives of agreements are reflected in the specific obligations set forth in
those agreements.

4.425 The United States then claims that the EC's analysis under Article XVI:4 ultimately
degenerates into random accusations concerning past US actions not within the terms of
reference of this Panel, and for which no GATT or WTO panel has made findings. The EC's
discussion strips bare the utter lack of legal foundation for the EC's arguments, and reinforces
the fact that its goal in this case is to obtain a political declaration by this Panel that the United
States is a "bad actor", a declaration it hopes will counter the impression left by the EC's
consistent pattern of disregarding its obligations in connection with its banana import regime.
The European Communities particularly hopes to obtain a political declaration that the United
States does not respect the multilateral dispute settlement system, to counter the impression left
in the context of the Bananas dispute by the EC's unilateral disregard of several multilateral
dispute settlement panel findings, its unilateral decision to disregard its pledge to bring its
measure into compliance with these multilateral findings, and its unilateral efforts to block the
operation of multilateral provisions of Article 22 through the unprecedented and extraordinary
action of attempting to block the agenda of a DSB meeting. The United States regrets having
been forced to raise these matters, but the EC's attacks in its Second Submission have left us no
choice. The United States does not claim that these points are relevant to the Panel's legal
analysis. However, neither is the EC's discussion of such matters. The question in this dispute,
and the only question, is whether Sections 301-310 command the United States to violate
specific WTO obligations found in the text of DSU Article 23, WTO Agreement Article XVI:4
and GATT 1994 Articles I, II, III, VIII and XI.
4.426 The European Communities stresses a fundamental inconsistency in the US
approach. A quote from the US arguments is particularly revealing:
"Nowhere is the EC's "not genuinely discretionary" test found in WTO
Agreement Article XVI:4, DSU Article 3.2, or any other provision of a covered
agreement. Indeed, the EC does not claim that it does. Its test is based on
extrapolation from the concept of "security and predictability" in Article 3.2 –
an objective, not an obligation – and from a vague explanation of the "good
faith" obligation in the VCLT – not a covered agreement".
4.427 According to the European Communities, however, the United States is incapable of
showing that a distinction between mandatory versus discretionary legislation which constitutes
the basis of its defence, can – to use the United States' own terms – be "found in WTO
Agreement Article XVI:4, DSU Article 3.2, or any other provision of a covered agreement".
4.428 The European Communities claims that the Un ited States is incapable of quoting any
legal basis in WTO law in support of its defence simply because this legal basis does not
 exist.
This becomes even clearer when the United States argued that:
"[T]he Superfund panel referred neither to prior panel reports, nor to the
Protocol, in making its finding regarding discretionary legislation".
4.429 The European Communities maintains that logi cally, there is no legal basis under the
WTO which allows the United States to insist that GATT 1947 precedents like the Superfund
case are applicable sic et simpliciter to this case.
4.430 The European Communities accepts that, in general, the reasoning followed by panels
when interpreting provisions of the GATT a nd, after the entry into force of the Marrakech
Agreement, of the WTO agreements may constitute an extremely valuable source of inspiration
for subsequent panels dealing with identical or similar issues of law. However, this cannot be

mistaken with an implicit obligation of panels, of this Panel, to mechanically apply panel
practice developed under the GATT 1947 that has lost its basis under WTO law.
4.431 The European Communities recalls that the Appellate Body has entirely dismissed the
existence of the principle stare decisis within the WTO legal system in the Japan - Alcoholic
Beverages report (quoted selectively by the United States):
"a decision to adopt a panel report did not under GATT 1947 constitute
agreement by the CONTRACTING PARTIES on the legal reasoning in that
panel report. The generally-accepted view under GATT 1947 was that the
conclusions and recommendations in an adopted panel report bound the parties
to the dispute in that particular case, but subsequent panels did not feel legally
bound by the details and reasoning of a previous panel report.
We do not believe that the CONTRACTING PARTIES, in deciding to adopt a
panel report, intended that their decision would constitute a definitive
interpretation of the relevant provisions of GATT 1947. Nor do we believe that
this is contemplated under GATT 1994".
4.432 The European Communities goes on to state that in contrast to the legal situation in
WTO law, under the GATT 1947 a legal basis providing for a distinction between mandatory
and discretionary legislation existed. It was the Protocol of Provisional Application and, in
particular, its "existing legislation" clause as interpreted already in 1949 by a working party
report adopted by the GATT CONTRACTING PARTIES:
"The working party agreed that a measure is so permitted, provided that the
legislation on which it is based is by its terms or expressed intent of a
mandatory character - that is, it imposes on the executive authority
requirements which cannot be modified by executive action".
4.433 The European Communities then conclude s that the "mandatory legislation"
requirement evolved under the GATT 1947 as an interpretation of the "existing legislation"
clause of the PPA. The GATT 1947 panel practice was therefore a development based on that
fundamental initial decision within that specific context.
4.434 The European Communities argues that GATT 1947 standards to determine whether a
legislation was mandatory were
(a) the "text" and the "expressed intent" of the legislation and
(b) the further requirement that the obligations imposed upon "the executive
authorities" could not "be modified by executive action".
4.435 The European Communities, referring to the US argument that:
"It is not necessary to examine whether the character of the Member enacting
the legislation is bad, whether that party had a WTO-inconsistent motive",
argues that this statement contradicts the interpretation of the GATT CONTRACTING
PARTIES of mandatory legislation under the strict interpretation pursuant to the "existing
legislation" clause of the PPA. It also contradicts the United States' own interpretation as

expressed already 50 years ago during the discussions leading to the 1949 Working Party report
on the "existing legislation" clause of the PPA:
"… The United States representative suggested the addition of the words
'without departing from the intent of a measure embodied in the legislation' to
the last sentence cited, so as to cover the case of legislation which was
mandatory in intent but couched in permissive terms. … It was agreed that the
United States position would be met by the insertion of the wording 'by its
terms or expressed intent' ".
267
4.436 In the view of the European Communities, in the specific legal situation under the PPA,
the strict interpretation of mandatory legislation had a decisive influence on the examination of
domestic legislation by the GATT 1947 panels.
4.437 The European Communities then claims that the only possible way for a GATT 1947
panel to "marry" the limitation of the "existing legislation" clause of the PPA (aimed at applying
the GATT 1947 as broadly as possible) with the need to control the implementation of the
consequently broadly-defined discretionary legislation was, in extreme cases such as the US –
Superfund case or the EEC Parts and Components case, to obtain from the defendant political
assurances concerning the exercise of the executive power in the future.
4.438 According to the European Communities, for the rest, the United States does not contest
the central point made by the European Communities that all the other GATT 1947 panel
reports dealing with the issue of mandatory versus discretionary legislation made either direct
reference to the PPA (or to the identical provisions in the Protocols of accession) or were based
on panel precedents directly referring to the PPA. This is the objective legal context in which all
these panels took their decision.
4.439 The European Communities points out that it was simply not necessary for the GATT
1947 panels to base every decision concerning this issue specifically on the "existing
legislation" clause of the PPA as soon as they had already accepted, often without any further
legal analysis, to apply that distinction based directly or by reference on the interpretation of the
"existing legislation" clause of the PPA. When reading all the GATT 1947 panel reports that the
European Communities has quoted with this approach in mind, it is clear that the US simply
misses the point.
4.440 The European Communities maintains that the legal situation under WTO law is
fundamentally different. The PPA and its "existing legislation" clause are no longer in force.
Rather, an opposite obligation has been agreed by the Uruguay Round participants according to
which the conformity of the domestic (even pre-existing) legislation must be ensured as from 1
January 1995.
4.441 The European Communities further argues that the insertion in the text of Article XVI:4
of the Marrakech Agreement of the terms "regulations and administrative procedures" renders
from now on impossible the application of the third standard under the GATT 1947 definition of
mandatory legislation, i.e. that the obligations imposed upon " the executive authorities" could
not "be modified by executive action". In fact, regulations and administrative procedures are

267 "Guide to GATT Law and Practice" (Analytical Index), 1995 edition, page 1075, penultimate
paragraph.

acts typically within the full powers of the exec utive authorities that, by definition, can always
modify them "by executive action".
4.442 The United States disagrees with the European Communities that the European
Communities is asking this Panel to disregard decades of GATT/WTO jurisprudence and
practice in the name of "security and predictability". In Japan – Taxes on Alcoholic Beverages,
the Appellate Body explained,
"Article XVI:1 of the WTO Agreement and paragraph 1(b)(iv) of the language
of Annex 1A incorporating the GATT 1994 into the WTO Agreement bring the
legal history and experience under the GATT 1947 into the new realm of the
WTO in a way that ensures continuity and consistency in a smooth transition
from the GATT 1947 system. This affirms the importance to the Members of
the WTO of the experience acquired by the CONTRACTING PARTIES to the
GATT 1947 – and acknowledges the continuing relevance of that experience to
the new trading system served by the WTO. Adopted panel reports are an
important part of the GATT acquis. They are often considered by subsequent
panels. They create legitimate expectations among WTO Members, and,
therefore, should be taken into account where they are relevant to any
dispute".
268
4.443 The United States contends that WTO Members were most certainly aware of the
discretionary/mandatory distinction when they signed the Marrakesh Agreement, and panels
have continued to apply it. In the DSU review, the European Communities has even asked that
WTO Members agree to remove it. 269 However, the European Communities now asks this
Panel, five years after the conclusion of the Uruguay Round, to discard a fundamental principle
of jurisprudence and create uncertainty as to the WTO-consistency of an indeterminate number
of domestic laws heretofore considered discretionary. Even if "security and predictability" were
themselves an independent WTO obligation, it would be difficult to conclude that a law which
permits WTO-consistent action in every instance would do more harm to "security and
predictability" than what the European Communities now proposes. Beyond this, the European
Communities simply fails in its attempt to argue that "discretionary means mandatory" because
of changes under the WTO Agreement.
4.444 With regard to the textual basis for the mandatory/discretionary distinction, the United
States refers to the text of DSU Article 23.2(a). That Article deals with "determinations to the
effect that a violation has occurred". It prohibits Members from making these determinations
without following DSU rules and procedures, and these determinations must be consistent with
findings in panel and Appellate Body reports adopted by the DSB.
4.445 In the view of the United States, there is no "determination to the effect that a violation
has occurred" before the Panel in this case. The European Communities does not challenge a
determination which has actually been made. It is therefore not possible to analyze whether
such a determination meets the requirements of Article 23.2(a). One cannot say whether, in
making such a determination, the United States followed DSU rules and procedures, nor

268 Appellate Body Report on Japan – Alcoholic Beverages, op. cit., p. 14.
269 See Review of the Disput e Settlement Understanding , Non-Paper by the European
Communities (Oct. 1998) (emphasis added); see also, Review of the DSU, Note by the Secretariat,
Compilation of Comments Submitted by Members – Rev. 3 (12 December 1998).

whether the United States made a determination consistent with DSB-adopted findings. Neither
the findings nor the determination exist.
4.446 The United States asks how the Panel can perform its analysis under these
circumstances. In the absence of a concrete determination, how is it possible to know whether a
Member has breached its obligations under Article 23.2(a)? It is not permissible to speculate
about how the Member will make its determination in the future. It is not permissible to look at
determinations made in the past which are not within the terms of reference. It is not
permissible to assume that certain Members are not to be trusted. It is not permissible to assume
that they will act in bad faith. Under these circumstance, must the conclusion be that without a
concrete determination, there can be no violation of Article 23.2(a)?
4.447 The United States points out that over 10 years ago, in 1987, a GATT panel wrestled
with this type of question. It looked at a statute which would not go into effect for another three
years and asked, may a panel determine whether this law is inconsistent with a party's GATT
obligations when it is possible that the party may change the law before it goes into effect? The
panel's conclusion was that it could, but it was very careful in how it drew this conclusion. The
panel found that only if a statute commands a party's authorities to violate a specific GATT
obligation could that statute be found inconsistent with that obligation. In enacting such
legislation, the party crossed a line. It left itself with no choice but to violate its obligations,
even if only at some point in the future. Conversely, the panel found, if a statute does not
command the party's authorities to violate a specific GATT obligation, it is not possible to
conclude that the statute violates that obligation. The party may exercise its discretion so as to
comply with its international obligations. Any other conclusion would be speculation as to
whether the party will act in bad faith, speculation with no more foundation than if the statute
did not exist at all.
4.448 The United States again states that the reasoning of the Superfund panel made very
good sense. It was so good that at least five GATT panels adopted it as their own. At least
three WTO panels have also adopted it. And none of those panels in any way revised the core
question asked by the Superfund panel: does the statute command, does it mandate, a violation
of a specific agreement obligation?
4.449 The United States further argues that the Superfund analysis is not an analysis of
character. It is not necessary to examine whether the character of the Member enacting the
legislation is bad, whether that party had a WTO-inconsistent motive. Nor is it necessary to
examine whether the "character" of the legislation is bad, whether the legislation reflects an
intent to breach WTO-obligations. All that matters is whether the law commands an action
which violates a specific textual obligation. Absent such a command, the Panel is left with the
fundamental problem – there is nothing that can be said to violate a specific textual obligation.
Legislation which leaves open the possibility of a violation cannot be considered a violation,
any more than may a constitutional system which provides broad authority to act. However, by
including a specific command in legislation to violate a specific obligation, the legislation itself
becomes that violation.
4.450 In response to the Panel's request for any travaux preparatoires that may be relevant for
an interpretation of Article XVI:4 of the WTO Agreement, the United States first indicates that
there was no decision to create any official travaux preparatoires for the Marrakesh Agreement
Establishing the WTO. The discussions of October and November 1993, when the most
contentious and politically sensitive issues in the WTO Agreement text were settled, were
conducted orally in small meetings that did not include all delegations. Some issues, including
the final wording of Article XVI:4, were resolved in plurilateral working groups that were

smaller still. When the plurilateral subgroups reported to the larger Institutions Group, some
delegations objected to having written documents become part of a negotiating history, because
if there were to be an official negotiating history, its importance would be such that its contents
would have to be negotiated line by line, and this added burden was clearly impossible given the
November 15, 1993 deadline for finishing the Institutions Group's work. In any event, absent a
complete picture of every note and proposal from every delegation, it would be difficult to
obtain an accurate picture of the parties' intentions. For these reasons, the Chairman,
Ambassador Julio Lacarte, announced during these discussions that no negotiating history
would be issued and all trade-offs had to be made in the text of the agreement itself.
4.451 According to the United States, the informal record of the final negotiations on the
"MTO Agreement" (as it was known at the time) therefore is incomplete, and consists only of a
series of "room" documents circulated in th e room where the Institutions Group met, and the
notes of individual negotiators. No official summary of these meetings was prepared, and no
documents prepared for negotiating sessions were collected as an official negotiating record.
4.452 The United States then provided the following documents as US Exhibit 23:
(a) Draft Agreement Establishing the Multilateral Trade Organization, Informal
Note by the Secretariat (Third Revised Text of the MTO Agreement (27 May
1992);
(b) Comparison of the Second and Third Revised Texts of the Draft Agreement
Establishing the Multilateral Trade Organization (27 May 1992) (Document
551).
(c) Draft of Article XVI:4 (11 November 1993).
(d) Excerpt from Daily Report From US Negotiator on MTO Issues, Including
Article XVI:4 (November 11, 1993).
(e) Draft of Article XVI:4 (12 November 1993).
(f) Draft Agreement Establishing the Multilateral Trade Organization, Revised
Text (14 November 1993).
(g) Draft Agreement Establishing the Multilateral Trade Organization (24
November 1993).
4.453 The United States explains that the Dunkel Draft Final Act included the text of an
Agreement Establishing a Multilateral Trade Organization (MTO), with the caveat that the
MTO text required further elaboration "to ensure a proper relation to the other results of the
Uruguay Round". Participants in the negotiations generally understood that further negotiation
concerning establishment of an organization would be required. Negotiations proceeded from
February through December 1992 with additional problems being raised with the draft text. The
Secretariat produced a "third revised text" on May 27, 1992 and a comparison document
(document 551), which the United States has included in Exhibit 23. When work on the MTO
text intensified in September 1993, the May 1992 text was the starting point.
4.454 In the view of the United States, two points relevant to the negotiating history of
Article XVI:4 must be noted from the "third draft" document that the Secretariat produced.
First, the language states that

"[T]he Members shall endeavor to take all necessary steps, where changes to
domestic laws will be required to implement the provisions of the agreements
annexed hereto, to ensure the conformity of their laws with these agreements"
(emphasis added)
4.455 According to the United States, it was the view of several delegations, including the
United States, that this language required a government to take the relevant procedural steps to
implement the other agreements negotiated in the Uruguay Round. Moreover, use of the term
"endeavor" called into question the obligatory nature of even this limited undertaking.
4.456 Second, the United States claims that while it merely questioned the need for this
provision, other delegations actively opposed the provision as indicated in the remarks column
of the May 1992 document. The document states that "Further discussions are necessary to
determine whether the provision should be reta ined, deleted, reformulated or moved into the
Final Act". This comment is unique in this document.
4.457 The United States points out that while th e European Communities correctly notes that
the use of the term "endeavor" in the third draft called into question the obligatory nature of this
undertaking, it neglects to explain several steps in the negotiating process which followed. As
described below, when the term "endeavor" was removed, the trade-off was removal of terms
including "taking all necessary steps" and the clarification that only obligations were subject to
this provision (through inclusion of the phrase "obligations as provided in the annexed
agreements").
4.458 The United States goes on to state that in the fall of 1993, the "Lacarte Group" working
on institutional issues held several discussions of Article XVI:4. During these negotiations, the
European Communities recognised the weakness of the "endeavor" language and proposed to
delete the "endeavor" language and make the provision mandatory.
4.459 The United States further points out that several objections were raised. Brazil and
other Latin delegations with legal systems prov iding for "direct incorporation" of certain
international agreements into their law were concerned that the draft language could require
them to attempt to enact laws on matters of extreme sensitivity. Second, delegations with
federal systems, such as Canada, Brazil and the United States, questioned the interaction
between the new language and provisions in Article XXIV:12 of GATT 1994 and GATS
Article I:3(a). These provisions related to measures of regional and local governments and
require national governments to take "such reasonable steps as may be available to it" to ensure
compliance.
4.460 In the view of the United States, direct negotiations between those delegations and the
European Communities took place in November 1993. Our negotiators' notes show that as of
November 11
th, the EC's latest proposal – "The Members shall take all necessary steps to ensure
the conformity of their laws, regulations and administrative procedures with the provisions of
the annexed agreements, in accordance with their individual constitutional or legal systems" –
was rejected because it was seen to weaken the duty under international law to implement
agreements.270

270 See Daily Report From U.S. Negotiator on MTO Issues, Including Article XVI:4 (November
11, 1993).

4.461 The United States notes that the European Communities on the following day
(November 12) proposed that the language read, "The Members shall ensure the conformity of
their laws, regulations and administrative procedures with the provisions of the annexed
Agreements". This draft, as well, was opposed by Brazil and others. It was incorporated in
brackets into a November 14 draft of the agreement as a whole, along with the note, "For further
consideration".
4.462 The United States further explains that the draft Agreement Establishing the
Multilateral Trade Organization of 24 No vember 1993 includes bracketed language on
Article XVI:4 that was ultimately agreed upon. 271 This language included the phrase
"obligations as provided in the annexed agreements", limiting language making clear that an
expansive interpretation of Article XVI:4 was not intended. On the basis of the inclusion of this
term, (and the earlier removal of EC language which would have created a weaker obligation
than that under VCLT Article 26), the Members agreed to include Article XVI:4 in the WTO
Agreement.
4.463 The United States points out that a final point is that, near the end of the negotiations on
this provision, Brazil and other delegations asked the EC legal expert who was present how this
provision differed from Article 26 of the Vienna Convention. The EC's legal adviser did not
identify a difference or distinction.
4.464 The United States further indicates that on the other hand, shortly afterward, this same
legal adviser provided the following views on Article XVI:4:
"A provision that has been championed to a large extent by the Community, but
which may have serious consequences for the Community itself, and for the
Member States too, is Article XVI:4 of the WTO. . . . This may turn out to be a
very onerous obligation, requiring full conformity of all Community and
national laws . . . with the precise provisions of the WTO's annexes. It may
also have hardly any consequences at all, compared to the present situation, if it
is interpreted in the light of standing panel case law which determines that a law
or regulation is contrary to the GATT only if it is mandatory and as such
contrary to GATT terms, but that such is not the case, if the text of the law or
regulation permits a GATT conform [sic] application of the text. 272 If
conformity to WTO obligations is interpreted in this way - which would not be
unreasonable in the light of the succession of the WTO to the «acquis
gattien»273 – it should be clear that the added value of Article XVI:4 is rather
limited".274

271 The United States notes that the only changes were the modifications to number and tense
made throughout the WTO Agreement during the legal review in early 1994.
272 See the Panel Report on US - Superfund, op. cit., para. 5.2.9. and the Panel Report on EEC –
Part and Components, op. cit., para. 5.25-26. (Citation in original. The United States specifically
requests the Panel to note that no reference is made to the Protocol of Provisional Application, or to cases
citing the Protocol of Provisional Application.)
273 (citation in original) See Article XVI:1 of the WTO Agreement.
274 Pieter-Jan Kuyper, The New WTO Dispute Settlement System: The Impact on the Community ,
in The Uruguay Round Results, A European Lawyers' Perspective 87, 110 (Jacques H.J. Bourgeois,
Frédérique Berrod & Eric Gippini Fournier eds. 1995) (emphasis added) (US Exhibit 25).

4.465 The United States notes that the EC legal adviser stated in a footnote that the conclusion
that the value of Article XVI:4 is "rather limited" "is the view of the author himself". 275 H e
went on to note that if a more expansive view of Article XVI:4 were adopted, "it must be clear
that the European Communities and the Member States have an obligation to maintain their
laws and regulations in constant conformity with the terms of the WTO Agreement and its
annexes. That is no simple matter".276
4.466 According to the United States, this Article provides a nearly contemporaneous record
of the understanding of the legal adviser to the EC negotiators, who was the chief GATT lawyer
in the EC Legal Service and a former professor of public international law. While he earlier
could not explain the difference between Article XVI:4 and VCLT Article 26, he shortly
afterward recognised that Article XVI:4 would have a limited impact, and that, were a contrary
interpretation adopted, it would be highly disruptive to the sovereignty of WTO Members,
including the EC itself. The EC lawyer also expressed his expectation that the Superfund
reasoning would not be affected by Article XVI:4; indeed, he was relying on this conclusion.
4.467 The European Communities challenges the US quote from an article written by Mr.
Pieter-Jan Kuyper in his personal capacity
277 in order to contest the EC's interpretation of
Article XVI:4 of the WTO Agreement. The United States purposefully omits to indicate that
the quotation stems from a chapter of the article dealing with the relations between the
European Communities and its member States. It is with this concern in mind that the author
refers to the potential burden imposed on the European Communities by Article XVI:4 o the
WTO Agreement, and not in the much more general way that the United States would have it
now.
4.468 The European Communities also argues that the conclusion drawn by the United States
from this article is also quite wrong (and in cont radiction with the internal meeting report of 11
November 1993 by the US delegate, Mr. Andy Shoyer, cf. US Exhibit 23). The European
Communities never considered the final version of Article XVI.4 of the WTO Agreement to be
of limited impact because, as is clear from the developments the European Communities
described in this proceeding and the internal meeting report of the United States, the European
Communities always strove for and finally achieved substantial strengthening of what is now
Article XVI:4 of the WTO Agreement.
4.469 The European Communities adds that when writing his article based on a conference
held in Bruges in October 1994, Mr. Kuyper for obvious reasons could not be aware of the legal
development that occurred in the India - Patents (US) case where the Appellate Body found that
WTO Members are required to provide a sound legal basis in their domestic law in order to
ensure conformity with the covered agreements.
4.470 The United States challenges the EC suggestion that it is somehow significant that Mr.
Pieter-Jan Kuyper drew his conclusions concerning Article XVI:4 in the context of a discussion
of the relations between the European Communities and its Member States, and that his
statements concerning "the potential burden imposed on the European Communities" by the
interpretation of Article XVI:4 that the European Communities now posits must be understood

275 Ibid. at footnote 46.
276 Ibid. at 110.
277 Pieter-Jan Kuyper, The New WTO Dispute Settlement System: The Impact on the
Community, in: J.H.J. Bourgeois et al., The Uruguay Round Results, A European Lawyers' Perspective,
p. 87, publishing the papers of a conference held in Bruges in October 1994.

in this context. The European Communitie s appears to be arguing that Mr. Kuyper’s
conclusions, and a panel’s, should depend on whether the defending party in a particular dispute
is the United States or the EC. If the defending party is the EC, then the Superfund rule should
continue to be applied (as Mr. Kuyper anticipated it would in 1995 278), and the "burden on the
European Communities" (i.e. the in dubio mitius principle, as the United States already argued)
would be relevant. However, as the United States emphasised, the law must apply equally to all
parties, and at all times. The Panel must reject the EC's self-serving, post hoc reassessment of
its legal position on Article XVI:4 and its attempt to apply a double standard.
4.471 The United States further states that with respect to the EC’s argument that it always
sought a "strengthened" Article XVI:4, the United States notes that what the European
Communities sought is not what it actually got. In fact, as already discussed, in seeking a
"strengthened" Article XVI:4, the European Communities on several occasions proposed
language which would have unintentionally resulted in an obligation weaker than that found in
VCLT Article 26. Moreover, as the United States pointed out, Mr. Kuyper as the legal adviser
to the EC negotiators was unable to explain the difference between Article XVI:4 and VCLT
Article 26 when Brazil and other delegations requested such an explanation towards the close of
negotiations.
4.472 In response to the Panel's question as to what would be different in a legal universe
without Article XVI:4, the United States claims that by definition, Article 1(a) and (b) are
applicable only to the GATT 1994, and not to other WTO Agreements such as the General
Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPs). Article XVI:4 therefore provides an overarching
statement in the WTO Agreement, clearly applicable to all annexed agreements and not just the
GATT 1994, that no measures are grandfathered. Article XVI:4 thus serves to remove any
doubt which might have existed in its absence that all measures must be brought into conformity
as from January 1, 1995.
4.473 The United States recalls its argument that it was precisely in this manner and for this
purpose that the Appellate Body cited Article XVI:4 in India - Patents (US). In that case, India
attempted to argue that it could delay changing its law as required by TRIPs Article 70.9
because of differences between the language of that provision and that of other TRIPs articles.
Specifically, India claimed that while other TRIPs provisions explicitly required changes to
domestic laws, Article 70.9 did not.
279
4.474 The United States notes that the Appellate Body rejected this argument, stating at the
outset of its discussion, "India's arguments must be examined in the light of Article XVI:4 of the
WTO Agreement", and then quoting this provision.
280 Article XVI:4 thus assisted in clarifying
that India could not rely on claimed differences in agreement language to delay compliance.
4.475 According to the United States, beyond serving this overarching function of providing
context for other agreement provisions, Article XVI:4 imposed an obligation on Members to

278 According to the United States, Mr. Kuyper’s reliance on the Superfund reasoning, like that
of Mr. Roessler and Professor Jackson, highlights the importance of the Appellate Body’s conclusion that
adopted panel reports "create legitimate expectations among WTO Members, and, therefore, should be
taken into account where they are relevant to any dispute". Appellate Body Report on Japan – Alcoholic
Beverages, op. cit., p. 14.
279 Appellate Body Report on India - Patents (US), op. cit., para. 78.
280 Ibid., para. 79.

review existing legislation at the time the Agreem ent was to enter into effect to make sure that
existing laws, regulations and administrative procedures did, in fact, conform to the Members'
WTO obligations, and where those laws did not, to bring them into conformity.
4.476 In response to the Panel's further question as to what would be the use and meaning of
Article XVI:4 if no difference would exist, with or without Article XVI:4, the United States
argues that in respect of the application ratione temporis of the WTO Agreement nor in respect
of "grandfathering" or the removal of mandatory legislation, the United States states that
Article XVI:4 does provide additional clarity with respect to the need to bring non-conforming
measures into conformity as from January 1, 1995. The Appellate Body in India - Patents (US)
found this provision useful in clarifying potential ambiguities in other provisions which might
be read to permit delayed implementation. The provision also serves the useful function of
establishing, under the umbrella of the WTO Agreement, that none of the annexed agreements –
and not just the GATT 1994 – are subject to grandfathering.
4.477 The United States adds that through the provisions of Article XVI:4, the principles of
Article 26 of the Vienna Convention on the Law of Treaties became legally binding on all
Members of the WTO, even though not all Members are parties to the Vienna Convention.
281
4.478 The United States further argues that beyond this, another function of Article XVI:4 is
suggested by comments by Frieder Roessler, formerly the Director of the Legal Affairs Division
of the GATT Secretariat, who explained:
"There are similar provisions [to Article XVI:4] in the Tokyo Round
Agreements on Anti-dumping and Subsidies 282, which have generally been
interpreted as requiring the parties to these Agreements to adopt laws,
regulations and procedures that permit them to act in conformity with their
obligations under these Agreements. The main function of these provisions was
to permit the committees established under these Agreements to review the law
of the parties and not merely the practices followed under that law".283
4.479 The United States also asserts that likewise, the inclusion of Article XVI:4 makes clear
that the laws of Members, and not just the application of these laws, may be the subject of
reviews conducted in various WTO committees.
4.480 The United States further notes that in EC – Bananas III, the Appellate Body examined
Article 4.1 of the Agreement on Agriculture, which provides:
"Market access concessions contained in Schedules relate to bindings and
reductions of tariffs, and to other market access commitments as specified
therein".
4.481 The United States notes that the European Communities argued that Article 4.1 is a
substantive provision, which, read in context of Article 21.1 of the Agreement on Agriculture

281 The United States points out as an example that it is not a party.
282 (Footnote in original) Article 16(6) of the Anti-Dumping Code and Article 19(5) of the
Agreement on Subsidies and Countervailing Duties.
283 Frieder Roessler, The Agreement Establishing the World Trade Organization, in The Uruguay
Round Results, A European Lawyers' Perspective 67, 80 (Jacques H.J. Bourgeois, Frédérique Berrod &
Eric Gippini Fournier eds. 1995)(emphasis added).

(providing that the provisions of the GATT 1994 "shall apply subject to the provisions of this
Agreement"), demonstrates that Schedules of concessions supersede the requirements of GATT
1994 Article XIII. 284 Accordingly, the European Communities contended that the tariff rate
quotas provided for in its Schedule would not be subject to Article XIII.285 The Appellate Body
disagreed. It concluded, "Article 4.1 does no more than merely indicate where market access
concessions and commitments for agricultural products are to be found".286 The Appellate Body
went on, "If the negotiators intended to permit Me mbers to act inconsistently with Article XIII
of the GATT 1994, they would have said so explicitly".287
4.482 The United States claims that the Appellate Body's interpretation of Article 4.1
illustrates the fact that sometimes an agreement provision may serve a limited purpose, and that
obligations should not be extracted from a provision unless the language explicitly supports that
interpretation. Likewise, Article XVI:4 does not by its terms provide that there is an obligation
to "provide security and predictability", and su ch an obligation must not be inferred merely to
augment the utility of Article XVI:4.
4.483 The United States refers again to Professor Jackson's testimony at the Senate Finance
Committee, in which he concludes, "There may need to be some alterations to some time limits,
or transition measures, but the basic structure of 301 is not necessarily inconsistent with the
Uruguay Round results", and that even when Section 301 is considered "in its current statutory
form" (i.e. before the 1994 amendments), "the Executive appears to have the discretion to apply
actions under Section 301 in a manner consistent with the proposed new rules of the Uruguay
Round dispute settlement understanding".
288 Professor Jackson thus considered that with only
minor changes, Section 301 would be consistent with the WTO obligations of the United States.
He clearly did not believe that any provision of the WTO Agreement or its annexes, including
Article XVI:4, would require significant changes to the statute.
4.484 In response to the Panel's question as to the situation in which a Member can be found
to be in breach of Article XVI:4, the United States argues that in precisely that manner set forth
by the European Communities. There it asked the Panel to rule:
"on the basis of these findings [with respect to DSU Article 23 and GATT
Articles I, II, III, VIII and XI] that the United States, by failing to bring the
Trade Act of 1974 into compliance with the requirements of Article 23 of the
DSU and of Articles I, II, III, VIII and XI of the GATT 1994, acted
inconsistently with its obligations under those provisions and under
Article XVI:4 of the WTO Agreement …". (emphasis added)
4.485 In the view of the United States, in other words, the fact that a Member has not brought
into conformity a measure inconsistent with its obligations in an annexed agreement would
constitute a breach of Article XVI:4. For example, the TRIPS Agreement obligates WTO
Members to grant a term of protection for patents that runs at least 20 years after the filing date
of the underlying protection, and requires each Member to grant this minimum patent term to all

284 See Appellate Body Report on European Communities – Regime for the Importation, Sale
and Distribution of Bananas (" EC – Bananas III") , adopted 25 September 1997, WT/DS27/AB/R,
para. 20.
285 Ibid.
286 Ibid., para. 156.
287 Ibid., para. 157.
288 Jackson Testimony at 200.

patents existing as of the date of application of the Agreement to that Member. Under the
Canadian Patent Act, the term granted to patents issued on the basis of applications filed before
October 1, 1989 is only 17 years from the date on which the patent is issued. The United States
considers that by failing to bring this law into conformity with its obligations under the TRIPs
Agreement, Canada has breached Article XVI:4. The same conclusion could be drawn in the
case of failure to implement other provisions of the TRIPS Agreement; failure to eliminate
notified TRIMs by the end of the period provided in Article 5.2 of the TRIMs Agreement; or
failure to fully implement the customs valuation obligations in the Valuation Agreement.
4.486 The European Communities emphasises that the US arguments are both new and
incorrect, as can be seen already from the internal meeting report of 11 November 1993 by the
US delegate contained in US Exhibit 23. This ex hibit, in particular, shows that several Uruguay
Round participants, including the European Communities, worked for a strengthening of
Article XVI:4 of the WTO Agreement beyond the "natural obligation under int'l law" which
finds its source in Articles 26 and 27 of the Vienna Convention on the Law of Treaties. This
"natural obligation" is already incorporated into the WTO by virtue of Article 3.2, second
sentence, of the DSU, which provides that "[t]he Members recognise that [the dispute settlement
system] serves to … clarify the existing provisions of those agreements in accordance with
customary rules of interpretation of public international law". The US reply thus appears to be
an attempt to go back on the achievements of the Uruguay Round.
4.487 The United States rebuts the EC argument that the principles of VCLT Article 26 have
already been incorporated into the WTO through DSU Article 3.2, second sentence, and that
Article XVI:4 therefore need not serve this purpose. However, DSU Article 3.2 provides for the
dispute settlement system to clarify WTO provisions "in accordance with customary rules of
interpretation of public international law". Article 26 is not such a customary rule of
interpretation. As the Appellate Body explained in US – Gasoline and Japan – Alcoholic
Beverages, these rules of interpretation are reflected in VCLT Articles 31 and 32, which,
indeed, are entitled "General rule of interpretation" and "Supplementary means of
interpretation", respectively.
289 Inasmuch as Article 26 is not such a rule of interpretation, DSU
Article 3.2, second sentence, may not be read to reference it. Thus, the EC argument fails to
undermine the United States point that Article XVI:4 made the principles of VCLT Article 26
binding on all WTO Members, even those Members not parties to the Vienna Convention. It is
worth noting that, during negotiations from 1991-1993, the United States negotiator explicitly
brought to the attention of other delegations that the United States is not a party to the Vienna
Convention.
4.488 The United States responds to the Panel's request to provide examples where the United
States took steps in accordance with the US argument that Section 304 determinations have to
be made within the 18 months time-frame but that their publications can wait completion of
WTO procedure, and the Panel's question as to why the United States does not immediately
publish a notice, e.g. before the end of WTO procedures, thereby assuring Members that it will
await the completion of WTO procedures before making a final determination. The United
States states that it cannot offer an example from the handful of Section 302 investigations
which have taken place since January 1, 1995. Providing assurances is not an obligation under
DSU Article 23; Article 23 itself helps to provide these assurances. In other words, the US
commitment to comply with DSU Article 23, combined with the availability of effective dispute
settlement procedures should the United States not comply, provides the very assurances to

289 The United States cites Appellate Body Report on US – Gasoline, op. cit., pp. 16-17;
Appellate Body Report on Japan – Alcoholic Beverages, op. cit., pp. 10-12.

which the question refers. Further, although not required to by any WTO obligation, the United
States has gone beyond its WTO obligations in providing assurances in the form of US legal
requirements to resort to dispute settlement procedures and to base determinations that US
WTO agreement rights have been denied on DSB-adopted panel and Appellate Body findings.
The European Communities has acknowledged that no such obligation to limit the exercise of
discretion is provided for in Article XVI:4. Nevertheless, the United States has done so. It is for
this reason that Professor Jackson concluded that Section 301 "is a constructive measure for US
trade policy, and for world trade policy".
290
4.489 The United States indicates that any delay in publishing or issuing a determination
changes none of this. The United States remains subject to its international obligation to
comply with DSU Article 23 (not to actually make proscribed determinations or take action),
US law continues to require reliance on DSB-adopted findings, and the dispute settlement
system remains available both as a deterrent to WTO-inconsistent action and for redress of any
such action. In the end, however, the question is not whether Sections 301-310 provide
"adequate assurances", but whether Sections 301-310 command action inconsistent with DSU
Article 23. The timing of publication, or even of the determination itself, is not relevant to this
question. DSU Article 23 sets forth conditions applicable to "determinations to the effect that a
violation has occurred" and to suspension of concessions. No actual determination to the effect
that a violation has occurred, and no actual suspension of concessions, is before this Panel. And
none is commanded by the statute which is before the Panel. There is no basis in either the text
of DSU Article 23 or Sections 301-310 for a finding that this statute violates that, or any other,
WTO provision cited by the European Communities.
 291
2. Section 304
(a) Overview
4.490 The European Communities claims that the USTR is required to proceed unilaterally
when the results of the WTO dispute settlement procedures are not available within the time
limits set out in Sections 301-310.292
4.491 The European Communities first notes that Section 304(a)(2)(A) provides in relevant
part:
"The Trade Representative shall [determine whether the rights to which the
United States is entitled under any trade agreement are being denied] [in the
case of an investigation involving a trade agreement] on or before . . . the earlier
of

290 Jackson Testimony, op. cit., at 200.
291 See also the parties' further arguments contained in Paragraphs 4.759-4.790 below.
292 The European Communities notes that its complaint does not relate to those provisions of
Sections 301-310 that are in conformity with the principles set out in Article 23. This applies in particular
to Section 303(a), according to which the USTR must resort to the DSU in cases involving a WTO
agreement, as well as Section 304(a)(1)(A), according to which the USTR's determination of denial of
United States' rights or benefits under a WTO agreement must be based not only on the investigation and
the consultations with the country concerned but also on the WTO dispute settlement proceeding, and
Section 301(a)(2)(A), according to which the USTR is no t required to take action in a case in which the
DSB has adopted a report confirming that the defendant Member does not deny United States' rights or
benefits under a WTO agreement.

(i) the date that is 30 days after the date on which the dispute settlement
procedure is concluded, or
(ii) the date that is 18 months after the date on which the investigation is
initiated".
4.492 The European Communities next states that Section 303 prescribes that the decision to
initiate the investigation and the request for consultations in accordance with Article 4.3 of the
DSU must normally take place on the same day. If there is a delay in the request for
consultations, there is a corresponding extension of the 18-month time limitation.
4.493 The European Communities argues that Section 304(a)(2)(A) therefore mandates the
USTR to make a determination 18 months after the request for consultations on the United
States' denial of rights under a WTO agreement, even if the DSB has not adopted a report with
findings on the matter within that time frame.
4.494 The European Communities further asserts that the text and the intent of Section 304 are
that after a maximum of 18 months USTR must proceed with a determination of whether the
rights of the United States have been denied, whether or not the WTO dispute settlement
procedure is concluded at that time.
4.495 The European Communities points out that the text does not say anywhere that the
determination must be negative if by the end of the 18 months the WTO procedure has not
finished.
4.496 In the view of the European Communitie s, by providing explicitly that the
determination must either be made 30 days after the end of the WTO procedure (in which case
the result of that procedure can be taken into account) or by the end of 18 months (meaning that
in certain cases the result of the WTO procedure cannot possibly be taken into account),
whichever the earlier, the legislator has made clear its intention that in the latter case USTR
must go ahead and make a substantive determination even though the "results" from the WTO
are not yet available.
4.497 The European Communities then concludes that one must thus assume that, given the
language of the law and its design, architecture and revealing structure, if the intent of the
legislator were different, as the United States affirms, Congress would have said so explicitly.
4.498 The European Communities further claims that at the very least, the text is so unclear
and ambiguous that economic operators and foreign governments perceive it as imposing upon
the USTR an obligation to make a unilateral determination that US rights have been denied even
in the absence of a WTO ruling. In that sense, the text does not provide a "sound legal basis"
(for the implementation of Article 23 of the DS U) as required by the Appellate Body in the
India – Patents (US) case.
4.499 The United State points out the numerous assumptions on which the EC argument
rests. US Exhibit 10 is reproduced in part here, summarizes these assumptions. The United
States argues that for each EC claim, all of the EC's assumptions must be correct for it to
prevail, but none of them is correct.

US view on EC assumptions or miscalculations
EC Claim Relevant WTO
Provisions
EC Assumptions or Miscalculations
The 18-month time-
frame in Section
304(a)(2)(A)
requires the USTR to
make a violation
determination
inconsistent with
DSU Article 23.2(a).
DSU Article 23.2(a):
(1) violation
determination
(2) not consistent
with adopted panel
or Appellate Body
finding or arbitral
award
EC Assumption (1): The USTR's determination under Section
304(a)(1) must be a violation determination, even if the DSB has not
yet adopted panel or Appellate Body findings.
In fact, the USTR is required to base her determination on dispute
settlement proceedings, and may make any of a number of
determinations – including terminating an investigation – if those
proceedings are not complete.
EC Assumption (2): The maximum period for dispute settlement is
19 ½ months, rather than 18.
- the European Communities assumes that panels may extend
proceedings by 3 months rather than 2 months;
- the European Communities assumes that DSB meetings will
always take place on the final day authorized under the DSU, even
though regularly scheduled meetings take place more frequently;
- the European Communities assumes that the United States cannot
request DSB meetings.
In fact, the maximum period is 18 months, and can be less given
regularly scheduled DSB meetings and the fact that Members may
request meetings.
EC Assumption (3): The USTR cannot initiate WTO dispute
proceedings before initiating a Section 301 investigation.
In fact, the USTR may initiate dispute settlement proceedings before
initiating a Section 301 investigation.
4.500 In the view of the United States, the first set of EC assumptions relates to its claim that
Section 304 mandates a violation of DSU Article 23.2(a). The European Communities argues
that Section 304 requires the USTR to make a determination that US trade agreement rights
have been violated within 18 months of initiation of a Section 302 investigation, while the DSU
provides for a longer period for completio n and adoption of panel and Appellate Body
proceedings in some instances.
4.501 The United States challenges the EC assumption, its most fundamental assumption, that
Section 304 requires the USTR to make an affirmative determination that US agreement rights
have been denied even if the DSB has not adopted panel or Appellate Body findings to this
effect. It is important to recognise that Article 23.2(a) does not prohibit determinations that a
violation has not occurred, nor does it prohibit accurate descriptions of a process which is under
way. Article 23.2(a) prohibits determinations that another WTO Member has violated its WTO
obligations unless DSU rules and procedures have been followed. In other words,
Article 23.2(a) relates only to a finding of a violation.
4.502 The United States notes that the European Communities makes absolutely no attempt to
explain how Sections 301-310 mandate such a determination. The European Communities

merely assumes that in determining "whether" US agreement rights have been denied, the
USTR must make an affirmative determination. Unless the European Communities can explain
why, under US law, this assumption is correct, it has failed to meet its burden with respect to
this claim. The United States reiterates that the USTR is completely free to make any of a
number of determinations, including a negative determination, if the DSB has not yet adopted
panel or Appellate Body findings.
4.503 The United States notes that the European Communities also makes assumptions
relating to the time frames in Section 301 and the DSU. However, because Section 304 does
not mandate an affirmative determination, these time frames are simply not relevant to the
Panel's decision. Nevertheless, even were this not so, the 18-month time frame in the statute
would not prevent the USTR from complying to the letter with DSU rules and procedures. The
EC's calculation of the time by which a panel may extend its proceedings is incorrect by one
month. Moreover, the European Communities ignores the fact that DSB meetings normally are
held monthly and instead assumes that DSB meetings would not be held until the final day
permitted under the DSU. The European Co mmunities also assumes that the United States
would not attempt to affect the schedule of DSB meetings. Finally, the European Communities
ignores the fact that Sections 301-310 do not preclude the USTR from initiating dispute
settlement proceedings before initiating a Section 301 investigation. Thus, wholly apart from
the fact that the European Communities cannot assume that the USTR will always make an
affirmative determination, the time frames in the US statute do, in fact, permit the USTR to base
her determination on adopted panel and Appellate Body findings. The DSU time frames were
negotiated with this 18-month time frame in mind, and the European Communities and others
were well aware of this fact during the Uruguay Round.
4.504 The United States further indicates that Section 304(a)(1) of the Trade Act of 1974 does
not command the authorities of the United States of America to violate the obligations found in
the text of DSU Article 23.2(a). It does not command the United States USTR to determine,
within the meaning of Article 23.2(a), that another WTO Member is denying US trade
agreement rights absent DSB recommendations and rulings to that effect.
4.505 The United States recalls that the European Communities asked the Panel to find that
Section 304(a)(2)(A),
"is inconsistent with Article 23.2(b) [sic] of the DSU because it requires the
USTR to determine whether another Member denies rights or benefits under a
WTO Agreement irrespective of whether the DSB adopted a panel or Appellate
Body finding on this matter". (emphasis added)
4.506 The United States emphasised that the EC's formulation is wrong because it assumes
that "whether" means "that". In requiring that she make a determination of whether US trade
agreement rights have been denied, the statute does not command the USTR to conclude that
such rights have been denied. In the absence of a concrete determination that another Member
has violated its WTO obligations, or a command in the statute to make that specific
determination, there is quite simply nothing for the Panel to examine against the requirements of
Article 23.2(a). The closest the European Communities has come to arguing that
Section 304(a)(1) mandates a determination of breach is its statement that the Section 304(a)(1)
determination must be based on the results of the Section 302 investigation. But this is no
argument at all, for the investigation won't be concluded without the DSB rulings and
recommendations the USTR is required to seek under Section 303(a) and is required to rely on
under Section 304(a)(1), a point the European Communities was willing to acknowledge.

Section 304(a)(2)(A) is not inconsistent with DSU Article 23.2(a) because Section 304(a)(1)
does not mandate a determination that a violation has occurred.
(b) Discretion not to make a determination of violation
(i) Interpretation of Section 304
4.507 The European Communities claims that there is nothing in Sections 301-310 that
would permit the USTR to make her determinations on any other basis, for instance on the basis
of a delay in the WTO dispute settlement proceedings. The United States in effect makes the
astonishing claim that the USTR may determine under Sections 301-310 that no denial of rights
and no failure to implement DSB recommendation occurred because the WTO dispute
settlement have not been completed.
4.508 The European Communities submits that it would not be logical to interpret
Sections 301-310 to authorize determinations on the WTO-consistency of measures on the basis
of factors that are entirely outside the plain language of the law and, as such, irrelevant to such a
determination.
4.509 The European Communities argues that Sections 301-310 as they appear on the US
statute books cannot be described as discretionary legislation.
4.510 The European Communities first claims that the United States has unconvincingly
claimed for example that the USTR is somehow "free" not to make a finding that US trade
agreement rights have been denied in a situation where the results of an investigation
undertaken under Section 302 do not support such a determination. Even less convincing is the
US argument that the USTR could postpone making such a determination until after the
conclusion of a WTO dispute settlement case or could terminate the investigation without
making any determination at all and instead open a new investigation.
4.511 The European Communities adds that there is simply no support for any of these
allegations in the relevant provisions of the 1974 Trade Act. It is striking that the United States
itself does not point to any provision in the law that would bear out such a reading which goes
in fact against the express terms and declared
 purpose of that law.
4.512 The argument of the European Communities thus is that Sections 301-310 are not
genuinely discretionary in that they instruct the USTR to take her decisions in a way that does
not allow her to avoid WTO-inconsistent action in situations where the time-frames stipulated in
section 304(a)(1) and 306(b) are overstepped.
4.513 In the view of the European Communities, it is of little importance what the USTR has
actually done in such situations, since the terms of the law are such that they limit any marginal
discretion that the USTR may have in such a way that she cannot avoid to choose between
either violating the law or violating the WTO. It is this element of "diabolic choice" that makes
a law WTO-inconsistent, whatever the characterisation of the law under the "discretionary
versus mandatory" criterion may otherwise be.
4.514 The European Communities secondly points out that in order to rebut the EC
interpretation of the text of Sections 301-310, the United States affirmed that:
"… the Trade Representative is required under Section 304(a)(1) to base a
determination of whether agreement rights have been denied on the results of

WTO dispute settlement proceedings. The Trade Representative has done so in
every GATT and WTO case to date in which the US was a complainant. Thus,
in the event that a dispute settlement panel were to fail to complete its
proceedings within the time frames provided for in the DSU and
Section 304(a)(2)(A), the Trade Representative would not be able to make a
determination that US agreement rights have been denied".
4.515 The European Communities considers that the text of Sections 301-310 does not
support such a description of the factual and legal situation.
"Section 304 (a) is applicable in two instances:
(a) in the initial phase after the conclusion of an initial investigation and
(b) pursuant to Section 306 (b) (2) and, by reference, to Section 306 (b) (1), in the
later phase of "monitoring of compliance".
4.516 The European Communities deems it appropriate to quote in extenso the text of the
relevant provisions under Section 304 (a) (1):
"(a) In general
(1) On the basis of the investigation initiated under section 2412 [Section 302]
of this title and the consultations (and the proceedings, if applicable) under
section 2413 [Section 303] of this title, the Trade Representative shall -
(A) determine whether -
(i) the rights to which the United States is entitled under any
trade agreement are being denied, …". (emphasis added)
4.517 The European Communities then notes that Section 304 (a) (2) provides as follows:
"(2) The Trade Representative shall make the determinations required under
paragraph (1) on or before -
(A) in the case of an investigation involving a trade agreement,
the earlier of -
(i) the date that is 30 days after the date on which the dispute
settlement procedure is concluded, or
(ii) the date that is 18 months after the date on which the
investigation is initiated …". (emphasis added)
4.518 The European Communities argues that the chapeau of Section 304 imposes an
obligation ("shall") upon the USTR to determine whether the rights of the United States are
being denied "on the basis of the investigation initiated under section 302".
4.519 In support of its argument, the European Communities points out that the sentence in
the chapeau of Section 304 (a) (1):

"(and the proceedings, if applicable) under section 303", (emphasis added)
explicitly refers to Section 303 ("Consultation upon initiation of investigation"), where, under
Section 303 (2), the USTR
"shall promptly request proceedings on the matter under the formal dispute
settlement procedures provided under such agreement". (emphasis added)
4.520 The European Communities states that, according to Section 304, the obligatory
("shall") determination by the USTR on whether rights of the United States are being denied is
not discretionary but must be based upon the results of the investigation (where the domestic
industry interests become therefore decisive) and "if applicable" on the "proceedings" under
Section 303. Moreover, according to Section 304(a)(2), it must be made within "the earlier of"
certain time frames.
4.521 The European Communities argues that the result of the investigation is obviously not
discretionary, as the USTR is not free to determine whether such situation arises or not
independently from the facts of the case. Rather, it is the USTR's duty to ascertain the existence
of a factual situation: to even suggest that an authority charged with investigative powers as
regards factual situations possesses discretion as to the actual results of the investigation would
be equivalent to replacing the rule of law with arbitrariness.
4.522 The European Communities adds that the United States has officially stated both in the
DSU review process and in front of you that it does not consider that any panel proceedings
under the formal dispute settlement procedures are obligatory in the phase of "monitoring of
compliance" in order to determine a failure of compliance of a WTO Member with the
recommendations and rulings of the DSB. However, in the WTO dispute settlement system, no
other procedure to that effect is available at the request of the original complainant. Section 303
referred to in the chapeau of Section 304(a)(1) clearly requires a positive "request" by USTR to
make the dispute settlement procedure "applicable" in the context of Section 304.
4.523 The United States argues , in connection with the foregoing EC arguments, that the
European Communities asserts that Section 304(a)(2)(A) violates DSU Article 23, in particular
Article 23.2(a), because it requires the USTR to determine whether another WTO Member has
denied rights under a WTO Agreement within 18 months of a request for consultations, even if
the DSB has not adopted a report with findings on the matter within that time frame. This
assertion is based on numerous miscalculations and unsupported assumptions.
4.524 The United States argues that the EC's formulation on its face fails to state a violation of
Article 23, since it claims only that the USTR must determine whether US rights have been
denied within the prescribed time frames, and not that the USTR must determine that such rights
have been denied. Nothing in Sections 301-310 compels the USTR to find that US rights have
been denied in the absence of panel or Appellate Body findings adopted by the DSB. Therefore,
regardless of the relationship between the time fr ames in Section 304(a)(2)(A) to those in the
DSU, the European Communities may not conclude that they compel a violation of Article 23.
4.525 The United States recalls that Article 23.2(a) provides that Members shall:
(a) not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any objective
of the covered agreements has been impeded, except through recourse to
dispute settlement in accordance with the rules and procedures of this

Understanding, and shall make any such determination consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or
an arbitration award rendered under this Understanding.
4.526 The United States argues that for there to be a violation of Article 23.2(a): (1) there
must be a determination that a WTO agre ement violation has occurred; and (2) that
determination is not consistent with panel or Appellate Body report findings adopted by the
DSB or an arbitration award rendered under the DSU. Because the European Communities has
not, as part of this case, alleged that a specific US determination violates Article 23.2(a), the
European Communities must show that, under Sections 301-310, the USTR is required to make
a violation determination, and to do so in a ma nner inconsistent with panel or Appellate Body
findings adopted by the DSB.
4.527 According to the United States, Section 304(a)(2)(A) establishes time limits for the
USTR's determination of whether US trade agreement rights are being denied: the earlier of 30
days following the date on which dispute settlement proceedings are concluded or 18 months
from the initiation of a Section 301 investigation.
293 While Section 304(a)(2)(A) sets forth the
time limits for this determination, Section 304(a )(1)(A) sets forth the criteria: the USTR's
determination is made on the basis of WTO dispute settlement proceedings.294
4.528 The United States argues that nothing in the language of Section 304(a)(1)(A) compels
a specific determination, and the European Communities has made no attempt to demonstrate
that it does. Therefore, even if the 18-month target date in Section 304(a)(2)(A) were to occur
before the DSB has adopted panel and Appellat e Body findings, nothing in Section 304(a)(1)
would compel the USTR to find an agreement violation, let alone one inconsistent with panel or
Appellate Body findings.
4.529 In the view of the United States, the USTR has broad discretion to issue any of a
number of determinations which would not remotely conflict with Article 23.2(a) – most
fundamentally, a determination that no violation has occurred. In order to meet its burden in
this case, the European Communities must explain why, under US law, the USTR could not
295
make such a negative determination, or could not, for example, determine that no violation has
been confirmed by the DSB, that a violation will be confirmed on the date the DSB adopts
circulated panel or Appellate Body findings, or that, in order to comply with US international
obligations, the USTR must terminate the current Section 302 investigation and reinitiate
another.
4.530 According to the United States, the European Communities makes no attempt to address
these threshold questions, and instead rests its case with regard to Section 304(a)(2)(A) on pure
speculation that the USTR will always make an affirmative determination that US agreement
rights have been denied. However, unless the European Communities can demonstrate that
such a determination is mandated by law, and that no other determinations are possible, the fact
that there is an 18-month time frame in Section 304(a)(2)(A) is irrelevant.
4.531 The United States further challenges the EC assumption, its most fundamental
assumption, that Section 304 requires the USTR to make an affirmative determination that US
agreement rights have been denied even if the DSB has not adopted panel or Appellate Body

293 Section 304(a)(2)(A), 19 U.S.C. § 2414(a)(2)(A).
294 Section 304(a)(1), 19 U.S.C. § 2414(a)(1).
295 The United States cites Panel Report on US – Tobacco, op. cit., para. 123.

findings to this effect. It is important to recognise that Article 23.2(a) does not prohibit
determinations that a violation has not occurred, nor does it prohibit accurate descriptions of a
process which is under way. Article 23.2(a) prohibits determinations that another WTO
Member has violated its WTO obligations unless DSU rules and procedures have been
followed. In other words, Article 23.2(a) relates only to a finding of a violation.
4.532 The United States notes that the European Communities makes absolutely no attempt to
explain how Sections 301-310 mandate such a determination. The European Communities
merely assumes that in determining "whether" US agreement rights have been denied, the
USTR must make an affirmative determination. Unless the European Communities can explain
why, under US law, this assumption is correct, it has failed to meet its burden with respect to
this claim. The United States reiterates that the USTR is completely free to make any of a
number of determinations, including a negative determination, if the DSB has not yet adopted
panel or Appellate Body findings.
4.533 In response to the Panel's question regarding the precise basis under Section 304, or any
other legal basis, for the United States to argue that unless WTO procedures are completed, the
USTR is precluded from making a determination of violation, the United States states that
Section 304(a)(1) requires that determinations under that Section be made "on the basis of the
investigation initiated under Section 302 and the consultations (and the proceedings, if
applicable, under section 303)". The "proceedings" under Section 303 are dispute settlement
proceedings.296 Moreover, such proceedings would be "applicable" in any case involving a
trade agreement, since Section 303 requires that dispute settlement procedures under a trade
agreement be invoked in any case involving a trade agreement, if no mutually acceptable
resolution has been achieved.
297
4.534 The United States considers that the United States Administration has, in the Statement
of Administrative Action approved by Congress, provided its "authoritative expression . . .
concerning its views regarding the interpretation and application of the Uruguay Round
agreements, . . . for purposes of domestic law". 298 The Statement of Administrative Action
must, by law, be treated as the authoritative expression concerning the interpretation of the
statute in any judicial proceeding. 299 As already noted, the Statement of Administrative Action
at page 365 provides that the USTR will:
"base any section 301 determination that there has been a violation or denial of
U.S. rights under the relevant agreement on the panel or Appellate Body
findings adopted by the DSB".300
4.535 The United States notes that this commitment is consistent with the requirements of US
case law that in US law, it is an elementary principle of statutory construction that "an act of

296 The United States notes that Section 303(a)(2) provides that if dispute settlement
consultations under a trade agreement have not resu lted in a mutually acceptable resolution, the Trade
Representative shall request "proceedings" under the "formal dispute settlement procedures provided
under such agreement".
297 Ibid.
298 Statement of Administrative Action, op. cit., p. 1.
299 19 U.S.C. § 3512(d) ("The statement of administrative action approved by Congress under
section 3511(a) of this title shall be regarded as an authoritative expression by the United States
concerning the interpretation and application of the Uruguay Round Agreements and this Act in any
judicial proceeding in which a question arises concerning such interpretation or application".).
300 Statement of Administrative Action, op. cit., p. 365 (emphasis added).

Congress ought never to be construed to violate the law of nations if any other possible
construction remains". Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804).
While international obligations cannot override inconsistent requirements of domestic law,
"ambiguous statutory provisions . . . [should] be construed, where possible, to be consistent with
international obligations of the United States". Footwear Distributors and Retailers of America
v. United States, 852 F. Supp. 1078, 1088 (CIT), appeal dismissed, 43 F.3d 1486 (Table) (Fed.
Cir. 1994), citing DeBartolo Corp. v. Florida Gulf Coast Building and Trades Council, 485 U.S.
568 (1988).
4.536 Based on these considerations, the United States considers that, under US law, it is
required to base an affirmative determination that US WTO agreement rights have been denied
on adopted panel and Appellate Body findings. That is to say, US law precludes such an
affirmative determination not based on adopted panel or Appellate Body findings. The United
States notes that in so doing, United States law goes beyond what the European Communities
argues is required by Article XVI:4. The United States recalls that the European Communities
states: "[I]t would be inappropriate to interpret Article XVI:4 of the WTO Agreement so
extensively as to require WTO Members to include specific language in their domestic law
precluding WTO-inconsistent action".
4.537 The United States points out that the European Communities acknowledged the
requirement in US law to base determinations that US agreement rights have been denied on
adopted DSB findings. There, the European Communities notes that certain provisions of
Sections 301-310 "are in conformity with the principles set out in Article 23", such as
"Section 304(a)(1)(A), according to which the USTR's determination of denial
of United States rights or benefits under a WTO agreement must be based not
only on the investigation and the consultations with the country concerned but
also on the WTO dispute settlement proceeding". (emphasis added)
4.538 The United States adds that there have been numerous statements that the United States
will resort to WTO dispute settlement procedures in cases involving WTO rights, 301 and these
procedures include basing determinations on adopted panel and Appellate Body findings. More
importantly, the Statement of Administrative Action is by law an authoritative expression of the
proper interpretation of the statute in any judicial proceeding.302
4.539 The United States further considers that in this dispute, the law does not provide for a
determination inconsistent with Article 23.2(a), and the European Communities has failed to
establish that it does. While the European Communities merely assumed that
Section 304(a)(1)(A) mandated a determination that US agreement rights have been denied, in
its answers to Panel questions it explicitly concedes that Section 304(a)(1)(A) does not mandate
such a determination. The European Communities states that the USTR "may make only one of
two determinations: United States' WTO rights are being denied or the United States' WTO
rights are not being denied". This statement in and of itself admits that the USTR is not

301 The United States notes that for example, in an appearance before the Senate Foreign
Relations Committee, Deputy US Trade Representative Rufus Yerxa explained that under the GATT, "it
is explicitly provided [in the statute] that we take matters covered by GATT rules to the GATT for
dispute resolution", and that this would not change under the WTO. Senate Foreign Relations Committee
Hearing on the World Trade Organization, Federal News Service, June 14, 1994.
302 19 U.S.C. § 3512(d).

mandated to make "a determination to the effect that a violation has occurred", and the EC's
case with respect to Section 304(a)(1)(A) must therefore fail.
4.540 The United States notes that the European Communities similarly admits that the USTR
need not determine that a violation has occurred when it states, "The EC would like to underline
that a determination of the absence of a violation is of course the mirror image of a
determination that a violation has occurred. It is not possible to make a determination . . . in one
direction without at least the possibility of coming to a different conclusion". 303 In this
statement, the European Communities again concedes that it is possible for the USTR not to
determine that US agreement rights have been denied.
4.541 The United States notes that the European Communities concluded:
"A law that requires a determination in all cases whether a violation of WTO
law has occurred therefore comprises the requirement to determine in certain
cases that a violation of WTO law has occurred. Such a law therefore mandates
determinations that are inconsistent with Article 23".
4.542 In the view of the United States, these non-sequiturs now comprise the sole basis for the
EC's argument that Section 304(a)(1)(A) mandates a determination inconsistent with DSU
Article 23.2(a) (and that Section 306(b) mandates violations of DSU Article 23.2(a) and (c)).
Only if the Panel agrees that a determination "whether" agreement rights have been denied may
be equated with a determination "that" such rights have been denied – that, contrary to the EC's
earlier admission, there is no possibility of making a negative determination – will the first
requirement for a violation of Article 23.2(a) be met. However, aside from the absence of any
logical or legal foundation for the EC's argument, it would have the impermissible consequence
of preventing even determinations of consistency, notwithstanding the explicit language of
Article 23.2(a), which only addresses certain determinations of inconsistency.
4.543 The United States claims that both Canada and Brazil make this point. Canada states in
its response to a Panel question that DSU Article 23.2(a):
"does not prohibit determination of consistency with WTO norms. Any such
prohibition would be counterproductive to the objectives of Article 3.7 of the
DSU which states that '(a) solution mutually acceptable to the parties to the
dispute and consistent with the covered agreements is clearly to be preferred'".
4.544 The United States further notes that likewise, Brazil states:
"WTO Members are, of course, entitled to make unilateral determinations of
non-violation and of any interests they may have that are not currently covered
by the WTO Agreements".
4.545 The United States challenges the EC's argument because it would have the
impermissible consequence of reading out of Article 23.2(a) the exception for violation
determinations made in accordance with DSU rules and procedures. Under the EC's reading,
the very fact of making a determination would be inconsistent with Article 23.2(a), thereby
prohibiting even those violation determinations made in accordance with DSU rules and
procedures.

303 Ibid. at 25 (emphasis in original).

4.546 The United States claims that the EC admission that Section 304 does not mandate a
determination that US agreement rights have been denied is a sufficient basis for this Panel to
find that Section 304 is not inconsistent with DSU Article 23.2(a). Nevertheless, even if the
Panel were to conclude otherwise, the EC's claim fails because the USTR is not limited under
Section 304(a)(1)(A) to making the two determinations the European Communities refers to,
and because the time frames in Sections 304(a)(2)(A) do not preclude the USTR from basing
her determinations on panel and Appellate Body findings in every case.
4.547 The United States points out that as provided at page 365 of the Statement of
Administrative Action,304 the USTR is required under Section 304(a)(1) to base a determination
of whether agreement rights have been denied on the results of WTO dispute settlement
proceedings. The USTR has done so in every GATT and WTO case to date in which the United
States was a complainant. 305 Thus, in the event that a dispute settlement panel were to fail to
complete its proceedings within the time frames provided for in the DSU and
Section 304(a)(2)(A), the USTR would not be able to make a determination that US agreement
rights have been denied. On this basis, she could, for example, determine that dispute
settlement proceedings had not yet finished, and that a determination concerning US agreement
rights would be made following completion of th ese proceedings. There is no limitation in the
statute on the definition of "determination" which would prevent such determinations.
4.548 The United States further maintains that even if the European Communities were
correct that Section 304(a)(1)(A) permits only two determinations, this would not explain why
the USTR does not have a third option: terminating the investigation without making a
determination. There is nothing in Sections 301-310 to prevent this, and US Exhibit 13
demonstrates that this option has frequently been exercised in the past. The USTR would then
be free to reinitiate a new investigation, as in fact occurred in the Bananas dispute.
4.549 The United States considers that because of the requirement in Section 304 to base
determinations under that provision on adopted panel and Appellate Body findings and because
the USTR may either terminate an investigation or else make multiple determinations under
Section 304, Section 304 would not mandate actions inconsistent with Article 23.2(a) even if a
panel or the Appellate Body were to exceed the time frames set forth in the DSU.
4.550 The European Communities also notes that legal scholars differ on the question of
whether Section 301 actions are subject to judicial review under United States law.
306 There is,
however, no doubt that, even if such actions we re subject to review, no domestic court would
declare invalid an action taken under Section 301 on the ground that it is inconsistent with the
United States' obligations under a WTO agreement. This follows from Section 102(a)(1) of the
Uruguay Round Agreements Act, according to which United States law prevails in the case of a
conflict with a WTO provision:
"No provision of any of the Uruguay Round Agreements, nor the application of
any such provision to any person or circ umstance, that is inconsistent with any
law of the United States shall have effect".

304 US Exhibit 11
305 See US Exhibit 13.
306 On this issue, the European Communities refe rs to Erwin P. Eichman and Gary N. Horlick,
Political Questions in International Trade . Judicial Review of Section 301? in Mich. J. Int'l L., Vol. 10
(1989), pages 735-764.

4.551 The European Communities points out that Section 102(a)(1) also provides that nothing
in the Uruguay Round Agreements Act shall be construed
"to limit any authority conferred under any law of the United States, including
section 301 of the Trade Act of 1974".
Section 102(c) further states:
"No person other than the United States … may challenge, in any action
brought under any provision of law, an y action or inaction by any department,
agency, or other instrumentality of the United States, any State, or any political
subdivision of a State on the ground that such action or inaction is inconsistent
with such [a WTO] agreement".
4.552 In rebuttal, the United States points out that the European Communities attempts to
make much of the fact that, in US courts, US law would prevail in the event of a conflict with
the Uruguay Round Agreements. For example, the European Communities cites Professor
D.W. Leebron for this proposition. However, the European Communities fails to quote
Professor Leebron's conclusion on page 232 of the very same work cited in footnote 27 that,
"Nothing, however, in those provisions [that is, the provisions of Section 301] requires the
President or the USTR to act in violation of the Uruguay Round Agreements". In other words,
because there is no conflict between Sections 301-310 and the WTO Agreement, it does not
matter which would prevail in the event of a conflict. In fact, were there actually a conflict, that
is, if a US law mandated a violation of the WTO Agreement, there would be a WTO violation
regardless of whether a US court would apply US law. The EC's discussion of US law on when
actual conflicts are present is thus completely irrelevant to the Panel's analysis.
4.553 The United States further argues that Sections 301-310 provide for the President and the
USTR to exercise discretion at various points in the Section 302 investigation. Among the most
relevant discretionary decisions for purposes of this proceeding are those relating to the USTR's
determination of whether US trade agreement rights have been denied, the determination of
action to be taken if those rights have been denied, and the timing of that action.
4.554 The United States notes that the USTR determines whether US agreement rights have
been denied pursuant to Section 304(a)(1). That section provides:
"(1) On the basis of the investigation initiated under section 302 and the
consultations (and the proceedings, if applicable) under section 303, the Trade
Representative shall -
(A) determine whether -
(i) the rights to which the United States is entitled under any
trade agreement are being denied, …".
307
4.555 The United States contends that in Section 302 investigations where a WTO agreement
is involved, the USTR thus makes her determination on the basis of the results of any WTO
dispute settlement proceeding.308 If the DSB has adopted a panel or Appellate Body report, the

307 Section 304(a)(1)(A)(i); 19 U.S.C. § 2414(a)(1)(A)(i).
308 See Section 303(a)(1)-(2), 19 U.S.C. § 2413(a)(1)-(2).

USTR will make her determination on the basis of that adopted report. If, on the other hand,
WTO dispute settlement proceedings have not yet concluded, the USTR is not required to
determine that US rights have been denied. Nothing in Section 304(a)(1) or any other provision
of Sections 301-310 requires the USTR to make a determination that US agreement rights have
been denied if the DSB has not ruled to that effect. The USTR is free, for example, to
determine that no violation has been confirmed by the DSB, that a violation found in a panel or
Appellate Body report will be confirmed on the date of the DSB meeting at which the report
will be adopted, or that there is reason to believe that a violation has occurred, but that the DSB
has not yet confirmed this. The USTR is also free to make a negative determination, and then
reinitiate a second investigation in order to make a definitive determination of an agreement
violation upon DSB adoption of panel and Appellate Body findings.
309
4.556 The United States stresses that the USTR is a cabinet level official serving at the
pleasure of the President, whose office is located within the Executive Office of the President.310
Pursuant to 19 U.S.C. § 2171(c)(1) (1998), Reor g. Plan No. 3 of 1979, Sec. 1(b)(4), 44 Fed.
Reg. 69273 (1979) and 19 C.F.R. § 2001.3(a) (1998), the USTR operates under the direction of
the President and advises and assists the President in various Presidential functions. 311 T h e
President may through this authority direct the Trade Representative as to the determinations
she makes.
4.557 The European Communities responds to the US argument that Section 304(a)(1)
refers to WTO "proceedings" as a basis for the determination to be made, and until WTO
procedures completed the USTR cannot make a determination of violation, by claiming the US
argument before the Panel is defeated by two considerations.
4.558 In the view of the European Communities, the first consideration relates to the time
frames in section 304(a)(2) which do not allow the USTR to await the outcome of WTO dispute
settlement proceedings in all cases, because the USTR must make the determination under
Section 304(a)(1) by the earlier of the expiry of two deadlines, of which only one is related to
the completion of the procedures under the DSU. If the completion of these procedures takes
more than the time frame stipulated under the alternative provision (18 months after the date on
which the investigation under section 302 was initiated), the USTR is not allowed to await the
outcome of the dispute settlement procedure under the DSU and thus cannot base her
determination on the results of that procedure. The European Communities would recall that the
chapeau of Section 304(a)(2) refers back to the "determinations [all of them] under paragraph
(1)" of Section 304(a).
4.559 The European Communities presents the second consideration which relates to a
situation that arises at a later stage of the pr ocedure, which is described under Section 306 as
"Monitoring of foreign compliance". In this context, it must be recalled that the reference to "the
proceedings" in Section 304(a)(1) is qualified by the words "if applicable" and by a cross-
reference to Section 303. Section 303(2) provides in this context that "the Trade Representative
shall promptly request proceedings on the matter under the formal dispute settlement procedures
provided under such agreement". In other words, the proceedings referred to in Section 303(2)
are those which may be requested by the USTR.

309 The United States notes that upon a negative determination, the USTR would be free to
reinitiate an investigation pursuant to Section 302(b)(1). See Section 302(b)(1), 19 U.S.C. § 2412(b)(1).
310 See 19 U.S.C. § 2171(a), (b)(1) (1998).
311 See 19 U.S.C. § 2171(c)(1) (1998); Reorg. Plan No. 3 of 1979, Sec. 1(b)(4), 44 Fed. Reg.
69273 (1979); 19 C.F.R. § 2001.3(a) (1998).

4.560 The European Communities points out that since, in the view of the USTR, in cases of
disagreement on the consistency with a covered agreement of measures taken to comply with
the recommendations and rulings of the DSB in a prior dispute, the complainant is not required
to first resort to the procedure under Articl e 21.5 of the DSU, but must have immediately
recourse to Article 22 in order to comply with the time limits under Article 22.2, the USTR
cannot request any proceedings under the formal dispute settlement procedures under the WTO
in such situations (under Article 22.6 of the DS U, the procedural right to request arbitration is
not available to the original complainant, but only to the original respondent).
4.561 The European Communities then argues that if the US interpretation of Article 21.5 of
the DSU were correct ( quod non), no "proceedings" in the sense of Section 303(2) would be
applicable in such situations, and therefore the USTR would be compelled to make
determinations under 304(a)(1) of the failure of compliance by another WTO Member without
resorting to WTO dispute settlement procedures (and in fact has done so in the Bananas case).
4.562 According to the European Communities, in any case, the time frames stipulated in
Section 306(b) and Section 304(a)(2) would not allow the conclusion of the multilateral dispute
settlement procedures and thus violate Article 23 (and the related provisions under Articles 21
and 22) of the DSU.
312
4.563 The United States , in response to the Panel's question as to how the reference to
"proceedings" in Section 304(a)(1) as a basis for determinations under Section 304 is read
exclusively to refer to the outcome or result of WTO proceedings and not also include, for
example, the conduct and statements of the Member concerned in ongoing WTO procedures,
i.e. before the adoption of DSB recommendations, answered as follows: The United States is
not sure what is meant by "conduct and statements of the Member concerned", or how such
statements would be relevant to particular determinations. If this phrase is meant to refer to
statements made by a losing party regarding its intentions with respect to implementation, such
statements are indeed taken into consideration when determining whether, under
Section 301(a)(2)(B)(i), satisfactory measures are being taken to grant US rights. The United
States reiterates that the USTR has determined not to take action based only on the
"expectation" that another WTO Member would implement DSB rulings and recommendations,
without any formal statement from that Member to that effect. A statement by a losing party
would thus certainly be considered relevant, and is part of the proceedings. In this connection,
the United States notes that the "date on which the dispute settlement procedure is concluded" is
the date by which parties state their intention with regard to compliance, i.e. 30 days after DSB
adoption (or, in terms of the DSU time frames, 17 months and 20 days after the consultation
request).
4.564 The United States goes on to state that on the other hand, if by "conduct and statements"
the Panel means an expressed desire to resolve the dispute, the USTR most certainly would take
this into account in deciding whether to terminate the Section 302 investigation without a
Section 304 determination. Again, as described in US Exhibit 13, the USTR has frequently
done this.
4.565 The United States challenges the EC's argument that it reconsidered this position in
light of the United States decision not to request Article 21.5 proceedings in the Bananas
dispute. First, it incorrectly assumes that Article 21.5 proceedings are a prerequisite to

312 The European Communities notes that this is obvious when taking into account the duration
of a procedure under 21.5 of the DSU, given that the Panel procedure alone will take up to 90 days.

requesting suspension under Article 22. Second, it assumes that Section 306 requires a
determination of breach, which it does not, and ignores the fact that the action determination
which is provided for in Section 306 is to be based on Article 22 procedures. Third, even if,
contrary to the conclusion of the Bananas arbitrators, it were concluded that Article 21.5 is a
prerequisite to requesting suspension under Article 22, this would not explain why US law
would not still require that dispute settlement procedures be relied on to make affirmative
determinations of breach. Further, as indicated above, if an agreement were reached in the DSU
Review by which parties would resort to an amended Article 21.5 process prior to resorting to
Article 22 procedures, nothing in Section 306 would prevent the United States from acting
consistently with such an agreement.
4.566 The European Communities emphasises that while describing the events in the
Bananas case, the United States misrepresents the facts, and their sequence, as they occurred in
reality. On 9 October 1998, while the "reasonable period of time for implementation" granted
to the European Communities in order to take measures to comply with recommendations and
rulings in the Banana III DS procedure was still running (deadline 31 December 1998) and the
European Communities had not yet adopted all these measures, the Chief of Staff of US
President W. Clinton, M. Erskine Bowles, wrote a letter to the leaders of both the Republican
and Democrat parties in the House and in the Senate (submitted on 8 July 1999 by the
Commonwealth of Dominica and Saint Lucia as third party). In the name of the President (the
incipit of the letter is "the Administration shares your view (…)"), Mr. Bowles stated the
following:
"To put maximum pressure on the EU, the Administration is pursuing three
separate tracks (1) continuing to indicate our willingness to try to resolve the
dispute in a mutually acceptable manner consistent with WTO obligations (2)
preserving our rights in the WTO process and (3) proceeding under section 301
of the Trade Act of 1974.
(…)
Then, unless the EU has agreed to suspend implementation of its banana regime
and to implement a WTO-consistent regime acceptable to us by January 2,
1999, the Administration will publish a second Federal Register notice on
November 10. This notice will request comments on a list of specific retaliatory
options and indicate that the administration will announce on December 15
retaliatory action pursuant to section 301 to take effect on February 1, 1999,
unless the EU's banana regime is in full compliance with WTO rules".
4.567 The European Communities contends that as these examples show, both the threat and
the action violate the text, the object and purpose of Article 23 (and the related provisions of
Article 21 and 22) of the DSU. In this perspective, the European Communities argues that the
statement made by the United States according to which:
"the Trade Representative has never once made a section 304 (a)(1)
determination that US GATT or WTO agreement rights have been denied
which was not based on the results of GATT and WTO dispute settlement
proceedings"
is factually incorrect, since the USTR, at least in the Banana III case, took a determination
under 304 (a)(1) that US WTO agreements rights had been denied after the end of the
reasonable period of time without resorting to any WTO DS procedure on the conformity of the

new EC measures which repealed the legislation that an earlier panel had declared incompatible
with the WTO. It is also misleading, since the threat of retaliatory action could force upon the
targeted WTO Member a "mutually" agreed solution that makes a determination under Section
304 (a)(1) unnecessary (as in the Japan – Auto Parts Section 301 procedure).
4.568 The United States responds that the European Communities merely asserts that the US
response was inaccurate, without introducing any relevant new arguments. The United States
reaffirms the accuracy of its response. Moreover, the arguments referred to by the European
Communities do not address the points made here by the United States.
(ii) Practice
4.569 The European Communities further refers to the resolution of the House of
Representatives in the Japan – Auto Parts case to which it has referred in its oral statement
during the second substantive meeting with the Panel. According to that resolution, the House of
Representatives
"strongly supports the decision by the President to impose trade sanctions on
Japanese products in accordance with section 301 of the Trade Act of 1974
unless an acceptable accord with Japan is reached in the interim that renders
such action unnecessary",
313
although it was obvious that no dispute settlement procedure under the WTO had been
requested in a situation where trade sanctions in the area of trade in goods had been announced
by the President. That resolution was taken only a few months after the adoption by the US
Congress of the Uruguay Round Agreements Act and is a clear indication of how the US
legislator understood Sections 301-310 in that specific context.
4.570 The European Communities draws the attention of the Panel to the fact that the US
claims that the USTR has been following constantly a certain pattern of behaviour is
contradicted by the Japan - Auto Parts procedure which did not follow that pattern.
4.571 The United States points out that no determination relating to WTO Agreement rights
was made in the Japan - Auto Parts case. As the question notes, the determination in that case
involved the issue of whether Japan's acts, practices and policies were "unreasonable", not
whether US rights under the WTO had been denied. Any claim in connection with the Auto
Parts case thus would bear no relationship to any of the EC claims relating to Article 23.
4.572 As a general response to Panel questions relating to the practice under Section 304, the
United States notes that it is mindful that the application of Section 301 in particular cases is not
within the Panel's terms of reference, and that the Panel therefore will not offer findings with
respect to specific Section 302 investigations. Likewise, the practical application of Sections
301-310 is only relevant insofar as it sheds light on the only relevant question in this dispute: do
Sections 301-310 mandate (and not merely permit) actions which are inconsistent with specific
textual obligations found in DSU Article 23, WTO Article XVI:4 and GATT 1994 Articles I, II,
III, VIII and XI.
4.573 With respect to the practice under Section 304, the United States also argues that, as
noted elsewhere and as provided at page 365 of the Statement of Administrative Action (US

313 104th Congress, 1st session, H.Res. 141.

Exhibit 11), the USTR is required under Section 304(a)(1) to base a determination of whether
agreement rights have been denied on the results of WTO dispute settlement proceedings. Thus,
in the event that a dispute settlement panel were to fail to complete its proceedings within the
time frames provided for in the DSU and Section 304(a)(2)(A), the USTR would not be able to
make a determination that US agreement rights have been denied. On this basis, she could
determine that dispute settlement proceedings had not yet finished, and that a determination
concerning US agreement rights would be made following completion of these proceedings.
She could also, for example, terminate the Section 304 investigation on the basis of the fact that
information necessary to make her Section 304(a)(1) determination is not available, then
reinitiate another case. The USTR has terminated and reinitiated Section 302 investigations
before, including in the Bananas dispute,
314 and has terminated investigations without making a
determination on numerous occasions.315
4.574 The United States explained that it is not possible to provide an exhaustive list of the
determinations that can be made under Section 304(a)(2)(A) because there is no definition in the
statute that constrains the USTR's discretion in this regard. The USTR's determinations under
Section 304(a)(2)(A) are provided below. Also listed below are cases in which the USTR
terminated an investigation involving trade ag reement rights without making a determination.
As indicated below, the USTR has never determined that US rights under the GATT 1947 or the
WTO Agreement have been denied in the absence of GATT panel findings or adopted DSB
rulings and recommendations.
Determinations under Section 304(a)(1)(A)316
Section 304(a)(2)(A) refers to determinations under Section 304(a)(1)(A) relating to denial of rights or
benefits under a trade agreement. A list of these determination follows. Please note that none of these
cases is within the terms of reference of this Panel. Section 304(a)(1)(A) dates to 1988.
WTO Cases:
Canadian Export Subsidies and Market Access for Dairy Products (1999):
At the 18-month anniversary, the USTR determined that it would not be possible to determine
whether US agreement rights had been denied until the DSB had adopted panel and Appellate
Body findings. US Exhibit 14 includes a letter from the Trade Representative to Congressional
officials explaining this. Dispute settlement proceedings are still in progress.
India’s Practices Regarding Patent Protection for Pharmaceuticals and Agricultural Chemicals (1998):
Following adoption of panel and Appellate Body reports finding Indian TRIPs Agreement
violations, the USTR determined that certain act s, policies and practices of India violate, or
otherwise deny benefits to which the United States is entitled under, the TRIPS Agreement.
European Community Banana Import Regime (1998):
Following adoption of panel and Appellate Body reports finding EC violations of the GATT
1994 and the GATS in response to a US complaint, the USTR determined that certain acts,
policies and practices of the EC violate, or otherwise deny benefits to which the United States is
entitled under, GATT 1994 and the GATS. The USTR had earlier determined on the 18-month
anniversary that it would not be possible to determine whether US agreement rights had been

314 The United States cites Termination of Investigation; Initiation of New Investigation and
Request for Public Comments: European Union Banana Regime, 60 Fed. Reg. 52026 (1995) (U.S.
Exhibit 18).
315 A list is provided at US Exhibit 13.
316 US Exhibit 13.

denied until the DSB adopted panel and Appellate Body findings. US Exhibit 14 includes a
letter from the USTR to Congressional officials explaining this.
Argentine Specific Duties and Non-Tariff Barriers Affecting Apparel, Textiles, Footwear and Other Items
(1998):
Following adoption of panel and Appellate Body reports finding Argentine GATT violations, the
USTR determined that Argentina’s specific duties on textile and apparel imports violate
Argentina’s obligations under GATT 1994 Article II and its statistical tax on almost all imports
violates GATT Article VIII.
Canadian Practices Affecting Periodicals (1997):
Following adoption of panel and Appellate Body finding Canadian GATT violations, the USTR
determined that certain acts, policies and practices of Canada violate, or otherwise deny benefits
to which the United States is entitled under GATT 1994.
GATT 1947 Cases:
Canada Import Restrictions on Beer (1991):
Following adoption of a GATT panel report finding Canadian GATT violations, the USTR
determined that acts, policies, or practices of Canada violate the GATT.
Thailand Cigarettes (1990):
Following adoption of a GATT panel report finding Thai GATT violations, the USTR
determined that US rights under the GATT were violated.
Korea Beef (1990):
Based on a GATT panel report finding Korean GATT violations, the USTR determined that US
trade agreement rights were being denied.
EC Oilseeds (1990):
Following adoption of a GATT panel report finding EC GATT violations, the USTR determined
that US trade agreement rights were being deni ed. The USTR had earlier determined on the 18-
month anniversary that there was reason to believe that rights under a trade agreement were
being denied, but did not determine that a viol ation had occurred because panel proceedings had
not yet finished.
In the following cases, the USTR terminated an investigation involving trade agreement rights without
making a determination:
Brazilian Practices Regarding Trade and Investment in the Auto Sector (1998):
Following WTO dispute settlement consultations, Brazil committed not to extend its automotive
trade-related measures beyond 1999. As a result, the USTR terminated the investigation.
Turkey's Practices Regarding the Imposition of a Discriminatory Tax on Box Office Revenues (1997):
Following WTO dispute settlement consultations, Turkey agreed to equalize any tax imposed in
Turkey on box office receipts from the showing of domestic and imported films. As a result, the
USTR terminated the investigation.
Pakistan's Practices Regarding Patent Protection for Pharmaceuticals and Agricultural Chemicals (1997):
Following WTO dispute settlement consultations, Pakistan established a mailbox system in
accordance with the TRIPs Agreement and the USTR terminated the investigation.
Portugal's Practices Regarding Term of Patent Protection (1996):
Following WTO dispute settlement consultations, Portugal implemented its patent related
obligations under the TRIPs Agreement and the USTR terminated the investigation.

