4.597   In response to a Panel question on Argentina – Textiles and Apparel (US) suggesting that a Section 304 determination of violation had been made but a Section 302 investigation had not been initiated in that case, the United States states that a Section 302 investigation on Argentina Footwear was initiated on October 4, 1996.³²⁷ The United States note that the Panel’s question highlights the fact that the Panel has only a partial picture of how Sections 301-310 were applied in individual cases. Because no such individual cases are within the terms of reference, the United States submitted information on these cases only for its relevance in illustrating what the statute does or does not require. The United States has illustrated that the USTR has adequate discretion under Sections 301-310 to comply fully with DSU and GATT rules, and has done so when making determinations on the denial of GATT and WTO agreement rights. The European Communities, on the other hand, has referenced these cases not to illustrate whether the statute commands WTO-inconsistent action, but to improperly characterize past actions as violations, in the hope that the Panel will be distracted from its legal analysis and prejudiced in its decision-making. The Panel must reject this approach.

4.598  In response to the Panel's question on the EC - Oilseeds case where the USTR, on 5 July 1989 - i.e. before the circulation and adoption of the panel report – "determined that there was reason to believe that United States' rights under a trade agreement were being denied by ... the EC's production and processing subsidies on oilseeds and animal feed proteins but that the USTR "decided to delay implementation of any action to be taken under section 301 not more than 180 days…", because it "determined ... that substantial progress was being made with respect to the dispute …", the United States indicates that this does not imply that the USTR made a determination of violation under Section 304 before the adoption of a panel report. The USTR did not make a determination that US agreement rights had been denied until the GATT Council adopted panel findings to this effect.

4.599  In response to the Panel's question as to the textual or other legal basis allowing the USTR to make multiple determinations in the EC – Oilseeds case where "[o]n January 31, 1990, ... the USTR determined under section 304 … that rights of the United States under a trade agreement are being denied" by the same measures of the European Communities, the United States states that there is nothing in the text of Sections 301-310 which prevents the USTR from making two determinations under Section 304 in one and the same case, and the European Communities has not provided any arguments that there is. While the USTR is required to make a determination within the time frames set forth in that section, nothing prevents her from making additional determinations after that time.

4.600  The United States explains that it is an established principle of US statutory construction that the administering agency's interpretation of a statute is entitled to deference if the statute is "silent or ambiguous with respect to [a] specific issue". Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43. In such circumstances, the court must uphold the agency's interpretation as long as it is based upon a "permissible construction" of the statute. Id. The agency's interpretation need not be the "only possible construction", Sullivan v. Everhart, 494 U.S. 83, 89 (1990), nor must it be the construction the court would have selected in the first instance. Chevron, 467 U.S. at 844. A court errs by substituting "its own construction of a statutory provision for a reasonable interpretation made by [the agency]".Id. The court's duty is not to weigh the wisdom of the agency's legitimate policy choices. Suramerica de Aleaciones Laminadas, C.A. v. United States, 966 F.2d 660, 665 (Fed. Cir.. 1992). Thus, under US law, the USTR's interpretations of its authority to undertake multiple determinations, determinations other than violation/non-violation determinations, or termination of investigations would receive such deference in a US court – to the extent such determinations would be subject to judicial review at all.³²⁸ Likewise, the USTR's interpretation of Section 304(a)(1) as requiring her to rely on DSB-adopted findings in determining that US WTO agreement rights have been denied would be accorded such deference.

4.601  The United States indicates that it is not merely offering assertions of its legal authority. Rather, these interpretations are reflected in longstanding practice, in investigations predating this case and predating the WTO. Under US law, these interpretations would be entitled to deference, and, in examining whether the statute commands WTO-inconsistent action, the Panel is required to examine the meaning of the statute as it would be interpreted under US law.³²⁹

4.602  The United States further argues that another legal basis for US interpretations of statutory provisions is the US principle of statutory construction known as legislative ratification. As the US Supreme Court has stated, this principle provides that Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change. Lindahl v. Office of Personnel Management, 470 U.S. 768, 783, citing Albemarle paper Co. v. Moody, 422 U.S. 405, 414 n.8 (1975).

