4.640  The European Communities further indicates that it is important to recall the events in the Japan – Auto Parts case. In that case, the United States announced on 16 May 1995³³⁶ that it would withhold the liquidation of customs duties on a number of Japanese luxury cars as of 20 May 1995 and that it would impose prohibitive 100 per cent ad valorem duties on these cars by a determination to be taken on 28 June 1995, effective as of 20 May 1995, unless the governments of the United States and Japan could agree on a solution of their dispute that satisfied the US car industry.³³⁷ As a consequence of the withholding of customs liquidation, all imports in the targeted products were immediately stopped as of 20 May 1995. The United States had not requested a dispute settlement procedure prior to these steps.³³⁸

4.641  The European Communities notes that the United States announced measures entering into effect on a date certain³³⁹ that a WTO Member may only take vis-�-vis another WTO Member upon completion of a DS procedure pursuant to Article 3.7, last sentence, in conjunction with Article 22 and 23 of the DSU, on the basis of an authorization by the DSB under Article 22.2 or 22.7 of the DSU.

4.642   The European Communities points out that these measures were based on a determination explicitly and specifically taken under Sections 301-310 in flagrant violation of the WTO rules on dispute settlement, so much so that the United States itself felt compelled to make a "pre-filing notification" announcing the "intention to invoke the dispute settlement mechanism of the WTO".³⁴⁰

4.643  The European Communities further points out that unless there is an authorization granted by the DSB in accordance with Articles 3.7, last sentence, and 22 of the DSU, which in turn must be based on an earlier multilateral determination by a Panel to the effect that a measure nullifies or impairs the benefits accruing to a WTO Member under a covered agreement, discriminatory trade restrictions of the kind provided for under Sections 301-310 and applied by the United States in the Japan – Auto Parts case cannot possibly be considered compatible with WTO rules.

4.644  The European Communities also notes that the United States could have been authorized to apply its domestic legislation as it did in the Japan – Auto Parts case only by following the prescripts of Article 23 of the DSU. However, as already mentioned before, the United States stopped short of invoking the dispute settlement procedures of the WTO.

4.645  The European Communities then argues that on the basis of the above and since the European Communities has clearly referred in its request for the establishment of a Panel to all the above-mentioned provisions of the DSU, the European Communities does not see how it could be argued that the Panel would be acting outside its terms of reference by taking legal notice of the way in which Sections 301-310 were applied by the USTR in the context of the Japan – Auto Parts case, in flagrant violation of precisely these provisions of the DSU.

4.646  The European Communities indicates that the aforesaid Panel's question seems to have as its starting point the consideration that, in the specific case at hand, a distinction could be made between a determination of whether "Japan's act, policy or practice" in this respect is "unreasonable or discriminatory and burdens or restricts United States commerce" and a determination on "whether US rights under the WTO are being denied".

4.647  The European Communities first notes that the United States, as any WTO Member, is under no circumstances entitled to take trade sanctions against another WTO Member, in particular in the area of trade in goods, without following the requirements under Article 23 of the DSU, and this irrespective of the reasons that could be invoked as a basis for such unilateral measure. The European Communities would like to draw the Panel's attention to the fact that asserting, as the United States seems to do, that it is possible to interpret Sections 301-310 as allowing the United States to impose unilateral retaliatory measures with respect to products, services or other rights under the covered agreements without pursuing a DS procedure as required by Article 23 (and the related provisions under Articles 21 and 22) of the DSU would amount to transform the unqualified and unconditional obligation under Article 23 of the DSU into no more than a "best endeavours" clause. The Panel should reject such unacceptable consequence of the approach suggested by the United States.

4.648  The European Communities secondly draws the attention of the Panel to a possible misunderstanding of the facts surrounding the Japan - Auto Parts case, on the one hand, and to the contents of the notice published on 16 May 1995 in the US Federal Register, on the other hand.

4.649  The European Communities recalls that in accordance with the chapeau of Section 304(a)(1), a determination thereunder "shall" be taken "[O]n the basis of the investigation initiated under section 302".

4.650  The European Communities points out that according to the notice published in the US Federal Register on 13 October 1994,³⁴¹ the initiation of the investigation was aimed at "certain acts, policies and practices of the Government of Japan that restrict or deny US auto parts suppliers' access to the auto parts replacement and accessories market ("after-market") in Japan". The issue thus was, in the USTR's own language, a restriction or denial of "US auto parts suppliers' access" to the "after-market". A denial or restriction of market access of products corresponds to the typical violation of obligations under the GATT 1947 and 1994.

4.651  The European Communities contends that this view is confirmed by the USTR itself. Prior to the publication of the 16 May notice, in its 10 May 1995 "pre-filing notification" to the Director-General of the WTO,³⁴² the USTR wrote: "I am writing you today to give pre-filing notification of the intention of the United States to invoke the dispute settlement mechanism of the WTO to challenge the discrimination against the United States and other competitive foreign products in the market for automobiles and automotive parts in Japan".