EU Enlargement (1996):
After an agreement was reached, the USTR terminated the investigation.
EC Enlargement (1990):
Following notification to the GATT contracting parties of the US intention to suspend tariff
concessions in response to actions by the EEC under Article XXIV of the GATT, the United
States and the European Communities reached agreement and the USTR terminated the
investigation.
Norway Toll Equipment (1990):
Following consultations under the GATT Procurement Code, the United States and Norway
reached agreement and the USTR terminated the investigation.
Brazil Import Licensing (1990):
Following GATT dispute settlement consultations, the United States informed Brazil of its
intention to request panel proceedings. Brazil withdrew the measure and the USTR terminated
the investigation.
EC Copper Scrap (1990):
Following the first GATT panel meeting, the United States and the European Communities
settled their dispute. The USTR terminated the investigation and withdrew the US complaint
from the GATT dispute settlement panel.
4.575 The United States further explains that similarly, in the 1989 dispute between the
United States and the European Communities over oilseeds, the USTR delayed action for 180
days pursuant to Section 305(a)(2)(A)(ii) on the basis that substantial progress was being made
in GATT dispute panel proceedings which had not yet finished as of the 18-month target date.317
Moreover, the USTR specifically waited until after panel proceedings had finished before
determining that US agreement rights had been denied under Section 304(a)(1)(A)(i), even
though this was well after the 18-month target.
318 Thus, it was consistent US practice, even
before the conclusion of the Uruguay Round, to rely on dispute settlement results when
determining whether US agreement rights were denied.
4.576 The United States then indicates that the USTR and the President thus have broad
discretion under Sections 301-310 to dictate the timing of any action, the conditions under
which the action will be given effect, and whether the action will be taken at all. The USTR or
the President may, for example, specify that any action taken should not become effective until
the United States has received formal DSB approval.
4.577 In response to a Panel question as to whether the USTR has made decisions other than
affirmative or negative Section 304 determinations, and the legal basis for such determinations,
the United States responds that there is no definition of "determination" in the statute which
constrains the USTR's discretion to make determinations other than violation/non-violation.
Beyond this, the existence of a legal requirement in Section 304(a)(1) to base determinations on
dispute settlement proceedings indicates that the law contemplates a determination that it is not
possible without DSB rulings and recommendations to determine that US agreement rights have

317 See Determinations Under Section 304 of the Trade Act of 1974, as Amended: European
Community Policies and Practices With Respect to, Inter Alia, Production and Processing Subsidies on
Oilseeds, 55 Fed. Reg. 4294 (1990) (US Exhibit 6)
318 See ibid. The United States notes that on the 18-month anniversary, the USTR instead
concluded that she had reason to believe agreement rights were being denied, and therefore was pursuing
such a ruling under GATT dispute settlement procedures.

been denied. Examples of this determination are reflected in the letters in US Exhibit 14. In
addition, US Exhibit 6 is a Federal Register notice of the determinations made in Oilseeds,
including the determination that "there was reason to believe that United States' rights under a
trade agreement were being denied".319
4.578 The United States adds that other legal bases for making determinations other than
violation/non-violation determinations include established US legal principles of statutory
construction regarding deference to administering agency interpretations of their statutes and
legislative ratification of agency interpretations. US courts may not substitute their
interpretations of ambiguous statutory provisions for those of the administering agency. In
addition, Congress is presumed to be aware of an administrative or judicial interpretation of a
statute and to adopt that interpretation when it re-enacts a statute without change. Having
determined that the United States had "reason to believe" agreement rights were being denied in
the 1989 Oilseeds case, the fact that Congress did not amend the statute to prevent such
determinations when other amendments were made in 1994 supports the position that the
Administration's interpretation is correct.
4.579 In response to the Panel's question as to the public notice referred to by the European
Communities and the 3 March 1999 announcement in respect of the Bananas case, the United
States contends that the statement does not provide that the United States will act without DSB
authorization. For one thing, it specifically states "in the event of an affirmative determination",
indicating that the USTR retains discretion to take no action under Section 306, including if
DSU proceedings have not yet finished. At most, the notice reflected certain assumptions
regarding the progress that DSU proceedings would make by March 3.
4.580 The United States goes on to note that the March 3 announcement was not made
pursuant to Section 301. Thus, wholly apart from the fact that no specific application of
Section 301 is within the terms of reference of this dispute, the announcement is even further
removed from the subject matter of this case. In any event, the announcement is the subject of
separate dispute settlement proceedings, and the United States intends to address the EC's
specific claims regarding it in that context.
4.581 In response to the Panel's question on the following disputes brought by the United
States: EC – Bananas III, EC - Hormones, Japan - Film, India – Patents (US), EC – Computer
Equipment, Indonesia - Autos, Japan – Agricultural Products, the United States explains that of
the listed cases, only EC – Bananas III, India – Patents (US), Indonesia – Autos and Japan –
Agricultural Products involved a situation in which Section 304(a)(2)(A) would have been
relevant. The USTR's actions in those cases are explained below. A Section 302 investigation
was never initiated in the EC – Computer Equipment dispute, highlighting further the ultimate
discretion available to the USTR: not to initiate a Section 302 investigation at all. Similarly, in
EC – Hormones , the USTR's resort to WTO dispute settlement procedures was not taken
pursuant to the Section 302 investigation of several years earlier. Thus, no separate
determination under Section 304 was required or made as a result of WTO dispute settlement
proceedings. Likewise, in Japan – Film, the Section 302 investigation was terminated prior to

319 This determination was originally reflected in Determination Under Section 304 of the Trade
Act of 1974, as Amended: European Community’s Policies and Practices With Respect to, Inter Alia,
Production and Processing Subsidies on Oilseeds and Determination Under Section 305 to Delay
Implementation of Any Action Taken Pursuant to Section 301, 54 Fed. Reg. 29123 (1989).

initiation of dispute settlement proceedings; indeed, those proceedings were the action taken in
the case.320
4.582 The United States further explains that in the EC – Bananas III dispute, the
determination was initially made at the 18-month anniversary that it would not be possible to
determine whether US agreement rights had been denied until the DSB adopted panel and
Appellate Body findings. US Exhibit 14 includes a letter from the USTR to a member of
Congress explaining this, along with a similar letter recently provided in the Canada – Dairy
Subsidy dispute. Following adoption of panel and Appellate Body reports finding EC violations
of GATT 1994 and the GATS in response to a US complaint, the USTR determined that certain
acts, policies and practices of the European Communities violate, or otherwise deny benefits to
which the United States is entitled under, GATT 1994 and the GATS.321
4.583 The United States goes on to state that in India – Patents (US), following adoption of
panel and Appellate Body reports finding Indian violations of the TRIPS Agreement in response
to a US complaint, the USTR determined that certain acts, policies and practices of India
violate, or otherwise deny benefits to which the United States is entitled under, the TRIPS
Agreement.322
4.584 The United States notes that in Japan - Agricultural Products , the DSB adopted panel
and Appellate Body reports finding Japanese violations of the SPS Agreement in response to a
US complaint. Likewise, in Indonesia – Autos , the DSB adopted a panel report finding
Indonesian violations of the GATT 1994 and the TRIMs Agreement in response to a US
complaint. The USTR followed customary WTO practice and agreed to or arbitrated a
reasonable period of time for compliance in each case, but has not yet published formal
Section 304 determinations.
4.585 In response to a Panel question, the United States states that the Panel might have
misunderstood the timing of two of the four WTO cases in question. It is true that WTO dispute
settlement proceedings were not comple te at the 18-month anniversary in the Bananas and
Indonesia Autos disputes. However, the Section 302 investigation in Japan – Agricultural
Products was initiated on October 7, 1997.
323 The 18-month anniversary was thus on April 7,
1999. The DSB adopted the Japan – Agricultural Products panel and Appellate Body reports
on March 19, 1999, before the 18-month anniversary. In India Patents (US) , the Section 302

320 The United States notes that in Japan – Film , the USTR determined pursuant to
Section 304(a)(1)(A)(ii) that certain acts, policies, and practices of the Government of Japan were
unreasonable and burden or restrict US commerce and that these acts should be addressed by: (1) seeking
recourse to WTO dispute settlement procedures to challenge the Japanese measures; (2)(a) requesting
consultations with Japan under a WTO provision for consultations on restrictive business practices; (2)(b)
requesting the petitioner to submit information to be provided to Japan's Fair Trade Commission; (2)(c)
seeking to cooperate with the JFTC in its review; (2)(d) studying the extent to which Japan's market
structure distorts competition in US and third markets. Section 304 Determinations: Barriers to Access to
the Japanese Market for Consumer Photographic Film and Paper, 61 Fed. Reg. 30929, 30929-30 (1996)
321 See Determinations Under Section 304 of the Trade Act of 1974: European Communities'
Banana Regime, 63 Fed. Reg. 8248, 8248-49 (1998) (US Exhibit 15).
322 See Determination Under Section 304 of the Trade Act of 1974: Practices of the Government
of India Regarding Patent Protection for Pharmace uticals and Agricultural Chemicals, 63 Fed. Reg.
29053, 29053 (1998) (US Exhibit 16).
323 See Initiation of Section 302 Investigation and Request for Public Comment: Japan Market
Access Barriers to Agricultural Products, 62 Fed. Reg. 53853 (1997) (US Exhibit 8).

investigation was initiated on July 2, 1996.324 The 18-month anniversary was thus on January 2,
1998. The Appellate Body issued its report on December 19, 1997, and the DSB adopted this
report on January 16, 1998. Thus, in Japan – Agricultural Products, the DSB adopted findings
of WTO violations before the 18-month anniversary, and in India Patents , the panel and
Appellate Body issued reports finding WTO violations before the 18-month anniversary,
findings which were "subject to confirmation" (automatically) by the DSB shortly thereafter.
4.586 The United States explains in response to further Panel questions that in Japan –
Agricultural Products and India – Patents (US) , the United States did not make formal
Section 304 determinations by the 18-month anniversary, but should have. However, in neither
case did this affect continued US adherence to DSU procedures. In both cases, the USTR
decided to pursue and conclude agreements on the reasonable period of time for implementation
pursuant to DSU Article 21.3. The United States notes again that no specific application of
Sections 301-310 is within the Panel's terms of reference, and the relevance of any such cases is
therefore limited to whether they illustrate that the statute does or does not command a violation
of DSU Article 23. Moreover, as explained before, if a statute itself is WTO-consistent, the fact
that a Member does not apply that statute in a specific instance does not make the statute
inconsistent with the WTO agreement.
4.587 In response to the Panel's following question regarding Canada – Dairy Subsidies and
EC - Bananas III, where the USTR sent a letter to a member of Congress within the 18 months
time-frame, the United States states that the letters reflect determinations by the USTR, just as
Federal Register notices of determinations are not themselves the determinations, but reflect
them. Federal Register notices are typically signed by the Chairman of the Section 301
Committee and explain that the USTR made a determination on a given date. There usually are
no other public documents associated with the USTR's deliberative process.
325 As explained at
the hearing, while there is a publication requirement in Section 301(c), there is no deadline for
publication provided for in this provision.
4.588 In this connection, the United States disagrees with the following EC statement:
"The explicit requirements to make a determination within a specified time
frame whether the United States' WTO rights are being denied or failure to
implement DSB recommendations has occurred would be completely frustrated
if they were deemed fulfilled by a decision to postpone the determination".
The United States reiterates that the USTR need not and may not, under Section 304(a)(1),
determine that US agreement rights have been denied if there are not adopted panel or Appellate
Body findings to that effect. The requirement to make a determination within 18 months is not
frustrated by the need to comply with the addi tional statutory requirement that a determination
that agreement rights have been denied must be based on the results of dispute settlement
proceedings. The USTR, and not the European Communities, is administering Sections 301-
310, and it is not for the European Communities to opine on either the objectives of the statute
or whether the USTR is meeting them. From the Panel's perspective, the only relevant question

324 See Determination Under Section 304 of the Trade Act of 1974: Practices of the Government
of India Regarding Patent Protection for Pharmace uticals and Agricultural Chemicals, 63 Fed. Reg.
29053, 29053 (1998) (US Exhibit 16).
325 The United States notes the EC's Article 133 Committee appears to operate no differently in
this regard.

is whether the statute commands a violation of the DSU Article 23. It is not relevant whether
the "objectives" of any US law are being fulfilled.
4.589 In response to the Panel's question, the United States confirmed that the Panel was
correct in understanding that in the Korea - Beef case – a GATT case but a case conducted also
under the same Section 304 provisions as they stand today - the USTR made a determination of
violation under Section 304 on 28 September 1989 – i.e. after the circulation of the panel report,
but before its adoption – even though the USTR subsequently, in the same decision delayed
implementation of the planned action under Section 301. The Korea Beef case illustrates well
the circumstances under which Section 301 was applied under the GATT. As described in US
Exhibits 4 and 5, a GATT panel found Korea's import restrictions on beef a violation of GATT
Article XI:1. However, at successive meetings of the GATT Council following issuance of the
report, Korea declined to join a consensus to adopt the report. In other words, Korea
unilaterally refused to agree to comply with multilateral panel findings through the flaw in
GATT 1947 dispute settlement procedures which permitted losing parties to unilaterally block
panel reports. As described in the Statement of Administrative Action on page 367, this is
precisely the type of circumstance in which the United States took, or proposed to take, action
under the GATT 1947. Following the US determination, Korea agreed to adoption of the panel
report and to resolve the dispute in a mutually satisfactory manner, as contemplated in GATT
dispute settlement procedures.
4.590 The United States recalls that there was no DSU, let alone a DSU Article 23, in 1989
and 1990, when the Korea – Beef case was taking place. The Section 304 determinations made
in that case breached no US GATT obligation, nor, if they had, would that be relevant to the
Panel's consideration of whether Sections 301-310 command any DSU or WTO Agreement
violations. The Korea Beef case does, however, illustrate how strengthened multilateral dispute
settlement procedures prevent losing parties fr om blocking the proper functioning of those
procedures, removing the need for complaining parties to seek remedies for the denial of WTO
rights outside of dispute settlement procedures.
4.591 In response to the Panel's request for clarification on Korea – Beef , the United States
explains that there was no DSU, and no DSU Article 23, in 1989-90, when the Korea Beef case
was taking place. In light of the new obligations found in DSU Article 23, the United States has
since January 1, 1995 interpreted its international obligation – and its obligation under
Section 304(a)(1) – as requiring it to wait until the DSB adopts panel and Appellate Body
reports finding WTO violations before determining that US agreement rights have been denied.
Inasmuch as no "determinations to the effect that a violation have occurred" were inconsistent
with the GATT 1947, the United States could (but, as US Exhibit 13 illustrates, rarely did)
determine that US agreement rights had been denied based on dispute settlement proceedings in
which a panel had issued a report, but the losing party was blocking adoption of that report.
4.592 The European Communities criticises the following US statement:
"As explained in response to the previous question, there was no DSU, and no
DSU Article 23, in 1989-90, when the Korea – Beef case was taking place. In
light of the new obligations found in DSU Article 23, the United States has
since January 1, 1995 interpreted its international obligation – and its obligation
under Section 304(a)(1) – as requiring it to wait until the DSB adopts panel and
Appellate Body reports finding WTO violations before determining that U.S.
agreement rights have been denied".

4.593 In the view of the European Communities, this statement is contradicted by the adoption
by the USTR, after the conclusion of the Uruguay Round, of determinations in the Japan - Auto
Parts case and in the EC – Bananas III case. Moreover, the US omits to mention the Argentina
– Textiles and Apparel (US) case where the USTR took her determination before the adoption of
the panel report by the DSB in violation of the explicit provision of Article 23.2 (a) of the DSU,
as the United States itself admits.
4.594 The United States responds that the European Communities makes the puzzling and
inaccurate argument that the United States "admits" to making a Section 304 determination of a
trade agreement violation in Argentina – Textiles and Apparel (US) before the DSB adopted
findings to that effect. However, the cited portion of the U.S. submission has nothing to do with
Argentina – Textiles and Apparel (US).
4.595 The cited U.S. statement only notes that in India – Patents (US), the 18-month
anniversary in the Section 302 investigation fell two weeks before adoption of panel and
Appellate Body findings. As previously explained, Section 301 does not mandate WTO-
inconsistent action in such cases. The USTR is free, for example, to determine that dispute
settlement proceedings have not yet finished, and that a determination concerning U.S.
agreement rights will be made following completion of these proceedings. Likewise, she is free
to terminate the investigation and reinitiate it.326
4.596 In response to the Panel's question regarding the textual and legal basis on which in
Japan - Film, WTO dispute settlement proceedings were the action taken in the case, the United
States indicates that the action taken in Japan – Film was taken pursuant to Section 301(b).
Section 301(b)(2) authorizes the USTR to take all "appropriate and feasible action under
Section 301(c)", as well as "all other appropriate and feasible action within the power of the
President that the President may direct the USTR to take under this subsection, to obtain the
elimination of that act, policy, or practice". The USTR did not consider action under
Section 301(c) "appropriate and feasible", and therefore took the appropriate and feasible
actions within the power of the President described above. A request for panel proceedings is
within the President's foreign affairs powers under Article II of the United States Constitution.
Pursuant to 24 U.S.C. § 2411(c), the USTR is responsible for such functions as the President
may direct, and is responsible for representing the United States at the WTO.
4.597 In response to a Panel question on Argentina – Textiles and Apparel (US) suggesting
that a Section 304 determination of violation had been made but a Section 302 investigation had
not been initiated in that case, the United States states that a Section 302 investigation on
Argentina Footwear was initiated on October 4, 1996.
327 The United States note that the Panel’s
question highlights the fact that the Panel has only a partial picture of how Sections 301-310
were applied in individual cases. Because no such individual cases are within the terms of
reference, the United States submitted information on these cases only for its relevance in
illustrating what the statute does or does not require. The United States has illustrated that the
USTR has adequate discretion under Sections 301-310 to comply fully with DSU and GATT
rules, and has done so when making determinations on the denial of GATT and WTO

326 The United States further claims that contrary to the EC assertion, the Trade Representative
made no section 304 determination that U.S. agreement rights had been denied in Auto Parts, nor did she
make any such determination in Bananas not based on DSB-adopted findings. Further, her determination
in India Patents (US) followed DSB adoption of panel and Appellate Body findings.
327 Initiation of Section 302 Investigation and Re quest for Public Comment: Argentine Specific
Duties and Non-Tariff Barriers Affecting Apparel, Textiles, Footwear, 61 Fed. Reg. 53776 (1996).

agreement rights. The European Communities, on the other hand, has referenced these cases
not to illustrate whether the statute commands WTO-inconsistent action, but to improperly
characterize past actions as violations, in the hope that the Panel will be distracted from its legal
analysis and prejudiced in its decision-making. The Panel must reject this approach.
4.598 In response to the Panel's question on the EC - Oilseeds case where the USTR, on 5
July 1989 - i.e. before the circulation and adoption of the panel report – "determined that there
was reason to believe that United States' rights under a trade agreement were being denied by ...
the EC's production and processing subsidies on oilseeds and animal feed proteins but that the
USTR "decided to delay implementation of any action to be taken under section 301 not more
than 180 days…", because it "determined ... that substantial progress was being made with
respect to the dispute …", the United States indicates that this does not imply that the USTR
made a determination of violation under Section 304 before the adoption of a panel report. The
USTR did not make a determination that US agreement rights had been denied until the GATT
Council adopted panel findings to this effect.
4.599 In response to the Panel's question as to the textual or other legal basis allowing the
USTR to make multiple determinations in the EC – Oilseeds case where "[o]n January 31, 1990,
... the USTR determined under section 304 … that rights of the United States under a trade
agreement are being denied" by the same measures of the European Communities, the United
States states that there is nothing in the text of Sections 301-310 which prevents the USTR from
making two determinations under Section 304 in one and the same case, and the European
Communities has not provided any arguments that there is. While the USTR is required to
make a determination within the time frames set forth in that section, nothing prevents her from
making additional determinations after that time.
4.600 The United States explains that it is an established principle of US statutory
construction that the administering agency's interpretation of a statute is entitled to deference if
the statute is "silent or ambiguous with respect to [a] specific issue". Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43. In such circumstances, the
court must uphold the agency's interpretation as long as it is based upon a "permissible
construction" of the statute. Id. The agency 's interpretation need not be the "only possible
construction", Sullivan v. Everhart, 494 U.S. 83, 89 (1990), nor must it be the construction the
court would have selected in the first instance. Chevron, 467 U.S. at 844. A court errs by
substituting "its own construction of a statutory provision for a reasonable interpretation made
by [the agency]". Id. The court's duty is not to weigh the wisdom of the agency's legitimate
policy choices. Suramerica de Aleaciones Laminadas, C.A. v. United States, 966 F.2d 660, 665
(Fed. Cir.. 1992). Thus, under US law, the USTR's interpretations of its authority to undertake
multiple determinations, determinations other than violation/non-violation determinations, or
termination of investigations would receive such deference in a US court – to the extent such
determinations would be subject to judicial review at all.328 Likewise, the USTR's interpretation
of Section 304(a)(1) as requiring her to rely on DSB-adopted findings in determining that US
WTO agreement rights have been denied would be accorded such deference.
4.601 The United States indicates that it is not merely offering assertions of its legal authority.
Rather, these interpretations are reflected in long standing practice, in investigations predating
this case and predating the WTO. Under US law, these interpretations would be entitled to

328 The United States points out that if, in fact, these determinations were not reviewable, the
USTR's interpretations would be definitive.

deference, and, in examining whether the statute commands WTO-inconsistent action, the Panel
is required to examine the meaning of the statute as it would be interpreted under US law.329
4.602 The United States further argues that an other legal basis for US interpretations of
statutory provisions is the US principle of statutory construction known as legislative
ratification. As the US Supreme Court has stated, this principle provides that Congress is
presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that
interpretation when it re-enacts a statute without change. Lindahl v. Office of Personnel
Management, 470 U.S. 768, 783, citing Albemarle paper Co. v. Moody , 422 U.S. 405, 414 n.8
(1975).
4.603 The United States also states that the multiple determinations in Oilseeds predated the
WTO, and the fact that Congress did not amend the statute to prevent such determinations when
other amendments were made in 1994 supports the view that the Administration's interpretation
is permitted. Similarly, the USTR's practice of applying Sections 301-310 to make
determinations other than simple "yes/no" de terminations on whether agreement rights have
been denied, and to terminate Section 302 investigations before making a determination,
predates 1994. Exhibit 13 describes examples of this long-standing practice since 1988, though
it predates 1988 as well. And, although Congress amended section 301 in 1994, it did not
amend it to undermine the USTR's interpretation or application of Sections 301-310, even
though it was fully aware of how it was being applied.
4.604 The European Communities disagrees with the US introduction of an entirely new
defence at this late stage. The European Communities stresses the fact that the new US
arguments are very similar to those submitted by India in the India - Patents (US) case. They
were rejected by the panel and the Appellate Body at the request of the US as a complainant in
that case.
330
4.605 The European Communities further states that the quotation of the AB report in India -
Patents (US), paragraph 65 [in fact 66], is incorrect. The Appellate Body did not state that "the
Panel is required to examine the meaning of the statute as it would be interpreted under US
law". Rather, the correct quotation, which has an entirely different meaning, is the following:
"… as in the case cited above before the Permanent Court of International
Justice, in this case, the Panel was not interpreting Indian law "as such"; rather,
the Panel was examining Indian law so lely for the purpose of determining
whether India had met its obligations under the TRIPS Agreement".
4.606 The United States rebuts the EC argument that the US response raises a new defense,
and that allegedly similar arguments were rejected in India – Patents (US) . Both of the EC’s
contentions are incorrect. First, the United States has not raised a new defense. The US
discussion of judicial deference under U.S. law was directly responsive to the Panel’s request
for the textual or other legal basis which permits the USTR to make multiple determinations – a
factual issue in this dispute. While the textual basis for the USTR’s interpretation is sufficiently
clear, the doctrine of judicial deference would serve as an additional basis under US law were a
US court to consider the statutory language ambiguous.

329 The United States refers to Appellate Body Report on India – Patents (US), op. cit., para. 65.
330 Ibid., para. 69, "… like the Panel, we are not persuaded that India's "administrative
instructions" would prevail over the contradictory mandatory provisions of the Patents Act".

4.607 The United States also contends that the EC’s references to India – Patents (US) fail to
support its position. The Appellate Body, in paragraphs 65-66 of its report in India – Patents
(US), emphasizes that it was necessary in that case to examine Indian law to determine its
compliance with India’s international obligations. Domestic law consists not only of statutory
provisions, but of domestic legal rules concerning the interpretation of those provisions or, in
the case of India – Patents (US), domestic rules concerning conflicts between laws. In India –
Patents (US), the Appellate Body examined "the relevant provisions of the Patents Act as they
relate to the 'administrative inst ructions'" at issue in that case 331; in other words, the Appellate
Body examined whether there was any support under Indian law for India’s assertion that
unpublished, unwritten administrative instructions would prevail over a conflicting statute
explicitly mandating a WTO violation. India in that case failed to provide sufficient evidence
that, under Indian law, the instructions would prevail.
4.608 In the US view, the doctrine of judicial deference to an agency’s interpretation of its
statute is part of U.S. law, though it would only become relevant in this dispute were the panel
to conclude that there was some ambiguity as to whether a particular provision of Sections 301-
310 commanded specific actions violating a WTO obligation. In fact, as the U.S. has explained
throughout this proceeding, the statute contains no such ambiguity. On its face, the U.S. statute
does not command violation determinations in the absence of DSB-adopted findings, and in fact
requires that any such determinations be based on the results of WTO proceedings.332
4.609 According to the United States, however, should the Panel find the statute ambiguous,
the US Executive Branch interpretation of the statute is of great importance under US law.
First, many Executive Branch determinations are not subject to judicial review. As already
noted, if this were the case with respect to Section 301 determinations, the USTR interpretation
would be definitive under US law. Second, even if a US court were to review such
determinations, and even if that court were to conclude that the statutory language is ambiguous,
it would be required under US law to interpret that language in light of the Chevron standard of
judicial deference.
4.610 The United States reiterates that it did not, as the European Communities suggests, raise
the doctrine of judicial deference to suggest that the Panel is precluded from examining the
WTO-consistency of Sections 301-310. Rather, the United States raised this doctrine because it
is part of the U.S. law which the Panel is examining.
4.611 The United States recalls again that the burden in this dispute lies with the European
Communities. As already discussed, the European Communities failed to establish that US law
commands the USTR to take actions which violate Article 23, failed to establish that US rules
of statutory interpretation permit the European Communities and this Panel to interpret
"whether" to mean "that", and failed to establish that it is permissible to disregard entire sections
of the statute providing the USTR with discretion to delay or not take action. Likewise, in its
latest submission, the European Communities failed to establish that the Chevron deference
standard may, under US law, be disregarded.

331 Appellate Body Report on India – Patents (US), op. cit., para. 66.
332 The United States again states that this US legal requirement goes beyond what the EC asserts
are a Member's WTO obligations: "[I]t would be ina ppropriate to interpret Article XVI:4 of the WTO
Agreement so extensively as to require WTO Members to include specific language in their domestic law
precluding WTO-inconsistent action".

4.612 The European Communities also claims that when dealing with the issue of the
publication by the USTR of notices announcing unilateral retaliatory actions raised by Korea as
a third party, the United States reports the EC's position as follows "if suspension is proposed,
this necessarily includes publication of a list of products".
4.613 The European Communities recalls that the United States insists on the fact that the
European Communities "fails to explain why this so, or if it is so, what the timing must be".
4.614 The European Communities indicates that in the Bananas III dispute the USTR itself
published two notices in the Federal Register (22 October 1998, page 56689 and 10 November,
page 63099). The first one, according to which "Section 306 (c) of the Trade Act provides that
the USTR shall allow an opportunity for the presentation of views by interested parties prior to
the issuance of a determination pursuant to section 306 (b)"; the second notice was published
explicitly "in accordance with section 304 (b)". The European Communities then questions who
is right, the USTR when publishing notices on the Federal Register or the USTR when
representing the US government in these panel proceedings.
4.615 According to the European Communities, in addition and by definition, the publication
must be made before any determination or action is adopted.
4.616 The European Communities claims that in neglecting this fundamental albeit obvious
element, the US side-steps the most important point of substance raised by Korea, and supported
by the EC: the practical effects for the trade of such publication made before and irrespective of
any decision taken in the WTO dispute settlement system is the most effective implementation
of the "Damocles sword" policy that engenders severe effects on the economic operators on the
market (coupled with substantial protectionist benefits for domestic competing goods and
services). As this Panel is aware, sometimes a threat of action can be even more effective than
the action itself.
4.617 In the view of the European Communities, in order to illustrate better this concept, it
would be appropriate to provide the Panel with some examples. In the Japan - Auto Parts
Section 301 procedure, no dispute settlement procedure was ever requested by the United States
against Japan while an announcement that the United States would have resort to retaliatory
measures was made by the USTR on 10 May 1995. According to the European Communities,
the US representative confirmed during the panel procedure that WTO Members have a positive
obligation of putting their legislation into c onformity with the obligations under the covered
agreements, including the DSU, as from the 1 January 1995 "and [this] could not be delayed".
4.618 The European Communities points out that the Auto Parts procedure was eventually
closed after an agreement between the United States and Japan was reached under the threat of
retaliatory action. Some factual elements could help the Panel clarify the impact of the threat of
the US unilateral action enacted under Sections 301-310.
4.619 The European Communities explains that on 27 September 1994, the US President
transmitted to Congress legislation to implement the GATT Uruguay Round of multilateral
trade negotiations. In the Statement of Administrative Action accompanying the legislation the
US President explicitly indicates that:
"There is no basis for concern that the Uruguay Round agreements in general,
or the DSU in particular, will make future Administrations more reluctant to
apply section 301 sanctions that may be inconsistent with US trade obligations
because such sanctions could engender DSU-authorized counter-retaliation.

Although in specific cases the Unites States has expressed its intention to
address an unfair foreign practice by taking action under section 301 that has
not been authorized by the GATT, the United States has done so infrequently".
4.620 According to the European Communities, co nsistently with this (WTO-inconsistent)
line, on 13 October 1994 a Section 301 investigation was opened against Japan which was
eventually followed by the 10 May 1995 announcement by the USTR that Japanese car market
was closed and that a list of Japanese products to be subject to retaliation was to be published by
28 June 1995.
4.621 The European Communities further notes that that announcement had been preceded on
9 May 1995 by a Resolution of the House of Representatives (104
th Congress, 1 st session, H.
Res. 141) which states the following:
"Whereas President Clinton, stated, on May 5, 1995, that the United States is
'committed to taking strong action' regarding Japanese imports into the United
States if no agreement is reached. Now, therefore, be it
Resolved, That it is the sense of the House that
(1) …
(2) the House therefore strongly supports the decision by the President to
Impose trade sanctions on Japanese products in accordance with section 301 of
the Trade Act of 1974 unless an acceptable accord with japan is reached in the
interim that renders such action unnecessary".
4.622 The European Communities recalls once more that no WTO dispute settlement
procedure was ever started by the United States against Japan on this issue.
4.623 The European Communities also explains that three years later, on 9 October 1998,
while the "reasonable period of time for implementation" granted to the European Communities
in order to take measures to comply with recommendations and rulings in the Banana III DS
procedure was still running (deadline 31 December 1998) and the European Communities had
not yet adopted all these measures, the Chief of Staff of US President W. Clinton, M. Erskine
Bowles, wrote a letter to the leaders of both the Republican and Democrat parties in the House
and in the Senate (submitted on 8 July 1999 by the Commonwealth of Dominica and Saint
Lucia as third party). In the name of the President (the incipit of the letter is "the Administration
shares your view …"), Mr. Bowles stated the following:
"To put maximum pressure on the EU, the Administration is pursuing three
separate tracks (1) continuing to indicate our willingness to try to resolve the
dispute in a mutually acceptable manner consistent with WTO obligations (2)
preserving our rights in the WTO process and (3) proceeding under section 301
of the Trade Act of 1974.
…
Then, unless the EU has agreed to suspend implementation of its banana regime
and to implement a WTO-consistent regime acceptable to us by January 2,
1999, the Administration will publish a second Federal Register notice on
November 10. This notice will request comments on a list of specific retaliatory

options and indicate that the administration will announce on December 15
retaliatory action pursuant to section 301 to take effect on February 1, 1999,
unless the EU's banana regime is in full compliance with WTO rules".
4.624 In the view of the European Communities, as these examples show, both the threat and
the action violate the text, the object and purpose of Article 23 (and the related provisions of
Article 21 and 22) of the DSU. In this perspective, the statement made by the United States
according to which
"the USTR has never once made a section 304 (a) (1) determination that US
GATT or WTO agreement rights have been denied which was not based on the
results of GATT and WTO dispute settlement proceedings"
is factually incorrect, since the USTR, at least in the Banana III case, took a determination
under 304 (a) (1) that US WTO agreements rights had been denied after the end of the
reasonable period of time without resorting to any WTO DS procedure on the conformity of the
new EC measures which repealed the legislation that an earlier panel had declared incompatible
with the WTO. It is also misleading, since the threat of retaliatory action could force upon the
targeted WTO Member a "mutually" agreed solution that makes a determination under
Section 304 (a) (1) unnecessary (as in the Japan - Auto Parts Section 301 procedure).
4.625 In addition to these contradictory statements, the United States relies on some other
arguments that are, in the EC's view, also entirely unconvincing. The European Communities
believes it appropriate to briefly elaborate on certain issues raised by the United States.
4.626 In the EC's view, the Bananas III case is an example where the USTR has made, in
order to take action under Section 301, a determination that "a foreign country [the European
Communities] is not satisfactorily implementing a measure or agreement" (cf.
Section 306(b)(1)) and in so doing has made a determination that "shall be treated as a
determination made under section 304(a)(1)".
4.627 The European Communities argues that it should be noted that this provision in
Section 306(b)(1) contains a wholesale reference to Section 304(a)(1). It thus explicitly includes
and logically implies that a determination of a denial of US rights under the WTO is required. In
fact, it would be quite impossible under the structure of Section 304(a)(1) to proceed
immediately to a determination of an action without a prior determination of a denial of US
rights.
4.628 The European Communities points out that any other reading would lead to arbitrariness
and to an even more serious breach of the provisions of Article 23 of the DSU which, as the
European Communities has repeatedly underlined, deals generally with all situations (including
the situation described in Article 23.2(a)) where WTO Members "seek redress of a violation of
obligations or other nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements". In fact, Article 23 of
the DSU deals with all situations described as a "violation" case, a "non-violation" case or "any
other situation" under Article XXIII.1 of GATT 1994.
4.629 The European Communities recalls that the fact remains that the EC's complaint is
directed against Sections 301-310 as such, and not against the application of these Sections in
particular cases. The European Communities then refers once again to the Japan – Auto Parts
case.

4.630 The European Communities recalls that the United States explained that in that case, no
determination of a denial of US rights under the GATT or the WTO was made. If the US
statement were to be understood as implying that no determination of denial of US rights was
taken by the USTR, on the basis of the 16 May 1995 notice in the US Federal Register, the
European Communities would disagree. The public announcements and the decisions taken by
the USTR were necessarily based on a substantive determination of denial of US rights.
4.631 In the view of the European Communities, given the subject matter of the Japan - Auto
Parts case, which clearly is dealing with trade in goods, it is impossible to see how any
determination made in that case would not be governed by Article 23 of the DSU.333 In the view
of the European Communities, the United States is under no circumstances entitled to take trade
sanctions in the area of trade in goods against another WTO Member without following the
requirements of Article 23 of the DSU.
4.632 The European Communities notes that, whatever the precise terms of the determination
in the Japan – Auto Parts case, there can be no serious doubt that this determination was made
in total disregard of the requirements of Article 23 of the DSU. It is also clear that the
determination must have been made under Section 304(a)(1). It is logically not possible to
make a determination of action under Section 304(a)(1)(B) without a prior determination under
Section 304(a)(1)(A).
4.633 In rebutting the EC argument that Section 301 has the "illegitimate goal" of serving as a
sword of Damocles, the United states observes that the European Communities assumes that
Section 301 is being used for an illegitimate purpose. In fact, it has the legitimate purpose to
enforce WTO rights, in accordance with WTO procedures. The sword of Damocles is WTO-
authorized retaliation under Article 22 when a Member has failed to comply with DSB rulings
and recommendations. Section 301 implements this under U.S. law.
4.634 In a question to the parties, the Panel noted its understanding that in Auto Parts case, the
US determination and action was taken based upon an investigation into the question of whether
Japan's act, policy or practice in this respect is "unreasonable or discriminatory and burdens or
restricts United States commerce" (referred to in Section 301(b)), not on whether US rights
under the WTO are being denied. In response to the Panel's question as to whether the
European Communities makes an additional claim that another aspect of Sections 301-310 –
authorizing the USTR to make determinations as to whether or not a matter falls outside the
scope of the WTO Agreement – violates DSU Arti cle 23, and if so, whether and how this claim
is included in the terms of reference of this Panel, as provided in document WT/DS152/11, in
particular para. 2 thereof, as a preliminary observation, the European Communities states that
all the claims it has made before this Panel are exclusively related to the WTO-inconsistency of
Sections 301-310 of the Trade Act of 1974 as such. Reference to individual cases in which these
provisions were applied is only made as supporting evidence for the way in which these
provisions are interpreted by the US authorities, thereby constituting a counter-argument to
some US assertions and not a separate claim.

333 The European Communities is not aware of, and the United States has not shown, any
application of Sections 301-310 to situations not covered ratione materiae by one of the WTO
Agreements. Even if such a case existed, it would still not be permissible to take retaliatory action in the
areas covered by the WTO Agreements against another WTO Member. In addition, Section 304
(a)(1)(A)(ii) no doubt applies to situations covered by the WTO Agreements: the fact that in theory it
could also be used for determinations in situations that are not covered by the WTO Agreements does not
affect its inconsistency with Article 23 of the DSU as already discussed.

4.635 In this context, the European Communities draws the Panel's attention to the distinction
made between claims and supporting arguments in earlier cases. Most recently, the Appellate
Body report in the case on Guatemala – Anti-dumping duties on imports of grey Portland
cement from Mexico stated the following334:
"The ' matter' referred to the DSB, therefore, consists of two elements: the
specific measures at issue and the legal basis of the complaint (or the claims)".
4.636 The European Communities furthe r points out that in the EC – Bananas III case, the
Appellate Body made the following additional statement:
"Article 6.2 of the DSU requires that the claims, but not the arguments, must all
be specified sufficiently in the request for the establishment of a panel in order
to allow the defending party and any third parties to know the legal basis of the
complaint. If a claim is not specified in the request for the establishment of a
panel, then a faulty request cannot be subsequently 'cured' by a complaining
party's argumentation in its first written submission to the panel or in any other
submission or statement made later in the panel proceeding".335
4.637 The European Communities goes on to state that a supporting argument, particularly
when made as a reaction to a contestation by the other party to the dispute, cannot on its own be
excluded as not being covered by the terms of reference of the Panel which only deals with
claims.
4.638 The European Communities recalls that according to the terms of reference of this Panel
as described in WTO document WT/DS152/11 of 2 February 1999, the matter referred to the
DSB by the European Communities includes the violation of Articles 3, 21, 22, 23 of the DSU,
Article XVI:4 of the Marrakech Agreement and Articles I, II, III, VIII and XI of GATT 1994 by
Sections 301-310 of the US Trade Act of 1974.
4.639 The European Communities also draws the Pane l's attention to the fact that the Panel
itself appeared to consider the Japan – Auto Parts case to be relevant when it requested Japan,
in the questions asked to the third parties, to submit available documentation on this case.
Moreover, the European Communities has relied on this case as a reaction to the US reply to a
question of the Panel. The European Communities has moreover already rebutted a US
allegation that the situation that was at the basis of the Japan – Auto Parts case is not covered
by the terms of reference of this Panel.
4.640 The European Communities further indicates that it is important to recall the events in
the Japan – Auto Parts case. In that case, the United States announced on 16 May 1995
336 that it
would withhold the liquidation of customs duties on a number of Japanese luxury cars as of 20
May 1995 and that it would impose prohibitive 100 per cent ad valorem duties on these cars by
a determination to be taken on 28 June 1995, effective as of 20 May 1995, unless the

334 Appellate Body Report on Guatemala – Anti-dumping duties on imports of grey Portland
cement from Mexico ("Guatemala – Cement), 25 November 1998, WT/DS60/AB/R, para. 72 in fine.
335 Appellate Body Report on EC – Bananas III, op. cit., para. 143.
336 The European Communities notes that the announcement was preceded by public statements
by the US President and the USTR to the press. Moreover, as the European Communities indicated in its
second oral submission, the US House of Representatives adopted a Resolution on the same subject
supporting unilateral action announced by the US President.

governments of the United States and Japan could agree on a solution of their dispute that
satisfied the US car industry.337 As a consequence of the withholding of customs liquidation, all
imports in the targeted products were imme diately stopped as of 20 May 1995. The United
States had not requested a dispute settlement procedure prior to these steps.338
4.641 The European Communities notes that the United States announced measures entering
into effect on a date certain 339 that a WTO Member may only take vis-à-vis another WTO
Member upon completion of a DS procedure pursuant to Article 3.7, last sentence, in
conjunction with Article 22 and 23 of the DSU, on the basis of an authorization by the DSB
under Article 22.2 or 22.7 of the DSU.
4.642 The European Communities points out that these measures were based on a
determination explicitly and specifically taken under Sections 301-310 in flagrant violation of
the WTO rules on dispute settlement, so much so that the United States itself felt compelled to
make a "pre-filing notification" announcing th e "intention to invoke the dispute settlement
mechanism of the WTO".
340
4.643 The European Communities further points ou t that unless there is an authorization
granted by the DSB in accordance with Articles 3.7, last sentence, and 22 of the DSU, which in
turn must be based on an earlier multilateral determination by a Panel to the effect that a
measure nullifies or impairs the benefits accruing to a WTO Member under a covered
agreement, discriminatory trade restrictions of the kind provided for under Sections 301-310
and applied by the United States in the Japan – Auto Parts case cannot possibly be considered
compatible with WTO rules.
4.644 The European Communities also notes that the United States could have been
authorized to apply its domestic legislation as it did in the Japan – Auto Parts case only by
following the prescripts of Article 23 of the DSU. However, as already mentioned before, the
United States stopped short of invoking the dispute settlement procedures of the WTO.
4.645 The European Communities then argues that on the basis of the above and since the
European Communities has clearly referred in its request for the establishment of a Panel to all
the above-mentioned provisions of the DSU, the European Communities does not see how it
could be argued that the Panel would be acting outside its terms of reference by taking legal
notice of the way in which Sections 301-310 were applied by the USTR in the context of the
Japan – Auto Parts case, in flagrant violation of precisely these provisions of the DSU.
4.646 The European Communities indicates that the aforesaid Panel's question seems to have
as its starting point the consideration that, in the specific case at hand, a distinction could be
made between a determination of whether "Japan's act, policy or practice" in this respect is
"unreasonable or discriminatory and burdens or restricts United States commerce" and a
determination on "whether US rights under the WTO are being denied".

337 Cf. Section 301 (c) (4).
338 The European Communities notes that the so-called "pre-filing" of the intention to invoke the
DS mechanism of the WTO which the United States communicated on 10 May 1995 to the Director-
General of the WTO does not meet the requirements under the DSU allowing it to be considered a request
for starting such a procedure.
339 Cf. the press statement of the USTR of 16 May 1995 submitted by Japan as Japan Exhibit 6
("The final determination will be made on June 28, 1995").
340 Cf. doc. WT/INF/1 of 17 May 1995, submitted by Japan (in its original form) as Japan
Exhibit 4.

4.647 The European Communities first notes that the United States, as any WTO Member, is
under no circumstances entitled to take trade sanctions against another WTO Member, in
particular in the area of trade in goods, without following the requirements under Article 23 of
the DSU, and this irrespective of the reasons that could be invoked as a basis for such unilateral
measure. The European Communities would like to draw the Panel's attention to the fact that
asserting, as the United States seems to do, that it is possible to interpret Sections 301-310 as
allowing the United States to impose unilateral retaliatory measures with respect to products,
services or other rights under the covered agreements without pursuing a DS procedure as
required by Article 23 (and the related provisions under Articles 21 and 22) of the DSU would
amount to transform the unqualified and unconditional obligation under Article 23 of the DSU
into no more than a "best endeavours" clause. The Panel should reject such unacceptable
consequence of the approach suggested by the United States.
4.648 The European Communities secondly draws the attention of the Panel to a possible
misunderstanding of the facts surrounding the Japan - Auto Parts case, on the one hand, and to
the contents of the notice published on 16 May 1995 in the US Federal Register, on the other
hand.
4.649 The European Communities recalls that in accordance with the chapeau of
Section 304(a)(1), a determination thereunder "shall" be taken "[O]n the basis of the
investigation initiated under section 302".
4.650 The European Communities points out that a ccording to the notice published in the US
Federal Register on 13 October 1994,
341 the initiation of the investigation was aimed at "certain
acts, policies and practices of the Government of Japan that restrict or deny US auto parts
suppliers' access to the auto parts replacement and accessories market ("after-market") in
Japan". The issue thus was, in the USTR's own language, a restriction or denial of "US auto
parts suppliers' access" to the "after-market". A denial or restriction of market access of
products corresponds to the typical violation of obligations under the GATT 1947 and 1994.
4.651 The European Communities contends that this view is confirmed by the USTR itself.
Prior to the publication of the 16 May notice, in its 10 May 1995 "pre-filing notification" to the
Director-General of the WTO, 342 the USTR wrote: "I am writing you today to give pre-filing
notification of the intention of the United States to invoke the dispute settlement mechanism of
the WTO to challenge the discrimination against the United States and other competitive foreign
products in the market for automobiles and automotive parts in Japan".
4.652 In the view of the European Communities, it would thus simply be beyond reason to
claim that that issue could be something sepa rate from matters concerning the violation of
GATT/WTO obligations, or, in the Section 304 language, "that rights to which the United States
is entitled under any trade agreement are being denied".
4.653 The European Communities further notes that the notice published on 16 May 1995, 343
which is apparently the source of the quotation in the chapeau of this question, should not be
taken as the exclusive source for a correct understanding of the legal situation in the Japan -
Auto Parts case. In the attempt to justify its actions in the WTO context, given the strong

341 Japan Exhibit 1. The notice was explicitly based on Section 302.
342 The European Communities notes that this letter was distributed as WTO document
WT/INF/1 on 17.5.1995 to all WTO Members.
343 Japan Exhibit 7.

criticism to which it was subject as a result of its decision, 344 the United States clearly tried to
hide the impact of the violation of the WTO rules, in particular of Article 23 of the DSU. 345 In
the 16 May notice, even though reference is made to the investigation under section 302 as it
appeared in the 13 October notice, the conclusion is not "based on" that investigation that, as the
European Communities just recalled, would have required a determination of denial of rights "to
which the United States is entitled under any trade agreement".
4.654 The European Communities argues that the at tempt to hide the true nature of the
"determination" must fail also on the basis of the text of Section 301 itself, in particular under
the definitions contained in Section 301(d).346 These definitions correspond precisely to what is
described as a "violation" case, a "non-violat ion" case or "any other situation" under
Article XXIII.1, (a) to (c), of the GATT 1994 and the consistent practice of the GATT 1947 and
the WTO panels. These definitions describe without any doubt also a situation that is
objectively covered by Article 23, paragraphs 1 and 2 of the DSU, according to which
"(1) when Members seek redress
- of a violation of obligations or
- other nullification or impairment or
- an impediment to the attainment of any objective of the covered
agreements
(2) 'In such cases, Members shall ' follow the prescripts of Article 23.2 (a)
to (c)".
4.655 The European Communities considers that the United States itself has confirmed the
above-mentioned interpretation when it affirmed that:
"[I]n Japan - Film , the USTR determined pursuant to Section 304(a)(1)(A)(ii)
that certain acts, policies, and practices of the Government of Japan were
unreasonable and burden or restrict US commerce and that these acts should be
addressed by (1) seeking recourse to WTO dispute settlement procedures to
challenge the Japanese measures …".

344 The European Communities notes that Japan requested consultations under Article XXII of
the GATT which included the issue of the compatibility of Sections 301-310 with Article 23 of the DSU
(see WTO doc. WT/DS6/5 of 27 June 1995). In an earlier statement, supported by other WTO Members,
Japan made clear that "If the USG faithfully follows the WTO dispute settlement procedures, there is no
need to announce unilateral measures under Section 301 without recourse to the WTO process. Indeed,
the Section 301 statutory deadlines will force action even before the WTO procedures have been
genuinely concluded" (WTO document WT/INF/2 of 22 May 1995).
345 The European Communities notes that the so-called "pre-filing of intention" to consult under
the WTO dispute settlement procedures provides already sufficient evidence of this US attitude.
346 Section 301 (d) provides for definitions of what is "discriminatory" or "unreasonable"
practice by a foreign country. Section 301(d)(5) provides that "Acts, policies, and practices that are
discriminatory include, when appropriate, any act, policy, and practice which denies national or most-
favoured-nation treatment to United States goods, services, or investment". Section 301(d)(3)(A)
provides that "an act, policy or practice, is unreaso nable if the act, or policy, or practice, while not
necessarily in violation of, or inconsistent with, the international legal rights of the United States is
otherwise unfair and inequitable".

4.656 The European Communities points out that the Panel is aware, the United States
decided (correctly in that case) to pursue a DS procedure against Japan based on Article XXIII.1
(b) of GATT 1994 ("non-violation" case). 347 The European Communities does not understand
how the United States could claim now that the same Section 304(a)(1)(A)(ii) would allow it to
act unilaterally outside the obligatory WTO procedures thus disregarding its unqualified and
unconditional obligations pursuant to Article 23 of the DSU.
4.657 The European Communities then concludes th at whatever the precise terms of the
determination in the Japan – Auto Parts case, there can be no serious doubt that this
determination was made in total disregard of the requirements of Article 23 of the DSU.
4.658 In the light of the above, the European Communities repeats that it does not make an
additional claim in relation to the Japan - Auto Parts case, other than those already mentioned.
Under these circumstances, there is no need for the European Communities to respond in detail
to sub-questions (b) and (c).
4.659 In response to the same Panel's question (whether the European Communities, in
referring to the "unreasonableness" determination under Section 301(b) in Japan – Auto Parts ,
was making an additional claim within the terms of reference), the United States considers that
it is for the European Communities to say whether it is making this claim. If, indeed, its
response is that the European Communities is making such a claim, the United States would
need an opportunity to respond. However, as question (b) recognises, this claim, if asserted,
would raise an issue not within the Panel's terms of reference. Any such claim would, in fact,
be additional to those raised by the European Communities in this dispute.
4.660 The United States contends that there the European Communities requests findings
concerning alleged violations of DSU Arti cle 23.2(a) and (c) based on arguments that
Sections 304(a)(2)(A) and 306(b) require the USTR to make determinations and to implement
action regarding and in connection with WTO Ag reement rights without DSB-adopted findings
or DSB authorization. In paragraph 77, the European Communities also requests a finding that
Section 306(b) is inconsistent with "one or more" GATT 1994 provisions for unspecified
reasons, and a ruling to be made "on the basis of these findings" that the US has acted
inconsistently with WTO Agreement Article XVI:4 "by failing to bring the Trade Act of 1974
into conformity with" DSU Article 23 and the GATT 1994.
4.661 The United States claims that Article 23.2 sets forth requirements on how a Member
may make determinations and suspend concessions when that Member is seeking the redress of
a "violation of obligations or other nullification or impairment of benefits under the covered
agreements".348 Moreover, Article 23.2(a) by its terms deals only with determinations "to the
effect that a violation has occurred". It does not deal with determinations that a violation has
not occurred or has not been confirmed, or wi th determinations unrelated to WTO Agreement
rights.
4.662 The United States points out that no determination relating to WTO Agreement rights
was made in the Japan - Auto Parts case. As the question notes, the determination in that case
involved the issue of whether Japan's acts, practices and policies were "unreasonable", not
whether US rights under the WTO had been denied. Any claim in connection with the Auto

347 Japan - Measures Affecting Consumer Photographic Film and Paper, WT/DS44.
348 DSU, Article 23.1. The United States notes that Article 23.2 is prefaced with the phrase, "In
such cases".

Parts case thus would bear no relationship to any of the EC claims relating to Article 23. In
addition, the EC's claim relating to Auto Parts does not relate to the EC's claim concerning
alleged violations of GATT 1994 by Section 306. The Auto Parts case did not involve
Section 306 in any way.
4.663 The United States goes on to state that this claim would not be within the Panel's terms
of reference, which relate only to the Section 301-310 legislation as such, and not any particular
application of that legislation. 349 If the European Communities does take the position that it is
asserting this claim, the United States requests a preliminary ruling from the Panel that it is not
within the terms of reference. The United States requests that the Panel render such a ruling
before addressing the merits of the claim.
4.664 The United States further notes that the EC's panel request provides that, "this
legislation does not allow the United States to comply with the rules of the DSU and the
obligations of GATT 1994", that "this legislation" is inconsistent with various WTO provisions,
and that "this legislation" nullifies and impairs benefits accruing to the European
Communities.
350 The European Communities has emphasized over the course of these
proceedings that it is the legislation, and not any particular application of that legislation, which
is in the terms of reference of this case. 351 As a result, the panel may not examine the Auto
Parts case or the EC's claim that a decision in the context of that case not to bring a WTO case
is somehow WTO-inconsistent.
4.665 In the view of the United States, the Autos 302 investigation is also outside the panel's
terms of reference because it does not relate to the aspects of Sections 301-310 which the
European Communities describes in its panel request. There it states,
"By imposing specific, strict time limits within which unilateral determinations
must be made that other WTO Members have failed to comply with their WTO
obligations and trade sanctions must be taken against such WTO Members, this
legislation does not allow the United States to comply with the rules of the DSU
and the obligations of GATT 1994 in situations where the Dispute Settlement
Body (DSB) has, by the end of t hose time limits, not made a prior
determination that the WTO Member concerned has failed to comply with its
WTO obligations and has not authorized the suspension of concessions or other
obligations on that basis".352
4.666 The United States contends that thus, the aspects of Sections 301-310 within the terms
of reference of this dispute are provisions relating to deadlines and how these deadlines
allegedly mandate determinations and actions inconsistent with the DSU and GATT 1994
because they are not based on DSB-adopted findings or DSB authorization. Indeed, that is
precisely the focus of the European Communities. The EC's Auto Parts claim is completely
unrelated to the EC's claim that Section 301 deadlines allegedly do not allow determinations and

349 The United States notes that indeed, no specific Section 302 investigation is within the
Panel's terms of reference.
350 WT/DS152/11.
351 The United States points out that the European Communities argues that it is of little
importance what the USTR has actually done in [individual cases]". The European Communities makes
this point to suggest that even the Trade Representative's exercise of any discretion under the statute is
unacceptable, but it more accurately supports the point that how the Trade Representative exercises her
discretion in a given case is not conclusive as to what is commanded by the statute).
352 WT/DS152/11 (emphasis added).

actions to be made with DSB approval, and relates to determinations under Section 301(b),
which do not relate to WTO rights and obligations. The mere existence of such determinations
in Sections 301-310 is nowhere addressed in the terms of reference.
4.667 The United States further indicates that the introduction of a new claim at the second
panel meeting raises serious due process concerns which should, on that basis alone, lead the
Panel to reject consideration of the EC's Auto Parts claim. The United States notes that not only
was the EC's claim raised for the first time at the Second Meeting of the Panel, but it was raised
extemporaneously. The opportunity to respond effectively was thus further limited. These due
process concerns require that the United State be given an opportunity to respond to this claim,
if asserted by the European Communities and if the Panel concludes it is within the terms of
reference.
4.668 In the view of the United States, the European Communities has attempted to expand
the nature of its arguments beyond the straightforward textual analysis contemplated in its panel
request and advanced later. That analysis involved the question of whether the time frames in
Sections 301-310 "do not allow" the USTR to make determinations and to take action in
accordance with DSU rules. The EC's argument has since expanded to include the notion that
the statute's mere existence threatens "security and predictability" and discussions of specific
applications of Sections 301-310 not within the terms of reference for the sole purpose of
distracting the Panel from its legal analysis. Nevertheless, even these arguments could be
addressed to the extent included in submissions prior to the Second Meeting of the Panel. To
raise a new issue at the Second Meeting for the first time denies a defending party any effective
opportunity to rebut or consider the argument. This is particularly a problem with respect to the
EC's new claim, since it is so vague and poorly defined.
4.669 In addition, the United States notes that the evidence submitted in connection with the
EC's extemporaneous introduction of its claim must be excluded from the record on the basis of
Rule 12 of the Panel's Working Procedures. The panel must abide by the procedures it laid
down at the outset of this proceeding. That rule states that, "Parties shall submit all factual
evidence to the Panel no later than the first substantive meeting, except with respect to evidence
necessary for purposes of rebuttal submissions, answers to questions or comments on answers
provided by others".
353 The evidence submitted by the European Communities in connection
with the EC's new claim is not necessary for rebuttal, for answers to questions or for comments
on those questions. It is particularly inappropriate for the European Communities to have
introduced this claim and supporting evidence at the second substantive meeting because this
information was equally available at the outset of this case and relates to an incident a number
of years in the past.
(c) Discretion with respect to the timing of determination and other issues relating to
time frames
4.670 The European Communities considers that the DSU does not provide Members with
the assurance that the DSB will adopt findings on their complaints within that time frame. The
DSU allots to each stage in the dispute settlement proceeding a minimum or maximum period of
time.
354

353 Working Procedures for the Panel, Rule 12 (19 April 1999).
354 These time limits are summarised for the convenience of the Panel as EC Exhibit II.

4.671 The European Communities claims that according to Article 5.4 of the DSU, "the
complaining party must allow a period of 60 days after the date of receipt of the request for
consultations before requesting the establishment of a panel". The request for the establishment
of the panel must be submitted at least 10 days before the meeting of the DSB.355 Since the DSB
normally meets at monthly intervals, the first meeting at which the request for the establishment
of the panel can be considered will thus take place between 10 days and one month after the end
of the consultation period.
4.672 The European Communities states that Article 6.1 of the DSU provides that, upon
request, "a panel shall be established at the latest at the DSB meeting following that at which the
request first appears as an item on the DSB's agenda …" and that "a meeting for this purpose
shall be convened for this purpose within 15 days of the request …".
4.673 Further, the European Communities argues that according to Article 20 of the DSU, the
maximum period between the establishment of the panel and the adoption of the Appellate Body
report is normally 12 months. However, this maximum period is extended by up to three months
if the panel makes use of its right under Article 12.9 of the DSU to delay the circulation of its
report and by a further period of up to 30 days if the Appellate Body extends its proceedings in
accordance with Article 17.5 of the DSU. The total period thus is 15 months plus 30 days, or
about 16 months.
Phase Months Days
Consultations 60
From end of consultation
period to establishment of a
panel
11 5
From establishment of the
panel to the adoption of the
Appellate Body report
15 30
TOTAL 16 105
4.674 The European Communities then considers th at even on the assumption that all the
Dispute Settlement organs of the WTO act within the period of time allotted to them under the
DSU, a period of 19 ½ months is at the dispos al for the normal operation of a given dispute
settlement procedure. This is without prejudice to the possibility for the parties, and in particular
for the complainant, to extend, at their discretion, these deadlines beyond the 19 1/2 months
period allocated to the dispute settlements organs.
4.675 The European Communities then concludes that the USTR is therefore mandated by
Section 304(a)(2)(A) to make a determination on the United States' denial of rights under a
WTO agreement within a time frame that is shorter than the time frame within which it can
reasonably expect DSB findings on that matter.
4.676 The European Communities, however, stresses that this is the most important issue in
this respect, a possible delay in the dispute settlement proceedings does not give the United
States the right to revert to unilateralism. As a result of the Uruguay Round, the United States

355 The European Communities refers to Rules 2 and 4 of the rules of procedure of the General
Council which are applicable to the DSB pursuant to Rule 1 of the rules of procedure of the Dispute
Settlement Body.

has undertaken an unqualified and unconditional international obligation not to revert to
unilateral determinations and actions. As was already mentioned in para. 10 above, the deal was
struck on the basis of a concession by the European Communities and other Uruguay Round
participants allowing for binding dispute settlement against a commitment by the United States
to refrain from unilateral determinations and section 301-type trade restrictions without
multilateral authorization. By imposing an obligation upon USTR to determine in all cases
within 18 months of the request for consultations whether the United States' WTO rights are
being denied without awaiting the conclusion of the relevant DS procedures, the United States is
clearly in breach of this unconditional obligation, and in particular of Article 23.2(a) of the
DSU.
4.677 The United States responds that even if the European Communities were permitted to
assume that the USTR's determination under Section 304(a)(1) will always be affirmative, its
analysis of the time frames under Section 304(a)(2)(A) and whether they conflict with those in
the DSU is incorrect. The United States specifically considered DSU time frames when
Sections 301 - 310 were amended in 1994, and these time frames are compatible with those in
Section 304(a)(2)(A).
356
4.678 The United States goes on to argue that the European Communities focuses on whether
the USTR's determination must, because of the 18-month time frame in Section 304(a)(2), occur
before DSB adoption of panel and dispute settlement findings in those instances in which
dispute settlement proceedings require the maximum period provided for in the DSU.
According to the European Communities, because Section 303 requires that the USTR request
consultations on the date a Section 302 investigation is initiated, and because a determination
must be made no later than 18 months after the investigation is initiated, the USTR must
necessarily make its determination before DSB adoption in some cases.
4.679 In the view of the United States, the EC's claim is based on its conclusion that, under
the DSU, the maximum period from a request for consultations until DSB adoption of panel and
Appellate Body findings is 19 ½ months. The European Communities assumes not only that the
panel and Appellate Body require the maximum time authorized under the DSU for their
deliberations and report preparations, but that DSB meetings are held on the final day allowed
under the DSU to establish the panel, to adopt the panel report (and thereby establish the
deadline for an appeal), and to adopt the Appellate Body report.
4.680 The United States argues that the European Communities has however simply
miscalculated the deadlines under the DSU. First, the European Communities has erroneously
assumed that the normal period for panel proceedings may be extended by three months
pursuant to DSU Article 12.9, rather than the actual figure of two months or less.
357 Thus, even

356 The United States refers to Statement of Administrative Action, op. cit., p. 360 (US
Exhibit 11), as describing amendments to "section 304 … and section 305 … to ensure that the timetables
for investigations and determinations under the enforcement provisions of U.S. trade laws allow DSU
dispute settlement proceedings to be completed before trade sanctions may be imposed".
357 In the US view, the European Communities appears to have incorrectly assumed that the six
month figure referred to in the first sentence of Article 12.9 was measured on the same basis as the nine
month figure in the second sentence. In fact, the six-month figure in the first sentence is, as indicated in
Article 12.8, measured from panel composition to issuance of the report to the parties , while the nine
month figure is measured from establishment of the panel to circulation of the report to the Members .
Since panel composition may require a month (DSU Article 8.7), and, under DSU Appendix 3 guidelines
(para. 12(k)), the period between issuance of the re port to the parties and circulation to the Members is
two to three weeks, the actual extension provided for under Article 12.9 is at most two months (assuming

if the EC's other assumptions were correct, the maximum period for dispute settlement
proceedings under Article 20 would be between 17 months and three weeks and 18 ½ months,
and not 19 ½ months.358
4.681 The United States further claims that even this 18 ½ month time frame is longer than
that provided for in the DSU. This is because the European Communities assumes a longer
period than it may (1) between the completion of consultations and the DSB meeting at which
the panel request first appears on the agenda, and (2) between circulation of the panel report and
the DSB meeting at which the report is scheduled for adoption (which establishes the deadline
for an appeal). With respect to the DSB meeting at which the panel request first appears on the
agenda, the European Communities ignores footnote 5 to DSU Article 6.1, which requires a
DSB meeting to be convened to consider panel establishment within 15 days of a request.
359
Thus, the European Communities may not assume that the first DSB meeting after the
consultation period will take place 30 days after the conclusion of the consultation period, or
that the period for establishment of the panel will require one and a half months, rather than one
month.
4.682 The United States considers that likewise, the European Communities ignores the fact
that a Member may, at any time, request that a DSB meeting be held. 360 Both for this reason
and because DSB meetings generally take place on a monthly basis, the European Communities
may not assume that the DSB meeting at which the panel report is scheduled for adoption will
take place 60 days after circulation.
4.683 The United States points out that while it is not unreasonable for the European
Communities to assume that certain aspects of the dispute settlement schedule are beyond the
control of the United States (consultation period under Article 4.7, panel deadline under
Article 12.9, Appellate Body deadline under Article 17.5), the European Communities may not
assume that the United States would not act to expedite the dispute settlement schedule were
this necessary to ensure that US determinations under Section 304 are fully consistent with US
DSU obligations.
361 Thus, for purposes of comparing Section 301 time frames with the
maximum period provided for dispute settlement proceedings under the DSU, the relevant
period is 16 months and 20 days.362
4.684 The United States further argues that even if it were assumed that the United States
could not expedite the DSB meeting schedule, and that the maximum period under the DSU for
dispute settlement proceedings were more than 18 months, the European Communities would
still be incorrect in concluding that Section 304(a)(2)(A) precludes the USTR from issuing her
determination after DSB adoption of Appellate Body findings. This is because the United

no time between issuance to the parties and circulation to Members), and arguably 1 month and one week
(assuming a three week period before the panel report is circulated to Members).
358 The United States refers to the above footnote.
359 DSU Article 6.1 and footnote 5.
360 The United States claims that Rules 1 and 2 of the rules of procedure of the General Council,
which are applicable to the DSB pursuant to Rule 1 of the rules of procedure of the Dispute Settlement
Body.
361 Again, the United States claims that it is not in fact necessary for it to request DSB meetings
prior to those normally scheduled because th e Trade Representative is not required under
Section 304(a)(1) determine that US agreement rights have been denied.
362 US Exhibit 2.

States may, under US law, request WTO dispute consultations prior to initiating a Section 302
investigation. Nothing in Sections 301-310 prevents this, and the USTR has in fact done so.363
4.685 The United States then states that Section 302(a)(2) provides the USTR 45 days from
the filing of a petition to determine whether she will initiate an investigation, during which
period the USTR is free to request dispute settlement consultations. 364 Moreover, under
Section 302(b), the USTR is free to self-initiate an investigation at any time; in such a case,
there is nothing preventing the USTR from first requesting dispute settlement consultations.365
4.686 The United States emphasises that to meet its burden with respect to
Section 304(a)(2)(A), the European Communities must demonstrate that it would not be
possible366 under the 18-month time frame in that section for the USTR to issue a WTO-
consistent determination. In addition to the reasons set forth above with respect to the
determination itself and the EC's miscalculation of DSU deadlines, the European Communities
has failed to meet its burden because it has not established why the USTR could not initiate a
Section 301 investigation several weeks after a US request for WTO dispute settlement
consultations, thereby allowing for DSB adoption of panel and Appellate Body findings within
the 18-month period provided for under Section 304(a)(2)(A).
4.687 The United States further claims that even if it were assumed that Sections 301-310
preclude the USTR from requesting consultations prior to initiating a Section 302 investigation,
that the USTR could not expedite the DSB meeting schedule, and that the maximum period for
dispute settlement were 18 ½ months, this woul d still mean that the USTR would always have
the benefit of circulated Appellate Body findings when she makes her determination.
367
Moreover, in light of the negative-consensus rule of DSU Article 17.14, the USTR would also
know that the DSB would adopt the reports of th e panel and/or Appellate Body when it meets,
and would also know the date of that meeting.368
4.688 In the view of the United States, the goal of Article 23.1 is to ensure that WTO
Members resort to multilateral dispute settlement procedures, and it is difficult to understand

363 The United States, as an example, Initiation of Section 302 Investigation and Request for
Public Comment: Japan Market Access Barriers to Agri cultural Products, 62 Fed. Reg. 53853 (1997) (US
Exhibit 8) (consultations under DSU requested April 7, 1997, investigation initiated on October 7, 1997);
Korea's Restrictions on Imports of High Quality Beef; Notice of Initiation, 53 Fed. Reg. 10995 (1988)
(US Exhibit 9) (GATT 1947 Article XXIII:1 consultations held February 19-20, 1988 and March 21,
1988, investigation initiated on March 28, 1988).
364 Section 302(a)(2), 19 U.S.C. § 2412(a)(2).
365 Section 302(b)(1)(A), 19 U.S.C. § 2412(b)(1)(A). The United States points out that just as
the European Communities has authority under its Article 133 procedures to undertake dispute settlement
proceedings without resorting to the procedures set forth in its Trade Barrier Regulation, see Section IV.D
below, the Trade Representative and her office have independent authority to act for the United States at
the WTO, including activities relating to dispute settlement proceedings such as requesting and holding
consultations. See 19 U.S.C. § 2171(c)(1) (1998); Reorg. Plan No. 3 of 1979, 44 Fed. Reg. 69273 (1979);
19 C.F.R. § 2001.3(a) (1998).
366 The United States cites Panel Report on US – Superfund, op. cit., para. 5.2.9; Panel Report on
367 In the US view, assuming a maximum of 18 ½ months from the consultation request to DSB
adoption, the Appellate Body report would be issued no later than 17 ½ months after the request for
consultations. See DSU Article 17.14.
368 According to the United States, if a regularly scheduled DSB meeting were not scheduled to
take place within 30 days following circulation of the Appellate Body report to Members, such a meeting
would be scheduled. DSB Article 17.14 and footnote 8.

how this goal would be frustrated if the United States were to follow such procedures through to
their conclusion and state what every WTO Member would already know – that US WTO rights
had been denied, and that the DSB would shortly adopt that conclusion. Thus, even if (as is not
the case) the USTR were required under US law to make an unqualified affirmative
determination under Section 304(a)(1) based on favorable, but unadopted, panel and Appellate
Body findings, such a determination would not be inconsistent with the goal of Article 23 –
multilateral determinations of violations.
4.689 The United States further stresses that nothing in Sections 301-310 compels the USTR
to make a determination that US agreement rights have been denied in the absence of adopted
Appellate Body or panel findings, nor do Sectio ns 301-310 compel the USTR to wait until the
initiation of a Section 302 investigation to request dispute settlement consultations. Moreover,
the European Communities is incorrect in claiming that the time frames for dispute settlement
under the DSU are longer than 18 months. The European Communities has therefore not
demonstrated that Section 304(a)(2)(A) preclu des the USTR from fully complying with the
letter and spirit of DSU Article 23.
4.690 In response to the Panel's question on the precise basis under Section 304, or any other
legal basis, for the United States to argue that unless WTO procedures are completed, the USTR
is precluded from making a determination of violation, the United States argues that
Section 304(a)(1) requires that determinations under that section be made "on the basis of the
investigation initiated under Section 302 and the consultations (and the proceedings, if
applicable, under section 303)". The "proceedings" under Section 303 are dispute settlement
proceedings.
369 Moreover, such proceedings would be "applicable" in any case involving a
trade agreement, since Section 303 requires that dispute settlement procedures under a trade
agreement be invoked in any case involving a trade agreement, if no mutually acceptable
resolution has been achieved.370
4.691 The United States notes that Section 304(a)(2) specifies the timing of the USTR's
determinations under Section 304(a)(1). Under this provision, the USTR must make her
determination under Section 304(a)(1) by the earlier of 30 days after the conclusion of dispute
settlement proceedings or 18 months after initiation of an investigation. The 18-month time
frame permits the USTR to base her determ ination on adopted panel and Appellate Body
findings in all cases.
371 The United States specifically considered DSU time frames when
amending Section 304 in 1994 to ensure the compatibility of Section 304 time frames with those
in the DSU.372
4.692 The United States examines the numerous assumptions on which the EC argument rests.
US Exhibit 10 summarizes these assumptions. The United States argues that for each EC claim,
all of the EC's assumptions must be correct for it to prevail, but none of them is correct.

369 The United States claims that Section 303( a)(2) provides that if dispute settlement
consultations under a trade agreement have not resulted in a mutually acceptable resolution, the USTR
shall request "proceedings" under the "formal dispute settlement procedures provided under such
agreement".
370 Ibid.
371 The United States refers to US Exhibit 2. As explained there, the European Communities
has, in paragraph 77 of its First Submission, miscalculated the time frames provided for under the DSU.
372 Statement of Administrative Action at 360, reprinted in H.R. Doc. No. 103-316, at 1029 (US
Exhibit 3) (describing amendments to "section 304 . . . and section 305 . . . to ensure that the timetables
for investigations and determinations under the enforcement provisions of U.S. trade laws allow DSU
dispute settlement proceedings to be completed before trade sanctions may be imposed".).

4.693 In the view of the United States, the first set of EC assumptions relates to its claim that
Section 304 mandates a violation of DSU Article 23.2(a). The European Communities argues
that Section 304 requires the USTR to make a determination that US trade agreement rights
have been violated within 18 months of initiation of a Section 302 investigation, while the DSU
provides for a longer period for completio n and adoption of panel and Appellate Body
proceedings in some instances.
4.694 The United States notes that these EC assumptions relate to the time frames in
Section 301 and the DSU. However, because Section 304 does not mandate an affirmative
determination, these time frames are simply not relevant to the Panel's decision. Nevertheless,
even were this not so, the 18-month time frame in the statute would not prevent the USTR from
complying to the letter with DSU rules and procedures. The EC's calculation of the time by
which a panel may extend its proceedings is incorrect by one month. Moreover, the European
Communities ignores the fact that DSB meetings normally are held monthly and instead
assumes that DSB meetings would not be held until the final day permitted under the DSU. The
European Communities also assumes that the United States would not attempt to affect the
schedule of DSB meetings. Finally, the European Communities ignores the fact that
Sections 301-310 do not preclude the USTR from initiating dispute settlement proceedings
before initiating a Section 301 investigation. Thus, wholly apart from the fact that the
European Communities cannot assume that the USTR will always make an affirmative
determination, the time frames in the US statute do, in fact, permit the USTR to base her
determination on adopted panel and Appellate Body findings. The DSU time frames were
negotiated with this 18-month time frame in mind, and the European Communities and others
were well aware of this fact during the Uruguay Round.
4.695 The European Communities notes that the European Communities and the United
States differ on certain timeframes under the DSU.
4.696 The European Communities notes that as to this time frame, the United States claims
that the total length is 18 months while the European Communities claims that the total length is
19 ½ months. This difference arises from different assumptions on the length of time it takes to
establish and compose Panels.
4.697 The European Communities rebuts the US assumption that all the panels that it requests
the DSB to establish are composed as a result of two special meetings of the DSB convened in
accordance with Article 6.1 of the DSU. This provision provides that, upon request,
"a Panel shall be established at the latest at the DSB meeting following that at
which the request first appears as an item on the DSB's agenda …". and that "a
meeting for this purpose shall be convened for this purpose within 15 days of
the request …".
4.698 The European Communities indicates that it in terprets the terms "for this purpose" to
refer to the second meeting of the DSB at which the panel must be established. This is in
conformity with the consistent practice of the WTO Members and of the DSB. The complainant
can thus not request two special DSB meetings benefiting from the compulsory reduced time of
convocation, as the United States assumes, but only one. Since the DSB normally meets once a
month (but not necessarily every month, as duri ng August and at the end of the year DSB
meetings are rarely held), the complainant can for these reasons not expect the establishment of
the Panel until one month + 15 days have lapsed.

4.699 The European Communities notes that the United States claims that it can at any time
request a special meeting of the DSB. However, the United States has a right to a special
meeting (i.e. benefiting from the compulsory reduced time of convocation) only in the
circumstances foreseen in the DSU and can therefore not count on two special DSB meetings.
4.700 Moreover, the European Communities points out that the United States makes the
assumption that it will in all cases request two special meetings in anticipation of later delays.
The US assumption is based on a logical non-sequitur. The anticipation of the delays would be
put in practice without knowing whether any dela y at all would appear in the course of the
procedure. The panelists in the EC – Hormones (US) case, for example, could not have
anticipated the duration of the procedure before they actually started it and recognised the need
to request expert advice on extremely sensitive and complicated scientific issues brought to their
attention. Consequently, the US assumption could only be credible if it could show that it
pursued a systematic policy of shortening the procedural deadlines by anticipation. However,
the United States has not shown (and cannot show) it pursued such a systematic practice.
4.701 The European Communities further notes that the second source of discrepancy can be
found in the different assumptions regarding the length of the extension period under
Article 12.9 of the DSU.
4.702 The European Communities recalls that the Un ited States assumes that the composition
of the Panel takes one month and that the actual extension provided for under Article 12.9 is
therefore only two months.
4.703 The European Communities argues that here it assumed that the Panel is composed
shortly after it has been established (for instance, there was no disagreement on the composition
between the parties). Under the EC's assumption, the two starting dates for calculating the six-
month and the nine-month periods referred to in Article 12.9 are close to one another so that the
period of extension available to the Panel effectively remains three months.
4.704 The European Communities is further of the view that the United States' claims are
based on a misrepresentation of the discretion available to the United States under the
legislation at issue. Under Sections 301-310, the USTR must determine within specified time
frames whether United States' rights under a WTO agreement are being denied and whether a
failure to implement DSB recommendations has occurred.
373
4.705 The European Communities challenges the US claim that the USTR has the right not to
make any determination at all or to decide to postpone the determination so as to await the
completion of WTO proceedings. There is nothing in the text of Sections 301-310 to support
this claim. The explicit requirements to make a determination within a specified time frame
whether the United States' WTO rights are being denied or a failure to implement DSB
recommendations has occurred would be completely frustrated if they were deemed fulfilled by
a decision to postpone the determination.
4.706 The European Communities maintains that it is irrelevant whether the USTR has
decided in a few individual cases to postpone her determination beyond the deadlines foreseen
in Sections 301-310. Both parties agree that the issue in this dispute is the legislation of the
United States, not its actual application. The European Communities would like to recall in this

373 In particular Sections 304(a)(1) and 306 (b).

context the following ruling of the GATT panel on United States - Measures Affecting Alcoholic
and Malt Beverages (Beer II):
"Even if Massachusetts may not currently be using its police powers to enforce
this mandatory legislation, the measure continues to be mandatory legislation
which may influence the decisions of economic operators. Hence, a non-
enforcement of a mandatory law in respect of imported products does not
ensure that imported beer and wine are not treated less favourably than like
domestic products to which the law does not apply".
374
4.707 The European Communities recalls the argume nts that the United States presented to
the WTO panel on India - Patents (US):
"The mailbox system … had a rationale common to many other WTO
obligations, ‘namely to protect expectations of the contracting parties as the
competitive relationship between their products and those of other contracting
parties'. The Superfund report had established clearly the importance of
‘creat[ing] the predictability needed to plan future trade.' … Despite India's
claim that it had decided for the moment not to enforce the mandatory
provisions of ... its Patent Act ... that 'measure continues to be mandatory
legislation, which may influence the decisions of economic operators.' The
economic operators in the present case - potential patent applicants - had no
confidence that a valid mailbox system had been established ... To paraphrase
the Beer II panel, a non-enforcement of a mandatory law that violated a WTO
obligations did not ensure that the obligation was not being broken".375
4.708 The European Communities then argues that the provisions of Sections 301-310
stipulating WTO-inconsistent action would thus remain WTO-inconsistent even if the USTR
did not enforce them at all.376
4.709 The European Communities agrees that th e time limits set out in the DSU are not
"legally binding" in the sense that they affect neither the obligations under Article 23 of the
DSU nor the validity of the act of the judicial organs subject to the time limits. On this issue, the
European Communities would like to draw the Panel's attention to the following.
4.710 The European Communities points out that the arbitrators' decision on the EC banana
regime was submitted on 9 April 1999. According to Article 22.6 of the DSU, their work should
have been completed on 3 March 1999, that is 60 days after 1 January 1999, the date on which
the implementation period accorded to the European Communities expired. The arbitrators
explained in their decision that this delay did not have any impact on the validity of that
decision:
"On the face of it, the 60-day period specified in Article 22.6 does not limit the
jurisdiction of the Arbitrators ratione temporis . It imposes a procedural

374 Panel Report on US – Malt Beverages, op. cit., p. 290 at BISD 39S.
375 Panel Report on India – Patents (US) , op. cit., para. 4.4 (footnotes omitted, underlining
added).
376 In the EC's view, this is the way in which the law was applied in a number of cases (e.g.
Japan - Autos and Auto Parts and EC - Bananas). Their non-application in a few other cases, in
contradiction with the plain language of the law, cannot demonstrate their WTO-consistency.

obligation on the Arbitrators in respect of the conduct of their work, not a
substantive obligation in respect of the validity. In our view, if the time-period
of Article 17.5 and Article 22.6 of the DSU were to cause the lapse of the
authority of the Appellate Body or the Arbitrators, the DSU would have
explicitly provided so. Such a lapse of jurisdiction is explicitly foreseen, e.g. in
Article 12.12 of the DSU which provides that "if the work of the Panel has been
suspended for more than 12 months, the authority for establishment of the Panel
shall lapse".
377
4.711 The European Communities notes that the Ar bitrators thus considered that the DSU
provisions imposing time limits relate exclusively to their work and not to the substantive
validity of its result. They expected the DSB to authorize the suspension of concessions and
other obligations on the basis of their decision even though it had been made available after the
time limits foreseen in Article 22.6. The DSB authorized the suspension on 19 April 1999,
thereby indicating that its jurisdiction to grant such an authorization is not time-bound.
4.712 The European Communities further argues th at in domestic law, a "provision in a
statute, rule of procedure, or the like, which is a mere direction or instruction ... involving no
invalidating consequences for its disregard ... as in the case of a statute requiring an officer to
prepare and deliver a document ... before a certain day" is considered to be a "directory"
provision.
378 The case of the arbitration decision on the EC banana regime demonstrates, that
the arbitrators, and the DSB perceived the time limits set out in Article 22.6 of the DSU to be of
a "directory" nature whose disregard does not change the substantive rights and obligations of
Members.
4.713 In the view of the European Communities, the directory nature of the time limits is
reflected in the practice under the DSU. The median time period that lapsed between the
establishment of the Panels and the adoption of the reports has been 13 months and 28 days,
which is well within the target set out in Articl e 20 of the DSU and the time frame foreseen in
Sections 301-310. However, this median cove rs periods from 11 months and 6 days to 21
months and 5 days. 379 It would be wrong to attribute the delays referred to in the question to
inefficiencies in the conduct of the proceedings . In some cases, the issues involved in the
proceedings were simply too complex to be resolved within the standard time limits; in other
cases, the Panels required more time to obtain expert advice. The delays were thus necessary to
ensure due process for the parties to the proceedings.
4.714 The United States rejects the EC argument that the non-application of statutory time-
frames would render them WTO-consistent because that is not a relevant issue in this dispute.
The European Communities has failed first to establish that Sections 301-310 mandate WTO-
inconsistent actions, so it is irrelevant whether they are not applied in a given case. The USTR
has more than adequate statutory discretion to comply with WTO rules without ignoring the
statute.

377 Footnote 7 of the Arbitrators' award.
378 Black's Law Dictionary (Sixth Edition).
379 The United States refers to the table entitled "WTO Dispute Settlement Timeframes - Panels
Established and Composed - 1 January 1995 and 30 April 1999" in the informal Secretariat Note
circulated as Job No. 2330 on 22 April 1999.

4.715 The United States further adds that Article 21.4 of the DSU supports the US view that
the European Communities has erroneously claimed that panels may extend their proceedings
by three, rather than two, months. Article 21.4 provides:
"Except where the panel or the Appellate Body has extended, pursuant to
paragraph 9 of Article 12 or paragraph 5 of Article 17, the time of providing its
report, the period from the date of establishment of the panel by the DSB until
the date of determination of the reasonable period of time shall not exceed 15
months unless the parties to the dispute agree otherwise. Where either the panel
or Appellate Body has acted to extend the time of providing its report, the
additional time taken shall be added to the 15-month period, provided that
unless the parties to the dispute agree that there are exceptional circumstances,
the total time shall not exceed 18 months".380
4.716 The United States points out that Article 21.4 sets forth the maximum period from panel
establishment to determination of the reasonable period of time, a period 90 days longer than the
period from panel establishment to adoption of the panel and Appellate Body reports. 381
Subtracting 90 days from each of the time frames in Article 21.4 yields a maximum period from
panel establishment to adoption of the panel and Appellate Body reports as 12 months if the
panel and Appellate Body have not extended the time for issuing their reports and 15 months if
they have. Since Article 17.5 clearly provides 30 days for the Appellate Body to extend the
time for issuing its report, this leaves at most two months for the panel to extend the time to
circulate its report (assuming no time between issuance and circulation).
4.717 The United States also notes that, with the exception of also erroneously assuming that
panels may extend their proceedings by three months, the time frames set forth by Thailand in
its oral statement match those described by the United States regarding the maximum period
permitted under the DSU. Based on its error, Thailand stated that the period was 19 months,
rather than 18 months. However, even this is longer than may be assumed for purposes of this
dispute, since regularly held DSB meetings generally occur monthly and since the United States
could, if necessary, request DSB meetings to ensure that time frames are met.
4.718 In response to the Panel's question as to the relevance, to the parties' discussion on DSU
timeframes, of the following arguments: (1) most DSU timeframes do not seem to be legally
binding and are determined case by case not by the claiming party but by the panel, Appellate
Body or even the defendant; (2) of the 22 cases were a panel and/or Appellate Body report has
been adopted, 12 cases required more than 18 months for reports to get adopted, the United
States notes that the time frames in Article 21.4 do appear to be legally binding, since they
provide that the time frames "shall not exceed 18 months". The consequences of any failure to
meet these time frames is less clear.
4.719 The United States argues that in any event, for purposes of deciding this dispute, the
time frames in the DSU are, in the end, not relevant, nor is the fact that these time frames have
been exceeded in many cases. Because the USTR is free, under Section 304, not to make a
determination that a violation has occurred, she is not required to make a determination
inconsistent with Article 23.2(a). Sections 301-310 do not mandate any DSU violations.

380 DSU Art. 21.4 (emphasis added).
381 DSU Art. 21.3 (the period for determining the reasonable period of time through arbitration is
90 days from the adoption of the panel and Appellate Body reports).

4.720 The United States further claims that on the other hand, were it incorrectly assumed that
Section 304 actually does mandate a determination that a violation has occurred, the time
frames in the DSU would remain relevant, though the actual performance of panels in
complying with these time frames would not. This is because this dispute involves an
examination of whether the mere existence of Sections 301-310 violates WTO rules. In
determining whether the legislation mandates a violation of DSU Article 23, certain
assumptions must be made because no specific case applying Sections 301-310 is within the
terms of reference of this Panel. For example, the timing of the Section 304(a)(1) determination
would be relevant if – contrary to the or dinary meaning of Section 304(a)(1) and the
requirement in that provision and the commitment on Statement of Administrative Action page
365 to base the determination on adopted panel and Appellate Body findings – it were assumed
that Section 304 actually does mandate a determination that a violation has occurred. The
question then would be whether such a determination must be made before panel and Appellate
Body findings can be adopted. The European Communities assumed for purposes of this
analysis that panels and the Appellate Body will extend their proceedings as authorized under
the DSU, and that DSB meetings will be held on the last possible day authorized under the
DSU. The United States pointed out that while it is reasonable to assume that panels will
extend their proceedings as authorized under the DSU, it is not reasonable to assume that the
United States would not take steps to request DSB meetings at earlier times. Moreover, the
United States explained above that the EC's calculations of DSU time frames were in error.
4.721 According to the United States, in other words, both the United States and the European
Communities assume that panel would comply with DSU time frames. This is a proper
assumption for purposes of this dispute. Despite the actual record of panel compliance with
DSU time limits, it cannot, for purposes of this dispute, be assumed that these panels will fail to
comply with their obligations. It is remarkable enough that the European Communities believes
it may establish its prima facie case based on adverse assumptions concerning the choices the
USTR will actually make in a given case. It should not be permitted to assume that panels as
well will disregard their obligations under the DSU.
4.722 The United States claims that nevertheless, the DSU time frames remain relevant to the
Panel's analysis. This dispute does not involve the application of Sections 301-310 in the
context of a specific WTO dispute. There are therefore no established facts as to when and how
the USTR made specific determinations, nor are there established facts as to when and how a
panel and Appellate Body issued their reports. Assumptions must be made. It is not
appropriate to assume that panels and the A ppellate Body will not comply with DSU time
frames, any more than it is appropriate to make any other assumption adverse to the United
States in this case.
4.723 The United States points out that the European Communities argues at pages 31-32 of
its answers to Panel questions that DSU time frames are irrelevant because they are merely
"directory" in nature. The European Communities states:
"In domestic law, a 'provision in a statute, rule of procedure, or the like, which
is a mere direction or instruction ... involving no invalidating consequences for
its disregard ... as in the case of a statute requiring an officer to prepare and
deliver a document ... before a certain day' is considered a 'directory'

provision.382 . . . [The disregard of time limits] of a 'directory' nature . . . does
not change the substantive rights and obligations of Members".
4.724 The United States goes on to state that the European Communities raises this point with
respect to DSU time frames, arguing that because they are directory, they are irrelevant to the
Panel's analysis in this case. While the United States disagrees that DSU time frames are
irrelevant to this dispute, it notes that if the EC's argument were accepted, that argument would
apply equally to the time frames in Section 301. The "domestic law" referred to in the EC
quotation is US law,
383 and the principle would apply equally to Section 301 time frames. There
are no "invalidating consequences" provided for in Sections 301-310 if the USTR misses her
deadlines. Nevertheless, like panels, the USTR takes her deadlines seriously. However, if the
panel accepts the EC's arguments that DSU time frames are irrelevant, that same conclusion
must be applied to those in Section 301. In that case, the EC complaint fails because even if it
were incorrectly assumed that Section 304(a)(1)(A) mandates a determination that US
agreement rights have been denied, it would not be possible to conclude that the law mandates
that such a determination be made prior to DS B adoption of panel and Appellate Body findings
to that effect.
4.725 The United States contends that assuming that the Panel chooses to analyze the time
frames in Sections 301-310 against those in the DSU (and has not already concluded that
Section 304 neither mandates a determination that US agreement rights have been denied, nor
precludes any such determination after the DSB has adopted panel and Appellate Body
findings), that analysis reveals that Section 301 time frames do not require a determination
before the time established in the DSU for adoption of panel or Appellate Body findings. The
United States already explained in response to Panel question 9 that Article 21.4 provides
further support for the US position that the maximum period from panel establishment to
adoption of panel and Appellate Body findings is 15 months. That provision establishes a firm
deadline of 18 months from panel establishment to determination of the reasonable period of
time, a period which includes 90 days for the determination of the reasonable period.384
4.726 The United States argues that the EC's explanation that it "assumed that the Panel is
composed shortly after it has been established" ignores the fact that the time limit in DSU
Article 12.9 is nine months from panel establishment to circulation to Members. Combining
this with the maximum period of 60 days for appeal or adoption of the panel report (DSU
Article 16.4), the maximum 90 day period for Appellate Body proceedings (DSU Article 17.5),
and the maximum period for DSB adoption of 30 da ys (DSU Article 17.14), yields a maximum
period from panel establishment to adoption of panel and Appellate Body findings of 15
months, as the United States has argued.
4.727 The United States notes that the European Communities disputes the fact that a panel
may be established within one month. The United States disagrees with the EC's interpretation
of the footnote to Article 6.1 as being limited to the second meeting at which a panel meets to
consider establishment, and further notes that Thailand concurs in the US conclusion that a
panel may be established within a month of completion of the 60 day consultation period.

382 Black's Law Dictionary (Sixth Edition) (citation in original).
383 Black's Law Dictionary is a US publication, and citations provided in the definition of
"directory" are to US court opinions. See Black's Law Dictionary, 5th ed., at 414.
384 See DSU Art. 21.4.

4.728 In the view of the United States, when the one month period for establishing a panel is
added to the 60 day consultation period (DSU Article 4.7) and the maximum fifteen month
period from panel establishment to DSB adoption of panel and Appellate Body findings, the
total is 18 months, allowing the USTR to make a determination on the date provided for in
Section 304(a)(2)(A) based on adopted panel and Appellate Body findings in all cases.
4.729 However, the United States has observed that, even this overstates the amount of time
for panel and Appellate Body proceedings that may be assumed for purposes of this dispute.
This is because DSB meetings generally occur on a monthly basis, so it may not be assumed
that it will take all of 60 or 30 days for an appeal to be filed or an Appellate Body report to be
adopted, and because the US may request meetings at earlier times. In response, the European
Communities asserts that the Panel may not take into account the fact that the United States may
request DSB meetings at a time earlier than those established by time limits, unless the United
States can show that the USTR pursues a "systematic policy" of shortening procedural time
frames through such requests.
4.730 The United States argues that the European Communities does not explain why it may
disregard the "systematic policy" of monthly DSB meetings which can be expected to shorten
the time frames from 18 months.
385 Leaving that aside, the European Communities forgets that
to meet its burden in this case, it must show that Sections 301-310 "do not allow" the USTR to
comply with DSU procedures, that is, that it would not, in a given case, be possible for the
USTR to take steps to ensure compliance with the DSU. The European Communities thus may
not assume that the USTR will not act to shorten time frames. Further, to establish that it would
not be possible for the United States to comply with DSU rules, the European Communities
would have to explain why, under US law, it would not be possible for the USTR to request
consultations prior to initiating a Section 302 investigation, as she has, in fact, done in the past.
The European Communities may not base its claim on adverse assumptions about the choices
that the USTR, the panel, the Appellate Body and the WTO Secretariat (in scheduling DSB
meetings) will make in a concrete case.
4.731 The United States argues that the time frames in Sections 301-310 are entirely
compatible with those in the DSU. Even if the Panel were to ignore the EC's concession that the
USTR need not determine that US trade agreement rights have been denied, the USTR may –
indeed, must – base her determination on adopted panel and Appellate Body findings in each
and every WTO case.
4.732 The European Communities contends that in order to hide this fundamental
inconsistency in its defence, the United States has engaged in an attempt to play down the
importance of this case, even though, in its view , it is more than likely to constitute a turning
point in the history of the World Trade Organization. The United States seems rather more
interested in distracting the Panel's attention from the central legal issues of this case by alleging
unsupported political links with other entirely separate dispute settlement procedures. This
attitude is not in line with the explicit prohibition under Article 3.10, last sentence, of the DSU
according to which "complaints and counter-complaints should not be linked".
4.733 The European Communities repeats once more that any reference in this case to
previous dispute settlement procedures is made only within the limited (but procedurally

385 Nor does the European Communities explain why it may disregard the Trade Representative's
"systematic policy" of basing Section 304 determ inations on WTO proceedings. See Statement of
Administrative Action at 365-66, reprinted in H.R. Doc. No. 103-316, at 1034-35 (US Exhibit 11)

important) purpose of providing evidence in support of the EC's main claim in this case, i.e. that
Sections 301-310 are as such in breach of numerous substantive obligations under the WTO
Agreements.
4.734 The European Communities further indicates th at likewise and in the same spirit, it
would continue to abstain from what it perceives as slightly too energetic comments from our
US counterparts as, for example, that the logic of the EC's case is "hard to follow" or that
interpretations proposed by the European Communities "make up obligations out of thin air and
aspirations" or that a given interpretation is based on "fanciful, results driven constructions" or
that an assertion is "bold" or that a given claim is "pure fantasy".
4.735 The European Communities rather draws the attention of the Panel to the presentation
by the United States of the legal situation of this case, in general, and of its domestic legislation,
in particular. The European Communities indicates that it has the impression that, as this Panel
procedure advances, the description by the United States of the legal issues under scrutiny of
this Panel add up to the "intricate maze" of Sections 301-310 (as Professor Hudec defined them)
with the aim of rendering the contours of these issues less and less discernible.
4.736 In order to illustrate this assertion, the European Communities refers to some telling
examples from the US arguments:
"In paragraph 35, when addressing the issue of the relevance of the WTO panel
report on Japan - Varietals the US states that '[t]he rationale of paragraph 1 of
Annex B – publication of SPS measures – cannot be equated with that of WTO
Agreement Article XVI:4 – to ensure that domestic laws permit compliance
with international obligations'. However, the language of paragraph 1 of Annex
A of the SPS Agreement, when combined with the language of the provisions
governing SPS measures, is parallel and comparable to the language of
Article XVI:4 of the Marrakech Agreement that plainly states that '[e]ach
Member shall ensure the conformity of its laws, regulations or administrative
procedures …'".
The confusion operated by the United States between the terms "ensure the conformity", one of
the fundamental issues of this case, and the terms "ensure that domestic laws permit
compliance" seems by no means accidental.
4.737 The European Communities also cites the US assertion that
"[N]evertheless, the DSU time frames remain relevant to the Panel's analysis.
This dispute does not involve the application of Sections 301-310 in the context
of a specific WTO dispute. There are therefore no established facts as to when
and how the Trade Representative made specific determinations, nor are there
established facts as to when and how a panel and Appellate Body issued their
reports. Assumptions must be made …".
4.738 The European Communities points out that in answering only 20 days ago to a question
from the Panel, the United States expressed an opposite view:
"In any event, for purposes of deciding this dispute, the time frames in the DSU
are, in the end, not relevant, nor is the fact that these time frames have been
exceeded in many cases".

