3. Section 306

(a) Overview

4.791 The European Communities claims that Section 306(a) requires the USTR to monitor the compliance of WTO Members with the recommendations of the DSB. Section 306(b)(2) regulates within which time limits the USTR must determine whether there has been compliance:

"If … the Trade Representative considers that the foreign country has failed to implement it [a recommendation made pursuant to dispute settlement proceedings under the World Trade Organisation], the Trade Representative shall [determine what further action to take under Section 301(a)] … no later than 30 days after the expiration of the reasonable period of time provided for such implementation under paragraph [sic] 21 of the Understanding on Rules and Procedures Governing the Settlement of Disputes …".

4.792  The European Communities considers that the determination of the USTR that the DSB recommendations were not implemented implies a determination that the WTO Member concerned violates its obligations under a WTO agreement or that it nullifies or impairs benefits accruing to the United States under such an agreement. If there is a dispute on the question of implementation, the United States must therefore take recourse to the DSU to settle the issue, as stipulated in Article 23.1 and 2(a). Article 21.5 establishes a specific obligatory procedure for disputes on the implementation of DSB ruling and recommendations:

"Where there is a disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such disputes shall be decided through recourse to these procedures, including wherever possible resort to the original panel. The Panel shall circulate its report within 90 days after the date of the referral of the matter to it".

4.793  The European Communities further argues that the 30-day limit set out in Section 306(b)(2) makes it impossible for the United States to await the results of such a proceeding before making the determination that the Member concerned has failed to comply with DSB rulings or recommendations.

4.794  The European Communities reiterates that as a result of the Uruguay Round, the United States has undertaken an unqualified and unconditional international obligation not to revert to unilateral determinations and actions. By imposing an obligation upon USTR to determine in all cases within 30 days from the end of the reasonable period of time that the Member concerned has failed to comply with DSB rulings or recommendations without awaiting the conclusion of the relevant DS procedures, the United States is forced by its own law to act inconsistently with Article 23 of the DSU.

4.795  In response, the United States points out that the European Communities argues that Section 306(b) also violates Article 23 because the language of Section 306(b) "implies a determination that the WTO Member concerned violates its obligations under a WTO agreement". The EC's use of the term "implies" highlights the fact that it cannot credibly claim that Section 306(b) mandates such a determination. In its brief discussion of this issue, the European Communities ignores the language and purpose of Section 306(b), as well as the findings of the Article 22.6 arbitrators in the Bananas dispute rejecting similar EC claims.

4.796  The United States also stresses that Section 306 provides a procedure in US law by which the United States invokes its right to take action in accordance with DSU Article 22, that is, to take action when a US trading partner fails to implement DSB recommendations. Here again, the time frames in the statute conform with those of the DSU.

4.797  The United States further challenges the EC assumption that the USTR must always conclude that another Member has failed to implement DSB rulings and recommendations. Again, Article 23.2(a) only prohibits certain violation determinations. It does not, for example, preclude a determination that there has been no violation, or a determination consisting of a description of a case's procedural status. Thus, even if the European Communities were justified in "implying" a determination in Section 306(b), the European Communities would have to prove that Section 306 requires the USTR to determine that a violation has occurred. However, the European Communities simply skips over this step in its argument. The European Communities does not even attempt to meet its burden on this point, and, indeed, there is no point in its trying. Nothing in Section 306(b) prevents the USTR from considering that another Member has fully implemented DSB rulings and recommendations and from taking no action at all. This in and of itself undermines the EC's argument that Section 306 mandates a violation determination not meeting Article 23.2(a) requirements.

4.798  The United States contends that Section 306(b) does not command the authorities of the United States of America to violate DSU Article 23.2(a). The European Communities has asked the Panel to find that Section 306(b)

"is inconsistent with Article 23.2(b) [sic] of the DSU because it requires the USTR to determine whether a recommendation of the DSB has been implemented irrespective of whether any proceedings on this issue under Article 21.5 of the DSU have been completed". (emphasis added)

Again, the EC's very use of the word "whether" demonstrates that the European Communities has asked the wrong question. Section 306(b) must first command a determination of breach before the other requirements of Article 23.2(a) become relevant. It does not.

