4.869 The United States recalls that the European Communities argues that "the terminology used in Sections 301-310 cannot be decisive for the categorization of the different provisions under WTO law". According to the European Communities, despite the use of these different terms in the DSU, "this does not necessarily mean that the corresponding terms in a piece of domestic legislation of a WTO Member must be read as operating in a similar fashion". This may well be so, but this does not explain why Sections 301-310 themselves include the distinction between "determination" and situations in which the USTR "considers" that DSU procedures must be invoked.   US rules of statutory construction differ little, if at all, from those of treaty interpretation.  If different terms are used in the statute, there must be a reason that they differ.

4.870  The United States claims that the EC's argument that the use of different terms in the statute "cannot be decisive for the categorization of the different provisions under WTO law" must also be read in light of its argument one paragraph earlier that, "It is true that Article 23.2(a) of the DSU was drafted with Sections 301-310 of the 1974 US Trade Act in mind". Assuming this is true, then the drafters of the DSU were certainly aware of the pre-existing distinction between determinations and situations in which the USTR might "consider" in Sections 301-310, and intended to make the same distinction when these terms were adopted into the DSU.  At a minimum, if the drafters of the DSU had Sections 301-310 "in mind" – if it had been their intention to subject mere beliefs to potential discipline under Article 23.2(a) – then they would have included "considerations" in DSU Article 23.2(a). They did not, however, do so, and there is no basis now for subjecting such beliefs to scrutiny as "determinations".

4.871  The United States further states that the European Communities attempts to claim that "determinations" are associated with "clearly defined legal consequences", for example, "as a step in the process leading to retaliatory action". The European Communities offers no textual basis for this claim, and the text and context of Article 23.2(a) in fact contradict it. The text of Article 23.2(a) refers to determinations that a violation has occurred, with no discussion whatsoever of the consequences of those determinations. It is a straightforward obligation of conduct, not an obligation of result.⁴⁴⁰ Moreover, Article 23.2(c) deals specifically with suspension of concessions or other obligations, the "retaliatory action" of which the European Communities speaks. That provision makes no reference to violation determinations. If "legal consequences" such as suspension of concessions were a prerequisite for a "determination" under Article 23.2(a), what would be the need for a separate Article 23.2(c)? The determination of violation would have the legal consequence of mandating suspension of concessions and would encompass the situations provided for in both paragraphs (a) and (c). The EC approach would thus collapse two separate DSU provisions into one.

4.872  The United States argues that if the European Communities were to respond that Article 23.2(c) provides for action actually taken, while Article 23.2(a) just provides for first steps that might not actually result in action, then this suggests that the action need not be taken as a result of the determination, that is, that action remains discretionary.  Under this formulation, even a decision to initiate an investigation, which might ultimately have "the legal consequence" of action taken, could be drawn into the definition of "determination".  Moreover, a Member could avoid liability under Article 23.2(a) simply by explicitly decoupling the violation determination from the action taken, even if the Member retains complete discretion to suspend concessions at any time for any reason.

4.873  The United States further contends that it is also questionable whether the European Communities or other WTO Members would be willing to accept the consequences of the EC's approach.   Assume, for example, that a Member has a statute mandating that authorities, without first resorting to WTO dispute settlement proceedings, make definitive, official, published determinations that another Member has violated its WTO obligations.  The statute would not otherwise provide for any "legal consequences".  Such a clear "determination" would certainly appear to be precisely within the terms of Article 23.2(a), yet under the EC's approach it would be excluded.

4.874  In the view of the United States, the EC's definition of "determination" based on "legal consequences" is not sustainable.  The USTR's belief as to whether Article 22 proceedings need be invoked, expressed through the term "considers", is not actionable under DSU Article 23.2(a).