4.603  The United States also states that the multiple determinations in Oilseeds predated the WTO, and the fact that Congress did not amend the statute to prevent such determinations when other amendments were made in 1994 supports the view that the Administration's interpretation is permitted. Similarly, the USTR's practice of applying Sections 301-310 to make determinations other than simple "yes/no" determinations on whether agreement rights have been denied, and to terminate Section 302 investigations before making a determination, predates 1994. Exhibit 13 describes examples of this long-standing practice since 1988, though it predates 1988 as well. And, although Congress amended section 301 in 1994, it did not amend it to undermine the USTR's interpretation or application of Sections 301-310, even though it was fully aware of how it was being applied.

4.604   The European Communities disagrees with the US introduction of an entirely new defence at this late stage. The European Communities stresses the fact that the new US arguments are very similar to those submitted by India in the India - Patents (US) case. They were rejected by the panel and the Appellate Body at the request of the US as a complainant in that case.³³⁰

4.605  The European Communities further states that the quotation of the AB report in India - Patents (US), paragraph 65 [in fact 66], is incorrect.   The Appellate Body did not state that "the Panel is required to examine the meaning of the statute as it would be interpreted under US law".  Rather, the correct quotation, which has an entirely different meaning, is the following:

"… as in the case cited above before the Permanent Court of International Justice, in this case, the Panel was not interpreting Indian law "as such"; rather, the Panel was examining Indian law solely for the purpose of determining whether India had met its obligations under the TRIPS Agreement".

4.606   The United States rebuts the EC argument that the US response raises a new defense, and that allegedly similar arguments were rejected in India – Patents (US).  Both of the EC’s contentions are incorrect.  First, the United States has not raised a new defense.  The US discussion of judicial deference under U.S. law was directly responsive to the Panel’s request for the textual or other legal basis which permits the USTR to make multiple determinations – a factual issue in this dispute. While the textual basis for the USTR’s interpretation is sufficiently clear, the doctrine of judicial deference would serve as an additional basis under US law were a US court to consider the statutory language ambiguous.

4.607   The United States also contends that the EC’s references to India – Patents (US) fail to support its position. The Appellate Body, in paragraphs 65-66 of its report in India – Patents (US), emphasizes that it was necessary in that case to examine Indian law to determine its compliance with India’s international obligations. Domestic law consists not only of statutory provisions, but of domestic legal rules concerning the interpretation of those provisions or, in the case of India – Patents (US), domestic rules concerning conflicts between laws. In India – Patents (US), the Appellate Body examined "the relevant provisions of the Patents Act as they relate to the 'administrative instructions'" at issue in that case³³¹; in other words, the Appellate Body examined whether there was any support under Indian law for India’s assertion that unpublished, unwritten administrative instructions would prevail over a conflicting statute explicitly mandating a WTO violation. India in that case failed to provide sufficient evidence that, under Indian law, the instructions would prevail.

4.608  In the US view, the doctrine of judicial deference to an agency’s interpretation of its statute is part of U.S. law, though it would only become relevant in this dispute were the panel to conclude that there was some ambiguity as to whether a particular provision of Sections 301-310 commanded specific actions violating a WTO obligation. In fact, as the U.S. has explained throughout this proceeding, the statute contains no such ambiguity. On its face, the U.S. statute does not command violation determinations in the absence of DSB-adopted findings, and in fact requires that any such determinations be based on the results of WTO proceedings.³³²

4.609  According to the United States, however, should the Panel find the statute ambiguous, the US Executive Branch interpretation of the statute is of great importance under US law.  First, many Executive Branch determinations are not subject to judicial review.  As already noted, if this were the case with respect to Section 301 determinations, the USTR interpretation would be definitive under US law.  Second, even if a US court were to review such determinations, and even if that court were to conclude that the statutory language is ambiguous, it would be required under US law to interpret that language in light of the Chevron standard of judicial deference.

4.610   The United States reiterates that it did not, as the European Communities suggests, raise the doctrine of judicial deference to suggest that the Panel is precluded from examining the WTO-consistency of Sections 301-310.  Rather, the United States raised this doctrine because it is part of the U.S. law which the Panel is examining.