(b) What constitutes "determination" – Relationship between DSU Articles 21.5 and 22

4.799  The United States explains that following DSB adoption of panel or Appellate Body findings that US agreement rights have been denied, the USTR makes her determination of this result pursuant to Section 304(a)(1). Under DSB rules, the defending party must state its intentions with respect to implementation of DSB recommendations and rulings at a DSB meeting held within 30 days of adoption. If that party states its intention to implement the DSB's recommendations and rulings, the USTR treats this statement as a "satisfactory measure" pursuant to Section 301(a)(2)(B)(i),⁴¹⁵ justifying termination of the Section 302 investigation.⁴¹⁶

4.800  The United States goes on to state that during the reasonable period of time for implementation provided for in DSU Article 21.3, the USTR monitors implementation pursuant to Section 306(a). Section 306(b) provides for situations in which the USTR believes implementation has not occurred by the conclusion of the reasonable period of time. It states:

"(1) IN GENERAL.–If, on the basis of the monitoring carried out under subsection (a), the Trade Representative considers that a foreign country is not satisfactorily implementing a measure or agreement referred to in subsection (a), the Trade Representative shall determine what further action the Trade Representative shall take under section 301(a). For purposes of section 301, any such determination shall be treated as a determination made under section 304(a)(1).

(2) WTO DISPUTE SETTLEMENT RECOMMENDATIONS.–If the measure or agreement referred to in subsection (a) concerns the implementation of a recommendation made pursuant to dispute settlement proceedings under the World Trade Organization, and the Trade Representative considers that the foreign country has failed to implement it, the Trade Representative shall make the determination in paragraph (1) no later than 30 days after the expiration of the reasonable period of time provided for such implementation under paragraph 21 of the Understanding on Rules and Procedures Governing the Settlement of Disputes …".⁴¹⁷

4.801  The United States maintains that contrary to the EC's claims, the language of Section 306(b) does not "imply" – let alone state – that the USTR is required to make a determination in violation of Article 23. Section 306(b) sets forth steps the USTR should take to assert US rights under DSU Article 22 when she considers that there has not been full implementation by another WTO Member. The USTR must make this judgment – which is not a "determination" – because the deadlines provided for in DSU Article 22 require that she must.⁴¹⁸

4.802  The United States notes that under the procedures set forth in DSU Articles 22.2, 22.6 and 22.7, a complaining party wishing to avail itself of the negative-consensus rule must propose to the DSB how it intends to suspend concessions within 30 days of the expiration of the reasonable period of time.  Section 306(b) provides the US analogue for this process, requiring the USTR to determine what action she proposes to take within that 30-day period.

4.803  The United States considers that DSU Article 22.2 provides that if a Member fails to comply with DSB recommendations by the conclusion of the reasonable period of time determined pursuant to Article 21.3, the Member shall, if requested, enter into compensation negotiations with the complaining party. Where an agreement on compensation has not been reached within 20 days after the end of the reasonable period of time, the complaining party may request DSB authorization to suspend the application of concessions or other obligations to the Member concerned.⁴¹⁹ Under DSU Article 22.6, the DSB is obligated to grant this request in the absence of a negative consensus within 30 days of expiration of the reasonable period of time, unless the Member concerned requests arbitration with respect to the level or nature of suspension proposed. In that case, the matter is referred to arbitration for a decision which must be completed within 60 days of the expiration of the reasonable period of time.⁴²⁰ If the complaining party then requests authorization to suspend concessions in accordance with the arbitrator's decision, the DSB is, under Article 22.7, obligated to grant this request in the absence of a negative consensus.⁴²¹

4.804 The United States then argues that Articles 22.2 and 22.6 presuppose that, by the thirtieth day following the expiration of the reasonable period of time, a complaining party wishing to suspend concessions will already have indicated how it intends to do so. Failing this, the DSB would not be in a position to authorize the action by day 30, nor would the Member concerned be in a position to evaluate the proposal to enable it to challenge the level or nature of proposed suspension. Were the complaining party to wait until after day 30 to propose suspension of concessions, it would lose the benefit of automatic DSB authorization for the suspension (subject to the negative-consensus rule) provided for in Articles 22.6 and 22.7.

4.805 The United States concludes that a determination of proposed action under Section 306(b) is not only permitted under the dispute settlement framework contemplated in the DSU, it is affirmatively required by that framework in cases where a Member wishes to exercise its right to suspend concessions.

4.806 With respect to the EC claim that such a determination "implies" that the USTR is also determining that another Member has violated US agreement rights, the United States first notes that there is no such implication in Section 306(b); nor, if there were, could an implication alone serve as the basis for finding that Section 306(b) violates DSU Article 23.2(a). The European Communities has the burden of demonstrating that Section 306(b) mandates a determination in violation of Article 23.2(a), and that the language of Section 306(b) cannot be interpreted in a manner which does not "imply" such a determination.⁴²² Section 306(b) only requires a determination of proposed action and, as the United States has seen, this is entirely consistent with the framework set forth in DSU Articles 22.2, 22.6 and 22.7.