4.652  In the view of the European Communities, it would thus simply be beyond reason to claim that that issue could be something separate from matters concerning the violation of GATT/WTO obligations, or, in the Section 304 language, "that rights to which the United States is entitled under any trade agreement are being denied".

4.653  The European Communities further notes that the notice published on 16 May 1995,³⁴³ which is apparently the source of the quotation in the chapeau of this question, should not be taken as the exclusive source for a correct understanding of the legal situation in the Japan - Auto Parts case. In the attempt to justify its actions in the WTO context, given the strong criticism to which it was subject as a result of its decision,³⁴⁴ the United States clearly tried to hide the impact of the violation of the WTO rules, in particular of Article 23 of the DSU.³⁴⁵ In the 16 May notice, even though reference is made to the investigation under section 302 as it appeared in the 13 October notice, the conclusion is not "based on" that investigation that, as the European Communities just recalled, would have required a determination of denial of rights "to which the United States is entitled under any trade agreement".

4.654  The European Communities argues that the attempt to hide the true nature of the "determination" must fail also on the basis of the text of Section 301 itself, in particular under the definitions contained in Section 301(d).³⁴⁶ These definitions correspond precisely to what is described as a "violation" case, a "non-violation" case or "any other situation" under Article XXIII.1, (a) to (c), of the GATT 1994 and the consistent practice of the GATT 1947 and the WTO panels. These definitions describe without any doubt also a situation that is objectively covered by Article 23, paragraphs 1 and 2 of the DSU, according to which

(1) when Members seek redress

• of a violation of obligations or
• other nullification or impairment or
• an impediment to the attainment of any objective of the covered agreements

(2) 'In such cases, Members shall' follow the prescripts of Article 23.2 (a) to (c).

4.655  The European Communities considers that the United States itself has confirmed the above-mentioned interpretation when it affirmed that:

"[I]n Japan - Film, the USTR determined pursuant to Section 304(a)(1)(A)(ii) that certain acts, policies, and practices of the Government of Japan were unreasonable and burden or restrict US commerce and that these acts should be addressed by (1) seeking recourse to WTO dispute settlement procedures to challenge the Japanese measures …".

4.656  The European Communities points out that the Panel is aware, the United States decided (correctly in that case) to pursue a DS procedure against Japan based on Article XXIII.1 (b) of GATT 1994 ("non-violation" case).³⁴⁷ The European Communities does not understand how the United States could claim now that the same Section 304(a)(1)(A)(ii) would allow it to act unilaterally outside the obligatory WTO procedures thus disregarding its unqualified and unconditional obligations pursuant to Article 23 of the DSU.

4.657  The European Communities then concludes 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.

4.658  In the light of the above, the European Communities repeats that it does not make an additional claim in relation to the Japan - Auto Parts case, other than those already mentioned. Under these circumstances, there is no need for the European Communities to respond in detail to sub-questions (b) and (c).

4.659   In response to the same Panel's question (whether the European Communities, in referring to the "unreasonableness" determination under Section 301(b) in Japan – Auto Parts, was making an additional claim within the terms of reference), the United States considers that it is for the European Communities to say whether it is making this claim.  If, indeed, its response is that the European Communities is making such a claim, the United States would need an opportunity to respond. However, as question (b) recognises, this claim, if asserted, would raise an issue not within the Panel's terms of reference. Any such claim would, in fact, be additional to those raised by the European Communities in this dispute.

4.660   The United States contends that there the European Communities requests findings concerning alleged violations of DSU Article 23.2(a) and (c) based on arguments that Sections 304(a)(2)(A) and 306(b) require the USTR to make determinations and to implement action regarding and in connection with WTO Agreement rights without DSB-adopted findings or DSB authorization. In paragraph 77, the European Communities also requests a finding that Section 306(b) is inconsistent with "one or more" GATT 1994 provisions for unspecified reasons, and a ruling to be made "on the basis of these findings" that the US has acted inconsistently with WTO Agreement Article XVI:4 "by failing to bring the Trade Act of 1974 into conformity with" DSU Article 23 and the GATT 1994.

4.661   The United States claims that Article 23.2 sets forth requirements on how a Member may make determinations and suspend concessions when that Member is seeking the redress of a "violation of obligations or other nullification or impairment of benefits under the covered agreements".³⁴⁸ Moreover, Article 23.2(a) by its terms deals only with determinations "to the effect that a violation has occurred". It does not deal with determinations that a violation has not occurred or has not been confirmed, or with determinations unrelated to WTO Agreement rights.