4.611   The United States recalls again that the burden in this dispute lies with the European Communities. As already discussed, the European Communities failed to establish that US law commands the USTR to take actions which violate Article 23, failed to establish that US rules of statutory interpretation permit the European Communities and this Panel to interpret "whether" to mean "that", and failed to establish that it is permissible to disregard entire sections of the statute providing the USTR with discretion to delay or not take action.  Likewise, in its latest submission, the European Communities failed to establish that the Chevron deference standard may, under US law, be disregarded.

4.612   The European Communities also claims that when dealing with the issue of the publication by the USTR of notices announcing unilateral retaliatory actions raised by Korea as a third party, the United States reports the EC's position as follows "if suspension is proposed, this necessarily includes publication of a list of products".

4.613   The European Communities recalls that the United States insists on the fact that the European Communities "fails to explain why this so, or if it is so, what the timing must be".

4.614   The European Communities indicates that in the Bananas III dispute the USTR itself published two notices in the Federal Register (22 October 1998, page 56689 and 10 November, page 63099). The first one, according to which "Section 306 (c) of the Trade Act provides that the USTR shall allow an opportunity for the presentation of views by interested parties prior to the issuance of a determination pursuant to section 306 (b)"; the second notice was published explicitly "in accordance with section 304 (b)".  The European Communities then questions who is right, the USTR when publishing notices on the Federal Register or the USTR when representing the US government in these panel proceedings.

4.615   According to the European Communities, in addition and by definition, the publication must be made before any determination or action is adopted.

4.616   The European Communities claims that in neglecting this fundamental albeit obvious element, the US side-steps the most important point of substance raised by Korea, and supported by the EC: the practical effects for the trade of such publication made before and irrespective of any decision taken in the WTO dispute settlement system is the most effective implementation of the "Damocles sword" policy that engenders severe effects on the economic operators on the market (coupled with substantial protectionist benefits for domestic competing goods and services). As this Panel is aware, sometimes a threat of action can be even more effective than the action itself.

4.617   In the view of the European Communities, in order to illustrate better this concept, it would be appropriate to provide the Panel with some examples. In the Japan - Auto Parts Section 301 procedure, no dispute settlement procedure was ever requested by the United States against Japan while an announcement that the United States would have resort to retaliatory measures was made by the USTR on 10 May 1995.  According to the European Communities, the US representative confirmed during the panel procedure that WTO Members have a positive obligation of putting their legislation into conformity with the obligations under the covered agreements, including the DSU, as from the 1 January 1995 "and [this] could not be delayed".

4.618   The European Communities points out that the Auto Parts procedure was eventually closed after an agreement between the United States and Japan was reached under the threat of retaliatory action. Some factual elements could help the Panel clarify the impact of the threat of the US unilateral action enacted under Sections 301-310.

4.619   The European Communities explains that on 27 September 1994, the US President transmitted to Congress legislation to implement the GATT Uruguay Round of multilateral trade negotiations. In the Statement of Administrative Action accompanying the legislation the US President explicitly indicates that:

"There is no basis for concern that the Uruguay Round agreements in general, or the DSU in particular, will make future Administrations more reluctant to apply section 301 sanctions that may be inconsistent with US trade obligations because such sanctions could engender DSU-authorized counter-retaliation. Although in specific cases the Unites States has expressed its intention to address an unfair foreign practice by taking action under section 301 that has not been authorized by the GATT, the United States has done so infrequently".

4.620   According to the European Communities, consistently with this (WTO-inconsistent) line, on 13 October 1994 a Section 301 investigation was opened against Japan which was eventually followed by the 10 May 1995 announcement by the USTR that Japanese car market was closed and that a list of Japanese products to be subject to retaliation was to be published by 28 June 1995.

4.621   The European Communities further notes that that announcement had been preceded on 9 May 1995 by a Resolution of the House of Representatives (104^th Congress, 1^st session, H. Res. 141) which states the following:

"Whereas President Clinton, stated, on May 5, 1995, that the United States is 'committed to taking strong action' regarding Japanese imports into the United States if no agreement is reached. Now, therefore, be it

Resolved, That it is the sense of the House that

(1) …

(2) the House therefore strongly supports the decision by the President to Impose trade sanctions on Japanese products in accordance with section 301 of the Trade Act of 1974 unless an acceptable accord with japan is reached in the interim that renders such action unnecessary".