4.807 The United States points out that WTO Members wishing to exercise their WTO rights must come to some judgment as to whether other Members are acting consistently with their obligations. If, for purposes of Article 23.2(a), "determinations" of agreement violations may be "implied" from other actions or determinations, the United States must conclude that the EC's decision to bring this case "implies" that the European Communities has, contrary to Article 23.2(a), made a determination that the United States has violated the DSU and the GATT 1994. Likewise, when the European Communities decries "illegal" US actions in the press,⁴²³ the United States then "imply" that the European Communities has made such a determination? Presumably not, but how then would one distinguish among various "determinations" which may be "implied" from various governmental statements and actions, including actions taken in connection with multilateral dispute settlement proceedings?

4.808 The United States considers that Article 23 is intended to ensure that Members use multilateral dispute settlement rules when they consider that their agreement rights have been violated. The broad interpretation of "determination" which the European Communities proposes is both unnecessary to, and potentially at odds with, the object and purpose of Article 23. Obviously, Members will only undertake multilateral dispute settlement proceedings – including a request for suspension of concessions – if they consider that another Member is not meeting its obligations. Section 306(b) says no more than this. If the USTR "considers" that another Member has failed to implement DSB recommendations, the USTR must determine a course of action, as indeed she must in order to have the benefit of the negative-consensus rule. To read into this a "determination" of violation for purposes of Article 23.2(a) would be to preclude, not encourage, resort to multilateral dispute settlement rules.

4.809  The United States alleges that the EC's assumptions with respect to Section 306(b) are, if possible, even more extreme than those relating to Section 304.  The European Communities assumes that it may "imply" from the language of Section 306 a violation determination not meeting the requirements of DSU Article 23.2(a).  The EC's use of the word "implies" speaks volumes about its inability to meet its burden of establishing that Section 306 mandates such a determination.  Section 306 neither mandates, nor may it be said to "imply", a determination that another WTO Member has violated its WTO obligations, and the European Communities may not simply assume that it does. 

4.810  The United States explains that under Section 306, the USTR proposes what action she will take when she "considers" that another WTO Member has failed to implement DSB rulings and recommendations.  The USTR must propose this action within 30 days of the expiration of the reasonable period of time in order to allow the United States to request and obtain authorization to suspend concessions pursuant to DSU Articles 22.2 and 22.6.

4.811  The United States argues that the US statute's use of the term "considers" makes clear that no formal determination is involved.  Indeed, the term "considers" is used in various provisions of the DSU itself, such as Articles 3.3, 4.1, 4.7, 5.4 and 10.4.  As in Section 306, these provisions lay out the steps a party may take to assert its WTO rights when it believes these rights have been denied.   It is axiomatic that Members invoking dispute settlement procedures are doing so based on a belief that their rights have been denied.  The DSU, like Section 306, reflects this concept through use of the term "considers".   For example, Article 3.3 provides that "prompt settlement of situations in which a Member considers that any benefits accruing to it . . . are being impaired by measures taken by another Member is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members".  Likewise, Article 10.4 provides that a third party to a dispute may have recourse to normal dispute settlement procedures if it "considers that a measure already the subject of a panel proceeding nullifies or impairs benefits accruing to it under any covered agreement". 

4.812  The United States considers that it is difficult to see the logic in concluding that a Member has disregarded DSU rules and procedures based on the very fact that the Member believes it is necessary to invoke those rules and procedures.  Yet that is the EC's conclusion.  It flies in the face of the very purpose of Article 23.2(a), which is to encourage multilateral determinations.  The Panel should therefore reject the EC's claim that the USTR is making an "implied" violation determination when she considers that another Member has not complied with DSB rulings and recommendations.

4.813  The United States reiterates that, in order to meet its burden, the European Communities must demonstrate that Section 306(b) precludes the possibility of US action consistent with its WTO obligations, and that the language of Section 306(b) cannot be read to permit such WTO-consistent action.  However, even if one were to accept the EC argument that the USTR makes an "implied" determination for purposes of Article 23.2(a) when she considers that another Member has failed to implement DSB recommendations and determines a course of action, nothing in Section 306(b) mandates that the USTR must actually "consider" non-implementation to have occurred. Section 306(b) establishes no criteria requiring the Trade Representative to "consider" that non-implementation has occurred for a given set of circumstances. As with her determination under Section 304(a)(1), the USTR has broad discretion in making this decision, and the fact that she may choose not to implement any action in and of itself establishes that Section 306 does not mandate WTO-inconsistent action.