4.875  The United States further maintains that another aspect of the EC's proposed definitions of "considerations" and "determinations" worthy of comment is the fact that it would appear to lead to the conclusion that all Section 304(a)(1) determinations are in fact "considerations".  The European Communities states, "the terminology used in Sections 301-310 cannot be decisive for the categorization of the different provisions under WTO law". The European Communities thus allows for the possibility that a "determination" under domestic law may in fact be a "consideration" for WTO purposes.  The European Communities explains that a "consideration"

"does not by itself entail any legal consequences, because it forms at best the basis for the further procedural step that must still be taken (by submitting a complaint to an outside adjudicatory body . . .).  In this sense, it is an expression of an opinion subject to confirmation by the exclusively competent WTO bodies".

4.876  The United States considers that because Section 303(a)(1) and (2) require the USTR to initiate WTO dispute settlement proceedings in investigations involving a WTO agreement, the views expressed by the USTR pursuant to Sections 301-310 would, in the EC's definition, be opinions "subject to confirmation by the exclusively competent WTO bodies".  Thus, but for the fact that Section 304(a)(1) requires the USTR to base her determinations on adopted panel and Appellate Body findings, the USTR could determine under Section 304(a)(1) that US agreement rights are being denied, and the European Communities would treat this as a "consideration" not subject to Article 23.2(a) because it is an opinion during on-going dispute settlement procedures.  To the EC's likely response that Section 304(a)(1) determinations have legal consequences, the United States notes again that Section 301(a)(2) provides for exceptions to action which include Section 301(a)(2)(B)(i), which covers situations in which the foreign country is taking satisfactory measures to grant US rights under a trade agreement.  This exception would be applicable if dispute settlement proceedings were on-going, since, by its participation in those proceedings, the foreign country would be taking satisfactory measures.   The determination would thus be no more a step in the chain of events towards suspension of concessions than would initiation of an investigation (which also, under the EC's definition, might be characterized in domestic law as a determination without implicating Article 23.2(a)). 

4.877  The United States states that it must, under Section 304(a)(1), base its determinations on the results of WTO dispute settlement and could not, therefore, make the above determination.  On the other hand, the USTR could make any of a number of determinations, and this could include a determination that US agreement rights were being denied, "subject to confirmation by the DSB".  Presumably this, too, would meet the EC's definition of "consideration".  In substance, such a "consideration" would certainly be less definitive than a statement in the press by a trade minister that another Member is violating its WTO obligations.

4.878  The United States recalls that the European Communities also addresses whether Article 21.5 proceedings must first precede Article 22 proceedings. The United States notes at the outset that this Panel need not, and should not, reach this issue.  The EC claim would appear to draw the Panel into the heart of a disagreement that is recognised by the WTO Members and is the subject of a separate negotiation in an attempt to resolve it.  This is therefore not an area ripe for a Panel.  The United States furthermore notes that this issue would only be relevant in this dispute if (1) what the USTR "considers" is deemed an "implied determination", and (2) the law mandates that she always consider that another Member has not complied with its obligations. Again, the EC's burden is to prove that Sections 301-310 do not allow, that is, that they preclude, WTO-consistent action by the USTR. To the extent that she need not make a "determination" that a violation has occurred, the mere existence of a law not precluding that possibility would not violate Article 23.2(a). It is worth recalling that the European Communities now takes the position that Members need not "include explicit language in their domestic law precluding WTO-inconsistent action".

4.879  In rebuttal, the United States claims that assuming that a "consideration" is a "determination", and that it must always be affirmative, the European Communities remains incorrect regarding the relationship between Articles 21.5 and Article 22. The United States first notes that the EC's dismissal of US references to DSU review documents misses the point for which the United States raises them.⁴⁴¹  The United States first noted that the European Communities explicitly acknowledged in a DSU review document the current distinction between mandatory and discretionary legislation. Inasmuch as the European Communities appears to accept the mandatory/discretionary distinction (albeit with a liberally reinterpreted definition of "mandatory"), this reference is no longer necessary.  The remaining references were intended to point out that the relationship between Articles 21.5 and 22 is anything but clear and that this fact is generally recognised.