4.622   The European Communities recalls once more that no WTO dispute settlement procedure was ever started by the United States against Japan on this issue.

4.623   The European Communities also explains that three years later, on 9 October 1998, while the "reasonable period of time for implementation" granted to the European Communities in order to take measures to comply with recommendations and rulings in the Banana III DS procedure was still running (deadline 31 December 1998) and the European Communities had not yet adopted all these measures, the Chief of Staff of US President W. Clinton, M. Erskine Bowles, wrote a letter to the leaders of both the Republican and Democrat parties in the House and in the Senate (submitted on 8 July 1999 by the Commonwealth of Dominica and Saint Lucia as third party). In the name of the President (the incipit of the letter is "the Administration shares your view …"), Mr. Bowles stated the following:

"To put maximum pressure on the EU, the Administration is pursuing three separate tracks (1) continuing to indicate our willingness to try to resolve the dispute in a mutually acceptable manner consistent with WTO obligations (2) preserving our rights in the WTO process and (3) proceeding under section 301 of the Trade Act of 1974.

…

Then, unless the EU has agreed to suspend implementation of its banana regime and to implement a WTO-consistent regime acceptable to us by January 2, 1999, the Administration will publish a second Federal Register notice on November 10. This notice will request comments on a list of specific retaliatory options and indicate that the administration will announce on December 15 retaliatory action pursuant to section 301 to take effect on February 1, 1999, unless the EU's banana regime is in full compliance with WTO rules".

4.624   In the view of the European Communities, as these examples show, both the threat and the action violate the text, the object and purpose of Article 23 (and the related provisions of Article 21 and 22) of the DSU. In this perspective, the statement made by the United States according to which

"the USTR has never once made a section 304 (a) (1) determination that US GATT or WTO agreement rights have been denied which was not based on the results of GATT and WTO dispute settlement proceedings"

is factually incorrect, since the USTR, at least in the Banana III case, took a determination under 304 (a) (1) that US WTO agreements rights had been denied after the end of the reasonable period of time without resorting to any WTO DS procedure on the conformity of the new EC measures which repealed the legislation that an earlier panel had declared incompatible with the WTO. It is also misleading, since the threat of retaliatory action could force upon the targeted WTO Member a "mutually" agreed solution that makes a determination under Section 304 (a) (1) unnecessary (as in the Japan - Auto Parts Section 301 procedure).

4.625   In addition to these contradictory statements, the United States relies on some other arguments that are, in the EC's view, also entirely unconvincing. The European Communities believes it appropriate to briefly elaborate on certain issues raised by the United States.

4.626   In the EC's view, the Bananas III case is an example where the USTR has made, in order to take action under Section 301, a determination that "a foreign country [the European Communities] is not satisfactorily implementing a measure or agreement" (cf. Section 306(b)(1)) and in so doing has made a determination that "shall be treated as a determination made under section 304(a)(1)".

4.627   The European Communities argues that it should be noted that this provision in Section 306(b)(1) contains a wholesale reference to Section 304(a)(1). It thus explicitly includes and logically implies that a determination of a denial of US rights under the WTO is required. In fact, it would be quite impossible under the structure of Section 304(a)(1) to proceed immediately to a determination of an action without a prior determination of a denial of US rights.

4.628   The European Communities points out that any other reading would lead to arbitrariness and to an even more serious breach of the provisions of Article 23 of the DSU which, as the European Communities has repeatedly underlined, deals generally with all situations (including the situation described in Article 23.2(a)) where WTO Members "seek redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements". In fact, Article 23 of the DSU deals with all situations described as a "violation" case, a "non-violation" case or "any other situation" under Article XXIII.1 of GATT 1994.

4.629   The European Communities recalls that the fact remains that the EC's complaint is directed against Sections 301-310 as such, and not against the application of these Sections in particular cases. The European Communities then refers once again to the Japan – Auto Parts case.

4.630   The European Communities recalls that the United States explained that in that case, no determination of a denial of US rights under the GATT or the WTO was made. If the US statement were to be understood as implying that no determination of denial of US rights was taken by the USTR, on the basis of the 16 May 1995 notice in the US Federal Register, the European Communities would disagree. The public announcements and the decisions taken by the USTR were necessarily based on a substantive determination of denial of US rights.