4.739 The European Communities points out that the contradiction is further revealed where
the United States added:
"… It is remarkable enough that the EC believes it may establish its prima facie
case based on adverse assumptions concerning the choices the USTR will
actually make in a given case".
4.740 The European Communities argues that the issue here is that, according to the text of
Sections 301-310, when the United States seeks redress of a violation of WTO obligations, its
determinations and subsequent actions must be made and implemented even when the WTO
proceedings on which such a determination or action could be based have not been completed.
The mandatory deadlines in Sections 301-310 thus clearly violate Article 23 (and the related
Articles 21 and 22) of the DSU.
4.741 The European Communities further recalls the US argument that
"[T]here are no 'invalidating consequences' provided for in Sections 301-310 if
the Trade Representative misses her deadlines. Nevertheless, like panels, the
USTR takes her deadlines seriously".
4.742 In the view of the European Communities, while it does not discuss the seriousness of
the USTR in this or other matters, this statement needs nevertheless to be compared with the
apparently irreconcilable statement made by the United States to the effect that the could not
exclude a judiciary control over the way the USTR implements Sections 301-310 in concrete
cases.
4.743 The European Communities points out that the text of Sections 301-310, on its face, is
clear in the sense that it imposes not only "serious" deadlines, but mandatory deadlines. In
practice, the European Communities is still in the dark on what is the official and definitive
interpretation of the US government of the text of Sections 301-310 dealing with deadlines, in
particular Section 306 (b) (2) and 304 (a) (2).
4.744 The European Communities reiterates that a text of law that imposes WTO-inconsistent
behaviours upon the executive by the use of express terms like "shall" and "Mandatory Action"
within certain express time-limits defined as "the earlier of" or "no later than" falls within the
description of mandatory legislation developed by the GATT 1947 panel practice.
4.745 The United States responds that the issue in this dispute is not whether certain actions
under Sections 301-310 may be characterized as "mandatory". It is whether the law mandates
violations of WTO rules. A law may mandate walks in the park, but unless walks in the park
are WTO-inconsistent, this fact would not be relevant in a WTO dispute. The European
Communities has the burden of adducing evidence and arguments that Sections 301-310 do, in
fact, mandate a violation of WTO rules. The European Communities has claimed that Sections
301-310 mandate violations by requiring determinations that a violation has occurred prior to
completion of dispute settlement proceeding s and action without DSB authorization. The
United States has rebutted those claims. If the European Communities believes that the mere
use of the word "mandatory" and "discretionary" in Sections 301-310 violates WTO rules, it
should explain why this is so. The United States could then respond.
(d) "Security and Predictability"
4.746 The European Communities points out that Professor Robert E. Hudec wrote:

"Section 301 is an intricate maze of mandatory commands in one place and
extremely wide loopholes in the other. One needs a wiring diagram to trace
whether mandatory commands given in one part will actually reach their final
target without passing through at least one discretionary exit point. Even with
the aid of such a diagram, one cannot predict actual outcomes".386
4.747 The European Communities also points out that Professor John H. Jackson testified
before the Senate Foreign Relations Committee as follows:
"Although there are plausible ways to interpret the statutory provisions of
regular Section 301 so as to give the President discretion to act consistently
with the Uruguay Round dispute settlement rules, in a few cases, particularly in
Section 301(a) (mandatory provision) the interpretations to do this are a bit
strained …". 387
4.748 In the EC's view, if the United States' two foremost scholars on international trade law
are unable to identify a sound legal avenue in Sections 301-310 permitting the USTR to act
consistently with the DSU and the GATT 1994, nobody else can.
4.749 The European Communities notes that the legislative history of the 1988 Omnibus
Trade and Competitiveness Act, which is at the origin in particular of the present version of
Sections 301-310, demonstrates that the lack of a sound legal avenue was deliberate.
4.750 The European Communities states that the United States now attempts to benefit from
the creation of this legal "maze" by claiming that it is for the European Communities to prove
that it is not possible to interpret Sections 301-310 as permitting WTO-consistent
implementation.
4.751 According to the European Communities, the fundamental objective of the WTO -
namely to create security and predictability in international trade relations - could not be
achieved if WTO Members were permitted to maintain domestic legislation that fails to provide
the executive authorities with a sound legal basis for the measures required to implement their
WTO obligations.
4.752 The European Communities is therefore of th e view that, in a panel's examination of
whether domestic legislation stipulates WTO-inconsistent determinations or action, the
defendant should not be able to hide behind legal uncertainties arising from its own law, in
particular if these uncertainties have been deliberately created. In accordance with the approach
endorsed by the Appellate Body in India - Patents (US), a panel should rule against the
defendant if it concludes, on the basis of the evidence before it, that there is an objective (and
thus reasonable) uncertainty on whether the domestic law permits WTO-consistent
determinations or actions.
4.753 The European Communities considers that if the panel has reasonable doubts, so will
economic operators planning their future trade. No legitimate interest would be protected if
Members were entitled to retain law lacking such a basis. In fact, as the case before the Panel

386 Robert E. Hudec, Thinking About the New Section 301: Beyond Good and Evil, in:. Jagdish
Bhagwati and Hugh T. Patrick, Editors , Aggressive Unilateralism. America's 301 Trade Policy and the
World Trading System (Harvester Wheatsheaf 1990), page 122.
387 Jackson Testimony, op. cit.

demonstrates, this would be an invitation to Members to restrict trade by exposing it
deliberately to legal uncertainties.
4.754 The United States argues that the Statement of Administrative Action and
accompanying legislation are the definitive congressional materials with respect to the WTO-
consistency of Sections 301-310 before the adoption of the Uruguay Round Agreements Act by
the Congress. Page 360 of the Statement of Administrative Action (US Exhibits 3 and 11)
outlines the changes considered necessary to ensure compliance. In addition, the United States
directs the Panel's attention to the testimony on this topic of Professor John Jackson when he
appeared before the Senate Finance Committee.
388
4.755 The United States points out that Professor Jackson concluded that, "There may need to
be some alterations to some time limits, or transition measures, but the basic structure of 301 is
not necessarily inconsistent with the Uruguay Round results". He also concluded that even
when Section 301 is considered "in its current statutory form" (i.e. before the 1994
amendments), "the Executive appears to have the discretion to apply actions under Section 301
in a manner consistent with the proposed new rules of the Uruguay Round dispute settlement
understanding".
389 Professor Jackson thus considered that with only minor changes, Section 301
would be clearly consistent with the WTO obligations of the United States. Moreover, his
emphasis on the fact that the Executive had adequate discretion to apply Section 301 in a WTO-
consistent manner reflects the fact that he took for granted that the reasoning applied in the
Superfund line of cases would continue to apply under the WTO.
4.756 The United States notes that Professor Jackson believed that sufficient clarity could be
provided to the interpretation of the statute through the inclusion of language in the Statement of
Administrative Action.
390.391
4.757 The European Communities emphasises that the US arguments are both new and
incorrect, as can be seen already from the internal meeting report of 11 November 1993 by the
US delegate contained in US Exhibit 23. This ex hibit, in particular, shows that several Uruguay
Round participants, including the European Communities, worked for a strengthening of
Article XVI:4 of the WTO Agreement beyond the "natural obligation under int'l law" which
finds its source in Articles 26 and 27 of the Vienna Convention on the Law of Treaties. This
"natural obligation" is already incorporated into the WTO by virtue of Article 3.2, second
sentence, of the DSU, which provides that "[t]he Members recognise that [the dispute settlement
system] serves to … clarify the existing provisions of those agreements in accordance with
customary rules of interpretation of public international law". The US reply thus appears to be
an attempt to go back on the achievements of the Uruguay Round.
4.758 The United States rebuts the EC argument that the principles of VCLT Article 26 have
already been incorporated into the WTO through DSU Article 3.2, second sentence, and that
Article XVI:4 therefore need not serve this purpose. However, DSU Article 3.2 provides for the
dispute settlement system to clarify WTO provisions "in accordance with customary rules of
interpretation of public international law". Article 26 is not such a customary rule of

388 Results of the Uruguay Round Trade Negotiations : Hearings Before the Senate Committee on
Finance, 103d Cong. 195 (1994) (statement of Professor John Jackson) (US Exhibit 24). The EC
excerpts this testimony.
389 Ibid. at 200.
390 Ibid.
391 See the parties' further arguments contained in Paragraphs 4.340-4.360 above.

interpretation. As the Appellate Body explained in US – Gasoline and Japan – Alcoholic
Beverages, these rules of interpretation are reflected in VCLT Articles 31 and 32, which,
indeed, are entitled "General rule of interpretation" and "Supplementary means of
interpretation", respectively.392 Inasmuch as Article 26 is not such a rule of interpretation, DSU
Article 3.2, second sentence, may not be read to reference it. Thus, the EC argument fails to
undermine the United States point that Article XVI:4 made the principles of VCLT Article 26
binding on all WTO Members, even those Members not parties to the Vienna Convention. It is
worth noting that, during negotiations from 1991-1993, the United States negotiator explicitly
brought to the attention of other delegations that the United States is not a party to the Vienna
Convention.
(e) Article XVI:4 of WTO Agreement
4.759 In the case of Sections 301-310, the European Communities is of the view that these
provisions are biased against the conformity with the requirements of Article 23 (and the related
provisions under Articles 21 and 22) of the DSU and thus in breach of Article XVI:4 of the
Marrakech Agreement. This view is supported by the fact that the United States has always
given precedence to an Act of Congress in the event of a conflict with an international
obligation that the United States had accepted, at least in situations where the acceptance of the
international agreement was prior to the adoption of the Act of Congress.
4.760 In this regard, the European Communities refe rs to an official statement made by the
US Attorney-General in a letter of 21 March 1988
393 to the PLO Permanent Observer accredited
to the United Nations quoted in the Advisory Opinion of the International Court of Justice on
the Headquarters Agreement of the United Nations:
"I am aware of your position that requiring closure of the Palestine Liberation
Organisation ('PLO') Observer Mission violates our obligations under the
United Nations ('UN') Headquarters Agreement and, thus, international law.
However, among a number of grounds in support of our action, the United
States Supreme Court has held for more than a century that Congress has the
authority to override treaties and, thus, international law for the purpose of
domestic law. Here Congress has chosen, irrespective of international law, to
ban the presence of all PLO offices in this country, including the presence of
the PLO Observer Mission to the United Nations. In discharging my obligation
to enforce the law, the only responsible course of action available to me is to
respect and follow that decision".
394
4.761 The European Communities indicates that its concerns in the present case are based on
this description of the legal situation with regard to the relationship between US domestic law
and the international obligations of the United States.395

392 The United States cites Appellate Body Report on US – Gasoline, op. cit., pp. 16-17;
Appellate Body Report on Japan – Alcoholic Beverages, op. cit., pp. 10-12.
393 The European Communities recalls that this is the same year in which the US Trade Act of
1974 was substantially amended by the Omnibus Trade and Competitiveness Act of 1988.
394 International Court of Justice, Advisory Opinion of 26 April 1988 on the Applicability of the
Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement , ICJ-Reports
1988, p. 12, para. 27.
395 The European Communities claims that this is the main reason why the European
Communities is not reassured by the ruling of the US Supreme Court in Missouri v. Holland, 252 U.S.

4.762 The European Communities further states that the Uruguay Round Agreements Act
1994, which is the Act by which the United States Congress approved the Marrakech
Agreement Establishing the World Trade Organisation, contains the following provisions in
Section 102(a):
"(1) UNITED STATES LAW TO PREVAIL IN CONFLICT. - No provision in any of the
Uruguay Round Agreements, nor the application of any such provision to any
person or circumstance, that is inconsistent with any law of the United States
shall have effect.
(2) C
ONSTRUCTION. - Nothing in this Act shall be construed - …
 (B) to limit any authority conferred under any law of the
United States, including section 301 of the Trade Act of 1974,
unless specifically provided for in this Act".
4.763 In the view of the European Communities, it clearly follows from these provisions of
the Uruguay Round Agreements Act 1994 that none of the provisions contained in any of the
Uruguay Round Agreements can override any Act of the US Congress or affect any authority
conferred under such an Act, whether adopted before or after the approval of the Uruguay
Round Agreements by the US Congress, including in particular Section 301.396
4.764 The European Communities claims that on this basis, it is apparent that the approval of
the Uruguay Round Agreements by the US Congress in 1994 is not sufficient to bring US
domestic legislation, to the extent that it is inconsistent with US obligations under the covered
agreements, into conformity with these agreements.
4.765 The European Communities maintains that rath er, it is necessary that the United States
amend the existing inconsistent legislation in order to fulfil the obligation placed on all WTO
Members by the very explicit terms of Article XVI:4 of the WTO Agreement.
4.766 The European Communities points out that the very purpose of Article XVI:4 of the
Marrakech Agreement resides in the creation of an obligation to provide certainty and

416 (1920) in which Mr. Justice HOLMES, in delivering the opinion of the Court, made the following
statement: "[B]y Article 6 [of the Tenth Amendment] treaties made under the authority of the United
States, along with the Constitution and laws of the United States made in pursuance thereof, are declared
the supreme law of the land. If the treaty is valid there can be no dispute about the validity of the statute
under Article 1, Section 8, as a necessary and proper means to execute the powers of the Government.
The language of the Constitution as to the supremacy of treaties being general, the question before us is
narrowed to an inquiry into the ground upon wh ich the present supposed exception is placed". The
apparent discrepancy between this statement and the statement of the Attorney-General quoted in this
paragraph can be explained by the consideration that, under US constitutional law, international treaties
concluded in the forms foreseen by the Constitution generally take precedence only on earlier domestic
legislation, but not on subsequent Acts of the US Congress. However, because of the specific provisions
contained in Section 102 of the Uruguay Round Agreements Act 1994, this general rule does not apply in
the case of the Marrakech Agreement Establishing the World Trade Organisation, as we explain in
paragraph 52 of our present submission.
396 Cf. D.W. Leebron, Implementation of the Uruguay Round Results in the United States, in:
J.H. Jackson/A. Sykes, Implementing the Uruguay Round, Oxford 1997, p. 175 (at 213); L. Henkin,
Foreign Affairs and the US Constitution, 2
nd ed., Oxford 1996, p. 209.

predictability in multilateral trade relations by bringing domestic laws into conformity with the
requirements under the relevant covered agreement. It is thus not sufficient just to abstain (or to
promise to do so) from applying a piece of legislation that is inconsistent with the obligations
under the relevant covered agreements since the mere existence of such a piece of legislation
creates uncertainty. While not dealing explicitly with the requirements of Article XVI:4 of the
Marrakech Agreement, the panels and the Appellate Body in the India - Patents (US) case have
clearly indicated the need to create a sound and predictable basis for WTO-consistent behaviour
of the administration in domestic law and to avoid a situation where domestic legislation
destabilises the solidity of WTO rights and obligations.
4.767 The United States responds that an analysis of whether Sections 304(a)(1)(A) and
304(a)(2)(A) mandate a violation of DSU Article 23.2(a) must begin with an analysis of the text
of DSU Article 23.2(a). Article 23.2(a) provides that Members shall:
"not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any objective
of the covered agreements has been impeded, except through recourse to
dispute settlement in accordance with the rules and procedures of this
Understanding, and shall make any such determination consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or
an arbitration award rendered under this Understanding".
4.768 The United States claims that there can be no violation of Article 23.2(a) unless: (1)
there is a determination to the effect that a violation has occurred; and (2) that determination has
not been made through recourse to DSU rules and procedures, or is not consistent with adopted
panel or Appellate Body findings or an arbitral award. In the absence of a specific
determination, the mere existence of legislation may be found inconsistent with Article 23.2(a)
only if that legislation mandates a determination which does not meet the requirements of
Article 23.2(a).
397 If that legislation may reasonably be read to provide authorities with
discretion to comply with DSU Article 23.2(a), then that legislation does not mandate a
determination inconsistent with Article 23.2(a).
398 On the other hand, nothing in the language of
Article 23.2(a) or its context supports the EC's claim that the "design, structure and architecture"
of legislation must be examined to determine whether it is "manifestly intended to encourage
violations of WTO law or is otherwise biased against WTO-consistent action".
4.769 The European Communities recalls the US claim that the fact that the European
Communities in a separate panel procedure 399 affirmed that "implementing measures must be
presumed to conform to WTO rules unless their conformity has been duly challenged under the
appropriate DSU procedures" should be in some ways inconsistent with the EC's stance in this
case aimed at finding that Sections 301-310 st ructure, design and architecture by mandating
actions of the US executive authorities that are incompatible with the US WTO obligations, are
biased against compliance with US' WTO obligations.
4.770 The European Communities considers that the core of the US argument is that "[o]ne
may not assume that authorities will fail to implement their international obligations in good
faith"

397 Panel Report on US – Superfund, op. cit., para. 5.2.9.
398 Panel Report on US – Tobacco, op. cit., para. 123.
399 European Communities - Regime for Importa tion, Sale and Distribution of Bananas,
Recourse to Article 21.5 by the European Communities, WT/DS27/RW/EC.

4.771 The European Communities points out that while this last US statement is certainly
correct, and it agrees with it, it is however not logically linked with the previous US affirmation
(the European Communities is inconsistent) and, more importantly, it does not refer to the
factual situation before this Panel.
4.772 The European Communities claims that in the specific case of Sections 301-310, the
presumption of compliance is not applicable for the simple reason that their text, design
structure and architecture are, on their face, clearly biased against compliance.
4.773 In the view of the European Communities, it would therefore be extraordinary to claim,
as the United States seems to imply, that a presumption ( iuris tantum , i.e. rebuttable) of
compliance would shield a domestic legislation which on its face defeats such a presumption.
Legally, this would mean transforming a presumption iuris tantum in a presumption iuris et de
jure (i.e. non-rebuttable), which is however not foreseen under the WTO Agreements.
4.774 The European Communities then argues that th e burden of demonstrating that the text,
design, structure and architecture of Sections 3 01-310 are not what they appear to be from the
text published in the US statute books still rests with the United States. Until such evidence is
submitted, the onus remains on the United States.
4.775 In response to the Panel's question as to how the United States has dealt with the
obligation under Article XVI:4 to review existing legislation and bring it into conformity with
the WTO Agreement, if necessary, in respect of Sections 301-310, the United States responds
that as explained in greater detail in US Exhibits 3 and 11, it dealt with this obligation with
respect to Sections 301-310 by adjusting time frames for disputes involving subsidies, the
TRIPs Agreement and government procurement to conform with the standard time frames in the
DSU.
4.776 The United States also refers to US Exhibit 24, which includes the 1994 testimony of
Professor John Jackson cited by the European Communities. In the paragraph immediately
prior to that which the European Communities quoted, Professor Jackson states:
"My basic judgment is that very few statutory changes will be needed to U.S.
Section 301, at least the 'regular 301' (compared to Special 301 and other
similar statutory provisions, such as those on telecommunications.) There may
need to be some alterations to some time limits, or transition measures, but the
basic structure of 301 is not necessarily inconsistent with the Uruguay Round
results. Indeed, I continue to have the opinion that Section 301 appropriately
used in its current statutory form, is a constructive measure for U.S. trade
policy, and for world trade policy . Section 301 calls for cases presented under
the 301 procedural framework to be taken to the international dispute settlement
process. Thus the Executive appears to have the discretion to apply actions
under Section 301 in a manner consistent with the proposed new rules of the
Uruguay Round dispute settlement understanding".
400
4.777 The United States explains that with respect to how the Administration more generally
applied Article XVI:4 by reviewing existing legislation and bringing it into conformity, the
United States notes that precisely such a review was necessary to prepare the Statement of
Administrative Action. As described on page 1 of that document (Exhibit 11),

400 Jackson Testimony, op. cit., at 200.

"This Statement describes significant administrative actions proposed to
implement the Uruguay Round agreements. In addition, incorporated into this
Statement are two other statements required under section 1103: (1) an
explanation of how the implementing bill and proposed administrative action
will change or affect existing law; and (2) a statement setting forth the reasons
why the implementing bill and proposed administrative action are necessary or
appropriate to carry out the Uruguay Round agreements". (emphasis added.)
4.778 In response to the Panel's question as to whether considering "security and
predictability" from a factual dimension, a public announcement in legislation mandating the
making of a determination even if WTO proceedings have not yet been completed – albeit not
necessarily a determination of violation – does not affect the assurance given to other Members
that no determinations of violation can be made before the completion of WTO procedures?
Does the very discretion explicitly provided for and publicly announced - allowing the Member
to decide either way - not constitute a threat to security and predictability, the United States
comments that there is no independent obligation to provide "security and predictability" apart
from that provided by compliance with substantive WTO obligations and DSU rules and
procedures. A finding that such an obligation exists would run counter to the entire line of
reasoning underlying the mandatory/discretionary distinction under which the trading system
now operates. However, even if there were such an obligation, from a factual standpoint the
circumstances posited in the question most certainly do not threaten "security and
predictability".
4.779 In the view of the United States, there is nothing inherently threatening to "security and
predictability" in the making of determinations – even determinations that a violation has
occurred – or in suspending concessions. If there were, then the only conclusion to be drawn
would be that the DSU itself threatens security and predictability, since it provides for findings
of violations and for the suspension of concessions. Each and every WTO Member knows that
it is possible that another Member may obtain a DSB ruling that a WTO violation has occurred,
may make a determination consistent with that ruling, and may suspend concessions in response
– and each such Member has agreed to accept this possibility by virtue of its having become a
WTO Member. It should therefore come as no surprise when a Member provides in its laws for
the possibility of making determinations or suspending concessions. This possibility cannot be
considered a threat to security and predictability.
4.780 The United States points out that Members were willing to accept this possibility
because they also accepted an obligation to make such determinations of violations and to
suspend concessions in accordance with DSU rules and procedures. That binding international
obligation is no different in nature than that assumed by the Members with respect to any other
WTO obligation. The willingness of WTO Members to enter into these obligations provides the
only assurance that any WTO Member has that its fellow Members will not deny their WTO
rights. Every WTO Member has the power, and most of their governments have the domestic
legal authority, to violate their international obl igations. However, the fact that these Members
have accepted WTO obligations – and the fact that effective dispute settlement procedures exist
– provides assurances that they will respect other Members' rights. The dispute settlement
system itself helps to provide security and predictability, as DSU Article 3.2 states.
4.781 The United States notes that these are the only assurances. In fact, the European
Communities concedes that there is no independent WTO obligation to limit discretion in

domestic law so as to preclude the possibility of WTO-inconsistent action. 401 According to the
European Communities, such an obligation is not found in Article XVI:4. 402 It is an error to
assume that the "public warning" that authorities may decide either way on the issue of whether
agreement rights have been denied creates any special threat or insecurity beyond that present
when authorities have broad, undefined authority to violate their obligations. To the extent a
law provides for a determination by a given date – a date consistent with DSU guidelines – but
does not require the only determination proscribed by the DSU (that a violation has occurred),
the possibility that the determination will breach that Member's obligations under
Article 23.2(a) is no greater than if the law did not exist at all. In either case, WTO Members
must rely on the good faith of the Member in question to exercise its discretion in accordance
with its binding, international obligations. Good faith, and the security and predictability
provided by a dispute settlement system that rules on the basis of law, and which may not be
undermined by a losing party, provide all the assurances WTO Members have, and all that they
agreed they would have.
4.782 The United States claims that nevertheless, it has provided additional assurances in US
law, in the form of the Section 304(a)(1) requirement that determinations that agreement rights
have been denied must be based on the results of dispute settlement proceedings, as interpreted
in light of the authoritative interpretation of the statute provided in the Statement of
Administrative Action at pages 365-66.
4.783 The United States notes that if it were appropriate to examine whether "assurances"
have been undermined by a Member because of the possibility of future breaches, it would be
impossible to escape the conclusion that a broad, non-specific discretionary authority which has
been repeatedly exercised to violate another Member's rights creates a greater possibility of
further violations than a statute which explicitly provides discretionary authority to make
determinations only one of which might violate another Member's rights,
403 but which has never
been used to make that determination in violation of DSU or GATT rules. However, it is not
appropriate to examine the likelihood of future breach. It may not be assumed that in the future,
the Member in question will act in bad faith. If it may be assumed that a Member will exercise
its discretion in bad faith, then, indeed, there would be a threat to the security and predictability
of the multilateral trading system, because the ru les set forth in the DSU and the other covered
agreements will have been reduced to a popularity contest on the question of who can be
trusted.
4.784 The United States further argues that because it is the dispute settlement system which
provides security and predictability, it is no exaggeration to conclude that a true threat to
security and predictability would come from a legal analysis which departs from the text agreed
to by the Members in favor of creation of new obligations not found in the text, or which
abandons a consistent, logical analysis applied for years before the WTO Agreement entered
into affect, and which Members assumed would remain in effect. On this point – the continued
applicability of the Superfund reasoning – and on the issue of whether Article XVI:4 changed
this, the United States wishes to quote the views expressed by Pieter-Jan Kuyper, the legal
adviser to the EC's Uruguay Round negotiators, and by Frieder Roessler, the Director of the

401 The United States notes the EC statement that "it would be inappropriate to interpret
Article XVI:4 of the WTO Agreement so extensively as to require WTO Members to include specific
language in their domestic law precluding WTO-inconsistent action".
402 Ibid.
403 The United States also notes that then only if the timing of the proceedings does not conform
with DSU time frames and if the Member makes specific choices.

Legal Affairs Division of the GATT Secretariat, in a volume reproducing papers from a
conference held in October 1994 on the WTO Agreement and dispute settlement. Mr. Roessler
stated:
"The wording of [Article XVI:4] could be interpreted to mean either that
domestic law must prescribe that the executive authority act in conformity with
WTO law or that domestic law must permit that authority to act in conformity
with WTO law. There are similar provisions in the Tokyo Round Agreements
on Anti-dumping and Subsidies
404, which have generally been interpreted as
requiring the parties to these Agreements to adopt laws, regulations and
procedures that permit them to act in conformity with their obligations under
these Agreements. The main function of these provisions was to permit the
committees established under these Agreements to review the law of the parties
and not merely the practices followed under that law. Several GATT 1947
panels concluded that legislation mandatorily requiring the executive authority
of a contracting party to act inconsistently with the GATT may be found to be
inconsistent with that contracting party's obligations under the GATT, whether
or not an occasion for its actual application has yet arisen, but that legislation
merely giving the executive authorities th e power to act inconsistently with the
GATT is not, by itself, inconsistent with the GATT.
405 Given this background,
one can expect that the WTO Agreement provision stipulating consistency
between domestic law and WTO law will be interpreted to establish the
obligation for each WTO Member to ensure that the domestic law is such as to
permit the executive authority to act in conformity with the obligations under
the WTO Agreement".406
4.785 The United States points out that likewise, Mr. Kuyper in his paper stated that
Article XVI:4
"may turn out to be a very onerous obligation, requiring full conformity of all
Community and national laws . . . with the precise provisions of the WTO's
annexes. It may also have hardly any consequences at all, compared to the
present situation, if it is interpreted in the light of standing panel case law
which determines that a law or regulation is contrary to the GATT only if it is
mandatory and as such contrary to GATT terms, but that such is not the case, if
the text of the law or regulation permits a GATT conform [sic] application of
the text.407 If conformity to WTO obligations is interpreted in this way - which
would not be unreasonable in the light of the succession of the WTO to the

404 (footnote in original) Article 16(6) of the Anti-Dumping Code and Article 19(5) of the
Agreement on Subsidies and Countervailing Duties.
405 (footnote in original) See BISD, 39th Suppl., p.197.
406 Frieder Roessler, The Agreement Establishing the World Trade Organization, in The Uruguay
Round Results, A European Lawyers' Perspective 67, 80 (Jacques H.J. Bourgeois, Frédérique Berrod &
Eric Gippini Fournier eds. 1995) (emphasis added).
407 (citation in original) See US - Taxes on Petroleum («Superfund»), BISD 34S/134, para. 5.2.9.
and EEC - Regulation on imports of parts and components, BISD 37S/132, para. 5.25-26. The United
States notes that no reference is made to the Protocol of Provisional Application, or to cases citing the
Protocol of Provisional Application.

«acquis gattien»408 – it should be clear that the added value of Article XVI:4 is
rather limited".409
4.786 The United States further notes that Mr. Kuyper stated in a footnote that the conclusion
that the value of Article XVI:4 is "rather limited" is his own view. 410 Mr. Kuyper went on to
note that if a more expansive view of Article XVI:4 were adopted, "it must be clear that the
European Communities and the Member States have an obligation to maintain their laws and
regulations in constant conformity with the terms of the WTO Agreement and its annexes. That
is no simple matter".
411 He explained that, in order to prevent WTO panel condemnation, the
Commission would frequently be required to aggressively step in and quickly enforce WTO
rules domestically through the procedures of Article 169 of the Treaty of Rome, which had been
little used with a view to enforcing international treaties. 412 This would mean a fundamental
change in the balance between the Community and the Member States.
4.787 The United States then argues that the EC's own legal adviser, writing shortly after the
conclusion of the negotiations, took a position contradicting that presented by the European
Communities in the context of this dispute, and expressed his view that Article XVI:4 did not in
any way change the operation of the principle that laws are WTO-consistent if they provide for
discretion to act in a WTO-consistent manner. To the contrary, he, like the United States here,
emphasized the great disruption to security and predictability were a different interpretation
adopted. He, like the United States, fully expected that the principle in Superfund would
continue to be applied.
4.788 The United States further points out that Professor Jackson's testimony to Congress
makes clear that he also took for granted the continued relevance and applicability of the
principle that legislation would not be WTO inconsistent if it provided adequate discretion to act
in a WTO-consistent manner. Thus, he emphasized, "the Executive appears to have the
discretion to apply actions under Section 301 in a manner consistent with the proposed new
rules of the Uruguay Round dispute settlement understanding".
413
4.789 The United States goes on to state that Professor Jackson's testimony also highlights the
fact that, whatever the statute may provide regarding determinations and their timing, additional
assurances are provided in US law to counter any insecurities other Members may feel.
Referring to the statute before it was amended, he stated:
"I continue to have the opinion that Section 301 appropriately used in its
current statutory form, is a constructive measure for U.S. trade policy, and for
world trade policy . Section 301 calls for cases presented under the 301
procedural framework to be taken to the international dispute settlement
process".414

408 (citation in original) See Article XVI:1 of the WTO Agreement.
409 Pieter-Jan Kuyper, The New WTO Dispute Settlement System: The Impact on the Community ,
in The Uruguay Round Results, A European Lawyers' Perspective 87, 110 (Jacques H.J. Bourgeois,
Frédérique Berrod & Eric Gippini Fournier eds. 1995)(emphasis added).
410 Ibid. at footnote 46.
411 Ibid., at 110.
412 Ibid., at 110-11.
413 Jackson Testimony, op. cit., at 200.
414 Ibid. (emphasis added)

4.790 The United States adds that US law also includes assurances in the form of the
Section 304(a)(1) requirement that determinations that agreement rights have been denied be
based on DSB-adopted panel and Appellate Body findings. Thus, even though the WTO
Agreement requires Members to provide no assurances beyond the fact of their good faith and
the certainty of effective dispute settlement procedures, the United States has, in fact, included
in its laws further legal assurances. The notion that the European Communities or any other
Member nevertheless feels "threatened" in the face of these assurances is absurd, and testifies
only to a desire to attack a statute not for what it is or commands, but for specific instances of
how discretion was exercised in the past – instances not within the Panel's terms of reference,
and all of which involved the parallel use of multilateral dispute settlement rules when a US
right under a multilateral agreement was at stake.
3. Section 306
(a) Overview
4.791 The European Communities claims that Section 306(a) requires the USTR to monitor
the compliance of WTO Members with the recommendations of the DSB. Section 306(b)(2)
regulates within which time limits the USTR must determine whether there has been
compliance:
"If … the Trade Representative considers that the foreign country has failed to
implement it [a recommendation made pursuant to dispute settlement
proceedings under the World Trade Organisation], the Trade Representative
shall [determine what further action to take under Section 301(a)] … no later
than 30 days after the expiration of the reasonable period of time provided for
such implementation under paragraph [sic] 21 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes …".
4.792 The European Communities considers that the determination of the USTR that the DSB
recommendations were not implemented implies a determination that the WTO Member
concerned violates its obligations under a WTO agreement or that it nullifies or impairs benefits
accruing to the United States under such an agreement. If there is a dispute on the question of
implementation, the United States must therefore take recourse to the DSU to settle the issue, as
stipulated in Article 23.1 and 2(a). Article 21.5 establishes a specific obligatory procedure for
disputes on the implementation of DSB ruling and recommendations:
"Where there is a disagreement as to the existence or consistency with a
covered agreement of measures taken to comply with the recommendations and
rulings such disputes shall be decided through recourse to these procedures,
including wherever possible resort to the original panel. The Panel shall
circulate its report within 90 days after the date of the referral of the matter to
it".
4.793 The European Communities further argues that the 30-day limit set out in
Section 306(b)(2) makes it impossible for the United States to await the results of such a
proceeding before making the determination that the Member concerned has failed to comply
with DSB rulings or recommendations.
4.794 The European Communities reiterates that as a result of the Uruguay Round, the United
States has undertaken an unqualified and unconditional international obligation not
 to revert to
unilateral determinations and actions. By imposing an obligation upon USTR to determine in

all cases within 30 days from the end of the reasonable period of time that the Member
concerned has failed to comply with DSB rulin gs or recommendations without awaiting the
conclusion of the relevant DS procedures, the United States is forced by its own law to act
inconsistently with Article 23 of the DSU.
4.795 In response, the United States points out that the European Communities argues that
Section 306(b) also violates Article 23 because the language of Section 306(b) "implies a
determination that the WTO Member concerned violates its obligations under a WTO
agreement". The EC's use of the term "implies" highlights the fact that it cannot credibly claim
that Section 306(b) mandates such a determination. In its brief discussion of this issue, the
European Communities ignores the language and purpose of Section 306(b), as well as the
findings of the Article 22.6 arbitrators in the Bananas dispute rejecting similar EC claims.
4.796 The United States also stresses that Section 306 provides a procedure in US law by
which the United States invokes its right to take action in accordance with DSU Article 22, that
is, to take action when a US trading partner fails to implement DSB recommendations. Here
again, the time frames in the statute conform with those of the DSU.
4.797 The United States further challenges the EC assumption that the USTR must always
conclude that another Member has failed to implement DSB rulings and recommendations.
Again, Article 23.2(a) only prohibits certain violation determinations. It does not, for example,
preclude a determination that there has been no violation, or a determination consisting of a
description of a case's procedural status. Thus, even if the European Communities were
justified in "implying" a determination in Section 306(b), the European Communities would
have to prove that Section 306 requires the USTR to determine that a violation has occurred.
However, the European Communities simply skips over this step in its argument. The European
Communities does not even attempt to meet its burden on this point, and, indeed, there is no
point in its trying. Nothing in Section 306(b) prevents the USTR from considering that another
Member has fully implemented DSB rulings and recommendations and from taking no action at
all. This in and of itself undermines the EC's argument that Section 306 mandates a violation
determination not meeting Article 23.2(a) requirements.
4.798 The United States contends that Section 306(b) does not command the authorities of the
United States of America to violate DSU Article 23.2(a). The European Communities has asked
the Panel to find that Section 306(b)
"is inconsistent with Article 23.2(b) [sic] of the DSU because it requires the
USTR to determine whether a recommendation of the DSB has been
implemented irrespective of whether any proceedings on this issue under
Article 21.5 of the DSU have been completed". (emphasis added)
Again, the EC's very use of the word "whether" demonstrates that the European Communities
has asked the wrong question. Section 306(b) must first command a determination of breach
before the other requirements of Article 23.2(a) become relevant. It does not.
(b) What constitutes "determination" – Relationship between DSU Articles 21.5 and
22
4.799 The United States explains that following DSB adoption of panel or Appellate Body
findings that US agreement rights have been denied, the USTR makes her determination of this
result pursuant to Section 304(a)(1). Under DSB rules, the defending party must state its
intentions with respect to implementation of DSB recommendations and rulings at a DSB

meeting held within 30 days of adoption. If that party states its intention to implement the
DSB's recommendations and rulings, the USTR treats this statement as a "satisfactory measure"
pursuant to Section 301(a)(2)(B)(i),415 justifying termination of the Section 302 investigation.416
4.800 The United States goes on to state that during the reasonable period of time for
implementation provided for in DSU Article 21.3, the USTR monitors implementation pursuant
to Section 306(a). Section 306(b) provides for situations in which the USTR believes
implementation has not occurred by the conclusion of the reasonable period of time. It states:
"(1) IN GENERAL.–If, on the basis of the monitoring carried out under
subsection (a), the Trade Representative considers that a foreign country is not
satisfactorily implementing a measure or agreement referred to in subsection
(a), the Trade Representative shall determine what further action the Trade
Representative shall take under section 301(a). For purposes of section 301,
any such determination shall be treated as a determination made under section
304(a)(1).
(2) WTO DISPUTE SETTLEMENT RECOMMENDATIONS.–If the measure
or agreement referred to in subsection (a) concerns the implementation of a
recommendation made pursuant to dispute settlement proceedings under the
World Trade Organization, and the Trade Representative considers that the
foreign country has failed to implement it, the Trade Representative shall make
the determination in paragraph (1) no later than 30 days after the expiration of
the reasonable period of time provided for such implementation under
paragraph 21 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes …".
417
4.801 The United States maintains that contrary to the EC's claims, the language of
Section 306(b) does not "imply" – let alone state – that the USTR is required to make a
determination in violation of Article 23. Section 306(b) sets forth steps the USTR should take
to assert US rights under DSU Article 22 when she considers that there has not been full
implementation by another WTO Member. The USTR must make this judgment – which is not
a "determination" – because the deadlines provided for in DSU Article 22 require that she
must.418
4.802 The United States notes that under the procedures set forth in DSU Articles 22.2, 22.6
and 22.7, a complaining party wishing to avail itself of the negative-consensus rule must
propose to the DSB how it intends to suspend concessions within 30 days of the expiration of
the reasonable period of time. Section 306(b) provides the US analogue for this process,
requiring the USTR to determine what action she proposes to take within that 30-day period.

415 Section 301(a)(2)(B)(ii), 19 U.S.C. § 2411(a)(2)(B)(ii).
416 The United States cites, for example, Determinations Under Section 304 of the Trade Act of
1974 With Respect to Certain Canadian Practices Affecting Periodicals, 62 Fed. Reg. 50651 (1997) (US
Exhibit 7).
417 Section 306(b), 19 U.S.C. § 2416(b).
418 The United States points out that Section 306(b) does not call for the Trade Representative to
make a definitive or formal determination that the trading partner has, in fact, failed to implement DSB
recommendations, nor does it prevent the Trade Represen tative from either making such a determination,
or implementing such action, contingent upon DSB au thorization under either Article 22.2, 22.6 or 22.7.
Again, the European Communities merely assumes, without demonstrating, that statutory language
reflecting broad discretion in fact mandates WTO-inconsistent action.

4.803 The United States considers that DSU Article 22.2 provides that if a Member fails to
comply with DSB recommendations by the conc lusion of the reasonable period of time
determined pursuant to Article 21.3, the Member shall, if requested, enter into compensation
negotiations with the complaining party. Where an agreement on compensation has not been
reached within 20 days after the end of the reasonable period of time, the complaining party
may request DSB authorization to suspend the application of concessions or other obligations to
the Member concerned.419 Under DSU Article 22.6, the DSB is obligated to grant this request
in the absence of a negative consensus within 30 days of expiration of the reasonable period of
time, unless the Member concerned requests arbitration with respect to the level or nature of
suspension proposed. In that case, the matter is referred to arbitration for a decision which must
be completed within 60 days of the expiration of the reasonable period of time. 420 I f t h e
complaining party then requests authorization to suspend concessions in accordance with the
arbitrator's decision, the DSB is, under Article 22.7, obligated to grant this request in the
absence of a negative consensus.
421

419 DSU Article 22.2 provides:
"If the Member concerned fails to bring the meas ure found to be inconsistent with a covered
agreement into compliance therewith or otherwise comply with the recommendations and rulings
within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such
Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter
into negotiations with any party having invoked the dispute settlement procedures, with a view
to developing mutually acceptable compensation. If no satisfactory compensation has been
agreed within 20 days after the date of expiry of the reasonable period of time, any party having
invoked the dispute settlement procedures may request authorization from the DSB to suspend
the application to the Member co ncerned of concessions or other obligations under the covered
agreements".
420 DSU Article 22.6 provides:
"When the situation described in paragraph 2 occurs, the DSB, upon request, shall grant
authorization to suspend concessions or other obligations within 30 days of the expiry of the
reasonable period of time unless the DSB decides by consensus to reject the request. However,
if the Member concerned objects to the level of suspension proposed, or claims that the
principles and procedures set forth in paragrap h 3 have not been followed where a complaining
party has requested authorization to suspend concessions or other obligations pursuant to
paragraph 3(b) or (c), the matter shall be referred to arbitration. Such arbitration shall be carried
out by the original panel, if members are available, or by an arbitrator appointed by the Director-
General and shall be completed within 60 days after the date of expiry of the reasonable period
of time. Concessions or other obligations shall not be suspended during the course of the
arbitration.
421 DSU Article 22.7 provides:
"The arbitrator [footnote omitted] acting pursuant to paragraph 6 shall not examine the nature of
the concessions or other obligations to be suspended but shall determine whether the level of
such suspension is equivalent to the level of nullification or impairment. The arbitrator may also
determine if the proposed suspension of concessions or other obligations is allowed under the
covered agreement. However, if the matter refe rred to arbitration includes a claim that the
principles and procedures set forth in paragraph 3 have not been followed, the arbitrator shall
examine that claim. In the event the arbitrator determines that those principles and procedures
have not been followed, the complaining party shall apply them consistent with paragraph 3.
The parties shall accept the arbitrat or's decision as final and the parties concerned shall not seek

4.804 The United States then argues that Articles 22.2 and 22.6 presuppose that, by the
thirtieth day following the expiration of the reasonable period of time, a complaining party
wishing to suspend concessions will already have indicated how it intends to do so. Failing this,
the DSB would not be in a position to authorize the action by day 30, nor would the Member
concerned be in a position to evaluate the proposal to enable it to challenge the level or nature of
proposed suspension. Were the complaining party to wait until after day 30 to propose
suspension of concessions, it would lose the benefit of automatic DSB authorization for the
suspension (subject to the negative-consensus rule) provided for in Articles 22.6 and 22.7.
4.805 The United States concludes that a determination of proposed action under
Section 306(b) is not only permitted under the di spute settlement framework contemplated in
the DSU, it is affirmatively required by that framework in cases where a Member wishes to
exercise its right to suspend concessions.
4.806 With respect to the EC claim that such a de termination "implies" that the USTR is also
determining that another Member has violated US agreement rights, the United States first notes
that there is no such implication in Section 306(b); nor, if there were, could an implication alone
serve as the basis for finding that Section 306(b) violates DSU Article 23.2(a). The European
Communities has the burden of demonstrating that Section 306(b) mandates a determination in
violation of Article 23.2(a), and that the language of Section 306(b) cannot be interpreted in a
manner which does not "imply" such a determination. 422 Section 306(b) only requires a
determination of proposed action and, as the United States has seen, this is entirely consistent
with the framework set forth in DSU Articles 22.2, 22.6 and 22.7.
4.807 The United States points out that WTO Members wishing to exercise their WTO rights
must come to some judgment as to whether ot her Members are acting consistently with their
obligations. If, for purposes of Article 23.2(a), "determinations" of agreement violations may
be "implied" from other actions or determinations, the United States must conclude that the EC's
decision to bring this case "implies" that the European Communities has, contrary to
Article 23.2(a), made a determination that the United States has violated the DSU and the
GATT 1994. Likewise, when the European Communities decries "illegal" US actions in the
press,
423 may the United States then "imply" that the European Communities has made such a
determination? Presumably not, but how then would one distinguish among various
"determinations" which may be "implied" from various governmental statements and actions,
including actions taken in connection with multilateral dispute settlement proceedings?
4.808 The United States considers that Article 23 is intended to ensure that Members use
multilateral dispute settlement rules when they consider that their agreement rights have been
violated. The broad interpretation of "determination" which the European Communities
proposes is both unnecessary to, and potentia lly at odds with, the object and purpose of

a second arbitration. The DSB sh all be informed promptly of the decision of the arbitrator and
shall upon request, grant authorization to suspend concessions or other obligations where the
request is consistent with the decision of the arbitrator, unless the DSB decides by consensus to
reject the request".
422 Panel Report on US – Tobacco, op. cit., para. 123.
423 The United States cites , e.g. "U.S. threatens tariffs on European luxury items", The
Associated Press, 22 December 1998, PM cycle (in which Sir Leon Brittan states, with respect to section
301: "It is time to take action against the pernicious and unlawful effect of this wholly unilateral
legislation". (emphasis added)).

Article 23. Obviously, Members will only undertake multilateral dispute settlement
proceedings – including a request for suspension of concessions – if they consider that another
Member is not meeting its obligations. Section 306(b) says no more than this. If the USTR
"considers" that another Member has failed to implement DSB recommendations, the USTR
must determine a course of action, as indeed she must in order to have the benefit of the
negative-consensus rule. To read into this a "determination" of violation for purposes of
Article 23.2(a) would be to preclude, not encourage, resort to multilateral dispute settlement
rules.
4.809 The United States alleges that the EC's assu mptions with respect to Section 306(b) are,
if possible, even more extreme than those rela ting to Section 304. The European Communities
assumes that it may "imply" from the language of Section 306 a violation determination not
meeting the requirements of DSU Article 23.2(a). The EC's use of the word "implies" speaks
volumes about its inability to meet its burden of establishing that Section 306 mandates such a
determination. Section 306 neither mandates, nor may it be said to "imply", a determination
that another WTO Member has violated its WTO obligations, and the European Communities
may not simply assume that it does.
4.810 The United States explains that under Sect ion 306, the USTR proposes what action she
will take when she "considers" that another WTO Member has failed to implement DSB rulings
and recommendations. The USTR must propose this action within 30 days of the expiration of
the reasonable period of time in order to allow the United States to request and obtain
authorization to suspend concessions pursuant to DSU Articles 22.2 and 22.6.
4.811 The United States argues that the US statute's use of the term "considers" makes clear
that no formal determination is involved. Indeed, the term "considers" is used in various
provisions of the DSU itself, such as Articles 3.3, 4.1, 4.7, 5.4 and 10.4. As in Section 306,
these provisions lay out the steps a party may take to assert its WTO rights when it believes
these rights have been denied. It is axiomatic that Members invoking dispute settlement
procedures are doing so based on a belief that their rights have been denied. The DSU, like
Section 306, reflects this concept through use of the term "considers". For example, Article 3.3
provides that "prompt settlement of situations in which a Member considers that any benefits
accruing to it . . . are being impaired by measures taken by another Member is essential to the
effective functioning of the WTO and the maintenance of a proper balance between the rights
and obligations of Members". Likewise, Article 10.4 provides that a third party to a dispute
may have recourse to normal dispute settlement procedures if it "considers that a measure
already the subject of a panel proceeding nullifies or impairs benefits accruing to it under any
covered agreement".
4.812 The United States considers that it is difficult to see the logic in concluding that a
Member has disregarded DSU rules and procedures based on the very fact that the Member
believes it is necessary to invoke those rules and procedures. Yet that is the EC's conclusion. It
flies in the face of the very purpose of Article 23.2(a), which is to encourage multilateral
determinations. The Panel should therefore reject the EC's claim that the USTR is making an
"implied" violation determination when she considers that another Member has not complied
with DSB rulings and recommendations.
4.813 The United States reiterates that, in order to meet its burden, the European Communities
must demonstrate that Section 306(b) precludes the possibility of US action consistent with its
WTO obligations, and that the language of Section 306(b) cannot be read to permit such WTO-
consistent action. However, even if one were to accept the EC argument that the USTR makes
an "implied" determination for purposes of Article 23.2(a) when she considers that another

Member has failed to implement DSB recommendations and determines a course of action,
nothing in Section 306(b) mandates that the USTR must actually "consider" non-
implementation to have occurred. Section 306(b) establishes no criteria requiring the Trade
Representative to "consider" that non-implementation has occurred for a given set of
circumstances. As with her determination under Section 304(a)(1), the USTR has broad
discretion in making this decision, and the fact that she may choose not to implement any action
in and of itself establishes that Section 306 does not mandate WTO-inconsistent action.
4.814 In the view of the United States, based on its invalid assumptions that Section 306(b)
both "implies" a determination for Article 23.2(a) purposes and also requires that the
determination always be affirmative, the European Communities then argues that the 30-day
time frame in Section 306(b) for this alleged determination precludes the USTR from basing
that determination on Article 21.5 panel findings, since Article 21.5 proceedings may require up
to 90 days.
424 The European Communities claims that WTO Members are required to pursue a
panel under Article 21.5 whenever implementation is at issue. This claim is not correct, as is
abundantly clear from the discussions in the ongoing DSU Review, where members are
currently struggling with proposals to amend the DSU on this very point. 425 However, even if,
for the sake of argument, one were to accept the EC's claim, the 30-day time frame in
Section 306(b) would not preclude consideration of Article 21.5 panel findings and making a
determination on that basis.
4.815 The United States points out that the European Communities argues that Article 21.5
proceedings are obligatory before a complaining party may request, or the DSB may authorize,
suspension of concessions. However, in authorizing US retaliation in the Bananas dispute
based only on the decision of Article 22.6 arbitrators, the DSB implicitly rejected this argument.
Moreover, the Article 22.6 arbitrators themselves explicitly refused to accept the EC position.
426
4.816 The United States argues that the arbitrators noted the US view that were it not possible
to request suspension of concessions within 30 days of expiration of the reasonable period of
time, the complaining party would lose the benefit of the negative-consensus rule.427 Moreover,
to the extent a Member believed that it had complied with DSB recommendations, it could
request arbitration pursuant to Article 22.6. The arbitrators would address the issue of
compliance in determining the extent of nullification or impairment, a prerequisite to fulfilling
their mandate under Article 22.7 to determine whether the level of suspension is equivalent to
the level of nullification or impairment.428 The arbitrators also noted that they could address the

424 Article 21.5 provides:
"Where there is disagreement as to the existence or consistency with a covered agreement of
measures taken to comply with the recommendations and rulings such dispute shall be decided
through recourse to these dispute settlement procedures, including wherever possible resort to
the original panel. The panel shall circulate its report within 90 days after the date of referral of
the matter to it. When the panel considers that it cannot provide its report within this time frame,
it shall inform the DSB in writing of the reasons for the delay together with an estimate of the
period within which it will submit its report".
425 See Review of the DSU, Note by the S ecretariat, Compilation of Comments Submitted by
Members – Rev. 3 (12 December 1998).
426 Arbitration under Article 22.6 of the DSU in European Communities – Regime for the
Importation, Sale and Distribution of Bananas, WT/DS27/ARB, para. 4.11 (9 April 1999).
427 Ibid.
428 Ibid.

issue of nullification and impairment for this purpose even without making a formal
determination of nullification or impairment, and emphasized that, "the goal of DSU Article 23
– multilateral determination – is achieved if the issue of nullification and impairment is
considered in an arbitration before the original panel".429
4.817 The United States claims that the EC's claim that Section 306(b) violates DSU
Article 23.2(a) rests on a series of unsupported assumptions – that Section 306(b) "implies" a
determination of a violation within the meaning of Article 23.2(a), that the implied
Section 306(b) determination would always be affirmative and that WTO Members must always
resort to Article 21.5 proceedings before requesting authorization to suspend concessions.
These assumptions in no way meet the EC's burden of demonstrating that Section 306(b)
mandates action inconsistent with DSU Article 23.2(a).
4.818 The United States challenges that EC assumption that a Member wishing to suspend
concessions under DSU Article 22 must first seek a determination under DSU Article 21.5.
According to the European Communities, because the USTR must make her "implied" violation
determination under Section 306(b) within 30 days of the expiration of the reasonable period of
time, it is possible this might precede the conclusion of the 90-day period provided for in
Article 21.5. Therefore, the European Communities contends that the USTR's determination
would not be authorized under multilateral procedures.
4.819 The United States argues that in light of the other flawed assumptions which the
European Communities makes with respect to "im plied" violation determinations and whether
they must, under Section 306, be affirmative, the Panel need not and should not reach the issue
of whether a Member must first invoke Article 21.5 procedures before seeking authorization to
suspend concessions under Article 22. The absence of such a requirement is precisely what has
prompted intensified negotiations in the DSB during the past five months. While that issue is a
proper subject for negotiations to change the DSU, for that reason it is not capable of resolution
by a panel. Nevertheless, the United States notes that the arbitrators in the Bananas dispute did
not accept the EC's arguments. Indeed, Article 22 includes no reference whatsoever to
Article 21.5, nor does Article 23.2(c). The time frames in Article 22 for seeking authorization
to suspend concessions are measured exclusively against the expiration of the reasonable period
of time.
4.820 The United States points out that Article 22.6 explicitly requires the DSB to grant a
request to authorize the suspension of concessions within 30 days of the expiration of the
reasonable period of time unless there is a consensus to the contrary or a challenge to the level
of suspension proposed. The 30 day time frame in Section 306 is thus not only consistent with
Article 22, it is required by it. If the United States or another Member were forced to wait until
after day 30 to propose and seek authorization to retaliate, it would lose the benefit of the
negative consensus rule. One of the principal tools in the DSU to ensure compliance with DSB
rulings would be undermined.
4.821 The European Communities notes that the European Communities and the United
States differ on the interpretation of Articles 21.5 and 22 of the DSU.

429 Ibid., paras. 4.12, 4.14. The United States notes that these conclusions shed further light on
the proper interpretation of "determination" for purposes of Article 23.2(a), since they emphasise that, in
pursuing a multilateral determination of one's agreement rights, it is necessary to make decisions
regarding these rights.

4.822 As to this timeframe, the European Communities notes that, according to Article 22.6 of
the DSU, the arbitration on the level or nature of the suspension of concession or obligations
"shall be completed within 60 days after the date of the expiry of the reasonable
period of time".
4.823 The European Communities considers that a request to suspend concessions must be
consistent with the decision of the arbitrator and must be submitted at least ten days before the
meeting of the DSB. Thus, even if the arbitrator's decision is made within the 60-day period, 70
days can elapse between the expiry of the implementation period and the DSB authorization. 430
USTR is nevertheless required under Section 305 to determine unilaterally the level and the
nature of the suspension of concessions or other obligations within 60 days. The European
Communities notes that the United States has not argued that the EC's assumptions in respect of
the 70-day period are incorrect.
4.824 The European Communities points out that the United States contests the EC's claim
that WTO Members are required to request the establishment of a Panel under Article 21.5
whenever implementation is at issue. The United States affirms that:
"This claim is not correct, as is abundantly clear from the discussions in the
ongoing DSU Review, where members are currently struggling with proposals
to amend the DSU on this very point. … [I]n authorizing US retaliation in the
Bananas dispute based only on the decision of Article 22.6 arbitrators, the DSB
implicitly rejected this argument. Moreover, the Article 22.6 arbitrators
themselves explicitly refused to accept the EC position …".
4.825 The European Communities addresses this issu e in the framework of the answer to this
question since it is related to the issue of the duration of the dispute settlement procedures and
the failure of Sections 301-310 to conform to US WTO obligations under the DSU.
4.826 The European Communities firstly contends th at it is incorrect to state that the DSB
implicitly rejected the EC argument while au thorizing the suspension of concessions in the
"Banana III" procedure. The DSB authorized by reversed consensus the decision of the
Arbitrators concerning the level of suspension in equivalence with the level of nullification or
impairment. That was the task of the DSB under Article 22.7 of the DSU, which constitutes the
mirror image of the terms of reference of the arbitrator Panel under the same provision. The
DSB never adopted the arbitrator's decision,431 nor explicitly or implicitly warranted its content,
with the exception of the authorization of the level of suspension of concessions. In fact, most
Members participating in the DSB meeting on 19 April 1999 considered that, when addressing
substantive arguments concerning the consistency of the measures adopted by the European
Communities to comply with the recommendations and rulings of the DSB, the arbitrator Panel
went clearly ultra vires. The European Communities considers therefore that part of its decision
as taken outside its terms of reference and thus legally non-existent.

430 The European Communities understood Japan's third party oral statement read on 30 June, at
paragraph 7, as confirming this (straightforward) interpretation of the existing obligatory rules of
procedure for meetings of the DSB.
431 Arbitration under Article 22.6 of the DSU in European Communities – Regime for the
Importation, Sale and Distribution of Bananas, WT/DS27/ARB, 9 April 1999

4.827 The European Communities secondly argues that as was recalled also by Brazil, "the
logical way forward adopted in the banana arbitration is not a precedent for the interpretation of
the sequence between Articles 21.5 and 22 of the DSU". 432 The statement by the United States
according to which the DSB "implicitly rejected" the views of the majority of members of the
WTO concerning Article 21.5 misrepresents the reality. As Brazil pointed out, "it would suffice
to read the long records of minutes related to the banana dispute to confirm that there never was
any implicit rejection of the obligatory sequence".433
4.828 Thirdly, the European Communities notes that Article 21.5 of the DSU provides that
"where there is a disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings
such dispute shall be decided through recourse to these dispute settlement
procedures, including whenever possible resort to the original Panel. The Panel
shall circulate its report within 90 days after the date of referral of the matter to
it"
4.829 In the view of the European Communities, this provision, and in particular the terms
"shall", "Panel" and "these dispute settlement procedures" must be interpreted in accordance
with the principles of the Vienna Convention on the Law of Treaties, i.e. it must be interpreted
"in good faith in accordance with the ordinary meaning to be given to the terms
of the treaty in their context and in the light of its object and purpose"
(Article 31.1).
4.830 The European Communities states that it is the EC view, supported by the vast majority
of WTO Members, that the ordinary meaning of the term "shall" is "expressing a command or
duty" (Oxford English Reference Dictionary). In the WTO context, the term "Panel" is defined
in Articles 6, 7 and 8 of the DSU. The terms "these dispute settlement procedures" interpreted in
"good faith" in the context of Article 21.5 mean nothing else than a dispute settlement procedure
under the DSU, which includes a Panel as defined in Articles, 6, 7 and 8 (and thus not an
arbitration procedure).
4.831 The European Communities points out that as the Appellate Body stated in the India -
Patents (US) case, paragraph 45:
"The duty of a treaty interpreter is to examine the words of the treaty to
determine the intentions of the parties. This should be done in accordance with
the principles of treaty interpretation set out in Article 31 of the Vienna
Convention. But these principles of interpretation neither require nor condone
the imputation into a treaty of words that are not there or the importation into a
treaty of concepts that were not intended".

432 The European Communities recalls the statement by Ambassador K. Morjane, Chairman of
the DSB, at the meeting held on 29 January 1999: "The solution to the banana matter would be totally
without prejudice to future cases and to the question of how to resolve the systemic issue of the
relationship between Articles 21.5 and 22 of the DSU" (WT/DSB/M/54, page 30 - original emphasis).
433 See also the Minutes of the General Council meeting held on 15/16 February 1999 in the
WTO doc. WT/GC/M/35.

4.832 The European Communities then argues that "where there is a disagreement as to the
existence or consistency with a covered agreem ent of measures taken to comply with the
recommendations and rulings" there is an obligation (unless the complainant decides not to
proceed as it is allowed under Article 3.7, first sentence, of the DSU) to pursue a Panel
procedure whose duration is determined by the DSU itself to be at least 90 days. Sections 301-
310, and in particular Section 306, unilaterally set time limits and mandate compulsory
determinations and actions that are clearly incompatible with this provision. Consequently, they
also breach Article 23 of the DSU.
4.833 The European Communities considers that the term "determination" in Article 23.2(a)
of the DSU must be interpreted in accordance with the principles of the Vienna Convention on
the Law of Treaties, i.e. it must be interpreted:
"in good faith in accordance with the ordinary meaning to be given to the terms
of the treaty in their context and in the light of its object and purpose"
(Article 31.1).
4.834 The European Communities contends that th e ordinary meaning of "determination" is
"the process of deciding, determining or calculating"; (in a legal context) "the conclusion of a
dispute by the decision of an arbitrator"; "the decision reached"; "a judicial decision or
sentence"; in the figurative sense: "firmness of purpose, resoluteness". The verb "determine"
means "to find out or establish precisely"; "to decide or settle"; "make or cause a person to make
a decision", (in a legal context) "bring or come to an end" (Oxford English Reference
Dictionary). These explanations of the term "determination" are unequivocally turning around
the idea of a formal and definitive decision with legal consequences made in the framework of a
formal proceeding.
4.835 The European Communities further argues that the immediate context of this provision
is Article 23.1 of the DSU that describes the object and purpose of the more detailed rules in
paragraph 2 of the same Article.
434
4.836 The European Communities points out that Article 23.1 of the DSU starts with the
temporal conjunction "when" and establishes a link with a situation in which a Member seeks
the
"redress of a violation of obligations or other nullification or impairments of
benefits under the covered agreements or an impediment to the attainment of
any objective of the covered agreements".
4.837 The European Communities then claims that a public statement or a report made outside
the context of seeking redress of an alleged violation or other nullification or impairment of
benefits or any impediment to the attainment of any objective of the covered agreements would
not be relevant in the context of Article 23.1 or 23.2 of the DSU.
4.838 According to the European Communities, the context makes also clear that decisions
taken to exercise the rights under the DSU are not determinations covered by Article 23 because
the very purpose of this provision is to ensure that Members make use of the DSU. Article 3.7

434 The European Communities notes that Article 23.2 of the DSU starts with the words "[i]n
such cases, Members shall". This indicates that Artic le 23.2 is governed by the more general provision
contained in Article 23.1 of the DSU.

first sentence of the DSU is also part of the context of Article 23.2 (a). This provision indicates
that
"[b]efore bringing a case, a Member shall exercise its judgement as to whether
action under these procedures would be fruitful".
4.839 In the view of the European Communities, this provision is complemented by
provisions in other covered agreements concerning the initial steps to be taken in case of a
dispute.435
4.840 The European Communities argues that in these provisions, reference is made to a
Member considering that another Member has failed to carry out its obligations under the
relevant covered agreement. This type of "consideration" is clearly permissible under WTO law
as a prerequisite to starting a dispute settlement procedure under the relevant procedural rules;
indeed it is necessary to "play by the rules". It is thus obvious that a distinction must be drawn
under WTO law
436 between the terms "determination" and "consideration".
4.841 The European Communities then concludes that a consideration is no more than an
allegation, a view expressed by a WTO Member. A mere consideration does not by itself entail
any legal consequences, because it forms at best the basis for a further procedural step that must
still be taken (by submitting a complaint to an outside adjudicatory body, the so-called "third-
party adjudication"). In this sense, it is an expression of an opinion subject to confirmation by
the exclusively competent WTO bodies.
4.842 The European Communities notes that a determination by contrast is a formal and final
decision with clearly defined legal consequences. It is not subject to confirmation and is meant
to have a direct legal consequence under domestic law, e.g. as a step in the process leading to
retaliatory action. Since it has legal consequences, it is self-sufficient and is capable of
becoming the subject matter of a dispute, both domestically and internationally.
4.843 The European Communities underlines that a determination of the absence of a
violation is of course the mirror image of a determination that a violation has occurred. It is not
possible to make a determination (in the above-mentioned WTO legal meaning) in one direction
without at least the possibility of coming to a different conclusion. A law that requires a
determination in all cases whether a violation of WTO law has occurred therefore comprises the
requirement to determine in certain cases that a violation of WTO law has occurred. Such a law
therefore mandates determinations that are inconsistent with Article 23.

435 The European Communities refers to Article XXIII:1 GATT: "If any contracting party should
consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or
impaired or that the attainment of any objective of the Agreement is being impeded as the result of (a) the
failure of another contracting party to carry out its obligations under this Agreement, or (b) the
application by another contracting party of any measure, whether or not it conflicts with the provisions of
this Agreement, or (c) the existence of any other situation …"; Article XXIII:1 GATS: "If any Member
should consider that any other Member fails to carry out its obligations or specific commitments under
this Agreement …"; Article 17.3 of the Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994: "If any Member considers that any benefit accruing to it, directly
or indirectly, under this Agreement is being nullified or impaired, or that the achievement of any
objective under this Agreement is being impeded, by another Member or Members …".
436 The European Communities notes that this does not necessarily mean that the corresponding
terms in a piece of domestic legislation of a WTO Member must be read as operating a similar distinction.

4.844 The European Communities indicates that it firmly believes that the final word
concerning either the presence or the absence of a violation must lie in the hands of the
multilateral dispute settlement system. The prohibition contained in Article 23.2(a) of the DSU
must be read to outlaw any formal and legall y binding decision by a WTO Member regarding
the WTO-consistency or otherwise of measures taken by another WTO-Member. The United
States effectively argues that, because Members need to take position on the WTO-consistency
of a measure adopted by another Member in order to assert their rights under the DSU, they may
also adopt determinations for the purpose of deciding whether or not to impose unilateral
sanctions. This reasoning turns the requirements of Article 23 on their head.
4.845 According to the European Communities, what a WTO Member can and must
legitimately decide upon is whether or not it will submit an alleged WTO-inconsistency to the
multilateral dispute settlement system. But this is a matter covered by a different DSU
provision, i.e. Article 3.7, first sentence.
4.846 The European Communities considers that it is true that Article 23.2(a) of the DSU was
drafted with Sections 301-310 of the 1974 US Trade Act in mind. But this means, of course,
that the Uruguay Round participants had also in mind the threat to the security and predictability
of the international trade relations created by the text of the Trade Act as it was drafted in the
1988 version. They had therefore in mind the need to insert in the covered agreements language
that would constitute the second leg of what the European Communities has proposed in its oral
statement of 29 June to call the "Marrakech deal".
4.847 The European Communities then maintains that the terminology used in Sections 301-
310 cannot be decisive for the categorisation of the different provisions under WTO law. Quite
to the opposite, the amendment of the Trade Act adopted by the US Congress in 1994 should
have adjusted the US legislation to the new WTO rules. It is well known that the US Congress
failed to do so. Any suggestion that Article 23 of the DSU must be read in the light of section
306 of the 1974 Trade Act as amended in 1994, after the conclusion of the Uruguay Round,
would of course amount to an absurdity.
4.848 In the view of the European Communities, the objective of Article 23 of the DSU is
ensuring multilateral dispute resolution, as the title of Article 23 of the DSU suggests
("Strengthening of the Multilateral System"). The mere fact that Section 306(b)(2) uses the verb
"considers" does not mean that this corresponds to a "consideration" in the sense of WTO
law.
437 The distinguishing feature under WTO law is whether the WTO Member takes a formal
and final position with regard to the WTO-consistency of another Member's measures, on which
substantive legal consequences (e.g. trade action) can be based domestically, without awaiting
the final result of the WTO dispute settlement system.
4.849 The European Communities claims that the word "considers" in Section 306(b)(2) falls
in this latter category, because of the existence of a "determination" of further action under

437 The European Communities notes that the publication in the Federal Register of October 22,
1998, states (in the summary) that "The United States Trade Representative is seeking written comments
on (1) the measures that the European Communities has undertaken to apply as of January 1, 1999 to
implement the WTO recommendations concerning the EC banana regime; and (2) the USTR's proposed
affirmative determination under section 306(b) of the Trade Act of 1974, as amended, (Trade Act) (19
U.S.C § 2416), that the measures fail to implement the WTO recommendations. The USTR must make
the determination under section 306(b) no later than January 31, 1999" (emphasis added). This quotation
confirms that the "consideration" in section 306(b) is in reality a determination in the sense of Article 23
of the DSU.

Section 306(b)(1). In the text of Section 306, this "consideration" leads to further actions (listed
under Section 301) within pre-determined time limits irrespective of the conclusion of the
dispute settlement procedures under the WTO. This situation occurred, as an example, in the
final phase of the "bananas" dispute and led to retaliatory trade action (withholding of customs
liquidation and increase of bonds for imports of a large number of items from the EC) before the
conclusion of the arbitration procedure under Article 22.6 of the DSU.
4.850 The European Communities claims that the choi ce of the wording in the US legislation
is misleading and should not constitute the standard to interpret Article 23 of the DSU. Rather,
the opposite is the correct interpretative approach, which the Panel should follow.
4.851 The European Communities recalls in this context that it drew the Panel's attention to
the following discrepancy in the following statements of the USTR. The United States asserts
that:
"Contrary to the EC's claims, the language of Section 306(b) does not 'imply' -
let alone state - that the Trade Representative is required to make a
determination in violation of Article 23. Section 306 (b) sets forth steps the
Trade Representative should take to assert US rights under DSU Article 22
when she considers that there has not been full implementation by another
WTO Member … this judgement … is not a 'determination' …"
4.852 The European Communities point out that the public notice requesting comments on the
planned 3 March 1999 action contains the following sentence:
"Given that the reasonable period of time for the EC's implementation of the
WTO recommendations concerning the EC banana regime expires on January
1, 1999, the USTR must make the determination required by section 306(b) no
later than January 31, 1999, and, in the event of an affirmative determination,
must implement further action no later than 30 days thereafter". (emphasis
added)
4.853 The European Communities considers that it is thus clear from the above that the USTR
describes herself the consideration she must make under Section 306(b) as a determination and
the action to be taken as a result of this determination as mandatory.
4.854 In rebuttal, the United States notes that the determination referred to in the notice is
the determination indicated in Section 306(b) – to propose action to be taken if the USTR
considers non-implementation to have occurred. It is not a determination that US agreement
rights have been denied. While, under Section 306(b), the USTR must make the determination
of proposed action if she considers that another Member has not implemented DSB rulings and
recommendations, the USTR has complete discretion on the question of whether she considers
non-implementation to have occurred.
4.855 In response to the Panel's question as to the definition of "determination" in the context
of Article 23.2(c), the United States contends that it may be difficult to distinguish such
determinations on their face.
438 The ordinary meaning of "determination" is: "The settlement of

438 The United States notes that the European Communities has, for example, stated that: "The
decision not to take into account the complete conversion of a territory from a non-market economy into a
market economy and the full privatization of the exporting enterprises is a violation of the United States'

a suit or controversy by the authoritative decision of a judge or arbiter; a settlement or decision
so made, an authoritative opinion"; "The settlement of a question by reasoning or argument";
"The action of coming to a decision; the result of this; a fixed intention"; "The action of
definitely locating, identifying, or establishi ng the nature of something; exact ascertainment
(of); a fact established, a conclusion or solution reached".439
4.856 The United States claims that this ordinary meaning must be read within the context of
this term in Article 23 and the DSU and in light of the object and purpose of Article 23.2(a).
Article 23 is captioned "Strengthening the Multilateral System", and Article 23.1 emphasises
that Members seeking redress of violations shall have recourse to, and abide by, the
(multilateral) rules and procedures of the DSU. Read in this light, for purposes of
Article 23.2(a), the term "determinations" must not be read so broadly as to frustrate, rather than
promote, the goal of multilateral dispute settlement. The Panel's question recognises that
Members pursuing multilateral dispute settlement will frequently need to take positions in order
to conduct dispute settlement. It would be absu rd and at odds with the object and purpose of
Article 23 to include the taking of positions necessary to the pursuit of dispute settlement within
the definition of "determinations" for purposes of Article 23.2(a).
4.857 In the US view, for this reason, the term "determination" in Article 23.2(a) can not
include decisions reflecting a Member's belief that another Member has failed to comply with
its obligations, since Members will frequently undertake dispute settlement procedures based on
such a belief.
4.858 The United States goes on to explain that notwithstanding the above explanation, for
purposes of this dispute, it is not necessary to delineate the precise boundaries of the term
"determination". The European Communities has characterized two actions in Sections 301-310
as "determinations": when the USTR issues her "determination" under Section 304, and when
the USTR "considers" under Section 306 whether implementation has occurred in order to
decide whether to pursue DSB authorization pursuant to Article 22. Even if Section 304
involves a "determination", the European Communities has failed to prove it is a determination
in violation of Article 23.2(a) since, among othe r reasons, it need not be a determination that a
violation has occurred. However, Section 306 does not involve a determination for purposes of
Article 23.2(a). The United States argues that the use of the term "considers" in Section 306
parallels that in the DSU, and is used in both places to indicate the belief that recourse to
multilateral dispute settlement procedures is necessary. In the view of the United States,
Article 22 requires that a Member seeking DSB authorization to suspend concessions must
propose how it intends to do so no later than 30 days following the expiration of the reasonable
period of time, and Section 306 reflects this fact in US law.
4.859 In response to a Panel question concerning statements in annual reports, and whether
such statements can be "determinations", the United States considers that the question highlights
the fact that only a limited sub-set of statements will constitute "determinations" under
Article 23. As discussed earlier, this sub-set cannot include statements merely indicating a
belief regarding another Member's practices.

obligation under Article 11 of the Agreement". ( United States - Anti-Dumping Measures on Imports of
Solid Urea from the Former German Democratic Republic, WT/DS63/1, emphasis added.)
439 The New Shorter Oxford English Dictionary, at 651 (1993).

4.860 In the view of the United States, it is difficult in the abstract to answer the question of
whether statements in annual reports or public statements would rise to the level of
determinations without knowledge of the specific context and statements made. Ultimately, a
decision on whether a given statement constitutes a "determination" would have to be addressed
on a case-by-case basis.
4.861 In rebuttal, the European Communities notes that the United States claims that the
"consideration" of the USTR under Section 306(b) is not a determination within the meaning of
Article 23 of the DSU but a logical pre-condition for the exercise of the rights under Article 22
of the DSU. This would be correct if the only consequence of the "consideration" of the USTR
was an invocation of Article 22.
4.862 The European Communities points out that the plain language of the law however
shows that this is clearly not the case. If the USTR makes an affirmative determination under
Section 306(b), she shall simultaneously determine what further action she will take.
4.863 The European Communities considers that the USTR shall treat the determination on
further actions as a determination made under Section 304(a)(1), which is subject to the
provisions of Section 305 governing the implementation of sanctions.
4.864 The European Communities then concludes th at the "consideration" is thus a formal
determination in the framework of a domestic procedure through which the United States seeks
redress of a violation of WTO obligations, and that determination must be made and
implemented even when the WTO proceedings on which such a determination or action could
be based have not been completed.
4.865 The European Communities argues that a mere requirement that the USTR monitors the
implementation of DSB recommendations and decides to invoke Article 22 if appropriate
would, of course, not be inconsistent with Article 23. However, the "consideration" and the
simultaneous determination of further action the USTR is obliged to make under Section 306(b)
are inconsistent with Article 23 because they constitute the first step in a domestic proceeding
under which sanctions must be imposed even in the absence of a DSB authorization to this
effect.
4.866 The United States further responds that as with its claim regarding Section 304, it can
meet its burden with respect to its Section 306(b) claim only by establishing that Section 306(b)
mandates: (1) a determination to the effect that a violation has occurred; (2) which has not been
made through recourse to DSU rules and procedures, or is not consistent with adopted panel or
Appellate Body findings or an arbitral award.
4.867 The United States argues that the EC's concession that Section 304 allows the USTR to
make a determination of consistency must be considered to include an acknowledgement that
the USTR is free under Section 306(b) to "consider" that another Member has implemented its
commitment to comply with DS B rulings and recommendations. The European Communities
reasoned that the language of Section 304(a)(1) provided for an "either/or" determination,
including the option of determining that US agreement rights had not been denied. While the
United States rejects the EC's conclusion that only two determinations are possible under
Section 304, at least these two must be considered possible under Section 306(b).
Section 306(b) provides "if the USTR considers [non-implementation to have occurred]", with
no constraint whatsoever on what might lead her to consider otherwise, or how she may
characterize that belief. This is a purely discretionary decision, and Section 306(b) cannot be
read to mandate in any way what the USTR will "consider", let alone a "determination" that a

violation has occurred. The EC's claim regarding Section 306(b) must fail for this reason.
Without a determination that a violation has occurred, or a law mandating such a determination,
there can be no violation of DSU Article 23.2(a).
4.868 The United States considers that the EC's claim must also fail because what the USTR
may "consider" is not a determination. The term "considers" is used throughout the DSU in
precisely the same manner as it is used in Section 306(b): to indicate a belief concerning
another Member's actions calling for the invocation of multilateral dispute settlement
proceedings. To characterise such a belief as a "determination" for purposes of DSU
Article 23.2(a) would undermine the objective of multilateral determinations underlying
Article 23.
4.869 The United States recalls that the European Communities argues that "the terminology
used in Sections 301-310 cannot be decisive for the categorization of the different provisions
under WTO law". According to the European Communities, despite the use of these different
terms in the DSU, "this does not necessarily mean that the corresponding terms in a piece of
domestic legislation of a WTO Member must be read as operating in a similar fashion". This
may well be so, but this does not explain why Sections 301-310 themselves include the
distinction between "determination" and situations in which the USTR "considers" that DSU
procedures must be invoked. US rules of statutory construction differ little, if at all, from those
of treaty interpretation. If different terms are used in the statute, there must be a reason that they
differ.
4.870 The United States claims that the EC's argument that the use of different terms in the
statute "cannot be decisive for the categorization of the different provisions under WTO law"
must also be read in light of its argument one paragraph earlier that, "It is true that
Article 23.2(a) of the DSU was drafted with Sections 301-310 of the 1974 US Trade Act in
mind". Assuming this is true, then the drafters of the DSU were certainly aware of the pre-
existing distinction between determinations and situations in which the USTR might "consider"
in Sections 301-310, and intended to make the same distinction when these terms were adopted
into the DSU. At a minimum, if the drafters of the DSU had Sections 301-310 "in mind" – if it
had been their intention to subject mere beliefs to potential discipline under Article 23.2(a) –
then they would have included "considerations" in DSU Article 23.2(a). They did not, however,
do so, and there is no basis now for subjecting such beliefs to scrutiny as "determinations".
4.871 The United States further states that the European Communities attempts to claim that
"determinations" are associated with "clearly de fined legal consequences", for example, "as a
step in the process leading to retaliatory acti on". The European Communities offers no textual
basis for this claim, and the text and context of Article 23.2(a) in fact contradict it. The text of
Article 23.2(a) refers to determinations that a violation has occurred, with no discussion
whatsoever of the consequences of those determ inations. It is a straightforward obligation of
conduct, not an obligation of result.
440 Moreover, Article 23.2(c) deals specifically with
suspension of concessions or other obligations, the "retaliatory action" of which the European
Communities speaks. That provision makes no reference to violation determinations. If "legal

440 The United States refers to International Law Commission, Draft Articles on State
Responsibility, Arts. 20-21, 37 I.L.M. 440, 448 (1998), as stating that: "There is a breach by a State of an
international obligation requiring it to adopt a particular course of conduct when the conduct of that State
is not in conformity with that required of it by that obligation". (Art. 20) "There is a breach by a State of
an international obligation requiring it to achieve, by means of its own choice, a specified result if, by the
conduct adopted, the State does not achieve the result required of it by that obligation". (Art. 21.1)).

consequences" such as suspension of concessions were a prerequisite for a "determination"
under Article 23.2(a), what would be the need for a separate Article 23.2(c)? The determination
of violation would have the legal consequence of mandating suspension of concessions and
would encompass the situations provided for in both paragraphs (a) and (c). The EC approach
would thus collapse two separate DSU provisions into one.
4.872 The United States argues that if the European Communities were to respond that
Article 23.2(c) provides for action actually taken, while Article 23.2(a) just provides for first
steps that might not actually result in action, then this suggests that the action need not be taken
as a result of the determination, that is, that action remains discretionary. Under this
formulation, even a decision to initiate an investigation, which might ultimately have "the legal
consequence" of action taken, could be drawn into the definition of "determination". Moreover,
a Member could avoid liability under Article 23.2(a) simply by explicitly decoupling the
violation determination from the action taken, even if the Member retains complete discretion to
suspend concessions at any time for any reason.
4.873 The United States further contends that it is also questionable whether the European
Communities or other WTO Members would be willing to accept the consequences of the EC's
approach. Assume, for example, that a Member has a statute mandating that authorities, without
first resorting to WTO dispute settlement proceedings, make definitive, official, published
determinations that another Member has violated its WTO obligations. The statute would not
otherwise provide for any "legal consequences". Such a clear "determination" would certainly
appear to be precisely within the terms of Article 23.2(a), yet under the EC's approach it would
be excluded.
4.874 In the view of the United States, the EC's definition of "determination" based on "legal
consequences" is not sustainable. The USTR's belief as to whether Article 22 proceedings need
be invoked, expressed through the term "considers", is not actionable under DSU
Article 23.2(a).
4.875 The United States further maintains that another aspect of the EC's proposed definitions
of "considerations" and "determinations" worthy of comment is the fact that it would appear to
lead to the conclusion that all Section 304(a)(1) determinations are in fact "considerations". The
European Communities states, "the terminology used in Sections 301-310 cannot be decisive for
the categorization of the different provisions under WTO law". The European Communities thus
allows for the possibility that a "determination" under domestic law may in fact be a
"consideration" for WTO purposes. The European Communities explains that a "consideration"
"does not by itself entail any legal consequences, because it forms at best the
basis for the further procedural step that must still be taken (by submitting a
complaint to an outside adjudicatory body . . .). In this sense, it is an expression
of an opinion subject to confirmation by the exclusively competent WTO
bodies".
4.876 The United States considers that because Section 303(a)(1) and (2) require the USTR to
initiate WTO dispute settlement proceedings in investigations involving a WTO agreement, the
views expressed by the USTR pursuant to S ections 301-310 would, in the EC's definition, be
opinions "subject to confirmation by the exclusively competent WTO bodies". Thus, but for the
fact that Section 304(a)(1) requires the USTR to base her determinations on adopted panel and
Appellate Body findings, the USTR could determine under Section 304(a)(1) that US agreement
rights are being denied, and the European Communities would treat this as a "consideration" not
subject to Article 23.2(a) because it is an opinion during on-going dispute settlement

procedures. To the EC's likely response that Section 304(a)(1) determinations have legal
consequences, the United States notes again that Section 301(a)(2) provides for exceptions to
action which include Section 301(a)(2)(B)(i), which covers situations in which the foreign
country is taking satisfactory measures to grant US rights under a trade agreement. This
exception would be applicable if dispute settlement proceedings were on-going, since, by its
participation in those proceedings, the foreign country would be taking satisfactory measures.
The determination would thus be no more a step in the chain of events towards suspension of
concessions than would initiation of an inves tigation (which also, under the EC's definition,
might be characterized in domestic law as a determination without implicating Article 23.2(a)).
4.877 The United States states that it must, under Section 304(a)(1), base its determinations on
the results of WTO dispute settlement and could not, therefore, make the above determination.
On the other hand, the USTR could make any of a number of determinations, and this could
include a determination that US agreement rights were being denied, "subject to confirmation
by the DSB". Presumably this, too, would meet the EC's definition of "consideration". In
substance, such a "consideration" would certainly be less definitive than a statement in the press
by a trade minister that another Member is violating its WTO obligations.
4.878 The United States recalls that the European Communities also addresses whether
Article 21.5 proceedings must first precede Article 22 proceedings. The United States notes at
the outset that this Panel need not, and should not, reach this issue. The EC claim would appear
to draw the Panel into the heart of a disagreement that is recognised by the WTO Members and
is the subject of a separate negotiation in an attempt to resolve it. This is therefore not an area
ripe for a Panel. The United States furthermore notes that this issue would only be relevant in
this dispute if (1) what the USTR "considers" is deemed an "implied determination", and (2) the
law mandates that she always consider that another Member has not complied with its
obligations. Again, the EC's burden is to prove that Sections 301-310 do not allow, that is, that
they preclude, WTO-consistent action by the USTR. To the extent that she need not make a
"determination" that a violation has occurred, the mere existence of a law not precluding that
possibility would not violate Article 23.2(a). It is worth recalling that the European
Communities now takes the position that Members need not "include explicit language in their
domestic law precluding WTO-inconsistent action".
4.879 In rebuttal, the United States claims that assuming that a "consideration" is a
"determination", and that it must always be affirmative, the European Communities remains
incorrect regarding the relationship between Articles 21.5 and Article 22. The United States
first notes that the EC's dismissal of US references to DSU review documents misses the point
for which the United States raises them.
441 The United States first noted that the European
Communities explicitly acknowledged in a DSU review document the current distinction
between mandatory and discretionary legislation. Inasmuch as the European Communities
appears to accept the mandatory/discretionary distinction (albeit with a liberally reinterpreted
definition of "mandatory"), this reference is no longer necessary. The remaining references
were intended to point out that the relationshi p between Articles 21.5 and 22 is anything but
clear and that this fact is generally recognised.
4.880 The United States argues that Article 22 does not by its terms, context or purpose
require that a Member first resort to Article 21.5 proceedings. All time frames in Article 22 are
measured against the end of the reasonable period of time, and Article 21.5 is not even
mentioned once. Likewise, Article 21.5 is not mentioned once in Article 23.2(c), which only

441 See ibid. at 33.

requires that Article 22 proceedings be pursued before suspension of concessions may be
undertaken. Article 22 represents a central element in the credibility and effectiveness of WTO
dispute settlement, since it provides that losing Members may no longer block suspension of
concessions against them. However, the EC's claim that Article 21.5 proceedings must first be
completed would result in the loss of this right to suspend concessions, since Article 22 only
applies the negative consensus rule to requests to suspend concessions if such requests are made
within 30 days of the conclusion of the reasonable period. Members whose rights have already
been found to have been violated, and who have already lived with these violations through the
year-and-a-half panel process and additional year of implementation, would find themselves, as
they were under the GATT 1947, again at the mercy of the very party that had denied their
rights and impaired their trade.
4.881 The United States further contends that in response to the concern that there must first
be a multilateral determination of violation, it notes that when Article 22 procedures are
invoked, there is already such a determination – in the original, adopted panel and/or Appellate
Body reports. Further, as the Article 22 arbi trators found, Article 22 proceedings cannot result
in suspension of concessions where a Member has in fact brought its measure into compliance,
because the level of nullification and impairment in that case would be zero.
442
4.882 In the view of the United States, Article 22 thus does not require recourse to
Article 21.5 proceedings, and a statutory provision such as Section 306(b) which merely
provides a domestic means for resorting to Article 22 proceedings cannot be said to be violate
Article 23.2(a) through an "implied determination".
4.883 The United States adds that even if the European Communities were correct that
Article 21.5 proceedings must precede Article 22 proceedings, this would not mean that
Section 306(b) mandates a violation of Article 23.2(a). The USTR has complete discretion in
her assessment, her "consideration" under Section 306(b), of whether another country's
implementation status requires that dispute settlement procedures be invoked. If DSU rules
actually provided that a Member first undertake Article 21.5 procedures before requesting
suspension under Article 22, there would be nothing in Section 306 to prevent the USTR from
complying with this requirement. She could fo r example consider that she needs to pursue
Article 21.5 proceedings to ascertain whether there has been full implementation.
4.884 The European Communities further responds that Article 23.2 (a), read in the
immediate context of Article 23.1 and in the broader context of Article 3.7 of the DSU, is an
obligation of conduct and of result: the redress of a violation or other nullification or
impairment of benefits must be achieved in substance through the multilateral dispute settlement
system or through a mutually agreed solution only.
4.885 In the view of the European Communities, there is no third way. Of course any Member
can freely accept to tolerate the consequences of the conduct of another Member in violation of

442 See Arbitration under Article 22.6 of the DSU in European Communities – Regime for the
Importation, Sale and Distribution of Bananas, WT/DS27/ARB, para. 4.11 (9 April 1999).
The United States points out that the European Communities adopts the Brazilian argument that
the Bananas arbitration represents a "logical step forward" relevant only to that dispute. The "logical step
forward" adopted by the Bananas arbitrators – simultaneous Article 21.5 and 22 proceedings conducted
by the original panel – remains, for the present, the only logical step forward in those cases when an
implementing Member uses the full implementation period. This of course could easily change as a result
of the efforts now underway in the DSU review.

its WTO obligations. However, abstaining from action, also a hypothesis foreseen in the DSU -
Article 3.7 - is outside the realm of Article 23, paragraphs 1 and 2 ("When Members seek
redress … In such cases, Members shall …").
4.886 In this legal perspective, the European Communities recalls the US argument that
Article 23.2(a) of the DSU "… is a straightforward obligation of conduct, not an obligation of
result".
4.887 The European Communities indicates that if this statement were to be understood as
meaning that WTO Members do not have a positive obligation to insert in their domestic law a
clause expressly obliging the executive authorities to observe Article 23 in all cases, it would
not disagree with such an argument.
4.888 The European Communities contends that if, however, the US argument were to imply
that Article 23.2(a) is a mere obligation of conduct, it would disagree. If the US approach were
followed, a Member would find itself at the conclusion of the process of verification of
consistency to discover that a negative result entails that it had not followed the obligation of
conduct under Article 23.2(a). One should in fact bear in mind that the outcome of a process of
"verification of consistency" cannot be predetermined in advance and, thus, a determination of
consistency or inconsistency is achieved at the end of a process of verification.
4.889 The European Communities argues that this unavoidable consideration shows better
than anything else that it is not true that the EC's interpretation of Section 304(a)(1)(A) "would
have the impermissible consequence of preventing even determinations of consistency,
notwithstanding the explicit language of Article 23.2(a), which only addresses certain
determinations of inconsistency". Rather, it is the US suggestion of an "obligation of conduct"
merely consisting of a formality of a procedure and not of the substance of a multilateral
decision within the WTO DS system that gets to the "impermissible consequence of preventing
a determination of consistency".
4.890 The European Communities also recalls that the United States has again erroneously
denied the obligatory prior application of the "formal dispute settlement proceeding" under
Article 21.5 of the DSU where there is disagreement on the conformity of the measures taken to
comply with recommendations and rulings of the DSB. The European Communities notes in
passing that the United States does not contest the interpretation of the ordinary meaning of the
terms of Article 21.5 in their context and in the light of its object and purpose advanced by the
European Communities.
4.891 The European Communities further points out that the procedures under Article 22
cannot be defined as "formal dispute settlement proceedings" and are in any case at the request
of the defending party and not of the complainant (contrary to the provision of Section 303 (2)).
According to the US' ow n interpretation, when the United States is a complainant, Article 22
procedures are not covered by the "proceedings" within the scope of Section 304 (a)(1).
4.892 According to the European Communities, thus, it is clear from the text of Section 304
that whatever the interpretation of Article 21.5 and Article 22 of the DSU, at least during the
phase of "monitoring of compliance", the USTR "shall determine whether the rights to which
the United States is entitled under any trade agreement are being denied" exclusively "on the
basis of the investigation initiated under section 302".
4.893 The European Communities further maintains that this means in practice that the text of
Section 304 does not provide for any real discretion since if the factual findings of the

investigation are negative, pursuant to Section 306 (b) (2) the USTR must ("shall") make the
determination no later than 30 days after the expiration of the reasonable period of time. This
must be done irrespective of any decision of the DSB.
4.894 The European Communities points out that according to Section 306 (b) (1), the content
of USTR's determination is "what further action the USTR shall take under section 301(a)".
4.895 The European Communities notes that Section 301(a) - entitled "Mandatory Action" -
provides that:
"if the USTR determines under section 304 (a) (1) that (A) the rights of the
United States under any trade agreement are being denied or (B) an act, policy
or practice of a foreign country (i) violates, or is inconsistent with the
provisions of or otherwise denies benefits to the United States under any trade
agreement or (ii) is unjustifiable and burdens or restricts United States
commerce, the Trade representative shall take action authorized in sub-section
c)".
4.896 The European Communities further notes that according to Section 301 (d) (4) (A),
"an act, policy, or practice is unjustifiable if the act, policy or practice is in
violation of, or inconsistent with, the international legal rights of the United
States".
4.897 The European Communities considers that not only the USTR does not have any
discretion in discharging her obligation of making a determination of action, but the law also
strictly defines what is "unjustifiable" without any respect whatsoever of the need of going
through the dispute settlement procedures under the DSU before such a determination is taken.
4.898 The European Communities notes that Section 301, sub-section (c), spells out in detail
"what" action the USTR is authorized to take. The closed list requires either to withdraw
concessions or other benefits or to enter into a binding agreement (whose content is pre-
determined). The targeted WTO Member then has only two options: it must either bear the
consequences of retaliation or sign an agreement acceptable to the United States (as in the
"Japan -Auto Parts" case). The second option open to the USTR constitutes the only escape for
the targeted WTO Member in order to avoid the (explicitly threatened) retaliation.
4.899 The United States responds that in contrast to other provisions of the DSU,
Article 23.2(a) by its terms deals with "determinations", not beliefs as reflected in what an
individual or Member may "consider". Section 306(b) does not command the USTR to make a
determination that another Member has violated its WTO obligations. It merely provides for the
steps to be taken if she believes, if she considers, that full implementation has not occurred.
This belief, the prerequisite to invoking multilateral agreement rules on the suspension of
concessions, is not a determination. Nor, if it were, would it by statutory command be limited
to a determination that another Member has violated its WTO obligations. Section 306(b) does
not command the USTR to consider that another Member has failed to fully implement its
commitment to comply with DSB rulings and recommendations.
4.900 The United States recalls that the European Communities has suggested that the very
act of determining whether US agreement rights have been denied, or considering whether
implementation has occurred, "mandates" a determination that a WTO violation has occurred.
There is no rule of grammar or US rule of statutory construction which permits such a reading.