4.662  The United States points out that no determination relating to WTO Agreement rights was made in the Japan - Auto Parts case. As the question notes, the determination in that case involved the issue of whether Japan's acts, practices and policies were "unreasonable", not whether US rights under the WTO had been denied. Any claim in connection with the Auto Parts case thus would bear no relationship to any of the EC claims relating to Article 23. In addition, the EC's claim relating to Auto Parts does not relate to the EC's claim concerning alleged violations of GATT 1994 by Section 306. The Auto Parts case did not involve Section 306 in any way.

4.663  The United States goes on to state that this claim would not be within the Panel's terms of reference, which relate only to the Section 301-310 legislation as such, and not any particular application of that legislation.³⁴⁹ If the European Communities does take the position that it is asserting this claim, the United States requests a preliminary ruling from the Panel that it is not within the terms of reference. The United States requests that the Panel render such a ruling before addressing the merits of the claim.

4.664  The United States further notes that the EC's panel request provides that, "this legislation does not allow the United States to comply with the rules of the DSU and the obligations of GATT 1994", that "this legislation" is inconsistent with various WTO provisions, and that "this legislation" nullifies and impairs benefits accruing to the European Communities.³⁵⁰ The European Communities has emphasized over the course of these proceedings that it is the legislation, and not any particular application of that legislation, which is in the terms of reference of this case.³⁵¹ As a result, the panel may not examine the Auto Parts case or the EC's claim that a decision in the context of that case not to bring a WTO case is somehow WTO-inconsistent.

4.665   In the view of the United States, the Autos 302 investigation is also outside the panel's terms of reference because it does not relate to the aspects of Sections 301-310 which the European Communities describes in its panel request. There it states,

"By imposing specific, strict time limits within which unilateral determinations must be made that other WTO Members have failed to comply with their WTO obligations and trade sanctions must be taken against such WTO Members, this legislation does not allow the United States to comply with the rules of the DSU and the obligations of GATT 1994 in situations where the Dispute Settlement Body (DSB) has, by the end of those time limits, not made a prior determination that the WTO Member concerned has failed to comply with its WTO obligations and has not authorized the suspension of concessions or other obligations on that basis".³⁵²

4.666  The United States contends that thus, the aspects of Sections 301-310 within the terms of reference of this dispute are provisions relating to deadlines and how these deadlines allegedly mandate determinations and actions inconsistent with the DSU and GATT 1994 because they are not based on DSB-adopted findings or DSB authorization. Indeed, that is precisely the focus of the European Communities. The EC's Auto Parts claim is completely unrelated to the EC's claim that Section 301 deadlines allegedly do not allow determinations and actions to be made with DSB approval, and relates to determinations under Section 301(b), which do not relate to WTO rights and obligations.  The mere existence of such determinations in Sections 301-310 is nowhere addressed in the terms of reference.

4.667   The United States further indicates that the introduction of a new claim at the second panel meeting raises serious due process concerns which should, on that basis alone, lead the Panel to reject consideration of the EC's Auto Parts claim.  The United States notes that not only was the EC's claim raised for the first time at the Second Meeting of the Panel, but it was raised extemporaneously.  The opportunity to respond effectively was thus further limited.  These due process concerns require that the United State be given an opportunity to respond to this claim, if asserted by the European Communities and if the Panel concludes it is within the terms of reference.

4.668   In the view of the United States, the European Communities has attempted to expand the nature of its arguments beyond the straightforward textual analysis contemplated in its panel request and advanced later.  That analysis involved the question of whether the time frames in Sections 301-310 "do not allow" the USTR to make determinations and to take action in accordance with DSU rules.  The EC's argument has since expanded to include the notion that the statute's mere existence threatens "security and predictability" and discussions of specific applications of Sections 301-310 not within the terms of reference for the sole purpose of distracting the Panel from its legal analysis. Nevertheless, even these arguments could be addressed to the extent included in submissions prior to the Second Meeting of the Panel. To raise a new issue at the Second Meeting for the first time denies a defending party any effective opportunity to rebut or consider the argument. This is particularly a problem with respect to the EC's new claim, since it is so vague and poorly defined.

4.669   In addition, the United States notes that the evidence submitted in connection with the EC's extemporaneous introduction of its claim must be excluded from the record on the basis of Rule 12 of the Panel's Working Procedures. The panel must abide by the procedures it laid down at the outset of this proceeding. That rule states that, "Parties shall submit all factual evidence to the Panel no later than the first substantive meeting, except with respect to evidence necessary for purposes of rebuttal submissions, answers to questions or comments on answers provided by others".³⁵³ The evidence submitted by the European Communities in connection with the EC's new claim is not necessary for rebuttal, for answers to questions or for comments on those questions. It is particularly inappropriate for the European Communities to have introduced this claim and supporting evidence at the second substantive meeting because this information was equally available at the outset of this case and relates to an incident a number of years in the past.