4.631  In the view of the European Communities, given the subject matter of the Japan - Auto Parts case, which clearly is dealing with trade in goods, it is impossible to see how any determination made in that case would not be governed by Article 23 of the DSU.³³³ In the view of the European Communities, the United States is under no circumstances entitled to take trade sanctions in the area of trade in goods against another WTO Member without following the requirements of Article 23 of the DSU.

4.632  The European Communities notes that, whatever the precise terms of the determination in the Japan – Auto Parts case, there can be no serious doubt that this determination was made in total disregard of the requirements of Article 23 of the DSU. It is also clear that the determination must have been made under Section 304(a)(1). It is logically not possible to make a determination of action under Section 304(a)(1)(B) without a prior determination under Section 304(a)(1)(A).

4.633  In rebutting the EC argument that Section 301 has the "illegitimate goal" of serving as a sword of Damocles, the United states observes that the European Communities assumes that Section 301 is being used for an illegitimate purpose. In fact, it has the legitimate purpose to enforce WTO rights, in accordance with WTO procedures. The sword of Damocles is WTO-authorized retaliation under Article 22 when a Member has failed to comply with DSB rulings and recommendations. Section 301 implements this under U.S. law.

4.634  In a question to the parties, the Panel noted its understanding that in Auto Parts case, the US determination and action was taken based upon an investigation into the question of whether Japan's act, policy or practice in this respect is "unreasonable or discriminatory and burdens or restricts United States commerce" (referred to in Section 301(b)), not on whether US rights under the WTO are being denied. In response to the Panel's question as to whether the European Communities makes an additional claim that another aspect of Sections 301-310 – authorizing the USTR to make determinations as to whether or not a matter falls outside the scope of the WTO Agreement – violates DSU Article 23, and if so, whether and how this claim is included in the terms of reference of this Panel, as provided in document WT/DS152/11, in particular para. 2 thereof, as a preliminary observation, the European Communities states that all the claims it has made before this Panel are exclusively related to the WTO-inconsistency of Sections 301-310 of the Trade Act of 1974 as such. Reference to individual cases in which these provisions were applied is only made as supporting evidence for the way in which these provisions are interpreted by the US authorities, thereby constituting a counter-argument to some US assertions and not a separate claim.

4.635   In this context, the European Communities draws the Panel's attention to the distinction made between claims and supporting arguments in earlier cases. Most recently, the Appellate Body report in the case on Guatemala – Anti-dumping duties on imports of grey Portland cement from Mexico stated the following³³⁴:

"The 'matter' referred to the DSB, therefore, consists of two elements: the specific measures at issue and the legal basis of the complaint (or the claims)".

4.636  The European Communities further points out that in the EC – Bananas III case, the Appellate Body made the following additional statement:

"Article 6.2 of the DSU requires that the claims, but not the arguments, must all be specified sufficiently in the request for the establishment of a panel in order to allow the defending party and any third parties to know the legal basis of the complaint. If a claim is not specified in the request for the establishment of a panel, then a faulty request cannot be subsequently 'cured' by a complaining party's argumentation in its first written submission to the panel or in any other submission or statement made later in the panel proceeding.³³⁵

4.637  The European Communities goes on to state that a supporting argument, particularly when made as a reaction to a contestation by the other party to the dispute, cannot on its own be excluded as not being covered by the terms of reference of the Panel which only deals with claims.

4.638   The European Communities recalls that according to the terms of reference of this Panel as described in WTO document WT/DS152/11 of 2 February 1999, the matter referred to the DSB by the European Communities includes the violation of Articles 3, 21, 22, 23 of the DSU, Article XVI:4 of the Marrakech Agreement and Articles I, II, III, VIII and XI of GATT 1994 by Sections 301-310 of the US Trade Act of 1974.

4.639   The European Communities also draws the Panel's attention to the fact that the Panel itself appeared to consider the Japan – Auto Parts case to be relevant when it requested Japan, in the questions asked to the third parties, to submit available documentation on this case. Moreover, the European Communities has relied on this case as a reaction to the US reply to a question of the Panel. The European Communities has moreover already rebutted a US allegation that the situation that was at the basis of the Japan – Auto Parts case is not covered by the terms of reference of this Panel.