4.814  In the view of the United States, based on its invalid assumptions that Section 306(b) both "implies" a determination for Article 23.2(a) purposes and also requires that the determination always be affirmative, the European Communities then argues that the 30-day time frame in Section 306(b) for this alleged determination precludes the USTR from basing that determination on Article 21.5 panel findings, since Article 21.5 proceedings may require up to 90 days.⁴²⁴ The European Communities claims that WTO Members are required to pursue a panel under Article 21.5 whenever implementation is at issue. This claim is not correct, as is abundantly clear from the discussions in the ongoing DSU Review, where members are currently struggling with proposals to amend the DSU on this very point.⁴²⁵ However, even if, for the sake of argument, one were to accept the EC's claim, the 30-day time frame in Section 306(b) would not preclude consideration of Article 21.5 panel findings and making a determination on that basis.

4.815  The United States points out that the European Communities argues that Article 21.5 proceedings are obligatory before a complaining party may request, or the DSB may authorize, suspension of concessions. However, in authorizing US retaliation in the Bananas dispute based only on the decision of Article 22.6 arbitrators, the DSB implicitly rejected this argument. Moreover, the Article 22.6 arbitrators themselves explicitly refused to accept the EC position.⁴²⁶

4.816  The United States argues that the arbitrators noted the US view that were it not possible to request suspension of concessions within 30 days of expiration of the reasonable period of time, the complaining party would lose the benefit of the negative-consensus rule.⁴²⁷ Moreover, to the extent a Member believed that it had complied with DSB recommendations, it could request arbitration pursuant to Article 22.6. The arbitrators would address the issue of compliance in determining the extent of nullification or impairment, a prerequisite to fulfilling their mandate under Article 22.7 to determine whether the level of suspension is equivalent to the level of nullification or impairment.⁴²⁸ The arbitrators also noted that they could address the issue of nullification and impairment for this purpose even without making a formal determination of nullification or impairment, and emphasized that, "the goal of DSU Article 23 – multilateral determination – is achieved if the issue of nullification and impairment is considered in an arbitration before the original panel".⁴²⁹

4.817  The United States claims that the EC's claim that Section 306(b) violates DSU Article 23.2(a) rests on a series of unsupported assumptions – that Section 306(b) "implies" a determination of a violation within the meaning of Article 23.2(a), that the implied Section 306(b) determination would always be affirmative and that WTO Members must always resort to Article 21.5 proceedings before requesting authorization to suspend concessions. These assumptions in no way meet the EC's burden of demonstrating that Section 306(b) mandates action inconsistent with DSU Article 23.2(a).

4.818  The United States challenges that EC assumption that a Member wishing to suspend concessions under DSU Article 22 must first seek a determination under DSU Article 21.5. According to the European Communities, because the USTR must make her "implied" violation determination under Section 306(b) within 30 days of the expiration of the reasonable period of time, it is possible this might precede the conclusion of the 90-day period provided for in Article 21.5. Therefore, the European Communities contends that the USTR's determination would not be authorized under multilateral procedures.

4.819  The United States argues that in light of the other flawed assumptions which the European Communities makes with respect to "implied" violation determinations and whether they must, under Section 306, be affirmative, the Panel need not and should not reach the issue of whether a Member must first invoke Article 21.5 procedures before seeking authorization to suspend concessions under Article 22. The absence of such a requirement is precisely what has prompted intensified negotiations in the DSB during the past five months. While that issue is a proper subject for negotiations to change the DSU, for that reason it is not capable of resolution by a panel. Nevertheless, the United States notes that the arbitrators in the Bananas dispute did not accept the EC's arguments. Indeed, Article 22 includes no reference whatsoever to Article 21.5, nor does Article 23.2(c). The time frames in Article 22 for seeking authorization to suspend concessions are measured exclusively against the expiration of the reasonable period of time.

4.820  The United States points out that Article 22.6 explicitly requires the DSB to grant a request to authorize the suspension of concessions within 30 days of the expiration of the reasonable period of time unless there is a consensus to the contrary or a challenge to the level of suspension proposed. The 30 day time frame in Section 306 is thus not only consistent with Article 22, it is required by it. If the United States or another Member were forced to wait until after day 30 to propose and seek authorization to retaliate, it would lose the benefit of the negative consensus rule. One of the principal tools in the DSU to ensure compliance with DSB rulings would be undermined.

4.821  The European Communities notes that the European Communities and the United States differ on the interpretation of Articles 21.5 and 22 of the DSU.

4.822  As to this timeframe, the European Communities notes that, according to Article 22.6 of the DSU, the arbitration on the level or nature of the suspension of concession or obligations

"shall be completed within 60 days after the date of the expiry of the reasonable period of time".

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