4.880  The United States argues that Article 22 does not by its terms, context or purpose require that a Member first resort to Article 21.5 proceedings.  All time frames in Article 22 are measured against the end of the reasonable period of time, and Article 21.5 is not even mentioned once. Likewise, Article 21.5 is not mentioned once in Article 23.2(c), which only requires that Article 22 proceedings be pursued before suspension of concessions may be undertaken. Article 22 represents a central element in the credibility and effectiveness of WTO dispute settlement, since it provides that losing Members may no longer block suspension of concessions against them. However, the EC's claim that Article 21.5 proceedings must first be completed would result in the loss of this right to suspend concessions, since Article 22 only applies the negative consensus rule to requests to suspend concessions if such requests are made within 30 days of the conclusion of the reasonable period. Members whose rights have already been found to have been violated, and who have already lived with these violations through the year-and-a-half panel process and additional year of implementation, would find themselves, as they were under the GATT 1947, again at the mercy of the very party that had denied their rights and impaired their trade.

4.881  The United States further contends that in response to the concern that there must first be a multilateral determination of violation, it notes that when Article 22 procedures are invoked, there is already such a determination – in the original, adopted panel and/or Appellate Body reports. Further, as the Article 22 arbitrators found, Article 22 proceedings cannot result in suspension of concessions where a Member has in fact brought its measure into compliance, because the level of nullification and impairment in that case would be zero.⁴⁴²

4.882  In the view of the United States, Article 22 thus does not require recourse to Article 21.5 proceedings, and a statutory provision such as Section 306(b) which merely provides a domestic means for resorting to Article 22 proceedings cannot be said to be violate Article 23.2(a) through an "implied determination".

4.883  The United States adds that even if the European Communities were correct that Article 21.5 proceedings must precede Article 22 proceedings, this would not mean that Section 306(b) mandates a violation of Article 23.2(a). The USTR has complete discretion in her assessment, her "consideration" under Section 306(b), of whether another country's implementation status requires that dispute settlement procedures be invoked. If DSU rules actually provided that a Member first undertake Article 21.5 procedures before requesting suspension under Article 22, there would be nothing in Section 306 to prevent the USTR from complying with this requirement. She could for example consider that she needs to pursue Article 21.5 proceedings to ascertain whether there has been full implementation.

4.884  The European Communities further responds that Article 23.2 (a), read in the immediate context of Article 23.1 and in the broader context of Article 3.7 of the DSU, is an obligation of conduct and of result: the redress of a violation or other nullification or impairment of benefits must be achieved in substance through the multilateral dispute settlement system or through a mutually agreed solution only.

4.885  In the view of the European Communities, there is no third way. Of course any Member can freely accept to tolerate the consequences of the conduct of another Member in violation of its WTO obligations. However, abstaining from action, also a hypothesis foreseen in the DSU - Article 3.7 - is outside the realm of Article 23, paragraphs 1 and 2 ("When Members seek redress … In such cases, Members shall …").

4.886  In this legal perspective, the European Communities recalls the US argument that Article 23.2(a) of the DSU "… is a straightforward obligation of conduct, not an obligation of result".

4.887  The European Communities indicates that if this statement were to be understood as meaning that WTO Members do not have a positive obligation to insert in their domestic law a clause expressly obliging the executive authorities to observe Article 23 in all cases, it would not disagree with such an argument.

4.888  The European Communities contends that if, however, the US argument were to imply that Article 23.2(a) is a mere obligation of conduct, it would disagree. If the US approach were followed, a Member would find itself at the conclusion of the process of verification of consistency to discover that a negative result entails that it had not followed the obligation of conduct under Article 23.2(a). One should in fact bear in mind that the outcome of a process of "verification of consistency" cannot be predetermined in advance and, thus, a determination of consistency or inconsistency is achieved at the end of a process of verification.