To the contrary, even were the US statutory language considered ambiguous, US and
international practice would be to interpret that language so as to avoid a conflict with US
international obligations. This practice is reflected in GATT/WTO jurisprudence in the
Tobacco panel report, which asks whether any reading of a statute permits authorities to comply
with their international obligations. The EC's argument ignores this practice and precedent.
Moreover, in arguing that it is WTO inconsistent to determine "whether" agreement rights have
been denied because such a determination inhe rently "must" sometimes be affirmative, the
European Communities would render any determination a violation of DSU Article 23.2(a),
even a determination that no agreement rights have been denied or confirmed, and even those
determinations not involving a WTO agreement. No reading of DSU Article 23.2(a) supports
this result.
4.901 In response to the Panel's question regardin g the relationship between Article 21.5 and
Article 22 of the DSU, the European Communities first underlines that it has not requested
this Panel to "make a decision on the relationship between Article 21.5 and 22" of the DSU.
Rather, the European Communities has requested the DSB and obtained the establishment of
this Panel in order to make "such findings as will assist the DSB in making the
recommendations or giving the rulings provided for in" the provisions of the agreements cited in
the WTO document WT/DS152/11 of 2 February 1999.
4.902 The European Communities warns that the Panel, therefore, should not be distracted by
the US attempt to curtail or diminish the Panel's terms of reference by creating the (erroneous)
impression that this procedure is in some ways overlapping with a parallel procedure in other
WTO fora. This characterisation of the situation is erroneous and the Panel should resist and
reject these US procedural tactics. In the EC's view, this panel procedure should concentrate on
its terms of reference: the WTO consistency of Sections 301-310 must be assessed against all
the provisions quoted in the Panel's terms of reference, including Article 21.5 of the DSU on its
own.
4.903 The European Communities also contends that as the Appellate Body indicated already
in its early reports and constantly repeated afterwards, in application of Article 31 of the Vienna
Convention on the Law of Treaties, the Panel should concentrate first on the ordinary meaning
of the terms of Article 21.5 of the DSU, in th eir context, and in the light of the object and
purpose of the DSU and of the WTO agreements. The interpretation of Article 22 of the DSU is
logically and legally a distinct issue to be addressed by the Panel separately, if necessary.
4.904 Pursuant to Article 11 of the DSU, the European Communities expects that the Panel
will follow this line of interpretation in order to reach its conclusions aimed at assisting the DSB
to make the appropriate recommendations and rulings. The European Communities believes that
the notion that a Member of the WTO can somehow curtail another Member's rights under the
DSU by introducing a proposal to amend the covered agreement at issue is inconsistent with
Article 3.2 of the DSU according to which the DSB rulings cannot diminish the rights of
Members under the covered agreements.
4.905 The European Communities is of the view that the mandate of the Panel is to "make an
objective assessment of the matter before it" (Article 11, second sentence, of the DSU). Such an
objective assessment must be based on the covered agreements as they stand and cannot be
based on possible future amendments of these agreements. Of course, panels should give the
parties adequate opportunity to develop a mutually satisfactory solution (Article 11, last
sentence of the DSU). However, as is stipulated in Article 12.7 of the DSU, "[w]here the parties
to the dispute have failed to develop a mutually satisfactory solution, the panel shall submit its
findings in the form of a written report to the DSB".

4.906 The European Communities further argues that it is thus clearly stated that the Panel is
required to go ahead with the procedure as long as the parties to the dispute have failed to
develop a mutually satisfactory solution. As the debate before the Panel has demonstrated, the
views of the European Communities and the United States on the relationship between
Article 21.5 and 22 of the DSU are as far apart as ever and there does not appear any immediate
perspective of a mutually satisfactory solution on this issue at the present time. If the political
negotiations on the relationship between Articles 21.5 and 22 of the DSU end with the a
solution favourable to the United States, the United States would therefore benefit from that
solution irrespective of the rulings of the Panel.
4.907 The European Communities would not wish to speculate on what a negotiated solution
on the relationship between Article 21.5 and 22 of the DSU might look like and whether it
would put this aspect of the present dispute to rest. In this context, it may be of interest that the
DSB has not been in a position to date to come to an agreed conclusion on any of the informal
proposals for the review of the DSU.
4.908 However, the European Communities draws the attention of the Panel to the recent
developments in the dispute on Australia – Salmon ,
443 as shown by the sequence of events as
follows:
(a) on 15 July 1999, Canada requested authorization for suspension of concessions
under Article 22.2 of the DSU 444 based on a unilateral determination of failure
to comply by Australia. Canada appeared at that time to follow the (illegal) US
approach to this matter;
(b) on 27 July 1999, Australia, while indicating that "[T]he DSB meeting on 27
July (now 28 July) will be the first opportunity for Australia to contest Canada's
right to seek authorization on the basis of WT/DS18/12", it requested
arbitration "with an abundance of legal caution in regard to safeguarding its
WTO right to arbitration accorded by Article 22.6" of the DSU445;
(c) on 28 July 1999, as a result of the discussions in the DSB on this issue on the
same day, Canada requested that the determination of consistency of the
implementation measures by Australia be referred to the original panel
"pursuant to article 21.5 of the DSU".446
4.909 In the view of the European Communities, these events demonstrate that the US
position on this essential issue is not only unjustifiable under WTO law but that the United
States is also more and more isolated in the DSB in this regard.
4.910 In addition, the European Communities maintains that the time frames provided for
under Section 306(b)(2) of the Trade Act 1974 are in any case entirely insufficient to carry out a
dispute settlement procedure on the failure of compliance of another WTO Member that would
respect the requirements of due process.

443 WT/DS18.
444 WT/DS18/12 of 15 July 1999.
445 WT/DS18/13 of 3 August 1999.
446 WT/DS18/14 of 3 August 1999.

4.911 The United States considers that the Panel should not decide on the relationship
between Article 21.5 and 22. First, it is unnecessary for the Panel to reach the issue of the
relationship between Articles 21.5 and 22. This issue is ultimately irrelevant to the Panel's
decision because the European Communities has failed to prove several other points necessary
to establish its claims with respect to Articles 23.2(a) and 23.2(c).
4.912 In the view of the United States, with respect to its claim regarding Article 23.2(a), the
European Communities has failed to meet its burden of demonstrating: (1) that Section 306
involves a "determination" on whether another Member has violated its WTO obligations; and
(2) that Section 306 commands that such a determination always be a violation determination.
Without a determination to the effect that a violation has occurred, it is not relevant for the
Panel to determine whether the other requirements of Article 23.2(a) have been met.
4.913 The United States also considers that with respect to its claim regarding Article 23.2(c),
the European Communities has failed to meet its burden of demonstrating: (1) that Section 306
commands the USTR to always consider that non-implementation has occurred; (2) that the
USTR must take action involving the suspension of concessions, rather than other alternatives;
(3) that the USTR cannot avail herself of the exceptions set forth in Section 301(a)(2)(B); (4)
that the President may not condition action or direct that it not be taken; (5) that the USTR
cannot delay action until 240 days – eight months – after the reasonable period of time pursuant
to Section 305(a)(2), well beyond either or both of the 60 and 90 day periods provided for in
Articles 21.5 and 22.
4.914 The United States adds that the Panel should not reach this issue because doing so
would preempt the ongoing negotiations and en croach upon the rights of all WTO Members
(not just parties to a single dispute) to negotiate the balance of rights and obligations under the
WTO Agreement. Only the Members may amend or adopt interpretations of the DSU (WTO
Agreement Arts. IX:2 and X), and Panels cannot add to or diminish the rights and obligations
provided in the covered agreements (DSU Ar ts. 3.2 and 19.2). The discussions in the DSU
review are likely to lead to amendment or agreement on the relationship of Article 21.5 and 22.
4.915 The United States also claims that as with the analysis of other agreement provisions,
the analysis of the relationship between Articles 21.5 and 22 must be based on the text. As
already explained in more detail, the text of Article 22 nowhere references Article 21.5 for any
purpose. Moreover, by its terms Article 23.2(c) only requires that Article 22 procedures be
followed; it makes no reference to Article 21.5. For these reasons and others set forth earlier
and in the Article 22 Arbitration report in Bananas, the DSU does not presently require that a
Member resort to Article 21.5 proceedings before requesting authorization to suspend
concessions pursuant to Article 22.
4.916 In response to the Panel's question as to whether the issue would be moot if an
agreement were reached on this relationship before the completion of this Panel's proceedings,
the United States answers in the affirmative. More importantly, however, if an agreement were
reached by which parties would resort to an amended Article 21.5 process prior to resorting to
Article 22 procedures, nothing in Sections 3 01-310 would preclude the United States from
acting consistently with such an agreement.
(c) Discretion not to consider that non-im plementation has occurred/Discretion with
respect to timing of consideration
4.917 The European Communities argues that when the USTR "shall" determine "what"
action she "shall" take, she is constrained by the closed list under section 301(c). That list

requires either to withdraw concessions or other benefits (and therefore the publication of a
"retaliation list") or to enter into a binding agreement (whose content is pre-determined). This
second leg of the alternative open for the USTR constitutes the only escape for the targeted
WTO Member in order to avoid the (explicitly threatened) retaliation.
4.918 The European Communities notes that in the Bananas III case, the USTR published a
notice on the Federal Register447 where, inter alia, it explicitly indicated the following
"Section 306 (c) of the Trade Act provides that the USTR shall allow an
opportunity for the presentation of view s by interested parties prior to the
issuance of a determination pursuant to section 306 (b)" (emphasis added)
4.919 The European Communities also recalls that on 10 November 1998, USTR published a
second notice on the Federal Register 448 concerning a proposed "determination of action" with
an attached list of selected EC products on which the imposition of prohibitive (100 per cent ad
valorem) duties was envisaged. The notice in question was published "in accordance with
section 304 (b) of the Trade Act".
4.920 The European Communities considers that there can be no doubt that the Korean
statement is correct as it is the immediate consequence of the text, design, structure and
architecture of Sections 301-310 in their present form. Moreover, the implementation and the
public statements by the USTR concerning the interpretation of Sections 304 and 306 come as
further confirmation of the EC's claims, which are supported by Korea and several other WTO
Members.
4.921 The European Communities then argues that the mechanics of the mandatory
determinations and actions that the US executive authorities are mandated to implement
together with the ensuing explicit threat against the other WTO Members resulting from this
legal situation is more than sufficient
449 evidence to prove the full disregard that Sections 301-
310 have for the US obligations under the WTO Agreements, in particular under Article XVI:4
of the Marrakech Agreement, Article 23 of the DSU and Article 26 of the Vienna Convention
on the Law of Treaties.
4.922 The United States points out that nothing in Section 306(b) obligates the USTR to
conclude that another Member has failed to implement DSB recommendations. This is a purely
discretionary decision, and the European Communities has failed to meet its burden of
demonstrating why it would not be possible for the USTR to conclude that no action need be
taken because implementation has been satisfactory, because adequate progress is being made,
or because further dispute settlement proceedings are necessary to achieve satisfactory
implementation.
4.923 In rebuttal, the European Communities recalls that the United States further claims
that the USTR is not required to determine that United States' rights under a WTO agreement
are being denied and that a failure to implement DSB recommendations occurred and that,

447 Vol. 63, No 204, 22 October 1998, page 56689
448 Vol. 63, No 217, page 63099
449 According to G. Schwarzenberger, International Law, 3 rd Edition, page 614, "[s]uficient
relevant dicta of the World Court exist to permit the conclusion that the mere existence of such legislation
may constitute a sufficiently proximate threat of illegality to establish a claimant's legal interest in
proceedings for at least a declaratory judgement".

consequently, Sections 301-310 do not mandate determinations inconsistent with Article 23 of
the DSU. However, these determinations must be based on the investigation initiated by the
USTR under Section 302 or the monitoring conducted by the USTR under Section 306(a).
4.924 In the view of the European Communities, there is nothing in Sections 301-310 that
would permit the USTR to make her determinations on any other basis, for instance on the basis
of a delay in the WTO dispute settlement proceedings. The United States in effect makes the
astonishing claim that the USTR may determine under Sections 301-310 that no denial of rights
and no failure to implement DSB recommendation occurred because the WTO dispute
settlement have not been completed.
4.925 The European Communities submits that it would not be logical to interpret
Sections 301-310 to authorize determinations on the WTO-consistency of measures on the basis
of factors that are entirely outside the plain language of the law and, as such, irrelevant to such a
determination.
4.926 The United States argues that there are no "specified time frames" for
"considerations". Inasmuch as a consideration is no more than a belief, the USTR may, at any
time – before, during or after the reasonable period of time – consider that another Member has
not implemented DSB rulings and recommendations, just as a Member may consider, may
believe, that another Member has violated its WTO obligations before, during and after the
deadline for submitting a request to establish a panel at a given DSB meeting. Section 306
provides only that if, during the 30 days following the reasonable period, the USTR considers
that non-implementation has occurred, she shall determine whether to avail herself of Article 22
procedures. Indeed, as Article 22 is currently drafted, she must avail herself of these procedures
within this time frame if the United States is to preserve its WTO rights. However, nothing
prevents her from not considering during that 30-day period that non-implementation has
occurred.
(d) Practice
4.927 In response to a Panel question, the United States explains that to date, the USTR has
considered that an agreement was not being sa tisfactorily implemented in two cases involving
the GATT or a WTO agreement. In January 1999, the USTR considered that it would be
necessary to pursue Article 22 proceedings in the Bananas dispute, and proposed suspension of
concessions on certain products. On April 19, 1999 the DSB authorized suspension in
accordance with an arbitrator's report. In May 1999, the USTR considered that it would be
necessary to pursue Article 22 proceedings in the EC – Hormones dispute. Those Article 22
proceedings are now in progress.
4.928 The United States explains that in January 1999, the USTR considered that it would be
necessary to pursue Article 22 proceedings in the Bananas dispute, and proposed suspension of
concessions on certain products. On April 19, 1999 the DSB authorized suspension in
accordance with an arbitrator's report. There is no copy of the USTR's decision to pursue
Article 22 procedures because it was not a determination. In May 1999, the USTR considered
that it would be necessary to pursue Article 22 proceedings in the EC – Hormones dispute.
Article 22 proceedings are now in progress. There is no copy of the decision to pursue
Article 22 procedures because it was not a determination. However, attached please find a
notice issued on March 25, 1999 requesting comments on implementation of WTO
recommendations in Hormones (US Exhibit 17) . That notice stated that it likely would be
necessary to pursue Article 22 procedures in light of the EC's having indicated at the March

DSB meeting that it did not expect to be in compliance by the end of the reasonable period of
time in May.
4.929 In response to the Panel's question as to the EC – Banana III , the United States states
that it is difficult to respond to the question of when a "consideration" is "actually taken"
because it reflects no more than a belief on the part of the USTR. As such it is not "taken". At
any given point in time, she may believe that implementation has occurred, that it has not
occurred as of that time, or that it may occur if certain steps are taken or commitments made.
The first formal written record that the USTR considered that the European Communities had
not implemented DSB rulings and recommendations by the end of the reasonable period of time
is the January 14, 1999 request of the United States for authorization to suspend concessions.
450
4.930 The United States explains that the initial determination of what action to take, made on
January 14, 1999, was that the United States should, in accordance with Article 22, suspend
concessions if authorized at the DSB meeting of January 29, 1999 or, if the European
Communities requested arbitration pursuant to Article 22.6 regarding the level of suspension,
then to suspend concessions thereafter in accordance with the arbitrators' decision, and upon
DSB authorization pursuant to Article 22.7. This determination is reflected in the Federal
Register notice of April 19, 1999 announcing DSB authorization to suspend concessions.
451 The
domestic legal basis for this determination was: (1) Section 301(c)(1)(A), which provides for
suspension of concessions; (2) Section 301(a)(3) , which provides that action affecting goods or
services will be in an amount equivalent in value to the burden or restriction on US commerce
(requiring that the USTR not suspend concessions in an amount in excess of the level of
nullification and impairment found by the arbitrators and authorized by the DSB); (3)
Section 304(a)(1), requiring that determinations be based on dispute settlement proceedings; (4)
Section 301(a)(2)(A)(ii)(II), specifying that the USTR need not take action if dispute settlement
proceedings indicate no nullification or impairment; (5) Section 302(a)(2)(B)(i), specifying that
the USTR need not take action if the foreign country has taken satisfactory measures, which
participation in and compliance with DSU proceedings and rules would constitute.
452
4.931 The United States argues that the consideration was not a determination, and was not
published. The Section 304 determination of action taken under Section 301 is reflected in the
Federal Register notice of April 19, 1999. As discussed at the second substantive meeting, the
publication requirement in Section 304(c) is not time limited. The United States explained that
the determination of action was made within the 30-day time frame.
4.932 In response to the Panel's question on EC – Hormones , the United States further
explains that the first formal written record that the USTR considered that the European
Communities had not implemented DSB rulings and recommendations by the end of the
reasonable period of time is the May 18, 1999 request of the United States for DSB
authorization to suspend concessions.
453
4.933 The United States further indicates that the initial determination of what action to take,
made on May 18, 1999, was that the United States should, in accordance with Article 22,
suspend concessions if authorized at the DSB meeting of January 29, 1999 or, if the European

450 WT/DS27/43 (14 January 1999).
451 Implementation of WTO Recommendations Concerning the European Communities' Regime
for the Importation, Sale and Distribution of Bananas, 64 Fed. Reg. 19209 (1999).
452 See response to Question 33.
453 WT/DS26/19 (18 May 1999).

Communities requested arbitration pursuant to Article 22.6 regarding the level of suspension,
then to suspend concessions thereafter in accordance with the arbitrators' decision, upon DSB
authorization pursuant to Article 22.7. This determination is reflected in the Federal Register
notice of July 27, 1999 announcing DSB authorization to suspend concessions. 454 The
consideration was not a determination, and was not published. The determination is reflected in
the Federal Register notice of July 27, 1999. The determination of action was made within the
30-day time frame.
4. Sections 306 and 305
(a) Overview
4.934 The European Communities claims that Section 306(b) provides that the USTR shall
determine what further action to take under Section 301(a) no later than 30 days after the
expiration of the reasonable period of time if in its view the compliance is not satisfactory. The
use of the terms " determine what further action [will be taken]" (rather than "whether" or
"when" further action will be taken) and the re ference to the part of Section 301 dealing with
"mandatory actions" implies that the USTR is re quired to announce at this stage which of the
retaliatory trade measures that the USTR is authorized to take under Section 301(c) will be
applied in response to what the United States unilaterally considers to be unsatisfactory
compliance.
4.935 The European Communities argues that Section 305 regulates when the announced
action must be implemented. Here again the USTR must observe strict time limits. According
to Section 305(a)(1) the action must be implemented in principle "no later than the date that is
30 days after the date on which such determina tion is made". If the USTR considers that the
compliance is unsatisfactory, the USTR must thus determine, at the latest 60 days after the
expiration of the reasonable period of time, the level of suspension of concessions or other
obligations and the sector to which the suspension shall apply, and impose discriminatory
duties, fees or restrictions on the trade of the Member concerned.
4.936 The European Communities further states that in cases where disagreement exists
between the parties as to the existence or the conformity of the implementing measures, the
procedure of Article 21.5 DSU must be applied before any suspension of concessions can be
authorized by the DSB. In such cases, the 60-day time frame of section 306(b) will not normally
be sufficient to carry out the dispute settlement procedure, since the procedure of Article 21.5
foresees 90 days for the panel ruling alone. But even where there is no disagreement between
the parties to the dispute as to the existence or the conformity of the implementing measures, the
60-day time limit will still be insufficient for the following reasons.
4.937 In the view of the European Communities, Article 23.2(c) of the DSU obliges the
United States to follow "the procedures set forth in Article 22 to determine the level of
suspension of concessions or other obligations and obtain DSB authorization in accordance with
those procedures before suspending concessions or other obligations". According to those
procedures, both the level of suspension and the sector chosen may be challenged and referred
to arbitration.

454 Implementation of WTO Recommendations Concerning EC-Measures Concerning Meat and
Meat Products (Hormones), 64 Fed. Reg. 40638 (1999).

4.938 The European Communities considers that under Article 22.6 of the DSU, "concessions
or other obligations shall not be suspended during the course of the arbitration".
4.939 The European Communities asserts that Article 22.7 stipulates that the "DSB shall …
upon request grant authorization to suspend concessions or obligations where the request is
consistent with the decision of the arbitrator", which implies that the DSB must await the
completion of the arbitration proceeding before authorizing a suspension of concessions or
obligations.
4.940 The European Communities notes that according to Article 22.6 of the DSU, the
arbitration on the level or nature of the suspension of concessions or obligations "shall be
completed within 60 days after the date of the expiry of the reasonable period of time".
4.941 The European Communities explains that when an arbitration decision is issued, the
request to suspend concessions is subject to two compulsory conditions:
(a) it must be consistent with the decision of the arbitrator; and
(b) pursuant to Rule 1 of the rules of procedure governing the meetings of the DSB
referring to the rules of procedure governing the meetings of the General
Council, and in particular Rules 2 and 4, it must be submitted at least ten days
before the meeting of the DSB.
4.942 The European Communities then considers that after the end of the reasonable period of
time, a period of at least 70 days is foreseen to carry out the several actions (i.e. inter alia ,
request for compensation, request for authorization, arbitration on the level of the requested
suspension) which must precede the authorization of suspension of concession by the DSB. This
period of 70 days is not at the disposal of the party wishing to be authorized to suspend
concessions.
4.943 The European Communities argues that the USTR is nevertheless required under
Section 305 to determine unilaterally the level and the nature of the suspension of concessions
or other obligations within 60 days. This statutory requirement is inconsistent with United
States' obligations under Article 23:2(c) of the DSU and Article XVI:4 of the WTO Agreement.
4.944 In the view of the European Communities, the operation of Section 306 can be
illustrated by the USTR's determinations and ac tions in the case of the dispute between the
United States and the European Communities on the banana regime.
4.945 The European Communities further maintains that on the basis of a unilateral
determination that the European Commun ities had failed to implement the DSB's
recommendations on this regime, the USTR announced on 3 March 1999 that the US Customs
Service would begin as of that date withholding liquidation and reviewing the sufficiency of
bonds on imports of selected European products covering trade in an amount of $520 million.
The arbitration on the level and nature of the announced suspension requested by the European
Communities under Article 22.6 of the DSU should have been completed on 2 March 1999, that
is 60 days after 1 January 1999 when the period of implementation accorded to the
Communities had expired. However, because of the novelty and complexity of the issues
involved, the arbitrators' decision was submitted only on 9 April 1999 and the DSB could
therefore act on the United States' request for an authorization of sanctions only on 19 April
1999. This authorization covered trade in an amount of US $191.4 million.

4.946 The European Communities considers that the decision to withhold customs liquidation
on 3 March 1999 exposed importers of selected European products to a contingent duty liability
of 100 percent, while importers of like products of other origins were only exposed to a duty
liability corresponding to the normal customs tariff. The bonds on imports from Europe
corresponded to that higher contingent duty liability.
4.947 In the EC's view, these discriminatory rules and formalities in connection with the
importation of European products are inconsistent with Article I of the GATT 1994. Moreover,
the requirement to submit bonds entailed additional costs for importers that constitute "other
charges" imposed in connection with importation that are prohibited by Articles II.2(a) and
VIII.1 of the GATT 1994. Finally and most importantly, the real purpose and effect of the
measure was to deter imports altogether, as importers would logically be very reluctant to
accept a risk of having to pay 100% duties retroactively. As the USTR indicated at a press
conference held on 3 March, "we retaliated by effectively stopping trade as of March 3 in
response to the harm caused by the EC's WTO-inconsistent banana regime".
455
4.948 The European Communities then concludes that this measure therefore created a de
facto import prohibition or restriction within the meaning of Article XI of GATT. There can for
these reasons be no doubt that the United States suspended on 3 March 1999 its obligations
under, inter alia , Articles I, II, VIII and XI of the GATT 1994 towards the European
Communities without prior authorization by the DSB.
4.949 The European Communities notes that the USTR made clear in a public notice
requesting comments on the planned 3 March 1999 action that it was required under
Sections 301-310 to implement that action on that date:
"Given that the reasonable period of time for the EC's implementation of the
WTO recommendations concerning the EC banana regime expires on January
1, 1999, the USTR must make the determination required by section 306(b) no
later than January 31, 1999, and, in the event of an affirmative determination,
must implement further action no later than 30 days thereafter".
456
4.950 According to the European Communities, the USTR thus considers itself bound to take
retaliatory action 60 days after the expiry of the implementation period in response to a
perceived failure to implement rulings or recommendations of the DSB. The USTR added "these
time frames permit the USTR to seek recourse to the procedures for compensation and suspension of
concessions provided in Article 22 of the DSU".457
4.951 The European Communities nevertheless argues that when it turned out that the
Article 22 procedures were not completed on 3 March 1999 and that the United States could
therefore not obtain the necessary DSB authorization at the time required by its domestic
legislation, the USTR nevertheless imposed trade sanctions "effectively stopping trade". This
course of events confirms what the text of Section 306(b) indicates, namely that the USTR must
implement the further action decided upon irrespective of whether that action conforms to the
requirements of Article 22 of the DSU.

455 Quoted from notes prepared for the press by the staff of the Office of the USTR entitled
"March 3 Action on Bananas".
456 Federal Register, Vol.63. No.204, Thursday, October 22, 1998, pages 56688 and 56689.
457 Ibid., page 56689.

4.952 In the view of the European Communities, the United States has accepted an
unqualified obligation to impose trade sanctions only with DSB approval but has maintained
domestic legislation that explicitly requires the unilateral imposition of such sanctions. It is
sufficient for the Panel to note these facts and to rule that Sections 306(b) and 305 do not
constitute a good faith performance of the obligations under Articles 21.5 and 22 of the DSU
and therefore of Article 23 DSU and Article XVI:4 of the WTO Agreement.
4.953 The United States responds that Sections 301-310 of the Trade Act provide the USTR
and the President with broad discretion both with respect to determinations under those
provisions and the timing of any action taken in accordance with those determinations. Nothing
in these provisions mandates action inconsistent with US WTO obligations.
4.954 The United States recalls that the European Communities asks the Panel to find that
Section 306(b) is inconsistent with Article 23.2(c),
"because it requires the USTR to determine what further action to take under
Section 301 in the case of a failure to implement DSB recommendations and to
implement that action, irrespective of whether the procedures set forth in
Article 22 of the DSU have been completed and the DSB authorized such
action".
4.955 In the US view, the EC case rests entirely on inaccurate and unsupported assumptions
regarding whether action need be taken, the nature of the action, and the timing of such action.
Section 306(b) commands no action, let alone action inconsistent with Article 23.2(c).
4.956 The United States considers that turning again to the text, Article 23.2(c) requires
Members to "follow the procedures set forth in Article 22 to determine the level of suspension
of concessions or other obligations and obtain DSB authorization in accordance with those
procedures before suspending concessions or other obligations" when a Member has failed to
implement DSB rulings and recommendations. Again, no actual case involving the suspension
of concessions is before this Panel. It is thus not possible to determine whether the United
States in such a concrete case actually complied with the requirements of Article 22. The only
question, then, is whether Section 306(b) commands the USTR not to follow Article 22
procedures or to suspend concessions without DSB authorization.
4.957 The United States indicates that it manifestly does not. Nothing in Section 306(b) or in
Section 305(a) prevents the USTR from complying to the letter with Article 22 procedures,
including DSB authorization. As the United States has noted before, the EC's arguments rest on
a series of unsupported assumptions and unfounded speculation. If the USTR considers that
another Member has not implemented DSB rulings and recommendations, and if she disregards
Article 22 procedures, and if she decides to take action, and if that action involves the
suspension of concessions, and if she or the President choose not to exercise the discretion
available to them not to take action, or to await the outcome of Article 22 proceedings, then, the
European Communities asserts, there would be a violation of DSU Article 23.2(c). However,
Section 306(b) commands none of this, and the European Communities is not entitled to
establish its prima facie case based on speculation and an assumption of bad faith regarding
how the USTR will exercise discretion.
4.958 The United States considers that it has explained the numerous unsupported assumption
underlying the EC's Article 23.2(c) claim. The European Communities has failed to rebut these
explanations, or otherwise meet its burden in this dispute. Its claim under Article 23.2(c)
therefore also fails.

4.959 The United States recalls that the European Communities argues that Sections 306(b)
and 305(a) violate DSU Article 23.2(c), which requires that a Member follow the procedures set
forth in Article 22 before suspending concessions or other WTO obligations when another
Member has failed to implement DSB recommendations. 458 According to the European
Communities, the language of Section 306(b) "implies" that the USTR must announce that she
will take mandatory retaliatory action when she considers that another Member has not
implemented DSB recommendations. The Europ ean Communities further contends that the
time frames in Sections 306(b) and 305(a) require the USTR to suspend concessions no later
than 60 days following the reasonable period of time, while the soonest that the DSB could
authorize the suspension of concessions would be 70 days.
4.960 In the view of the United States, the EC argument flagrantly disregards the broad
discretion provided for in Sections 306(b), 301(a ) and 305(a) both with regard to the nature of
any action taken under those provisions and the timing of that action.
4.961 The United States first points out that nothing in Section 306(b) obligates the USTR to
conclude that another Member has failed to implement DSB recommendations. This is a purely
discretionary decision, and the European Communities has failed to meet its burden of
demonstrating why it would not be possible for the USTR to conclude that no action need be
taken because implementation has been satisfactory, because adequate progress is being made,
or because further dispute settlement proceedings are necessary to achieve satisfactory
implementation.
4.962 The United States also notes that even if the USTR were required under Section 306(b)
to conclude in all cases that another Member has not complied with DSB recommendations, and
to take action in response, the 210-day time frame set forth in Section 305(a) is more than
sufficient to allow any such action to reflect the results of completed Article 22 proceedings,
and to be implemented after DSB authorization. The European Communities claims that under
Section 305(a)(1), the USTR must take action no later than 30 days after its determination under
Section 306(b), which itself will follow the expiration of the reasonable period by no more than
30 days.
4.963 According to the United States, this EC argument completely disregards the fact that the
30-day period in Section 305(a)(1) is applicable "[e]xcept as provided in paragraph (2)".
459
Paragraph 2 of Section 305 provides that the 30-day period set forth in paragraph (1) may be
extended for an additional 180 days:
"(2) (A) Except as otherwise provided in this paragraph, the Trade
Representative may delay, by not more than 180 days, the implementation of
any action that is to be taken under section 301 –
….

458 Article 23.2(c) provides that Members seeking redress of violations must:
"follow the procedures set forth in Article 22 to determine the level of suspension of concessions
or other obligations and obtain DSB authoriza tion in accordance with those procedures before
suspending concessions or other obligations under the covered agreements in response to the
failure of the Member concerned to implement the recommendations and rulings within that
reasonable period of time".
459 Section 305(a)(1), 19 U.S.C. § 2415(a)(1).

(ii) if the Trade Representative determines that substantial
progress is being made, or that a delay is necessary or
desirable, to obtain United States rights or a satisfactory
solution with respect to the acts, policies, or practices that are
the subject of the action".460
4.964 The United States further explains that Section 305(a)(2)(A)(ii) explicitly authorizes the
USTR to delay action by an additional 180 days, among other reasons, in order "to obtain U.S.
rights". Thus, the USTR may delay any action pursuant to Section 306(b) until the United
States has obtained the right to suspend concessions based upon completion of Article 22
proceedings and receipt of DSB authorization.
4.965 The United States indicates that the USTR has, in fact, exercised her discretion under
Section 305(a)(2)(A)(ii) to delay action by 180 days for the specific purpose of obtaining GATT
rights. On May 24, 1989, a GATT panel issued a report finding that Korea's import restrictions
on beef were inconsistent with Article XI:1 of the GATT 1947.
461 However, at meetings of the
GATT Council on June 21 and July 19, 1989, Korea declined to agree to adoption of the panel
report. USTR's target date for action pursuant to Section 305(a)(1) was October 28, 1989.
Nevertheless, citing Section 305(a)(2), the USTR determined that "a delay in implementation of
such action is necessary and desirable to obtain US rights under the General Agreement on
Tariffs and Trade".
462 The USTR further explained that the delay in action beyond October 28,
1989 was desirable "to allow additional time for proceedings in the GATT". 463 Korea allowed
the panel report to be adopted on November 8, 1989, and the United States and Korea initialed
an agreement on implementation on March 21, 1990.464
4.966 The United States further explains that when the 180 days is added to the 60 days
provided for in Sections 306(b) and 305(a)(1), it is clear that, in all cases, the USTR has more
than enough time to await DSB authorization to suspend concessions consistent with an
Article 22 arbitrator's award, regardless of whether this would require 60 or 70 days. Moreover,
the 240-day time frame for implementation woul d even allow the USTR to first complete
Article 21.5 proceedings (a 90-day process), were this necessary to obtain the US right to
suspend concessions. However, the DSU as currently drafted neither requires nor permits 465

460 Section 305(a)(2)(A), 19 U.S.C. § 2415(a)(2)(A).
461 Panel Report on Republic of Korea – Restrictions on Imports of Beef (" Korea - Beef "),
adopted 7 November 1989, BISD 36S/268.
462 Determinations Under Section 304 of the Trade Act of 1974, as Amended, Regarding the
Republic of Korea's restrictions on Imports of Beef, 54 Fed. Reg. 40769 (1989) (US Exhibit 4).
463 Ibid.
464 See Termination of Section 302 Investigation Regarding the Republic of Korea's Restrictions
on Imports of Beef, 55 Fed. Reg. 20376 (1990) (US Exhibit 5). The United States notes that similarly,
in the 1989 dispute between the United States and the European Communities over oilseeds, the Trade
Representative delayed action for 180 days pursuant to Section 305(a)(2)(A)(ii) on the basis that
substantial progress was being made in GATT dispute panel proceedings which had not yet finished as of
the 18-month target date. Moreover, the Trade Repres entative made a determination that US agreement
rights had been denied under Section 304(a)(1)(A)(i) only after the Oilseeds panel report had been
adopted, even though this was well after the 18-month target date. See Determinations Under
Section 304 of the Trade Act of 1974, as Amended: European Community Policies and Practices With
Respect to, Inter Alia, Production and Processing Subsidies on Oilseeds, 55 Fed. Reg. 4294 (1990) (US
Exhibit 6).
465 If a complaining party wishes to have the benefit of the negative consensus rule in
Articles 22.6 and 22.7.

completion of the Article 21.5 panel process before seeking and receiving authorization to
suspend concessions under Article 22.
(b) USTR's discretion not to take action
4.967 The United States recalls that under Section 301(a)(1), upon a determination that US
rights under a trade agreement have been denied,
"the Trade Representative shall take action authorized in subsection (c) of this
section, subject to the specific direction, if any, of the President regarding any
such action, and shall take all other appropriate and feasible action within the
power of the President that the President may direct the Trade Representative to
take under this subsection, to enforce such rights or to obtain the elimination of
such act, policy, or practice.
Actions may be taken that are within the power of the President with respect to trade in
any goods or services, or with respect to any other area of pertinent relations with the
foreign country".466
4.968 The United States explains that Section 301(c) authorizes the USTR to act against
goods or services or to enter into agreements to eliminate the violation of US agreement rights
or to receive compensation for those violations. 467 It does not mandate any particular form of
action.
4.969 The United States further states that with respect to action taken under Section 301, the
USTR has substantial discretion, including discretion to take no action at all. The USTR is
explicitly not required to take action: (1) when the DSB has adopted report findings that US
rights have not been violated468; (2) when the foreign country "is taking satisfactory measures to
grant the rights of the United States under a trade agreement", 469 has agreed to eliminate or
phase out the practice which violated US rights, 470 or has agreed to provide compensation 471;
(3) when action would have "an adverse impact on the United States economy substantially out
of proportion to the benefits of such action;"472 (4) or when action would cause "serious harm to
[US] national security". 473 The European Communities has acknowledged that when WTO
Members commit to implement DSB recommendations within the time period foreseen in DSB
Article 21, the United States has considered this a "satisfactory measure " justifying termination
of an investigation without further action.
4.970 In response to the Panel's question, the United States explains that
Section 301(a)(2)(B)(i) allows the USTR to take no action if the foreign country is taking
"satisfactory measures to grant the rights of the United States under a trade agreement". In all
of the scenarios presented in the question – DSB recommendations not yet adopted, suspension
of concessions not yet authorized, the Member concerned has not expressed an intention to
comply and has decided not to do anything before the expiration of the reasonable period of

466 Section 301(a)(1), 19 U.S.C. § 2411(a)(1) (emphasis added).
467 Section 301(c), 19 U.S.C. § 2411(c).
468 Section 301(a)(2)(A), 19 U.S.C. § 2411(a)(2)(A).
469 Section 301(a)(2)(B)(i), 19 U.S.C. § 2411(a)(2)(B)(i).
470 Section 301(a)(2)(B)(ii), 19 U.S.C. § 2411(a)(2)(B)(ii).
471 Section 301(a)(2)(B)(iii), 19 U.S.C. § 2411(a)(2)(B)(iii).
472 Section 301(a)(2)(B)(iv), 19 U.S.C. § 2411(a)(2)(B)(iv).
473 Section 301(a)(2)(B)(v), 19 U.S.C. § 2411(a)(2)(B)(v).

time – the continued participation of the Member concerned in dispute settlement proceedings
would constitute satisfactory measures to grant US agreement rights. It is important to
recognise that the rights in question would not necessarily be the substantive rights the Member
had been denying through its challenged measure, but, rather, US WTO rights under DSU
Articles 21 - 23. For example, if the Member concerned had failed to express its intention to
implement DSB recommendations, or was choosing not to use the reasonable period of time to
implement, this would ultimately result in the United States obtaining the right to compensation
or to suspend concessions pursuant to DSU Article 22.2. The United States could on this basis
determine not to take action pursuant to Section 301(a)(2)(B)(i).
4.971 In the view of the United States, the European Communities disregards entirely
provisions of Section 301(a)(2) which provide the USTR and the President with discretion to
limit any action to that authorized by the DSB, or to take no action at all. These include explicit
authority not to take action when the DSB adopts findings that US agreement rights are not
being denied or that US trade agreement benefits are not being nullified or impaired. In other
words, the USTR may limit or take no action depending on the outcome of Article 22
proceedings. In addition, the USTR may choose not to take action for reasons of national
security, if the action has an adverse economic impact or if the USTR is satisfied that
satisfactory measures are being taken to grant US agreement rights. Finally, actions taken under
Section 301(a) are subject to "the specific direction, if any, of the President". The President
may also place conditions on any action taken or direct that action not be taken.
4.972 In response to the Panel's question as to whether the sole fact that DSB
recommendations have not yet been adopted or that the DSB has not yet authorized the
suspension of concessions can mean that USTR action in these circumstances would "have an
adverse impact on the United States economy substantially out of proportion to the benefits of
such action" or "cause serious harm to the national security of the United States", the United
States indicates that given the broad discretion she has under Section 301(a)(2)(B)(i), the USTR
might not consider it necessary to rely on these two provisions, though they could be available
depending on the particular circumstances of a given case.
4.973 The United States further argues that a third reason the EC's argument fails is that any
action the USTR may consider under Section 306(b) is taken pursuant to Section 301(a)(1), and
is therefore subject to the exceptions to action set forth in Section 301(a)(2). The most
important of these from the perspective of the current proceeding is Section 301(a)(2)(A), which
provides that the USTR need not take action in any case in which the DSB has adopted a report
or ruling finding that US agreement rights are not being denied or that US trade agreement
benefits are not being nullified or impaired.
474 The USTR is therefore free to take no action if
an Article 22 arbitrator concludes that there is no nullification or impairment of US agreement
benefits (i.e, that the other Member has complied with DSB recommendations), or to reduce the
proposed level of suspension if the arbitrator concludes that the proposal exceeds the actual
level of nullification or impairment. Other exceptions under Section 302(a)(2) which would
ensure a WTO-consistent outcome (since no action would be taken) include exceptions when
the USTR finds that action would have an adverse impact on the United States economy or
would cause serious harm to national security.
475
4.974 The United States claims that again, the European Communities case rests on an
extensive string of unsupported assumptions. The EC assumption is that the USTR will always

474 Section 301(a)(2)(A), 19 U.S.C. § 2411(a)(2)(A).
475 Section 301(a)(2)(B)(iv), (v), 19 U.S.C. § 2411(a)(2)(B)(iv), (v).

conclude that another Member has failed to implement DSB recommendations and rulings and
that the United States must therefore take action. There is absolutely no basis in Section 306 for
this conclusion. The USTR enjoys more than adequate discretion under Section 306 not to take
action either because she considers that there has been full implementation, or because she
considers that further dispute settlement proceedings are necessary to achieve such
implementation. Section 306(b) therefore does not mandate that action be taken. In the absence
of such action, there can be no violation of Article 23.2(c). The time frames in Section 305
never become relevant.
4.975 The United States argues that Section 305(a)(2)(A)(ii) and Section 301(a)(2)(B)(i), (iv)
and (v) provide the USTR with broad discretion to delay or not take action, a fact explained in
the Statement of Administrative Action on page 360.
476 There it is explained that, "section 301
does not automatically require the imposition of sanctions where the United States wins a
dispute settlement case under a trade agreement". The USTR may delay action under Section
305(a)(2)(A)(ii) if she has determined that "substantial progress is being made" or if the delay is
necessary to obtain US rights or a satisfactory solution. Likewise, Sections 301(a)(2)(B)(i), (iv)
and (v) permit no action to be taken if a foreign country is taking satisfactory measures to grant
US agreement rights, if there would be an adverse economic impact, or for reasons of national
security. The provisions of Section 305(a)(2)(A)(ii) and Section 302(a)(2)(B)(i) are particularly
broad, since they are available based on the USTR's judgment that progress is being made, or
that delay is necessary to achieve such progress.
4.976 The United States notes that Section 305(a)(2)(A)(ii) has been used on at least 3
occasions relating to GATT and WTO dispute settlement proceedings. Two of these, involving
Korean – Beef and EC – Oilseeds . In addition, the USTR used Section 305(a)(2)(A)(ii) in
December 1991, to delay implementation of action in an investigation involving Canadian
import restrictions on beer. Based on an adopted GATT panel report finding Canadian
violations, the USTR determined on December 27, 1991 that Canada had denied US rights
under a trade agreement, and proposed increased duties on Canadian beer. However, the USTR
determined, pursuant to Section 305(a)(2), that "it was desirable to delay implementation of
action … in order to provide Canada with a full opportunity to comply with the
recommendations of the GATT panel".
477
4.977 The United States further points out that Section 301(a)(2)(B)(i) has also been used on
several occasions. These include situations in which a WTO Member has stated its intention to
comply with DSB rulings and recommendations ( EC – Bananas III , Canada – Periodicals,
India – Patents (US), Argentina – Textiles and Apparel (US) ), situations in which a country has
committed to implement GATT panel proceedings ( EC Canned Fruit, EC – Oilseeds) , and
situations in which a country has confirmed that it would take measures to implement an earlier
agreement (China Intellectual Property Rights).
(c) Discretion with respect to timing of action
4.978 The United States considers that the European Communities has failed to meet its
burden of establishing that Sections 306(b) and 305(a) mandate any violation of DSU
Article 23.2(c). The European Communities ma y not establish its claim that Section 306(b)
mandates suspension of concessions without DSB authorization based on unsupported

476 US Exhibits 3 and 11
477 The United States cites Notice of Determinations Under Section 304 of the Trade Act of
1974: Canadian Provincial Practices Affecting Imports of Beer, 57 Fed. Reg. 308, 309 (1992).

assumptions concerning how, and when, she will make decisions in a particular case. The
European Communities may not meet its burden by assuming or asserting that the USTR must
consider non-implementation to have occurred, or that it is permissible under US law to
disregard entire statutory provisions which give the USTR and the President broad discretion to
delay action, or to take no action at all. Section 306(b) permits the USTR to follow Article 22
procedures in every case.
4.979 The United States argues that there have now been two situations in which the European
Communities has failed to implement DSB rulings and recommendations, and the United States
as well as other WTO Members are gaining experience in this regard. The United States refers
the Panel to US Exhibit 17, a Federal Register notice issued in connection with the Hormones
dispute which describes in detail the manner in which the United States follows Article 22
procedures when exercising its authority under Section 306.
4.980 The United States further argues that even in those cases in which the USTR and
President have determined that action will be taken, the time frames provided for in
Sections 301-310 ensure that such action may await DSB authorization. Section 305(a)(1)
provides,
(1) Except as provided in paragraph (2), the Trade Representative shall
implement the action the Trade Representative determines under section
304(a)(1)(B) to take under section 301, subject to the specific direction, if any,
of the President regarding any such action, by no later than the date that is 30
days after the date on which such determination is made.478
4.981 In the view of the United States, Paragraph 2 of Section 305 provides that the 30-day
period set forth in paragraph (1) may be extended for an additional 180 days:
(2) (A) Except as otherwise provided in this paragraph, the Trade
Representative may delay, by not more than 180 days, the implementation of
any action that is to be taken under section 301 -

(ii) if the Trade Representative determines that substantial
progress is being made, or that a delay is necessary or
desirable, to obtain United States rights or a satisfactory
solution with respect to the acts, policies, or practices that are
the subject of the action.479
4.982 The United States then concludes that Section 305(a)(2)(A)(ii) thus explicitly authorizes
the USTR to delay action beyond the 30 days provided for in Section 305(a)(1) in order "to
obtain U.S. rights", among other reasons. This would include rights under international
agreements such as the GATT or other WTO agreements. The USTR has, in fact, exercised her
discretion under Section 305(a)(2)(A) to delay action for just this purpose. On May 24, 1989, a
GATT panel issued a report finding that Korea's import restrictions on beef were inconsistent
with Article XI:1 of the GATT 1947.
480 However, at meetings of the GATT Council on June 21

478 Section 305(a)(1), 19 U.S.C. § 2415(a)(1).
479 Section 305(a)(2)(A), 19 U.S.C. § 2415(a)(2)(A).
480 Panel Report on Korea – Beef, op. cit.

and July 19, 1989, Korea declined to agree to adoption of the panel report. USTR's time frame
for action pursuant to Section 305(a)(1) was October 28, 1989. Nevertheless, citing
Section 305(a)(2), the USTR determined that "a delay in implementation of such action is
necessary and desirable to obtain U.S. rights under the General Agreement on Tariffs and
Trade".481 The USTR further explained that the delay in action beyond October 28, 1989 was
desirable "to allow additional time for proceedings in the GATT". 482 Korea allowed the panel
report to be adopted on November 8, 1989, and the United States and Korea initialed an
agreement on implementation on March 21, 1990.
483
4.983 The United States further explains that similarly, in the 1989 dispute between the
United States and the European Communities over oilseeds, the USTR delayed action for 180
days pursuant to Section 305(a)(2)(A)(ii) on the basis that substantial progress was being made
in GATT dispute panel proceedings which had not yet finished as of the 18-month target date.484
Moreover, the USTR specifically waited until after panel proceedings had finished before
determining that US agreement rights had been denied under Section 304(a)(1)(A)(i), even
though this was well after the 18-month target. 485 Thus, it was consistent US practice, even
before the conclusion of the Uruguay Round, to rely on dispute settlement results when
determining whether US agreement rights were denied.
4.984 The United States then indicates that the USTR and the President thus have broad
discretion under Sections 301-310 to dictate the timing of any action, the conditions under
which the action will be given effect, and whether the action will be taken at all. The USTR or
the President may, for example, specify that any action taken should not become effective until
the United States has received formal DSB approval.
4.985 The United States argues that when a WTO Member has indicated, pursuant to DSU
Article 21.3, that it intends to implement the recommendations and rulings of the DSB in a case
involving violations of US WTO rights, the USTR has considered this a "satisfactory measure"
pursuant to Section 301(a)(2)(B) justifying termination of a Section 302 investigation. 486 I n
such cases, the USTR continues to monitor the Member's implementation of the DSB rulings
and recommendations pursuant to Section 306(a).487
4.986 The United States notes that in those cases in which the USTR considers that a WTO
Member has not implemented DSB rulings and recommendations by the conclusion of the
reasonable period of time provided for in Article 21.3, the USTR determines what further action
she will take pursuant to Section 301(a). 488 Contrary to the representation of the European

481 Determinations Under Section 304 of the Trade Act of 1974, as Amended, Regarding the
Republic of Korea's Restrictions on Imports of Beef, 54 Fed. Reg. 40769 (1989) (US Exhibit 4).
482 Ibid.
483 See Termination of Section 302 Investigation Regarding the Republic of Korea's Restrictions
on Imports of Beef, 55 Fed. Reg. 20376 (1990) (US Exhibit 5).
484 See Determinations Under Section 304 of the Trade Act of 1974, as Amended: European
Community Policies and Practices With Respect to, Inter Alia, Production and Processing Subsidies on
Oilseeds, 55 Fed. Reg. 4294 (1990) (US Exhibit 6)
485 See ibid. The United States notes that on the 18-month anniversary, the USTR instead
concluded that she had reason to believe agreement rights were being denied, and therefore was pursuing
such a ruling under GATT dispute settlement procedures.
486 E.g. Determinations Under Section 304 of the Trade Act of 1974 With Respect to Certain
Canadian Practices Affecting Periodicals, 62 Fed. Reg. 50651 (1997) (US Exhibit 7).
487 Section 306(a), 19 U.S.C. § 2416(a).
488 Section 306(b), 19 U.S.C. § 2416(b).

Communities, the further action the USTR will take is subject to the specific direction of the
President, since that action is taken pursuant to Section 301(a).489 Moreover, because the action
is taken under Section 301(a), it is subject to the exceptions set forth in Section 301(a)(2)
relating to, among other things, conformity with DSB-adopted reports, the adverse impact of
such action on the US economy or its harm to US national security.490
4.987 The United States further argues that just as importantly, because the determination
regarding the action to be taken is considered a determination under Section 304(a)(1), 491 the
time frames for implementing the action are those set forth in Section 305. As described above,
under Section 305, the action must be implemented within 30 days of the determination to take
action, unless the USTR,
"determines that substantial progress is being made, or that a delay is necessary
or desirable to obtain United States rights or satisfactory solution…". 492
4.988 The United States maintains that in such cases, the USTR may delay action by a further
180 days. This permits the USTR to delay any action until well beyond the time frames
required for DSB authorization for the right to suspend concessions pursuant to DSU
Articles 22.6 or 22.7.
4.989 The United States challenges the EC assumption that, under US law, it is permissible to
ignore entire statutory provisions. Specifically, in claiming that Section 305(a) requires action
to be taken within 60 days of the expiration of the reasonable period of time, the European
Communities completely disregards explicit statutory language authorizing the USTR to delay
action by 180 days. Section 305(a)(2) authorizes the USTR to implement such a delay to obtain
US rights or a satisfactory solution to the dispute. The United States used this provision to
delay action until it was able to obtain rights under GATT 1947 dispute settlement procedures,
and the European Communities has offered no explanation of why, under US law, the United
States would not again be able to use this prov ision to delay action in order to first obtain DSB
authorization.
4.990 The United States recalls that the European Communities has at times argued that the
time frames in the DSU and Sections 301-310 are relevant to the above issues, and at other
times that they are not. The United States indicates that the time frames in Sections 301-310
comport with those in the DSU, but even if they did not, it would not matter. For example, even
if panel proceedings were to exceed 18 months , the USTR would not be obligated to make the
one determination that is an absolute prerequisite before any other requirements under
Article 23.2(a) become relevant. The USTR is not obligated to determine that US agreement
rights have been denied. The record shows that the USTR has never once made a
Section 304(a)(1) determination that US GATT or WTO agreement rights have been denied
which was not based on the results of GATT and WTO dispute settlement proceedings. Not
once.
4.991 The United States recalls that the European Communities now claims that the United
States violates "Article 23" by virtue of the "retaliation list" Korea asserts the USTR must
publish. The EC's response to this question repeats many of its previous false assumptions, and

489 Section 306(b)(1), 19 U.S.C. § 2416(b)(1).
490 Section 301(a)(2), 19 U.S.C. § 2411(a)(2).
491 Section 306(b)(1), 19 U.S.C. § 2416(b)(1).
492 Section 305(a)(2)(ii), 19 U.S.C. § 2415(a)(2)(ii).

adds to them the erroneous assumption that in providing for a determination of "action",
Section 304(a)(1) requires publication of a list of products for which the United States is
requesting suspension.
4.992 The United States points out that the USTR is not required to publish a "retaliation list"
under Sections 301-310, and only Sections 301-310 are within the Panel's term's of reference.
In the event of an affirmative determination that US agreement rights have been denied, she is
required, pursuant to Section 304(a)(1)(B), to determine what action to take. This need not
include publication of a proposed list of products subject to suspension of concessions. The
European Communities may not assume that it does.
4.993 The United States considers that public notice concerning which products might be the
subject of a suspension of concessions is both good public policy and important to the effective
exercise of WTO rights. It is good public policy because importers and the public generally
need to understand the actions the US governme nt is proposing so they can comment, and
because the government needs to receive public input in order to evaluate whether action is
appropriate, if the action is to be taken under Section 301(b), or whether an exception under
Section 301(a)(2) is applicable, if the action is to be taken under Section 301(a). The
government also needs this information to apply the principles and procedures in DSU
Article 22.3. For example, the United States mu st evaluate whether suspension of concessions
within the same sector would be "practicable or effective" for purposes of undertaking the
analysis called for in DSU Article 22.3. Public input is required to ensure that officials have the
information necessary to make this judgment.
4.994 The United States notes that Canada, as well, publishes lists of products which might be
the subject of a suspension of concessions in connection with Article 22 proceedings. US
Exhibit 19 includes Canadian press releases describing and reproducing the proposed list of
products Canada has published in the EC Hormones and Australia Salmon disputes. This
reinforces the fact that such lists are an integral part of domestic implementation of Article 22.
Until its answer to a Panel question, the European Communities had not claimed that such lists
are inconsistent with the DSU. In fact, in the DSU Review, it now appears that the European
Communities is insisting that such lists be offered at the time suspension is proposed.
493
4.995 In the view of the United States, the European Communities merely asserts that
Section 304 requires publication of a list of products, despite the absence of any textual basis for
that assertion. It states that the USTR must either propose suspension of concessions or reach
an agreement with the foreign country. Accord ing to the European Communities, if suspension
is proposed, this necessarily includes publication of a list of products, but it fails to explain why
this so, or if it is so, what the timing must be.
494

493 See DSU Review, Discussion Paper from the European Communities dated 30 June 1999,
Document No. 3864, para. 16, circulated on 1 July 1999 (US Exhibit 12).
494 The United States claims that if, in fact, the European Communities and Korea were entitled
to assume, on the basis of a statutory requirement to allow the "presentation of views" on proposed
determinations, that this necessarily entails publication of a list of products proposed for suspension, then
they would have to conclude that Korea's laws include precisely the same requirement. Article 4 of
Korea's Foreign Trade Act (the "Act") authorizes the Ministry of Trade, Industry and Resources to "take
special measures concerning restrictions on or prohibition of the export and import of goods" if, among
other reasons, the trading partner has denied Korean rights under an international convention, or if that
partner imposes any "unreasonable burden or restri ction" on Korean trade. See Foreign Trade Act,
http://www.oomph.net/law/html/15-13.htm (US Exhibit 20). Article 4 of the Enforcement Decree for the

4.996 The United States considers that leaving aside whether a list must be issued when
suspension of concessions is proposed, the EC's description of the options available to the
USTR (suspension or agreement) itself makes clear that suspension is not the only choice
available. It therefore may not be concluded that suspension is mandated. Moreover, the USTR
is not obliged to take any action at all. The European Communities again assumes it may ignore
Section 301(a)(2), which allows the USTR to take no action if, among other reasons, she
believes the foreign country is taking satisfactory measures to grant US trade rights, or if WTO
dispute settlement proceedings result in a finding that US agreement rights have not been denied
or benefits under a trade agreement have not been impaired. As a result, the USTR is never
obligated to take action at odds with the results of WTO dispute settlement panels or arbitrators.
4.997 The United States claims that the USTR considers dispute settlement proceedings to
conclude up to 30 days after adoption of the panel and Appellate Body reports, a date which
allows defending parties to state their intentions with regard to implementation. Thus, the
USTR has typically issued her determination regarding denial of US trade agreement rights
together with the determination that the foreign country is taking satisfactory measures.
495 In
fact, the USTR has even determined that a foreign country is taking satisfactory measures solely
on the basis that she "expected" that country would implement DSB rulings and
recommendations – without regard to whether it had actually informed the DSB of its
intentions.
496 Thus, the other half of the premise underlying Korea's argument is also incorrect,
namely, that the time frames in Section 301 and 304, combined with the alleged requirement to
publish a list, means that the list must be published before a losing party has had an opportunity
to state its intentions with respect to implementation.
4.998 The United States argues that even were the European Communities permitted to
assume that Section 304(a)(1) mandates the publication of a list of products for which the US is
proposing suspension, it has failed to explain exactly how this violates Article 23. The
European Communities does not even specify which paragraph of Article 23 publication of a list
would violate. Instead, it merely characterizes publication as a "unilateral determination" which
one must assume violates Article 23. This exemplifies the EC's flight from the text of the DSU
in favor of its generalized approach of divining obligations from slogans.
4.999 In the US view, while it is difficult to re spond to the EC's vague claims that the
publication of a list of products proposed for suspension would violate Article 23, the mere fact
that such lists are not mandated under Sections 301-310 (or even mentioned therein) precludes
any finding of WTO inconsistency. The EC's arguments in response to Panel question 20

Act requires the Minster of Trade and Industry to "notify publicly the contents of the measure" taken
under Article 4 of the Act if the Minister "desires to take a special measure", as well when the measure is
actually taken. See Enforcement Decree of the Foreign Trade Act, http://www.oomph.net/law/html/15-
9.htm (US Exhibit 21). If anything, the Korean law is very clear in requiring publication of the specifics
of its proposed measures. No such requirement is found in Sections 301-310.
495 See e.g. Determinations Under Section 304 of the Trade Act of 1974 With Respect to Certain
Canadian Practices Affecting Periodicals, 62 Fed. Reg. 50651 (1997) (US Exhibit 7); Determinations
Under Section 304 of the Trade Act of 1974: European Communities' Banana Regime, 63 Fed. Reg. 8248
(1998) (US Exhibit 15); Determination Under Section 304 of the Trade Act of 1974: Practices of the
Government of India Regarding Patent Protection fo r Pharmaceuticals and Agricultural Chemicals, 63
Fed. Reg. 29053 (1998)(US Exhibit 16).
496 Determinations Under Section 304 of the Trade Act of 1974: Argentine Specific Duties and
Non-tariff Barriers Affecting Textiles, Apparel, Footwear and Other Items, 63 Fed. Reg. 25539, 25540
(1998) (US Exhibit 22)

provide yet another example of how the European Communities is asking this Panel to make
adverse assumptions concerning how the United States will exercise discretion under
Sections 301-310. If the European Communities believes that publication of a list of products
proposed for suspension would violate US WTO obligations, the European Communities should
wait until the United States actually publishes such a list in a concrete case. Then, it would be
in a position to argue from facts, not assumptions.
(d) President's discretion
4.1000 The European Communities notes that the President has never given the USTR any
general direction to impose trade sanctions only in accordance with the United States'
obligations under international law nor has he ever instructed the USTR in specific cases to do
so.
4.1001 The United States recalls that the European Communities notes that 1988 amendments
to Section 301 transferred from the President to the USTR the authority to determine whether
agreement violations have occurred and what US action to take in response. However, the
European Communities ignores the discretion retained by the USTR in making these
determinations, as well as the continued discretion of the President to intervene under the terms
of the statute. Indeed, the authors of the very article which the European Communities cites for
Section 301's legislative history concluded that the transfer of authority was an "important
symbolic statement" but that
"the change is unlikely to be particularly significant. The Trade Representative
still serves at the pleasure of the President, and therefore is unlikely to take
actions of which the President disapproves".
497
4.1002 The United States argues that a fourth reason Section 306(b) does not violate Section
23.2(c) relates to the EC's disregard for the discretion granted the President under
Section 301(a)(1) to condition – or cancel – any decision to take action. Section 301(a)(1) states
that action taken pursuant to that provision is "subject to the specific direction, if any, of the
President regarding any such action".498 The President may thus dictate the timing of the action,
the conditions under which the action will be given effect, or whether the action will be taken at
all. Thus, the President may, like the USTR herself, specify that action be conditioned upon
DSB approval, or not be taken at all. The United States notes that there is no limitation in the
language of Sections 301-310 on how the President may exercise this discretion.
4.1003 The United States recalls that in its discussion of Section 306(b), the European
Communities refers to this Presidential discretion, where it states that the President has never
given the USTR "any general direction to impose trade sanctions only in accordance with the
United States' obligations under international law, nor has he ever instructed the USTR in
specific cases to do so". Aside from the fact that this statement assumes that the President
would have found it necessary to offer such direction to the USTR, this statement does not

497 Judith Hippler Bello and Alan F. Holmer, The Heart of the 1988 Trade Act: A Legislative
History of the Amendments to Section 301 , 25 Stanford J. Int'l Law 1, 9-10 (1988). The authors were the
USTR General Counsel and Deputy USTR at the time the article was written, and had been deeply
involved in the development of the provisions.
498 Section 301(a)(1), 19 U.S.C. § 2411(a)(1). Section 305(a)(1) also refers to the fact that action
under Section 301 is "subject to the specific direction, if any, of the President regarding any such action".
Section 305(a)(1), 19 U.S.C. § 2415(a)(1).

change the fact that the President is completely free to provide such direction. Again, to meet
its burden, the European Communities must demonstrate that the President could not exercise
the discretion provided for in the statute to direct a WTO-consistent result; it is not sufficient to
assert that the President has not felt the need to do so in the past.499
4.1004 The United States considers that the European Communities attempts to dismiss
Presidential discretion under Section 301 by claiming that such an interpretation is permitted
under the principle set forth in two panel proceedings, United States – Measures Affecting
Alcoholic and Malt Beverages 500 and India – Patent Protection for Pharmaceutical and
Agricultural Chemical Products. 501 However, as is clear from the excerpts quoted by the
European Communities, the principle which these cases emphasize is that the non-application or
non-enforcement of mandatory legislation which otherwise violates trade agreement rules does
not excuse that violation. 502 Non-application or non-enforcement is not at issue in this case.
Before one reaches the question of whether mandatory legislation is not being applied or
enforced, one must first determine that the legislation is mandatory. The European
Communities has failed to do, notwithstanding its bald assertions that Sections 301-310
"explicitly stipulat[e]" or "mandate" WTO-inconsistent determinations and actions.
4.1005 In the US view, the European Communities in particular focuses on the India - Patents
(US) panel report in support of its claim that the "legal uncertainty" at issue in that case is
somehow present here. However, that case involved a question whether, under Indian law, an
administrative practice could legally take precedence over a law which on its face mandated
actions in violation of WTO obligations.503 That is quite a different matter from the question of
whether discretionary language in the statute itself renders it non-mandatory.
4.1006 According to the United States, the European Communities can point to no principle of
US domestic law which would permit the European Communities to excise language from a
statute to suit its convenience, or to examine a statute's meaning based only on selected clauses.
The discretion accorded both the USTR and the President under Sections 301-310 ensures that
the United States government may fully comply with its WTO obligations under all
circumstances. The European Communities ha s therefore failed to meet its burden of
demonstrating that Sections 306 (b) and 305(a) "do not allow" the European Communities to
meet these obligations.
4.1007 Finally, with regard to the "illustration" of the operation of Sections 306(b) and 305(a)
which the European Communities purports to prov ide, the United States reiterates that the EC
challenge to Sections 301-310 is to the statute itself, and not to the application of those
provisions in any particular case.
504 The European Communities explicitly acknowledges that

499 Panel Report on US – Tobacco, op. cit., para. 123.
500 Panel Report on US – Malt Beverages, op. cit.
501 Panel Report on India – Patents (US) , as modified by Appellate Body Report on India –
Patents (US), op. cit.
502 In Panel Report on US – Malt Beverages, op. cit., for example, the panel explained,
"Even if Massachusetts may not currently be using its police powers to enforce this mandatory
legislation, the measure continues to be mandatory legislation which may influence the decisions
of economic operators. Hence, a non-enforcement of a mandatory law in respect of imported
products does not ensure that imported beer and wine are not treated less favourably than like
domestic products to which the law does not apply".
Ibid., para. 5.60. (emphasis added)
503 See India - Patents (US), op. cit., paras. 7.35-7.37.
504 See WT/DS152/11.

its complaint does not address the US measures taken in the context of the EC's failure to
comply with DSB recommendations in the Bananas case, and that those measures are the
subject of a separate dispute. The United States fully intends in the context of that dispute to
rebut any EC claims that the United States did not act in accordance with its WTO
obligations.505
4.1008 The United States also confirms that th e US President can exercise the discretion
granted under Section 301(a)(1) not to take action and under Section 305(a)(1) to direct the
USTR not to implement action taken under Section 301, based upon the fact DSB
recommendations have not yet been adopted or that the DSB has not yet authorized the
suspension of concession.
4.1009 In response to the Panel's question as to whether any "specific directions" have been
given so far by the US President under Sections 301 (a)(1) or 305 (a)(1), the United States states
that no such specific directions have to date been given, but the specific directions may include
a direction to the USTR not to take action.
5. GATT claim
4.1010 The European Communities claims that Section 301(c)(1)(b) allows the USTR to
target either goods or services when determining the actions to be taken in response to a
unilaterally determined failure to implement DSB recommendations. However, according to
Article 22.3 of the DSU, the United States must suspend concessions or other obligations with
respect to goods, in disputes involving trade in goods, except when this is not practical or
effective. This implies that, in disputes involving trade in goods, Sections 306(b) and 305(a)
require the USTR to unilaterally impose measures as a consequence of a unilaterally
 determined
failure to implement DSB recommendations that violate basic provisions of the GATT 1994,
among them Articles I, II, III, VIII and XI.
4.1011 The European Communities explains that Section 301(c) authorizes the USTR to
"suspend, withdraw, or prevent the application of, benefits of trade agreement concessions", and
"impose duties or other import restrictions on the goods of, and … services of such foreign
country for such time as the Trade Representative determines appropriate".
506 T o t h e
knowledge of the Communities, the USTR has not yet made use of the possibility to impose
duties or restrictions on services. If the act, policy or practice of the foreign country violates the
criteria for duty-free treatment under the United States' Generalised System of Preferences, the
Caribbean Basin Economic Recovery Act or the Andean Trade Preference Act, the USTR is
also authorized to withdraw, limit or suspend such treatment.
4.1012 The European Communities argues that in th e case of WTO Members, other than the
beneficiaries of these preference schemes, the imposition of duties or restrictions on the goods
or services under Section 301(c) is bound to be inconsistent with the United States obligations
under the GATT and the General Agreement on Trade in Services (GATS), in particular the

505 Having said this, the United States comments on the quotation from a USTR notice of
October 22, 1998, quoted by the European Communities. That quotation includes the statement "in the
event of an affirmative determination", indicating that the Trade Representative continued to have
discretion not to determine to propose any action. Further, while the statement included a description of
the 30-day deadline in Section 305(a)(1), the language of that provision – and of Section 305(a)(2) – is
the best evidence of its contents.
506 Section 301(c), 19 U.S.C. §2411(c).

most-favoured-nation provisions of these agreements. Only an authorization by the DSB in
accordance with Article 22 of the DSU could possibly justify such measures. However, there is
no provision in the Trade Act of 1974 that makes the retaliatory action of the USTR dependent
on the authorization of the DSB.
4.1013 The European Communities maintains that given that Sections 304(a)(2)(A) and 306(b),
as amended, require the United States to resort to retaliatory trade action within certain time
limits irrespective of the result of WTO dispute settlement procedures, the actions taken in the
area of trade in goods and not authorized pu rsuant to Article 3.7 and 22 of the DSU will
necessarily be in violation of US obligations under one or more of the following GATT
obligations: the Most-Favoured Nation clause (Article I, GATT 1994), the tariff bindings
undertaken by the United States (Article II, GATT 1994), the National Treatment clause
(Article III, GATT 1994), the obligation not to collect excessive charges (Article V III, GATT
1994) and the prohibition of quantitative restrictions (Article XI, GATT 1994).
4.1014 The United States responds that as in its other claims in this dispute, the European
Communities cites discretionary language in Sections 301-310 and then claims it "implies"
mandatory action inconsistent with US obligations. In this case, the European Communities
states in perfunctory fashion that Section 301(c)(1)(b) "allows the USTR to target either goods
or services" and then assumes that this means that USTR must suspend concessions in a manner
inconsistent with Article 22.3. The European Communities asserts that this discretion "implies
that" Sections 306(b) and 305(a) "require" the USTR to violate GATT Articles I, II, III, VIII
and XI.
4.1015 In the view of the United States, for the reasons described in the preceding sections, the
USTR and the President have the discretion not to take any action under Section 306(b) or to
take only those actions authorized in accordance with adopted panel findings or arbitral awards.
The EC's claims with respect to the USTR's discretionary authority in the selection of retaliation
targets in no way suggests that any provision of Sections 301-310 requires the USTR to suspend
concessions, or to suspend concessions in a manner inconsistent with any WTO obligation.
4.1016 The United States further argues that having looked at the text of Article 23.2(a) and
(c), the United States would logically look at the text of GATT Articles I, II, III, VIII and XI.
However, the European Communities itself never even refers to the text of these provisions, and
there is thus little for the United States to rebut. The European Communities never does more
than assert that Sections 304(a)(2)(A) and 306(b) "necessarily" violate these provisions. The
EC's only reasoning is that "certain time limits" create this result. Even if the European
Communities were entitled to make the incorrect assumption that the statute commands
"retaliatory trade action" and that Section 305 is not available to delay such action until receipt
of DSB authorization, the European Communities has failed to offer any legal argumentation as
to how Sections 304(a)(2)(A) and 306(b) are inconsistent with any of these provisions. Indeed,
the European Communities only states that Section 306(b) violates "one or more of these
[GATT 1994] provisions". The European Communities thus cannot even say which of these
provisions has been violated, let alone how. The European Communities may not establish its
prima facie case on the basis of mere assertions such as these. With regard to Article 23.1, as
well, the European Communities has failed to attemp t to make its case, let alone to establish it.
Nothing in Sections 301-310 commands that the USTR not abide by the rules and procedures of
the DSU in seeking redress of WTO violations.
4.1017 The United States further points out that any actions taken pursuant to
Section 301(c)(1)(B) on an MFN basis involving a service sector not subject to a GATS
commitment would not be WTO-inconsistent. Likewise, an MFN-based increase in an unbound

tariff, or an applied tariff that is under the bound rate, would not violate GATT 1994.
Moreover, action taken pursuant to Section 301(c)(1)(D) would not be WTO-inconsistent. This
provision provides for mutually satisfactory agreements and compensation agreements, which
are clearly contemplated in DSU Articles 3.7 and 22.2. Finally, the United States refers to the
fact that neither Section 305 nor any other provision of Sections 301-310 requires the USTR to
suspend concessions without receiving DSB appr oval. Thus, one cannot conclude that the
actions set forth in Section 301(c) are inherently inconsistent with US WTO obligations.
V. THIRD PARTY ARGUMENTS
A. BRAZIL
1. Introduction
5.1 Brazil welcomes the opportunity to present its views to the panel requested by the
EUROPEAN COMMUNITIES to examine Chapter 1 of Title III (Sections 301-310) of the US
Trade Act of 1974, as amended.
5.2 Brazil indicates that its interest in this case derives from the possible effects of this
legislation on its rights and obligations as a Member of the WTO, as well as from its wider
interest in the integrity of the multilateral trading system itself.
5.3 In Brazil's view, the European Communities makes exception to the operation of
Section 306 in the dispute on the implementation of recommended changes to the EC's banana
regime. The European Communities, however, has made it clear that it did not request this
panel to rule on the measures taken in connection with that specific dispute, but rather on the
compatibility of US law as such with US obligations under the WTO Agreements.
5.4 Brazil also takes the view that a law that is inconsistent with the obligations of a
Member under the WTO Agreements can be challenged under the dispute settlement
procedures. The issue before the panel is not the application of Sections 301-310 in a particular
instance, but rather the need to bring the law in to conformity with relevant WTO provisions, as
provided in Article XVI:4 of the WTO Agreement.
5.5 Brazil recalls that the European Communities bases its claims on three premises:
(a) WTO agreements cannot provide security and predictability unless Members
settle all their trade disputes in accordance with the procedures of the DSU;
(b) WTO agreements cannot provide security and predictability unless Members
bring their law into conformity with their obligations under those agreements;
and
(c) The United States failed to bring Sect ions 301-310 into conformity with its
obligations under the WTO agreements.

5.6 According to Brazil, to these grounds of action, the European Communities applies
relevant provisions of the WTO Agreements, supplemented by the legal history and experience
under the GATT 1947.507
5.7 Brazil also notes that the European Communities concludes that Sections 302(a)(2)(A),
305(a) and 306(b) are inconsistent with Article 23 of the DSU because they require the USTR to
make unilateral determinations to the effect that a violation has occurred and to act upon such
determination, without regard to the rules and procedures of the DSU. It further concludes that
Section 306(b) of the Trade Act of 1974 is inconsistent with Articles I, II, III, VIII and XI of the
GATT 1994 because, in the case of disputes involving trade in goods, it requires the USTR to
impose duties, fees or restrictions that violate one or more of these provisions. Finally, the
European Communities considers that, by failing to bring the Trade Act of 1974 into conformity
with those provisions of the WTO Agreements, the US acted inconsistently with Article XVI:4
of the WTO Agreement.
2. Legal Arguments
(a) Article XVI:4 of the WTO Agreement
5.8 Brazil recalls that the European Communities draws a distinction between mandatory
and discretionary actions under Sections 301-310. The European Communities then proceeds to
claim that those sections which require actions that are in themselves contrary to WTO
provisions – unilateral determinations to the effect that a violation has occurred and that benefits
have been nullified or impaired, or that measur es taken to comply with findings adopted by the
DSB are not satisfactory – as well as those actions which the USTR will be required to perform
under certain circumstances – "further actions" in cases where a unilateral determination of non-
compliance is made – amount to violations of various provisions of the WTO Agreement and
thereby nullify or impair benefits accruing to the European Communities under the DSU, the
GATT 1994 and the WTO Agreement.
5.9 In Brazil's view, the European Communities has placed undue emphasis on previous
GATT practices and decisions, such as the 1987 panel on United States – Taxes on Petroleum
and Certain Imported Substances,508 the 1989 panel on United States – Section 337 of the Tariff
Act of 1930 ,509 and the 1992 panel on United States – Measures Affecting Alcoholic and Malt
Beverages.510 Under GATT 1947 – and no doubt under the influence of the Protocol of
Provisional Application – only mandatory legislation was found liable to a judgement of
inconsistency by a panel. It should be noted, however, that even then, a mandatory law that was
not enforced was found to constitute a violation of GATT obligations.
5.10 Brazil argues that it would be wrong to assume that this part of GATT 1947 practice
was carried into the WTO unchanged. Article XVI:1 of the WTO Agreement, which is the
foundation for incorporating the legal history and experience under the GATT 1947 into the
WTO,511 contains a proviso:

507 Brazil refers to the GATT acquis, as defined by the Appellate Body in Japan – Alcoholic
Beverages II, op. cit., p. 14
508 Panel Report on US – Superfund, op. cit.
509 Panel Report on US – Section 337, op. cit.
510 Brazil also refers to the Panel Report on India – Patents (US), op. cit.
511 Brazil refers to the Appellate Body Report on Japan – Alcoholic Beverages, op. cit., p. 14.

"Except as otherwise provided under this Agreement or the Multilateral Trade
Agreements, the WTO shall be guided by the decisions, procedures and
customary practices followed by the GATT CONTRACTING PARTIES and
the bodies established in the framework of GATT 1947". (emphasis added)
5.11 Brazil contends that the adoption of Article XVI:4 should lead to a review of previous
practice. It states unequivocally that:
"Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed
Agreements".
5.12 Brazil points out that GATT 1947 had no equivalent provision. To interpret
Article XVI:4 in the old spirit would be to deprive it of meaning.
5.13 In Brazil's view, whilst the European Communities may have restrained its claims, it
would be clearly out of order to deduct from such restraint new terms of reference for the Panel,
as the United States would have it. The task before the Panel still is "to examine, in the light of
the relevant provisions of the covered agreements cited by the European Communities in
document WT/DS152/11, the matter referred to th e DSB in that document and to make such
findings and recommendations as will assist the DSB in making the recommendations or in
giving the rulings provided for in those agre ements". The matter referred by the European
Communities is whether Sections 301-310 of the US Trade Act of 1974 is inconsistent with
various provisions of the DSU, the WTO Agreement and GATT 1994. This is the burden of
proof incumbent upon the European Communities. The European Communities did not request
a ruling on the consistency of Sections 301-310 with previous GATT practice, let alone with the
US interpretation of what such previous practice meant.
5.14 Brazil recalls that the United States bases its rebuttal solely on GATT 1947 practice.
According to the United States, previous panels had come to the conclusion that (1) only
mandatory legislation may be found inconsistent with WTO obligations and (2) legislation must
not only be mandatory, it must preclude a Member from acting consistently with those
obligations. The United States then proceeds to claim that in effect the whole of Sections 301-
310 is either discretionary or mandates action that may, at times, be WTO consistent.
5.15 Brazil disagrees with the notion that GATT practice was carried unchanged into the
WTO. Brazil disapproves even more of the proposition that no law may be found inconsistent
unless "it does not allow" a government to act in accordance with its WTO obligations, in
particular if "does not allow" is understood as "never allows". If such had been the practice in
the past, the argument to the effect that Article XVI:4 of the WTO Agreement has abrogated
jurisprudence in this respect becomes even mo re compelling than it already is. There is no
possible interpretation of Article XVI:4, in light of the criteria laid down in Article 31 of the
Vienna Convention on the Law of Treaties, that would warrant such an extravagant reading.
512

512 Article 31 of the Vienna Convention on the Law of Treaties establishes that "a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in
their context and in the light of its object and purpose". It is extremely hard to conceive that the
"ordinary" meaning of "ensure the conformity of its laws, regulations and administrative procedures with
its obligations as provided in the annexed Agreements" could be construed as merely not precluding a
Member from acting in conformity with its obligations at all times, as the Untied States argues, or as

5.16 Brazil argues that it is worth noting that the US First Submission did not reply to the
EC's claim of violation of Article XVI:4. The United States invoked "past practice", and
claimed that the European Communities has not proven that Sections 301-310 are mandatory in
a way that precludes WTO-consistency at all times and "deducts" that Sections 301-310 are
therefore consistent with Article XVI:4. Thus, at a stroke, almost extempore, past practice
developed in the absence of any provision similar to Article XVI:4 is used to interpret
Article XVI:4 of the WTO Agreement, in a way which would render it meaningless. In addition
to the questionable validity of the premises, this is a good example of the logical fallacy known
as ignoratio elenchi: arguing for one thing as if it proved another thing.
5.17 Brazil notes that the European Communities recognizes that "[Article XVI:4] is not a
'best endeavors' clause, applicable only to cases where changes to domestic laws are required,
but an unqualified obligation". Article XVI:4 requires that internal law be brought into
conformity with obligations under the WTO Agreements.
5.18 Brazil recalls that Article 22 of the Agreement on Implementation of Article VII of the
GATT 1994 contains a similar provision:
"Each Member shall ensure, not later than the date of application of the
provisions of this Agreement for it, the conformity of its laws, regulations and
administrative procedures with the provisions of this Agreement".
5.19 Brazil contends that if a WTO Member country were to include in its legislation on
customs valuation a section "authorizing", but not requiring, Customs "to make a determination,
based on an investigation initiated at the request of a private party, determining that the
importation of goods below a certain price would be unreasonable and burden or restrict" that
Member's commerce, such a provision would be consistent with Article 22 of the Agreement on
Customs Valuation and with Article XVI:4 of the WTO Agreement. Or the uncertainty that
would ensue from such an "authorization" would not be deemed unacceptable. Yet, the
Agreement on Implementation of Article VII of the GATT 1994 is not "a central element
providing security and predictability to the multilateral trading system". The DSU, however,
is.
513
5.20 Brazil notes that its argument is far from stating that any law authorizing actions that
might result in violations of the WTO Agreements would, in themselves, be inconsistent with
obligations under those Agreements. The dichotomy suggested by the United States is a non
sequitur. What is necessary, is lawful. For example, in the Agreement on the Application of
Sanitary and Phytosanitary Measures, one of the basic obligations is that "Members shall ensure
that any sanitary or phytosanitary measure is applied only to the extent necessary to protect
human, animal or plant life or health, is based on scientific principles and is not maintained
without scientific evidence, except as provided".
514 No internal law could, however, be drafted
in a manner that would a priori ensure conformity with WTO obligations without impinging
upon "the right to take sanitary and phytosanitary measures necessary for the protection of

providing the possibility for authorities to avoid WTO-inconsistent actions, as the United States also
argues.
513 DSU, Article 3.2.
514 SPS Agreement, Article 2.2.

human, animal or plant life or health". 515 In such cases, conformity must necessarily be
assessed in relation to specific measures, on a case by case basis.
5.21 Brazil argues that the distinguishing feature of Section 301(b) is that if any action is
ever undertaken under its authority, it will necessarily lead to violations of GATT and GATS,
including, inter alia , the most-favored-nation provisions of those agreements. In addition to
that, there are no legitimate "reserved domain" considerations that might justify it. Legislation
whose only possible application is the threat of illegal WTO action can hardly be deemed to be
compatible with Article 23 of the DSU and with Article XVI:4 of the WTO Agreement.
5.22 Brazil points out that as regards Section 301(a), the question is not whether it precludes
at all times WTO-consistent actions, but rather whether it mandates actions which will
eventually result in WTO violations.
5.23 According to Brazil, it has been noted that "arising from the nature of treaty obligations
and from customary law, there is a general duty to bring internal law into conformity with
obligations under international law … however, in general a failure to bring about such
conformity is not in itself a direct breach of international law, and a breach arises only when the
state concerned fails to observe its obligations on a specific occasion. … In some circumstances
legislation could of itself constitute a breach of a treaty provision and a tribunal might be
requested to make a declaration to that effect".
516 Article XVI:4 requires that legislation be
brought into conformity, and failure to do so is in itself a breach of the WTO Agreement. There
is no need to look at any specific cases, or to the mandatory of discretionary nature of the
legislation.
5.24 Brazil further argues that in any event, the bona fide argument with regard to the non-
violation status of a discretionary law rests solely on its non-utilization.517 This is not, however,
the intention of the United States. To invoke the "discretionary" label as its defense, whilst
pronouncing its intention to utilize the law, can hardly be deemed as an act in good faith.
5.25 In Brazil's view, lest there be any doubt, the Statement of Administrative Action which
accompanies the Uruguay Round Agreements Act, 518 and which represents "an authoritative
expression by the Administration concerning its views regarding the interpretation and
application of the Uruguay Round Agreements, both for purposes of US international
obligations and domestic laws", 519 gives notice of the "Administration's intent to expand the
focus of possible action under Section 301 to areas that are not within the scope of US
obligations under the Uruguay Round Agreements".520
5.26 Brazil notes that this "expansion of focus" is explained in further detail:
"The Administration intends to use section 301 to pursue vigorously foreign
unfair trade barriers that violate US rights or deny benefits to the United States

515 Ibid. Article 2.1.
516 Brownlie, Ian, "Principles of Public International Law", 5 th ed. (Oxford University Press,
1998), pp. 35-36.
517 Brazil points out that this was the argument invoked by the United States in US – Superfund
panel (Panel Report on US – Superfund , op. cit., para. 3.2.13) and in the US – Tobacco panel (Panel
Report on US – Tobacco, op. cit., para. 45).
518 Section 101(a)(2)
519 Statement of Administrative Action, op. cit., Introduction, third paragraph.
520 Statement of Administrative Action, op. cit., page 358 (Authority under Section 301)

under the Uruguay Round Agreements. The Administration equally intends to
use section 301 to pursue foreign unfair trade barriers that are not covered by
those agreements".521
"Neither section 301 nor the DSU will require the Trade Representative to
invoke DSU dispute settlement procedures if the Trade Representative does not
consider that a matter involves a Uruguay Round Agreement. Section 301 will
remain fully available to address unfair practices that do not violate US rights
or deny US benefits under the Uruguay Round Agreements and, as in the past,
such investigations will not involve rec ourse to multilateral dispute settlement
procedures…. For example, with minor exceptions, the Uruguay Round
Agreements do not address government measures that encourage or tolerate
private, anticompetitive practices.…. Section 301 will also remain available to
address persistent patterns of conduct by foreign governments that deny basic
worker rights and burden or restrict US commerce…. Moreover, the mere fact
that the Uruguay Round agreements treat a particular subject matter – such as
intellectual property rights – does not mean that the Trade Representative must
initiate DSU proceedings in every section 301 investigation involving that
subject matter. In the event that the actions of the foreign government in
question fall outside the disciplines of those agreements, the section 301
investigation would proceed without recourse to DSU procedures".522
5.27 Brazil then recalls the scope of authority available to the US Administration to proceed
without recourse to DSU procedures in Section 301(c):
"For purposes of carrying out the provisions of subsections (a) or (b), the Trade
Representative is authorized to –
(A) suspend, withdraw, or prevent the application of, benefits of trade
agreement concessions to carry out a trade agreement with the foreign country
referred to in such subsection;
(B) impose duties or other import restrictions on the goods of, and,
notwithstanding any other provision of law, fees or restrictions on the services
of, such foreign country for such time as the Trade Representative determines
appropriate…".
5.28 Brazil contends that in other words, to pursue the removal of practices that do not
violate US rights, the US threatens to violate the rights of WTO Members.
5.29 Brazil argues that it would have been positively anomalous to include a provision in the
DSU stating that WTO Members would have to make recourse to a panel and to the DSB to
make a determination of non-violation. Yet, the United States seems to use this as a pretext for
unilateral action. WTO Members are, of course, entitled to make unilateral determinations of
non-violation and of any interests they may have that are not currently covered by the WTO

521 Statement of Administrative Action, op. cit., page 364 (Enforcement of US Rights) (emphasis
added).
522 Statement of Administrative Action, op. cit., page 366 (Enforcement of US Rights)(emphasis
added).

Agreements. What they may not do in such instances is to take unilateral action equivalent to
that foreseen under Article 22 of the DSU.
5.30 Brazil stresses that WTO Members are entitled, in accordance with Article 23 of the
DSU, not to be subject to suspension of concessions unless "the Member concerned fails to
bring the measure found to be inconsistent with a covered agreement into compliance therewith
or otherwise comply with the recommendations and rulings within the reasonable period of
time".523 A fortiori, they are entitled not to be subject to suspension of rights and concessions in
the absence of a determination of violation by the DSB.
5.31 Brazil further asserts that along the same lines, it is a well recognized general principle
of law that a prohibition to do less encompasses a prohibition to do more. The United States
would turn the principle upside down: where the United States has a right, arising from denial of
benefits under the WTO Agreements, the Statement of Administrative Action acknowledges the
limits for action imposed by the DSU. Yet, it unaccountably comes to the conclusion that in
cases where it has no rights, it faces no limits under the DSU.
5.32 According to Brazil, the fact that the USTR is not required to take action in such
circumstances at all times should not shield it from a judgement of non-compliance with its
WTO obligations. As stated by the European Communities, "a party does not act in good faith if
it accepts an obligation stipulating one behavior, but adopts a law explicitly stipulating another.
The fact that it might exceptionally apply that law in a way that is not inconsistent with its WTO
obligations does not affect the above conclusion, particularly where there is no legal entitlement
to obtain such an exceptional 'act of grace'".
5.33 Brazil recalls that in 1988 the United States threatened and then imposed sanctions, in
the guise of 100 per cent duties against imports of more than 20 products from Brazil under
Section 301, in a determination of "unreasonable measures" related to patent protection for
pharmaceuticals. The sanctions remained in place for two years, and were only lifted after
Brazil undertook to grant patent protection to pharmaceutical products.
5.34 Brazil emphasizes that the issue before this Panel is not the application of Section 301,
but its inherent inconsistency with the WTO obligations of the United States. This example is
given as background, which the panel may wish to consider in connection with the US assertion
that "it was consistent US practice, even before the conclusion of the Uruguay Round, to rely on
dispute settlement results when determining whether US agreement rights were denied". In the
case involving Brazil, no US rights under any agreement had been denied. This may have given
the USTR a sense of unbounded freedom to act as it did in violation of Brazil's rights under the
GATT 1947.
5.35 According to Brazil, the freedom to threaten to negate unilaterally the benefits of WTO
Agreements may be effective,
524 but it is not compatible with a rule-based multilateral trading
system. The system cannot survive if its most powerful Members wish to enjoy its benefits, but

523 DSU, Article 22.2.
524 According to Brazil, a lawyer is quoted by Jackson as finding the procedure useful: "In
practice, a petition filed under Section 301 by a privat e party carries an effective threat of potential
retaliation, combined with the threat of adverse publicity and a general souring of trade relations. These
potential ramifications alone may bring the offending government to the bargaining table". John H.
Jackson, "The World Trading System", 2
nd edition (MIT Press, 1997), p.131.

reject its responsibilities: qui habet comoda, ferre debet onera .525 Brazil recalls the following
dictum of the Permanent Court of Justice in Certain German Interest in Polish Upper Silesia:
"The Court is certainly not called upon to interpret the Polish law as such; but
there is nothing to prevent the Court's giving judgement on the question
whether or not, in applying that law, Poland is acting in conformity with its
obligations towards Germany under the Geneva Convention".526
5.36 Brazil contends that in those cases under the GATT 1947 when a law was found to be
inconsistent with GATT obligations, a prospective judgement on the application of the law was
made, in contrast with the retrospective judgement made with regard to specific measures.
There is nothing to prevent the same prospective judgement of the discretionary sections of a
law, specially when the application of that law will necessarily lead to violation of the WTO
Agreements.
(b) Distinction between mandatory law and discretionary law
5.37 Brazil further contends that even if the panel were to find incorrectly that the distinction
established by previous GATT panels regarding mandatory versus discretionary legislation
remains valid, it should flatly reject the US interpretation of such past practice. The United
States alleges that "legislation explicitly directing action inconsistent with GATT principles
does not mandate inconsistent action so long as it provides the possibility for authorities to
avoid such action" and cites, as the basis for this extraordinary conclusion, excerpts of the panel
reports on United States – Taxes on Petroleum and Certain Imported Substances ,
527 Thailand –
Restrictions on importation of and Internal Taxes on Cigarettes 528 and United States – Measures
Affecting the Importation, Internal Sale and Use of Tobacco.529
5.38 Brazil argues that none of the panels cited came to the conclusion espoused by the
United States. The US – Superfund panel gave US authorities the benefit of doubt, pending the
completion of the applicable legislation. It did not say that the US tax authorities could retain
forever the discretion to deny the equivalence prescribed in Article III:2 of GATT. In fact, the
panel recommended that the CONTRACTING PARTIES "take note of the statement by the
United States that the penalty rate would in all probability never be applied".
530 WTO Members
might take some solace if the United States were to argue, in these panel proceedings, that the
WTO-inconsistent provisions of Sections 301-310 would in all probability never be applied. In
that case, however, the assertion would have to be pondered against the evidence of the views
presented in the Statement of Administrative Action.
5.39 Brazil further alleges that the panel on United States – Measures Affecting the
Importation, Internal Sale and Use of Tobacco came to a similar finding. Given that the United
States had as yet neither changed the fee stru cture nor promulgated rules implementing Section
1106(c), it gave the United States the benefit of doubt, in light of its declared intention to
promulgate regulations that would be GATT-consistent:

525 In Brazil's view, one who has the advantages must also bear the burdens.
526 PCIJ Rep., Series A, Nº 7, p. 19
527 Panel Report on US – Superfund, op. cit.
528 Panel Report on Thai – Cigarettes, op. cit.
529 Panel Report on US – Tobacco, op. cit.
530 Panel Report on US - Superfund, op. cit., para. 5.2.10.

