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D. Analysis of WTO-Consistency of Measures at Issue1. Reach of WTO obligations with respect to law authorizing WTO-inconsistent action, not specific applications(a) General Arguments(i) Relevance of GATT/WTO Precedents4.155 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:
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 provisions 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:
4.158 The European Communities notes that with respect to a law in the state of Mississippi, the panel similarly found:
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:
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:
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:
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 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:
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 301-310 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:
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:
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 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,
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 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 EC's words, "keep[] open for itself the possibility" of WTO-inconsistent action. The "General Provisions" in Article 15 of the Regulation provide in part:
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,
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. The 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 preclude 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 the 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 obligations. 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 not permit the defending party to comply with its international obligations. One may not assume that 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. 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.
TO CONTINUE WITH UNITED STATES SECTIONS 301-310 OF THE TRADE ACT OF 1974 101 Panel Report on US Superfund, op. cit., para. 5.2.2. 102 Panel Report on United States - Measures Affecting Alcoholic and Malt Beverages ("US Malt Beverages"), adopted on 19 June 1992, BISD 39S/206, pp. 281-282. 103 Ibid., p. 289. 104 Ibid., p. 290. 105 Ibid. 106 Panel Report on India Patents (US), op. cit., para. 4.4 (footnotes omitted, emphasis added). 107 Ibid., para.7.35. 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 the Export of Civilian Aircraft ("Canada Aircraft"), circulated 14 April 1999, WT/DS70/R, para. 9.124, appeal pending on other grounds, citing 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. 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. 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 Dispute 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. 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 (6th 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 Dispute 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. 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 Subsidies 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 formally 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 Intl Affairs 1998). With respect to the operation of the Committee, the author concludes,
139 The United States cites Report on The European Economic Community, L/778, adopted on 29 November 1957, BISD 6S/70, para. 10 (emphasis added). 140 Marrakesh Agreement Establishing the World Trade Organization, Art. XVI:4.
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