4.889  The European Communities argues that this unavoidable consideration shows better than anything else that it is not true that the EC's interpretation of Section 304(a)(1)(A) "would have the impermissible consequence of preventing even determinations of consistency, notwithstanding the explicit language of Article 23.2(a), which only addresses certain determinations of inconsistency". Rather, it is the US suggestion of an "obligation of conduct" merely consisting of a formality of a procedure and not of the substance of a multilateral decision within the WTO DS system that gets to the "impermissible consequence of preventing a determination of consistency".

4.890  The European Communities also recalls that the United States has again erroneously denied the obligatory prior application of the "formal dispute settlement proceeding" under Article 21.5 of the DSU where there is disagreement on the conformity of the measures taken to comply with recommendations and rulings of the DSB. The European Communities notes in passing that the United States does not contest the interpretation of the ordinary meaning of the terms of Article 21.5 in their context and in the light of its object and purpose advanced by the European Communities.

4.891  The European Communities further points out that the procedures under Article 22 cannot be defined as "formal dispute settlement proceedings" and are in any case at the request of the defending party and not of the complainant (contrary to the provision of Section 303 (2)). According to the US' own interpretation, when the United States is a complainant, Article 22 procedures are not covered by the "proceedings" within the scope of Section 304 (a)(1).

4.892  According to the European Communities, thus, it is clear from the text of Section 304 that whatever the interpretation of Article 21.5 and Article 22 of the DSU, at least during the phase of "monitoring of compliance", the USTR "shall determine whether the rights to which the United States is entitled under any trade agreement are being denied" exclusively "on the basis of the investigation initiated under section 302".

4.893  TThe European Communities further maintains that this means in practice that the text of Section 304 does not provide for any real discretion since if the factual findings of the investigation are negative, pursuant to Section 306 (b) (2) the USTR must ("shall") make the determination no later than 30 days after the expiration of the reasonable period of time. This must be done irrespective of any decision of the DSB.

4.894  The European Communities points out that according to Section 306 (b) (1), the content of USTR's determination is "what further action the USTR shall take under section 301(a)".

4.895  The European Communities notes that Section 301(a) - entitled "Mandatory Action" - provides that:

"if the USTR determines under section 304 (a) (1) that (A) the rights of the United States under any trade agreement are being denied or (B) an act, policy or practice of a foreign country (i) violates, or is inconsistent with the provisions of or otherwise denies benefits to the United States under any trade agreement or (ii) is unjustifiable and burdens or restricts United States commerce, the Trade representative shall take action authorized in sub-section c)".

4.896  The European Communities further notes that according to Section 301 (d) (4) (A),

"an act, policy, or practice is unjustifiable if the act, policy or practice is in violation of, or inconsistent with, the international legal rights of the United States".

4.897  The European Communities considers that not only the USTR does not have any discretion in discharging her obligation of making a determination of action, but the law also strictly defines what is "unjustifiable" without any respect whatsoever of the need of going through the dispute settlement procedures under the DSU before such a determination is taken.

4.898  The European Communities notes that Section 301, sub-section (c), spells out in detail "what" action the USTR is authorized to take. The closed list requires either to withdraw concessions or other benefits or to enter into a binding agreement (whose content is pre-determined). The targeted WTO Member then has only two options: it must either bear the consequences of retaliation or sign an agreement acceptable to the United States (as in the "Japan -Auto Parts" case). The second option open to the USTR constitutes the only escape for the targeted WTO Member in order to avoid the (explicitly threatened) retaliation.

4.899  The United States responds that in contrast to other provisions of the DSU, Article 23.2(a) by its terms deals with "determinations", not beliefs as reflected in what an individual or Member may "consider".  Section 306(b) does not command the USTR to make a determination that another Member has violated its WTO obligations.  It merely provides for the steps to be taken if she believes, if she considers, that full implementation has not occurred.  This belief, the prerequisite to invoking multilateral agreement rules on the suspension of concessions, is not a determination.  Nor, if it were, would it by statutory command be limited to a determination that another Member has violated its WTO obligations.  Section 306(b) does not command the USTR to consider that another Member has failed to fully implement its commitment to comply with DSB rulings and recommendations.

