(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 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 agreement 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 acts, 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 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 denied. 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 violation 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 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 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 complete 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 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 additional 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 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 from 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.

TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974

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

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.

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.

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).

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 Pharmaceuticals 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).

³²⁴ See Determination Under Section 304 of the Trade Act of 1974: Practices of the Government of India Regarding Patent Protection for Pharmaceuticals 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.

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.