"The United States had indicated that it was the intention of the U.S.
Government and the requirement of U.S. law that any new inspection fees
promulgated by USDA would be commen surate with the cost of services
rendered. The United States had further indicated that the amendment requiring
the fees for inspecting imported tobacco to be comparable to those imposed on
domestic tobacco did not require the fees to be identical and did not preclude a
fee structure under which the fees for inspection of imports were less than those
imposed on domestic products and at the same time commensurate with the cost
of services rendered".
531
5.40 In the view of Brazil, the example of the panel on Thailand – Restrictions on
importation of and Internal Taxes on Cigarettes 532 is even less appropriate. In this case,
regulations had already been issued stipulating that an excise tax would be applied to domestic
and imported cigarettes at a single rate of 55 per cent.
533 Thus, in reading the conclusion cited
by the United States, it must be borne in mind that whilst the Thai Tobacco Act continued to
enable the executive authorities to levy discriminatory taxes, regulations already issued
prevented such discrimination.
5.41 According to Brazil, no GATT panel has ever come to the conclusions alleged by the
United States. Under GATT 1947, panels made a distinction regarding mandatory and
discretionary legislation, but mandatory was never understood as "precluding all possibility of
consistency" at all times.
5.42 In Brazil's view, the US arguments therefore attempt to introduce a confusion with
regard to the seemingly clear meaning of "mandato ry". In addition to that, it also attempts to
confuse the meaning of "discretionary". Thus, the United States argues that "the Trade
Representative has substantial discretion, including discretion to take no action at all. The Trade
Representative is explicitly not required to take action: (1) when the DSB has adopted report
findings that US rights have not been violated; (2) when the foreign country "is taking
satisfactory measures to grant the rights of the United States under a trade agreement", has
agreed to eliminate or phase out the practice which violated US rights, or has agreed to provide
compensation; (3) when action would have "an adverse impact on the United States economy
substantially out of proportion to the benefits of such action;" (4) or when action would cause
"serious harm to [US] national security".
5.43 Brazil further argues that apart from noting that the heading under which these
provisions are listed is entitled "Mandatory action", one must also recall that, to the extent that
past practice is invoked as relevant to discern the content of treaty obligations, its concepts must
also be interpreted in good faith, in accordance with the ordinary meaning of the terms.
5.44 Brazil points out that according to Black's Law Dictionary,
534 "when applied to public
functionaries, discretion means a power or right conferred upon them by law of acting officially
in certain circumstances, according to the dictates of their own conscience uncontrolled by the
judgement or conscience of others". If a condition must be fulfilled before the effect can follow,
the preceding definition is not applicable. If the lack of action is made contingent upon a WTO

531 Panel Report on US - Tobacco, op. cit., para. 122.
532 Panel Report on Thai – Cigarettes, op. cit.
533 Ibid. para. 43.
534 Black's Law Dictionary, Revised 4th edition (West Publishing Co., 1968).

Member, for instance, "agreeing to an imminent solution to the burden or restriction on United
States commerce",535 the "discretion" takes on a very special meaning.
5.45 Brazil concludes that ex re sed non ex nomine is a principle of good faith. This principle
precludes, inter alia, a party from using the form of the law to cover the commission of what in
effect is an unlawful act.
(c) Other arguments
5.46 Brazil further argues that there are other elements to be noted. The first is that the
"logical way forward" adopted in the banana s III arbitration is no t a precedent for the
interpretation of the sequence between Articles 21.5 and 22 of the DSU. Brazil also strongly
disagrees with the US assertion that the DSB "implicitly rejected" the views of the majority of
Members of the WTO concerning Article 21.5. The principle of automaticity prevented the DSB
from doing otherwise. It would suffice, nevertheless, to read the long records of minutes related
to the bananas III dispute to confirm that there never was any implicit rejection of the obligatory
sequence.
5.47 Brazil also notes the concept put forward by Hong Kong, China, concerning third party
or multilateral adjudication. This is exactly what Brazil expected from the DSU and why, as
Korea, Brazil believed that the single undertaking of the Uruguay Round was a beneficial
package for a developing country like Brazil. Brazil did not sign on to the WTO Agreement to
be the object of unilateral determinations of non-compliance.
5.48 Brazil points out that the third is related to the impact of the US legislation and the US
concern that the Panel is being asked to emit a political declaration.
5.49 Brazil emphasizes that when it discusses this case, although it is not dealing with a
specific application of the legislation, it addresses the question of retaliation, and the impact of
potential retaliation, and Korea has illustrated this point very clearly. In other words, the US
legislation under examination is a unilateral instrument for exerting political and economic
pressure. While Brazil agrees that the Panel should not engage in a debate about the popularity
of the US law, the Panel should not disregard the impact of Sections 301 to 310 of the Trade Act
of 1974 on WTO rights and obligations because of its political connotations.
5.50 Brazil summarises its view as follows: There is an irreconcilable conflict between those
provisions of Sections 301-310 of the Trade Act of 1974 which mandate or authorize actions
that are illegal under the WTO and Article 23 of the DSU and Article XVI:4 of the WTO
Agreement. Brazil believes, therefore, that the panel should affirm that Members have an
unqualified obligation to bring their legislation into conformity with WTO provisions.
3. Conclusion
5.51 Brazil recalls that the United States may claim a large part of the merit for the improved
dispute settlement procedures of the WTO. In the course of the negotiations, it overcame many
objections, included those which were initially held by Brazil. Brazil's reluctance was based on
fear that the major trading partners would require compliance by smaller countries, whilst
refusing themselves to be bound by the stricter dispute settlement rules.

535 Section 301 (a)(2)(B)(ii)(II).

5.52 Brazil also notes that the WTO dispute settlement system may still yield benefits
approaching those of a fully binding procedure, without unduly encroaching upon the
sovereignty of Members. It would be ironic if the dispute settlement system which the United
States fought so hard to establish were to be discredited by the refusal of the United States to
apply its provisions in good faith.
5.53 In Brazil's view, there are parts of Sections 301-310 which serve a useful purpose, as a
delegation of competence from the United States Congress to the Executive branch and as a
procedure for the initiation of citizens' complaints.
5.54 Brazil also considers, however, that there is an irreconcilable conflict between those
provisions which mandate or authorize actions that are illegal under the WTO and Article 23 of
the DSU and Article XVI:4 of the WTO Agreement. It therefore believes that the Panel should
not limit its findings to a restatement of traditional GATT practice, but should affirm that
Members have an unqualified obligation to bring their legislation into conformity with WTO
provisions.
B. C
ANADA
1. Introduction
5.55 Canada welcomes the opportunity to participate in this Panel established pursuant to
the European Commission's request for the establishment of a panel under the Dispute
Settlement Body of the World Trade Organizati on regarding Sections 301-310 of the US Trade
Act of 1974. In this context, Canada wishes to highlight its specific concerns with respect to
Sections 301-310 of the Trade Act of 1974 (collectively referred to as "301 legislation") in the
form of a "third party" submission pursuant to Article 10 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes.
5.56 Canada firmly believes that disputes arising between Members concerning WTO
obligations should be addressed within the parameters established by the DSU. In Canada's
view, the application of 301 legislation that results in unilateral imposition of retaliatory
measures in response to WTO violations, whether alleged or established, without obtaining the
requisite authorization for such retaliatory measures from the WTO Dispute Settlement Body
violates the DSU specifically and multilateralism in general. This threatened and actual use of
unilateral sanctions is fundamentally incompatible with the multilateral trading system and
threatens the overall stability and viability of the WTO dispute settlement regime.
5.57 As a preliminary matter, Canada would note that it appreciates that 301 legislation may
be applied to situations arising under trade agreements other than the WTO, to countries that are
not WTO Members or to situations that are not subject to WTO obligations. Canada appreciates
that those situations are not subject to WTO dispute settlement proceedings unless they
somehow violate obligations owed to WTO Me mbers. Accordingly, Canada's present
submissions are not directed to those situations.

2. Measures at Issue
5.58 Canada explains that Section 301(a)(1) of the Trade Act of 1974 requires the USTR to
determine536 whether an act, policy or practice of a foreign country violates or denies the
benefits or rights of the United States under any trade agreement or places an "unjustifiable"
burden or restriction on US commerce.
5.59 In Canada's view, the Section 301 legislation combines mandatory and discretionary
elements. Actions leading to the imposition of trade sanctions pursuant to section 301 can begin
either as the result of a petition filed by an interested person
537 or as a result of an investigation
initiated by USTR.538 USTR is not obliged to initiate an investigation requested by a petitioner
but if a decision is made not to do so, USTR must publish a notice in the Federal Register that
contains a summary of the reasons for not initiating an investigation.539
5.60 Canada points out that there are essentially two types of matters that are actionable
under section 301(a). The first type is a denial of benefits under, or a violation of a trade
agreement,540 including the WTO Agreements. The other type of matter which is actionable
under section 301 is whether an act, policy or practice of a foreign country is unjustifiable and
burdens or restricts United States commerce.541
5.61 Canada stresses that 301 legislation sets out specific and definitive time frames within
which certain actions must occur. Examples of this include the following:
(a) Where an alleged violation of a trade agreement is the subject matter of the
investigation and a mutually acceptable resolution cannot be reached within the

536 Canada points out that Sections 301 to 310 of the Trade Act of 1974, as amended, calls for
the making of numerous "determinations". These represent more than mere statements of policy or
negotiating positions. The outcome of these determinations are formal acts of the United States
Government and result in the legal consequences set out in the legislation.
537 Section 302(a)(1) of the Trade Act of 1974, as amended.
538 Section 302(b)(1)(A) of the Trade Act of 1974, as amended.
539 Section 302(a)(3) of the Trade Act of 1974, as amended.
540 Section 301(a)(1)(A) and 301(a)(1)(B)(i) of the Trade Act of 1974, as amended.
541 Section 301(a)(1)(B)(ii) of the Trade Act of 1974, as amended. Canada notes that, pursuant
to Section 301(d)(2), an act, policy or practice that burdens or restricts United States commerce is defined
as including acts, policies or practices defined as "unreasonable" under section 301(d)(3)(B)
notwithstanding that such matters may not be inconsistent with the international legal rights of the United
States. Section 301(d)(3)(B) is not an exclusive definition so it is not possible to determine from it what
other actions might subject a country to US trade sanctions notwithstanding that the country is not in
violation of international law. Canada further notes that the second type of actionable matters (i.e. acts,
policies or practices considered to be unjustifi able and which burdens or restricts United States
commerce) includes matters which the United States consider to deny fair and equitable provision of
adequate and effective intellectual property rights "notwithstanding the fact that the foreign country may
be in compliance with the specific obligations of the Agreement on Trade-Related Aspects of Intellectual
Property Rights …" negotiated pursuant to the Uruguay Round. Accordingly, 301 legislation exposes
foreign countries to US trade sanctions for perceived intellectual property wrongs even though that
country is living up to the commitments that WTO Members agreed to in the negotiations leading to the
Agreement on Trade-Related Aspects of Intellectual Property Rights.

time frames noted in the legislation, 542 USTR is obligated by the statute to
promptly initiate dispute settlement procedures under the trade agreement.
(b) In the case of an investigation subject to dispute settlement procedures under a
trade agreement, USTR must make a determination as to whether the matter in
issue is "actionable" under section 301 within specific time frames.543
(c) Where USTR determines that a matter is actionable under section 301
retaliatory action must normally be implemented no more than 30 days after
making that determination.
544
5.62 Canada explains that in the case of implementation of WTO dispute settlement
recommendations, where USTR considers that a WTO Member has failed to implement a
recommendation made pursuant to a WTO dispute settlement proceeding, USTR is required
within 30 days of the expiration of the reasonable period of time established pursuant to
Article 21 of the DSU to determine what further action USTR shall take under section 301(a).
545
5.63 Canada notes that the provisions in question use the mandatory verb "shall". The
burden of demonstrating that any action referred to in these provisions is not mandatory in US
law falls upon the United States.
5.64 Canada specifically argues that Section 304(a)(2) of the Trade Act of 1974 requires that
the USTR determination of whether US rights are being denied must be made by the earlier of
thirty days after the conclusion of formal dispute settlement procedures or eighteen months after
the date of the initiation of the Section 301 investigation.
5.65 According to Canada, while it is certainly possible for WTO dispute settlement
procedures to be completed within 18 months, WTO practice demonstrates that factors such as
delays in panel selection, extension of time frames by panels or the Appellate Body and delays
in translation and other logistical matters can and do result in disputes not being determined
within a 18 month time frame.
5.66 Canada further points out that an affirmative determination pursuant to section
304(a)(2) requires USTR to impose sanctions set out in section 301(c) which must normally be
implemented no later than thirty days after making that determination.
546 Once again Canada
notes that the legislation uses the word "shall".
5.67 Canada notes that USTR retaliatory authority under section 301 to (i) suspend,
withdraw or prevent the application of benefi ts of trade agreement concessions; (ii) impose
duties or other import restrictions on the goods of the foreign country for such time as USTR

542 Canada notes that it is the earlier of (i) the close of any consultation period specified in the
trade agreement; and (ii) 150 days after the day on which consultations was commenced. See
Section 303(a)(2) of the Trade Act of 1974, as amended.
543 Canada notes that it is the earlier of (i) thirty days after the conclusion of formal dispute
settlement procedures; and (ii) eighteen months after the date of the initiation of the Section 301
investigation. See 304(a)(2) of the trade Act of 1974, as amended.
544 Canada notes that this can be delayed by a maximum of 180 days where the specific
circumstances cited in section 305(2)(A) occurs.
545 Section 306(b)(2) of the Trade Act of 1974, as amended. Canada notes that it is noteworthy
that section 301(a) is entitled "Mandatory Action".
546 Sections 301(a)(1) and 305(a)(1) of the Trade Act of 1974, as amended. See also footnote 9.

determines appropriate; or (iii) enter into agreements with the foreign country to eliminate the
act, policy or practice that is the subject of the determination or provide the United States with
compensatory trade benefits 547 is subject to the direction, if any, of the President. While this
provision of section 301(a)(1) concerning the direction of the President may create an ability for
the President to formally direct the type of sanction applied, it does not remove the legislative
requirement for the US executive branch to act. Section 301(b) clearly does remove the
requirement to act in the circumstances set out in that section. If the provision that allows the
President to make a specific direction concerning the action to be taken was intended to include
an ability to override the requirement otherwise imposed by the US Congress that intention
would have been expressly stated as was done in section 301(b).
3. Legal Arguments
5.68 Canada contends that the requirement that retaliatory measures be implemented where
an affirmative determination is made by the USTR pursuant to section 304 is not contingent in
any way on the approval for such action by the WTO's Dispute Settlement Body ("DSB").
Where the statutory deadlines contained in section 304(a)(2) expire prior to authorization by the
DSB for retaliation pursuant to Article 22 of the DSU, the USTR is nonetheless required to
determine the appropriate retaliatory action to take against the offending Member. While the
DSU notes that the "prompt" settlement of disputes between Members is essential to the
effective functioning of the WTO and the maintenance of a proper balance between the rights
and obligations of Members, the resolution of a dispute may not be achieved within the
deadlines contained in section 304(a)(2).
5.69 According to Canada, where an affirmative determination has been made pursuant to
section 304(a)(2), then section 305(a)(1) becomes operative. Under that provision, the action
determined to be appropriate under section 304(a)(1) becomes mandatory. That action must
occur on or before 30 days of the section 304(a)(1) determination.
5.70 Canada further argues that similarly, the implementation of retaliatory measures
directed against a WTO member by means of section 306(b) and 301(a) in the absence of the
approval of such measures by the DSB would clearly be in contravention of DSU Article 23.
This determination by USTR leads to the implementation of retaliatory measures directed
against the foreign country within thirty days regardless of whether or not the other Member has
been found under WTO procedures to not be in compliance with the recommendations and
rulings adopted by the DSB. The result would be that retaliation that has not been authorized by
the DSB.
5.71 In Canada's view, the plain language of Article 23 contains an obligation by WTO
Members to refrain from unilateral action. Article 23(1), entitled Strengthening the Multilateral
System, states:
"When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they
shall have recourse to, and abide by, the rules and procedures of this
Understanding". (emphasis added)

547 Section 301(c) of the trade Act of 1974, as amended.

5.72 Canada further alleges that Article 23 of the DSU obligates Members to employ the
procedures contained in the DSU to remedy alleged or established WTO obligations.
Retaliatory action taken pursuant to Section 301 legislation prior to the approval of the DSB
violates DSU Article 23(2)(a) which states that WTO Members "shall not make a determination
to the effect that a violation has occurred ... except through recourse to dispute settlement in
accordance with the rules and procedures of this Understanding". A Member that makes a
determination unilaterally that a measure of another Member is inconsistent with WTO
obligations is in clear violation of DSU Article 23. A Member that makes a determination
unilaterally that a another Member has failed to bring a measure found to be inconsistent with a
covered agreement into compliance with that agreement also violates Article 23 in that the DSU
establishes a procedure for determining the consistency of the measure .. Such a unilateral
determination of non-compliance without recourse to the DSU procedures amounts to a
determination that that a violation has occurred other than through recourse to DSB dispute
settlement procedures.
5.73 Canada notes that it too has legislative authority to suspend concessions in response to
measures of other countries. Section 13(1) of the World Trade Organization Agreement
Implementation Act
548 provides the Government of Canada with the legislative authority to take
retaliatory measures under federal law to suspend rights or privileges granted by Canada to a
WTO Member. However, unlike Section 301, the Canadian government is expressly authorized
to do so for the purpose of suspending in accordance with the WTO Agreement the application
to a WTO Member of concessions or obligations of equivalent effect pursuant to Article 22 of
the DSU. Accordingly, Canadian law requires that the exercise of this authority must occur in
accordance with Canada's WTO obligations. In particular, the authority permits action to
suspend concessions pursuant to Article 22 of the DSU. As there is a presumption in Canadian
law that a statute does not operate retrospectively so as to affect rights unless an intention to do
so is clearly expressed or arises by necessary implication,
549 suspension of concessions can only
apply subsequent to the DSB authorizing a suspension of concessions or other obligations
pursuant to Article 22.
5.74 Canada would distinguish 301 legislation from the type of matter at issue in Thailand –
Restrictions on Importation of and Internal Taxes on Cigarettes.
550 In that case, the panel was
concerned with an enabling provision which allowed executive authorities to impose
discriminatory taxes. The panel concluded that the possibility that the Act in question could be
applied in a manner contrary to the GATT, was not sufficient to make the Act inconsistent with

548 S.C. 1994, c. 47. Subsection 13 (1) reads as follows:
"13 (1) The Governor in Council may, for the purpose of suspending in accordance with the
Agreement the application to a WTO Member of conces sions or obligations of equivalent effect pursuant
to Article 22 of the Understanding on Rules and Procedures Governing the Settlement of Disputes set out
in Annex 2 to the Agreement, by order, do any one or more of the following:
(a) suspend rights or privileges granted by Canada to that Member or to goods, service providers,
suppliers, investors or investments of that Member under the Agreement or any federal law;
(b) modify or suspend the application of any federal law with respect to that Member or to
goods, service providers, suppliers, investors or investments of that Member;
(c) extend the application of any federal law to that Member or to goods, service providers,
suppliers, investors or investments of that Member; and
(d) take any other measure that the Governor in Council considers necessary".
549 E.A. Dreidger, "The Composition of Legislation" (Second Edition); Department Of Justice:
Ottawa, Ontario; 1976.
550 Panel Report on Thai – Cigarettes, op. cit.

the General Agreement. In this case the legislation requires a determination regarding the
consistency of a country's measures to be made in a thirty day time frame following the
conclusion of dispute settlement procedures. The United States' publication "The Uruguay
Round Agreements Act: Statement of Administrative Action" appears to indicate that the United
States regards the conclusion of Uruguay Round dispute settlement procedures to be the
conclusion of the reasonable time to implement the panel or Appellate Body's report.551 Canada
would be interested to know whether the United States has a different interpretation of when
WTO dispute settlement procedures conclude. Unlike Thailand's excise tax regime on
cigarettes which was totally discretionary until such time as the Thai authorities imposed the
tax, 301 legislation has mandatory elements which can require the United States to make an
unilateral determination of the WTO consistency of another country's measures and impose
trade sanctions in response. The Thai Cigarette panel recognized that legislation mandatorily
requiring the executive to act inconsistent GATT obligations was a violation "…whether or not
an occasion for its actual application had yet arisen;…".
552
5.75 In response to the US inquiry, Canada states that as a preliminary matter prior to
responding to the questions of the United States, it would note that the measures in question are
those of the United States and not those of any other Member. Accordingly, the practices of any
other Member and their consistency with WTO obligations are not germane to the issues before
the Panel. Nonetheless, and without prejudi ce, Canada would provide the following responses
in the interests of being helpful in resolving the broad systemic matters before the Panel.
5.76 Canada emphasizes that its legislative authority to suspend concessions in response to
measures of other countries is found at subsection 13(1) of the World Trade Organization
Agreement Implementation Act, Statutes of Canada, 1994, c.47. Although subsection 13(2) of
the Act is not relevant to WTO Members, Canada reproduces below section 13 in its entirety.
"Orders
13(1) Orders re suspension of concessions
13. (1) The Governor in Council may, for the purpose of suspending in
accordance with the Agreement the application to a WTO Member of
concessions or obligations of equivalent effect pursuant to Article 22 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes
set out in Annex 2 to the Agreement, by order, do any one or more of the
following:
(a) suspend rights or privileges granted by Canada to that Member or to
goods, service providers, suppliers, investors or investments of that Member
under the Agreement or any federal law;
(b) modify or suspend the application of any federal law with respect to
that Member or to goods, service providers, suppliers, investors or investments
of that Member;
(c) extend the application of any federal law to that Member or to goods,
service providers, suppliers, investors or investments of that Member; and

551 Statement of Administrative Action, op. cit., pp. 365-366.
552 Panel Report on Thai – Cigarettes, op. cit., para. 84.

(d) take any other measure that the Governor in Council considers
necessary.
13(2) Suspension of concessions to non-WTO Members
(2) The Governor in Council may, with respect to a country that is not a
WTO Member, by order, do any one or more of the following:
(a) suspend rights or privileges granted by Canada to that country or to
goods, service providers, suppliers, investors or investments of that country
under any federal law;
(b) modify or suspend the application of any federal law with respect to
that country or to goods, service providers, suppliers, investors or investments
of that country;
(c) extend the application of any federal law to that country or to goods,
service providers, suppliers, investors or investments of that country; and
(d) take any other measure that the Governor in Council considers
necessary.
13(3) Period of order
(3) Unless repealed, an order made under subsection (1) or (2) shall have
effect for such period as is specified in the order.
13(4) Definition of 'country'
(4) In this section, "country" includes any state or separate customs
territory that may, under the Agreement, become a WTO Member".
5.77 Canada explains that pursuant to section 10 of the Department of Foreign Affairs and
International Trade Act , Revised Statutes of Canada, 1985, as amended, chapter E-22, the
powers, duties and functions of the Minister of Foreign Affairs extend to and include all matters
over which Parliament has jurisdiction, not by law assigned to any other department, board or
agency of the Government of Canada, relating to the conduct of the external affairs of Canada,
including international trade and commerce and international development. The Minister for
International Trade is appointed pursuant section 3 of the Department of Foreign Affairs and
International Trade Act to assist the Minister of Foreign Affairs in carrying out his
responsibilities relating to international trade. Canada has signed the WTO Agreement and the
Agreement was approved by the Parliament of Canada by means of section 8 of the World
Trade Organization Agreement Implementation Act (see previous paragraph for citation). These
authorities give Canada its authority to exercise its rights pursuant to the WTO Agreement.
5.78 Canada further points out that prior to requesting consultation or a panel pursuant to the
DSU, Canada will have concluded that a dispute exists between itself and another WTO
Member with respect to one of the WTO covered agreements or a Plurilateral Trade Agreement
to which both Canada and the other WTO Member are party. Prior to proceeding with such

action, Canada will have satisfied itself that it has a legitimate claim and that the matter is
justicible under the DSU.
5.79 Canada argues that Article 23(a) expressly notes that recourse to dispute settlement in
accordance with the DSU is permitted. Canada, in requesting consultations or panels under the
DSU is acting in accordance with the DSU and therefore in conformity with Article 23(a).
Canada notes that it is interesting that the drafters of the DSU specifically chose the word
"determination" in drafting Article 23 as that happens to be the exact language used in the Trade
Act of 1974.
5.80 Canada states that its measures are fully consistent with its international obligations and
in particular its obligations under the WTO Agreement . If any measures are determined
pursuant to the DSU to be inconsistent with Canada's obligations, Canada will take the
appropriate actions to eliminate the inconsistency or remedy the nullification and impairment of
benefits determined to accrue to other Members.
5.81 In the view of Canada, past GATT practice
553 has clearly established that to the extent
that legislation is mandatory it is no defence to claim that it has not been applied or enforced in
a manner contrary to the WTO Agreements. The very existence of mandatory legislation
influences decisions of economic operators and, as such, has a "chilling" economic effect.
5.82 In response to the Panel's question as to whether DSU Article 23.2 prohibits any
determination on WTO consistency or any determination to the effect that a violation has
occurred, Canada states that Article 23(a) of the DSU prohibits determinations of non-
consistency with WTO obligations or the existence of nullification or impairment or any
impediment of the objectives of WTO covered agreement except through recourse to DSU
procedures. The Article does not prohibit determination of consistency with WTO norms. Any
such prohibition would be counterproductive to the objectives of Article 3.7 of the DSU which
states that "(a) solution mutually acceptable to th e parties to the dispute and consistent with the
covered agreements is clearly to be preferred".
5.83 Canada further argues that the answer to this question must necessarily be speculative,
as the question does not set forth the basis of the reasoning that would apply to the finding of
inconsistency. The DSU is applicable to measures of WTO Members that impair any benefits
accruing to other WTO Members under any covered agreement. Depending upon the reasoning
underlying a finding that Sections 301 to 310 are WTO inconsistent, a measure of the United
States, enforceable pursuant to DSU procedures, th at those sections could only be applied in a
manner consistent with the DSU would remove the WTO inconsistency and provide a remedy
for non-compliance.
4. Conclusion
5.84 Canada claims that the mandatory nature of section 301 legislation is clear even if there
are a number of instances where a determination could occur which would terminate the
application of the legislation. Canada emphasises its recognition that 301 legislation combines
mandatory and discretionary elements. Those opportunities for self-control do not alter the fact
that section 301 legislation can culminate in a situation where retaliatory actions are mandated
notwithstanding the status of such matters pursuant to the DSU.

553 Panel Report on US – Malt Beverages, op. cit.

5.85 Canada further argues that the facts surrounding the timing of the arbitrators' decision in
the arbitration under article 22.6 of the DSU between the European Communities and the United
States concerning the validity of the EC's implementation of the DSB's recommendations
concerning the EC's banana import regime are well known. Canada does not intend to add to
the EC's narrative on this point. Those facts demonstrate that DSB dispute settlement
procedures do not necessarily coincide with the time frames set out in US 301 legislation in
which the United States took the actions noted by the European Communities. This panel
should clearly indicate to WTO Members that such an application of domestic legislation to
suspend WTO benefits and concessions without DS B authorization results in a violation of a
Members obligations under the DSU.
5.86 Canada submits that the Panel should find that where the statutory language contained
in Sections 301-310 of the US Trade Act of 1974 results in an unilateral determination that a
WTO violation by another Member has occurred or in the implementation of retaliatory
measures against another Member without DSB authorization, such actions and mandatory
provisions requiring such actions are inconsistent with the United States' obligations under the
Dispute Settlement Understanding.
C. C
UBA
1. Introduction
5.87 Cuba indicates that it has a substantial systemic interest in this dispute, which is
important for the entire system of trading relations among Members of the Organization. The
principle of multilateral decision-making which is the cornerstone of the WTO and on which its
functioning is based is the crux of this case.
2. Legal Arguments
5.88 Cuba recalls that all WTO Members have freely accepted to belong to a multilateral
system based on rules which must be respected. To that end, they are obliged to ensure that
their domestic legislation is adapted to and meets those rules. Without the security that all
Members will abide by the rules, there can be no certainty of a genuine multilateral system
meeting the interests of all.
5.89 Cuba considers that the conflicts stemming from the actions of Members in their mutual
relations must be resolved multilaterally and in accordance with the provisions of the
Understanding on Rules and Procedures Governin g the Settlement of Disputes. Any unilateral
action taken by a country is harmful to the predictability and stability of, and confidence in, the
dispute settlement mechanism, as well as being a blatant violation of the WTO principles,
objectives and rules and of the commitments entered into in the multilateral negotiating
framework. Various ministerial declarations adopted in this forum bear this out. Recourse to
unilateral measures encourages unilateral responses, which heightens and extends conflicts
rather than helping to resolve them.
5.90 Cuba notes that the DSU is the applicable set of rules for making determinations as to
whether a Member's law, policy or practice is incompatible with the covered WTO Agreements.
It also establishes provisions governing the application of sanctions against Members that
infringe the multilateral rules.
5.91 Cuba argues that Sections 301-310 of the United States Foreign Trade Act of 1974
establish a unilateral procedure for applying sanctions against other States, including WTO

Members, where the United States considers that its trade interests are affected. The time-limits
provided for carrying out this procedure are different from, and incompatible with, those laid
down in the DSU. The measures in question are adopted on the basis of unilateral
determinations, outside the Dispute Settlement Body, and without its prior authorization. Their
duration is also a matter for unilateral decision by the United States. The latter thus becomes
both judge and party in international trade conflicts.
5.92 Cuba further claims that the WTO system of rules is based on the principles of public
international law, of which it is a specialized sub-system. In this connection, the above-
mentioned provisions of the Foreign Trade Act of 1974 violate the principle of sovereign
equality of States, one of the central pillars of public international law, according to which in the
full exercise of their sovereignty all States enjoy equal rights and at the same time are equally
obliged to respect the rules governing their mutual relations. They also infringe the " pacta sunt
servanda" principle governing the implementation of treaties, whereby the signatories to an
international agreement must fulfill the agreed provisions.
5.93 Cuba also points out that in the dispute with which Cuba is concerned, another
important factor is the particularity of the United States legal system in which national law has
primacy over international law in cases where there is a conflict of provisions, regardless of the
time at which one was adopted in comparison with the other. By making domestic law prevail
over multilateral law, the United States limits the complete fulfilment of the obligations entered
into under international agreements, thereby reducing confidence in its undertakings.
5.94 Cuba further contends that as far as this Organization is concerned, pursuant to
Article XVI:4 of the Agreement Establishing the WTO, Members have the responsibility to
ensure the conformity of their domestic laws and administrative procedures with their
obligations under the covered agreements. The Foreign Trade Act of 1974 is a violation of this
provision.
5.95 In the view of Cuba, the above-mentioned Act ignores the procedures provided for in
the DSU, to which all of Members entrust the guardianship of their rights and obligations. It
disregards the undertaking to comply with the principles set out in Article 3, as well as the
provisions on surveillance of implementation of recommendations and rulings of the Dispute
Settlement Body and compensation or suspension of concessions contained in Articles 21 and
22 of the DSU.
5.96 Cuba argues that by adopting these unilateral measures, the United States weakens the
multilateral trading system and disregards Article 23 of the DSU, which provides that Members
shall not make a determination as to the existence of a violation or nullification or impairment
of benefits, or the attainment of the objectives of the covered agreements, except through
recourse to dispute settlement in accordance with the procedures of the DSU. The above-
mentioned legislation also encourages recourse to practices that lie outside the international
trade rules, and creates a situation of uncertainty and disrespect for the multilaterally agreed
provisions.
5.97 Cuba further alleges that this is a question not only of the existence of the violation
caused by the above-mentioned legislation, but also of the ensuing nullification or impairment
of legitimate benefits accruing to Members directly or indirectly from the GATT 1994 and
membership of the WTO, within the meaning of Article XXIII of the GATT 1994.

5.98 In the opinion of the Republic of Cuba, Sections 301-310 of the Foreign Trade Act of
1974 contribute to establishing a power-based policy in international economic relations,
creating an atmosphere of insecurity and unpredictability.
5.99 Cuba notes that in practice, it has seen how far the friction among Members as a result
of the application of this Act can lead, and the danger it represents for the stability of the
Organization at a time when it is essential to preserve balance and security in order to achieve
the objectives that Members have agreed upon multilaterally.
5.100 Cuba then urges the Panel to find that Sections 301-310 of the Foreign Trade Act of
1974 are inconsistent with the WTO rules and at the same time to recommend that the United
States Government bring its legislation into line with the obligations imposed upon it as a
Member of the Organization.
D. DOMINICA AND ST. LUCIA
1. Introduction
5.101 Dominica and St. Lucia jointly indicate that the interest of the Commonwealth of
Dominica and St Lucia in this case derives from the indirect impact of Section 301 procedures
on their rights, and the attainment of the legitimate objectives of the WTO Agreements. It also
stems from the important systemic issues raised in the case which threaten the multilateral
system on which those without the power either to threaten unilateral measures or to defend
themselves against them must depend.
2. Legal Arguments
5.102 Dominica and St. Lucia claim that the actions taken by the United States in the Bananas
case are not the subject of the present proceedings. Their interventions on the clear violation of
WTO rules with respect to US actions in that re gard will be made before another panel. The
initial EC complaint, on which this panel is expe cted to rule, is limited to the compatibility of
US law as such with the obligations imposed on the United States by the WTO Agreements.
The recent actions of the USTR in the Bananas dispute, however, are instructive in so far as
they highlight US administrative practice and show that the strict timetables imposed by
Section 301 procedures are in fact mandatory and can lead to conflict with US obligations in the
WTO.
5.103 Dominica and St. Lucia argue that the "discretion" given to the USTR to delay action in
certain limited circumstances and the never used Presidential discretion are in fact a legal nicety
with no bearing on reality. The expectations of economic actors in the market place are not
built upon the technical distinction between "compulsory" and "mandatory" in US domestic law.
5.104 Dominica and St. Lucia note that the USTR announcement on March 3rd, of the
immediate withholding of customs liquidation and possible retroactive imposition of 100%
duties on targeted EC imports, in spite of the "I nitial Decision" of the Arbitration Panel that it
required further time to make a determination in the case, is clear evidence of the USTR's
interpretation of the legislation that precedence must be accorded to US domestic timetables
over international rules of due process.
5.105 Dominica and St. Lucia claim that the trade measures taken by the United States in the
Bananas dispute have clearly shown that US domestic law will not be constrained by WTO
timetables.

5.106 Dominica and St. Lucia contend that the pressures imposed on WTO dispute settlement
procedures and the complexities of particular cases have led the Dispute Settlement Body to
adopt a flexible approach to time limitations specified in the DSU. Section 301 procedures,
however, do not provide sufficient flexibility for upholding the multilateral system. They do not
allow the United States to comply with the rules of the DSU and other WTO obligations in
situations where the DSB has, by the end of those time limits, not made a prior determination
that the WTO Member concerned has failed to comply with its WTO obligations and has not
authorized the suspension of concessions or other obligations on that basis.
5.107 In the view of Dominica and St. Lucia, the strengthened multilateral system and
judicialisation of the dispute settlement process were designed to promote the 'international rule
of law'. The rule of international law requires that governments act under that law.
5.108 For Dominica and St. Lucia, Article XVI:4 of the Marrakesh Agreement requires each
Member to "ensure the conformity of its laws, regulations and administrative procedures with
its obligations as provided in the annexed [WTO] agreements". The US domestic implementing
legislation, the Uruguay Round Agreements Act of 1994 (URAA), explicitly states (in section
102(a)) that the Act shall not be construed to limit Section 301 authority. Section 301
procedures were not designed to promote the security and predictability of the multilateral
trading system. Given the economic and political power of the United States, Section 301
procedures are in effect a sword of Damocles hanging over us all.
5.109 Dominica and St. Lucia recall that the basic notion behind the multilateral approach to
retaliation was espoused half a century ago by the drafters of the Havana Charter. It was
designed to "tame retaliation, to discipline it, to keep it within bounds ..., to convert it from a
weapon of economic warfare to an instrument of international order". (UN Doc. E/PC/T/A/PV6,
page 4) In the Bananas dispute at every step of the way there was the veiled threat of US
unilateral action.
5.110 In support of this argument, Dominica and St. Lucia contend that the use of Section 301
procedures is widely associated with the threat of WTO-illegal action.
554 Dominica and St.
Lucia note that "veiled threats" are, by very definition, usually not documented. In light of this,
Dominica and St. Lucia provided two letters as primary evidence of their assertion and further
supplemental background materials on the Bananas crisis and the threat posed to the
multilateral system by USTR rigid adherence to Section 301 timetables.555

554 Dominica and St. Lucia cite, e.g. David Palmeter, "A Few - Very Few - Kind Words for
Section 301", in Philip Ruttley, Ian Mac Vay & Carol George, eds., The WTO and International Trade
Regulation (London: Cameron May, 1998) 123, indicating at 124: "Section 301 was, and to many, still is,
notorious. It is the vehicle by which the United States is perceived, with an extremely high degree of
accuracy, to pursue whatever threat advantage it posse ssed. Section 301,it is safe to say, embodies few
principles of justice, Rawlsian or otherwise".
555 Dominica and St. Lucia submitted WT/DSB/M/54, p. 4; WT/GC/M/37, pp. 3-4;
WT/DSB/M/53; WT/DSB/M/59; Guy de Jonquieres, "Ban anas and beef take trade conflict to the brink",
Financial Times, 22/10/98, p.8; Frances Williams, "US steps up banana battle with EU", Financial Times,
22/10/98, p.8; Guy de Jonquieres, "Nerves are ta ut as leaders hint at an EU-US trade war", Financial
Times, 9/11/98, p.3; Guy de Jonquieres, "Trade war edges closer as US plans action against EU exports",
Financial Times , 9/11/98, p.22; "The US and EU go Bananas", Financial Times , 11/11/98, p.19; Neil
Buckley, "Brussels rejects US banana peace offer", Financial Times, 20/11/98, p.5.

5.111 In the view of Dominica and St. Lucia, Article 22.6 of the DSU clearly states that
"[c]oncessions or other obligations shall not be suspended during the course of the arbitration".
A deadline for retaliation which precedes the completion of arbitration proceedings is evidence
of 'aggressive unilateralism'.
5.112 In response to the Panel's question regarding the relevance of a specific case under
Section 301, Dominica and St. Lucia state that a panel has a duty to review all relevant
evidence. As such, this Panel must take legal notice of US actions leading to the suspension of
concessions in the Bananas case to the extent that it is evidence germane to the 'matter' referred
to it by the DSB.
5.113 Dominica and St. Lucia recall that the "matter" referred to the Panel consists of two
elements: "the specific measures at issue and the legal basis of the complaint (or the claims)".
556
Taken together these elements constitute the dispute which is properly before the panel as
defined in its terms of reference: "A panel's terms of reference are important for two reasons.
First, terms of reference fulfil an important due process objective -- they give the parties and
third parties sufficient information concerning the claims at issue in the dispute in order to allow
them an opportunity to respond to the complainant's case. Second, they establish the
jurisdiction of the panel by defining the precise claims at issue in the dispute".557
5.114 Dominica and St. Lucia point out that although measures not explicitly mentioned in a
complaint may nevertheless be covered by a panel's terms of reference, "it seems clear that a
'measure' not explicitly described in a panel request must have a clear relationship to a 'measure'
that is specifically described therein, so that it can be said to be 'included' in the specified
'measure'".558 Similarly, claims which a panel is entitled to consider should also be stated in the
panel request. A distinction is made, however, between "actions", on the one hand, and
"measures" and "claims", on the other.559
5.115 According to Dominica and St. Lucia, it is one thing to submit to a panel the
examination of a particular measure claiming that that measure does not conform to the WTO
obligations of a Member. It is another, completely different thing to submit to a panel the
existence of a specific action of a Member as evidence supporting the claims with respect to the
"matter" which is properly before the panel. The first hypothesis is the case of the "Import
Measures" panel. The second, is the "Section 301" panel procedure.
5.116 Dominica and St. Lucia argue that there shou ld be no question of confusion, or overlap
or even divergence. This Panel may take legal notice of the US actions leading to the suspension
of concessions in the Bananas case as pertinent evidence for the interpretation of Sections 301-
310 as such. Whether US actions in this regard are themselves in conformity with US

556 Guatemala - Anti-dumping Investigation Regarding Portland Cement from Mexico , adopted
on 25 November 1998,WT/DS60/AB/R, para. 72. See also DSU, Article 6.2.
557 Appellate Body Report on Brazil – Measures Affecting Dessicated Coconut , adopted on 20
March 1997, WT/DS22/AB/R, p. 21.
558 Panel Report on Japan - Measures Affecting Consumer Photographic Film and Paper ,
adopted on 22 April 1998, WT/DS/44/R, para. 10.8. Dominica and St. Lucia also cite, e.g. Appellate
Body Report on EC – Bananas III , op. cit., para. 142; Appellate Body Report on Australia – Measures
Affecting the Importation of Salmon ("Australia – Salmon"), adopted 6 November 1998, WT/DS18/AB/R,
op. cit., paras. 90-105; Panel Report on Argentina – Safeguard Measures on Imports of Footwear ,
circulated 25 June 1999, WT/DS121/R, paras. 8.23-8.46.
559 Dominica and St. Lucia cite e.g. Appellate Body Report on Guatemala - Cement , op. cit.,
paras. 69-73, 84-86.

obligations under the WTO Agreements will be addressed by another panel and it is not
required that this Panel rule on that issue.
5.117 Dominica and St. Lucia argue that the terms of reference of this Panel call for an
examination of the specific claims stated by the complainant in WT/DS152/11. The EC
complaint is limited to the compatibility of US law as such with the obligations imposed on the
United States by the WTO Agreements. Where municipal law is examined as evidence of
compliance or non-compliance with international obligations, it is within the competence of an
international tribunal to review evidence on whether or not, in applying that law, the Executive
is acting in conformity with its obligations under international law.
560 In such a case, legislation
cannot be assessed in abstract.
5.118 Dominica and St. Lucia note that the European Communities refers to US actions
leading to the suspension of concessions in the Bananas case as confirming "what the text of
Section 306(b) indicates, namely that the USTR must implement the further action decided upon
irrespective of whether that action conforms to the requirements of Article 22 of the DSU".
Dominica and St. Lucia assert that US actions in the Bananas dispute highlight US
administrative practice and show that the strict timetables imposed by Section 301 procedures
are in fact mandatory and can lead to conflict with US obligations in the WTO. The mere fact
that certain of these actions are now subject to review by another panel does not preclude this
Panel from taking legal notice of all relevant evidence.
5.119 In response to the US inquiry, Dominica and St. Lucia state that a series of reports to
Congress on 'Section 301' developments as required by section 309(a)(3) of the Trade Act of
1974 chronicle the implementation of Section 301 mandates in the Bananas case. The term
"Section 301" is generally used as shorthand for Chapter 1 of Title III of the Trade Act of 1974,
as amended, which covers Sections 301-310, the subject of the EC complaint.
5.120 Dominica and St. Lucia point out that with regard to the March 3
rd announcement, the
USTR made clear in a public notice requesting comments on anticipated US action as required
under Sections 301-310 that:
"Given that the reasonable period of time for the EC's implementation of the
WTO recommendations concerning the EC banana regime expires on January
1, 1999, the USTR must make the determination required by section 306(b) no
later than January 31, 1999, and, in the event of an affirmative determination,
must implement further action no later than 30 days thereafter".
561
5.121 Dominica and St. Lucia argue that although the March 3 rd announcement does not
explicitly refer to Section 301 authority, this does not infer that the March 3 rd announcement
"did not involve Section 301".
5.122 Dominica and St. Lucia note that a numbe r of GATT/WTO panels have examined
complaints by different contracting parties involving the same or similar measures of a
responding party. To the extent that there is overlap in the scope of review panels have taken
into account the reasoning in previous panel an d Appellate Body reports. Additionally, the

560 Dominica and St. Lucia refer to Appellate Body Report on India – Patents (US) , op. cit.,
paras. 65-66, citing Certain German Interests in Polish Upper Silesia [1926], PCIJ Rep., Series A, No.7,
p.19.
561 Federal Register, Vol. 63, No.204, Thursday, 22 October 1998, pp. 56688 and 56689.

Appellate Body has been mindful of its role in providing security and predictability to the
multilateral system through ensuring consistency and coherence in WTO jurisprudence.
5.123 Dominica and St. Lucia claim that the task of this Panel is to make an objective
assessment of the matter before it, including an objective assessment of the facts of the case. 562
Even where there are multiple complaints related to the same matter the DSU does not
circumscribe the jurisdiction of any panel(s) established to examine the complaints. Article 9 of
the DSU on 'Procedures for Multiple Complainants' is "a code of conduct for the DSB because
its provisions pertain to the establishment of a panel, the authority for which is exclusively
reserved for the DSB".
563 Neither Article 9 nor any other provision of the DSU authorizes a
panel to retroactively redefine the scope of its review simply because another panel has been
established to examine related issues. The jurisdiction of a panel is defined at the moment at
which it becomes seised of a 'matter'. Events occurring subsequent to this should not be
presumed to exclude from a panel's consideration evidence which would otherwise be deemed
relevant.
564
5.124 Dominica and St. Lucia then conclude that the establishment of a panel to review
certain US actions leading to the suspension of concessions in the Bananas case involves
procedural considerations which do not diminish the responsibility of this Panel to make an
objective assessment of the matter before it, including an objective assessment of all relevant
evidence adduced in the case.
5.125 Dominica and St. Lucia further contend that WTO/GATT jurisprudence suggests that
the GATT and the GATS covers both de jure and de facto breaches; viz. the issue is not whether
regulations on the face of it comply with WTO rules but whether as administered they in fact
do.
5.126 Dominica and St. Lucia note that when one's livelihood and survival depends on
something, it is impossible to ignore the frightening ramifications of a situation in which what a
powerful country "considers" to be WTO-compatible or incompatible may be even more
important than what the multilateral system determines.
5.127 Dominica and St. Lucia then respectfully request the Panel to find that the challenged
Section 301 procedures are inconsistent with US obligations under the WTO Agreements and
recommend that the DSB request the United States to bring its Trade Act of 1974 into
conformity with its WTO obligations.
5.128 In response to the Panel's question as to whether DSU Article 23.2 prohibits any
determination on WTO consistency or any determination to the effect that a violation has
occurred, Dominica and St. Lucia state that Article 23.2(a) of the DSU prohibits WTO Members
from making "a determination to the effect that a violation has occurred, that benefits have been
nullified or impaired or that the attainment of any objective of the covered agreements has been
impeded, except through recourse to dispute settlement in accordance with the rules and
procedures of this Understanding". The preambular words of Article 23.2 refer to "such cases"

562 See DSU, Article 11.
563 Panel Report on India – Patents (EC), op. cit., para. 7.14.
564 Dominica and St. Lucia note that GATT/WTO jurisprudence affirms the legitimacy of using
updated information concerning the same measures to inform an assessment of the substantive complaint
before a panel, e.g. Panel Reports on Korea - Beef, all adopted on 7 November 1989 (BISD 36S/202, 234
and 268), paras. 99-101, 115-117, 121-123).

as addressed in Article 23.1. Article 23.1 concerns actions taken to redress measures which
violate WTO rules or otherwise impede the attainment of any objective of the WTO agreements.
5.129 Dominica and St. Lucia further argue that Article 23, read in its context,565 suggests that
the strengthened multilateral system proscribes any unilateral determination on WTO
consistency which has consequences for other WTO Members without respect for due process.
5.130 In the view of Dominica and St. Lucia, a multilateral determination on WTO
consistency is a necessary and central element in providing security and predictability in the
implementation of WTO rules. The Appellate Body Report on the EC – Bananas III case
emphasizes that "with the increased interdependence of the global economy, which means that
actions taken in one country are likely to have significant effects on trade and foreign direct
investment flows in others, Members have a greater stake in enforcing WTO rules than in the
past since any deviation from the negotiated balance of rights and obligations is more likely
than ever to affect them, directly or indirectly".
566 If every Member has a stake in enforcing
WTO rules then no unilateral determination on WTO consistency which in any way prejudices
the rights of other Members is permissible, except through recourse to the rules and procedures
of the DSU.567
5.131 Dominica and St. Lucia contend that Article 3.7 of the DSU exhorts a Member before
bringing a case to exercise its judgement as to whether action under dispute settlement
procedures would be fruitful. This is likely to entail an assessment of the WTO-consistency of
measures taken by another Member. Such a preliminary determination per se would not be a
"determination" on WTO consistency in violation of Article 23 as it should not preclude other
Members from challenging the legitimacy of the measures in question.
5.132 Dominica and St. Lucia are of the view that legislation merely facilitating such a
"determination", however, must be distinguished from legislation which triggers retaliatory
action where one "considers" non-implementation to have occurred. The "threat advantage" of
WTO-illegality undermines the fundamental objectives of Article 23 of the DSU. The very fact
that a determination must be made whether or not WTO rules are being infringed holds other
WTO Members to ransom.
5.133 Dominica and St. Lucia then argue that the strengthened multilateral system requires
that Members have recourse to, and abide by, the rules and procedures of the DSU. The

565 Dominica and St. Lucia point out that for exampl e, Article 3 of the DSU also underscores the
precedence of the multilateral system over the positions adopted by individual Members. Article 3.6, for
example, provides that where the parties to a di spute achieve a mutually agreed solution to matters
formally raised under the consultation and dispute settlement provisions of the covered agreements, this
shall be notified to the DSB and the relevant Councils and Committees, where any Member may raise any
point relating thereto. As such, even where there is a mutually agreed solution between parties to a
dispute this is subject to multilateral review.
566 Appellate Body Report on EC – Bananas III, op. cit., para. 7.50.
567 Dominica and St. Lucia note that the Uruguay Round Agreements essentially deny a right of
auto-interpretation in the multilateral trading system. Article IX:2 of the Marrakesh Agreement
complements Article 23 of the DSU; see also DSU, Article 3.9. The strengthened multilateral system
empowers the collective will to make "determinations" not individual Members. Significantly, the
Appellate Body report on Japan - Alcoholic Beverages , op. cit., Section E states: "The fact that such an
'exclusive authority' in interpreting the treaty has been established so specifically in the WTO Agreement
is reason enough to conclude that such authority does not exist by implication or by inadvertence
elsewhere".

principle of 'automaticity' ensures that the strengthened multilateral system will function. The
wheels of justice may, at times, turn slowly but the multilateral determination on WTO
consistency should be, at all times, all important. If the unilateral determinations of a WTO
Member are viewed as of greater significance, then the multilateral system is threatened.
5.134 In the view of Dominica and St. Lucia, Article 23.2(a) of the DSU effectively prohibits
Members to take any determination on WTO consistency with consequences for the multilateral
system without recourse to dispute settlement in accordance with the rules and procedures of the
DSU.
5.135 Dominica and St. Lucia, in response to the Panel's question as to whether an official US
statement binding in international law that the US government will not exercise its discretion in
a way contrary to WTO rule remove the WTO inconsistency of Sections 301-10 on the
assumptions that the USTR and the President have the discretion to avoid determinations and
actions contrary to WTO rules in all circumstances, and that, nevertheless, Sections 301-310
were found inconsistent with WTO rules, state that such an official US statement, whether or
not binding in international law, would not remove the WTO inconsistency. The binding nature
of unilateral declarations is a matter of wide jurisprudential debate. Article 38 of the Statute of
the International Court of Justice (ICJ) refers to international conventions, whether general or
particular; international custom, as evidence of a general practice accepted as law; general
principles of law; and other subsidiary means for the determination of rules of law. It does not
mention unilateral declarations.
5.136 Dominica and St. Lucia explain that Article 38 of the ICJ Statute, arguably, is not an
exhaustive statement of the sources of international law. The Nuclear Test cases
568 and Frontier
Dispute case569 suggest that in certain limited circumstances an official statement, if given
publicly, with the clear intent of binding a State to a particular course of conduct will be upheld
by an international tribunal. Appellate Body re ports increasingly refer to general international
law principles as applied in the case law of the ICJ. This 'cooperation among international
courts' and 'cross-fertilization' of legal systems enhances the legitimacy, consistency and
political acceptability of WTO dispute settlement rulings.
570 T h e Nuclear Test cases and
Frontier Dispute case , however, stand as the exception rather than the rule. It is widely
believed that, "States don't mean what they say, and don't say what they mean". It therefore
seems questionable whether the existing degree of legal insecurity surrounding Section 301
procedures would be removed by an official US statement.571
5.137 Dominica and St. Lucia recall that Article 3.7 of the DSU suggests that "[t]he aim of
dispute settlement mechanism is to secure a positive solution to a dispute". A positive solution
is one which promotes the security and predictability of the multilateral trading system. An
official statement that the US government will not exercise its discretion in a way contrary to
WTO rules seems hardly adequate in light of the clear pressure which may be applied on the
Executive in individual cases. The "threat advantage" of WTO-illegality is further bolstered by

568 (Australia v. France; New Zealand v. France ) ICJ Rep. 1974, pp.253, 457, esp. paras. 43-45;
but see Sir Garfield Barwick J., diss. op. See also Legal Status of Eastern Greenland (Denmark v.
Norway) (1933) PCIJ Rep., Series A/B, No. 53, Anzilotti J., diss. op.
569 ICJ Rep. 1986, p.554 at p.573.
570 Dominica and St. Lucia cite Ernst-Ulrich Petersmann, "Dispute Settlement in International
Economic Law - Lessons for Strengthening International Dispute Settlement in Non-Economic Areas"
(1999) 2 J.I.E.L. 189 at 209.
571 Dominica and St. Lucia also cite Panel Report on India – Patents (US) , op. cit., paras. 63-71
on the need to provide a sound legal basis for implementing WTO obligations.

section 102(a) of the Uruguay Round Agreements Act of 1994 (URRA), which explicitly
provides that the Act shall not be construed to limit Section 301 authority. The debates on the
legislation which evidence Congressional intent further reinforce this view. Statements of the
USTR at the time show the Executive's clear concurrence:
"Just as the United States may now choose to take Section 301 actions that are
not GATT-authorized, governments that are the subject of such actions may
choose to respond in kind. That situation will not change under the Uruguay
Round Agreements. The risk of counter-retaliation under the GATT has not
prevented the United States from taking actions in connection with such matters
as semiconductors, pharmaceuticals, beer, and hormone-treated beef".
572
5.138 Dominica and St. Lucia then argue that a positive solution is one which removes the
"threat advantage" in the administration of Section 301 procedures. It is one which provides the
secure basis on which those without the power either to threaten unilateral measures or to
defend themselves against them must depend.
5.139 Dominica and St. Lucia state that the suggestion that an official statement may be
sufficient to comply with the mandates imposed in Article XVI:4 of the Marrakesh Agreement
that "[e]ach Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements", indeed, could create an
even more fundamental problem than the one this Panel is now addressing.
5.140 Dominica and St Lucia add that both of them are parliamentary democracies with
dualist legal systems. No legislation has been passed specifically directing Executive action on
making determinations regarding WTO rights and obligations before panel and Appellate Body
reports have been adopted. Additionally, the Commonwealth of Dominica and St Lucia have
not been a complainant or respondent in WTO dispute settlement proceedings, nor initiated
consultations under the DSU. Where the Commonwealth of Dominica and St Lucia have
requested to be joined in consultations they have sought to protect their interests through
recourse to the rules and procedures of the DSU.
E. D
OMINICAN REPUBLIC
1. Introduction
5.141 The Dominican Republic welcomes this opportunity to participate as Third Party in
these proceedings in order to add its voice in support for a single multilateral procedure for the
settlement of trade disputes.
2. Legal Arguments
5.142 Like Brazil, the Dominican Republic is of the view that "a law that is inconsistent with
the obligations of a Member under the WTO Agreements can be challenged under the dispute
settlement procedures. The issue before the Panel is … the need to bring the law into conformity
with relevant WTO provisions, as provided in Article XVI:4 of the WTO Agreement".

572 SSA, 367, 1994 USCCAN at 4321.

5.143 Like the European Communities, the Dominican Republic is of the view that "WTO
Agreements cannot provide security and predictability unless Members settle all their trade
disputes in accordance with the procedures of the Dispute Settlement Understanding (DSU)".
5.144 Like Japan, the Dominican Republic is of the view that "WTO Members are prohibited
from unilaterally suspending concessions or other obligations under the WTO Agreement".
5.145 Like Brazil, the Dominican Republic is of the view that, given "the scope of authority
available to the US Administration to proceed without recourse to DSU procedures in
Section 301 (c)", the United States seeks "to pursue the removal of practices that do not violate
US rights" by threatening "to violate the rights of WTO Members". This clearly contradicts
Article 23 of the DSU.
5.146 Like India, the Dominican Republic agrees with the relevance of US views expressed in
other Panel proceedings, where it stated that "the domestic law of a Member must not only be
such as to enable it to act consistently with its WTO obligations but the domestic law must also
not create legal uncertainty by prescribing WTO-inconsistent measures".
5.147 Like Hong Kong, China, the Dominican Republic is of the view that "good faith
implementation of international obligations should not be accidental, nor merely the outcome of
exercise of discretion by a Member government".
5.148 Like the Republic of Korea, the Dominican Republic believes firmly that the
publication of retaliation lists "clearly affect the competitive relationship between the targeted
products and similar products from all other countries".
5.149 The Dominican Republic then requests respectfully to the Panel to rule along the lines
proposed by the European Communities and by Brazil, Japan, Hong Kong, China, India and
Korea, and that it also give due consideration to two additional concerns:
(a) Section 301(c)(1)(C) establishes a number of eligibility criteria for the
continued market access under preferential trading conditions. In addition,
Section 301(d)(3)(B) defines:
"(B) Acts, policies, and practices that are unreasonable include,
but are not limited to, any act, policy or practice, or any
combination of acts, policies or practices, which–
(i) denies fair and equitable–
(I) opportunities for the establishment of an enterprise,
(II) provision of adequate and effective protection of
intellectual property rights notwithstanding the fact that the
foreign country may be in compliance with the specific
obligations of the Agreement of Trade-Related Aspects of
Intellectual Property Rights referred to in section 101(d)(15) of
the Uruguay Round Agreements Act.
(III) nondiscriminatory market access opportunities for United
States persons that rely upon intellectual property protection, or

(IV) market opportunities, including the toleration by a foreign
government of systematic anticompetitive activities by
enterprises or among enterprises in the foreign country that
have the effect of restricting, on a basis that is inconsistent with
commercial considerations, access of United States goods or
services to a foreign market",
(b) In none of the cases listed it is required that the US person that is deemed to be
affected by the "unreasonable" conditions subject the act, policy or practice in
question to a judicial review. Rather, "watch", "priority watch" and other types
of country lists are elaborated based solely on petitions (section 302(a)) or
requests of petitions in the Federal Register (section 302(b)) with a
disproportionate effect on the viability of the activities concerned, whether or
not these are beneficiaries of preferential trading conditions.
5.150 The Dominican Republic requests the Panel that it consider:
(a) examining the consistency of these criteria with the provisions on non-
discrimination in the "Habilitation Cl ause" (adopted by the CONTRACTING
PARTIES on 28 November 1979) and the Ge neralized System of Preferences
(as described in the Decision of the CONTRACTING PARTIES
 of 25 June
1971, relating to the establishment of 'generalized non-reciprocal and non-
discriminatory preferences beneficial to the developing countries');
(b) as suggested by Brazil, examining whether it is WTO-consistent to deny any
WTO Member its rights because of non- violation of the rights of the United
States under the WTO agreements. Specifically, section 301 (d)(B)(3)(B)(i)(I)
refers to the right of establishment for an enterprise, which is not covered
automatically by any WTO agreement, except in the form of a specific
commitment under the General Agreement of Trade in Services (GATS);
section 301 (d)(B)(3)(B)(i)(II) refers to non-violation of the provisions of the
TRIPS Agreement, but the relevant article of this agreement (66.2) has yet to
enter into force because a significant number of developed and developing
country WTO Members have requested additional time to study the
implications of carrying to the intellectual property area the provisions on non-
violation devised for trade in goods; and section 301 (d)(B)(3)(B)(i)(III) refers
to the toleration of anticompetitive activities, but these have yet to be
disciplined by the WTO; and
(c) examining the standard of review utilized to enforce these WTO-unrelated
criteria.
5.151 In response to the Panel's question as to the relevance of "two additional concerns" in
light of the terms of reference of the Panel, the Dominican Republic states that Article 7.1 of the
DSU states that the Panel has to work on the basis of terms of reference. The matter at issue is
"to analyze if the Sections 301-310 of the Trade Act of 1974 of the United States are
inconsistent with the US international obligations under the WTO Agreements". If in the course
of the process additional elements are found that can help to clarify the matter at issue, then
these elements should be taken into account.
5.152 The Dominican Republic further states that the two "additional concerns" of the
Dominican Republic are clear examples of how specific provisions in Section 301 of the Trade

Act of 1974 are inconsistent with the US international obligations under the WTO Agreements.
They provide further evidence to the statement by Brazil that "the scope of authority available to
the US Administration to proceed without recourse to DSU procedures in Section 301(c)", the
United States seeks "to pursue the removal of practices that do not violate US rights" by
threatening "to violate the rights of WTO Members".
5.153 The Dominican Republic emphasizes that this clearly contradicts Article 23 of the DSU.
5.154 The Dominican Republic considers that it is its right as a beneficiary of trade
preferences that these be awarded in compliance with the "Habilitation Clause", that is, on a
non-discriminatory basis. By conditioning trade preferences to compliance with other criteria
such as the ones listed in Section 301(d)(3)(B) (criteria that are unrelated to any nation's
multilateral rights), the United States threatens to violate the rights of Dominican exporters.
5.155 Further, by constantly reviewing compliance with such criteria without subjecting
"interested party petitions" to established procedures of judicial review, the United States places
Dominican exporters in a situation of continued juridical risk, which is what WTO Members
sought to avoid by adopting a single, multilateral procedure for the settlement of trade disputes
after the Uruguay Round.
5.156 Therefore, the Dominican Republic respectfully reiterates to the Panel that it should
analyze also the issues of its "two additional concerns".
F. HONG KONG, CHINA
1. Overview
5.157 Hong Kong, China indicates that it decided to participate in the current proceedings as
third party in view of the systemic importance of the dispute. It is our firm belief that the
cornerstone of the WTO legal regime – the principle of multilateral determination of the WTO
consistency of measures – shall not be undermined by domestic legislation that mandates
unilateral action. We consider that Members' compliance with this principle is essential in order
to ensure the security and predictability of the multilateral trading system, and to preserve
Members' rights and obligations under the WTO Agreements.
5.158 Hong Kong, China does not question the right of WTO Members to enact domestic
legislation to protect their legitimate trade interests, but such legislation must not detract from
their obligations under the WTO. By virtue of their WTO membership, Members have
subscribed to the WTO Agreements including the Dispute Settlement Understanding (DSU),
and agreed to settle their trade disputes in accordance with the rules and procedures provided
therein. In other words, they have agreed to refrain from adopting any unilateral measures
against alleged inconsistencies of their trading partners. In this perspective, Hong Kong, China
submits that Sections 304(a)(2)(A), 305(a) and 306(b) of the US Trade Act of 1974, to the
extent that they oblige the United States Trade Representative (USTR) to have recourse to
unilateral actions without respecting the multilateral framework for resolution of disputes as laid
down in the DSU, violate the WTO obligations of the United States under the DSU.
5.159 Hong Kong, China summarises its arguments as follows: First, Hong Kong, China
places the DSU in the realm of public international law. Hong Kong, China demonstrates that,
through the enactment of the DSU, WTO Members have agreed to refrain from taking unilateral
actions and to resort to the WTO exclusively to determine the consistency or otherwise of
measures with WTO Agreements. In other words, the WTO is the exclusive forum for

determination of the WTO consistency of trade measures. Second, Hong Kong, China discusses
the US legislation in question relating to adjudication of trade disputes. Adopted GATT panel
reports suggest that only mandatory legislation can be found to be in violation of WTO law. We
argue that the legislation being challenged in the present dispute is mandatory in nature. Third,
Hong Kong, China advances some arguments, inspired by public international law, as to
whether the distinction between mandatory and discretionary legislation in GATT jurisprudence
is justified. Hong Kong, China essentially submits that even potential deviation from an
international obligation (where a competent national authority has discretion allowing it to
disrespect its international obligations) amounts to a violation of WTO rules and obligations.
2. Legal Arguments
(a) Nature of the Dispute Settlement Mechanism under the GATT 1947 and the WTO
5.160 Hong Kong, China argues that by becoming a party to an international agreement, a
country voluntarily assumes obligations which impose disciplines on its behaviour, in exchange
for the other parties agreeing to abide by the same disciplines. In other words, rights and
obligations must go together as a party's rights are derived from the obligations of the other
parties. The GATT 1947, the WTO and their provisions for dispute settlement are meaningful
only when appreciated in this context.
5.161 In the view of Hong Kong, China, to ensure the security of rights in a multilateral
agreement, third party adjudication is a necessary feature. The injured party would tend to see
wrong when it may not exist; and where it exists, there could be pressure to exaggerate the
extent of the wrong. Conversely, the offending party may perceive its actions in an entirely
different light. It would tend to regard its action as permissible under the agreement; or where it
concedes violation, would have every incentive to downplay the degree of injury that others
suffer as a result. For an agreement where rights and concessions are multilateralised, it is
unthinkable to regard the offending or injured party as being competent to adjudicate on its own
the legality of a measure, to determine on its own the extent of the wrong when illegality is
found, or to authorize counter-measures on its ow n. Were such allowed in the agreement, an
escalation of counter-measures would likely result, as every time counter-measures are taken,
the affected party might conclude that they are disproportionate and consequently retaliate to
some extent (which might in turn be regarded as disproportionate by the affected party which
will retaliate further).
5.162 Hong Kong, China contends that problems relating to the proportionality of retaliatory
and countermeasures can be avoided if the privilege to qualify a measure as unlawful under
public international law is removed from the injured party. This is precisely why states have
through conventional means always sought to give effect to the maxim nemo in re sua (in sua
propria causa) judex esse potest (nobody should be the judge of his/her own cause). The
Statute of the International Court of Justice (ICJ) also provides for compulsory third party
adjudication - Article 59 St. ICJ provides the possibility for states to grant ante hoc consent to
see all disputes against them adjudicated by the ICJ.
5.163 Hong Kong, China further argues that in the post-World War II era, states were eager to
agree to the principle of third party adjudication in a functional manner for settlement of their
investment-related or trade-related disputes. The Special Rapporteur of the International Law
Commission (ILC) concluded in his report on "State Responsibility" that for illegal acts de lege
lata (the law as it is) and not de lege ferenda (the law as it should be), there is world-wide
recognition of the principle of third party adjudication and that consequently recourse to
unilateral countermeasures should be lawful only in cases where the state authorizing the illegal

act refuses an invitation by the injured state to negotiate. The ILC report, which has been
heralded by expert commentators, provides an authoritative indication that in the general field of
public international law, the world community is moving towards compulsory third party
adjudication.
5.164 Hong Kong, China notes that third-party adjudication had also been a feature of the
GATT. After the GATT 1947 came into being, GATT Contracting Parties resorted to
procedures laid down in Articles XXII and XXIII of GATT to resolve their trade disputes.
Building on Article 92 of the Havana Charter, the two GATT Articles provided a basis for
multilateral adjudication of disputes, whereby Contracting Parties undertook to refer their
disputes to the GATT which would investigate the matter and make appropriate
recommendations/rulings. The system served to prevent recourse to unilateral measures against
alleged inconsistencies of trade measures. However, the dispute settlement procedures under
the GATT were constrained by a number of factors, e.g. the parties to the dispute were allowed
to block consensus on the establishment of panels and the adoption of panel reports.
Notwithstanding the deficiencies of the system however, GATT Contracting Parties resorted to
resolving their disputes through Articles XXII and XXIII of the GATT, rather than by resorting
to unilateral adjudication and actions.
5.165 According to Hong Kong, China, the deficiencies of the GATT dispute settlement
system have to a large extent been rectified under the WTO Dispute Settlement Mechanism
(DSM). The DSU provides for the automatic establishment of panels upon request and the
automatic adoption of panel reports, unless the Dispute Settlement Body (DSB) decides by
consensus against such establishment or adoption. With this new rule of "negative consensus",
the possibility of one Member blocking the establishment of panels or the adoption of panel
reports no longer exists. The improvements made to the dispute settlement mechanism convey
two messages. These are: parties to the GATT reaffirmed third-party adjudication as a means to
resolve disputes between them, and their collective intention to make dispute resolution more
effective in the WTO.
5.166 Hong Kong, China argues that the improvements secured in the Uruguay Round have
indeed made the DSU a more effective-mechanism than the GATT system in resolving disputes
concerning WTO agreements. In the recent DSU review, the general view has been that the
DSM has been working satisfactorily and that only fine-tuning in certain respects is required.
Further efforts to make the DSU work better are a reaffirmation of Members' recognition of
multilateral adjudication as the way to resolve disputes between them.
5.167 Hong Kong, China states that the conclusion to be drawn is that the DSU is the
exclusive forum for adjudication of trade-related disputes among WTO Members. Article 23 of
the DSU further strengthens the multilateral ad judication system by obliging Members to have
recourse to, and abide by, the rules and procedures of the DSU to resolve their trade disputes.
All WTO Members, including the United States, have accepted this obligation.
5.168 Hong Kong, China further argues that the legal and logical consequence of the
preceding analysis is that WTO Members must always seek redress of their complaints under
the WTO DSU.
5.169 Hong Kong, China goes on to state that WTO law intervenes and performs its
multilateral adjudication role when a WTO Member decides to complain formally about the
trade policies and practices maintained by another Member. From this point onward, the WTO
Member is under the obligation to have recourse exclusively to the WTO dispute settlement
procedures (Article 23.2 of the DSU). It must consult with the Member concerned and, if

within the time-limits laid down in the DSU no amicable solution has been reached, may request
the establishment of a dispute settlement panel. Following panel (and eventually Appellate
Body) proceedings, and provided no action has been taken by the losing party to implement the
DSB rulings within the reasonable period of time laid down in Article 21.3 of the DSU, the
Member can request DSB's authorization to adopt counter-measures, and the DSB has to grant
such authorization unless rejected by consensus.
5.170 Hong Kong, China concludes that in a nutshell, with the entry into force of the DSU,
recourse to unilateral counter-measures by WTO Members is forbidden under the WTO. It is
up to the WTO adjudicating bodies to pronounce the legality of measures maintained by a WTO
Member and to authorize, upon request, the adoption of counter-measures. From the moment
that a WTO Member has decided to complain about the trade policies and practices of another
Member, it must follow the substantive and procedural obligations laid down in the DSU. To
do otherwise will violate its obligations under the WTO.
5.171 In response to the Panel's question as to whether DSU Article 23.2 prohibits any
determination on WTO consistency or any determination to the effect that a violation has
occurred, Hong Kong, China states that the answer is in Article 23.2(a) of the DSU itself.
Article 23.2(a) specifically prohibits determinations "to the effect that a violation has occurred,
that benefits have been nullified or impaired or that the attainment of any objective of the
covered agreements has been implemented".
5.172 In the view of Hong Kong, China, the object and purpose of the DSU are also relevant.
The DSM is the exclusive forum for adjudication of trade disputes among WTO Members. Even
if bilateral consultations reach a result, the result has to be WTO consistent (Article 3.5 of DSU)
and it has to be notified to the DSU where multilateral control will ensure its consistency with
the applicable WTO rules (Article 3.6 of DSU).
5.173 Hong Kong, China further argues that the negotiating history of the DSU, and
Article 23 more specifically, confirm this interpretation: it was negotiated with a view to ensure
that recourse to unilateralism would not be an option for WTO Members.
(b) Application
5.174 Hong Kong, China argues that Section 303 of the Trade Act of 1974 prescribes that on
the date on which an investigation under Section 302 is initiated, the USTR shall request
consultations with its trading partner in accordance with Article 4.3 of the DSU.
Section 304(a)(2)(A) requires the USTR to determine whether the rights of the United States are
being denied on or before the earlier of (i) 30 days after the date on which the dispute settlement
procedure is concluded, or (ii) the date that is 18 months after the date on which the
investigation is initiated. According to Section 306(b), if the USTR considers that its trading
partner has failed to implement the DSB rulings, he/she shall make a determination, no later
than 30 days after the expiry of the reasonable period of time provided for in Article 21.3 of the
DSU, what further (retaliatory) action must be taken under Section 301(a). Finally, according
to Section 305(a), the USTR shall implement the (retaliatory) action no later than 30 days after
he/she made the determination. In this connection, Hong Kong, China notes that
Section 305(a)(2)(A) provides that implementation of the (retaliatory) action may be delayed by
no more than 180 days if the USTR considers, inter alia, that substantial progress is being
made, or that a delay is necessary or desirable to obtain US rights or a satisfactory solution.
However, it should be noted that in exercising his/her discretion to delay implementation, the
USTR is not obliged to observe the rules and procedures stipulated in the DSU.

5.175 Hong Kong, China considers that as the European Communities mentioned, the
timeframe stipulated by the cited sub-sections of the US Trade Act is shorter than that within
which one can reasonably expect DSB findings on that matter. In such a case though,
Section 304(a)(2)(A) mandates the USTR to make a determination of whether the US rights
have been denied, independently of the still missing multilateral determination on the same
issue.
5.176 Hong Kong, China points out that the USTR of course has discretion as regards the
determination that he/she will make. This does not at all annihilate the mandatory character of
the US legislation in question. What counts is not the eventual content of the USTR's
determination. What counts is the very fact that the USTR is mandated to make such a
determination, notwithstanding the clear and unambiguous provision of DSU Article 23.2(a)
that Members shall not make a determination to the effect that a violation has occurred or that
benefits have been nullified or impaired, except through recourse to dispute settlement in
accordance with the rules and procedures of the DSU.
5.177 Hong Kong, China further states that the same is true with respect to the determination
made under Section 306(b). In case the USTR determines that the US rights have been denied,
he/she must make a determination on the (retaliat ory) action that needs to be taken within 30
days following the expiration of the reasonable period of time for implementation of the DSB
rulings. The very fact that such a determinat ion has to be taken is incompatible with the
timeframe stipulated in Article 21.5 of the DSU and amounts to a substitution of the procedures
laid down therein.
5.178 Hong Kong, China asserts that Article 21.5 of the DSU provides that, in case there is
disagreement between the parties on the compliance of implementing measures, the dispute
should be decided through recourse to the dispute settlement procedures, including resort to the
original panel where possible. The panel shall circulate its report within 90 days. As the USTR
has to make a determination on the compliance question long before the Article 21.5 panel has
issued its report, Section 306(b) makes Article 21.5 redundant and violates Article 23 of the
DSU. The provision is also incompatible with the principle of "effective treaty interpretation"
as laid down in Article 31 of the Vienna Convention on the Law of Treaties (VCLT), which
requires that interpretation must give meaning to each and every provision of the treaty in its
context and in the light of its object and purpose. Here the United States, in interpreting its
obligations under the DSU, opted for an interpretation which effectively disregards Article 21.5
of the DSU.
5.179 Hong Kong, China further explains that Section 305(a) ensures the timely
implementation of the retaliatory actions pursuant to the USTR's determinations under
Section 306(a) and (b). This amounts to unilateral retaliation which bypasses Members'
obligations prescribed in Article 22 of the DS U to request DSB's authorization for imposing
counter-measures. Being a unilateral retaliatory measure, Section 305(a) also violates
Article 23.2 of the DSU.
5.180 Hong Kong, China then concludes that, by obliging the USTR to determine whether the
US rights have been denied and to ensure that retaliatory action(s) is taken in accordance with
his/her unilateral determination, the US legislation in question violates DSU Article 23.
Furthermore, the requirements to make the determination and implement the action within a
specified period of time are incompatible with the timeframes stipulated in Articles 21.5 and 22
of the DSU and hence render the provisions redundant.

5.181 In the view of Hong Kong, China, the United States has insisted that for there to be a
violation of Article 23.2(a) of the DSU, the European Communities must show that (a) a
determination that a WTO agreement violation has occurred, and (b) such determination is
inconsistent with the panel or Appellate Body rulings or an arbitration award. This cannot be
the standard of proof adopted for Article 23.2(a). In Hong Kong, China's view, the mere
possibility of having a unilateral determination of WTO agreement violation is inconsistent with
Article 23.2(a), which stipulates that determin ation of violation of obligations should not be
made except through recourse to the rules and pr ocedures of the DSU. The US's interpretation
is tantamount to arguing that a Member can dem onstrate that a violation of Article 23.2(a) has
occurred only in cases where a Member (a) makes a (unilateral) determination before the WTO
adjudicating body has pronounced on the issue; or (b) makes such a determination after the
adjudicating body has pronounced on the issue but reaches a conclusion inconsistent with the
WTO body's findings. In doing so, the United States is trying to avoid interpreting the crucial
Article 23.2(a) in good faith.
5.182 Hong Kong, China further notes that the question remains in a case where a unilateral
determination as described above has been made but no action is taken to implement the
determination. Hong Kong, China considers that this would constitute a violation of
Article 23.2. This is because Article 23.2(a) outlaws all unilateral determinations to the effect
that a violation occurred regardless of whether it is accompanied by subsequent implementing
action.
5.183 Hong Kong, China answered in the negative in response to the Panel's question as to
whether an official US statement binding in international law that the US government will not
exercise its discretion in a way contrary to WTO rule removes the WTO inconsistency of
Sections 301-310 on the assumption that the USTR and the President have the direction to avoid
determinations and actions contrary to WTO rules in all circumstances, and that, nevertheless,
Sections 301-310 were found to be inconsistent with WTO rules. Its answer is dictated by the
ambiguity in public international law surrounding the legal value of unilateral declarations.
Although the International Court of Justice had on two occasions pronounced in favour of the
binding character of unilateral declarations (Ihlen, 1933; Nuclear Tests, 1974), both findings
were very narrowly constructed and were taken in a particular context. Moreover, the ICJ's
decisions on both occasions pay particular attention to the circumstances surrounding the
declarations and it is not clear whether mutatis mutandis such circumstances can find
application in the present dispute.
5.184 Hong Kong, China moreover argues that attempts in literature to extrapolate these
decisions in other spheres of international activ ity (like for example, the UN resolutions) often
met with scepticism. Hence, even though it may be possible to advance good arguments in
favour of the under specific circumstances binding nature of unilateral declarations, the situation
in public international law is unclear in this respect.
5.185 In the view of Hong Kong, China, in an area like dispute settlement, one should always
aim for maximum clarity and precision. There is no room for ambiguity. A modification of the
contentious aspects of the relevant provisions of the US legislation along the lines suggested in
our answers to the Panel's questions and in ou r submission eliminates ambiguities. A unilateral
declaration does not.

(c) Distinction between mandatory legislation and discretionary legislation
5.186 Hong Kong, China recalls that in the US – Superfund573 case, the panel report stated that
mandatory, as opposed to discretionary, national legislation can form the subject matter of a
claim brought before the GATT independently of its application in a particular case. In
particular, the panel stated that:
 "Both articles (Articles XI and III of GATT 1947) are not only to protect
current trade but also to create the predictability needed to plan future trade.
That objective could not be attained if contracting parties could not challenge
existing legislation mandating actions at variance with the General Agreement
until the administrative acts implementing it had actually been applied to their
trade".
574
5.187 Hong Kong, China argues that the language of the cited sub-Sections of the Trade Act
of 1974 makes it plain that the legislation in question is mandatory . Consequently, following
the Superfund ruling, the sub-Sections can be proclaimed illegal as such, independently of any
practice or enforcement of the legislation.
5.188 Hong Kong, China points out that the United States argued that nothing in its legislation
mandates actions inconsistent with its WTO obligations. Hong Kong, China submits that even
when legislation is not mandatory and simply allows WTO-inconsistent action to be taken, it
should still be found to be WTO-inconsistent. Our argument is based on, in our view, an
appropriate interpretation of the "good faith" principle enshrined in the VCLT.
5.189 Hong Kong, China notes that Article 26 of the VCLT states that :"(E)very treaty in
force is binding upon the parties to it and must be performed by them in good faith". This
means that, where domestic legislation is needed in accordance with domestic constitutional
procedures in order to implement international obligations, such domestic legislation must be a
good faith implementation of the international obligations assumed by the signatory.
5.190 Hong Kong, China argues that in the WTO regime, Article XVI:4 of the WTO
Agreement requires Members to "ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed Agreements". Parties
to an international regime should always honour their obligations as long as they remain parties
to the said regime. This obligation stems unequivocally from Article 70 of VCLT. The
question is consequently raised as to how international obligations can be implemented in good
faith if the possibility of deviation exists in a domestic legislation. In the view of Hong Kong,
China, there is no expectation that the international obligations will be observed and not
impaired when the possibility of deviation is expressis verbis provided for in a domestic
legislation. The predictability, necessary to plan future trade as the Superfund panel
acknowledged, is affected when trading partners know ex ante that their partners have enacted
legislation which allows them to disregard their international obligations.
5.191 Hong Kong, China is of the view that good faith implementation of international
obligations should not be accidental, nor merely the outcome of exercise of discretion by a
member government. Good faith implementation of international obligations suggests that
parties to an international treaty should always honour their obligations as long as they remain

573 Panel Report on US – Superfund, op. cit., p.160
574 Ibid.

parties to the said treaty. Thus, a Member maintaining discretionary legislation which allows
deviation from international obligations (independently of the eventual application of such
legislation) falls foul of the good faith principle.
5.192 Hong Kong, China notes that the United States claims that in the present case the
European Communities has to demonstrate that the US legislation in question "precludes any
possibility of action consistent with the Member's WTO obligations" and that none of the
interpretations of the legislation permits WTO-consistent action. Hong Kong, China does not
agree with these arguments. The mere existence of legislation that mandates or allows WTO-
inconsistent action to be taken by a WTO Member already poses a serious threat to the good
faith principle and to the certainty and predictability of the WTO regime.
5.193 Hong Kong, China also notes that the United States has pointed out that eventually any
action undertaken in the context of Section 301 depends on the discretion of the President.
Hong Kong, China further notes that while Presidential discretion is provided for in
Section 301(a) and 305(a) of the US legislation, the legislation makes it plain that the USTR
shall take specific action as a result of a determination to the effect that the US' rights have been
denied. Indeed, according to Section 301(a), the USTR does not have to revert to presidential
discretion in order to make such determinations. Such determinations have to be made by the
USTR within the time limits specified in the legislation in question.
5.194 Hong Kong, China acknowledges that it is true that the President has discretion as to
whether specific action should be taken. It is also true that in case discretion is exercised and a
WTO Member thinks the outcome of such discretion amounts to a WTO violation, this Member
can attack the specific measure but not the legislation giving rise to the specific measure. This
is because GATT jurisprudence has held that Members may only attack legislation if such
legislation is mandatory. But this is not good law. Such a distinction between mandatory and
discretionary legislation, leaving the possibility to WTO Members to attack only the former but
not the latter, is clearly inconsistent with public international law for the reasons explained
above.
5.195 Hong Kong, China adds that its basic point is that a national legislation which
implements an international obligation must do so in good faith (bona fides). This is essentially
what Article 26 of the VCLT is all about (pacta sunt servanda).
5.196 Hong Kong, China argues that the good faith obligation actually kicks in before the
entry into force of an international agreement: Article 18 of VCLT imposes on signatories an
obligation to respect the spirit of the agreement they signed until the point in time when they
definitively decide to either become part of it or not. In the former case (and provided that the
agreement at hand enters into force) they are bound by Article 26 of VCLT as of the moment of
the entry into force of the agreement; in the latter, they do not have to respect Article18 of
VCLT anymore and they will never have to respect Article 26 of VCLT either.
5.197 Hong Kong, China goes on to state that on the other hand, the obligation to implement
and perform in good faith the agreement is active for the time-period during which a state is part
of an international agreement. Article 70 of VCLT makes this point plain. From the moment it
decides to abandon such an agreement, a state is no longer bound by Article 26 of VCLT
(provided of course, that the agreement at hand does not codify rules of jus cogens). It remains
liable though, for any violation of the agreement that it committed during the time-period when
it was part of it.

5.198 Hong Kong, China considers that the good faith obligation is severely damaged if an
implementing legislation leaves the door open to violations. The very notion that a state by its
implementing legislation allows for behaviour which is inconsistent with international law 0runs
afoul the principle of good faith which requires performance of the agreement at all times.
5.199 Hong Kong, China further alleges that compensation (in the wide sense of the term) for
failure to perform should not be accepted as (and indeed is not) equivalent to performance. This
stems clearly from a careful examination of the primary and secondary obligations of states
when entering into international commitments:
(a) the primary obligation to perform treaty (Article 26 of VCLT);
(b) the secondary obligations, which come into play if an internationally wrongful
act is committed, comprise an obligation to stop the illegal act (cessation of the
illegal act) and an obligation of reparation for any damage caused as a result of
the commission of the internationally wrongful act.
575
5.200 In the view of Hong Kong, China, state authors of an illegal act are under an
unambiguous obligation to stop the illegal act (even in cases where no such request has been
made by the affected party, as the wording of Article 41 of the Draft on State Responsibility and
the constant jurisprudence of the ICJ in this respect – Chorzow Factories – make it plain). By
definition, they have to perform in good faith. This in turn means that reparation for an illegal
act and performance of international obligations should not be understood to be two equivalent
forms of behaviour in the sense that a state can alternatively have recourse to either and be
deemed to be consistent with its international obligations. Rather, our analysis above supports
the view that good faith performance of the treaty in all times is what is requested from states
when they adhere to an international regime.
5.201 Hong Kong, China contends that a domestic instrument which allows for deviations
severely undermines this basic international obligation, since deviation from the obligation to
always perform the international obligations adhered to becomes an option available to the state
alongside the option to perform the treaty. As stated above though, the two options are of no
equivalent value.
5.202 The overall conclusion of Hong Kong, China therefore is that, in the event parties to an
international agreement have to implement their obligations in a domestic instrument in order to
fulfil domestic constitutional requirements, they should ensure that their implementing
legislation allows no deviations. In any other case, states have failed to perform in good faith
their international obligations.
5.203 Hong Kong, China is of the view that th e US legislation under challenge fails to
guarantee a good faith performance of the US international obligations at all times.
3. Conclusion
5.204 Hong Kong, China contends that it attaches much importance to the current
proceedings. Trade disputes will inevitably occur in the future as they have in the past. The

575 Hong Kong, China notes that there is, however, some disagreement in literature as to the
nature of cessation. Some authors do accept that cessatio n is a primary obligation in the sense that it goes
hand in hand with the obligations to perform the treaty.

DSU has been the cornerstone of the WTO and an important achievement of the Uruguay
Round. The multilateral dispute settlement system, as opposed to unilateralism, must be
preserved and strengthened.
5.205 In the view of Hong Kong, China, the cited sub-sections of the US Section 301-310 of
the US Trade Act of 1974 constitute a violation of the obligations imposed by Article 23 of the
DSU that all WTO Members should resort to WTO adjudication bodies to resolve disputes
arising from the operation of the WTO agreements. Hong Kong, China requests the Panel to
recommend that the United States bring, in this very important respect, its legislation into
compliance with its WTO obligations.
G. I
NDIA
1. Introduction
5.206 India recalls that in its meeting on 2 March, 1999, the Dispute Settlement Body
established the Panel on United States-Sections 301-310 of the Trade Act of 1974. India had
signalled its substantial interest as third party in the matter before this Panel. The following is
the written submission of India in accordance with paragraph 2 of Article 10 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes.
5.207 India considers that the essential matter at issue before the Panel relates to Sections 301-
310 of the Trade Act of 1974. The European Communities has contended that Sections 301-310
explicitly mandate the US administration to proceed unilaterally on the basis of determinations
reached independently of the DSB and without its authorization especially once specified time
periods have lapsed. The European Communities therefore believes that Sections 301-310 must
be amended to make it clear that the US administration is required to act in accordance with the
US' obligations under the WTO agreements in all circumstances and at all times.
2. Measures at issue
5.208 India explains that Section 301(a) describes situations where the rights of the United
States under any trade agreement are being denied or an act, policy or practice of a foreign
country that denies benefits to the United States and is unjustifiable and burdens or restricts US
commerce. If the USTR determines (and such determination is unilateral) that one of the above
situations has occurred, then the USTR "shall take" retaliatory action. Section 301(a)(2) (A) and
(B) do talk of exceptions where action is not required to be taken by USTR and these relate to
situations where there is a DSB report which states that the action is not a violation of or
inconsistent with the rights of the United States or does not deny, nullify or impair benefits to
the United States, or where the foreign country is taking satisfactory measures to grant the rights
of the United States under a trade agreement or where the national security of the United States
is at stake.
5.209 India goes on to state that Section 301(b) applies to an act, policy or practice which
while not denying rights or benefits of the United States under a trade agreement is nevertheless
"unreasonable or discriminatory and burdens or restricts US commerce". It goes on to provide
examples of unreasonable acts, such as failure to protect intellectual property rights, toleration
of anti-competitive practices by private firms or denial of worker rights. If the USTR
determines that an act, policy or practice is actionable under this Section and determines that
action by United States is appropriate then the USTR shall take retaliatory action subject to the
specific direction, if any, of the President regarding such action.