4.900  The United States recalls that the European Communities has suggested that the very act of determining whether US agreement rights have been denied, or considering whether implementation has occurred, "mandates" a determination that a WTO violation has occurred.  There is no rule of grammar or US rule of statutory construction which permits such a reading.   To the contrary, even were the US statutory language considered ambiguous, US and international practice would be to interpret that language so as to avoid a conflict with US international obligations. This practice is reflected in GATT/WTO jurisprudence in the Tobacco panel report, which asks whether any reading of a statute permits authorities to comply with their international obligations. The EC's argument ignores this practice and precedent. Moreover, in arguing that it is WTO inconsistent to determine "whether" agreement rights have been denied because such a determination inherently "must" sometimes be affirmative, the European Communities would render any determination a violation of DSU Article 23.2(a), even a determination that no agreement rights have been denied or confirmed, and even those determinations not involving a WTO agreement. No reading of DSU Article 23.2(a) supports this result.

4.901  In response to the Panel's question regarding the relationship between Article 21.5 and Article 22 of the DSU, the European Communities first underlines that it has not requested this Panel to "make a decision on the relationship between Article 21.5 and 22" of the DSU. Rather, the European Communities has requested the DSB and obtained the establishment of this Panel in order to make "such findings as will assist the DSB in making the recommendations or giving the rulings provided for in" the provisions of the agreements cited in the WTO document WT/DS152/11 of 2 February 1999.

4.902  The European Communities warns that the Panel, therefore, should not be distracted by the US attempt to curtail or diminish the Panel's terms of reference by creating the (erroneous) impression that this procedure is in some ways overlapping with a parallel procedure in other WTO fora. This characterisation of the situation is erroneous and the Panel should resist and reject these US procedural tactics. In the EC's view, this panel procedure should concentrate on its terms of reference: the WTO consistency of Sections 301-310 must be assessed against all the provisions quoted in the Panel's terms of reference, including Article 21.5 of the DSU on its own.

4.903  The European Communities also contends that as the Appellate Body indicated already in its early reports and constantly repeated afterwards, in application of Article 31 of the Vienna Convention on the Law of Treaties, the Panel should concentrate first on the ordinary meaning of the terms of Article 21.5 of the DSU, in their context, and in the light of the object and purpose of the DSU and of the WTO agreements. The interpretation of Article 22 of the DSU is logically and legally a distinct issue to be addressed by the Panel separately, if necessary.

4.904  Pursuant to Article 11 of the DSU, the European Communities expects that the Panel will follow this line of interpretation in order to reach its conclusions aimed at assisting the DSB to make the appropriate recommendations and rulings. The European Communities believes that the notion that a Member of the WTO can somehow curtail another Member's rights under the DSU by introducing a proposal to amend the covered agreement at issue is inconsistent with Article 3.2 of the DSU according to which the DSB rulings cannot diminish the rights of Members under the covered agreements.

4.905  The European Communities is of the view that the mandate of the Panel is to "make an objective assessment of the matter before it" (Article 11, second sentence, of the DSU). Such an objective assessment must be based on the covered agreements as they stand and cannot be based on possible future amendments of these agreements. Of course, panels should give the parties adequate opportunity to develop a mutually satisfactory solution (Article 11, last sentence of the DSU). However, as is stipulated in Article 12.7 of the DSU, "[w]here the parties to the dispute have failed to develop a mutually satisfactory solution, the panel shall submit its findings in the form of a written report to the DSB".

4.906  The European Communities further argues that it is thus clearly stated that the Panel is required to go ahead with the procedure as long as the parties to the dispute have failed to develop a mutually satisfactory solution. As the debate before the Panel has demonstrated, the views of the European Communities and the United States on the relationship between Article 21.5 and 22 of the DSU are as far apart as ever and there does not appear any immediate perspective of a mutually satisfactory solution on this issue at the present time. If the political negotiations on the relationship between Articles 21.5 and 22 of the DSU end with the a solution favourable to the United States, the United States would therefore benefit from that solution irrespective of the rulings of the Panel.

