(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:

1. in the initial phase after the conclusion of an initial investigation and
2. 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 frames 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:

1. 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 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 manner 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 Appellate 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 not²⁹⁵ 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 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 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 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.

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 these 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 were 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 circumstance, that is inconsistent with any law of the United States shall have effect".

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, any 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 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), Reorg. 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 The 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 procedure, 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.

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 Article 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 DSU, 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 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.