5.210 India adds that the scope of retaliatory action is set out in Section 301(c) which
authorizes the USTR to suspend, withdraw or prevent the application of benefits of trade
agreement concessions and impose duties or other import restrictions on the goods and services
of such foreign country for such time as the USTR determines appropriate.
5.211 India points out that in the United States itself, no domestic court could pronounce
Section 301 inconsistent with WTO because Section 102 (a)(1) provides that "no provision of
any of the Uruguay Round Agreements nor the application of any such provision to any person
or circumstance that is inconsistent with any law of the United States shall have any effect".
Also, the same section provides that nothing in the Uruguay Round Agreements Act shall be
construed to limit any authority conferred under any law of the United States including
Section 301 of the Trade Act of 1974.
5.212 India further explains that Sections 302 to 310 deal with questions such as who can
initiate investigations under Section 301, the various time limits for action, monitoring of
measures taken by foreign country etc.
5.213 In the view of India, the central feature of the US legislation, it will be observed
therefore, is that the USTR can make a unilateral determination concerning a foreign country's
act, policy or practice vis-à-vis the rights and benefits of United States and its effects on US
commerce and then decide on trade retaliatory measures for as long as it (USTR) deems fit.
5.214 India contends that Sections 301-310 of the Trade Act of 1974 is both legally
indefensible and morally unacceptable. From a legal point of view, it is clear that inasmuch as it
embodies unilateralism, Sections 301-310 violate all canons of International Law. From a moral
point of view, it is unacceptable because it implies that might is right and that the strong can
prevail over the weak.
5.215 India points out that it has had a long histor y of being subjected to Sections 301-310 of
the Trade Act on grounds of alleged unfair trade practices. These Sections put pressure on
countries like India to conform to what the United States believes is "fair trading practices". As
will be shown below, the determination of what constitutes " unfair trading practices" or
"unreasonable acts" is done solely by United States and hence is unilateral; besides, there are no
objective criteria to determine those unfair practices making the whole process therefore
completely arbitrary.
5.216 India notes that in sum, Sections 301-310 of the Trade Act of 1974 is an instrument of
unilateralism used by the United States to force its trading partners to offer market access for
American goods and services beyond the scope of commitments undertaken in multilateral trade
negotiations. Consequently, these Sections undermine the multilateral trading system.
3. Legal Arguments
(a) Drafting History of WTO Agreement
5.217 India considers that any scrutiny of the drafting history of the Uruguay Round
Agreements in general and the DSU in particular, would reveal that a number of countries,
chiefly developing ones, accepted the strengthening of the dispute settlement mechanism
including the controversial provision of cross retaliation because they were given to understand
that in return they need no longer fear the threat of unilateralism. Indeed, many developing
countries such as India accepted the dispute settlement system with its provisions relating to

automaticity and cross retaliation in the expectation that under the new system there would be
no scope for unilateral action by trading entities.
5.218 India argues that the fact that this has not happened and statutes such as Section 301
have still remained on the statute books of the United States is a matter of profound regret for
those who believe in a rule-based multilateral trading system.
(b) Article XVI:4 of the WTO Agreement
5.219 India contends that the WTO Agreement in paragraph 4 of Article XVI clearly states
that each Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements.
5.220 India explains that in the discussions of the Legal Drafting Group during the Uruguay
Round, this provision was objected to by the United States and with good reason. It was
believed, correctly, by US negotiators that acceptance of this provision would pose a serious
problem for Section 301. Hence, the US negotiators tried to water down this provision but with
little success. Finally, the language was couched in strong terms so as to make it a binding
obligation on Members.
5.221 India also notes that GATT jurisprudence has a long history of cases where a law
requiring the executive to impose a measure inconsistent with a provision of the GATT can be
challenged under the dispute settlement procedure whether or not it had been applied to the
trade of the complaining party. Thus, the 1987 Panel on United States – Taxes on Petroleum
and Certain Imported Substances said that the very existence of mandatory legislation providing
for an internal tax without it being applied to a particular imported product should be regarded
as falling within the scope of Article III. Similarly, the famous 1992 Panel on United States --
Measures Affecting Alcoholic and Malt Beverages examined legislation in the state of Illinois
which the United States argued that it was not giving effect. Again, the Panel ruled that the
Mississippi legislation was inconsistent with Article III whether or not it was given effect to.
More recently, in the proceedings of the WTO Panel on India – Patent Protection for
Pharmaceutical and Agricultural Chemical Products , the United States claimed that the
"mailbox system" for patent applications which India had established by administrative action
did not meet the requirements of Article 70.8 of the TRIPs Agreement because mandatory
provisions of the India Patents Act prohibited grant of product patents in pharmaceutical and
agricultural chemical products.. India cited provisions of its Constitution on the distribution of
authority between its legislative and executive branch and court rulings on the non-binding
nature of the statutes requiring administrative actions by a specified date to argue that a mailbox
system could be established by administrative action notwithstanding the mandatory provisions
of the Patents Act. In response, the United States argued that GATT jurisprudence on
mandatory legislation made clear that India was obliged to eliminate what it called legal
uncertainty created by the fact that its administrative practices were inconsistent with mandatory
provisions of the Patents Act. In effect, the United States argued that the domestic law of a
Member must not only be such as to enable it to act consistently with its WTO obligations but
the domestic law must also not create legal uncertainty by prescribing WTO-inconsistent
measures. The Panel accepted this argument of the United States and ruled that the current
administrative practice creates a certain degree of legal insecurity in that it requires Indian
officials to ignore certain mandatory provisions of the Patents Act.
5.222 In India's view, the verdict is therefore clear: a law that, by its terms, mandates
behaviour inconsistent with a provision of a WTO Agreement violates that provision
irrespective of whether and how the law is or could be applied. This principle is a reflection of

the fact that a law with such terms creates uncertainty adversely affecting the competitive
opportunities for the goods or services of other Members.
5.223 India states that Article XVI:4 turns this principle into a specific and binding legal
obligation. In the light of the above, it is sufficient for the Panel to examine whether
Sections 301-310 mandate determinations and actions by the USTR that are inconsistent with
the US' obligations under the WTO Agreement.
(c) Article 23 of the DSU
5.224 India contends that Article 23 clearly states that all WTO Members shall have recourse
to and abide by the rules and procedures of the DSU to seek the redress of a violation of
obligations or other nullification or impairment of benefits under the covered agreements.
Specifically, it is stated that Members shall not make a unilateral determination about
nullification and impairment of benefits except through recourse to DSU. And yet,
Sections 301-310 seek to do precisely that. Sections 301-310 do not follow the procedures or the
rules of DSU; indeed, they seek to do just the opposite by threatening the foreign country that is
allegedly causing impairment and nullification for the United States. As amply demonstrated by
the European Communities, the USTR is required to proceed unilaterally when the results of the
WTO dispute settlement procedures are not available within the time limits set out in
Sections 301-310. For example, the USTR is mandated by Section 304(a) (2) (A) to make a
determination within a time frame that is shorter then the time frame within which it can
reasonably expect DSB findings on that matter. In effect, Section 304 mandates the USTR to
make a determination 18 months after the request for consultations on the United States denial
of rights under a WTO Agreement even if the DSB has not adopted a report with findings on the
matter within that time frame.
5.225 India concludes that for this reason, the US Sections 301-310 are inconsistent with the
time limits given in the DSU and in particular violate Article 23 of the DSU.
(d) Articles I, II, III, VIII and XI of GATT 1994
5.226 India contends that again, Section 306 (b)(2) sets out a 30-day limit from the end of the
reasonable period of time at which the USTR has to determine that the Member concerned has
failed to comply with the DSB recommendations without waiting for the conclusion of the
relevant DSU procedures. The operation of Section 306 can best be illustrated by the USTR's
determinations and actions in the Banana dispute. On the basis of a unilateral determination that
the European Communities had failed to implement the DSB's recommendations, the USTR
announced on 3 March 1999 that the US Customs Service would begin as of that date
withholding liquidation and reviewing the sufficiency of bonds on imports of selected European
products amounting to $520 million. The arbitrators decision came only on 9 April 1999 and US
request for retaliation was granted only on 19 April 1999. And the amount granted was $191.4
million. It is clear that the United States had on 3 March 1999 suspended its obligations under,
inter alia, Articles I, II, III,VIII and XI of GATT 1994 towards the European Commun ities
without prior authorization by the DSB. In retrospect, it is obvious that the USTR was obliged
to take action on 3 March 1999 because of Section 306 regardless of whether or not there was
DSB authorization under Article 22 of the DSU.
4. Conclusion
5.227 India concludes as follows: Firstly, it is clear that Sections 301-310 are a case of United
States reneging on its commitments undertaken in the Uruguay Round. Secondly, regardless of

whether or not it is applied in practice, GATT/WTO jurisprudence is that a law, which, by its
terms mandates behaviour that is inconsistent with a WTO provision, does violate that
provision. Thirdly, Sections 301-310 fall foul of Article 23 of the DSU; specifically, they also
contravene the time limits and other procedures of the DSU. Fourthly, Sections 301-310 violate
Articles I, II, III, VIII and XI of GATT 1994 as evidenced in the Bananas dispute.
5.228 For the above reasons, India requests the Panel to find that Sections 301-310 are
violative of the DSU, GATT 1994 and the WTO Agreement and to recommend that the DSB
request the United States to bring its Trade Act of 1974 into conformity with its obligations
under the WTO Agreements.
H. J
AMAICA
1. Introduction
5.229 Jamaica first states that its Government has taken the decision to seek the third party
status in this case because, as a small developing country, it places great emphasis on the rule of
international law and the honouring of international treaty obligations in accordance with the
principle of "pacta sunt servanda".
2. Legal Arguments
5.230 It is Jamaica's contention that by maintaining recourse to unilateral action, under
Sections 301-310 of the Trade Act of 1974, the United States is acting in breach of its
obligations under the WTO Dispute Settlement Understanding, which unequivocally commits
Members not to resort to such actions.
5.231 Jamaica further argues that underpinning this contention is the fact that the WTO DSU
is fully consistent with agreed rules on the principle of the peaceful settlement of Disputes
between States enshrined in Article 1(1) of the United Nations Charter and various resolutions
and declarations of the United Nations General Assembly.
5.232 Jamaica contends that the WTO Dispute Settlement mechanism is linked to the
historical effort to prevent resort to unilate ral action which undermines the credibility of the
multilateral trading system. As was observed by the Panel in United States – Import
Prohibition of Certain Sh rimp and Shrimp Products , the adoption of unilateral measures by
Members could "threaten the security and predictability of the multilateral trading system".
5.233 Jamaica points out that it is generally accepted that the WTO Dispute Settlement
System is the central pillar of the multilateral trading system and the WTO's most individual
contribution to the stability of the global economy. However, the confidence behind this derives
from the Organization's ability to ensure that Members will comply with the rules. The integrity
of the WTO would suffer a great deal if Members were able to adopt unilateral actions in
defiance of their obligations under the WTO Agreement.
5.234 Jamaica also notes that it is accepted that the fundamental principle of treaty law is
"pacta sunt servanda" whether based on customary law or the Vienna Convention on the Law
of Treaties, Article 26.
5.235 In the view of Jamaica, this fundamental concept has been given effect in Articles 3.1,
21.5, 23.1, 23.2 of the WTO Dispute Settlement Understanding in requiring Members to subject
themselves to the rules agreed thereto.

5.236 Jamaica also contends that Article XVI:4 of the Agreement Establishing the WTO
clearly requires domestic action to incorporate the entirety of WTO obligations:
"Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the Annexed
Agreements". (emphasis added).
5.237 Jamaica further argues that the Dispute Settlement Understanding is an integral part of
the WTO Agreement, and Article III:3 of the latter confers authority on the WTO to administer
the DSU.
5.238 Jamaica points out that the United States actively participated in the negotiation of the
WTO Agreements and made a substantial contribution in the drafting of the dispute settlement
rules. Further, the United States was party to the Marrakesh Declaration of 15 April 1994, in
which the Ministers welcomed, inter alia:
"the stronger and clearer legal framework they have adopted for the conduct of
international trade, including a more effective and reliable dispute settlement
mechanism".
5.239 Jamaica concludes that as signatory to the Uruguay Round Agreements, the United
States and other Members of the WTO therefore undertook to resolve disputes in accordance
with the agreed multilateral rules enshrined in the DSU.
5.240 Jamaica also considers that by virtue of Se ctions 102(a)(1) and 102(c) of its Uruguay
Round Agreements Act, the United States has decreed that no provision in the WTO
Agreement should prevail over any law of the United States to the extent of inconsistency.
There is nothing in the Uruguay Round Agreements Act of the United States which should be
construed as limiting "any authority conferred under any law of the United States, including
section 301".
5.241 Jamaica points out that the effect of these Sections is that provisions in the WTO
Agreement which run contrary to the law of the United States are declared to be void and to
have no effect, ab initio.
5.242 Jamaica states that it does not dispute a Member's right to seek redress for breaches of
contractual obligations under the WTO Agreement. However, while actions under
Section 301(a) are subject to the final authority of the DSB, there resides a discretionary right
to take action under Section 301(b) the process of which is outside the scrutiny of an external
and impartial judicial authority. The result of Section 301(b), therefore, is to provide the
United States with an alternate procedure through which to achieve a result favourable to its
own interests, which it feels that it could not probably get from the DSB
5.243 Jamaica argues that while the retention of a competing system for dispute settlement
may not per se be contrary to international law, the subsequent reliance on that rival process as a
substitute for an agreed multilateral mechanism for the settlement of disputes could constitute a
violation of treaty obligations. Indeed, as was stated by the panel in United States – Taxes on
Petroleum and Certain Imported Substances ,
576 a Member would be in violation of its WTO
obligations, if it has enacted a law which mandates it to take certain measures in the future

576 Panel Report on US – Superfund, op. cit.

which are not justified under the WTO Agreement, even if those measures are not specifically
applied. The possibility of having an alternative mechanism for seeking redress under
Sections 301(a) and (b) undermines the integrity of the WTO dispute settlement mechanism.
5.244 Jamaica further argues that it is also a breach of good faith by the United States towards
the other Members who have brought their domestic legislation in line with commitments
undertaken in the WTO.
5.245 Jamaica points out that the single undertaking approach which was adopted by
Members during the Uruguay Round means that it is no longer possible for Members to pick
and chose which agreements they want to adhere to. As the DSU is an integral part of the WTO
Agreement, the United States is obliged to respect all its provisions including Article 23 which
commits Members to refrain from making unilateral determinations as to whether or not a
Member has violated its obligations under the WTO Agreement.
5.246 According to Jamaica, the integrity of the WTO is as strong as its membership's
demonstrated commitment to its principles. The Members provide their own checks and
balances against the actions of other Members who deviate from the agreed rules and
obligations.
5.247 In the view of Jamaica, given the importance of the dispute settlement system of the
WTO as a central element in providing security and predictability of market access conditions in
the multilateral trading system, the WTO cannot, through a recommendation nor a finding of
this Panel, condone the adoption of unilateral action by a Member State on the basis of its
domestic legislation. Should this occur, Members themselves would be party to the undermining
of the authority of the dispute settlement mechanism. If Members are thereby encouraged to act
unilaterally in the settlement of trade disputes, there would be no incentive for continued
adherence to the agreed processes of the DSU.
5.248 Jamaica argues that the United States has on many occasions reiterated its commitment
to building and maintaining confidence in the WTO. The United States Trade Representative to
the WTO in a recent statement in March 1999 reaffirmed that an open trading system which is
essential to global prosperity cannot be maintain ed unless there is adherence to the rules. This
will be difficult to achieve if Members of the WTO are constantly confronted with domestic
legislation of a Member which authorizes it to impose unilateral sanctions in defiance of agreed
multilateral rules.
5.249 Jamaica then requests the Panel to find that unilateral actions taken by the USTR in
pursuance of Sections 301- 310 of the 1974 Trade Act are contrary to the obligations of the
United States under the WTO Agreement.
5.250 Jamaica also requests the Panel to recommend that the United States bring its Trade Act
of 1974 in conformity with its obligations under the WTO Agreement.
5.251 In response to the Panel's question as to whether DSU Article 23.2 prohibits any
determination on WTO consistency or any determination to the effect that a violation has
occurred, Jamaica states that in order to answer this question on how Article 23(2)(a) is to be
interpreted, one has examine the context in which Article 23 (2)(a) applies.
5.252 Jamaica points out that the primary rule for interpretation of treaty provisions, codified
in the Vienna Convention on the Law of Treaties, Article 31, requires that,

"a treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its object and purpose".
5.253 Jamaica argues that Article 23.2(a) should therefore be read in conjunction with
paragraph (1) of the same Article which puts the entire Article in context. The title of Article 23
is "Strengthening the Multilateral System" and Article 1 sets the overall focus of the Article by
stating that,
"when Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreement or an
impediment to the attainment of any objective of the covered agreements, they
shall have recourse to, and abide by, the rules and procedures of this
Understanding". (emphasis added)
5.254 Jamaica goes on to state that the obligation on Members to utilise the DSU provisions is
emphasised in the sub-sections of paragraphs 2(a), (b) and (c) which spell out the steps to be
undertaken by Members "in such cases" , that is, in cases where Members seek redress for
breaches of obligations.
5.255 In the view of Jamaica, Article 23(2)(a) states that Members shall "not make a
determination ... except through recourse to dis pute settlement in accordance with the rules and
procedures of this Understanding…" and the determinations relate not only to the occurrence of
violations, but also to benefits which have been nullified or impaired or impediments to the
attainment of any objective of the covered agreements.
5.256 Jamaica is of the view that Article 23 does not prohibit the making of a determination
per se that a violation has occurred, or benefits have been nullified etc., as certainly, a Member
which has brought a dispute to the DSB must have made a "determination" of some degree that
another Member's practices/policies are WTO inconsistent, hence seeking the DSB's opinion of
this preliminary "determination".
5.257 Jamaica contends that the prohibition which is the focus of Article 23(2)(a) , and in
effect the entire Article 23, however, relates to determinations executed in the context of
seeking redress for breached obligations. Such a "determination" by a Member would be akin
to a finding or recommendation by the DSB, on the WTO consistency of a matter, as this
"determination" would, of necessity, give rise to redress by the affected party. This exercise
would amount to usurping the rights of the DSB to make such decisions. Only the DSB has the
right to make determinations affecting the rights and obligations of Members.
5.258 Jamaica further argues that paragraph (a) of Article 23(a) supplements its prohibition on
determinations outside of the DSB by concluding that,
"[any] such determinations shall be made consistent with the findings contained
in the panel or Appellate Body reports adopted by the DSB …".
5.259 Jamaica, in response to the Panel's question as to whether an official US statement
binding in international law that the US government will not exercise its discretion in a way
contrary to WTO rule remove the WTO inconsistency of Sections 301-10 on the assumption
that the USTR and the President have the discretion to avoid determinations and actions
contrary to WTO rules in all circumstances, and that, nevertheless, Sections 301-310 were found
inconsistent with WTO rules, states that the United States is a signatory to the Final Act

embodying the results of the Uruguay Round of Multilateral Trade negotiations, which includes
the Marrakesh Agreement and the Understanding on Rules and Procedures governing the
Settlement of Disputes.
5.260 Jamaica draws the Panel's attention to the text of Article XVI:4 of the Marrakesh
Agreement and Article 23 of the DSU.
5.261 Jamaica contends that having signed onto this legally binding multilateral instrument,
the United States thereby solemnly undertook to abide by its rules including , the rules and
procedures of the DSU. However, this legally binding undertaking did not prevent the United
States from acting contrary to its obligations, which has infringed the rights of other Members.
5.262 Jamaica is of the view that a statement made by a government which contradicts
legislation is not a sound basis on which to conduct international treaty relations. The US
statement does not therefore constitute and effective restraint on its discretionary action contrary
to the obligation which should be enshrined in law.
5.263 Jamaica is of the view that the discretionary latitude given to the US President and the
USTR, under Sections 301 and 302, whether exercised or not, leaves the way open for the
exercise of that discretion.
5.264 Jamaica states that it can find no justifiable grounds on which the United States holds
itself to be exempt from complying with the rules of the WTO. In fact, should the United States
be permitted to retain inconsistent domestic legislation, this will pave the way for the "exception
to become the rule" as more WTO Members may be inclined to retain non-conforming
legislation while conveniently making unilateral undertakings of compliance.
5.265 Jamaica recalls the decision of the panel in United States - Taxes on Petroleum and
Certain Imported Substances ,
577 where it was held that a Member would be in violation of its
WTO obligations, if it has enacted a law which obliges it to take certain measures in the future
which are not justified under the WTO Agreement, even if those measures are not specifically
applied. Thus, the very fact that the United States legislation requires the President to take
certain actions upon the fulfilment of certain requirements, it could be said by way of analogy,
that this law violates the letter and spirit of the WTO Agreement.
5.266 Accordingly, Jamaica urges the Panel to insist on full compliance with the established
rules of the WTO, and thus to rule that, Sections 301-310 be amended accordingly to bring the
United States into compliance with the undertaking it made in 1994. Jamaica is confident hat
the full Membership will accept no less than a complete revision of the offending domestic law
of the United States which is the subject of this dispute..
I. J
APAN
1. Introduction
5.267 Japan points out that as this case presents the extremely important issue of unilateral
determination within the scope of the WTO dispute settlement, it has some substantial systemic
interest in the matter. The findings of the Pane l will be of acute importance, and it sincerely
hopes that the Panel will thoughtfully consider the matter at hand.

577 Panel Report on US – Superfund, op. cit.

2. Legal Arguments
5.268 Japan is of the view that the renunciation of unilateral trade measures in the WTO
Dispute Settlement is one of the most important rules of the WTO. WTO Members are
prohibited from unilaterally suspending concessions or other obligations under the WTO
Agreement. Moreover, Article 23 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes clearly requires WTO Members to follow the rules and procedures under
the DSU and stipulates that they shall not make a determination such that measures taken by
another Member violate the provisions of the WT O Agreement, except through recourse to the
dispute settlement in accordance with the rules and procedures of the DSU.
5.269 Japan notes that at the entry into force of the WTO Agreement, the United States
announced that it had amended its Trade Act of 1974 in order to respect the procedures in
accordance with the enhanced Dispute Settlement system. The amendment, however, has
proved to be insufficient. The United States claims that the Trade Act of 1974 can be
implemented in compliance with the WTO Agreement by utilising the discretion provided for
therein through the USTR when determining whether or not there is violation of WTO
Agreement by another Member and what further actions are to be taken and when implementing
the determined actions, as well as through the specific direction of the President. Nonetheless, it
is doubtful whether the Trade Act of 1974 is truly discretionary. For instance, despite the United
States describing that the USTR is free to make a negative determination and then to reinitiate a
second investigation in order to make a definitive determination of a violation to the WTO
Agreement upon DSB adoption of panel and Appellate Body findings, such discretion does not
appear to be explicit from the provisions of the Trade Act of 1974. On the contrary, the Trade
Act of 1974 is considered to oblige the United States to determine whether another Member
denies the rights or benefits of the United States under the WTO Agreement without following
the necessary procedures under the Dispute Settlement Mechanism and, in that case, is
inconsistent with Article 23 of the DSU.
5.270 Japan contends that even assuming that the United States can implement the Trade Act
of 1974 in compliance with the WTO Agreement with broad discretion, it is very unlikely that
such discretion is exercised consistently with the WTO Agreement.
5.271 Japan considers that the facts indeed show that the United States has repeatedly made
determinations that actions, policies or practices of another WTO Member were inconsistent
with the WTO Agreement, or unreasonable, a nd has determined further actions, including a
suspension of concessions or other obligations under the WTO Agreement, without abiding by
the Dispute Settlement procedures.
5.272 In Japan's view, the following cases demonstrate that the United States has used to its
advantage unilateral measures under the Trade Act of 1974 as an instrument for settling trade
disputes against Japan.
5.273 Japan explains that in October 1994, the United States initiated an investigation on
Japan's market regarding the replacement auto parts and automotive accessories under the Trade
Act of 1974. In May 1995, it determined that the acts, policies and practices of the Government
of Japan were unreasonable and burdensome and that they restricted commerce in the United
States. Subsequently, it announced the implementation of sanctions under which the imports of
Japanese luxury cars would be subject to duties of 100% ad valorem . Following this
announcement, the US Customs Service withheld the liquidation of the entry of vehicles on the
sanction list, and the exports of those vehicles from Japan was actually halted. Japan requested
consultations under Article XXII of the GATT against such unilateral action taken by the United

States. This matter was finally settled through political means conducted independently from the
Dispute Settlement process. However, this incidence was a clear example that the United States
acted in violation of its obligations under the DSU in favour of the procedures under the Trade
Act of 1974.
5.274 Japan emphasizes that it does not claim that the initiation of investigation under
Section 302 constitutes a violation of the WTO Agreement. Japan, however, considers that the
announcement of affirmative "determination" and the announcement of a list of products that
could be subject to increased tariffs, which were made on May 16, 1995, are inconsistent with
the obligations of the Government of the United States under Article 23 of the DSU.
5.275 Japan argues that based on the past experience, despite the US claim that the Trade Act
of 1974 can be implemented consistently with the WTO Agreement through the broad
discretion given to the USTR and the specific instruction of the President, the Trade Act of 1974
has the following major problems in relation to the WTO Agreement.
5.276 Japan further contends that the language of Section 304(a)(2) of the Trade Act of 1974
mandatorily requires the USTR to determine whether the rights of the United States under the
WTO are being denied or whether any act, policy or practice of another WTO Member violates
or is inconsistent with the WTO, or is unjustifiable, within 18 months after initiation of the
investigation of a case. In accordance with the DSU, the Dispute Settlement process normally
requires a period of 18.5 months and, as a matter of fact, there have been several cases that have
taken longer. This clearly demonstrates that, at least in cases in which the necessary procedures
are not completed within the 18 months provid ed for, the USTR is obligated to act under
Section 304(a) 2 in conflict with the DSU. It must also be noted that the discretion mentioned
therein is not explicit enough with regard to the given provisions of the Trade Act of 1974.
Section 304(a)(2) can, therefore, be considered as obliging the USTR to determine, prior to the
adoption of the panel or Appellate Body report, whether another Member denies rights or
benefits under the WTO Agreement and, thereby, is inconsistent with Article 23 of the DSU.
Even assuming that the United States can implement the Trade Act of 1974 in compliance with
the WTO Agreement with broad discretion, there is no guarantee that such discretion is
exercised consistently with the WTO Agreement.
5.277 Japan also alleges that Section 306(b)(2) of the Trade Act of 1974 requires the USTR to
determine what further action to take within 30 days after completion of the reasonable period
of time, if the USTR determines that a recommendation of the Dispute Settlement Body has not
been implemented. According to the DSU, where there is disagreement as to the existence or
consistency of the measures taken to comply with the recommendations and rulings, such
dispute shall be settled through the dispute settlement procedures under Article 21.5 of the DSU.
Japan is of the view that if it is assumed that the drafter of the DSU supposed the dispute
settlement procedures under Article 21.5 of the DSU to be completed before the date of expiry
of the reasonable period of time, the relationship between Article 21 and Article 22 of the DSU
would be well explained. It could also ensure the WTO consistency of Section 306(b).
However, there is no consensus on such interpretation on Article 21.5 and it is generally
understood that the dispute over the existence of implementation of the recommendation shall
be referred to the procedure under Article 21.5 after the expiry date of reasonable period of
time. Article 21 provides that the panel shall circulate its report within 90 days after the date of
referral of the matter to it. Therefore, it is normally difficult to complete the necessary
procedures under Article 21.5. Under Section 306(b)(2), the USTR is more than likely to
determine that a recommendation of the DSB has not been implemented, as well as to determine
further action, including a suspension of concessions or another obligation, to be taken prior to

the completion of the necessary procedures under Article 21.5 and such determination is
inconsistent with Article 23 of the DSU.
5.278 Japan adds that when the dispute over the existence or consistency with a covered
agreement is referred to the procedure under Article 21.5 after the expiry date of the reasonable
period of time, the panel shall circulate its report within 90 days after the date of referral of the
matter to it.
5.279 In Japan's view, notwithstanding such a period of 90 days defined in this Article,
Section 306(b)(2) requires the determination to be made only within 30 days after the expiration
of the reasonable period of time. When the panel determination under Article 21.5 is made on a
date beyond the deadline which Section 306(b)(2) requires, the USTR is more than likely to
make a determination that a recommendation of the DSB has not been implemented, as well as
make a determination on further actions including suspension of concessions pursuant to
Section 306(b)(2), prior to the completion of the procedures under Article 21.5 of the DSU.
5.280 Japan notes that in the EC - Banana III case, it was not until 19 April 1999, the date on
which the DSB authorized the suspension of the concession based on the decision of the
arbitrators, that the multilateral determination wa s made as to the consistency/ inconsistency of
the measures taken by the European Communities in response to the recommendations and
rulings of the panel and the Appellate Body. In defiance of the WTO rules for determination of
compliance, the United States made a decision on 3 March 1999, to the effect of taking customs
actions in the form of withholding of liquidation as well as imposition of a contingent liability
for 100% duties. In its press release, it was stated that "we must conclude that it is time for the
European Communities to bear some of the consequences for its complete disregard for its
GATT and WTO obligations". The said press release is attached herewith.
5.281 Japan further argues that Sections 306(b) and 305(a) of the Trade Act of 1974 require
the USTR to implement further action within 30 days of the date of determination of such
further action (i.e. within 60 days after the expiry date of the reasonable period of time). Even if
it is assumed that the procedures under Article 21.5 of the DSU are supposed to be completed
before the expiry of the reasonable period of time, and if the suspension of concessions or other
obligation is referred to arbitration according to Article 22.6 of the DSU and if the arbitration
requires the maximum period of 60 days, it will not be possible to meet the deadline stipulated
under the relevant Sections of the Trade Act of 1974, unless a DSB meeting is requested 10
days before the arbitration is awarded. This will be against the current practice, which has also
been accepted by the United States. Thus, it is normally difficult to complete the necessary
procedures until obtaining authorization from the DSB. When Sections 306(b) and 305(a)
require the USTR to implement a suspension of concessions and other obligations as further
action prior to the DSB authorization, such suspension is inconsistent with the basic provisions
of the GATT (Articles I, II, III, VIII and XI) and GATS (Articles II, XVI, XVII, XVIII),
depending on respective measures.
5.282 Japan also asserts that Sections 304(a) and 305(a) require the USTR to determine
whether an act, policy or practice of a foreign country is unreasonable even when it does not
deny the US rights on the WTO Agreement or is not inconsistent with the WTO Agreement.
They also require the USTR to determine what further actions to be taken and then to implement
them without following the dispute settlement procedure under the WTO Agreement. Even in
such cases where the USTR determines that the act, policy or practice of a foreign country does
not deny the US rights under the WTO Agreement but that it is unreasonable, simply
implementing further actions which are not consistent with the WTO Agreement including
suspensions of concessions or other obligations is inconsistent with the basic provisions of the

GATT (Articles I, II, III, VIII and XI) and the GATS (Articles II, XVI, XVII and XVIII),
depending on the respective measures.
5.283 Japan concludes that in the above considerations, the Trade Act of 1974 is considered to
oblige the United States to act inconsistently with its obligations under the WTO Agreement.
Even assuming that the United States can implement the Trade Act of 1974 in compliance with
the WTO Agreement with broad discretion, it is very unlikely that such discretion is exercised
in consistence with the WTO Agreement. It also seriously damages the Dispute Settlement
Mechanism within the framework of the WTO. Th erefore, the United States should amend its
Trade Act of 1974 to ensure that it fully complies with its obligations under the DSU.
5.284 Japan also states that on the basis of the above points, whereby the United States
unilaterally applies its own rules and regulations by way of the Trade Act of 1974, such action
can seriously damage the Dispute Settlement Mechanism within the framework of the WTO.
Although the United States claims that the Trade Act of 1974 can be implemented in
compliance with the WTO Agreement by utilising discretion, the degree of such discretion
contained in the provisions of the Trade Act of 1974 is far from being explicit. Any such
ambiguity is also against the spirit of GATT Article X. In conclusion, Japan strongly requests
the Panel to request the United States to amend its Trade Act of 1974 in order to ensure its full
compliance with its obligations under the DSU.
5.285 Lastly, Japan expresses its concern on the US reinstitution of the Super 301 from March
of this year. Under the Super 301, the United States regularly identifies foreign actions, policies
and practices as a priority foreign country practice, which would lead the United States to
initiate a Section 301 investigation, thus promoting the mechanism under Section 301 of the
Trade Act of 1974, thereby leading to unilateral measures. This indicates that the United States
has not changed its attitude towards its trading partners, including Japan, to conduct trade
disputes to its advantage through the threat of using unilateral trade measures. Japan is greatly
concerned that such US policy will seriously damage the WTO framework.
5.286 In response to the Panel's question as to whether DSU Article 23.2 prohibits any
determination on WTO consistency or any determination to the effect that a violation has
occurred, Japan states that Article 23.2(a) of the DSU should be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms that it prohibits Members to
determine to the effect that a violation has occurred.
5.287 Japan, in response to the Panel's question as to whether an official US statement binding
in international law that the US government will not exercise its discretion in a way contrary to
WTO rule removes the WTO inconsistency of Sections 301-10 on the assumption that the
USTR and the President have the discretion to avoid determinations and actions contrary to
WTO rules in all circumstances, and that, nevertheless, Sections 301-310 were found
inconsistent with WTO rules, states that the assumption provided in this question entails a
contradiction. That is, generally speaking, laws are not inconsistent with WTO rules when such
discretion as is described above is given to administrators under the laws. Moreover, it is not
clear how an official statement could be "binding in international law". An "official statement"
alone cannot remove the WTO inconsistency from the WTO inconsistent law. In order to
remove the inconsistency in law, such removal must be enacted with a legal instrument which is
binding in law. Furthermore, it is highly unlikely that a government would announce that it will
not exercise its discretion under the WTO inconsistent law in accordance with WTO rules,
which would mean that the government would always deviate from the law.

5.288 In response to the US question as to the consistency of the third parties' domestic legal
system to proceed with the dispute settlement under the WTO Agreement, Japan explains that
Article 98.2 of the Constitution of Japan stipulates that the treaties concluded by Japan and
established laws of nations shall be faithfully observed. When requesting for consultations or
establishment of panels, the Government of Japan presents its view that another Member's
measure concerned is inconsistent with its WTO obligations. Such a view, however, does not
constitute a determination in the specific sense under Article 23 of the DSU, and the
Government of Japan strictly follows the dispute settlement procedures under the DSU and does
not unilaterally make a determination and take actions without observing the rules of the DSU.
J. K
OREA
1. Introduction
5.289 Korea recalls that on March 2, 1999, pursuant to the request made by the European
Communities, the Dispute Settlement Body established a panel to consider whether
Sections 301-310 of the United States' Trade Act of 1974 comply with the United States'
GATT/WTO obligations. In accordance with Article 10 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes, the Republic of Korea reserved its rights as a
third party to the dispute by notification to the DSB.578
5.290 Korea goes on to state that as a frequent target of United States threats and actions
under Sections 301-310, Korea has a substantial interest in the challenge brought by the
European Communities to this aspect of US trade law. Although Korea was only the United
States' ninth largest trading partner in mid-1998,579 Korea has been the third most frequent target
of Section 301 actions, behind the European Union and Japan.580 In total, as of June 4, 1998, at
least ten Section 301 cases had been initiated against Korea.581
5.291 In response to the Panel's request, Korea provided the following table showing the cases
where the United States took actions against Korea under Section 301.

578 Korea refers to , Note by the
Secretariat, Constitution of the Panel Established at the Request of the European Communities, 6 April
1999, WT/DS152/12, para. 5 (noting countries that have reserved rights as third parties).
579 Central News Agency (Taiwan), US Deficit with Tigers Grow in Leaps and Bounds , June 19,
1998.
580 Thomas O. Bayard & Kimberly Ann Elliott, Re ciprocity and Retaliation in U.S. Trade Policy
57-58 (1994), cited in Raj Bhala, International Trade Law: Cases and Materials 1096 (1996).
581 United States Trade Representative, Section 301 Table of Cases (as of 4 June 1998)
http://www.ustr.gov/reports/301report/act301.htm.

CASES OF US UNILATERAL SECTION 301 MEASURES ON KOREA
A. US Unilateral Section 301 Measures under the GATT system (1980- )
# NAME OF
THE CASES
SECTION 301 MEASURES AND THE
BILATERAL NEGOTIATIONS
AGREEMENT
1 Insurance According to the petition filed by the US
industry on Nov. 5, 1979, USTR initiated
an investigation on Dec. 19, 1979.
On Nov. 26, 1980, USTR invited public
comments on, inter alia, proposals for
retaliation. Beginning in June 1980,
several rounds of consultations were held.
Korea committed to promote more open
competition in the Korean insurance market.
The industry withdrew the petition on Dec.
19, and the USTR terminated the
investigation on Dec. 29, 1980.
2 Insurance On Sept. 16, 1985, the USTR self-initiated
an investigation of Korea's insurance
services. This was one of the first cases
USTR self-initiated the investigation.
Five consultations were held - in Nov. and
Dec. 1985 and Feb., March and July 1986
– concerning the opening of the Korean
insurance market.
On July 21, 1986, Korea agreed to increase
US firms' access to the Korean insurance
market by enabling them to underwrite both
life and non-life insurance.
(Exchange of Letter on Insurance)
The US thus terminated the investigation on
Aug. 14.
Amendment The 1986 Agreement was amended on Sept
10, 1987, setting forth more detailed
requirements regarding insurance operations
through joint ventures. (Exchange of Letters
on Insurance)
In January, 1988, the US and ROK further
clarified the Sept. 10 amendment to specify
the terms under which some Korean firms
could participate in joint ventures. (Exchange
of Letters on Life Insurance Joint Venture)
3 Non-Rubber
Footwear
Import
Restrictions
Petition was filed by the Footwear
Industries of America, Inc. et al. on Oct.
25, 1982, alleging import restrictions on
non-rubber footwear by the EC and other
countries, including Korea.
Korea consulted with the US on Feb. 5, 1983.
In August, Korea reduced tariffs on footwear
items and removed leather items from the
import surveillance list.
4 Intellectual
Property
Rights
On Nov. 4, 1985, USTR self-initiated an
investigation over Korea's intellectual
property rights protection system.
Korea held bilateral consultation with the
US in November and December 1985 and
throughout February-July 1986.
The US requested Korea to protect not
only patents, copyrights, and trademarks,
but also demanded to consider protection
of compiled data bases.
On July 21, 1986, Korea agreed to improve
protection of intellectual property rights in
Korea, and the agreements were signed on
Aug. 28, 1986.
(Record of Understanding on Intellectual
Property Rights, Exchange of letters on
Process Patents, and Explanatory Letter on
Administrative Guidance)
- Korea agreed to lengthen the patent
protection and protect US pipeline products,
patented in the US after Jan. 1980 for 10
years from 1987-1997.
- Korea agreed to increase period of
copyrights protection from 30 to 50 years.
- Korea enacted a computer software
protection law.
The US terminated the investigation on Aug.
14, 1986.
Korea agreed on the retroactive protection of
copyrights even when it was not a contracting
party to the Berne Convention.

5 Cigarettes Pursuant to petition by the US industry on
Jan. 22, 1988, the USTR initiated an
investigation and requested consultations
with the Korean Government on Feb. 16,
1988 over market access for foreign
cigarettes.
Korea agreed on May 27, 1988, to allow
"full" national treatment and 0% tariff. (ROU
on Market Access for Cigarettes) The
investigation was terminated on May 31,
1988.
6 Beef Petition by related industry was filed on
Feb. 16, 1988. The petition alleged that
Korea maintains a restrictive licensing
system on imports of all bovine meat, in
violation of GATT Article XI.
Korea and US held GATT consultations
on Feb. 19-20 and March 21.
While the GATT dispute settlement
process was ongoing, USTR initiated an
investigation on March 28.
On May 4, 1988, GATT Council
established a panel under Art. XXIII:2.
The first panel meeting was November 28,
1988; the second meeting was January 20,
1989. The panel issued a report favorable
to the US on May 27.
Korea twice rejected to adopt the panel
report at GATT Council meetings in June
and July 1989.
The USTR announced on Sept. 27 that it
will delay its retaliatory action for up to
180 days, but will publish a retaliation list
by mid-November if "substantial
movement toward resolution of the issue
in the GATT has not occurred by that
time". After bilateral consultations in Aug.
And Nov, Korea adopted the GATT panel
report on Nov. 7.
Following several rounds of negotiations,
Korea concluded on agreement with US on
March 21, and exchanged letters on April 26-
27, 1990.
On April 26, 1990, the section 302
investigation was terminated.
However, Korea remains subject of
monitoring of its implementation of the
commitments.
7W i n e On April 27, 1988, the US industry filed a
petition complaining of policies and
practices of the Korean Government on
the Korean wine market.
On June 11, 1988, USTR initiated an
investigation and requested consultations
with the Korean Government.
Consultations were held October 11-12 in
Washington and October 25 in Seoul.
Further consultations finally resulted in an
agreement, reached on January 18, 1989, in
which Korea agreed to provide foreign
manufacturers of wine and wine products
non-discriminatory and equitable access to
the Korean market.(Exchange of Letters on
Imported Wine and Wine Products) Korea
also agreed to lower the tariff to 50%. The
investigation was terminated on January
18,1989.

B. US Unilateral special 301 measures
# NAME OF
THE CASES
SPECIAL 301 MEASURES AND THE
BILATERAL NEGOTIATIONS
AGREEMENT
1 Intellectual
Property
Rights under
Special 301
On June 13, 1988, the USTR formed an
interagency task force to examine Korean
patent system.
In May 1989, USTR included Korea in the
Priority Watch List (PWL). The US still
monitors implementation of the agreement
through annual consultation, and leaves
Korea subject of "Special 301 procedure" to
this date.
The ROU provided consultative
mechanism, which was used to review
Korea's implementation of the agreement.
Under the threat of Special 301, Korea
exchanged letters on the protection of
pipeline products which specified products
subject to pipeline protection and
procedures to follow. (Exchange of Letters
on the Protection of Pipeline Products)
On Feb. 1989, USTR designated Korea as
Priority Foreign Countries (PFC) under
Section 1374 of the 1988 Trade Act,
requested liberalization of Korea's
telecommunications market.
From Sept. 1989-Jan. 1992, nine
consultations were held.
On Feb. 24, 1992, Korea agreed to provide
national treatment to US firms and joint
ventures, and to implement liberalization of
telecom market.
USTR withdrew its designation of Korea as
a PFC on March.
2 Telecommun
ications
under
Telecommun
ications
Trade Act of
1988
According to 1992 ROU, US requested
annual consultations bet. 1993-1995 to
review implementations of the agreement,
and to yield further concession by
threatening to designate Korea again as
PFC.
Early 1996, USTR requested amendment of
1992ROU, and pronounced that it will
designate Korea as PFC by Jul. 1 if talks on
market access of telecom fails.
USTR threatened to take Super 301
retaliation measures within 1 months if
Korea does not amend 92ROU and further
open Korea telecom market.
Series of consultations held bet. May-July
failed, and on July 26, 96, USTR again
designated Korea as PFC.
Meetings were held in Sept. Oct. Dec. 96,
Feb. Mar. and June 97.
On June 17-18, 97, Korea and US finally
ended the trade conflicts.
Korea refused to amend/conclude a new
agreement, but instead agreed to put on the
official gazette "information and
communications policy statement".
USTR withdrew its designation of Korea as
a PFC on July 23, 1997.

C. US Unilateral 301 measures under the WTO Regime
# NAME OF
THE CASES
SECTION 301 MEASURES AND THE
BILATERAL NEGOTIATIONS
AGREEMENT
1A g r i c u l t u r a l
Market
Access
Restrictions
On Nov. 18, 1994, the US Industry filed a
petition with respect to Korean practices
regarding the importation of certain US
agricultural products.
On Nov. 22, 1994, USTR initiated an
investigation and invited public comment.
Korea offered concessions at the April trade
sub-group meeting, that it will introduce
voluntary-based shelf-life system beginning
1998. The US requested earlier
implementation, however.
On May 3, 1995, the US requested
consultations with Korea under the WTO
dispute settlement procedure. The first
consultation was held on June 5-6, 1995.
Korea and US reached a solution on July
20, 1995, which was notified to the WTO
the following day.
The USTR terminated investigation
following the agreement. USTR still
monitors Korea's implementation of the
agreement pursuant to section 306 of the
Trade Act.
2 Barriers to
Auto
Imports
On Oct. 1, 1997, the USTR determined to
designate Korea as Priority Foreign Country
Practices, according to the Super 301
measure, and initiated on October 20, 1997,
an investigation on Korean auto market. On
October 28, 1997, the USTR invited public
comment.
Series of consultations were held.
On Sept 7, 1998, US sent a letter to
President of Korea reminding of the Oct 19
deadline for Super 301 investigation,
requesting "real market opening
concessions to resolve the Super 301
investigation".
On Oct. 20, 1998, Korea concluded MOU to
improve market access of US and other
foreign motor vehicles to the Korea market,
and the USTR accordingly terminated the
investigation. The MOU established
conditions for market operation in Korean
motor vehicle sector, touching on Korea's
tax regime, public perception, mortgage
system, and type-approval procedure.
2. Overview
(a) The Importance of the DSU
5.292 Korea argues that under the 1947 General Agreement on Trade and Tariffs ("GATT
1947"), binding dispute settlement was almost impossible to achieve. In the first place, dispute
settlement proceedings were quite lengthy and easily delayed. Even more problematic,
however, was the fact that the dispute settlement procedures of GATT 1947 Article XXIII
required consensus, such that a "defendant" Contracting Party could effectively block retaliatory
suspension of GATT obligations or concessions by the "complainant" Contracting Party.
5.293 Korea also notes that the shortcomings of the dispute settlement system under GATT
1947 occasionally led to unilateral retaliation and counter-retaliation as states exercised their
self-determined rights under customary international law to suspend GATT concessions as a
response to perceived GATT violations by other states. These costly rounds of unregulated
suspensions of trade concessions were destabilizing to the international economic system,
particularly as they often devolved into downward-spiralling trade wars. For example, the so-
called "chicken war" that took place in the early 1960s between the United States and the
European Economic Community ("EEC") grew from a dispute over application of the EEC's
Common Agricultural Policy to broiler chickens to a trade war involving threats by the United

States to retaliate against products ranging from wine and Roquefort cheese to scissors and
electric shavers.582 The GATT 1947 system proved largely incapable of checking or preventing
such trade wars, and indeed the failure of the system was used by some states as a justification
for initiating unilateral action. The United States, in particular, frequently resorted to unilateral
trade measures inconsistent with GATT 1947 when dispute settlement under the existing
procedures was ineffective, explaining that: "If such action was considered unilateral, it should
be nevertheless recognised as perfectly justifiable, responsive action necessitated by the failure
of bilateral or multilateral efforts to address a problem. The way to minimise or avoid
unilateralism was to create a credible multilateral system – by strengthening the existing
system".
583
5.294 In the view of Korea, the DSU was designed to be just such "a credible multilateral
system". The DSU remedied the chief weaknesses of the GATT 1947 dispute settlement system
by establishing a predictable timetable for resolving trade disputes and, where appropriate,
imposing trade sanctions, and also by eliminating the paralysing requirement that the country
targeted by those sanctions agree to them.
5.295 Korea further contends that the DSU's unambiguous prohibition against acts of
unilateralism was a critical component of the multilateral bargain represented by the agreements
negotiated in the Uruguay Round. These agreements dramatically expanded the mutual
obligations of WTO Members to reduce or remove trade barriers. The Uruguay Round led not
only to further reductions in barriers to trade in goods but also to new disciplines in areas such
as trade in services and protection of intellectual property rights. This expanded substantive
scope of the GATT/WTO system—one of the United States' chief objectives in the Uruguay
Round negotiations—was achieved partly in ex change for a new commitment in the DSU to
effective multilateral, rather than unilateral, resolution of disputes arising under the GATT and
associated agreements. The parties to the Uruguay Round instruments would never have agreed
to this expansion of their trade-related commitments had they believed that they would remain
subject to unilateral suspensions of commitments by other parties.
5.296 According to Korea, reducing unilateralism was a particular concern of smaller
countries such as Korea. Smaller countries are far more susceptible to unilateral denials of trade
benefits than are larger countries because the impact of the unilateral action on the small
country and the impact of any possible retaliation against the large country are
disproportionate.
584 For example, in 1997, Korea's Gross Domestic Product ("GDP") was
approximately $631.2 billion; 585 the United States' GDP, at $8,110.9 billion, 586 was nearly 13
times larger. As a result, equivalent trade sanctions have an impact on Korea's economy that is
13 times greater than their impact on the United States' economy.
587

582 Korea cites, for a fuller discussion of the "chicken war", Abram Chayes et al., "International
Legal Process: Materials for an Introductory Course", (1968), 249-306.
583 GATT document C/163, 16 March 1989, page 4.
584 Korea cites O. Thomas Johnson, Jr., Alternative Dispute Resolution in the International
Context: The North American Free Trade Agreement , 46 SMU L. Rev. 2175, 2176-78 (1993) (analyzing
phenomenon among NAFTA parties).
585 Matt Rosenberg, South Korea (last visited 8 June 1999) <http://geography.about.com/library/
cia/blcsouthkorea.htm?COB=home&terms=south+korea+gdp>.
586 Economic Report of the President Transmitted to the Congress February 1999, Table B-1,
Gross Domestic Product, at 326.
587 In the view of Korea, for example, a Sect ion 301 action concerning $10 billion in trade would
threaten trade sanctions affecting Korean products wo rth almost two percent of Korea's GNP. Equivalent

5.297 Korea notes that the DSU of course does not do away with nations' rights to suspend
GATT concessions or to take other retaliatory trade measures. But by regulating when and in
what manner such measures may be used, the DSU benefits smaller countries like Korea by
ensuring that trade sanctions are not imposed suddenly or arbitrarily, but only when they are
found to be warranted pursuant to an orderly multilateral process and after the nation affected
has had a reasonable opportunity to bring its practices into conformity with its GATT
undertakings.
5.298 Korea states that it is nevertheless unfortunate that the United States still maintains the
statute that allows the USTR to exercise its self-determined right to take retaliatory measures in
response to perceived violations by other states. The history and effect of Sections 301-310 are
clearly and comprehensively spelled out in the submission of the European Communities.
Therefore, Korea will not repeat them here today. Korea would only like to mention one
important aspect of Sections 301-310 that is overlooked by the European Communities: the
USTR's publication of a retaliation list.
5.299 Korea argues that the USTR is required by Section 304(c) to publish in the Federal
Register "any determination made under subsection (a)(1)", which includes the mandatory
determination of what action the USTR proposes to take in retaliation against a denial of United
States rights under a trade agreement. Publication of this "determination" provides the United
States with great negotiating power because of the real-world impact that publication of a
retaliation list has on trade flows. In the vast majority of Section 301 cases, the threat of
sanctions alone led to a bilateral negotiated solution. The threat posed by Section 301 sanctions
is thus aptly described as an effective tool to "extract unilateral concessions from weaker trading
partners".
5.300 In Korea's view, this impact is magnified where the US government moves to "suspend
liquidation" of customs entries for merchandise on the retaliation list. "Liquidation" is the final
computation of the duties accruing on a customs entry. When liquidation is "suspended", the
importer's legal liability with respect to the payment of the duties and other fees associated with
the entry remains open. In other words, the importer may be required to pay additional customs
duties if the retaliation list takes effect at a later date. This open-ended liability adds a level of
uncertainty that can dramatically affect trade flows.
(b) Measures at issue
5.301 Korea states that the history and effect of Sections 301-310 are clearly and
comprehensively spelled out by the European Communities and will not be repeated here,
except to emphasize that:
(a) Under Section 304(a)(2), the USTR "shall", in the event of a determination that
a trade agreement has been violated, "determine what action, if any, the Trade
Representative should take" in retaliation for that violation "on or before … the
earlier of — (i) the date that is 30 days after the date on which the [WTO]

retaliatory action by Korea would affect US products representing little more than one tenth of one
percent of the United States' GDP.

dispute settlement procedure is conclude d, or (ii) the date that is 18 months
after the date on which the [Section 301] investigation is initiated";588 and
(b) Under Section 306 (b)(2), the USTR must determine whether a WTO Member
has failed to implement a recommendation of a dispute settlement panel or the
Appellate Body within 30 days of th e expiration of the reasonable period of
time provided for such implementation under Article 21.3 of the DSU. The
USTR also must determine within this 30-day period what further action to take
against the supposedly noncompliant WTO Member, again irrespective of the
status of any related WTO dispute-resolution procedure.
589
5.302 Korea states that one aspect of Sections 301-310 that is overlooked by the European
Communities bears mentioning: the USTR's publication of a retaliation list. The USTR is
required by Section 304(c) to publish in the Federal Register "any determination made under
subsection (a)(1)", which includes the mandatory determination of what action the USTR
proposes to take in retaliation against a denial of United States rights under a trade agreement.
Publication of this "determination" provides the United States with great negotiating power
because of the real-world impact that publication of a retaliation list has on trade flows.
Between 1974 and 1994 the United States initiated nearly 100 investigations under
Section 301.
590 Unilateral retaliatory measures were actually imposed in only eight of those
cases, although they were announced in many more. In the vast majority of 301 cases, the threat
of sanctions alone led to a bilateral negotiated solution. The threat posed by Section 301
sanctions is thus aptly described as an effective tool to "extract unilateral concessions from
weaker trading partners".591
5.303 In the view of Korea, as previously discussed, the mere publication of a retaliation list
in the Federal Register can materially affect trade. This impact is magnified where the US
government moves to "suspend liquidation" of customs entries for merchandise on the
retaliation list.592 "Liquidation" is the final computation of the duties accruing on a customs
entry.593 When liquidation is "suspended", the importer's legal liability with respect to the
payment of the duties and other fees associated with the entry remains open. In other words, the
importer may be required to pay additional customs duties if the retaliation list takes effect at a
later date. This open-ended liability adds a level of uncertainty that can dramatically affect
trade flows.
3. Legal Arguments
5.304 Korea states that it generally concurs with the arguments made by the European
Communities. Nevertheless, and without prejudice to any additional available arguments that
Sections 301-310 are inconsistent with GATT 1994, the DSU, and/or other Uruguay Round

588 19 U.S.C. § 2414(a)(2).
589 See ibid. § 2416(b)(2).
590 United States Trade Representative, 1995 Trade Policy Agenda and 1994 Annual Report 96
(1994), cited in Bhala, op. cit. note 2, at 1096 and footnote 1.
591 Jagdish Bhagwati, The World Trading System at Risk 53 (1991).
592 See e.g. Regime for the Importation, Sale and Distribution of Bananas : Notice of United
States Suspension of Tariff Concessions, 64 Fed. Reg. 19,209 (1999) (liquidation suspended with respect
to entries of selected European products as of March 2, 1999, even though arbitrators' final decision on
damages not adopted by DSB until April 19, 1999).
593 See 19 Code of Federal Regulations § 159.1 (1999).

instruments, in this independent submission Korea only emphasizes two particularly troubling
aspects of Sections 301-310.
5.305 Korea first emphasises that threats of retaliation manifested by publication of a
retaliation list and suspension of liquidation under Sections 301-310 themselves violate
Articles I and XIII of GATT 1994. The publication of a retaliation list by USTR—whether the
list calls for increased tariffs or quantitative restrictions—clearly affects the competitive
relationship between the targeted products and similar products from all other countries.
5.306 Korea argues that it has long been recognized that GATT/WTO disciplines serve to
protect the expectations of the parties as to the competitive relationship between their products
and those of the other parties; "[t]he protection of legitimate expectations of Members regarding
the conditions of competition is a well-established GATT principle". 594 Accordingly, several
provisions of GATT 1994 guard against measures by one WTO Member that have a detrimental
effect on the competitiveness of imported products.
5.307 Korea points out that among these provisions pertinent to the present dispute is Article I
of GATT 1994, which provides that:
"With respect to customs duties and charges of any kind imposed on or in
connection with importation or exportation or imposed on the international
transfer of payments for imports and exports, … any advantage, favour,
privilege or immunity granted by any contracting party to any product
originating in or destined for any other country shall be accorded immediately
and unconditionally to the like product originating in or destined for the
territories of all other contracting parties".
This most-favoured-nation requirement has been read to invalidate measures that upset
the expectations of WTO Members concerning the competitiveness of their products
vis-à-vis the products of other Members. It was on this basis that the panel considering
measures by Ontario, Canada affecting the sale of gold coins determined that those
measures denied coins imported from South Africa both national treatment (Article III)
and most-favoured-nation treatment.
595
5.308 Korea further notes that in a similar vein, Article XIII of GATT 1994 provides, with
respect to quantitative restrictions, that: "No prohibition or restriction shall be applied by any
contracting party on the importation of any product of the territory of any other contracting
party …, unless the importation of the like product of all third countries … is similarly
prohibited or restricted". Like the requirement of most-favoured-nation treatment, this
provision aims to prevent measures that competitively disadvantage the products of one WTO
Member vis-à-vis other Members where quantitative restrictions are involved.
596

594 Panel Report on India—Patent (US) , op. cit., para. 7.20. See also Ernst-Ulrich Petersmann,
The Dispute Settlement System of the World Trade Organization and the Evolu tion of the GATT Dispute
Settlement System since 1948, 31 Common Market L. Rev. ___, 1178-79 (1994). Cf. Panel Report on US
– Superfund , op. cit., para. 5.2.2 (applying principle in connection with Article III national treatment
obligation).
595 Panel Report on Canada – Measures Affecting the Sale of Gold Coins , L/5863, 17 September
1985, para. 70.
596 Korea refers to Panel Report on India – Patents (US), op. cit., para. 7.20; Panel Report on US
– Superfund, op. cit., para. 5.2.2; Panel Report on US – Section 337, op. cit., para. 5.13.

5.309 Korea argues that the publication of a retaliation list by USTR — whether the list calls
for increased tariffs or quantitative restrictions — clearly affects the competitive relationship
between the targeted products and similar products from all other countries. Targeting
particular imported products for retaliation can have several effects on trade in those products.
Faced with the risk of higher duties or restricted supplies, importers will often choose to shift
their orders to producers in other countries immediately, thus eliminating the possibility that
they will have to pay an exorbitant duty when the ordered goods actually arrive. On the other
hand, in cases where ordered goods may be imported promptly, importers actually might
increase their purchases of targeted goods in an effort to increase inventories before the
threatened retaliation goes into effect, thus harming imports from non-target countries. (For this
reason, products with short lead-times between order and importation are probably not good
candidates for USTR retaliation lists.) A third possibility is that importers will immediately
increase prices in anticipation of future cost increases or shortages caused by implementation of
the retaliation list. In any of these cases, the mere publication of a retaliation list changes the
competitive relationship between the targeted products from the target country and all
competing products. Accordingly, publication of a retaliation list violates Article I of GATT
1994, and, when the proposed retaliatory measures include quantitative restrictions, Article XIII
of GATT 1994. Moreover, as is explained below, the USTR is required to publish a retaliation
list within 30 days of the adoption of the panel or Appellate Body report or within 18 months
from the date on which the USTR's investigation was initiated, whichever is earlier. USTR is
also required to publish retaliation lists within 30 days of the expiration of the reasonable period
of time for implementation provided under the DSU.
5.310 No matter where in the process they come, the effect of these measures on smaller
countries like Korea is magnified by the overwhelming size of the United States' economy and
by the relative insignificance to the United States of trade with any one small economy. This
pervasive inequality of bargaining power is one thing that the GATT/WTO dispute settlement
system was designed to ameliorate. However, in addition to disrupting the worldwide balance
of trade for all WTO Members, threats of retaliatory action outside the GATT/WTO framework
further magnify this disproportion to the special disadvantage of smaller countries.
5.311 Korea secondly stresses that Sections 301-310 mandate measures that violate
Articles 21 and 23 of the DSU. It should be noted, as the European Communities convincingly
establish in their first submission, that legislation requiring governmental action inconsistent
with a WTO Member's obligations under the Ur uguay Round instruments constitutes a measure
that can be brought to a WTO dispute-resolution body even if the authority granted under that
legislation has not yet been exercised in a manner inconsistent with GATT 1994 or any related
agreement.
597 Sections 301-310 mandate action by the USTR that cannot be reconciled with the
United States' obligations under Articles 21 and 23 of the DSU, thus Sections 301-310
themselves violate the DSU. It is no defense to the present challenge to the US law that the
USTR might comply with DSU procedures by ignoring the requirements of Sections 301-310.598

597 Korea refers to Panel Report on US - Superfund, op. cit., para. 5.2.2; Panel Report on US –
Malt Beverages , op. cit., pages 281-282 and 289-90; and Panel Report on India – Patents (US) , para.
7.35.
598 Korea cites Panel Report on US – Malt Beverages , op. cit., as recognising at 290 that "[e]ven
if Massachusetts may not currently be using its police powers to enforce this mandatory legislation, the
measure continues to be mandatory legislation which may influence the decisions of economic operators"
Also, Korea cites Panel Report on India—Patents (US) , at para. 7.35.

5.312 Korea argues that Sections 301-310 not only authorize the GATT-inconsistent measure
of publishing a retaliation list, the statute mandates that the USTR take these actions unilaterally
within 30 days of a panel or Appellate Body report being adopted. Specifically,
Section 304(a)(2)(A)(i) requires the USTR not only to determine unilaterally whether another
country is violating the WTO rights of the United States599 but also, if such a violation is found,
to determine what she proposes to do about it by "30 days after the date on which the dispute
settlement procedure is concluded". According to Section 304(c), this determination must be
published in the Federal Register. And even before she makes this determination, the USTR
must generally "provide an opportunity (after giving not less than 30 days notice thereof) for the
presentation of views by interested persons, including a public hearing if requested by any
interested person".
600 Thus, the USTR must formulate and publicize a threat of retaliation at the
very latest within 30 days of the date of adoption of a panel or Appellate Body report. In
formulating her threat, the USTR may choose among retaliatory measures, including the
decision to:
"(A) suspend, withdraw, or prevent the application of, benefits of trade
agreement concessions …; [or] (B) impose duties or other import restrictions on
the goods of, and, notwithstanding any other provision of law, fees or
restrictions on the services of, such foreign country for such time as the Trade
Representative determines appropriate".
601
5.313 Korea contends that under the timetable in Section 304(a)(2), this mandatory
announcement of retaliatory measures comes, at the latest, on the last day for a Member
adjudged by a panel or the Appellate Body not to be in compliance with its GATT/WTO
obligations to "inform the DSB of its intent ions in respect of implementation of the
recommendations and rulings of the DSB".
602 If the USTR is satisfied with the opposing
Member's stated "intentions in respect of implementation", she will of course not need to
announce any retaliation, but if she is not so satisfied, she must, under Section 304(a)(2)(A)(i),
announce retaliatory measures. This requirement forces the USTR to act contrary to
Article 21.5, which requires resort to the dispute settlement procedures of the DSU whenever
there is a disagreement as to "the consistency with a covered agreement of measures taken to
comply with recommendations and rulings" of a panel or the Appellate Body. Inasmuch as
Article 21.5 allows 90 days (or possibly longer) for such a proceeding, the USTR finds herself
in the position of being required by a provision of United States law to effectively retaliate
against the noncompliant Member three months (or more) before a DSU panel has had a chance
to rule on whether the remedial measures proposed by the noncompliant Member are or are not
satisfactory. To be sure, implementation of the threatened measures can then be held in
abeyance for up to 180 days,
603 but the threat has already been made, and, as elaborated above,
much damage has already been done.
5.314 Korea further argues that Article 21.5 proceedings may also arise at the conclusion of
the agreed reasonable period for a noncompliant Member to implement the recommendations of
a panel or Appellate Body report. The USTR may have been satisfied with the proposed

599 Korea cites the EC argument that the provisions of DSU Article 23 "oblige the United States
to refrain from unilaterally determining whether another Member has denied rights or benefits under a
WTO agreement to the United States".
600 Section 304(b)(1)A), codified at 19 U.S.C. § 2414(b)(1)(A).
601 Section 301(c), codified at 19 U.S.C. § 2411(c).
602 DSU, Article 21.3.
603 Section 305(a)(2)(A), codified at 19 U.S.C. § 2415(a)(2)(A).

implementation in the period immediately following the adoption of the panel or Appellate
Body report, but it may become clear by the end of the implementation period that the
implementing Member has not lived up to its promises. In such a case, under the DSU,
arbitration under Article 21.5 is the next step. But Sections 301-310 do not allow the USTR to
wait for Article 21.5 proceedings to conclude before determining and announcing retaliatory
action. Section 306(b)(2) requires that:
"If the measure or agreement referred to in subsection (a) concerns the
implementation of a recommendation made pursuant to dispute settlement
proceedings under the World Trade Organization, and the Trade Representative
considers that the foreign country has failed to implement it, the Trade
Representative shall make the determination in paragraph (1) [respecting
further retaliatory action] no later than 30 days after the expiration of the
reasonable period of time provided for such implementation under paragraph 21
of the Understanding on Rules and Procedures Governing the Settlement of
Disputes …".
604
As with the determination of a violation, govern ed by the schedule in Section 304(a)(2), the
determination of unsatisfactory implementation contemplated by Section 306(b)(2) must be
published in the Federal Register, 605 and the USTR must provide public notice and an
opportunity for comment thereon.606 These provisions ensure that the scope and content of any
retaliation list will be well known long before the list is formally implemented.
5.315 Korea alleges that the timing requirements of Sections 304 and 306 thus squarely
conflict with Article 21.5 of the DSU, which sets forth a detailed procedure for handling
disputes relating to implementation. Sections 304 and 306 require unilateral threats of
retaliation at times when Article 21.5 provides for a multilateral arbitration process:
"Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings
such dispute shall be decided through recourse to these dispute settlement
procedures, including wherever possible resort to the original panel. The panel
shall circulate its report within 90 days after the date of referral of the matter to
it. When the panel considers that it cannot provide its report within this time
frame, it shall inform the DSB in writing of the reasons for the delay together
with an estimate of the period within which it will submit its report".
Thus, if the United States objects to the manner in which another WTO Member is proposing to
implement the recommendations contained in a panel or Appellate Body report, the DSU
requires that the United States have recourse to 90 days (or more) of arbitration before taking
any further action, including specific threats of retaliation.

604 19 U.S.C. § 2416(b)(2). Korea notes that Section 305(a) requires that the actions described in
this determination be implemented within 30 days unless "the Trade Representative determines that
substantial progress is being made, or that delay is necessary or desirable to obtain United States rights or
satisfactory solution with respect to the acts, policies, or practices that are the subject of the action". 19
U.S.C. § 2415(a).
605 Section 304(c), codified at 19 U.S.C. 2414(c).
606 Section 304(b), codified at 19 U.S.C. § 2414(b).

5.316 Korea argues that the United States unaccountably takes issue with this obvious
interpretation of Article 21.5, denying "that WTO Members are required to pursue a panel under
Article 21.5 whenever implementation is at issue". Indeed, the United States argues that "the
DSB implicitly rejected this argument" by authorizing US retaliation in the Bananas dispute
based only on the decision of Article 22.6 arbitrators.
5.317 In the view of Korea, this argument suffers from several serious flaws. In the first
place, it is inconsistent with the United Stat es' own prior interpretation of Article 21.5 as the
vehicle for resolving implementation disputes. In the Statement of Administrative Action
accompanying transmission of the Uruguay Round agreements to the United States Congress for
approval, President Clinton indicated that:
"Current GATT procedures do not provide a method for resolving
disagreements over implementation of the report's recommendations.
Paragraph 5 of Article 21 addresses this problem by providing that such
disputes will be decided under DSU procedures. Wherever possible, the panel
convened to consider the disagreement will be the one that reviewed the
original complaint. Panels normally must issue decisions in these cases within
90 days of referral".
607
5.318 Korea moreover states that the document cited by the United States, a Compilation of
Comments on the DSU by WTO Members, 608 discloses no dissent from this fundamental
understanding of Article 21.5; although several Members make suggestions about how to
strengthen or improve Article 21.5, there seems to be no dispute that Article 21.5 prescribes the
process for handling disputes about implementation.
5.319 Korea also points out that the US argument runs against the statement made by the
Chairman of the DSB at the January 29, 1999 meeting. The DSB chairman stated that "the
solution to the banana matter would be totally without prejudice to future cases and to the
question of how to resolve the systemic issue of the relationship between Article 21.5 and 22 of
the DSU".609 Similarly, the panel in the Bananas case did not hold that recourse to Article 21.5
procedures was optional any time a Member viewed measures proposed by a noncompliant
party as inconsistent with a covered agreement. The decision in Bananas concerning
Article 21.5 was quite explicitly limited to the unique situation presented in that case.
"In the special circumstances of this case . . . it is necessary to find a logical
way forward that ensures a multilateral decision, subject to DSB scrutiny, of the
level of suspension of concessions".610
The special circumstances of the EC – Bananas III case were that the United States did not
object to the EC's compliance measures until the "reasonable period" had expired, thus making

607 Message from The President of the United States transmitting The Uruguay Round Trade
Agreements, Texts of Agreements Implementing Bill, Statement of Administrative Action and Required
Supporting Statements, September 27, 1994, at 1016.
608 Review of the DSU, Note by the Secret ariat, Compilation of Comments Submitted by
Members—Rev. 3 of 12 December 1998, cited by the United States.
609 Minutes of DSB Meeting of 25, 28 and 29 January and 1 February 1999, WT/DSB/M/54, p.
31.
610 Arbitration under Article 22.6 of the DSU in European Communities - Regime for the
Importation, Sale and Distribution of Bananas, dated 19 April 1999 (WT/DS27/ARB), para. 4.15.
(emphasis added).

it impossible for the United States to comply with Article 21.5 while at the same time
completing its Article 22 proceeding concerning suspension of concessions within the time
specified in Article 22.6. These circumstances will not be present in all cases and cannot be
present in cases, such as those described above, in which effective retaliation must occur long
before the expiration of the "reasonable period".
5.320 Korea also stresses that finally, and most importantly, the interpretation now advocated
by the United States would have the impermissible effect of reading Article 21.5 out of the DSU
altogether. If this Article does not govern "[w]here there is disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the recommendations
and rulings" of a panel or Appellate Body report, what possible effect could it have? If, as the
United States contends, the panel in the Bananas dispute intimated that Article 21.5 need not
serve this function, the panel was simply wrong and need not be followed by this Panel.
611 Such
an interpretation of the DSU cannot be reconciled with the most fundamental principles of treaty
interpretation as codified in the Vienna Convention on the Law of Treaties. Article 31 of that
treaty teaches that "A treaty shall be interpre ted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of its object and
purpose". The ordinary meaning of 21.5 is that it prescribes 90 days of arbitration in the event
of a dispute over implementation. An interpretation that denies this plain meaning—and in the
process renders the entire clause superfluous and meaningless—as does the position the United
States advocates, cannot be called a "good faith" interpretation.
5.321 In the view of Korea, rather, in the DSU, WTO Members have agreed upon a
mechanism for resolving disputes about implementation of panel or Appellate Body
recommendations. Article 21.5 is that mechan ism. Sections 301-310, and in particular
Sections 304 and 306, outline timetables that mandate the USTR to announce retaliatory
measures in the event of an implementation dispute before the procedures contemplated by
Article 21.5 can possibly be completed. Thus, Sections 301-310 deny to the United States'
trading partners, including Korea and the European Communities, the benefits of DSU
Article 21.5.
5.322 Korea further goes on to state that Article 23.1 of the Dispute Settlement Understanding
obligates the United States to "have recourse to, and abide by, the rules and procedures of this
Understanding" in "seek[ing] the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the attainment of any
objective of the covered agreements". As elaborated above, Sections 301-310 require the USTR
to act inconsistently with DSU procedures. By requiring the USTR to decide upon and
publicize unilateral retaliatory action before there has been time to conclude the arbitration
contemplated in DSU Article 21.5, the aggressive timetable set forth in Sections 301-310, and in
particular Sections 304 and 306, prevents the USTR from living up to the United States'
promise. This aspect of Sections 301-310 is clearly inconsistent with Article 23.1 of the DSU,
and the United States should be required to amend its law accordingly.
4. Conclusion
5.323 Korea concludes that for the foregoing reasons, it respectfully requests this Panel to
determine that unilateral threats of retaliation under Sections 301-310 of the United States Trade

611 Panel Report on India – Patents (US), op. cit., para. 7.30 ("[P]anels are not bound by previous
decisions of panels or the Appellate Body even if the subject matter is the same".).

Act of 1974 deny Korea and other WTO Members the benefits of Articles I and XIII of GATT
1994 and Article 21 of the DSU, and violate Article 23 of the DSU.
K. THAILAND
1. Introduction
5.324 Thailand states that as Member of the World Trade Organization and trade partner of
the United States, it has substantial systemic interest in the present case.
5.325 In Thailand's view, the crux of the systemic issue here is multilateralism as basis of
international trade, a principle all Members of this Organization adhered to. This principle is
embodied in the preamble of the Agreement Establishing the World Trade Organization (WTO
Agreement), defining its very object and purpose, which is to "develop an integrated, more
viable and durable multilateral trading system".612
5.326 Thailand goes on to state that in addition to this serious systemic concern, it has been in
the past target of decisions and determinations made under Sections 301-310 of the Trade Act of
1974. In 1989, Thailand was placed by the US Government on the "Priority Watch List" (PWL),
and in 1991 was named "Priority Foreign Country" (PFC) pursuant to the "Special 301"
procedure. In 1994, after some intense negotiations and changes in Thai domestic laws and
regulations, Thailand was moved back to the PWL. Thailand was subject in 1990 to a GATT
litigation
613 brought pursuant to a petition filed under Section 301 procedure. Also, In December
1991 and in March 1992, the USTR determined under Sections 301-310 that Thailand's acts,
policies and practice related to copyright and patent protection were "unreasonable" and "a
burden on US commerce". The matters were dropped by the United States only after Thailand
agreed to carry out changes to the relevant Thai legislation.
5.327 In response to the Panel's question, Thailand states that its experience serves to illustrate
Thailand's interest in the case at hand. The fact that these events took place in the context of the
GATT does not affect Thailand's legal arguments in the present case, which is valid for both the
GATT and the WTO contexts.
5.328 Thailand underlines the situation where the United States made determinations and/or
took actions under the Trade Act of 1974 independently from the GATT dispute settlement
procedure. This pattern of US unilateral acts can still happen under the WTO system, since the
provisions of the Trade Act 1974 mandating the US Government to do so are still in force after
the United States became Party to the WTO Agreement.
5.329 Thailand argues that the US Government has moreover indicated, upon becoming WTO
Member, its intention to use its authority under the Trade Act of 1974 to enforce US rights vis-
à-vis the other WTO Members out of the WTO, if it unilaterally considers that the matter at
hand does not "involve a Uruguay Round Agreement". 614 This has been confirmed in 1999 by

612 Preamble of the WTO Agreement, para. 5.
613 Panel Report on Thai – Cigarettes, op. cit.
614 Statement of Administrative Action, op. cit., 2(b) Enforcement of US rights, pp. 364-367.
Thailand notes that this Statement represents the US Administration's views regarding the interpretation
and application of the WTO Agreement both for the purpose of international law and the US domestic
laws.

the US President's Executive Order re-instituting the "Super 301 authority" and "Title VII
authority".615
5.330 Thailand reiterates that these cases of US unilateral acts establish a pattern of violation
of the US obligations under the WTO Agreement, and should be taken into account by the Panel
in its deliberation.
5.331 Thailand strongly believes that, in a true multilateral trading system, no WTO Member
can be judge and jury in its own dispute. Th e Dispute Settlement Body (DSB) must be the
exclusive forum for settling disputes between WTO Members relating to their WTO rights and
obligations, and the DSU must provides the exclusive rules and procedures for such settlement.
2. Legal Arguments
5.332 Thailand submits, on the basis of the following, that the United States has acted
inconsistently with Article XVI:4 of the WTO Ag reement, by failing to ensure the conformity
of its Trade Act of 1974 with its obligations as provided in Articles 1, 3, 22 and 23 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU); and that
consequently the panel should recommend that the DSB request the United States to bring its
Trade Act of 1974 into conformity with its obligations under the WTO Agreement.
5.333 Thailand reserves its rights with regard to any other points at issue which are not
discussed herein.
5.334 Thailand argues that under Section 304(a)(2)(A), in the case of investigation involving a
trade agreement, the USTR is required to de termine whether the rights to which the United
States is entitled under the trade agreement are being denied on or before the earlier of (i) the
date that is 30 days after the date on which the dispute settlement procedure is concluded, or (ii)
the date that is 18 months after the date on which the investigation is initiated. Under
Section 303(a)(1), the USTR is required to request consultations with the foreign country
concerned on the date on which an investigation is initiated under Section 302. The combined
effect of these two provisions is that the USTR is required to make the determination at the
latest 18 months after the request for consultations made by the United States.
5.335 In the view of Thailand, under the DSU, WTO dispute settlement proceedings can take
under normal circumstances as long as 19 months (9 months and 300 days) from the beginning
of the consultation process to be concluded. This breaks down as follows:
Consultations 60 days (DSU Article 4.7)
Establishment of panel 30 days (DSU Article 6.1)
(From date of request to date of establishment)
Determination of panel composition 30 days (DSU Article 8.7)
Panel proceedings 9 months (DSU Article 12.9)

615 USTR Press Release of 26 January 1999, (Thai Ex. 2).

(from establishment to circulation of report)
Adoption of panel report/Notice of appeal 60 days (DSU Article 16)
Appellate Review 90 days (DSU Article 17.5)
(From notification of appeal to AB report circulation)
Adoption of AB report by DSB 30 days (DSU Article 17.14)
Note: In this scenario, the period from the date of establishment of the panel to the date
of the adoption of the AB report is 9 months and 210 days, and does not exceed the
maximum time frame as provided in DSU Article 20.
5.336 Thailand contends that both Sections 304(a)(2) and 303(a)(1) use the term "shall". They
mandate the USTR to determine whether the US WTO rights are being denied before the
conclusion of the normal WTO dispute settlement proceedings. The USTR is thus required to
act inconsistently with DSU Article 23.2(a).
5.337 Thailand challenges the US allegation that the USTR may request WTO dispute
consultations prior to initiating a Section 302 investigation, "thereby allowing for the DSB
adoption of panel and Appellate Body findings within the 18-month period provided for under
Section 304(a)(2)(A)". This argument, howev er, must be rejected. The term used by
Section 303(a)(1) leave no room for any other understanding or interpretation: WTO
consultations must ("shall") be requested by the USTR on the same date
 as that on which the
relevant investigation is initiated under Section 302.616 The USTR simply cannot violate this US
domestic law provision.617
5.338 Thailand also rebuts the US further allegation that the USTR has "broad discretion to
issue any of a number of determinations which would not remotely conflict with article
23.2(a)". Thailand submits, on the contrary, that the content of the determination is secondary.
What counts is the possibility, on the domestic legal plane, for the USTR to determine the WTO
inconsistency of another Member. This possibility is in itself a violation of DSU Article 23.2(a).
Such determination, moreover, is mandatory for the USTR. Sections 304(a)(2)(A) and
303(a)(1), consequently, are inconsistent with DSU Article 23.2(a).
5.339 Thailand further argues that where an Arbitration under DSU Article 22.6 determines
that there is no nullification or impairment of US benefits under the WTO Agreement or that the
US-proposed retaliation measure exceeds the actual level of nullification or impairment,
Sections 306(b) and 305(a) still mandate the USTR to take action inconsistent with DSU
Articles 22.7 and 23.2 (c).
5.340 Thailand contends that Section 306(b)(2) mandates the USTR to determine, within 30
days after the expiration of the reasonable period of time under the DSU, what retaliatory action
"the US shall take under Section 301(a)" against a Member implementing a recommendation

616 Thailand notes that the 60 day consultation period under DSU Article 4.7 begins on the date
of receipt of such request. In practice, this mean s that a further delay may be added to the normal 19
month period of proceedings.
617 Thailand notes that the United States indicated that the USTR "has in fact done so" in many
cases.

made pursuant to the DSU. Section 305(a)(1) requires the USTR to implement such action
within 30 days after the determination is made.
5.341 Thailand further alleges that Section 306(b)(2) and Section 305(a)(1) remain
mandatory618 for the USTR even in the case that an arbitration is appointed under DSU
Article 22.6 to consider the level of suspension of concessions or other obligations proposed,
and that such arbitration determines that there is no nullification or impairment of US benefits
under the WTO Agreement, or that the US-proposed retaliation measure exceeds the actual level
of nullification and impairment. In this case, the USTR is required by Section 305(a)(1) to
implement the action already determined under Section 306(b)(2), notwithstanding the content
of the arbitrator's decision.
619
5.342 Thailand adds that it has supplied the Panel with the rationale supporting its legal
opinion. Thailand, however, is not in a position, nor is it entitled, to give the Panel the rationale
or the motive behind the USTR's reduction of the level of retaliation into conformance to the
Arbitrators' decision in Banana III case..
5.343 Thailand contends that the legality of the said USTR's act, vis-à-vis the US Trade Act of
1974, depends on the meaning of the relevant provisions of the legislation, which under the US
constitutional system can only be ascertained through an authoritative, judicial, interpretation of
those provisions.
5.344 In the view of Thailand, if, in accordance with an authoritative interpretation under the
US legal system, the USTR's act mentioned above is found to be inconsistent with the Trade Act
of 1974, then it is the Act itself
 that is in violation of the WTO Agreement.
5.345 According to Thailand, since it is the United States that invokes the exceptions under
Section 301(a)(2) to justify its claim, the onus of proof rests with the United States.
5.346 Thailand further argues that Section 306(b)(2) and Section 305(a)(1) therefore violate
DSU Article 22.7 which provides that suspension of concessions and other obligations must be
"consistent with the decision of the arbitrator". They also violate DSU Article 23.2(c) which
requires the retaliating party to "follow the procedures set forth in Article 22 to determine the
level of suspensions of concessions or other obligations".
5.347 Thailand recalls the US allegation that the exceptions set forth in Section 301(a)(2)
allow the USTR to act consistently with an Article 22.6 Arbitrators' decision.
Section 301(a)(2)(A) provides that the USTR is not required to take action in any case in which
"the Dispute Settlement Body … has adopted a report …" (emphasis added) that the rights of
the United States under a trade agreement are not being denied or that US trade agreement
benefits are not being denied, nullified or impaired.
5.348 In the view of Thailand, Section 301(a)(2)(A), however, is not applicable to the case at
hand. The decision of an arbitrator appointed under DSU Article 22.6 is not, and cannot be
considered as, a "report" in the sense of Section 301(a)(2)(A); and the DSU does not require
such arbitrator's decision to be "adopted" by the Dispute Settlement Body. This has been
confirmed by the recent WTO practice in the EC – Bananas III case, where the DSB agreed to

618 Thailand notes that both provisions use the term "shall".
619 Thailand points out that in the EC – Bananas III case, the USTR nevertheless reduced the
level of retaliation in order to conform to the Arbitrators' decision. See WT/DS27/49, dated 9 April 1999.

grant, pursuant to the US request, authorization to suspend concessions and related obligations
under GATT 1994, consistent with the decision of the Arbitrators, without adopting the said
decision.620
5.349 Thailand recalls that the United States also invokes other exceptions under
Section 301(a)(2) to justify its claim that the USTR may act consistently with an Article 22.6
Arbitrators' decision reducing the level of US-proposed retaliation or denying the US the right
to retaliate. These are exceptions when the USTR finds that action would have an adverse
impact on the US economy or would cause serious harm to national security.
621 The United
States, however, fails to establish that, accordin g to the authoritative (judicial) interpretation of
these provisions under the US legal system, these exceptions are applicable to the case (of a
decision by an Article 22.6 arbitrator reducing the level of US-proposed retaliation or denying
the United States the right to retaliate). The US claim is merely based on an interpretation by the
US Government of Section 301. In the US domestic legal system, as in any known legal
system, the Judiciary is by no means bound by the Executive Branch interpretations of legal
provisions. The applicability of these provisions is all the more questionable here because of
their imprecise terms. Section 301(a)(2)(B)(iv), in particular, is limited to "extraordinary cases"
only.
5.350 Thailand adds that ascertaining the meaning of the Trade Act of 1974 provisions, in
accordance with the authoritative interpretation under the US legal system,
622 is not only within
the mandate of the Panel, but also fundamental for carrying out this mandate, which is to
determine the conformity, or non-conformity, of this legislation with the US obligations under
the WTO Agreement.
5.351 Thailand further argues that the Trade Act of 1974 is a legislation that empowers and
mandates the US Government to act in a certain manner within the limits and scope provided
therein. Because its terms are vague as to the extent of the power given the US Executive, one
must be all the more cautious about its interpretation. In particular, the panel should not base its
deliberation on the US Executive's own interpretation of this legislation, at least to the extent
involving judgment of the legality of US Government's acts vis-à-vis the legislation itself. In
any State of law, a power conferred to State officials is not without limit or purpose. It is
impossible to prevent Abus de pouvoir or exces de pouvoir if one is judge of one's own acts.
Nemo jus sibi dicere potest - No one can declare the law for himself/herself.
5.352 In the view of Thailand, in the absence of authoritative interpretation, i.e. if the United
States fails to establish what it claims, there is a doubt as to whether the Trade Act of 1974 is
consistent with the WTO Agreement. In view of the vagueness of this Legislation's terms ,
doubts deprive the other Members from predictability and security, the very objective of the
DSU,623 and cannot be permitted under the WTO system.
5.353 Thailand further states that the same argument is valid for rejecting the US claim
regarding the discretion granted the US President under Section 301(a)(1) to "direct" the USTR
action. Again, the United States fails to establish that, according to an authoritative

620 Dispute Settlement Body, Minutes of the Meeting held on 19 April 1999, WT/DSB/M/59, 3
June 1999, p.11
621 Thailand points out that these exceptions are provided for in Section 301(a)(2)(B)(iv) and (v).
622 Thailand alternatively points out "to use the US wording, 'as interpreted in accordance with
the domestic law of the Member'."
623 DSU Article 3.2

interpretation of this provision under the US law, the discretion granted the US President allows
him or the USTR to act inconsistently with Section 306(b)(2) and 305(a)(1).
5.354 Thailand also contends that it would be insufficient for the United States to invoke in
this respect Section 305(a)(2) regarding the possib ility for the USTR to delay, in certain cases,
the implementation of action by up to 180 days. What is violating the US obligations here is not
the timing of such implementation, but the action to be implemented itself.
5.355 Thailand further contends that the Trade Act of 1974 provides for determinations to be
made and actions to be taken against a WTO Member without recourse by the United States to
the DSU rules and procedures. This is the case when the US Government unilaterally considers
that the matter at issue falls outside the scope or the disciplines of the WTO Agreement.624
5.356 In the view of Thailand, the WTO dispute settlement system is a "central element in
providing security and predictability to the mult ilateral system", and "serves to preserve the
rights and obligations of Members" under the WTO Agreement.625 The rules and procedures of
the DSU "shall apply to consultations and the settlement of disputes between Members
concerning their rights and obligations" under the WTO Agreement. 626 Members seeking "the
redress of a violation of obligations or other nullification or impairment of benefits" under the
WTO Agreement "shall have recourse to, and abide by, the rules and procedures" of the DSU.627
The ordinary meaning of these provisions in their context is clear: the DSU provides the
exclusive rules and procedures for settling all disputes concerning the rights and obligations of
WTO Members.
5.357 Thailand notes that in accordance with the above provisions, any dispute between WTO
Members regarding a determination whether a matter concerns the rights and obligations of a
WTO Members falls under the scope of the DSU, and must be settled in accordance with the
DSU rules and procedures. Sections 301, 304 and 305, however, mandate
628 the USTR to
determine unilaterally that a matter does not involve WTO rights and obligations, and mandate
action to be taken by the USTR on that basis irrespective of the rules and procedures of the
DSU.
5.358 Thailand argues that Sections 301, 304 and 305 consequently deprive the WTO
Members of any security or predictability they might legitimately expect from a rules-based
multilateral trading system. This leads to a paradoxical situation: for a unilaterally alleged non-
violation of WTO obligations, a Member may see their WTO rights violated by the most
powerful Member of the WTO on the basis of a domestic legislation of the latter, without the
protection of the DSU rules and procedures. A pr otection that would have been available had
the concerned Member been in violation of their WTO obligations. In this case, the Member
will have no alternative but to challenge the US sanction measure before the DSB. The process
is, however, time-consuming, and in any case much damage will have already been done.

624 Thailand cites Statement of Administrative Action, Uruguay Round Agreements Act:
Enforcement of US Rights.
625 DSU, Article 3.2.
626 DSU, Article 1.1.
627 DSU, Article 23.1.
628 Thailand points out that Sections 304(a)(1), 305 (a)(1) and 301(a)(1) all use the term "shall".

5.359 Thailand concludes that the Trade Act of 1974 is thus not only inconsistent with DSU
Articles 1.1, 3.2 and 23.1, but also at variance with the very object and purpose of the WTO
Agreement
5.360 Thailand emphasizes that the types of action prescribed by Section 301(c) constitute
violations of the WTO rights of the target country. In the case of disputes involving trade in
goods, in particular, the USTR is mandated by Sections 301, 304 and 305 to impose duties, fees
or restrictions that violate the GATT 1994 provisions, including Articles I, II, III, VIII and XI
thereof. As already demonstrated above, where the United States unilaterally determines that the
matter falls outside the scope or the disciplines of the WTO Agreement, Sections 301, 304 and
305 mandate the USTR to implement these WTO-inconsistent actions irrespective of the DSU
proceedings, and in the absence of an authorization by the DSB . Sections 301, 304 and 305 are
therefore inconsistent with Articles 22.6, 22.7 and 23.2(c) of the DSU.
5.361 Thailand, in response to the Panel's question as to whether an official US statement
binding in international law that the US government will not exercise its discretion in a way
contrary to WTO rule remove the WTO inconsistency of Sections 301-10 on the assumption
that the USTR and the President have the direction to avoid determinations and actions contrary
to WTO rules in all circumstances, and that, nevertheless, Sections 301-310 were found
inconsistent with WTO rules, states that in this scenario, Sections 301-310 are "found to be
inconsistent with WTO rules". Since these provisions are of legislative nature, an official US
Government statement will not remove the inconsistency. As Member of the WTO, the US
must, under international law, bring Sections 301-310 into conformity with the WTO
Agreement by either amending them or abolishing them.
VI. INTERIM REVIEW
6.1 Our interim report was sent to the parties on 12 October 1999. On 26 October 1999
both the European Communities ("EC") and the United States ("US") requested us to review, in
accordance with Article 15.2 of the DSU, precise aspects of the interim report. Neither the EC
nor the US requested a further meeting.
6.2 What follows is a discussion of the arguments made at the interim review stage as
required by Article 15.3 of the DSU.
6.3 The EC made two comments. First, it submitted that the findings part of the interim
report did not contain a clear description of the legal claims and arguments of the EC that were
before the Panel. The EC referred to a summary of the main legal grounds supporting its claims
that was incorporated in the EC rebuttal submission. The EC believed that it is necessary for the
clarity and the better understanding of the Panel Report that these main legal arguments be
inserted at the appropriate place in the findings part of our Report. We did so by adding what
are now paragraphs 7.4-7.6 of our Report.
6.4 Second, in respect of what is now footnote 707 of our Report, the EC pointed out that
while it is correct that it did not request the Panel to make a decision on the relationship between
Articles 21.5 and 22 of the DSU, the EC has clarified in the second paragraph of its response to
Panel Question 23 that
"the WTO consistency of Sections 301-310 must be assessed against all the
provisions quoted in the Panel’s terms of reference, including Article 21.5 of the
DSU on its own".

The EC submitted that the Panel's terms of reference included, together with Article 23, also
inter alia Article 21 of the DSU and that the EC claim of violation by Section 306 of
Article 21.5 is inextricably related to the issue of compliance with Article 23.2(c), which in turn
is, as the Panel itself has recognised in what is now paragraph 7.44 of the Report, "specifically
linked to, and has to be read together with and subject to, Article 23.1". The EC further referred
to the fact that it also stated in its response to Panel Question 23 that
"[t]he interpretation of Article 22 of the DSU is logically and legally a distinct
issue to be addressed by the Panel separately, if necessary".
6.5 On these grounds, the EC pointed out that the earlier version of what is now
footnote 707 of our Report does not fully reflect the EC’s position before the Panel and that as a
matter of fact, the EC has clearly requested th e Panel to rule on the compatibility of the
deadlines contained in Section 306 with Article 21.5 of the DSU.
6.6 We added the elements referred to by the EC in footnote 707 and also addressed them
there. We slightly redrafted paragraph 7.169 of our Report. On the deadlines in Section 306
and Articles 21.5 and 22, we recall that we addressed those in paragraphs 7.145, 7.180 and
footnote 720 of our Report. They fall within our mandate as elements relevant for an
assessment of the EC claims under Article 23.
6.7 The US expressed the view that the Panel’s ultimate finding on the WTO-consistency of
Sections 301-310 is correct and also generally agreed with the Panel’s factual findings and its
reasoning.
6.8 The US had concerns, however, with certain aspects of the Panel’s legal reasoning, in
particular with respect to the Panel's treatmen t of the mandatory/discretionary distinction in
GATT/WTO jurisprudence. The US requested that the Panel reconsider and modify its legal
reasoning on the fundamental question of whether there may be a violation of Article 23 by a
measure which does not preclude WTO-inconsistent action, but which does not actually
command a WTO violation. The US reiterated its view that there is no credible and coherent
means of drawing legal distinctions among meas ures which do not preclude a WTO violation,
and that it could create substantial unpredictability in the interpretation of a Member’s WTO
obligations if there is a blurring of the heretofore firm line drawn in the jurisprudence that only
legislation mandating a violation of a WTO obligation actually violates that obligation. On that
ground, the US asked the Panel to find that the statutory language of Sections 304 and 306,
when considered in isolation, does not create a prima facie violation of Article 23.2(a) because
that language does not preclude a determination of inconsistency.
6.9 As a result of this US comment, we added the last four sentences of what is now
paragraph 7.54 of our Report and slightly reworded paragraph 7.93. We also added two new
footnotes: footnote 658 and footnote 675. We stress once again that our Report does not
overturn the classical test in the pre-existing jurisprudence that only legislation mandating a
WTO inconsistency or precluding WTO consistency, can, as such, violate WTO provisions. On
the contrary, we have followed this traditional distinction and found that the statutory language
of Section 304 precludes consistency with Article 23.2(a), the way we read it. The resulting
prima facie violation of legislation that "merely" reserves the right for WTO inconsistent action
in a given dispute is specific, first, to Member obligations under Article 23 -- and its pivotal role
in the DSU as an element strengthening the wider multilateral trading system – and, second, the
many case-specific circumstances we referred to in our Report, peculiar to Section 304 and the
US more generally.

6.10 The US also asked us to reconsider our finding, in what is now paragraph 7.146, that
Section 306 "considerations" are "determinations" for purposes of Article 23.2(a). The US did
so on the ground that Article 22 of the DSU affirmatively requires Members to request
suspension of concessions within 30 days of the expiry of the reasonable period of time, and
that the USTR must therefore make a judgment – must "consider" – whether implementation
has taken place as a prerequisite to exercising its rights under Article 22. The US submits that
the Section 306 "consideration" represents no more than a belief necessary to the pursuit of
dispute settlement procedures. For these reasons, the US requested the Panel to find that
Section 306 does not violate Article 23.2(a) because it does not provide for a "determination"
within the meaning of Article 23.2(a).
6.11 In response to this US comment, we revised the part of footnote 657 dealing with the
requirement that there be a "determination" of WTO inconsistency. We also expanded the
reasoning in paragraph 7.146.
6.12 Finally, in reply to a US comment that the US-Australia agreement in the Australia –
Leather case was made with reference to footnote 6 of Article 4 of the SCM Agreement, we
added such reference in footnote 709.
VII. FINDINGS
A. C
LAIMS OF THE PARTIES
7.1 The claims of the parties may be summarised as follows.
7.2 The EC claims that by adopting, maintaining on its statute book and applying Sections
301-310 of the 1974 Trade Act after the entry into force of the Uruguay Round Agreements, the
US has breached the historical deal that was struck in Marrakech between the US and the other
Uruguay Round participants. According to the EC, this deal consists of a trade-off between, on
the one hand, the practical certainty of adoption by the Dispute Settlement Body ("DSB") of
panel and Appellate Body reports and of authorization for Members to suspend concessions – in
the EC's view, an explicit US request – and, on the other hand, the complete and definitive
abandoning by the US of its long-standing policy of unilateral action. The EC submits that the
second leg of this deal, which is, in its view, the core of the present Panel procedure, has been
enshrined in the following WTO provisions: Articles 3, 21, 22 and, most importantly, 23 of the
DSU and Article XVI:4 of the WTO Agreement.
7.3 The EC claims, more particularly, that
(a) inconsistently with Article 23.2(a) of the DSU:
- Section 304 (a)(2)(A) requires the US Trade Representative ("USTR")
to determine whether another Member denies US rights or benefits
under a WTO agreement irrespective of whether the DSB adopted a
panel or Appellate Body finding on the matter; and
- Section 306 (b) requires the USTR to determine whether a
recommendation of the DSB has been implemented irrespective of
whether proceedings on this issue under Article 21.5 of the DSU have
been completed;

(b) inconsistently with Article 23.2(c) of the DSU:
- Section 306 (b) requires the USTR to determine what further action to
take under Section 301 in case of a failure to implement DSB
recommendations; and
- Section 305 (a) requires the USTR to implement that action,
and this in both instances, irrespective of whether the procedures set forth in
Articles 21.5 and 22 of the DSU have been completed; and
(c) Section 306 (b) is inconsistent with Articles I, II, III, VIII and XI of GATT
1994 because, in the case of disputes involving trade in goods, it requires the
USTR to impose duties, fees or restrictions that violate one or more of these
provisions.
7.4 The EC submits that Sections 301-310, on their face, mandate unilateral action by the
US authorities in breach of Article 23 of the DSU and consequently of Articles I, II, III, VIII
and XI of the GATT 1994. According to the EC, this is true both under the former GATT 1947
standards concerning mandatory versus discretionary legislation and the present standards under
the GATT 1994 and the WTO Agreement which the EC considers the relevant sources of law
applicable after the entry into force of the WTO agreements. The EC arguments on the issue of
the standards applicable to determine whether legislation is genuinely discretionary are
contained in the descriptive part of this Report.
629
7.5 In addition, the EC argues that Sections 301-310 -- even if they could be interpreted to
permit the USTR to avoid WTO-inconsistent determinations and actions -- cannot be regarded
as a sound legal basis for the implementation of the US obligations under the WTO. For the
EC, the lack of this "sound legal basis" produces a situation of threat and legal uncertainty
against other WTO Members and their economic operators that fundamentally undermines the
"security and predictability" of the multilateral trading system.
7.6 The EC submits, furthermore, that Sections 301-310 are not in conformity with US
obligations under the WTO since they are an expression of a deliberate policy creating a pattern
of executive action which is biased against WTO-conformity. According to the EC, even if
Sections 301-310 could be interpreted to provide the USTR with a legal basis for the
implementation of US obligations under the WTO, they could not be considered to be in
conformity with WTO law within the meaning of Article XVI.4 of the WTO Agreement.
7.7 On these grounds, the EC requests us to rule that the US, by failing to bring the Trade
Act of 1974 into conformity with the requirements of Article 23 of the DSU and Articles I, II,
III, VIII and XI of the GATT 1994, acted inconsistently with its obligations under those
provisions and under Article XVI:4 of the WTO Agreement and thereby nullifies or impairs
benefits accruing to the EC under the DSU, GATT 1994 and the WTO Agreement.
7.8 The EC, finally, asks us to recommend that the DSB request the US to bring its Trade
Act of 1974 into conformity with its obligations under the DSU, GATT 1994 and the WTO
Agreement.

629 See paras. 4.196-4.214, 4.233-4.244, 4.250-4.263 and 4.295-4.299 of this Report.

7.9 The US responds that the EC has brought a political case that is in search of a legal
argument. It submits that the EC is not entitled to prevail in this dispute on the basis of a series
of assumptions adverse to the US, assumptions both with respect to the decisions the USTR can
make under Sections 301-310 and with respect to panel, Appellate Body and DSB meeting
schedules. According to the US, Sections 3 01-310 permit the US to comply with DSU rules
and procedures in every case: Section 304 permits the USTR to base his or her determinations
on adopted panel and Appellate Body findings in every case; and Sections 305 and 306 permit
the USTR, in every case, to request and receive DSB authorization to suspend concessions in
accordance with Article 22 of the DSU. The US concludes that it fully meets its WTO
obligations in this respect.
B. P
RELIMINARIES
1. Relevant Provisions of the WTO and of Sections 301-310 of the US trade Act
7.10 In Annex I of this Report we reproduce for the convenience of the reader the provisions
of Sections 301-310 as they were submitted to us in Exhibit 1 to the US submissions, as well as
those provisions of the WTO to which frequent reference is made in this Report.
2. The Panel's Mandate
7.11 The political sensitivity of this case is self-evident. In its submissions, the US itself
volunteered that Sections 301-310 are an unpopular piece of legislation. In addition to the EC,
twelve of the sixteen third parties expressed highly critical views of this legislation.630
7.12 Our function in this case is judicial. In accordance with Article 11 of the DSU, it is our
duty to "make an objective assessment of the facts of the case and the applicability of and
conformity with the relevant covered agreements, and make such other findings as will assist
the DSB in making the recommendations or in gi ving the rulings provided for in the covered
agreements".
631
7.13 The mandate we have been given in this dispute is limited to the specific EC claims set
out in Section VII.A above. We are not asked to make an overall assessment of the
compatibility of Sections 301-310 with the WTO agreements. It is not our task to examine any
aspects of Sections 301-310 outside the EC claims. We are, in particular, not called upon to
examine the WTO compatibility of US actions taken in individual cases in which Sections 301-
310 have been applied. Likewise, we have not been asked to address the WTO consistency of
those provisions in Section 301-310 relating to determinations and actions taken by the USTR
that do not concern the enforcement of US rights under the WTO Agreement, including the
provisions authorizing the USTR to make a determination as to whether or not a matter falls
outside the scope of the WTO agreements.
632

630 See Section V of this Report. Four third parties expressed no opinion in respect of this
dispute.
631 Hereafter we refer to the "covered agreements" as those WTO agreements at issue in this
dispute.
632 Answering Panel Question 43, the EC explicitly confirmed these limitations on the claims
before us. See para. 4.634 of this Report.

3. Fact Finding: Rules on Burden of Proof and Interpretation of Domestic
Legislation
(a) Burden of Proof – General
7.14 Part of our task in accordance with Article 11 of the DSU is to make factual findings.
We are guided in this matter, as well as others, by the jurisprudence of the Appellate Body. In
accordance with this jurisprudence, both parties ag reed that it is for the EC, as the complaining
party, to present arguments and evidence sufficient to establish a prima facie case in respect of
the various elements of its claims regarding the inconsistency of Sections 301-310 with US
obligations under the WTO. Once the EC has done so, it is for the US to rebut that prima facie
case. Since, in this case, both parties have submitted extensive facts and arguments in respect of
the EC claims, our task will essentially be to balance all evidence on record and decide whether
the EC, as party bearing the original burden of proof, has convinced us of the validity of its
claims. In case of uncertainty, i.e. in case all the evidence and arguments remain in equipoise,
we have to give the benefit of the doubt to the US as defending party.
7.15 We note, in addition, that the party that alleges a specific fact – be it the EC or the US –
has the burden to prove it. In other words, it has to establish a prima facie case that the fact
exists. Following the principles set out in the previous paragraph, this prima facie case will
stand unless sufficiently rebutted by the other party.
7.16 The factual findings in this Report were reached applying these principles. Of course,
when it comes to deciding on the correct interpretation of the covered agreements a panel will
be aided by the arguments of the parties but not bound by them; its decisions on such matters
must be in accord with the rules of treaty interpretation applicable to the WTO.
(b) Examination of Domestic Legislation
7.17 In respect of the examination of domestic law by WTO panels, both parties referred to
the India – Patents (US) case. There the Appellate Body stated that "[i]t is clear that an
examination of the relevant aspects of Indian municipal law … is essential to determining
whether India has complied with its obligations under Article 70.8(a) [of the TRIPS
Agreement]. There was simply no way for the Panel to make this determination without
engaging in an examination of Indian law".
633
7.18 In this case, too, we have to examine aspects of municipal law, namely Sections 301-
310 of the US Trade Act of 1974. Our mandate is to examine Sections 301-310 solely for the
purpose of determining whether the US meets its WTO obligations. In doing so, we do not, as
noted by the Appellate Body in India – Patents (US)634, interpret US law "as such", the way we
would, say, interpret provisions of the covered agreements. We are, instead, called upon to
establish the meaning of Sections 301-310 as factual elements and to check whether these

633 Appellate Body Report on India – Patent Protection for Pharmaceutical and Agricultural
Chemical Products (" India – Patents (US) "), WT/DS50/AB/R (complaint by US), adopted 16 January
1998, para. 66.
634 Ibid.

factual elements constitute conduct by the US contrary to its WTO obligations. The rules on
burden of proof for the establishment of facts referred to above also apply in this respect. 635
7.19 It follows that in making factual findings concerning the meaning of Sections 301-310
we are not bound to accept the interpretation presented by the US. That said, any Member can
reasonably expect that considerable deference be given to its views on the meaning of its own
law.
7.20 We note, finally, that terms used both in Sections 301-310 and in WTO provisions, do
not necessarily have the same meaning. For example, the word "determination" need not
always have the same meaning in Sections 304 and 306 as it has in Article 23.2(a) of the DSU.
Thus, conduct not meeting, say, the threshold of a "determination" under Sections 304 and 306,
is not by this fact alone precluded from meeting the threshold of a "determination" under
Article 23.2(a) of the DSU. By contrast, the fact that a certain act is characterized as a
"determination" under domestic legislation, does not necessarily mean that it must be construed
as a determination under the covered agreements.
636
4. Rules of Treaty Interpretation
7.21 Evaluating the conformity of Sections 301-310 with US obligations under the WTO
requires interpretation of several provisions of the covered agreements. Article 3.2 of the DSU
directs panels to clarify WTO provisions "in accordance with customary rules of interpretation
of public international law". Articles 31 and 32 of the Vienna Convention on the Law of
Treaties ("Vienna Convention") have attained the status of rules of customary international law.
In recent years, the jurisprudence of the Appellate Body and WTO panels has become one of the
richest sources from which to receive guidance on their application. The principal provision of
the Vienna Convention in this respect provides as follows:
"A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its object and purpose".
637

635 In this respect, the International Court of Justice ("ICJ"), referring to an earlier judgment by
the Permanent Court of International Justice ("PCIJ") noted the following: "Where the determination of a
question of municipal law is essential to the Court's decision in a case, the Court will have to weigh the
jurisprudence of the municipal courts, and 'If this is uncertain or divided, it will rest with the Court to
select the interpretation which it considers most in conformity with the law' ( Brazilian Loans , PCIJ,
Series A, Nos. 20/21, p. 124)" ( Elettronica Sicula S.p.A. (ELSI), Judgment, ICJ Reports 1989, p. 47, para.
62).
637 Articles 31 and 32 of the Vienna Convention read as follows:
"Article 31
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:

7.22 Text, context and object-and-purpose correspond to well established textual, systemic
and teleological methodologies of treaty interpretation, all of which typically come into play
when interpreting complex provisions in multilateral treaties. For pragmatic reasons the normal
usage, and we will follow this usage, is to start the interpretation from the ordinary meaning of
the "raw" text of the relevant treaty provisions a nd then seek to construe it in its context and in
the light of the treaty's object and purpose. However, the elements referred to in Article 31 –
text, context and object-and-purpose as well as good faith – are to be viewed as one holistic rule
of interpretation rather than a sequence of separate tests to be applied in a hierarchical order.
Context and object-and-purpose may often appear simply to confirm an interpretation seemingly
derived from the "raw" text. In reality it is always some context, even if unstated, that
determines which meaning is to be taken as "ordinary" and frequently it is impossible to give
meaning, even "ordinary meaning", without looking also at object-and-purpose.
638 As noted by

(a) any agreement relating to the treaty which was made between all the
parties in connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connexion
with the conclusion of the treaty and accepted by the other parties as an
instrument related to the treaty.
3. There shall be taken into account together with the context:
(a) any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which
establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations
between the parties.
4. A special meaning shall be given to a term if it is established that the parties so
intended.
Article 32
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine the
meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or
unreasonable".
638 As noted by the International Law Commission (ILC) – the original drafter of Article 31 of
the Vienna Convention – in its commentary to that provision:
"The Commission, by heading the article 'General Rule of Interpretation' in the singular
and by underlining the connexion between paragraphs 1 and 2 and again between
paragraph 3 and the two previous paragraphs, intended to indicate that the application
of the means of interpretation in the article would be a single combined operation. All

the Appellate Body: "Article 31 of the Vienna Convention provides that the words of the treaty
form the foundation for the interpretive process: 'interpretation must be based above all upon
the text of the treaty'". It adds, however, that "[t]he provisions of the treaty are to be given their
ordinary meaning in their context. The object and purpose of the treaty are also to be taken into
account in determining the meaning of its provisions".639
5. General Description of the Operation of Sections 301-310
7.23 It is difficult to appreciate the claims and counterclaims of the parties without a general
understanding of the operation of Sections 301-310. Consequently, in Annex II we provide a
brief overview as an aid to the readers of this Report. This overview is of a non-binding nature
and does not have the status of a factual finding by this Panel. It was prepared following
consultations with the parties as part of the descriptive part of this Report.
6. The Measure in Question and the Panel's General Methodology
7.24 Our mandate in this case is to evaluate the conformity of Sections 301-310 with the
relevant WTO provisions as outlined in the terms of reference. When evaluating the conformity
of national law with WTO obligations in accordance with Article XVI:4 of the WTO
Agreement640 account must be taken of the wide-ranging diversity in the legal systems of the
Members. Conformity can be ensured in different ways in different legal systems. It is the end
result that counts, not the manner in which it is achieved. Only by understanding and respecting
the specificities of each Member's legal system, can a correct evaluation of conformity be
established.
7.25 Sections 301-310 display some features, common in several jurisdictions, that are
typical of much modern complex economic and regulatory legislation. Frequently the
Legislator itself does not seek to control, through statute, all covered conduct. Instead it
delegates to pre-existing or specially created administrative agencies or other public authorities,
regulatory and supervisory tasks which are to be administered according to certain criteria and

the various elements, as they were present in any given case, would be thrown into the
crucible and their interaction would give the legally relevant interpretation. Thus
[Article 31] is entitled 'General rule of interpretation' in the singular, not 'General rules'
in the plural, because the Commission desired to emphasize that the process of
interpretation is a unity and that the provisions of the article form a single, closely
integrated rule" (Yearbook of the ILC, 1966, Vol. II, pp. 219-220).
See also, Sinclair, I., The Vienna Convention on the Law of Treaties , 2
nd Edition, Manchester
University Press, 1984, p. 116:
"Every text, however clear on its face, requires to be scrutinised in its context and in the
light of the object and purpose which it is designed to serve. The conclusion which may
be reached after such a scrutiny is, in most instances, that the clear meaning which
originally presented itself is the correct one, but this should not be used to disguise the
fact that what is involved is a process of interpretation".
639 Appellate Body report on Japan – Taxes on Alcoholic Beverages ("Japan – Alcoholic
Beverages"), WT/DS8/AB/R, adopted 1 November 1996, pp. 11-12.
640 Article XVI:4 provides as follows: "Each Member shall ensure the conformity of its laws,
regulations and administrative procedures with its obligations as provided in the annexed Agreements".

within discretionary limits set out by the Legislator. The discretion can be wide or narrow
according to the will of the Legislator. Sections 301-310 are part of such a legislative scheme.
7.26 In evaluating the conformity of Sections 301-310 with the relevant WTO provisions we
must, thus, be cognizant of this multi-layered character of the national law under consideration
which includes statutory language as well as other institutional and administrative elements. 641
For convenience we will hereafter refer to Sections 301-310 comprising all of these elements as
"the Measure in question".
7.27 The elements of this type of national law are, as is the case here, often inseparable and
should not be read independently from each other when evaluating the overall conformity of the
law with WTO obligations. For example, even though the statutory language granting specific
powers to a government agency may be prima facie consistent with WTO rules, the agency
responsible, within the discretion given to it, may adopt internal criteria or administrative
procedures inconsistent with WTO obligations which would, as a result, render the overall law
in violation.
642 The opposite may be equally true: though the statutory language as such may be
prima facie inconsistent, such inconsistency may be lawfully removed upon examination of
other administrative or institutional elements of the same law.
7.28 Accordingly, in examining the relevant provisions of Sections 301-310 we first look at
the statutory language itself, severed from all other elements of the law. We then look at the
other elements of Sections 301-310 which, in our view, constitute an integral part of the
Measure in question and make our final evaluation based on all elements taken together.
C. THE EC CLAIM THAT SECTION 304 IS INCONSISTENT WITH ARTICLE 23.2(A) OF THE
DSU
1. Claims and Arguments of the Parties
7.29 The EC claims that Section 304 mandates the USTR to make a "unilateral"
determination on whether another WTO Member has violated US rights under the WTO. The
EC submits that this determination by the USTR has to be made within 18 months after the
initiation of an investigation under Section 302, a date that normally coincides with the request
for consultations under the DSU. According to the EC, DSU procedures can, however, be
assumed to take 19 ½ months. The EC submits that, as a result of the 18 months deadline, the

641 The meaning of the term "laws" in Article XVI:4 of the WTO Agreement must accommodate
the very broad diversity of legal systems of WTO Members. For present purposes, we are of the view
that the term "laws" is wide enough to encapsulate as one single measure the multi-layered Sections 301-
310. In the alternative – i.e. in case the term "laws" should be said to cover statutory language only – we
would consider the non-statutory elements of Sections 301-310 that are of an institutional or
administrative nature to fall under the terms "regulations and administrative procedures" also referred to
in Article XVI:4. Under this alternative approach as well, we would view it necessary – given the special
nature of the national law in question – to examine all elements under Sections 301-310 as one measure in
order to correctly assess its overall conformity with WTO rules.
642 Similarly, the Appellate Body in US – Import Prohibition of Ceratin Shrimp and Shrimp
Products (" US – Shrimp" , WT/DS58/AB/R, adopted 6 November 1998, at paras. 160 and 186) first
examined the US measure itself and found that it was provisionally justified under Article XX(g) of
GATT 1994. However, it then found that the application of that very same measure, pursuant to
administrative guidelines and practice, constituted an abuse or misuse of the provisional justification
made available by Article XX(g) in the light of the chapeau of Article XX. On these grounds it
concluded that the US measure read in this sense was in violation of GATT 1994.

determination under Section 304 is required even if the DSB has not yet adopted a report with
findings on the matter, contrary to Article 23.2(a) of the DSU.
7.30 The US responds that nothing in Section 304 compels the USTR to make a specific
determination that US rights have been denied in the absence of panel or Appellate Body
findings, adopted by the DSB. In its second submission, the US goes even further and submits
that since Section 304 determinations have to be made on the basis of WTO dispute settlement
proceedings pursuant to Section 304 (a)(1), a dete rmination that US rights have been denied
before the adoption of DSB findings is precluded. According to the US, Section 304 only
requires the USTR to "determine whether" – not to determine that – US rights have been
denied. In the US view, the USTR has the discretion to determine that no violation has
occurred, that no violation has been confirmed by the DSB, that a violation will be confirmed on
the date the DSB adopts panel or Appellate Body findings or that the ongoing investigation
must terminate. The US also argues that the relevant period for DSU procedures to be
completed – from the request for consultations to the adoption of reports by the DSB – is not 19
½ months, as claimed by the EC, but 16 months and 20 days.
2. Preliminary Panel Findings in respect of the Statutory Language of Section 304
7.31 As regards the statutory language of Section 304, we consider it sufficient to make the
following findings based upon examination of the text itself, the evidence and arguments
submitted to us in this respect as well as interpretation, where applicable, of the relevant
provisions of the WTO.
(a) First, as a matter of fact, we find that under the statutory language of Section
304 (a)(2), the USTR is mandated, i.e. obligated in law, to make a
determination on whether US rights are being denied within 18 months after the
request for consultations.
643 This is a mandatory feature of Section 304 in
which the Legislature left no discretion to the Executive Branch.644
(b) Second, as a matter of law, since most of the time-limits in the DSU are either
minimum time-limits without ceilings 645 or maximum time-limits that are,
nonetheless, indicative only, 646 DSU proceedings – from the request for

643 For purposes of this dispute, we assume that the 18 months time-limit is the earlier of the two
time-limits mentioned in Section 304, i.e. falls before the lapse of "30 days after the date on which the
dispute settlement procedure is concluded".
644 The US agrees that it cannot postpone the making of this determination. In respect of Japan
– Measures Affecting Agricultural Products ("Japan – Agricultural Products "), adopted 19 March 1999,
WT/DS76/AB/R and India – Patents (US) , for example, the US – answering Panel Question 24 a) (as
reflected in para. 4.586 of this Report) – stated that "the United States did not make formal Section 304
determinations by the 18-month anniversary, but should have" (emphasis added).
645 Article 4.7 of the DSU, for example, provides for a minimum period of 60 days for
consultations, unless there is agreement to the contrary or urgency in accordance with Article 4.8.
646 Article 12.8 refers to six months "as a general rule" for the timeframe between panel
composition and issuance of the final report to the parties. Article 12.9 provides that "[i]n no case should
the period from the establishment of the panel to the circulation of the report to the Members exceed nine
months" (emphasis added). Article 17.5 states that "[a]s a general rule, the proceedings [of the Appellate
Body] shall not exceed 60 days". It adds, however, that "[i]n no case shall the proceedings exceed 90
days". However, even this seemingly compulsory deadline has been passed in three cases so far ( United
States – Restrictions on Imports of Cotton and Man-Made Fibre Underwear , WT/DS24/AB/R, 91 days;
European Communities – Measures Concerni ng Meat and Meat Products (Hormones) ("EC –

consultations to the adoption of findings by the DSB 647 – may take longer than
18 months and have in practice often led to time-frames beyond 18 months. 648
As a result, the USTR could be obligated in certain cases brought by the US –
and indeed in certain cases has already been so obligated – to make a unilateral
determination as to whether US rights are being denied before the completion
of multilateral DSU proceedings.
(c) Third, as a matter of fact, we find that even though the USTR is obligated to
make a determination within the 18 months time-frame, under the broad
discretion allowed under Section 304 there are no circumstances which would
compel him or her to make a determination to the effect that US rights under
the WTO Agreement have been denied – hereafter referred to as a
"determination of inconsistency" – before the exhaustion of DSU proceedings.
Section 304 (a) requires the USTR to determine whether US rights are being
denied within 18 months. It does not require the USTR to determine that US
rights are being denied at the 18 months deadline. The criteria referred to in
Section 304 (a) on which the USTR has to base its determination – "the
investigation initiated under section 302 … and the consultations (and the
proceedings, if applicable) under section 303" – allow the USTR to exercise
wide discretion in all cases concerning the actual content of the determination
he or she has to make.
As will be seen below, however, this discretion does not necessarily absolve
Section 304 from a breach of the DSU.
(d) Fourth, as a matter of fact, we find that even though the USTR is not obligated,
under any circumstance, to make a Section 304 determination of inconsistency

Hormones"), WT/DS26/AB/R and DS48/AB/R, 114 days; and US – Shrimp , op. cit., 91 days). Finally,
Article 20 refers to 9 months – 12 months in case of an appeal – "as a general rule" for the period between
panel establishment and adoption of report(s) by the DSB.
647 When we refer hereafter to the exhaustion of DSU proceedings, we mean the date of adoption
by the DSB of panel and, as the case may be, Appellate Body reports on the matter.
648 In 17 cases out of the 26 cases which so far led to DSB recommendations, more than 18
months lapsed between the request for consultations and the adoption of reports. Eleven of these 17 cases
were brought by the US either as the sole complainant or a co-complainant: European Communities –
Regime for the Importation, Sale and Distribution of Bananas ("EC - Bananas III ", WT/DS27), EC –
Hormones (op. cit.), Japan – Measures Affecting Consumer Photographic Film and Paper (WT/DS44),
India – Patents (US) (op. cit.), European Communities/United Kingdom/Ireland – Customs Classification
of Certain Computer Equipment (WT/DS62, 67 and 68), Indonesia – Certain Measures Affecting the
Automobile Industry (WT/DS54, 55, 59 and 64), Japan – Agricultural Products (op. cit.), Korea – Taxes
on Alcoholic Beverages (WT/DS75 and 84), Australia – Subsidies Provided to Producers and Exporters
of Automobile Leather (WT/DS106), India – Quantitative Restrictions on Imports of Agricultural, Textile
and Industrial Products (WT/DS90) and Canada – Measures Affecting the Importation of Milk and the
Exportation of Dairy Products (WT/DS103, US complaint and WT/DS113, complaint by New Zealand).
The six other cases were: US – Shrimp (op. cit.) , Australia – Measures Affecting the Importation of
Salmon (WT/DS18), Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico
(WT/DS60), US – Anti-Dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of
one Megabit or above from Korea (WT/DS99), Brazil- Export Financing Programme for Aircraft
(WT/DS46) and Canada- Measures Affecting the Export of Civilian Aircraft ("Canada – Aircraft ",
WT/DS70).

prior to exhaustion of DSU proceedings, it is not precluded by the statutory
language of Section 304 itself from making such a determination. 649 We find
that the broad discretion given to the USTR allows him or her to do exactly
what the statutory language suggests: to determine whether US rights have been
denied, i.e. to determine that they have not been denied but also to determine
that they have been denied. 650
7.32 In conclusion, the statutory language of Section 304 mandates the USTR in certain
cases to make a unilateral determination on whether US rights have been denied even before the
adoption by the DSB of its findings on the matter. However, the statutory language of
Section 304 neither mandates the USTR to make a determination of inconsistency nor precludes
him or her from making such a determination.
7.33 Critically, the statutory language of Section 304 reserves to the USTR when exercising
his or her mandatory duty after 18 months, the right to make a unilateral determination of
inconsistency even prior to exhaustion of DSU proceedings.
3. The Statutory Language of Section 304 and Member Obligations under Article 23
of the DSU
7.34 The statutory language of Section 304 reserves, then, to the USTR when exercising his
or her mandatory duty after 18 months, the right to make a unilateral determination of
inconsistency even prior to exhaustion of DSU proceedings. As noted, it does not impose on
the USTR the duty to make such a determination. What is at issue, then, is whether – given, on
the one hand, the duty in some cases to make a unilateral determination prior to exhaustion of
multilateral proceedings and, on the other hand, the full discretion as to the content of that
determination – Section 304 violates, in and of itself rather than with reference to any particular
instance of its application, the obligations assumed by Members under Article 23.2(a) of the
DSU. We must, thus, turn to the interpretation of Article 23 of the DSU.

649 The US argued in its second submission that the USTR is precluded from making such a
determination of inconsistency. To the extent this US argument is based on the statutory language of
Section 304 alone, we reject the argument for the reasons given in this Report.
650 Section 304 (a) refers to WTO "proceedings, if applicable" as a basis of the determination to
be made. This statutory language is not sufficiently precise to construe it as curtailing the USTR's
discretion to make a determination of inconsistency before the adoption of findings by the DSB. The
reference to "proceedings" as a basis for the determ ination allows WTO proceed ings to be taken into
account but does not, in our view, preclude a determination of inconsistency before the final outcome of
WTO proceedings, i.e. before the adoption of DSB recommendations. We note that whereas the first
time-limit under Section 304 (a)(2) explicitly refers to the conclusion of dispute settlement procedures
("30 days after the date on which the dispute settlement procedure is concluded"), the second time-limit
does not refer to any proceedings, le t alone to the completion of WTO proceedings ("18 months after the
date on which the investigation is initiated"). Section 304 (a)(2) mandates the making of a determination
"the earlier of" these two time-limits. We note, finally, that the US itself had first argued that Section 304
does not "compel" the making of a determination of inconsistency which seems to imply that although not
compelled, the USTR is permitted to make such a determination. Only in its second submission did the
US argue that the USTR is actually "precluded" from making such determination.

(a) The dual nature of obligations under Article 23 of the DSU
7.35 Article 23 of the DSU deals, as its title indicates, with the "Strengthening of the
Multilateral System". Its overall design is to prevent WTO Members from unilaterally
resolving their disputes in respect of WTO rights and obligations. It does so by obligating
Members to follow the multilateral rules and procedures of the DSU.
7.36 Article 23.1 provides as follows:
"Strengthening of the Multilateral System
When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they
shall have recourse to, and abide by , the rules and procedures of this
Understanding" (emphasis added).
7.37 Article 23.2 specifies three elements that need to be respected as part of the multilateral
DSU dispute settlement process. It provides as follows:
"In such cases [referred to in Article 23.1, i.e. when Members seek the redress
of WTO inconsistencies], Members shall:
(a) not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any
objective of the covered agreements has been impeded, except through
recourse to dispute settlement in accordance with the rules and
procedures of this Understanding, and shall make any such
determination consistent with the findings contained in the panel or
Appellate Body report adopted by the DSB or an arbitration award
rendered under this Understanding;
(b) follow the procedures set forth in Article 21 to determine the
reasonable period of time for the Member concerned to implement the
recommendations and rulings; and
(c) follow the procedures set forth in Article 22 to determine the level of
suspension of concessions or other obligations and obtain DSB
authorization in accordance with those procedures before suspending
concessions or other obligations under the covered agreements in
response to the failure of the Member concerned to implement the
recommendations and rulings within that reasonable period of time".
7.38 On this basis, we conclude as follows:
(a) It is for the WTO through the DSU process – not for an individual WTO
Member – to determine that a WTO inconsistency has occurred
(Article 23.2(a)).

(b) It is for the WTO or both of the disputing parties, through the procedures set
forth in Article 21 – not for an individual WTO Member – to determine the
reasonable period of time for the Member concerned to implement DSB
recommendations and rulings (Article 23.2(b)).
(c) It is for the WTO through the procedures set forth in Article 22 – not for an
individual WTO Member – to determine, in the event of disagreement, the level
of suspension of concessions or other obligations that can be imposed as a
result of a WTO inconsistency, as well as to grant authorization for the actual
implementation of these suspensions.
7.39 Article 23.2 clearly, thus, prohibits specific instances of unilateral conduct by WTO
Members when they seek redress for WTO inconsistencies in any given dispute. This is, in our
view, the first type of obligations covered under Article 23.
7.40 It is not, however, our task in these proceedings to assess the WTO conformity of
specific determinations made under Section 304 in a given dispute but to determine, instead,
whether Section 304 as such violates Article 23 of the DSU. This leads us to the second type of
obligations covered under Article 23.
7.41 As a general proposition, GATT acquis, confirmed in Article XVI:4 of the WTO
Agreement and recent WTO panel reports, make abundantly clear that legislation as such,
independently from its application in specific cases, may breach GATT/WTO obligations:
(a) In GATT jurisprudence, to give one example, legislation providing for tax
discrimination against imported products was found to be GATT inconsistent
even before it had actually been applied to specific products and thus before
any given product had actually been discriminated against.
651
(b) Article XVI:4 of the WTO Agreement explicitly confirms that legislation as
such falls within the scope of possible WTO violations. It provides as follows:
"Each Member shall ensure the conformity of its laws,
regulations and administrative procedures with its obligations
as provided in the annexed Agreements" (emphasis added).

651 See, for example, Panel Reports on United States – Taxes on Petroleum and Certain Imported
Substances ("US – Superfund "), adopted 17 June 1987, BISD 34S/136, para. 5.2.2 (where the legislation
imposing the tax discrimination only had to be applied by the tax authorities at the end of the year after
the panel examined the matter) and United States – Measures Affec ting Alcoholic and Malt Beverages
("US – Malt Beverages "), adopted 19 June 1992, BISD 39S/206, paras. 5.39, 5.57, 5.60 and 5.66 (where
the legislation imposing the discrimination was, for example, not being enforced by the authorities). See
also Panel Reports on EEC – Regulation on Imports of Parts and Components ("EEC – Parts and
Components"), adopted 16 May 1990, BISD 37S/132, paras. 5.25-5.26, Thailand – Restrictions on
Importation of and Internal Taxes on Cigarettes (" Thai – Cigarettes "), adopted 7 November 1990,
BISD 37S/200, para. 84 and United States – Measures Affecting the Importation, Internal Sale and Use of
Tobacco ("US – Tobacco"), adopted 4 October 1994, BISD 41S/131, para. 118.

The three types of measures explicitly made subject to the obligations imposed
in the WTO agreements – "laws, regulations and administrative procedures" –
are measures that are applicable generally; not measures taken necessarily in a
specific case or dispute. Article XVI:4, though not expanding the material
obligations under WTO agreements, expands the type of measures made subject
to these obligations.652
(c) Recent WTO panel reports confirm, too, that legislation as such, independently
from its application in a specific case, can be inconsistent with WTO rules.653
7.42 Legislation may thus breach WTO obligations. This must be true, too, in respect of
Article 23 of the DSU. This is so, in our view, not only because of the above-mentioned case
law and Article XVI:4, but also because of the very nature of obligations under Article 23.
7.43 Article 23.1 is not concerned only with specific instances of violation. It prescribes a
general duty of a dual nature. First, it imposes on all Members to "have recourse to" the
multilateral process set out in the DSU when they seek the redress of a WTO inconsistency. In
these circumstances, Members have to have recourse to the DSU dispute settlement system to
the exclusion of any other system, in particular a system of unilateral enforcement of WTO
rights and obligations. This, what one could call "exclusive dispute resolution clause", is an
important new element of Members' rights and obligations under the DSU. Second, Article 23.1
also prescribes that Members, when they have recourse to the dispute settlement system in the
DSU, have to "abide by" the rules and procedures set out in the DSU. This second obligation
under Article 23.1 is of a confirmatory nature: when having recourse to the DSU Members
must abide by all DSU rules and procedures.
7.44 Turning to the second paragraph under Article 23, Article 23.2 – which, on its face,
addresses conduct in specific disputes – starts with the words "[i]n such cases". It is, thus,
explicitly linked to, and has to be read together with and subject to, Article 23.1.

652 Article XVI:4 goes a step further than Article 27 of the Vienna Convention. Article 27 of the
Vienna Convention provides that "[a] party may not invoke the provisions of its internal law as
justification for its failure to perform a treaty". Article XVI:4, in contrast, not only precludes pleading
conflicting internal law as a justification for WTO inconsistencies, but requires WTO Members actually
to ensure the conformity of internal law with its WTO obligations.
653 Panel Reports on Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and
Other Items ("Argentina – Textiles and Apparel (US)"), WT/DS56/R (complaint by US), adopted 22 April
1998, paras. 6.45-47 (see also Appellate Body Report, WT/DS56/AB/R, paras. 48-55); Canada –
Aircraft, op. cit., paras. 9.124 and 9.208, Turkey – Restrictions on Impor ts of Textile and Clothing
Products, WT/DS34/R, circulated to Members on 31 May 1999 (appealed on other grounds), para. 9.37.

7.45 Indeed, two of the three prohibitions mentioned in Article 23.2 – Article 23.2(b) and (c)
– are but egregious examples of conduct that contradicts the rules and procedures of the DSU
which, under the obligation in Article 23.1 to "abide by the rules and procedures" of the DSU,
Members are obligated to follow. 654 These rules and procedures clearly cover much more than
the ones specifically mentioned in Article 23.2. 655 There is a great deal more State conduct
which can violate the general obligation in Article 23.1 to have recourse to, and abide by, the
rules and procedures of the DSU than the instances especially singled out in Article 23.2.656
7.46 Article 23 interdicts, thus, more than action in specific disputes, it also provides
discipline for the general process WTO Members must follow when seeking redress of WTO
inconsistencies. A violation of the explicit provisions of Article 23 can, therefore, be of two
different kinds. It can be caused
(a) by an ad hoc, specific action in a given dispute, or
(b) by measures of general applicability, e.g. legislation or regulations, providing
for a certain process to be followed which does not, say, include recourse to the
DSU dispute settlement system or abide by the rules and procedures of the
DSU.
(b) Legislation which violates Article 23 of the DSU
7.47 What kind of legislation would constitute a violation of Article 23?
7.48 Surely, to give an extreme example, legislation mandating the making of a
determination of inconsistency as soon as a WTO panel has issued its report – without awaiting
the result of a possible appeal and the adoption of DSB recommendations – would violate
Article 23.2(a).
7.49 How, then, should we evaluate Section 304 the statutory language of which mandates in
some cases the making of a determination prior to exhaustion of DSU proceedings and which
reserves to the USTR the right when exercising this mandatory duty to make a unilateral
determination of inconsistency?
7.50 We first find that if the USTR were to exercise, in a specific dispute , the right thus
reserved for him or her in the statutory language of Section 304 and make a determination of

654 Article 23.2(a), in contrast, prohibiting Members from making certain determinations, is not
covered elsewhere in the DSU.
655 One could refer, for example, to the requirement to request consultations pursuant to Article 4
of the DSU before requesting a panel under Article 6.
656 Not notifying mutually agreed solutions to the DSB as required in Article 3.6 of the DSU or
not abiding by the requirements for a request for consu ltations or a panel as elaborated in Articles 4 and 6
are some other examples of conduct that would be contrary to DSU rules and procedures but is not
mentioned specifically in Article 23.2.

inconsistency, the US conduct would meet the different elements required for an individual
breach under Article 23.2(a). 657 However, Section 304 does not mandate the USTR to make a

657 We consider that if the USTR were to exercise , in a specific dispute, the right reserved to him
or her under the statutory language of Section 304 to make a determination of inconsistency before
exhaustion of DSU procedures, the US conduct would meet the different elements required for a breach
of Article 23.2(a) in a specific instance. This conclusion is of crucial importance since it shows that the
statutory language of Section 304 reserves the right to the USTR to breach at least the first type of
obligations in Article 23.2(a) in a specific instance. Fo ur elements must be satisfied for a specific act in a
particular dispute to breach Article 23.2(a):
(a) the act is taken "in such cases" ( chapeau of Article 23.2), i.e. in a situation where a
Member "seek[s] the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the attainment
of any objective of the covered agreements", as referred to in Article 23.1;
(b) the act constitutes a "determination";
(c) the "determination" is one "to the effect that a violation has occurred, that benefits have
been nullified or impaired or that the attainment of any objective of the covered
agreements has been impeded";
(d) the "determination" is either not made "through recourse to dispute settlement in
accordance with the rules and procedures of [the DSU]" or not made "consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or an
arbitration award rendered under [the DSU]". The two elements of this requirement are
cumulative in nature. Determinations are only allowed when made through recourse to
the DSU and consistent with findings adopted by the DSB or an arbitration award under
the DSU.
Applying these four elements to the specific determination allowed under the statutory language
of Section 304, namely a determination of inconsistency before exhaustion of DSU procedures we note,
first, the parties' agreement that all Section 304 determinations are made in cases where the US is seeking
the redress of WTO inconsistencies, in the sense of the first element outlined above. We agree.
Obviously, when pursuing a matter of US rights under the WTO through Section 302 investigations,
WTO consultations and procedures, and making a decision on whether US rights under the WTO are
being denied under Section 304, the US is seeking redress of what it considers to be WTO
inconsistencies.
Both parties also agree that determinations under Section 304 meet the second of the four
elements, a determination in the sense of Article 23.2(a). We agree. Some of the relevant dictionary
meanings of the word "determination" in the context of Article 23.2(a) are: "the settlement of a suit or
controversy by the authoritative decision of a judge or arbiter; a settlement or decision so made, an
authoritative opinion … the action of coming to a decision; the result of this; a fixed intention" ( The New
Shorter Oxford English Dictionary , Ed. Brown, L., Clarendon Press, Oxford, Vol. 1, p. 651). Without
there being a need precisely to define what a "det ermination" in the sense of Article 23.2(a) is, we
consider that – given its ordinary meaning – a "determination" implies a high degree of firmness or
immutability, i.e. a more or less final decision by a Member in respect of the WTO consistency of a
measure taken by another Member.
Given that Article 23.2(a) only deals with "determinations" in case a Member is seeking redress
of WTO inconsistencies, we are of the view that a "determination" can only occur subsequent to a
Member having decided that, in its preliminary view, there may be a WTO inconsistency, i.e. only once
that Member has decided to seek redress of such inconsistency. Mere opinions or views expressed before
that stage is reached, are not intended to be cove red by Article 23.2(a). However, once a Member does

determination of inconsistency in violation of Article 23 in each and every specific dispute; it
merely sets out in the statutory language itself that the USTR has the power and right to do so.
The question here is whether this constitutes a breach of the second type of obligations under
Article 23, namely a breach by measures of general applicability such as a general law.
7.51 The parties focused much of their arguments on the kind of legislation which could be
found to be inconsistent with WTO obligations. The US submitted forcefully that only
legislation mandating a WTO inconsistency or precluding WTO consistency, can, as such,
violate WTO provisions. This was at the very heart of the US defence. On this US reading it
followed that since Section 304 never mandates a specific determination of inconsistency prior
to exhaustion of DSU proceeding nor, in the US view, precludes the US from acting
consistently with its WTO obligations in all circumstances, the legislation, in and of itself could
not be in violation of Article 23.2(a) of the DSU.
7.52 The EC submitted with equal force that also certain types of legislation under which a
WTO inconsistent conduct is not mandated but is allowed, could violate WTO obligations. The
EC considered that Section 304 is of such a nature.

bring a case under the DSU, in particular once it requests the establishment of a panel, one can assume
that this preliminary stage has been passed and the threshold of a "determination" met. Such reading of
the term "determination" is confirmed by the ex ception provided for "determinations" made "through
recourse to dispute settlement in accordance with" the DSU, an exception that explicitly allows for the
"determination" implicit in pursuing a case before a panel. In any event, what is decisive under
Article 23.2(a) is not so much whether an act constitutes a "determination" – in our view, a more or less
formal requirement that needs broad reading -- but whether it is consistent with DSU rules and
procedures, the fourth element discussed below.
On that basis, we find that USTR determinations under Section 304 – made subsequent to
internal investigations, WTO consultations and pr oceedings, if applicable; and, in the case of
determinations of inconsistency, automatically and as a conditio since qua non leading to a decision on
action under Section 301 – meet the threshold of firmness and immutability required for a
"determination" under Article 23.2(a).
The third element under Article 23.2(a) as applied to the specific determination under
examination is also satisfied. We recall that this determination would be one finding that US rights under
the WTO have been denied, i.e. a determination "to the effect that a violation has occurred, that benefits
have been nullified or impaired or that the attainment of any objective of the covered agreements has been
impeded", thus meeting the third element under Article 23.2(a).
The fourth element under Article 23.2(a) is likewise satisfied. We recall that the specific
determination under examination here would be one made before DSB findings on the matter have been
adopted. It would thus not be made "through recourse to dispute settlement in accordance with the rules
and procedures of [the DSU]" nor made "consistent with the findings contained in the panel or Appellate
Body report adopted by the DSB". Indeed, such determination made before exhaustion of DSU procedures,
would not be required, referred to or relevant for any of the steps or procedures in the DSU. On the
contrary, it would be a determination that, at face value, prejudices and could even contradict the outcome of
DSU procedures. Moreover, any such determination could not be consistent with DSB findings, since no
such findings would, as yet, be adopted.
In conclusion, if the USTR were to exercise, in a specific dispute, the right reserved for it in
Section 304 to make a determination of inconsistency before exhaustion of DSU procedures, the US
conduct would meet all four elements required for a breach of Article 23.2(a).

7.53 Despite the centrality of this issue in the submissions of both parties, we believe that
resolving the dispute as to which type of legislation, in abstract, is capable of violating WTO
obligations is not germane to the resolution of th e type of claims before us. In our view the
appropriate method in cases such as this is to examine with care the nature of the WTO
obligation at issue and to evaluate the Measure in question in the light of such examination. The
question is then whether, on the correct interpretation of the specific WTO obligation at issue,
only mandatory or also discretionary national laws are prohibited. We do not accept the legal
logic that there has to be one fast and hard rule covering all domestic legislation. After all, is it
so implausible that the framers of the WTO Agreement, in their wisdom, would have crafted
some obligations which would render illegal even discretionary legislation and crafted other
obligations prohibiting only mandatory legislation?
658 Whether or not Section 304 violates
Article 23 depends, thus, first and foremost on the precise obligations contained in Article 23.
7.54 We can express this view in a different way:
(a) Even if we were to operate on the legal assumption that, as argued by the US,
only legislation mandating a WTO inconsistency or precluding WTO
consistency, can violate WTO provisions; and
(b) confirm our earlier factual finding in paragraph 7.31(c) that the USTR enjoys
full discretion to decide on the content of the determination,
we would still disagree with the US that the combination of (a) and (b) necessarily renders
Section 304 compatible with Article 23, since Article 23 may prohibit legislation with certain
discretionary elements and therefore the very fact of having in the legislation such discretion
could, in effect, preclude WTO consistency. In other words, rejecting, as we have, the
presumption implicit in the US argument that no WTO provision ever prohibits discretionary
legislation does not imply a reversal of the classical test in the pre-existing jurisprudence that
only legislation mandating a WTO inconsistency or precluding WTO consistency, could, as
such, violate WTO provisions.
659 Indeed that is the very test we shall apply in our analysis. It
simply does not follow from this test, as sometimes has been argued, that legislation with
discretion could never violate the WTO. If, for example, it is found that the specific obligations
in Article 23 prohibit a certain type of legislative discretion, the existence of such discretion in
the statutory language of Section 304 would presumptively preclude WTO consistency.
7.55 What, then, does such an examination of Article 23 yield?
7.56 We have already found that under the statutory provisions of Section 304 each time the
USTR exercises the mandatory duty to make a determination, the statutory language gives him
or her discretion and reserves to him or her the right to make a determination of inconsistency
even in cases where DSU proceedings have not been exhausted.

658 Imagine, for example, legislation providing that all imports, including those from WTO
Members, would be subjected to a customs inspection and that the administration would enjoy the right,
at its discretion, to impose on all such goods tariffs in excess of those allowed under the schedule of tariff
concessions of the Member concerned. Would the fact that under such legislation the national
administration would not be mandated to impose tariffs in excess of the WTO obligation, in and of itself
exonerate the legislation in question? Would such a conclusion not depend on a careful examination of
the obligations contained in specific WTO provisions, say, Article II of GATT and specific schedule of
concessions?
659 See paras. 4.173 ff. and 7.51 of this Report.

7.57 In our view, the ordinary meaning of the provisions of Article 23, even when read in
abstract, supports the position that this aspect of Section 304 constitutes a prima facie violation
of DSU rules and procedures. This interpreta tion of Article 23 is amply confirmed when we
consider, as is our duty under the Vienna Convention, the good faith provision in the general
rule of interpretation in Article 31 of that Convention, and when we evaluate the terms of
Article 23 not in abstract, but in their context and in the light of the DSU's and the WTO's object
and purpose.
4. Article 23.2(a) of the DSU interpreted in accordance with the Vienna Convention
Rules on Treaty Interpretation
(a) "A treaty shall be interpreted … in a ccordance with the ordinary meaning to be
given to the terms of the treaty …"
7.58 First, then, the raw text of Article 23.
7.59 The text of Article 23.1 is simple enough: Members are obligated generally to (a) have
recourse to and (b) abide by DSU rules and procedures. These rules and procedures include
most specifically in Article 23.2(a) a prohibition on making a unilateral determination of
inconsistency prior to exhaustion of DSU proceedings. As a plain textual matter, therefore,
could it not be said that statutory language of a Member specifically authorizing a determination
of inconsistency prior to exhaustion of DSU procedures violates the ordinary meaning of
Members' obligations under Article 23?
7.60 Put differently, cannot the raw text of Articles 23.2(a) and 23.1 be read as constituting a
mutual promise among WTO members giving each other a guarantee enshrined in an
international legal obligation, that certain specific conduct will not take place? Does not the text
of Article 23.1 in particular suggest that this promise has been breached and the guarantee
compromised when a Member puts in place legislation which explicitly allows it to do that
which it promised not to do?
7.61 On this reading, the very discretion granted under Section 304, which under the US
argument absolves the legislation, is what, in our eyes, creates the presumptive violation. The
statutory language which gives the USTR this discretion on its face precludes the US from
abiding by its obligations under the WTO. In each and every case when a determination is
made whilst DSU proceedings are not yet exhausted, Members locked in a dispute with the US
will be subject to a mandatory determination by the USTR under a statute which explicitly puts
them in that very danger which Article 23 was intended to remove.
660
7.62 It could be said that this is a danger which can never be entirely removed. After all,
even those Members which do not have any internal "trade legislation" can any day of the week
decide to violate their WTO obligations including the obligations under Article 23.
7.63 In our view, when a WTO Member has not enacted specific legislation providing for
procedures to enforce WTO rights, normally only the first type of violation of Article 23 can

660 We reject the notion that this danger is removed by virtue of the international obligation
alone. Even in the EC where EC norms may produce direct effect and thus give far greater assurance, an
EC Member State is not absolved by this fact from its duty to bring national legislation into compliance
with its transnational obligations under, say, an EC directive ( Commission v. Belgium , Case 102/79,
[1980] European Court Reports 1473 at para. 12 of the judgment).

occur, i.e. a breach of the promise not to make determinations of inconsistency before the
adoption of DSB findings in specific disputes. Certain WTO Members, however, including the
US and the EC, have enacted legislation for seeking redress of WTO inconsistencies. There can
be very good reasons related to norms of transparency, democracy and the rule of law which
explain why Members may wish to have such legislation. However, when a Member adopts
any legislation it has to be mindful that it does not violate its WTO obligations. Trade
legislation, important or positive as it may be, which statutorily reserves the right for the
Member concerned to do something which it has promised not to do under Article 23.2(a), goes,
in our view, against the ordinary meaning of Article 23.2(a) read together with Article 23.1.
(b) "A treaty shall be interpreted in good faith …"
7.64 It is notoriously difficult, or at least delicate, to construe the requirement of the Vienna
Convention that a treaty shall be interpreted in good faith in third party dispute resolution, not
least because of the possible imputation of bad faith to one of the parties. We prefer, thus, to
consider which interpretation suggests "better faith" and to deal only briefly with this element of
interpretation. Applying the good faith requirement to Article 23 may not lead to a conclusive
result but impels us in the direction suggested by our examination of the ordinary meaning of
the raw text.
7.65 Imagine two farmers with adjacent land and a history of many disputes concerning real
and alleged mutual trespassing. In the past, self help through force and threats of force has been
used in their altercations. Naturally, exploitation of the lands close to the boundaries suffers
since it is viewed as dangerous terrain. They now sign an agreement under which they
undertake that henceforth in any case of alleged trespassing they will abjure self help and
always and exclusively make recourse to the police and the courts of law. They specifically
undertake never to use force when dealing with alleged trespass. After the entry into force of
their agreement one of the farmers erects a large sign on the contested boundary: "No
Trespassing. Trespassers may be shot on sight".
7.66 One could, of course, argue that since the sign does not say that trespassers will be shot,
the obligations undertaken have not been violated. But would that be the "better faith"
interpretation of what was promised? Did they not after all promise always and exclusively to
make recourse to the police and the courts of law?
7.67 Likewise, is it a good faith interpretation to construe the obligations in Article 23 to
allow a Member that promised its WTO partners – under Articles 23.1 and 23.2(a) – that it will
generally, including in its legislation, have recourse to and abide by the rules and procedures of
the DSU which specifically contain an undertaking not to make a determination of
inconsistency prior to exhaustion of DSU proceedings, to put in place legislation the language
of which explicitly , urbi et orbi , reserves to its Executive Branch the right to make a
determination of inconsistency – that which it promised it would not do? This Panel thinks
otherwise.
7.68 The good faith requirement in the Vienna Convention suggests, thus, that a promise to
have recourse to and abide by the rules and procedures of the DSU, also in one's legislation,
includes the undertaking to refrain from adopting national laws which threaten prohibited
conduct.
7.69 We do not wish to argue that this reading of Article 23 based on the raw text and the
good faith consideration referred to in Article 31 of the Vienna Convention, but not yet read in
the light of the DSU's and the WTO's object and purpose, is necessarily compelling. It is,

however, in our view a perfectly plausible reading. Whilst we reject the US argument which
would construe the interdiction in Article 23.2(a) to refer exclusively to actual determinations of
inconsistency or legislation mandating such determinations, we do not think that it, too, based
on the raw text alone, is implausible.
7.70 Any doubts one might have, however, between these two possible interpretations are
dispelled when we consider the other interpretative elements found in Article 31 of the Vienna
Convention. For presentational and narrative reasons we will deal with object-and-purpose
before we deal with context.
(c) "… the ordinary meaning … in the light of [the treaty's] object and purpose"
7.71 What are the objects and purposes of the DSU, and the WTO more generally, that are
relevant to a construction of Article 23? The most relevant in our view are those which relate to
the creation of market conditions conducive to individual economic activity in national and
global markets and to the provision of a secure and predictable multilateral trading system.
7.72 Under the doctrine of direct effect, which has been found to exist most notably in the
legal order of the EC but also in certain free trade area agreements, obligations addressed to
States are construed as creating legally enforceable rights and obligations for individuals.
Neither the GATT nor the WTO has so far been interpreted by GATT/WTO institutions as a
legal order producing direct effect.
661 Following this approach, the GATT/WTO did not create
a new legal order the subjects of which comprise both contracting parties or Members and their
nationals.
7.73 However, it would be entirely wrong to consider that the position of individuals is of no
relevance to the GATT/WTO legal matrix. Many of the benefits to Members which are meant
to flow as a result of the acceptance of various disciplines under the GATT/WTO depend on the
activity of individual economic operators in the national and global market places. The purpose
of many of these disciplines, indeed one of the primary objects of the GATT/WTO as a whole,
is to produce certain market conditions which would allow this individual activity to flourish.
7.74 The very first Preamble to the WTO Agreement states that Members recognise
"that their relations in the field of trade and economic endeavour should be con-
ducted with a view to raising standards of living, ensuring full employment and

661 We make this statement as a matter of fact, without implying any judgment on the issue. We
note that whether there are circumstances where oblig ations in any of the WTO agreements addressed to
Members would create rights for individuals which national courts must protect, remains an open
question, in particular in respect of obligations fo llowing the exhaustion of DSU procedures in a specific
dispute (see Eeckhout, P., The Domestic Legal Status of the WTO Agreement: Interconnecting Legal
Systems, Common Market Law Review, 1997, p. 11; Berkey, J., The European Court of Justice and
Direct Effect for the GATT: A Question Worth Revisiting , European Journal of International Law, 1998,
p. 626). The fact that WTO institutions have not to date construed any obligations as producing direct
effect does not necessarily preclude that in the legal system of any given Member, following internal
constitutional principles, some obligations will be found to give rights to individuals. Our statement of
fact does not prejudge any decisions by national courts on this issue.

a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services".662
7.75 Providing security and predictability to the multilateral trading system is another central
object and purpose of the system which could be instrumental to achieving the broad objectives
of the Preamble. Of all WTO disciplines, the DSU is one of the most important instruments to
protect the security and predictability of the multilateral trading system and through it that of the
market-place and its different operators. DSU provisions must, thus, be interpreted in the light
of this object and purpose and in a manner which would most effectively enhance it. In this
respect we are referring not only to preambular language but also to positive law provisions in
the DSU itself. Article 3.2 of the DSU provides:
"The dispute settlement system of the WTO is a central element in providing
security and predictability to the multilateral trading system. The Members
recognize that it serves to preserve the rights and obligations of Members under
the covered agreements …".
663
7.76 The security and predictability in question are of "the multilateral trading system". The
multilateral trading system is, per force, composed not only of States but also, indeed mostly, of
individual economic operators. The lack of security and predictability affects mostly these
individual operators.
7.77 Trade is conducted most often and increasingly by private operators. It is through
improved conditions for these private operators that Members benefit from WTO disciplines.
The denial of benefits to a Member which flows from a breach is often indirect and results from
the impact of the breach on the market place and the activities of individuals within it. Sections
301-310 themselves recognize this nexus. One of the principal triggers for US action to
vindicate US rights under covered agreements is the impact alleged breaches have had on, and
the complaint emanating from, individual economic operators.

662 See also similar language in the second preambles to GATT 1947 and GATS. The TRIPS
Agreement addresses even more explicitly the interests of individual operators, obligating WTO Members
to protect the intellectual property rights of nationals of all other WTO Members. Creating market
conditions so that the activity of economic operators can flourish is also reflected in the object of many
WTO agreements, for example, in the non-discrimination principles in GATT, GATS and TRIPS and the
market access provisions in both GATT and GATS.
663 The importance of security and predictability as an object and purpose of the WTO has been
recognized as well in many panel and Appellate Body reports. See the Appellate Body report on Japan –
Alcoholic Beverages, op. cit., p. 31 ("WTO rules are reliable, comprehensible and enforceable. WTO rules
are not so rigid or so inflexible as not to leave room for reasoned judgements in confronting the endless and
ever-changing ebb and flow of real facts in real cases in the real world. They will serve the multilateral
trading system best if they are interpreted with that in mind. In that way, we will achieve the 'security and
predictability' sought for the multilateral trading system by the Members of the WTO through the
establishment of the dispute settlement system"). It has also been referred to under the TRIPS Agreement.
In the Appellate Body Report on India – Patents (US) , op. cit., it was found, at para. 58, that "India is
obliged, by Article 70.8(a), to provide a legal mechanism for the filing of mailbox applications that provides
a sound legal basis to preserve both the novelty of the inventions and the priority of the applications as of
the relevant filing and priority dates" (italics added). See also the WTO Panel Report on Argentina –
Textiles and Apparel (US) , op. cit., para. 6.29 and the GATT Panel Reports on United States
Manufacturing Clause, adopted 15/16 May 1984, BISD 31S/74, para. 39; Japan – Measures on Imports
of Leather (" Japan – Leather "), adopted 15/16 May 1984, BISD 31S/94, para. 55; EEC – Imports of
Newsprint, adopted November 20 1984, BISD 31S/114, para. 52; Norway – Restrictions on Imports of
Apples and Pears, adopted 22 June 1989, BISD 36S/306, para. 5.6.

7.78 It may, thus, be convenient in the GATT/WTO legal order to speak not of the principle
of direct effect but of the principle of indirect effect.
7.79 Apart from this name-of-convenience, there is nothing novel or radical in our analysis.
We have already seen that it is rooted in the language of the WTO itself. It also represents a
GATT/WTO orthodoxy confirmed in a variety of ways over the years including panel and
Appellate Body reports as well as the practice of Members.
7.80 Consider, first, the overall obligation of Members concerning their internal legislation.
Under traditional public international law a State cannot rely on its domestic law as a
justification for non-performance. 664 Equally, however, under traditional public international
law, legislation under which an eventual violation could, or even would, subsequently take
place, does not normally in and of itself engage State responsibility. If, say, a State undertakes
not to expropriate property of foreign nationals without appropriate compensation, its State
responsibility would normally be engaged only at the moment foreign property had actually
been expropriated in a given instance. And ye t, even in the GATT, prior to the enactment of
Article XVI:4 of the WTO Agreement explicitly referring to measures of a general nature,
legislation as such independent from its application in specific instances was considered to
constitute a violation. This is confirmed by numerous adopted GATT panel reports and is also
agreed upon by both parties to this dispute. Why is it, then, that legislation as such was found to
be inconsistent with GATT rules? If no specific application is at issue – if, for example, no
specific discrimination has yet been made – what is it that constitutes the violation?
7.81 Indirect impact on individuals is, surely, one of the principal reasons. In treaties which
concern only the relations between States, State responsibility is incurred only when an actual
violation takes place. By contrast, in a treaty the benefits of which depend in part on the activity
of individual operators the legislation itself may be construed as a breach, since the mere
existence of legislation could have an appreciable "chilling effect" on the economic activities of
individuals.
7.82 Thus, Article III:2 of GATT 1947, for example, would not, on its face, seem to prohibit
legislation independently from its application to specific products. However, in light of the
object and purpose of the GATT, it was read in GATT jurisprudence as a promise by
contracting parties not only that they would abstain from actually imposing discriminatory
taxes, but also that they would not enact legislation with that effect.
7.83 It is commonplace that domestic law in force imposing discriminatory taxation on
imported products would, in and of itself, violate Article III irrespective of proof of actual
discrimination in a specific case.
665 Furthermore, a domestic law which exposed imported
products to future discrimination was recognized by some GATT panels to constitute, by itself,
a violation of Article III, even before the law came into force. 666 Finally, and most tellingly,
even where there was no certainty but only a risk under the domestic law that the tax would be

664 See Article 27 of the Vienna Convention.
665 A change in the relative competitive opportunities caused by a measure of general application
as such, to the detriment of imported products and in favour of domestically produced products, is the
decisive criterion.
666 In the Panel Report on US – Superfund (op. cit., paras. 5.2.1 and 5.2.2) tax legislation as such
was found to violate GATT obligations even though the legislation had not yet entered into effect. See
also the Panel Report on US - Malt Beverages (op. cit., paras. 5.39, 5.57, 5.60 and 5.69) where the
legislation imposing the tax discrimination was, for example, not being enforced by the authorities.

discriminatory, certain GATT panels found that the law violated the obligation in Article III. 667
A similar approach was followed in respect of Article II of GATT 1994 by the WTO panel on
Argentina – Textiles and Apparel (US) when it found that the very change in system from ad
valorem to specific duties was a breach of Argentina's ad valorem tariff binding even though
such change only brought about the potential of the tariff binding being exceeded depending on
the price of the imported product.668
7.84 The rationale in all types of cases has always been the negative effect on economic
operators created by such domestic laws. An individual would simply shift his or her trading
patterns – buy domestic products, for example, instead of imports – so as to avoid the would-be
taxes announced in the legislation or even the mere risk of discriminatory taxation. Such risk or

667 See Panel Report on US – Tobacco, op. cit., para. 96:
"The Panel noted that an internal regulation which merely exposed imported products to
a risk of discrimination had previously been recognized by a GATT panel to constitute,
by itself, a form of discrimination, and therefore less favourable treatment within the
meaning of Article III. The Panel agreed with this analysis of risk of discrimination as
enunciated by this earlier panel".
A footnote to this paragraph refers to the Panel Report on EEC - Payments and Subsidies Paid to
Processors and Producers of Oilseeds and Related Animal Feed Protein , adopted 25 January 1990,
BISD 37S/86, para. 141, which reads as follows:
"Having made this finding the Panel examined whether a purchase regulation which does
not necessarily discriminate against imported products but is capable of doing so is
consistent with Article III:4. The Panel noted that the exposure of a particular imported
product to a risk of discrimination constitutes, by itself, a form of discrimination. The
Panel therefore concluded that purchase regulations creating such a risk must be
considered to be according less favourable treatment within the meaning of Article III:4.
The Panel found for these reasons that the payments to processors of Community oilseeds
are inconsistent with Article III:4".
668 Op. cit., paras. 6.45-6.47, in particular para. 6.46: "In the present dispute we consider that the
competitive relationship of the parties was changed unilaterally by Argentina because its mandatory
measure clearly has the potential to violate its bindings, thus undermining the security and the
predictability of the WTO system" (emphasis added). This was confirmed by the Appellate Body (op. cit.,
para. 53):
"In the light of this analysis, we may generalize that under the Argentine system,
whether the amount of the DIEM [a regime of Minimum Specific Import Duties] is
determined by applying 35 per cent, or a rate less than 35 per cent, to the representative
international price, there will remain the possibility of a price that is sufficiently low to
produce an ad valorem equivalent of the DIEM that is greater than 35 per cent. In other
words, the structure and design of the Argentine system is such that for any DIEM, no
matter what ad valorem rate is used as the multiplier of the representative international
price, the possibility remains that there is a "break-even" price below which the ad
valorem equivalent of the customs duty collected is in excess of the bound ad valorem
rate of 35 per cent".
On that basis, the Appellate Body found that the application of a type of duty different from the
type provided for in a Member's Schedule is inconsistent with Article II:1(b), first sentence, of the GATT
1994. In this respect, see also the Panel Report on United States – Standards for Reformulated and
Conventional Gasoline, adopted 20 May 1996, WT/DS2/R, para. 6.10.

threat, when real, was found to affect the relative competitive opportunities between imported
and domestic products because it could, in and of itself, bring about a shift in consumption from
imported to domestic products: This shift would be caused by, for example, an increase in the
cost of imported products and a negative impact on economic planning and investment to the
detriment of those products. This rationale was paraphrased in the Superfund case as follows:
"to protect expectations of the contracting parties as to the competitive
relationship between their products and those of the other contracting parties.
Both articles [GATT Articles III and XI] are not only to protect current trade
but also to create the predictability needed to plan future trade".
669
Doing so, the panel in Superfund referred to the reasoning in the Japanese Measures on Imports
of Leather case. There the panel found that an import quota constituted a violation of Article XI
of GATT even though the quota had not been filled. It did so on the following grounds:
"the existence of a quantitative restriction should be presumed to cause
nullification or impairment not only because of any effect it had had on the
volume of trade but also for other reasons e.g. it would lead to increased
transaction costs and would create uncertainties which could affect investment
plans".670
7.85 In this sense, Article III:2 is not only a promise not to discriminate in a specific case,
but is also designed to give certain guarantees to the market place and the operators within it
that discriminatory taxes will not be imposed. For the reasons given above, any ambivalence in
GATT panel jurisprudence as to whether a risk of discrimination can constitute a violation
should, in our view, be resolved in favour of our reading.671
7.86 Similarly, Article 23 too has to be interpreted in the light of these principles which
encapsulate such a central object and purpose of the WTO. It may have been plausible if one
considered a strict Member-Member matrix to insist that the obligations in Article 23 do not

669 Op. cit., para. 5.2.2.
670 Panel Report on Japan – Leather , op. cit., para. 55. In this respect, see also Panel Report on
US – Malt Beverages (op. cit., para. 5.60), where legislation was found to constitute a GATT violation
even though it was not being enforced, for the following reason:
"Even if Massachusetts may not currently be using its police powers to enforce this
mandatory legislation, the measure continues to be mandatory legislation which may
influence the decisions of economic operators . Hence, a non-enforcement of a
mandatory law in respect of imported products does not ensure that imported beer and
wine are not treated less favourably than like domestic products to which the law does
not apply" (emphasis added).
671 As a result, we do not consider that the general statements made in certain GATT panels are
correct in respect of all WTO obligations and in all circumstances, for example, the statement in Panel
Report on EEC – Parts and Components (op. cit., para. 5.25) that "[u]nder the provisions of the [GATT]
which Japan claims have been violated by the EEC c ontracting parties are to avoid certain measures; but
these provisions do not establish the obligation to avoid legislation under which the executive authorities
may possibly impose such measures" and in Panel Report on Thai – Cigarettes (op. cit., para. 84), the
statement that "legislation merely giving the executive the possibility to act inconsistently with Article
III:2 [of GATT] could not, by itself, constitute a violation of that provision". In respect of this
ambivalence in GATT jurisprudence, see Chua, A., Precedent and Principles of WTO Panel
Jurisprudence, Berkeley Journal of International Law, 1998, p. 171, in particular at p. 193.

apply to legislation that threatens unilateral determinations but does not actually mandate them.
It is not, however, plausible to construe Article 23 in this way if one interprets it in the light of
the indirect effect such legislation has on individuals and the market-place, the protection of
which is one of the principal objects and purposes of the WTO.
7.87 To be sure, in the cases referred to above, whether the risk materialised or not depended
on certain market factors such as fluctuating reference prices on which the taxation of the
imported product was based by virtue of the domestic legislation. In this case, whether the risk
materializes depends on a decision of a government agency. From the perspective of the
individual economic operator, however, this makes little difference. Indeed, it may be more
difficult to predict the outcome of discretionary government action than to predict market
conditions, thereby exacerbating the negative economic impact of the type of domestic law
under examination here.
7.88 When a Member imposes unilateral measures in violation of Article 23 in a specific
dispute, serious damage is created both to other Members and the market-place. However, in
our view, the creation of damage is not confined to actual conduct in specific cases. A law
reserving the right for unilateral measures to be taken contrary to DSU rules and procedures,
may – as is the case here – constitute an ongoing threat and produce a "chilling effect" causing
serious damage in a variety of ways.
7.89 First, there is the damage caused directly to another Member. Members faced with a
threat of unilateral action, especially when it emanates from an economically powerful Member,
may in effect be forced to give in to the demands imposed by the Member exerting the threat,
even before DSU procedures have been activated. To put it differently, merely carrying a big
stick is, in many cases, as effective a means to having one's way as actually using the stick. The
threat alone of conduct prohibited by the WTO would enable the Member concerned to exert
undue leverage on other Members. It would disrupt the very stability and equilibrium which
multilateral dispute resolution was meant to foster and consequently establish, namely equal
protection of both large and small, powerful a nd less powerful Members through the consistent
application of a set of rules and procedures.
672
7.90 Second, there is the damage caused to the market-place itself. The mere fact of having
legislation the statutory language of which permits conduct which is WTO prohibited – namely,
the imposition of unilateral measures against other Members with which it is locked in a trade
dispute – may in and of itself prompt economic operators to change their commercial behaviour
in a way that distorts trade. Economic operators may be afraid, say, to continue ongoing trade
with, or investment in, the industries or products threatened by unilateral measures. Existing
trade may also be distorted because economic operators may feel a need to take out extra
insurance to allow for the illegal possibility that the legislation contemplates, thus reducing the
relative competitive opportunity of their products on the market. Other operators may be
deterred from trading with such a Member altogether, distorting potential trade. The damage
thus caused to the market-place may actually increase when national legislation empowers
individual economic operators to trigger unilateral State action, as is the case in the US which
allows individual petitioners to request the USTR to initiate an investigation under Sections
301-310. This in itself is not illegal. But the ability conferred upon economic operators to
threaten their foreign competitors with the triggering of a State procedure which includes the
possibility of illegal unilateral action is another matter. It may affect their competitive economic

672 In this respect, see the statements made by third parties to this dispute in Section V of our
Report.

relationship and deny certain commercial advantages that foreign competitors would otherwise
have. The threat of unilateral action can be as damaging on the market-place as the action itself.
7.91 In conclusion, the risk of discrimination was found in GATT jurisprudence to
constitute a violation of Article III of GATT – because of the "chilling effect" it has on
economic operators. The risk of a unilateral determination of inconsistency as found in the
statutory language of Section 304 itself has an equally apparent "chilling effect" on both
Members and the market-place even if it is not quite certain that such a determination would be
made. The point is that neither other Members nor, in particular, individuals can be reasonably
certain that it will not be made. Whereas States which are part of the international legal system
may expect their treaty partners to assume good faith fulfillment of treaty obligations on their
behalf, the same assumption cannot be made as regards individuals.
7.92 It is a circumspect use of the teleological method to choose that interpretation of
Article 23 of the DSU that provides this certainty and eliminates the undesired "chilling effects"
which run against the object and purpose of the WTO Agreement.
(d) "…in their context…"
7.93 Construing a WTO obligation as prohibiting a domestic law that "merely" exposes
Members and individual operators to risk of WTO inconsistent action should not be done
lightly. It depends on the specific WTO obligation at issue, the measure under consideration
and the specific circumstances of each case. We are, however, confirmed in our view that
Article 23 contains such an obligation not only by textual and teleological considerations but
also by systemic ones, namely the context of Article 23 and the DSU in the overall WTO
system.
673
7.94 The more effective and quasi-automatic dispute settlement system under the WTO has
often been heralded as one of the fundamental changes and major achievements of the Uruguay
Round agreements. Because of that, the relevance of Article 23 obligations for individuals and
the market-place is particularly important since they radiate on to all substantive obligations
under the WTO. If individual economic operators cannot be confident about the integrity of
WTO dispute resolution and may fear unilateral measures outside the guarantees and disciplines
which the DSU ensures, their confidence in each and every of the substantive disciplines of the
system will be undermined as well. The overall systemic damage and the denial of benefits
would be amplified accordingly. The assurances thus given under the DSU may, in our view,
be of even greater importance than those provided under substantive WTO provisions. For that
reason, the preservation of the specific guarantees provided for in Article 23 is of added
importance given the spill-over effect they have on all material WTO rights and obligations.

673 We realise that the possibility for a Member to breach its obligations under Article 23.2(a)
will always remain. In that sense, guarantees can never be completely assured. However, remote
possibilities that obligations may be breached, i.e. normal risks to be accepted in all trade relations,
should be distinguished from explicit risks or threat s created by statute, i.e. where a Member makes it
known to all its trade partners that they may be subjected to an internal procedure under which the right to
breach WTO obligations is reserved.

5. Preliminary Conclusion after the Panel's Examination of the Statutory Language
of Section 304
7.95 Our textual interpretation of Article 23.2(a) is thus confirmed when taking account also
of the other elements referred to in Article 31 of the Vienna Convention. 674 Under this reading
the duty of Members under Article 23 to have recourse to and abide by the rules and procedures
of the DSU and to abstain from unilateral determinations of inconsistency, is meant to guarantee
Members as well as the market-place and those who operate in it that no such determinations in
respect of WTO rights and obligations will be made.
7.96 Consequently, the statutory language of Section 304 – by mandating a determination
before the adoption of DSB findings and statutorily reserving the right for this determination to
be one of inconsistency – must be considered presumptively to be inconsistent with the
obligations in Article 23.2(a). The discretion given to the USTR to make a determination of
inconsistency creates a real risk or threat for both Members and individual economic operators
that determinations prohibited under Article 23.2(a) will be imposed. The USTR's discretion
effectively to make such determinations removes the guarantee which Article 23 is intended to
give not only to Members but indirectly also to individuals and the market place. In this sense,
the USTR's discretion under Section 304 does not – as the US argued – ensure the consistency
of Section 304. On the contrary, it is the core element of the prima facie inconsistency of the
statutory language of Section 304.
7.97 Therefore, pursuant to our examination of text, context and object-and-purpose of
Article 23.2(a) we find, at least prima facie, that the statutory language of Section 304 precludes
compliance with Article 23.2(a). This is so because of the nature of the obligations under
Article 23. Under Article 23 the US promised to have recourse to and abide by the DSU rules
and procedures, specifically not to resort to unilateral measures referred to in Article 23.2(a). In
Section 304, in contrast, the US statutorily reserves the right to do so. In our view, because of
that, the statutory language of Section 304 constitutes a prima facie violation of Article
23.2(a).
675
6. The Non-Statutory Elements of Section 304
(a) Introduction and Summary of the Panel's Analysis
7.98 In the previous analysis we have deliberately referred to the "statutory language" of
Section 304 and likewise we have deliberately concluded that the statutory language creates a

674 Since an examination of the elements referred to in Article 31 does not leave the meaning of
Article 23.2(a) "ambiguous or obscure" nor leads to a result which is "manifestly absurd or unreasonable"
in the sense of Article 32 of the Vienna Convention, we do not need to evaluate the supplementary means
of interpretation referred to in Article 32.
675 We would like to emphasize again that this finding does not require the wholesale reversing
of earlier GATT and WTO jurisprudence on mandatory and discretionary legislation. The classical test
under previous jurisprudence was that only legislation mandating a WTO inconsistency or precluding
WTO consistency, could, as such, violate WTO provisions (see paras. 4.173 ff. and 7.51 of this Report).
The methodology we adopted was to examine first and with care the WTO provision in question and the
obligation it imposed on Members. It could not be presumed, in our view, that the WTO would never
prohibit legislation under which a national administration would enjoy certain discretionary powers. If it
were found upon such examination that certain discretionary powers were in fact inconsistent with a
WTO obligation, then legislation allowing such discre tion would, on its face, fail the classical test: it
would preclude WTO consistency.

prima facie violation. We did not conclude that a violation has been confirmed. This is so
because of the special nature of the Measure in question. The Measure in question includes
statutory language as well as other institutional and administrative elements. 676 To evaluate its
overall WTO conformity we have to assess all of these elements together.
7.99 Therefore, although we found above that the statutory language of Section 304 creates a
prima facie violation of Article 23.2(a), this does not, in and of itself, establish a US violation.
There is more to Section 304 than statutory language. Consequently, we have to examine the
impact of the other elements on the overall conformity of the Measure in question with the
relevant WTO provisions.
7.100 To do this, we should recall first the nature of the prima facie violation created by the
statutory language. The prima facie violation was created by the possibility under the statute of
the USTR making a determination of inconsistency which negates the assurances that WTO
partners of the US and individuals in the market place were entitled to expect under Article 23.
7.101 One can imagine different ways to remove the prima facie violation. If, for example,
the statutory language itself were modified so that the USTR were not under an obligation to
make a determination within the 18 months time-frame, but could, for example, await the
making of any determination until such time as DSU procedures were completed the guarantee
that Article 23 was intended to create would remain intact and the prima facie inconsistency
would not exist.
677 Likewise, if, by a change in the statutory language, the USTR's discretion to
make a determination of inconsistency prior to exhaustion of DSU proceedings were curtailed,
once again the prima facie inconsistency would no longer exist.
7.102 Changing the statute is not the only way to remove the prima facie inconsistency. If the
possibility of the USTR making a determination of inconsistency prior to exhaustion of DSU
proceedings were lawfully curtailed in a different manner, the same legal effect would be
achieved. The obligation on Members to bring their laws into conformity with WTO obligations
is a fundamental feature of the system and, despite the fact that it affects the internal legal
system of a State, has to be applied rigorously. At the same time, enforcement of this obligation
must be done in the least intrusive way possible. The Member concerned must be allowed the
maximum autonomy in ensuring such conformity and, if there is more than one lawful way to
achieve this, should have the freedom to choose that way which suits it best.
7.103 Critically, the offending discretionary element has to be lawfully curtailed since, as
found in WTO case law, conformity with WTO obligations cannot be obtained by an
administrative promise to disregard its own binding internal legislation, i.e. by an administrative
undertaking to act illegally.
678
7.104 For the following reasons we find that the prima facie violation has in fact in this case
been lawfully removed and no longer exists.

676 See paras. 7.25-7.28 of this Report.
677 On this issue, the statutory language is, however, conclusive in that, as we found in
para. 7.31(a), the USTR is obligated to make a determination within the 18 months time-frame under
Section 304.
678 Appellate Body Report on India – Patents (US), op. cit., paras. 69-71.

7.105 The Trade Act in general and Sections 301-310 in particular are part of US legislation
which covers the broad range of US trade relations including relations with States that are not
WTO Members and including relations with Members that are not covered by WTO obligations.
7.106 The statutory language of Section 304 gives the USTR the broad discretion we outlined
above as regards the entire scope of US trade relations, only a part of which comes within the
orbit of WTO obligations. Within the discretion allowed, the statutory language leaves it to the
USTR to apply the provisions of the Trade Act which relate to the entire gamut of US trade
relations in a manner which is consistent with US interests and obligations. The interests and
obligations can be different from one group of States to another.
7.107 We find, as a matter of fact, that it is within that broad discretion afforded to the US
Administration, notably as regards the content of determinations pursuant to Section 304,
lawfully to set out different regimes for the application of Section 304 depending on whether or
not it concerns WTO covered situations.
7.108 The language of Section 304 allows the existence of multilateral dispute resolution
proceedings to be taken into account.
679 It also allows for determinations of inconsistency to be
postponed until after the exhaustion of DSU proceedings. 680 This language surely permits the
Administration to limit the discretion of the USTR so that no determination of inconsistency
would be made before the exhaustion of DSU proceedings. The wide discretion granted as to
the content of the determination to be made shoul d be interpreted as including the power of the
US Administration to adopt an administrative decision limiting the USTR's discretion in a
manner consistent with US international obligations.
681
7.109 For reasons we explain below, we find that this is precisely the situation in the present
case. Briefly, the US Administration has carved out WTO covered situations from the general
application of the Trade Act. It did this in a most authoritative way, inter alia , through a
Statement of Administrative Action ("SAA") subm itted by the President to, and approved by,
Congress. Under the SAA so approved "… it is the expectation of the Congress that future
administrations would observe and apply the [undertakings given in the SAA]". One of these
undertakings was to "base any section 301 determination that there has been a violation or

679 Section 304 states that the determination is to be based on "the investigation initiated under
section 302 … and the consultations ( and proceedings, if applicable ) under section 303" (emphasis
added). See, in this respect, footnote 649 above.
680 As the US noted in its answer to Panel Question 32(b), "[t]here is nothing in the text of
Sections 301-310 which prevents [the USTR from making two determinations in one and the same case]
… While the Trade Representative is required to make a determination within the time frames set forth in
that section, nothing prevents her from making additional determinations after that time". See para. 4.599
above.
681 We reach this conclusion not least because of the US constitutional principle of construing
US domestic law, where possible, in a way that is consistent with US obligations under international law.
We accept the US submissions that "[i]n U.S. law, it is an elementary principle of statutory construction
that 'an act of Congress ought never to be construed to violate the law of nations if any other possible
construction remains'. Murray v. Schooner Charming Betsy , 6 U.S. (2 Cranch) 64, 118 (1804). While
international obligations cannot override inconsistent requirements of domestic law, 'ambiguous statutory
provisions . . . [should] be construed, where possible, to be consistent with international obligations of the
United States'. Footwear Distributors and Retailers of America v. United States , 852 F. Supp. 1078, 1088
(CIT), appeal dismissed, 43 F.3d 1486 (Table) (Fed. Cir. 1994), citing DeBartolo Corp. v. Florida Gulf
Coast Building and Trades Council, 485 U.S. 568 (1988)".

denial of US rights … on the panel or Appellate Body findings adopted by the DSB". 682 This
limitation of discretion would effectively preclude a determination of inconsistency prior to
exhaustion of DSU proceedings. 683 The exercise of discretion under the statutory scheme is in
the hands of the Administration and it is the Administration which has given this undertaking.
We recognize of course that an undertaking given by one Administration can be repealed by that
Administration or by another Administration. But this is no different from the possibility that
statutory language under examination by a panel be amended subsequently by the same or
another Legislator.
684 The critical question is whether the curtailment of discretion is lawful and
effective. This Panel finds that it is.
(b) The Internal Dimension: US Statement of Administrative Action
7.110 The limitation on the USTR's discretion under Section 304, outlined above, was
contained in the US Statement of Administrative Action ("SAA") that accompanied the US
legislation implementing the results of the Uruguay Round submitted by the President to
Congress. The SAA provides, in its own terms, as follows:
"This Statement describes significant administrative actions proposed to
implement the Uruguay Round agreements….
… this Statement represents an authoritative expression by the Administration
concerning its views regarding the interpretation and application of the Uruguay
Round agreements, both for purposes of U.S. international obligations and
domestic law. Furthermore, the Administration understands that it is the
expectation of the Congress that future Administrations will observe and apply
the interpretations and commitments set out in this Statement. Moreover, since
this Statement will be approved by the Congress at the time it implements the
Uruguay Round agreements, the interpretations of those agreements included in
this Statement carry particular authority".
685
7.111 The SAA thus contains the view of the Administration, submitted by the President to
Congress and receiving its imprimatur, concerning both interpretation and application and
containing commitments, to be followed also by future Administrations, on which domestic as
well as international actors can rely.

682 The SAA, as is often the case in trade policy and trade law circles, uses "section 301" as a
generic term referring to enforcement procedures under Sections 301-310 more generally. Thus, when
referring to "section 301 determinations", we understa nd this to mean any determination made under
Sections 301-310.
683 The US, in its answer to Panel Question 25 (as reflected in paras. 4.121 and 4.534 of this
Report), unambiguously confirmed this construction. It noted in particular that "[t]he SAA must, by law,
be treated as the authoritative expression concerni ng the interpretation of the statute in any judicial
proceedings" and that with reference to all elements under Section 304 "under U.S. law, it is required to
base an affirmative determination that U.S. WTO agreement rights have been denied on adopted panel
and Appellate Body findings. That is to say, U.S. law precludes such an affirmative determination not
based on adopted panel or Appellate Body findings".
684 Of course, it is easier to change administrative decisions than it is to change legislation.
However, as noted in para. 7.133, in the event the US administration were to repeal its undertaking in
respect of US domestic law, it would not only go against express expectations held by Congress set out in
the SAA. The US would also expose itself to a finding of inconsistency with its WTO obligations.
685 SAA, p. 1.

7.112 In the SAA the US Administration indicated its interpretation of Sections 301-310 as
well as the manner in which it intends to use its discretion under Sections 301-310, as follows
(emphases added):
"Although it will enhance the effectiveness of section 301, the DSU does not
require any significant change in section 301 for investigations that involve an
alleged violation of a Uruguay Round agr eement or the impairment of U.S.
benefits under such an agreement. In such cases, the Trade Representative will:
• invoke DSU dispute settlement procedures, as required under current
law;
• base any section 301 determination that there has been a violation or
denial of U.S. rights under the relevant agreement on the panel or
Appellate Body findings adopted by the DSB;
• following adoption of a favourable panel or Appellate Body report,
allow the defending party a reasonable period of time to implement the
report's recommendations; and
• if the matter cannot be resolved during that period, seek authority from
the DSB to retaliate" (emphasis added).686
This official statement in the SAA – in particular, the commitment undertaken in the second
bullet point – approved by the US Congress in the expectation that it will be followed by future
US Administrations, is a major element in our conclusion that the discretion created by the
statutory language permitting a determination of inconsistency prior to exhaustion of DSU
proceeding has effectively been curtailed. As we already noted, we find that this decision of the
US Administration on the manner in which it plans to exercise its discretion, namely to curtail it
in such a way so as never to adopt a determination of inconsistency prior to the adoption of DSB
findings, was lawfully made under the statutory language of Section 304.
687

686 SAA, pp. 365-366.
687 In this respect, the EC refers to Section 102(a) of the US Uruguay Round Agreements Act
1994, the Act by which the US Congress approved the WTO Agreement. Section 102(a) of this Act
provides
"(1) U
NITED STATES LAW TO PREVAIL IN CONFLICT . - No provision in any of the
Uruguay Round Agreements, nor the application of any such provision to any person or
circumstance, that is inconsistent with any law of the United States shall have effect.
(2) CONSTRUCTION. - Nothing in this Act shall be construed - …
(B) to limit any authority conferred under any law of the United States,
including section 301 of the Trade Act of 1974 unless specifically provided for
in this Act".
We note, however, that even if one were to hold that, pursuant to Section 102(a), the WTO
agreements and the Uruguay Round Act itself could not, and did not, curtail the USTR's discretion under
Section 304, in our view, the US Administration itself could do so, and did so, inter alia, in the SAA. It
did so validly by means of exercising discretion granted to it under the statutory language of Section 304.

7.113 The EC refers to subsequent paragraphs in the SAA that allegedly contradict the above
quoted statement in the SAA. 688 We are persuaded, however, and so find, that these other
paragraphs, read in their context, do not contradict the decision to apply Sections 301-310 in a
manner consistent with US obligations under the WTO. Some of the disputed language clearly
does not cover the issues considered here, i.e. involving WTO Members and an alleged denial of
US rights under the WTO Agreement. Those paragraphs deal rather with cases involving WTO
Members but not involving US rights under the WTO Agreement, i.e. where the subject-matter
is not covered by the WTO. Admittedly, some of the language in the SAA appears ambivalent.
We note however that, following US constitutional law, cases of ambiguity in the construction
of legal instruments should, where possible, always be resolved in a manner consistent with US
international obligations. We find that it is possible to do so in this case.
(c) US Statements before this Panel
7.114 The international elements of the SAA, though clearly present
689 were not at its centre.
The SAA was made in a domestic context, before Congress on the occasion of the
implementation by the US of the results of the Uruguay Round negotiations. Since the alleged
violation at issue is domestic legislation, in princi ple, internal elements legally relevant to the
construction of the legislation should be determinative.

688 SAA, pp. 366-367:
"There is no basis for concern that the Uruguay Round agreements in general, or the
DSU in particular, will make future Administrations more reluctant to apply section 301
sanctions that may be inconsistent with U.S. trade obligations because such sanctions
could engender DSU-authorized counter-ret aliation. Although in specific cases the
United States has expressed its intention to address an unfair foreign practice by taking
action under section 301 that has not been authorized by the GATT, the United States
has done so infrequently. In certain cases, the United States has taken such action
because a foreign government has blocked adoption of a GATT panel report against it.
Just as the United States may now choose to take section 301 actions that are not GATT
authorized, governments that are the subject of such actions may choose to respond in
kind. That situation will not change under the Uruguay Round agreements. The risk of
counter-retaliation under the GATT has not prevented the United States from taking
action in connection with such matters as semiconductors, pharmaceuticals, beer, and
hormone-treated beef".
It may be possible to construe these two paragraphs in the SAA as in fact indicating that the
conditions which explain an abusive use of Section 301 in the past – in particular, the blocking of
adoption of a panel report – no longer prevail under the WTO (see US Answer to Panel Question 38
reflected in paras. 4.134-4.140 of this Report). We decided to put the worst possible construction on
these paragraphs in the SAA concluding that there is a tension between these paragraphs and the
undertakings in the bullet points. As indicated in the body of the Report, this tension ought to be resolved
following US constitutional law principles in favour of a construction which upholds compliance with
international legal obligations. We were brought to that solution also when considering, in addition, the
solemn undertakings of the US to the Panel confirming the Administration's view set out in the bullet
points that in the light of the SAA the USTR is precluded from applying Sections 301-310 in a manner
inconsistent with WTO obligations.
689 As noted earlier, the SAA is explicitly said to represent an authoritative expression "both for
purposes of U.S. international obligations and domestic law", see para. 7.110 of this Report.

7.115 The international legal relevance of the US commitments in the SAA were confirmed
and amplified also in the context of the very proceedings before this Panel. In response to our
very insistent questions, the US explicitly, officially, repeatedly and unconditionally confirmed
the commitment expressed in the SAA namely that the USTR would "… base any section 301
determination that there has been a violation or denial of U.S. rights under the relevant
agreement on the panel or Appellate Body findings adopted by the DSB".690
7.116 The US confirmed this for the record during the first meeting with the parties before the
Panel. Subsequently, answering Panel Question 14, the US stated the following:
"With regard to determinations under Section 304, as noted in paragraphs 12
and 41 of the U.S. First Submission, and as provided at page 365 of the
Statement of Administrative Action (U.S. Exhibit 11), the Trade Representative
is required under Section 304(a)(1) to base a determination of whether
agreement rights have been denied on the results of WTO dispute settlement
proceedings. Thus, in the event that a dispute settlement panel were to fail to
complete its proceedings within the time frames provided for in the DSU and
Section 304(a)(2)(A), the Trade Representative would not be able to make a
determination that U.S. agreement rights have been denied".
691
7.117 Whilst we have rejected the view that the statutory language of Section 304 itself
precludes a determination of inconsistency, we fully accept the power of the US Administration
to determine that it is its duty to exercise the discretion given to it by the statutory language in a
way consistent with WTO obligations, to make this duty, through the SAA, official US policy
for future Administrations, and, in turn, for the USTR, as part of the US Administration, to
perceive it as its legal duty to follow such a policy.
7.118 Attributing international legal significance to unilateral statements made by a State
should not be done lightly and should be subject to strict conditions. Although the legal effects
we are ascribing to the US statements made to the DSB through this Panel are of a more narrow
and limited nature and reach compared to other internationally relevant instances in which legal
effect was given to unilateral declarations, we have conditioned even these limited effects on the
fulfilment of the most stringent criteria. A sovereign State should normally not find itself
legally affected on the international plane by the casual statement of any of the numerous
representatives speaking on its behalf in today's highly interactive and inter-dependant world
692

690 SAA, p. 366.
691 See also footnote 683 above.
692 In the Nuclear Test case (Australia v. France), the ICJ held that France was legally bound by
publicly given undertakings, made on behalf of the French Government, to cease the conduct of
atmospheric nuclear tests. The criteria of obligation were: the intention of the state making the
declaration that it should be bound according to its terms; and that the undertaking be given publicly:
"It is well recognized that decl arations made by way of unilateral acts, concerning legal
or factual situations, may have the effect of creating legal obligations. Declarations of
this kind may be, and often are, very specific. When it is the intention of the State
making the declaration that it should become bound according to its terms, that
intention confers on the declaration the charact er of a legal undertaking, the State being
henceforth legally required to follow a course of conduct consistent with the
declaration. An undertaking of this kind, if given publicly, and with an intent to be
bound, even though not made within the context of international negotiations, is
binding".

nor by a representation made in the heat of legal argument on a State's behalf. This, however, is
very far from the case before us.
7.119 At this juncture, it is also worth recalling that under Article 11 of the DSU it is our duty
to "… make an objective assessment of the facts of the case … and make such other findings as
will assist the DSB in making the recommendations or in giving the rulings provided for in the
covered agreements" (emphasis added).
7.120 As regards these statements we find, thus, as follows:
7.121 The statements made by the US before this Panel were a reflection of official US policy,
intended to express US understanding of its international obligations as incorporated in
domestic US law.693 The statements did not represent a new US policy or undertaking but the
bringing of a pre-existing US policy and undertaking made in a domestic setting into an
international forum.
7.122 The representations and statements by the representatives of the US appearing before us
were solemnly made, in a deliberative manner, for the record, repeated in writing and confirmed
in the Panel's second hearing. There was nothing casual about these statements nor were they
made in the heat of argument. There was ample opportunity to retract. Rather than retract, the
US even sought to deepen its legal commitment in this respect.694
7.123 We are satisfied that the representatives appearing before us had full powers to make
such legal representations and that they were acting within the authority bestowed on them.
Panel proceedings are part of the DSB dispute resolution process. It is inconceivable except in
extreme circumstances that a panel would reject the power of the legal representatives of a
Member to state before a panel, and through the panel to the DSB, the legal position of a
Member as regards its domestic law read in the light of its WTO obligations. The panel system
would not function if such a power could not be presumed.

(ICJ Reports (1974), p. 253 at pp. 267-271, quoted above from para. 43; see also Nuclear Test
case (New Zealand v. France), ICJ Reports (1974), p. 457, at pp. 472-475; Legal Status of Eastern
Greenland case, PCIJ Reports, Series A/B, No. 53, where a statement was found to have legal effects
even though it was not made publicly but in the course of conversations with the Norwegian Foreign
Minister; Nicaragua case (Merits), ICJ Reports (1986), p. 14, at p. 132; Case Concerning the Frontier
Dispute, ICJ Reports (1986), p. 554, at pp. 573-574 ).
In this case, the legal effect of the US statements does not go as far as creating a new legal
obligation. Nonetheless we have applied to them the same, and perhaps even more, stringent conditions.
Subsequent to the Nuclear test case, some authors criticised giving legal effect to declarations not
directed to a specific State or States but expressed erga omnes (see Rubin, A., The International Legal
Effects of Unilateral Declarations , American Journal of International Law, 1977, p. 1 and Franck, T.,
Word Made Law: The Decision of th e ICJ in the Nuclear Test Cases , American Journal of International
Law, 1975, p. 612). In this case the US statements had explicit recipients and were made in the context of
a specific dispute settlement procedure.
693 See paras. 7.110 and 7.114 of this Report.
694 In its first submission the US argued forcefully that Section 304 did not ever require the
USTR to make a determination of inconsistency before exhaustion of DSU proceedings (see paras. 4.527-
4.530 of this Report). In its second submission the US went further and argued that the correct
interpretation of Section 304 is that the USTR is legally precluded from making such determination (see
paras. 4.536-4.537 of this Report).

7.124 We are equally satisfied, as a matter of fact, that the statements made to us were
intended to be part of the record in the full knowledge and understanding that they could, as any
other official submission, be made part of our Report; that they were made with the intention
not only that we rely on them but also that the EC and the third parties to the dispute as well as
all Members of the DSB – effectively all WTO Members – place such reliance on them.
7.125 Accordingly, we find that these statements by the US express the unambiguous and
official position of the US representing, in a manner that can be relied upon by all Members, an
undertaking that the discretion of the USTR has been limited so as to prevent a determination of
inconsistency before exhaustion of DSU proceedings. Although this representation does not
create a new international legal obligation for the US – after all the US was already bound by
Article 23 in becoming a WTO Member – it clarifies and gives an undertaking, at an
international level, concerning aspects of domestic US law, in particular, the way the US has
implemented its obligations under Article 23.2(a) of the DSU.
7.126 The aggregate effect of the SAA and the US statements made to us is to provide the
guarantees, both direct to other Members and indirect to the market place, that Article 23 is
intended to secure. Through the SAA and the US statements, as we have construed them, it is
now clear that under Section 304, taking account of the different elements that compose it, the
USTR is precluded from making a determination of inconsistency contrary to Article 23.2(a).
As a matter of international law, the effect of the US undertakings is to anticipate, or discharge,
any would-be State responsibility that coul d have arisen had the national law under
consideration in this case consisted of nothing more than the statutory language.
695 It of course
follows that should the US repudiate or remove in any way these undertakings, the US would
incur State responsibility since its law would be rendered inconsistent with the obligations under
Article 23.
(d) USTR Practice under Section 304
7.127 It is not our task to examine the individual conduct of the US in specific cases. We did,
however, examine the practice of the USTR in specific cases as a means of shedding light on the
meaning of Sections 301-310. We also considered that the USTR record could be of limited
probative value in evaluating the veracity and significance of the SAA and the policy it
articulated.
7.128 In support of its position the US made the following submission to the Panel:
"The record shows that the Trade Representative has never once made a Section
304(a)(1) determination that U.S. GATT or WTO agreement rights have been
denied which was not based on the results of GATT and WTO dispute
settlement proceedings. Not once".
696
7.129 Given the intense criticism of Sections 301-310 articulated in the submissions of third
parties before this Panel, we expressly invited the EC and all third parties to submit to us any
evidence of WTO inconsistent conduct by the US corresponding to the complaints of the EC –
and, thus, within our terms of reference – that took place since the entry into force of the WTO.

695 Below we also canvass another hypothesis, see para. 7.133 of this Report. In that alternative
hypothesis the effect of the undertaking is actually to discharge State responsibility that the statutory
language may have given rise to.

One such alleged case was submitted by one of the third parties ( Japan – Auto Parts 697) to
which the EC joined two other cases ( EC – Bananas III and Argentina – Textiles and Apparel
(US)).
7.130 It is not for us to make a conclusive finding in relation to any of these cases, not least
Bananas III which is the subject of proceedings before another panel. 698 However, on the face
of the record before us, we do not find the evidence submitted to us in this connection sufficient
to overturn the US claim of a consistent record of compliance of Section 304 with
Article 23.2(a) as invoked by the EC. In any event, we do not consider the evidence before us
sufficient to overturn our conclusions regarding Section 304 itself.
699
7. Summary of the Panel's Analysis and Finding in respect of the EC claim under
Section 304
7.131 The overall result of our analysis may be summarized as follows. We found that the
statutory language of Section 304 constitutes a serious threat that determinations contrary to
Article 23.2(a) may be taken and, in the circumstances of this case, is prima facie inconsistent
with Article 23.2(a) read in the light of Article 23.1. We then found, however, that this threat
had been removed by the aggregate effect of the SAA and the US statements before this Panel
in a way that also removes the prima facie inconsistency and fulfils the guarantees incumbent
on the US under Article 23. In the analogy described in paragraph 7.65, the sign "No

697 This dispute is explained in paras. 5.273-274 of this Report. As a result of the US action in
this respect, see also United States – Imposition of Duties on Automobiles from Japan under Section 301
and 304 of the Trade Act of 1974 ("Japan – Auto Parts "), WT/DS6 (complaint by Japan), settlement
notified to the DSB.
698 See documents under WT/DS165.
699 In Japan – Auto Parts the US was not seeking redress of inconsistencies under the WTO, it
was examining, inter alia , whether Japanese acts or policies in this respect were "unreasonable" under
Section 301 (b). We consider that even if conduct inconsistent with Article 23.2(a) occurred – a matter
on which we express no opinion – the kind of inconsistency implicated would be outside our terms of
reference since it covers issues not raised in the EC claims before us.
Whether the US violated Article 23 in the Bananas III case is one of the claims subject to
separate panel proceedings. Even if the US conduct in response to the alleged implementation of DSB
findings by the EC was inconsistent with Article 23.2(a), we note that any determinations made by the US
in this respect were made under Section 306 – i.e. were determinations on whether implementation of
DSB findings took place – not under Section 304 at issu e here, i.e. determinations on whether US rights
are being denied prior to the issue of implementation ar ising. The fact that determinations under Section
306 have to be considered, for purposes of, e.g. publication and subsequent action under Section 301, as
determinations under Section 304, pursuant to Section 306 (b)(1), does not alter our conclusion. We deal
with the EC claim of inconsistency of Section 306 in Section VII.D below.
Finally, in Argentina – Textiles and Apparel (US) , the USTR determination was published
subsequently to both the lapse of the 18 months time-period referred to in Section 304 and the adoption of
DSB findings on the matter. The determination explicitly states that it is based on the findings of the
DSB on the matter. We do not consider the fact that the determination was retroactively dated back to 3
April 1998, i.e. the day before the lapse of the 18 months time-period and thereby also a date prior to the
adoption of DSB findings on the matter (22 April 1998), to be relevant on the international plane. In our
view, when it comes to examining Article 23.2(a), the actual date of the determination and, especially, the
basis of the determination's finding are the critical elements. In terms of US obligations to other WTO
Members, this case shows that the US waited until the end of DSU procedures before it publicly
announced its determination and that the USTR effectively based her findings on the result of the DSU
process. The outcome of the DSU process conditioned the content of the USTR determination.

Trespassing. Trespassers may be shot on sight" was construed by us as going against the mutual
promise made among the neighbours always and exclusively to have recourse to the police and
the courts of law in any case of alleged trespass ing. Continuing with that analogy, we would
find in this case that the farmer has added to the original sign which was erected for all to read
another line stating: "In case of trespass by neighbours, however, immediate recourse to the
police and the courts of law will be made". We would hold – as we did in this case – that with
this addition the agreement has been respected.
7.132 This conclusion is based on our reading of Section 304 as part of a multi-layered law
containing statutory, institutional and administrative elements. We did, however, for prudential
reasons, consider Section 304 on an alternative hypothesis which would regard our task as
limited to an examination of statutory elements only. Even on this hypothesis, our overall
conclusion of conformity would remain intact albeit by virtue of slightly different
methodologies.
7.133 First, the SAA could be considered not as an autonomous measure of the
Administration determining its policy of implementing Section 304, but as an important
interpretative element in the construction of the statutory language of Section 304 itself.
Whereas the statutory language read on its own does not preclude a determination of
inconsistency, as we found above in paragraph 7.31(d), following this alternative methodology,
the statutory language read in the light of the SAA would have that effect.
7.134 Second, assuming that examination of the statutory language of Section 304 led us to
conclude that, because of the broad discretion it gives to the USTR, the statute is in violation of
Article 23, we would then need to consider an appropriate remedy, i.e. to consider how the US
could restore to its WTO partners the guarantees embodied in Article 23. In our view, any
lawful means by which the US Administration could curtail the discretionary element would be
sufficient to achieve that goal. In the case at hand, we would then find that the SAA and
statements of the kind made by the US to the DSB through this Panel effectively provide, for the
reasons we explained above, such a remedy. Therefore, any violation we would thus have
found on the basis of the statutory language of Section 304, under this second alternative, would
have been remedied.
7.135 For the reasons outlined above we find that Section 304 is not inconsistent with US
obligations under Article 23.2(a) of the DSU.
7.136 Should the undertakings articulated in the SAA and confirmed and amplified by the US
to this Panel be repudiated or in any other way removed by the US Administration or another
branch of the US Government
700, this finding of conformity would no longer be warranted.
D. THE EC CLAIM THAT SECTION 306 IS INCONSISTENT WITH ARTICLE 23.2(A) OF THE
DSU
1. Claims and Arguments of the Parties
7.137 Section 306 concerns the follow-up by the USTR to a determination under Section 304
that US rights under the WTO were being denied. When applied to WTO covered situations
referred to in the EC claim it presupposes the completion of panel and, as the case may be,

700 When we refer to the "US Government" in this Report we mean to include legislature,
executive and judiciary.

Appellate Body proceedings and a ruling by the DS B in favour of the US. Section 306 sets out
the procedures under the Trade Act for obtaining DSB authorization for the suspension of
concessions when, in the view of the US, anothe r Member has failed adequately to implement
the original ruling of the DSB.
7.138 The EC claims that Section 306 (b) requires the USTR to "consider" whether a WTO
Member has implemented the recommendations of the DSB and, in the event of non-
implementation, to determine what further action to take. The EC claims that this
"consideration" constitutes a "determination" in the sense of Article 23 by the USTR on whether
the Member concerned has violated US rights under the WTO Agreement. According to
Article 23, determinations of inconsistency may not be made prior to exhaustion of DSB
proceedings. However, the EC contends, according to Section 306 this specific determination
has to be made no later than 30 days after the expiration of the reasonable period of time granted
to the losing WTO Member to implement DSB recommendations. In the EC view, any dispute
on the question of implementation has to be settled under Article 21.5 of the DSU which
provides for referral of the matter to the original panel for a decision within 90 days. Since such
referral can take place at the end or even after the lapse of the reasonable period of time, the EC
contends, Section 306 (b) requires a unilateral determination on compliance without awaiting
the results of a WTO proceeding under Article 21.5 in violation of Article 23.2(a).
7.139 The US responds that Section 306 does not require the USTR to make a "determination"
in violation of Article 23.2(a) of the DSU. In the US view, for the USTR to assert US rights
under Article 22 of the DSU, the USTR is not only permitted, but is affirmatively required to
make a judgment on – i.e. to "consider", the word used in Section 306 (b) itself – whether
implementation of DSB recommendations has taken place. According to the US, a Member
wanting to suspend concessions under Article 22 has to request authorization from the DSB
within 30 days after the lapse of the reasonable period of time. If not, it loses the right to obtain
such authorization by negative consensus. Since, therefore, a winning Member has to formulate
its request for authorization within 30 days – even if, subsequently, the matter is referred to
arbitration and authorization is only granted thereafter – the US argues that Article 22 itself
presupposes that the USTR indicate how it intends to suspend concessions within this 30 day
deadline. This 30 day deadline has been transposed into Section 306 (b) and is, therefore, in the
view of the US, consistent with Article 23.2(a).
7.140 In respect of the possible conflict between the 30 day period in Section 306 (b) and the
90 day time-limit for a ruling on implementation under Article 21.5, the US argues that recourse
to and completion of Article 21.5 proceedings is not a prerequisite for a request for
authorization to suspend concessions to be made whenever disagreement arises on
implementation.
7.141 Article 21.5 of the DSU provides as follows:
"Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings
such dispute shall be decided through recourse to these dispute settlement
procedures, including wherever possible resort to the original panel. The panel
shall circulate its report within 90 days after the date of referral of the matter to
it. When the panel considers that it cannot provide its report within this time
frame, it shall inform the DSB in writing of the reasons for the delay together
with an estimate of the period within which it will submit its report".
Article 22.6 states:

"When the situation described in paragraph 2 occurs ["if the Member concerned
fails to bring the measure found to be inconsistent with a covered agreement
into compliance therewith or otherwise comply with the recommendations and
rulings within the reasonable period of time determined pursuant to paragraph 3
of Article 21"], the DSB, upon request, shall grant authorization to suspend
concessions or other obligations within 30 days of the expiry of the reasonable
period of time unless the DSB decides by consensus to reject the request.
However, if the Member concerned objects to the level of suspension proposed,
or claims that the principles and procedures set forth in paragraph 3 have not
been followed where a complaining party has requested authorization to
suspend concessions or other obligations pursuant to paragraph 3(b) or (c), the
matter shall be referred to arbitration. Such arbitration shall be … completed
within 60 days after the date of expiry of the reasonable period of time.
Concessions or other obligations shall not be suspended during the course of the
arbitration".
2. Preliminary Panel Findings in respect of the Statutory Language of Section 306
7.142 We propose to adopt here a similar methodology as the one we employed in our
examination of Section 304 and examine first the statutory language of Section 306 in the light
of US obligations under Article 23.2(a) read in the light of Article 23.1.
701
7.143 To facilitate the understanding of our subsequent findings, it may be useful to read
Section 306 as consisting of two phases. A first phase deals with a "consideration" by the
USTR that "a foreign country is not satisfactorily implementing a measure or agreement"
(Section 306(b)(1)) or, as repeated in Section 306(b)(2), a "consideration" that "the foreign
country has failed to implement". A second phase addresses the "determination" by the USTR
on "what further action the Trade Representative shall take under section 301" (Section
306(b)(1)).
7.144 The second phase contains a mandatory element: the determination on the proposed
action has to be made, according to Section 306, no later than 30 days after the expiration of the
reasonable period of time given to the other WTO Member to implement DSB findings. This
second phase can only be activated when the "consideration" in the first phase is made, i.e.
when the USTR considers that implementation has failed. Ipso facto, the first phase as well has
to take place within the 30 day time-frame prescribed for the second phase. We find, therefore,
as a matter of fact, that Section 306 mandates the USTR to "consider" whether or not the WTO
Member concerned has implemented DSB recommendations within 30 days after the lapse of
the reasonable period of time.
7.145 We also find that the EC is correct in claiming that in certain circumstances this
"consideration" by the USTR will necessarily take place before the completion of Article 21.5
procedures on implementation. The usual deadline for completion of procedures under
Article 21.5 is 90 days after referral of the matter to the original panel. Article 21.5 does not
further specify when and how such referral has to take place nor does it include a deadline for
parties to invoke Article 21.5. On these grounds, it is reasonable to assume that situations can
occur where Article 21.5 is invoked later than 60 days before the expiration of the reasonable
period of time. As a result, the deadline for completion of the panel's work under Article 21.5
could fall later than the 30
th day after the lapse of the reasonable period of time, the trigger

701 See Section VII.B.6.

referred to in Section 306 (b). In that event, the "consideration" required under Section 306 would
thus need to be taken before the completion of Article 21.5 procedures.
7.146 We further find that USTR "considerations" under the first phase of Section 306 – made
subsequent to, and based on, internal monitoring by the USTR pursuant to Section 306 (a); and,
in the case of a "consideration" that implementation failed, automatically and as a conditio sine
qua non leading to a decision on action under Section 301 – meet the threshold of firmness and
immutability required for a "determination" under Article 23.2(a). 702 Hereafter we thus refer to
these "considerations" as "determinations". 703 The US argument that the first phase of Section
306 is affirmatively required under Article 22 and represents no more than a belief necessary to
the pursuit of dispute settlement procedures is, in our view, relevant not so much to the question
of whether there is a "determination" but to the question of whether such "determination" is
allowed under Article 23.2(a) since made "through recourse to dispute settlement in accordance
with the rules and procedures" of the DSU, another element under Article 23.2(a) discussed
below. We recall also that the USTR view under Section 306 that implementation failed is not a
preliminary one that requires further confirmation by a panel but one referred to the DSB for
immediate authorization to suspend concessions (unless an objection is raised against the level
of suspension or the principles or procedures followed in considering what concessions to
suspend).
704
7.147 We further find, as a matter of fact, that although the USTR is obligated to make this
determination within the 30 day time-frame, it has wide discretion as to the content of this
determination. Specifically, we find that there do not exist any circumstances which would
compel the USTR under the statutory language of Section 306 to determine that implementation
has failed, i.e. to make a determination of inconsistency, whilst Article 21.5 procedures are still
pending. In other words, it would always be open to the USTR under the Trade Act to
determine that implementation has not failed so long as DSB procedures have not been
exhausted. However, as in the case of Section 304, within the discretion created by the statutory
language the USTR is not precluded by the statute from making such a determination.
7.148 It is important to note, however, that the determination at issue here, in WTO covered
situations, is only a preliminary step under Section 306 to seek DSB authorization for the
suspension of concessions or other obligations The result of this determination is not the
suspension of concessions without DSB authorization but a request – albeit, according to the
EC, a premature one – for authorization from the DSB to impose such suspension.

702 In this respect, see para. 7.20 and footnote 657 above.
703 Recalling the four elements required for there to be a breach of Article 23.2(a) in respect of
specific acts taken in a given dispute, outlined above in footnote 657, we thus find that "considerations"
under Section 306 are "determinations" in the sense of the second element under Article 23.2(a). We also
find that determinations under Section 306 meet the first element under Article 23.2(a). The US is
obviously seeking redress of WTO inconsistencies when it monitors the implementation of DSB findings
under Section 306. The third element concerns the question as to whether the determination under Section
306 is one "to the effect that a violation has occurred …". Examining specifically the determination at issue
here, the one statutorily reserved in Section 306, i.e. the determination that implementation did not take
place, in other words, that implementing measures are not consistent with WTO rules even though
Article 21.5 procedures have not yet been completed, we hold the view that such determination is one of
inconsistency meeting the third element under Article 23.2(a).
704 See footnote 657 above.

3. US obligations under Article 23.2(a) of the DSU as applied to Section 306
7.149 We recall that our mandate is to examine the conformity of Section 306 as such with
Article 23.2(a), rather than any specific application of Section 306 in a given dispute.
7.150 In relation to Section 304 it was clear that a determination of inconsistency made in a
specific case prior to the completion of panel or Appellate Body proceedings and the adoption
of a ruling by the DSB was a violation of Article 23.2(a). 705 It was on this premise that we
concluded that statutory language merely reserving the right to make such a determination was
also a prima facie violation.
7.151 In the case of Section 306 we have already found that here, too, the statutory language
reserves the right to the USTR to consider that implementation has failed, i.e. to make a
determination of inconsistency prior to termination of Article 21.5 proceedings. However,
before we conclude that statutory language which reserves this right amounts to a prima facie
violation we need to decide whether such a determination in a specific case amounts to a
violation. Unlike Section 304, in the case of Section 306 this issue is highly contentious and far
from clear. Only if we find, as a matter of law, that Article 23.2(a) is violated when the USTR
determines, in a specific case, that implementation has failed in the sense of Section 306 before
the completion of Article 21.5 proceedings – as a prelude to seeking DSB authorization for the
suspension of concessions – will we be able to find that statutory language in and of itself,
which reserves the right to make such a determination, is WTO inconsistent.
7.152 Reading Section 306 in the light of US obligations under Article 23.2(a), the question
arises, more particularly, whether determinations under Section 306 are made "through recourse
to dispute settlement in accordance with the rules and procedures of [the DSU]" and made
"consistent with the findings contained in the panel or Appellate Body report adopted by the
DSB or an arbitration award rendered under [the DSU]".
706 These two elements referred to in
Article 23.2(a) are cumulative in nature. Determinations are only allowed when made through
recourse to the DSU and consistent with findings adopted by the DSB or an arbitration award
under the DSU.
7.153 In our view, this question goes to the core of the EC claim under Section 306. As noted
earlier, the US maintains that determining that implementation has failed as a prelude to a
request for authorization to suspend concessions even prior to the completion of Article 21.5
proceedings is mandated by Article 22. The EC contests this.
7.154 In accordance with our terms of reference, our mandate is to examine whether
Section 306 conforms with Article 23.2(a). If we are able to discharge this mandate without
seeking to resolve the altogether separate dispute on the correct interpretation of Articles 21.5
and 22 and the relationship between them, the subject of negotiations in the context of the DSU

705 See para. 7.50 and footnote 657.
706 As outlined in footnote 698, the determination statutorily reserved in Section 306 meets the
first three elements for there to be a breach of Article 23.2(a) in a given dispute. The crucial question to
be dealt with here remains, however, whether such determination also meets the fourth element under
Article 23.2(a). In this respect see footnote 657.

review, we should do so. 707 Thus, this Panel should decide on the correct interpretation of
Articles 21.5 and 22 and the relationship between them, only if it is legally indispensable.
7.155 We will, therefore, examine the conformity of Section 306 with Article 23.2(a) on the
assumption, first, that the US view on Articles 21.5 and 22 is correct and, then, on the
alternative assumption that the EC view in this respect is the correct one.
(a) Assuming the US view is correct
7.156 The US maintains that a proposal for suspension of concessions has to be submitted to
the DSB within a 30 days time-frame and that, consequently, the US is obligated to determine
that implementation has failed within that time-frame. The US view is based on the following
reading of Article 22.
7.157 Article 22.6 states that the DSB " shall grant authorization to suspend concessions or
other obligations within 30 days of the expiry of the reasonable period of time unless the DSB
decides by consensus to reject the request" (empha sis added) or an objection to such request is
raised and referred to arbitration. Article 22 thus provides an explicit time-limit for DSB
authorization to be requested and granted, at least by virtue of negative consensus. Article 22
and Article 23 do not explicitly refer to Article 21.5. A fortiori nowhere is reference to
Article 22 explicitly limited to cases where Article 21.5 has not been invoked.
7.158 Under this reading the US would effectivel y be obligated under Article 22 to make a
determination on whether implementation took place within the time-frame prescribed in
Section 306 if it is to benefit from the negative consensus rule. If not, the practice of positive
consensus being reactivated, DSB authorization would only be obtained in case all Members,
including the defending Member, agree.
7.159 Following the US approach, any determination made under Section 306 in the
circumstances referred to in the EC claim would be consistent with Article 23.2(a) since it
would be made "through recourse to dispute settlement in accordance with the rules and
procedures of [the DSU]", in particular Article 22 thereof. The determination would then not be
made as a unilateral act in pursuit of redress, but as an act required when seeking multilateral
authorization for the suspension of concessions as provided for in the DSU itself.

707 As noted in the EC response to Panel question 23, "the EC has not requested this Panel to
'make a decision on the relationship between Article 21.5 and 22' of the DSU. Rather, the EC has
requested the DSB and obtained the establishment of this Panel in order to make 'such findings as will
assist the DSB in making the recommendations or giving the rulings provided for in' the provisions of the
agreements cited in the WTO document WT/DS152/11 of 2 February 1999" (see para. 4.901 of this
Report). We note that the EC added to its response that "the WTO consistency of Sections 301-310 must
be assessed against all the provisions quoted in the Panel’s terms of reference, including Article 21.5 of
the DSU on its own" and that "[t]he interpretation of Article 22 of the DSU is logically and legally a
distinct issue to be addressed by the Panel separately, if necessary". However, nowhere did the EC
substantiate any specific claim of violation of Article 21.5 or Article 22. These provisions are only
relevant in this case as elements for an assessment of the EC claims under Article 23. If such assessment
does not require a decision on the relationship between Articles 21.5 and 22, we do not consider it
necessary – the word referred to by the EC -- nor within our mandate as set out in Section VII.A of this
Report, to solve this controversy.

7.160 On this reading, the question then arises whether the determination of non-
implementation made through recourse to the DSU is also one "consistent with the findings
contained in the panel or Appellate Body repor t adopted by the DSB or an arbitration award
rendered under [the DSU]", in the sense of the s econd phrase of Article 23.2(a). If we consider
this to be a reference to the findings of the pane l or Appellate Body in the original dispute, then
also this requirement would be met. The USTR determination of non-implementation would,
indeed, follow and be based on the original findings of inconsistency with WTO rules as adopted
by the DSB in respect of the original complaint.
7.161 Could the findings referred to in Article 23.2(a) be regarded, in the specific
circumstances under the EC claim, as the findings of the panel examining implementation in the
pending Article 21.5 procedures rather than the findings of the original panel? If this were so,
one would have to conclude that – since Article 21.5 procedures would still be pending – no
such findings would have been adopted. The determination would then be contrary to
Article 23.2(a). In our view this does not constitute a plausible interpretation of Article 23.2(a)
if we assume the US reading of Article 22 is correct.
7.162 As noted earlier, the determination would be one required under Article 22 in order to
maintain the reversed consensus rule. Because of that, it would also be conduct required or at
least authorized under Article 23.2(c), obliging Members to "follow the procedures set forth in
Article 22 to determine the level of suspension of concessions or other obligations and obtain
DSB authorization". There would then be a conflict between Article 23.2(a) and
Article 23.2(c). Such conflict could be avoided by adopting the interpretation that the findings
referred to in Article 23.2(a) are those of the original panel, not those of the Article 21.5 panel.
For these reasons, and assuming the US approach is correct, we do not find that, in the
circumstances at hand, the findings referred to in Article 23.2(a) are those of the panel under
Article 21.5.
7.163 On these grounds, we find that if the US reading of Article 22 is correct, a
determination, in a specific case, that implementation has failed pursuant to Section 306 as a
prelude to a request for suspension of concessions in the circumstances referred to in the EC
claim, could not be found to be inconsistent with Article 23.2(a) of the DSU. Consequently, the
legislation authorizing such a determination would not be in violation either.
708
(b) Assuming the EC view is correct
7.164 The EC view that Article 22 can only be activated once Article 21.5 procedures have
been completed is based on the following reading of the relevant provisions. Article 21.5 states
that "[w]here there is disagreement as to the existence or consistency with a covered agreement
of measures taken to comply" – and in the circumstances referred to under the EC claim there is
such disagreement – "such dispute shall be decided through recourse to these dispute settlement
procedures". This arguably implies that in case of disagreement on implementation,
Article 21.5 must be pursued, not Article 22. Moreover, Article 22.6 only applies "[w]hen the
situation described in paragraph 2 occurs", i.e. in the event "the Member concerned fails to
bring the measure found to be inconsistent with a covered agreement into compliance". Since,
in the circumstances under examination, an Article 21.5 procedure is pending to make a
decision on this very issue, it could be argued that as long as that procedure has not been
completed, the conditions for a request for suspension of concessions under Article 22.6 are not

fulfilled. Following this line of reasoning, pending Article 21.5, Article 22 cannot be
invoked.709
7.165 Thus, following the EC approach, a Section 306 determination of non-implementation
made, in a specific case, before the completion of Article 21.5 proceedings would be contrary to
Article 23.2(a) because it would, in the EC vi ew, not be made "through recourse to dispute
settlement in accordance with the rules and proce dures of [the DSU]", more particularly, made
inconsistently with Articles 21.5 and 22. However, as we have already found, the statutory
language of Section 306 mandates the USTR to make a determination within 30 days even if
Article 21.5 procedures have not been completed and reserves for the USTR the discretion to
make determinations of non-implementation that are – on EC reading – contrary to
Article 23.2(a). As a result we consider that – assuming the EC position is correct and for the
reasons explained in our examinati on of the EC claim under Section 304
710 – the statutory
language of Section 306, independently from its application in specific disputes, would prima
facie violate US obligations under Article 23.2(a).
7.166 As explained earlier, this would be so because of the nature of the US obligations under
Article 23. Under Article 23 the US promised not to resort to unilateral measures referred to in
Article 23.2(a). However, in Section 306 – assuming that the reading of the EC of Articles 21.5
and 22 is correct – the US statutorily reserved the right to do exactly that.
7.167 However, even if we were to find such prima facie violation, it would be removed after
consideration of the other elements under Section 306. For the reasons given above
711, we
would then find that the cumulative effect of the US undertakings in the SAA and the statements
made by the US to the DSB through this Panel, 712 is effectively and lawfully to curtail the
discretion under Section 306 which would be at the source of the prima facie violation of
Article 23.2(a).713 These undertakings would, indeed, fulfill the guarantees received by other
WTO Members and, through them, economic operators in the market-place under Article 23.
7.168 Whatever the outcome of other pending panel proceedings, on which we have no view,
the fact that the USTR did make a determination of non-implementation before the completion
of Article 21.5 procedures in Bananas III, even if it turns out eventually that this was illegal, is
not, in our view, an act of bad faith. It was based on the US interpretation given to Articles 21.5

709 In this respect, we note that in another dispute, Australia - Subsidies Provided to Producers
and Exporters of Automotive Leather (" Australia –Leather ", WT/DS126/R, adopted 16 June 1999, not
appealed), the US invoked Article 21.5 but agreed with the defending party, Australia, to await
completion of Article 21.5 proceedings before requesting authorization to suspend concessions. With
reference to footnote 6 to Article 4 of the SCM Agreement both parties agreed "that the deadline for DSB
action under the first sentence of Article 22.6 of the DSU shall be 60 days after the circulation of the
review panel report under Article 21.5 of the DSU, and that the deadline specified in the third sentence of
Article 22.6 of the DSU for completion of arbitration shall be 45 days after the matter is referred to
arbitration" (WT/DS126/8, p. 2).
710 See Section VII.C.3 and 4.
711 See Section VII.C.6.
712 See para. 7.112, second bullet point, paras. 7.114 ff. as well as footnotes 680 and 681.
713 In this respect, we recall that we found earlier that the statutory language of Section 306
allows the USTR to await the completion of DSU procedures, including Article 21.5 procedures, before
making a determination of inconsistency under Section 306 (see para. 7.146 above). As to the lawfulness
of taking account of result of Article 21.5 proceedings, Section 306 determinations have to be made "on
the basis of the monitoring carried out" under Section 306 (a). Such monitoring may include reference to
Article 21.5 proceedings.

and 22, an interpretation shared by other Members and now subject to negotiation. It seems to
this Panel that the US attitude in this respect was due in large measure to the contradictory
drafting of Articles 21.5 and 22 and may, as a result, be defensible as an act taken in order to
safeguard its right to obtain DSB authorization to suspend concessions by negative consensus.714
This Panel has no basis on which it could doubt that if as a result of these negotiations or the
Bananas III dispute resolution procedures, the EC view in relation to Articles 21.5 and 22 turns
out to be correct, the US would honour its undertakings to respect DSU procedures also under
Section 306. Indeed, once US obligations on this matter would thus be clear and the EC view in
this respect be confirmed, the overriding commitment made by the US Administration to follow
and await the completion of DSU procedures before making determinations under Section 306
would be activated.
4. The Panel's Finding in respect of the EC claim under Section 306
7.169 Based on the above, irrespective of whether we accept the US or the EC approach to
Articles 21.5 and 22, our conclusion on the compat ibility of Section 306 with Article 23.2(a) is
the same. In these circumstances, since we are able to discharge our mandate without seeking to
resolve the altogether separate dispute on the correct interpretation of Articles 21.5 and 22 and the
relationship between them, we shall refrain from examining further the Article 21.5 versus
Article 22 controversy. To do otherwise would fall outside our mandate as set out in Section
VII.A of our Report.
715

714 We note that at least one other WTO Member recently acted in a similar way. In Australia –
Salmon, Canada as well requested DSB authorization to suspend concessions within the 30 days
framework even though there was disagreement as to whether Australia had implemented DSB
recommendations and a panel under Article 21.5 is now examining this disagreement. In Australia –
Salmon, Canada took an approach similar to that of the US in order to preserve its rights under Article 22.
At the DSB meeting of 28 July 1999, Canada stated the following:
"in the context of the DSU review, both Australia and Canada had taken the same
position on the interpretation of Articles 21.5 and 22: i.e. where there was a
disagreement about implementation, a multilateral determination of inconsistency should
precede the authorization to suspend concessions. Canada had tabled a detailed proposal
to amend the DSU provisions with a view to ensuring such sequence. Since no
agreement had yet been reached on this issue, Canada had to pursue its rights in
accordance with the existing provisions of the DSU. At this stage, it was not possible
for Canada to proceed with the Article 21.5 panel proceedings only, because such
proceedings would be concluded after the expiry of the 30-day period provided for in
Article 22, within which Canada had the right to request suspension of concessions by
negative consensus" (WT/DSB/M/66, pp. 4-5).
On the other hand, see the sequence and procedures agreed upon in Australia – Leather , set out
in footnote 709.
715 We realize that as a result it is still unclear whether the USTR is now (1) as the US argues,
required to make determinations of inconsistency under Section 306 even pending Article 21.5
procedures in order to preserve US rights under Article 22 or (2) as the EC argues, prohibited under
Article 23.2(a) to make such determinations until the completion of Article 21.5 procedures. We stress,
however, that our task was to examine the compatibility of US law as such and not its application in a
specific dispute, i.e. not whether in a given dispute the USTR is allowed to make this or that
determination. Under either hypothesis – the US or the EC approach – we found that Section 306 is not
inconsistent with Article 23.2(a). This is now clearly established. Only the way Section 306 should be
applied in a specific dispute – an issue not falling within our mandate – is left open.

7.170 On these grounds, we find that Section 306, in the circumstances referred to in the EC
claim, is not inconsistent with Arti cle 23.2(a) of the DSU. The same caveats m a d e i n o u r
findings as regards Section 304 also apply here.716
E. THE EC CLAIM THAT SECTIONS 305 AND 306 ARE INCONSISTENT WITH ARTICLE 23.2(C)
OF THE DSU
1. Introduction
7.171 The EC claims that Section 306 (b) is inconsistent with Article 23.2(c) of the DSU
because it requires the USTR to determine within 30 days after the expiration of the reasonable
period of time what further action to take under Section 301 in case of a failure to implement
DSB recommendations. The EC also claims that Section 305 (a)(2) is inconsistent with
Article 23.2(c) of the DSU because it requires the USTR to implement the action determined
earlier under Section 306 within 60 days after the expiration of the reasonable period of time.
7.172 As noted earlier, Article 23.2(c) provides that in cases where WTO Members seek
redress of WTO inconsistencies, Members shall
"follow the procedures set forth in Article 22 to determine the level of
suspension of concessions or other obligations and obtain DSB authorization in
accordance with those procedures before suspending concessions or other
obligations under the covered agreements in response to the failure of the
Member concerned to implement the recommendations and rulings within that
reasonable period of time".
Article 23.2(c) thus includes two cumulative obligations:
(a) the US has to "follow the procedures set forth in Article 22 to determine the
level of suspension of concessions or other obligations" (emphasis added); and
(b) the US has to "obtain DSB authorization in accordance with those procedures
before suspending concessions or other obligations under the covered
agreements in response to the failure of the Member concerned to implement
the recommendations and rulings within that reasonable period of time"
(emphasis added).
7.173 After considering the submissions of the parties in relation to this claim, detailed
exhaustively in the descriptive part of this Report, we reach the following conclusions.
2. The EC claim in respect of Determinations on Action under Section 306 (b)
7.174 Whereas the previous EC claim dealt with the "consideration" that implementation had
failed under Section 306, this claim concerns the subsequent determination on action following
such a determination of non-implementation. At issue here is the second phase of Section 306 as
outlined above.
717 We recall that this determination has to be made within 30 days after the
expiry of the reasonable period of time and that, in the circumstances referred to by the EC, it
may, indeed, be mandated before the completion of Article 21.5 procedures on implementation.

716 See paras. 7.131-7.136 above.
717 See paras. 7.142-7.143 above.

7.175 We find, as a matter of fact, that this determination on what action to take under the
second phase of Section 306 is only mandated if the USTR has determined under the first phase
that implementation failed.
7.176 As we did in respect of the previous claim, we will examine the conformity of
Section 306 with Article 23.2(c) on the assump tion, first, that the US view on Articles 21.5
and 22 is correct and, then, on the alternative assump tion that the EC view in this respect is the
correct one.
7.177 We recall that if one were to accept the US view on the relationship between
Articles 21.5 and 22, then the US would effectively be obligated, or at least authorized, under
Article 22 – in the event it determines that implementation failed – to make a determination on
what action to take within 30 days after the expiry of the reasonable period of time. If not, it
would lose the right to obtain DSB authorization by negative consensus. In that event, any
determination on action made under Section 306 in the circumstances referred to in the EC
claim would "follow the procedures set forth in Article 22 to determine the level of suspension
of concessions or other obligations" and thus be consistent with Article 23.2(c).
7.178 Turning now to the EC view on Articles 21.5 and 22, we found in examining the first
phase of Section 306 that – if one were to accept the EC view – discretion to make a
determination of non-implementation before the completion of Article 21.5 procedures would
be prima facie inconsistent with Article 23.2(a). If such discretion were maintained, it would
spill over to the second phase of Section 306 as well. However, we have already found that –
assuming the EC view is correct – the discretion afforded to the USTR to make a determination
that implementation has failed prior to the exhaustion of DSU proceedings under Article 21.5
would be effectively curtailed by the undertakings given by the US Administration both
internally and internationally. So long as the US undertakings are in place, the trigger for the
determination of action under the second phase of Section 306 would thus be disabled and any
potential violation also of Article 23.2(c) eliminated.
718 Indeed, in these circumstances, any
determination on action under the second phase of Section 306 would – as the determination on
consistency under the first phase – take place subsequent to the completion of Article 21.5
procedures in accordance with the EC view on Article 22. Any such determination on action
would thus "follow the procedures set forth in Article 22 to determine the level of suspension of
concessions or other obligations" and be consistent with Article 23.2(c).

718 We note that – in addition to the discretion granted to the USTR under the first phase of
Section 306 allowing it to delay a determination of non-implementation – the USTR has also been
granted a certain discretion under the second phase of Section 306, as well as under Section 301, allowing
it not to determine what action to take until the completion of Article 21.5 procedures. The determination
mandated in Section 306 on what action to take refers to "mandatory action" under Section 301 (a).
Section 301 (a) itself provides for several exceptions where the USTR is not required to take action.
Under this provision, action is not required, inter alia, if the DSB has adopted a report or ruling finding
that US rights have not been denied; if the Member concerned is taking satisfactory measures to grant the
US rights at issue under the WTO Agreement, including an expression of intention to comply with DSB
recommendations; or if, in extraordinary cases, action would have a disproportionate adverse impact on
the US economy or cause serious harm to the national security of the US. An additional discretionary
element – allowing the USTR to determine that no action is to be taken – is that action under
Section 301(a) is subject to "the specific direction, if any, of the President regarding any such action".
Even if the existence of the discretion under both phases of Section 306 and under Section 301 were to
constitute a prima facie violation, the undertakings given by the US would remove these.

7.179 For the reasons outlined above, we find that Section 306 – irrespective of whether we
accept the US or the EC approach in respect of Articles 21.5 and 22 – is not inconsistent with
US obligations under Article 23.2(c). The same caveats made in our findings as regards
Section 304 also apply here.719
3. The EC claim in respect of Implementation of Action under Section 305
7.180 Similar reasoning applies to the EC claim in respect of Section 305. Any action the
USTR determined to take pursuant to Section 306, constituting the suspension of concessions or
other obligations under the WTO, has to be implemented within "30 days after the date on
which such determination is made" in accordance with Section 305(a)(1). In other words, if the
USTR determines to take action within 30 days after the expiry of the reasonable period of time
as referred to in Section 306, it will be obligated to implement such action within 60 days after
the expiry of the reasonable period of time. We agree with the EC that Article 21.5 and even
Article 22.6 arbitration procedures on the level of suspension may not be over within this 60
days period.
720 As a result, Section 305(a)(1) read in isolation may, in certain circumstances,
mandate the implementation of action before receiving DSB authorization to do so.
7.181 However, under Section 305 (a)(2) there is discretion to suspend any implementation of
action for up to 180 days beyond the 60 days after the expiration of the reasonable period of
time. The USTR may do so if it determines, for example, that a delay is "necessary or desirable
to obtain United States rights", for example, DSB authorization to suspend concessions.
721 In
addition, implementation of action under Section 305 is also subject to "the specific direction, if
any, of the President regarding any such action".722

719 See paras. 7.131-7.136 above.
720 In respect of Article 21.5 procedures, see para. 7.145 above. Since Article 21.5 procedures
may seemingly start on or about the date of expiry of the reasonable period of time and, as a general rule,
take 90 days, it is likely that such procedures would not be completed within the 60 day deadline of
Section 305. In respect of Article 22.6 arbitration procedures, we note that Article 22.6 provides that the
arbitration has to be completed within 60 days after the expiry of the reasonable period of time, i.e. the
time-limit in Section 305. However, even if the arbitration is completed by then, it may take some more
time for the DSB to actually authorize the suspension of concessions consistent with the arbitration
report. Considering footnote 7 in the Bananas III arbitration report (WT/DS27/ARB), even the
completion of arbitration procedures within 60 days is not a certainty: "On the face of it, the 60-day
period specified in Article 22.6 does not limit or define the jurisdiction of the Arbitrators ratione
temporis. It imposes a procedural obligation on the Arbitrators in respect of the conduct of their work,
not a substantive obligation in respect of the validity thereof. In our view, if the time-periods of Article
17.5 and Article 22.6 of the DSU were to cause the lapse of the authority of the Appellate Body or the
Arbitrators, the DSU would have explicitly provided so. Such lapse of jurisdiction is explicitly foreseen,
e.g. in Article 12.12 of the DSU which provides that 'if the work of the panel has been suspended for
more than 12 months, the authority for establishment of the panel shall lapse' ".
721 Thus, even if the US view on the relationship between Articles 21.5 and 22 were correct, the
USTR could – after having made determinations on WTO consistency and Section 301 action before the
completion of Article 21.5 procedures as required, or at least authorized, under its reading of Article 22 –
still delay the implementation of any such action it may have determined to take until it has obtained DSB
authorization to implement such action consistently with Article 23.2(c).
722 We note also that activation of Section 305 is dependent on a determination of action under
Section 306 (second phase) and that the determination of action under Section 306 (second phase) is
dependent on a "consideration” that implementation has not taken place under Section 306 (first phase).
Since the initial trigger of determining that implementation has not taken place would – following the EC

7.182 The requirement to implement action within 60 days – unless exceptions are made –
even in cases where DSB authorization has not yet been obtained, may constitute a prima facie
violation of the US obligation under Article 23.2(c) to "obtain DSB authorization in accordance
with [Article 22] procedures before suspending concessions or other obligations". The fact that
implementation can be delayed does not, in our view, necessarily meet the US guarantee granted
under Article 23.2(c) to all WTO Members and, through them, economic operators in the
market-place, that determinations contrary to Article 23.2(c) will not be made.
7.183 However, even if the existence of such discretion were to constitute a prima facie
violation, the undertakings given by the US w ould remove it and no violation of Article 23.2(c)
could be found. We note, in particular, that under the SAA the USTR is obligated to do the
following:
"if the matter cannot be resolved during that period [the reasonable period of
time], seek authority from the DSB to retaliate".723
7.184 As a result, after evaluation of all elements relevant to Section 305, we come to the
conclusion that the USTR under US law is precluded from exercising his or her discretion under
Section 305 in a way that results in implementation of action before DSB authorization has been
obtained.724 We note that USTR discretion in this respect has been lawfully curtailed.
Section 305 (a)(2)(ii), in particular, allows the USTR to delay action when "necessary or
desirable to obtain United States rights", in th is case, the right to be obtained from the DSB to
suspend concessions or other obligations.725
7.185 For the reasons set out above, we find that Section 305, in the circumstances referred to
in the EC claim, is not inconsistent with US obligations under Article 23.2(c). The same
caveats made in our findings as regards Section 304 also apply here.
726
F. THE EC CLAIMS UNDER GATT 1994
7.186 The EC submits, finally, that in disputes involving goods, Section 306 requires the
USTR "unilaterally" to impose measures as a consequence of a "unilaterally" determined failure
to implement DSB recommendations, not authorized under the DSU, that necessarily violate
Article I, II, III, VIII or XI of GATT 1994. Therefore, the EC concludes, also Section 306 itself
violates the said GATT provisions.
7.187 We note, first, that these GATT claims depend on acceptance of the EC claims under
the DSU.
727 If action is explicitly allowed under the DSU, it can arguably not be prohibited

view on the relationship between Articles 21.5 and 22 – be removed the consequent implementation of
action would also be delayed at least until completion of Article 21.5 procedures.
723 SAA, p. 366, fourth bullet point.
724 We agree with the US that if the maximum delay were imposed, the total of 240 days
subsequent to the lapse of the reasonable period of time – the original 60 day time-frame combined with
the 180 days delay – should be sufficient for the USTR to await in all cases the completion of both Article
21.5 and Article 22.6 procedures as well as DSB authorization to suspend concessions.
725 By so finding, we explicitly leave open the question of how DSB authorization to suspend
concessions is to be applied ratione temporis, a question that is subject to another panel proceeding.
726 See paras. 7.131-7.136 above.

under the more general GATT 1994. Since we have found that Section 306 is not inconsistent
with Article 23 of the DSU, we can presume also that the dependent claim under GATT should
be rejected.728
7.188 Moreover, on the substance of its argument, the EC did not further develop this
claim.729 It did not even refer to the text of the GATT provisions invoked.
7.189 On these grounds, we find that the EC has not met its burden of proving that
Section 306 as such constitutes a violation of GATT 1994.
VIII. CONCLUSIONS
8.1 In the light of the statutory and non-statutory elements of Sections 301-310, in
particular the US undertakings articulated in the Statement of Administrative Action approved
by the US Congress at the time it implemente d the Uruguay Round agreements and confirmed
and amplified in the statements by the US to this Panel, we conclude that those aspects of
Sections 301-310 of the US Trade Act brought before us in this dispute are not inconsistent with
US obligations under the WTO. More specifically we conclude that
(a) Section 304 (a)(2)(A) of the US Trade Act of 1974, is not inconsistent with
Article 23.2(a) of the DSU;
(b) Section 306 (b) of the US Trade Act of 1974, irrespective of whether we accept
the US or the EC approach in respect of Articles 21.5 and 22 of the DSU, is not
inconsistent with either
- Article 23.2(a) of the DSU; or
- Article 23.2(c) of the DSU;
(c) Section 305 (a) of the US Trade Act of 1974, is not inconsistent with
Article 23.2(c) of the DSU;
(d) Section 306 (b) of the US Trade Act of 1974 is not inconsistent with Articles I,
II, III, VIII and XI of GATT 1994, as they have been referred to by the EC.

727 The EC seems to agree with this when it states, in para. 11 of its rebuttal submission, that
"Section 301-310, on their face, mandate unilateral action by the US authorities in breach of Article 23 of
the DSU (and consequently of Articles I, II, III, VIII and XI of the GATT 1994)" (emphasised added).
728 In this respect we note, in addition, that ac tion under Section 301 can also be consistent with
GATT provisions even when it is not explicitly allowed under the DSU. This could be the case, for
example, when the action consists of a rise in applied tariffs to a level within the bound rate, implemented
on an MFN basis.
729 In its rebuttal submission, at p. 22, the EC only stated the following on this claim: "Given
that Sections 304(a)(2)(A) and 306(b), as amended, require the United States to resort to retaliatory trade
action within certain time limits irrespective of the result of WTO dispute settlement procedures, the
actions taken in the area of trade in goods and not authorised pursuant to Article 3.7 and 22 of the DSU
will necessarily be in violation of US obligations under one or more of the following GATT obligations:
the Most-Favoured Nation clause (Article I GATT 1994), the tariff bindings undertaken by the United
States (Article II GATT 1994), the National Treatment clause (Article III GATT 1994), the obligation not
to collect excessive charges (Article VIII GATT 1994) and the prohibition of quantitative restrictions
(Article XI GATT 1994)". See para. 4.1013 of this Report.

Significantly, all these conclusions are based in full or in part on the US
Administration's undertakings mentioned above. It thus follows that should they be
repudiated or in any other way removed by the US Administration or another branch of
the US Government, the findings of conformity contained in these conclusions would
no longer be warranted.
Signed in the original this 8th of November 1999 by:
David Hawes
Chairman
_________________________ _________________________
Terje Johannessen Joseph Weiler
Member Member

ANNEX I
A. SECTIONS 301-310 OF THE TRADE ACT OF 1974
SEC. 301. ACTIONS BY UNITED STATES TRADE REPRESENTATIVE.
(a) MANDATORY ACTION.—
(1) If the United States Trade Representative determines under section 304(a)(1) that—
(A) the rights of the United States under any trade agreement are being denied; or
(B) an act, policy, or practice of a foreign country—
(i) violates, or is inconsistent with, the provisions of, or otherwise denies
benefits to the United States under, any trade agreement, or
(ii) is unjustifiable and burdens or restricts United States commerce;
the Trade Representative shall take action authorized in subsection (c), subject to the
specific direction, if any, of the President regarding any such action, and shall take all other
appropriate and feasible action within the power of the President that the President may
direct the Trade Representative to take under this subsection, to enforce such rights or to
obtain the elimination of such act, policy, or practice.
Actions may be taken that are within the power of the President with respect to trade in any
goods or services, or with respect to any other area of pertinent relations with the foreign
country.
(2) The Trade Representative is not required to take action under paragraph (1) in any
case in which—
(A) the Dispute Settlement Body (as defined in section 121(5) of the Uruguay
Round Agreements Act) has adopted a report, or a ruling issued under the formal
dispute settlement proceeding provided under any other trade agreement finds, that—
(i) the rights of the United States under a trade agreement are not being denied,
or
(ii) the act, policy, or practice—
(I) is not a violation of, or inconsistent with, the rights of the United States,
or
(II) does not deny, nullify, or impair benefits to the United States under any
trade agreement; or
(B) the Trade Representative finds that—
(i) the foreign country is taking satisfactory measures to grant the rights of the
United States under a trade agreement,
(ii) the foreign country has—
(I) agreed to eliminate or phase out the act, policy, or practice, or
(II) agreed to an imminent solution to the burden or restriction on United
States commerce that is satisfactory to the Trade Representative,
(iii) it is impossible for the foreign country to achieve the results described in
clause (i) or (ii), as appropriate, but the foreign country agrees to provide to the
United States compensatory trade benefits that are satisfactory to the Trade
Representative,
(iv) in extraordinary cases, where the taking of action under this subsection
would have an adverse impact on the United States economy substantially out of
proportion to the benefits of such action, taking into account the impact of not
taking such action on the credibility of the provisions of this chapter, or

(v) the taking of action under this subsection would cause serious harm to the
national security of the United States.
(3) Any action taken under paragraph (1) to eliminate an act, policy, or practice shall be
devised so as to affect goods or services of the foreign country in an amount that is
equivalent in value to the burden or restriction being imposed by that country on United
States commerce.
(b) D ISCRETIONARY ACTION .—If the Trade Representative determines under section
304(a)(1) that—
(1) an act, policy, or practice of a foreign country is unreasonable or discriminatory and
burdens or restricts United States commerce, and
(2) action by the United States is appropriate, the Trade Representative shall take all
appropriate and feasible action authorized under subsection (c), subject to the specific
direction, if any, of the President regarding any such action, and all other appropriate and
feasible action within the power of the President that the President may direct the Trade
Representative to take under this subsection, to obtain the elimination of that act, policy, or
practice.
Actions may be taken that are within the power of the President with respect to trade in any
goods or services, or with respect to any other area of pertinent relations with the foreign
country.
(c) S
COPE OF AUTHORITY.—
(1) For purposes of carrying out the provisions of subsection (a) or (b), the Trade
Representative is authorized to—
(A) suspend, withdraw, or prevent the application of, benefits of trade agreement
concessions to carry out a trade agreement w ith the foreign country referred to in such
subsection;
(B) impose duties or other import restrictions on the goods of, and, notwithstanding
any other provision of law, fees or restrictions on the services of, such foreign country
for such time as the Trade Representative determines appropriate;
(C) in a case in which the act, policy, or practice also fails to meet the eligibility
criteria for receiving duty-free treatment under subsections (b) and (c) of section 502 of
this Act, subsections (b) and (c) of section 212 of the Caribbean Basin Economic
Recovery Act (19 U.S.C. 2702 (b) and (c)), or subsections (c) and (d) of section 203 of
the Andean Trade Preference Act (19 U.S.C. 3202 (c) and (d)), withdraw, limit, or
suspend such treatment under such provisions, notwithstanding the provisions of
subsection (a)(3) of this section; or
(D) enter into binding agreements with such foreign country that commit such
foreign country to—
(i) eliminate, or phase out, the act, policy, or practice that is the subject of the
action to be taken under subsection (a) or (b),
(ii) eliminate any burden or restriction on United States commerce resulting
from such act, policy, or practice, or
(iii) provide the United States with compensatory trade benefits that—
(I) are satisfactory to the Trade Representative, and
(II) meet the requirements of paragraph (4).

(2)(A) Notwithstanding any other provision of law governing any service sector access
authorization, and in addition to the authority conferred in paragraph (1), the Trade
Representative may, for purposes of carrying out the provisions of subsection (a) or (b)—
(i) restrict, in the manner and to the extent the Trade Representative determines
appropriate, the terms and conditions of any such authorization, or
(ii) deny the issuance of any such authorization.
(B) Actions described in subparagraph (A) may only be taken under this section with
respect to service sector access authorizations granted, or applications therefor pending, on
or after the date on which—
(i) a petition is filed under section 302(a), or
(ii) a determination to initiate an investigation is made by the Trade Representative
under section 302(b).
(C) Before the Trade Representative takes any action under this section involving the
imposition of fees or other restrictions on the services of a foreign country, the Trade
Representative shall, if the services involved are subject to regulation by any agency of the
Federal Government or of any State, consult, as appropriate, with the head of the agency
concerned.
(3) The actions the Trade Representative is authorized to take under subsection (a) or
(b) may be taken against any goods or economic sector—
(A) on a nondiscriminatory basis or solely against the foreign country described in
such subsection, and
(B) without regard to whether or not such goods or economic sector were involved
in the act, policy, or practice that is the subject of such action.
(4) Any trade agreement described in paragr aph (1)(D)(iii) shall provide compensatory
trade benefits that benefit the economic sector which includes the domestic industry that
would benefit from the elimination of the act, policy, or practice that is the subject of the
action to be taken under subsection (a) or (b), or benefit the economic sector as closely
related as possible to such economic sector, unless—
(A) the provision of such trade benefits is not feasible, or
(B) trade benefits that benefit any other economic sector would be more satisfactory
than such trade benefits.
(5) If the Trade Representative determines that actions to be taken under subsection (a)
or (b) are to be in the form of import restrictions, the Trade Representative shall—
(A) give preference to the imposition of duties over the imposition of other import
restrictions, and
(B) if an import restriction other than a duty is imposed, consider substituting, on an
incremental basis, an equivalent duty for such other import restriction.
(6) Any action taken by the Trade Representative under this section with respect to
export targeting shall, to the extent possible, reflect the full benefit level of the export
targeting to the beneficiary over the period during which the action taken has an effect.
(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this chapter—
(1) The term "commerce'' includes, but is not limited to—
(A) services (including transfers of information) associated with international trade,
whether or not such services are related to specific goods, and

(B) foreign direct investment by United States persons with implications for trade in
goods or services.
(2) An act, policy, or practice of a foreign country that burdens or restricts United States
commerce may include the provision, directly or indirectly, by that foreign country of
subsidies for the construction of vessels used in the commercial transportation by water of
goods between foreign countries and the United States.
(3)(A) An act, policy, or practice is unreasonable if the act, policy, or practice, while not
necessarily in violation of, or inconsistent with, the international legal rights of the United
States, is otherwise unfair and inequitable.
(B) Acts, policies, and practices that are unreasonable include, but are not limited to,
any act, policy, or practice, or any combination of acts, policies, or practices, which—
(i) denies fair and equitable—
(I) opportunities for the establishment of an enterprise,
(II) provision of adequate and effective protection of intellectual property rights
notwithstanding the fact that the foreign country may be in compliance with the
specific obligations of the Agreement on Trade-Related Aspects of Intellectual
Property Rights referred to in section 101(d)(15) of the Uruguay Round Agreements
Act,
(III) nondiscriminatory market access opportuniti es for United States persons
that rely upon intellectual property protection, or
(IV) market opportunities, including the toleration by a foreign government of
systematic anticompetitive activities by enterprises or among enterprises in the
foreign country that have the effect of restricting, on a basis that is inconsistent with
commercial considerations, access of United States goods or services to a foreign
market,
(ii) constitutes export targeting, or
(iii) constitutes a persistent pattern of conduct that—
(I) denies workers the right of association,
(II) denies workers the right to organize and bargain collectively,
(III) permits any form of forced or compulsory labor,
(IV) fails to provide a minimum age for the employment of children, or
(V) fails to provide standards for minimum wages, hours of work, and
occupational safety and health of workers.
(C)(i) Acts, policies, and practices of a foreign country described in subparagraph
(B)(iii) shall not be treated as being unreasonable if the Trade Representative determines
that—
(I) the foreign country has taken, or is taking, actions that demonstrate a significant
and tangible overall advancement in providing throughout the foreign country
(including any designated zone within the foreign country) the rights and other
standards described in the subclauses of subparagraph (B)(iii), or
(II) such acts, policies, and practices are not inconsistent with the level of economic
development of the foreign country.
(ii) The Trade Representative shall publish in the Federal Register any determination
made under clause (i), together with a description of the facts on which such determination
is based.

(D) For purposes of determining whether any act, policy, or practice is unreasonable,
reciprocal opportunities in the United States for foreign nationals and firms shall be taken
into account, to the extent appropriate.
(E) The term "export targeting'' means any government plan or scheme consisting of a
combination of coordinated actions (whether carried out severally or jointly) that are
bestowed on a specific enterprise, industry, or group thereof, the effect of which is to assist
the enterprise, industry, or group to become more competitive in the export of a class or
kind of merchandise.
(F)(i) For the purposes of subparagraph (B)(i)(II), adequate and effective protection of
intellectual property rights includes adequate and effective means under the laws of the
foreign country for persons who are not citizens or nationals of such country to secure,
exercise, and enforce rights and enjoy commercial benefits relating to patents, trademarks,
copyrights and related rights, mask works, trade secrets, and plant breeder's rights.
(ii) For purposes of subparagraph (B)(i)(IV), the denial of fair and equitable
nondiscriminatory market access opportunities includes restrictions on market access
related to the use, exploitation, or enjoyment of commercial benefits derived from
exercising intellectual property rights in protected works or fixations or products
embodying protected works.
(4)(A) An act, policy, or practice is unjustifiable if the act, policy, or practice is in
violation of, or inconsistent with, the international legal rights of the United States.
(B) Acts, policies, and practices that are unjustifiable include, but are not limited to, any
act, policy, or practice described in subparagraph (A) which denies national or most-
favoured-nation treatment or the right of establishment or protection of intellectual property
rights.
(5) Acts, policies, and practices that are discriminatory include, when appropriate, any
act, policy, and practice which denies national or most-favoured-nation treatment to United
States goods, services, or investment.
(6) The term "service sector access authorization'' means any license, permit, order, or
other authorization, issued under the authority of Federal law, that permits a foreign supplier
of services access to the United States market in a service sector concerned.
(7) The term "foreign country'' includes an y foreign instrumentality. Any possession or
territory of a foreign country that is administered separately for customs purposes shall be
treated as a separate foreign country.
(8) The term "Trade Representative'' means the United States Trade Representative.
(9) The term "interested persons'', only for purposes of sections 302(a)(4)(B),
304(b)(1)(A), 306(c)(2), and 307(a)(2), includes, but is not limited to, domestic firms and
workers, representatives of consumer interests, United States product exporters, and any
industrial user of any goods or services that may be affected by actions taken under
subsection (a) or (b).

SEC. 302. INITIATION OF INVESTIGATIONS.
(a) PETITIONS.—
(1) Any interested person may file a petition with the Trade Representative requesting
that action be taken under section 301 and setting forth the allegations in support of the
request.
(2) The Trade Representative shall review the allegations in any petition filed under
paragraph (1) and, not later than 45 days after the date on which the Trade Representative
received the petition, shall determine whether to initiate an investigation.
(3) If the Trade Representative determines not to initiate an investigation with respect to
a petition, the Trade Representative shall inform the petitioner of the reasons therefor and
shall publish notice of the determination, together with a summary of such reasons, in the
Federal Register.
(4) If the Trade Representative makes an affirmative determination under paragraph (2)
with respect to a petition, the Trade Representa tive shall initiate an investigation regarding
the issues raised in the petition. The Trade Representative shall publish a summary of the
petition in the Federal Register and shall, as soon as possible, provide opportunity for the
presentation of views concerning the issues, including a public hearing—
(A) within the 30-day period beginning on the date of affirmative determination (or
on a date after such period if agreed to by the petitioner) if a public hearing within such
period is requested in the petition, or
(B) at such other time if a timely request therefor is made by the petitioner or by
any interested person.
(b) I
NITIATION OF INVESTIGATION BY MEANS OTHER THAN PETITION.–
(1)(A) If the Trade Representative determines that an investigation should be initiated
under this chapter with respect to any matter in order to determine whether the matter is
actionable under section 301, the Trade Representative shall publish such determination in
the Federal Register and shall initiate such investigation.
(B) The Trade Representative shall, before making any determination under
subparagraph (A), consult with appropriate committees established pursuant to section 135.
(2)(A) By no later than the date that is 30 days after the date on which a country is
identified under section 182(a)(2), the Trade Re presentative shall initiate an investigation
under this chapter with respect to any act, policy, or practice of that country that—
(i) was the basis for such identification, and
(ii) is not at that time the subject of any other investigation or action under this
chapter.
(B) The Trade Representative is not required under subparagraph (A) to initiate an
investigation under this chapter with respect to any act, policy, or practice of a foreign
country if the Trade Representative determines that the initiation of the investigation would
be detrimental to United States economic interests.
(C) If the Trade Representative makes a determination under subparagraph (B) not to
initiate an investigation, the Trade Representative shall submit to the Congress a written
report setting forth, in detail—
(i) the reasons for the determination, and

(ii) the United States economic interests that would be adversely affected by the
investigation.
(D) The Trade Representative shall, from time to time, consult with the Register of
Copyrights, the Commissioner of Patents and Trademarks, and other appropriate officers of
the Federal Government, during any investigation initiated under this chapter by reason of
subparagraph (A).
(c) DISCRETION.— In determining whether to initiate an investigation under subsection (a)
or (b) of any act, policy, or practice that is enumerated in any provision of section 301(d), the
Trade Representative shall have discretion to determine whether action under section 301 would
be effective in addressing such act, policy, or practice.
SEC. 303. CONSULTATION UPON INITIATION OF INVESTIGATION.
(a) IN GENERAL.—
(1) On the date on which an investigation is initiated under section 302, the Trade
Representative, on behalf of the United States, shall request consultations with the foreign
country concerned regarding the issues involved in such investigation.
(2) If the investigation initiated under section 302 involves a trade agreement and a
mutually acceptable resolution is not reached before the earlier of—
(A) the close of the consultation period, if any, specified in the trade agreement, or
(B) the 150th day after the day on which consultation was commenced,
the Trade Representative shall promptly request proceedings on the matter under the formal
dispute settlement procedures provided under such agreement.
(3) The Trade Representative shall seek information and advice from the petitioner (if
any) and the appropriate committees established pursuant to section 135 in preparing United
States presentations for consultations and dispute settlement proceedings.
(b)
DELAY OF REQUEST FOR CONSULTATIONS.—
(1) Notwithstanding the provisions of subsection (a)—
(A) the United States Trade Representative may, after consulting with the petitioner
(if any), delay for up to 90 days any request for consultations under subsection (a) for
the purpose of verifying or improving the petition to ensure an adequate basis for
consultation, and
(B) if such consultations are delayed by reason of subparagraph (A), each time
limitation under section 304 shall be extended for the period of such delay.
(2) The Trade Representative shall—
(A) publish notice of any delay under paragraph (1) in the Federal Register, and
(B) report to Congress on the reasons for such delay in the report required under
section 309(a)(3).
SEC. 304. DETERMINATIONS BY THE TRADE REPRESENTATIVE.
(a) I
N GENERAL.—
(1) On the basis of the investigation initiated under section 302 and the consultations
(and the proceedings, if applicable) under section 303, the Trade Representative shall—
(A) determine whether—
(i) the rights to which the United States is entitled under any trade agreement
are being denied, or

(ii) any act, policy, or practice described in subsection (a)(1)(B) or (b)(1) of
section 301 exists, and
(B) if the determination made under subpa ragraph (A) is affirmative, determine
what action, if any, the Trade Representative should take under subsection (a) or (b) of
section 301.
(2) The Trade Representative shall make the determinations required under
paragraph (1) on or before—
(A) in the case of an investigation involving a trade agreement, the earlier of—
(i) the date that is 30 days after the date on which the dispute settlement
procedure is concluded, or
(ii) the date that is 18 months after the date on which the investigation is
initiated, or
(B) in all cases not described in subparagrap h (A) or paragraph (3), the date that is
12 months after the date on which the investigation is initiated.
(3)(A) If an investigation is initiated under this chapter by reason of section 302(b)(2)
and the Trade Representative does not consider that a trade agreement, including the
Agreement on Trade-Related Aspects of Intellectual Property Rights (referred to in
section 101(d)(15) of the Uruguay Round Agreemen ts Act), is involved or does not make a
determination described in subparagraph (B) with respect to such investigation, the Trade
Representative shall make the determinations required under paragraph (1) with respect to
such investigation by no later than the date that is 6 months after the date on which such
investigation is initiated.
(B) If the Trade Representative determines with respect to an investigation initiated by
reason of section 302(b)(2) (other than an investigation involving a trade agreement) that—
(i) complex or complicated issues are invo lved in the investigation that require
additional time,
(ii) the foreign country involved in the investigation is making substantial progress
in drafting or implementing legislative or administrative measures that will provide
adequate and effective protection of intellectual property rights, or
(iii) such foreign country is undertaking enforcement measures to provide adequate
and effective protection of intellectual property rights,
the Trade Representative shall publish in the Federal Register notice of such determination
and shall make the determinations required under paragraph (1) with respect to such
investigation by no later than the date that is 9 months after the date on which such
investigation is initiated.
(4) In any case in which a dispute is not resolved before the close of the minimum
dispute settlement period provided for in a trade agreement, the Trade Representative,
within 15 days after the close of such dispute settlement period, shall submit a report to
Congress setting forth the reasons why the dispute was not resolved within the minimum
dispute settlement period, the status of the case at the close of the period, and the prospects
for resolution. For purposes of this paragraph, the minimum dispute settlement period
provided for under any such trade agreement is the total period of time that results if all
stages of the formal dispute settlement procedures are carried out within the time limitations
specified in the agreement, but computed without regard to any extension authorized under
the agreement at any stage.

(b) CONSULTATION BEFORE DETERMINATIONS.—
(1) Before making the determinations required under subsection (a)(1), the Trade
Representative, unless expeditious action is required—
(A) shall provide an opportunity (after giving not less than 30 days notice thereof)
for the presentation of views by interested persons, including a public hearing if
requested by any interested person,
(B) shall obtain advice from the appropriate committees established pursuant to
section 135, and
(C) may request the views of the United States International Trade Commission
regarding the probable impact on the economy of the United States of the taking of
action with respect to any goods or service.
(2) If the Trade Representative does not comply with the requirements of subparagraphs
(A) and (B) of paragraph (1) because expeditious action is required, the Trade
Representative shall, after making the determinations under subsection (a)(1), comply with
such subparagraphs.
(c) P UBLICATION.— The Trade Representative shall publish in the Federal Register any
determination made under subsection (a)(1), together with a description of the facts on which
such determination is based.
SEC. 305. IMPLEMENTATION OF ACTIONS.
(a) ACTIONS TO BE TAKEN UNDER SECTION 301.—
(1) Except as provided in paragraph (2), the Trade Representative shall implement the
action the Trade Representative determines under section 304(a)(1)(B) to take under section
301, subject to the specific direction, if any, of the President regarding any such action, by
no later than the date that is 30 days after the date on which such determination is made.
(2)(A) Except as otherwise provided in this paragraph, the Trade Representative may
delay, by not more than 180 days, the implementation of any action that is to be taken under
section 301 —
(i) if—
(I) in the case of an investigation initiated under section 302(a), the petitioner
requests a delay, or
(II) in the case of an investigation initiated under section 302(b)(1) or to which
section 304(a)(3)(B) applies, a delay is requested by a majority of the
representatives of the domestic industry that would benefit from the action, or
(ii) if the Trade Representative determines that substantial progress is being made,
or that a delay is necessary or desirable to obtain United States rights or satisfactory
solution with respect to the acts, policies, or practices that are the subject of the action.
(B) The Trade Representative may not delay under subparagraph (A) the
implementation of any action that is to be taken under section 301 with respect to any
investigation to which section 304(a)(3)(A) applies.
(C) The Trade Representative may not delay under subparagraph (A) the
implementation of any action that is to be taken under section 301 with respect to any
investigation to which section 304(a)(3)(B) applies by more than 90 days.

(b) ALTERNATIVE ACTIONS IN CERTAIN CASES OF EXPORT TARGETING.—
(1) If the Trade Representative makes an affirmative determination under
section 304(a)(1)(A) involving export targeting by a foreign country and determines to take
no action under section 301 with respect to such affirmation determination, the Trade
Representative—
(A) shall establish an advisory panel to recommend measures which will promote
the competitiveness of the domestic industry affected by the export targeting,
(B) on the basis of the report of such panel submitted under paragraph (2)(B) and
subject to the specific direction, if any, of the President, may take any administrative
actions authorized under any other provision of law, and, if necessary, propose
legislation to implement any other actions, that would restore or improve the
international competitiveness of the domestic industry affected by the export targeting,
and
(C) shall, by no later than the date that is 30 days after the date on which the report
of such panel is submitted under paragraph (2)(B), submit a report to the Congress on
the administrative actions taken, and legislative proposals made, under
subparagraph (B) with respect to the domestic industry affected by the export targeting.
(2)(A) The advisory panels established under paragraph (1)(A) shall consist of
individuals appointed by the Trade Representative who—
(i) earn their livelihood in the private sector of the economy, including individuals
who represent management and labor in the domestic industry affected by the export
targeting that is the subject of the affirmative determination made under
section 304(a)(1)(A), and
(ii) by education or experience, are qualified to serve on the advisory panel.
(B) By no later than the date that is 6 months after the date on which an advisory panel
is established under paragraph (1)(A), the advisory panel shall submit to the Trade
Representative and to the Congress a report on measures that the advisory panel
recommends be taken by the United States to promote the competitiveness of the domestic
industry affected by the export targeting that is the subject of the affirmative determination
made under section 304(a)(1)(A).
SEC. 306. MONITORING OF FOREIGN COMPLIANCE.
(a) I
N GENERAL .—The Trade Representative shall monitor the implementation of each
measure undertaken, or agreement that is entered into to provide a satisfactory resolution of a
matter subject to investigation under this chapter or subject to dispute settlement proceedings to
enforce the rights of the United States under a trade agreement providing for such proceedings.
(b) FURTHER ACTION.—
(1) IN GENERAL.—If, on the basis of the monitoring carried out under subsection (a), the
Trade Representative considers that a foreign country is not satisfactorily implementing a
measure or agreement referred to in subsection (a), the Trade Representative shall determine
what further action the Trade Representative shall take under section 301(a). For purposes
of section 301, any such determination shall be treated as a determination made under
section 304(a)(1).
(2) WTO
DISPUTE SETTLEMENT RECOMMENDATIONS .— If the measure or agreement
referred to in subsection (a) concerns the implementation of a recommendation made
pursuant to dispute settlement proceedings under the World Trade Organization, and the
Trade Representative considers that the foreign country has failed to implement it, the Trade

Representative shall make the determination in paragraph (1) no later than 30 days after the
expiration of the reasonable period of time provided for such implementation under
paragraph 21 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes that is referred to in section 101(d)(16) of the Uruguay Round Agreements Act.
(c) C ONSULTATIONS.—Before making any determination under subsection (b), the Trade
Representative shall—
(1) consult with the petitioner, if any, invo lved in the initial investigation under this
chapter and with representatives of the domestic industry concerned; and
(2) provide an opportunity for the presentation of views by interested persons.
SEC. 307. MODIFICATION AND TERMINATION OF ACTIONS.
(a) IN GENERAL.—
(1) The Trade Representative may modify or terminate any action, subject to the
specific direction, if any, of the President with respect to such action, that is being taken
under section 301 if—
(A) any of the conditions described in section 301(a)(2) exist,
(B) the burden or restriction on United States commerce of the denial rights, or of
the acts, policies, and practices, that are the subject of such action has increased or
decreased, or
(C) such action is being taken under section 301(b) and is no longer appropriate.
(2) Before taking any action under paragraph (1) to modify or terminate any action
taken under section 301, the Trade Representative shall consult with the petitioner, if any,
and with representatives of the domestic industry concerned, and shall provide opportunity
for the presentation of views by other interested persons affected by the proposed
modification or termination concerning the ef fects of the modification or termination and
whether any modification or termination of the action is appropriate.
(b) N
OTICE; REPORT TO CONGRESS.—The Trade Representative shall promptly publish in
the Federal Register notice of, and report in writing to the Congress with respect to, any
modification or termination of any action taken under section 301 and the reasons therefor.
(c) REVIEW OF NECESSITY.—
(1) If—
(A) a particular action has been taken under section 301 during any 4-year period,
and
(B) neither the petitioner nor any representative of the domestic industry which
benefits from such action has submitted to the Trade Representative during the last
60 days of such 4-year period a written request for the continuation of such action,
such action shall terminate at the close of such 4-year period.
(2) The Trade Representative shall notify by mail the petitioner and representatives of
the domestic industry described in paragraph (1)(B) of any termination of action by reason
of paragraph (1) at least 60 days before the date of such termination.
(3) If a request is submitted to the Trade Representative under paragraph (1)(B) to
continue taking a particular action under section 301, the Trade Representative shall
conduct a review of—
(A) the effectiveness in achieving the objectives of section 301 of—
(i) such action, and

(ii) other actions that could be taken (including actions against other products or
services), and
(B) the effects of such actions on the United States economy, including consumers.
SEC. 308. REQUEST FOR INFORMATION.
(a) I N GENERAL .—Upon receipt of written request therefor from any person, the Trade
Representative shall make available to that person information (other than that to which
confidentiality applies) concerning—
(1) the nature and extent of a specific trade policy or practice of a foreign country with
respect to particular goods, services, investment, or intellectual property rights, to the extent
that such information is available to the Trade Representative or other Federal agencies;
(2) United States rights under any trade agreement and the remedies which may be
available under that agreement and under the laws of the United States; and
(3) past and present domestic and international proceedings or actions with respect to
the policy or practice concerned.
(b) I
F INFORMATION NOT AVAILABLE .—If information that is requested by a person under
subsection (a) is not available to the Trade Representative or other Federal agencies, the Trade
Representative shall, within 30 days after receipt of the request—
(1) request the information from the foreign government; or
(2) decline to request the information and inform the person in writing of the reasons for
refusal.
(c) CERTAIN BUSINESS INFORMATION NOT MADE AVAILABLE.—
(1) Except as provided in paragraph (2), and notwithstanding any other provision of law
(including section 552 of title 5, United States Code), no information requested and received
by the Trade Representative in aid of any investigation under this chapter shall be made
available to any person if—
(A) the person providing such information certifies that—
(i) such information is business confidential,
(ii) the disclosure of such information would endanger trade secrets or
profitability, and
(iii) such information is not generally available;
(B) the Trade Representative determines that such certification is well-founded; and
(C) to the extent required in regulations prescribed by the Trade Representative, the
person providing such information provides an adequate nonconfidential summary of
such information.
(2) The Trade Representative may—
(A) use such information, or make su ch information available (in his own
discretion) to any employee of the Federal Government for use, in any investigation
under this chapter, or
(B) may make such information available to any other person in a form which
cannot be associated with, or otherwise identify, the person providing the information.
SEC. 309. ADMINISTRATION.
The Trade Representative shall—
(1) issue regulations concerning the filing of petitions and the conduct of investigations
and hearings under this subchapter,

(2) keep the petitioner regularly informed of all determinations and developments
regarding the investigation conducted with respect to the petition under this chapter,
including the reasons for any undue delays, and
(3) submit a report to the House of Representatives and the Senate semiannually
describing—
(A) the petitions filed and the determinations made (and reasons therefor) under
section 302,
(B) developments in, and the current status of, each investigation or proceeding
under this chapter,
(C) the actions taken, or the reasons for no action, by the Trade Representative
under section 301 with respect to investigations conducted under this chapter, and
(D) the commercial effects of actions taken under section 301.
SEC. 310. IDENTIFICATION OF TRADE EXPANSION PRIORITIES.
(a) IDENTIFICATION.—
(1) Within 180 days after the submission in calendar year 1995 of the report required by
section 181(b), the Trade Representative shall—
(A) review United States trade expansion priorities,
(B) identify priority foreign country practices, the elimination of which is likely to
have the most significant potential to increase United States exports, either directly or
through the establishment of a beneficial precedent, and
(C) submit to the Committee on Finance of the Senate and the Committee on Ways
and Means of the House of Representatives and publish in the Federal Register a report
on the priority foreign country practices identified.
(2) In identifying priority foreign country practices under paragraph (1) of this section,
the Trade Representative shall take into account all relevant factors, including—
(A) the major barriers and trade distorting practices described in the National Trade
Estimate Report required under section 181(b);
(B) the trade agreements to which a foreign country is a party and its compliance
with those agreements;
(C) the medium- and long-term implications of foreign government procurement
plans; and
(D) the international competitive position and export potential of United States
products and services.
(3) The Trade Representative may include in the report, if appropriate—
(A) a description of foreign country practices that may in the future warrant
identification as priority foreign country practices; and
(B) a statement about other foreign country practices that were not identified
because they are already being addressed by provisions of United States trade law, by
existing bilateral trade agreements, or as part of trade negotiations with other countries
and progress is being made toward the elimination of such practices.
(b) INITIATION OF INVESTIGATIONS .—By no later than the date which is 21 days after the
date on which a report is submitted to the appropriate congressional committees under
subsection (a)(1), the Trade Representative shall initiate under section 302(b)(1) investigations
under this chapter with respect to all of the priority foreign country practices identified.
(c) A GREEMENTS FOR ELIMINATION OF BARRIERS .—In the consultations with a foreign
country that the Trade Representative is required to request under section 303(a) with respect to

an investigation initiated by reason of subsection (b), the Trade Representative shall seek to
negotiate an agreement that provides for the elimination of the practices that are the subject of
the investigation as quickly as possible or, if elimination of the practices is not feasible, an
agreement that provides for compensatory trade benefits.
(d) REPORTS.—The Trade Representative shall include in the semiannual report required by
section 309 a report on the status of any investigations initiated pursuant to subsection (b) and,
where appropriate, the extent to which such investigations have led to increased opportunities
for the export of products of the United States.
B. R
ELEVANT WTO PROVISIONS
UNDERSTANDING ON RULES AND PROCEDURES
GOVERNING THE SETTLEMENT OF DISPUTES
…
Article 21
Surveillance of Implementation of Recommendations and Rulings
1. Prompt compliance with recommendations or rulings of the DSB is essential in order to
ensure effective resolution of disputes to the benefit of all Members.
…
3. At a DSB meeting held within 30 days
11
after the date of adoption of the panel or
Appellate Body report, the Member concerned sha ll inform the DSB of its intentions in respect
of implementation of the recommendations and ruli ngs of the DSB. If it is impracticable to
comply immediately with the recommendations and rulings, the Member concerned shall have a
reasonable period of time in which to do so. The reasonable period of time shall be …
4. Except where the panel or the Appellate Body has extended, pursuant to paragraph 9 of
Article 12 or paragraph 5 of Article 17, the time of providing its report, the period from the date
of establishment of the panel by the DSB until the date of determination of the reasonable
period of time shall not exceed 15 months unless the parties to the dispute agree otherwise.
Where either the panel or the Appellate Body has acted to extend the time of providing its
report, the additional time taken shall be added to the 15-month period; provided that unless the
parties to the dispute agree that there are exceptional circumstances, the total time shall not
exceed 18 months.
5. Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings such dispute
shall be decided through recourse to these dispute settlement procedures, including wherever
possible resort to the original panel. The panel shall circulate its report within 90 days after the

11
If a meeting of the DSB is not scheduled during this period, such a meeting of the DSB shall be
held for this purpose.

date of referral of the matter to it. When the panel considers that it cannot provide its report
within this time frame, it shall inform the DSB in writing of the reasons for the delay together
with an estimate of the period within which it will submit its report.
…
Article 22
Compensation and the Suspension of Concessions
1. Compensation and the suspension of concessions or other obligations are temporary
measures available in the event that the recommendations and rulings are not implemented
within a reasonable period of time. However, neither compensation nor the suspension of
concessions or other obligations is preferred to full implementation of a recommendation to
bring a measure into conformity with the covered agreements. Compensation is voluntary and,
if granted, shall be consistent with the covered agreements.
2. If the Member concerned fails to bring the measure found to be inconsistent with a
covered agreement into compliance therewith or otherwise comply with the recommendations
and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article
21, such Member shall, if so requested, and no later than the expiry of the reasonable period of
time, enter into negotiations with any party having invoked the dispute settlement procedures,
with a view to developing mutually acceptable compensation. If no satisfactory compensation
has been agreed within 20 days after the date of expiry of the reasonable period of time, any
party having invoked the dispute settlement procedures may request authorization from the DSB
to suspend the application to the Member concerned of concessions or other obligations under
the covered agreements.
…
6. When the situation described in paragraph 2 occurs, the DSB, upon request, shall grant
authorization to suspend concessions or other obligations within 30 days of the expiry of the
reasonable period of time unless the DSB decides by consensus to reject the request. However,
if the Member concerned objects to the level of suspension proposed, or claims that the
principles and procedures set forth in paragraph 3 have not been followed where a complaining
party has requested authorization to suspend concessions or other obligations pursuant to
paragraph 3(b) or (c), the matter shall be referred to arbitration. Such arbitration shall be carried
out by the original panel, if members are available, or by an arbitrator
15 appointed by the
Director-General and shall be completed within 60 days after the date of expiry of the
reasonable period of time. Concessions or other obligations shall not be suspended during the
course of the arbitration.
7. The arbitrator
16 acting pursuant to paragraph 6 shall not examine the nature of the
concessions or other obligations to be suspended but shall determine whether the level of such
suspension is equivalent to the level of nullification or impairment. The arbitrator may also
determine if the proposed suspension of concessions or other obligations is allowed under the

15
The expression "arbitrator" shall be interpreted as referring either to an individual or a group.
16
The expression "arbitrator" shall be interpreted as referring either to an individual or a group or
to the members of the original panel when serving in the capacity of arbitrator.

covered agreement. However, if the matter referred to arbitration includes a claim that the
principles and procedures set forth in paragraph 3 have not been followed, the arbitrator shall
examine that claim. In the event the arbitrator determines that those principles and procedures
have not been followed, the complaining party shall apply them consistent with paragraph 3.
The parties shall accept the arbitrator's decision as final and the parties concerned shall not seek
a second arbitration. The DSB shall be informed promptly of the decision of the arbitrator and
shall upon request, grant authorization to suspend concessions or other obligations where the
request is consistent with the decision of the arbitrator, unless the DSB decides by consensus to
reject the request.
…
Article 23
Strengthening of the Multilateral System
1. When Members seek the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the attainment of any
objective of the covered agreements, they shall have recourse to, and abide by, the rules and
procedures of this Understanding.
2. In such cases, Members shall:
(a) not make a determination to the effect that a violation has occurred, that
benefits have been nullified or impaired or that the attainment of any objective
of the covered agreements has been impeded, except through recourse to
dispute settlement in accordance with the rules and procedures of this
Understanding, and shall make any such determination consistent with the
findings contained in the panel or Appellate Body report adopted by the DSB or
an arbitration award rendered under this Understanding;
(b) follow the procedures set forth in Article 21 to determine the reasonable period
of time for the Member concerned to implement the recommendations and
rulings; and
(c) follow the procedures set forth in Article 22 to determine the level of
suspension of concessions or other obligations and obtain DSB authorization in
accordance with those procedures before suspending concessions or other
obligations under the covered agreements in response to the failure of the
Member concerned to implement the recommendations and rulings within that
reasonable period of time.
…

ANNEX II
GENERAL DESCRIPTION OF THE OPERATION OF SECTIONS 301-310730
A. INVESTIGATION BY THE USTR UNDER SECTIONS 302-303
1. Sections 301-310 provide an important avenue to enforce US rights under the WTO
Agreement. The USTR can also start WTO proceedings outside the framework of Sections
301-310, as she did, for example, in the EC – Hormones and EC – LAN cases. Sections 301-
310 are also used in the context of other trade agreements.
2. If Sections 301-310 are used, an investigation needs to be carried out by the USTR
under Sections 302-303. Such investigation can be initiated by the USTR either after the filing
of a petition by any interested person or at the initiative of the USTR him or herself.
3. If an interested person files a petition to request that action be taken under Section 301,
the USTR has to first review the allegations in the petition. Not later than 45 days after receipt
of the petition, the USTR has to determine whether to initiate an investigation. If the USTR
makes an affirmative determination, he or she must initiate an investigation.
4. On the date an investigation is initiated – or within maximum 90 days thereafter -- the
USTR also has to request consultations with the other WTO Member concerned under DSU
procedures (Section 303(a)(1)). If no mutually acceptable solution is reached before the 60 day
consultation period provided in the DSU, the USTR has to "promptly request proceedings on the
matter under the formal dispute settlement procedures provided" in the DSU (Section
303(a)(2)). The US is thus obliged to initiate consultations and, as the case may be, panel
proceedings, before concluding its investigation. At the same time, the USTR is free to
terminate an investigation at any time, including before the initiation of panel proceedings.
B. "D
ETERMINATION" ON DENIAL OF US RIGHTS UNDER SECTION 304
5. Section 304 then mandates the USTR to "determine whether the rights to which the
United States is entitled under [the WTO Agreement] are being denied". The USTR has to do
this "[o]n the basis of the investigation initiated under section 302 and the consultations (and the
proceedings, if applicable) under section 303".
6. This determination under Section 304 has to be made within the following timeframe:
"the earlier of (i) the date that is 30 days after the date on which the dispute settlement
procedure is concluded, or (ii) the date that is 18 months after the date on which the
investigation is initiated".
7. Section 304 further provides that "if the determination made … is affirmative, [the
Trade Representative shall] determine what action, if any, the Trade Representative should take
under subsection (a) or (b) of section 301".

730 This overview is of a non-binding nature and does not have the status of a factual finding by
this Panel. It was prepared following consultations with the parties as part of the descriptive part of this
Report.

8. Section 301(a) – entitled "Mandatory action" and the relevant provision in respect of
determinations under the WTO Agreement – provides that "[i]f the United States Trade
Representative determines under section 304(a)(1) that … the rights of the United States under
any trade agreement are being denied … the Trade Representative shall take action authorized
in section 301(c), subject to the specific direc tion, if any, of the President regarding any such
action, and shall take all other appropriate and feasible action within the power of the President
that the President may direct the Trade Representative to take under this subsection, to enforce
such rights".
9. Section 304(c) mandates the USTR to "publish in the Federal Register any
determination made under section 304(a)(1), together with a description of the facts on which
such determination is based".
C. "C
ONSIDERATION" ON IMPLEMENTATION UNDER SECTION 306
10. As noted above, following the investigation under Section 302, the related request for
WTO consultations and, as the case may be, the completion of panel or Appellate Body
proceedings and an affirmative determination under Section 304, Section 304(a)(1) requires the
USTR to determine what action, if any, to take under Section 301.
11. Section 301(c) defines the scope of the USTR's authority, i.e. the actions he or she can
take, under Section 301. Section 301(a)(2) provides for certain exceptions where the USTR "is
not required to take action under section 301(a)(1)". One of these exceptions is provided for
cases where the USTR finds that "the foreign country is taking satisfactory measures to grant
the rights of the United States under a trade agreement". In practice, the USTR has interpreted
this exception to include situations where the WTO Member concerned expresses the intention -
- within 30 days after the date of adoption of the panel or Appellate Body report, pursuant to
Article 21.3 of the DSU -- to comply with the recommendations and rulings of the DSB.
12. Nevertheless, in such cases were no action is taken -- because a measure is undertaken
or an agreement is entered into to provide a satisfactory resolution -- the USTR is obliged, under
Section 306(a) to
"monitor the implementation of each measure undertaken, or agreement that is
entered into, by a foreign country to provide a satisfactory resolution of a
matter subject to investigation under this subchapter or subject to dispute
settlement proceedings to enforce the rights of the United States under a trade
agreement providing for such proceedings".
13. If the measure – including a statement by the WTO Member concerned that it will
comply – or agreement concerns the implementation of DSB recommendations and the USTR
"considers that the foreign country has failed to implement it", the USTR shall determine what
further action he or she shall take under Section 301 "no later than 30 days after the expiration
of the reasonable period of time provided for such implementation" in Article 21 of the DSU
(Section 306 (b)). In other words, the USTR's obligation to monitor a Member's intention to
comply with DSB recommendations allows him or her to await the lapse of the reasonable
period of time granted to the Member concerned to implement the panel or Appellate Body
report.
14. Since Section 306(b)(1) provides that any determination under Section 306(b) is to be
treated as a determination made under Section 304(a)(1), the effect of a Section 306
determination is identical to that of Section 304 determinations in terms of the action the USTR

has to take – or is allowed not to take – under Section 301. As a result, the USTR also has to
publish any Section 306 determination in the Federal Register, together with a description of the
facts on which such determination is based pursuant to Section 304(c).
D. "DETERMINATION" ON ACTION TO TAKE UNDER SECTION 306 AND IMPLEMENTATION
OF ACTION UNDER SECTION 305
15. As noted earlier, in case the USTR considers under Section 306(b) that implementation
failed, he or she has to determine what further action to take under Section 301(a). He or she
has to do so no later than 30 days after the expiration of the reasonable period of time. Section
301(a)(2) provides for exceptions where the USTR is not required to take action.
16. In case the USTR decides to take action under Section 301, Section 305(a)(1) states:
"Except as provided in paragraph (2), the Trade Representative shall implement
the action the Trade Representative determines under section 304(a)(1)(B) to
take under section 301, subject to the specific direction, if any, of the President
regarding any such action, by no later than the date that is 30 days after the date
on which such determination is made".
Unless exceptions apply, a determination of action made within 30 days after the expiry of the
reasonable period of time would thus be implemented no later than 60 days after the expiration
of the reasonable period of time.
17. Section 305(a)(2)(A), in turn, provides for certain exceptions to this 60 day rule. The
exception most relevant to this case is contained in Section 305(a)(2)(A)(ii):
"the Trade Representative may delay, by not more than 180 days, the
implementation of any action that is to be taken under section 301 … if the
Trade Representative determines that substantial progress is being made, or that
a delay is necessary or desirable, to obtain United States rights or a satisfactory
solution with respect to the acts, policies, or practices that are the subject of the
action".