4.907  The European Communities would not wish to speculate on what a negotiated solution on the relationship between Article 21.5 and 22 of the DSU might look like and whether it would put this aspect of the present dispute to rest. In this context, it may be of interest that the DSB has not been in a position to date to come to an agreed conclusion on any of the informal proposals for the review of the DSU.

4.908 However, the European Communities draws the attention of the Panel to the recent developments in the dispute on Australia – Salmon,⁴⁴³ as shown by the sequence of events as follows:

1. on 15 July 1999, Canada requested authorization for suspension of concessions under Article 22.2 of the DSU⁴⁴⁴ based on a unilateral determination of failure to comply by Australia. Canada appeared at that time to follow the (illegal) US approach to this matter;
2. on 27 July 1999, Australia, while indicating that "[T]he DSB meeting on 27 July (now 28 July) will be the first opportunity for Australia to contest Canada's right to seek authorization on the basis of WT/DS18/12", it requested arbitration "with an abundance of legal caution in regard to safeguarding its WTO right to arbitration accorded by Article 22.6" of the DSU;⁴⁴⁵
3. on 28 July 1999, as a result of the discussions in the DSB on this issue on the same day, Canada requested that the determination of consistency of the implementation measures by Australia be referred to the original panel "pursuant to article 21.5 of the DSU".⁴⁴⁶

4.909  In the view of the European Communities, these events demonstrate that the US position on this essential issue is not only unjustifiable under WTO law but that the United States is also more and more isolated in the DSB in this regard.

4.910  In addition, the European Communities maintains that the time frames provided for under Section 306(b)(2) of the Trade Act 1974 are in any case entirely insufficient to carry out a dispute settlement procedure on the failure of compliance of another WTO Member that would respect the requirements of due process.

4.911  The United States considers that the Panel should not decide on the relationship between Article 21.5 and 22.  First, it is unnecessary for the Panel to reach the issue of the relationship between Articles 21.5 and 22.  This issue is ultimately irrelevant to the Panel's decision because the European Communities has failed to prove several other points necessary to establish its claims with respect to Articles 23.2(a) and 23.2(c). 

4.912  In the view of the United States, with respect to its claim regarding Article 23.2(a), the European Communities has failed to meet its burden of demonstrating: (1) that Section 306 involves a "determination" on whether another Member has violated its WTO obligations; and (2) that Section 306 commands that such a determination always be a violation determination.  Without a determination to the effect that a violation has occurred, it is not relevant for the Panel to determine whether the other requirements of Article 23.2(a) have been met.

4.913  The United States also considers that with respect to its claim regarding Article 23.2(c), the European Communities has failed to meet its burden of demonstrating: (1) that Section 306 commands the USTR to always consider that non-implementation has occurred; (2) that the USTR must take action involving the suspension of concessions, rather than other alternatives; (3) that the USTR cannot avail herself of the exceptions set forth in Section 301(a)(2)(B); (4) that the President may not condition action or direct that it not be taken; (5) that the USTR cannot delay action until 240 days – eight months – after the reasonable period of time pursuant to Section 305(a)(2), well beyond either or both of the 60 and 90 day periods provided for in Articles 21.5 and 22.

4.914  The United States adds that the Panel should not reach this issue because doing so would preempt the ongoing negotiations and encroach upon the rights of all WTO Members (not just parties to a single dispute) to negotiate the balance of rights and obligations under the WTO Agreement.Only the Members may amend or adopt interpretations of the DSU (WTO Agreement Arts. IX:2 and X), and Panels cannot add to or diminish the rights and obligations provided in the covered agreements (DSU Arts. 3.2 and 19.2). The discussions in the DSU review are likely to lead to amendment or agreement on the relationship of Article 21.5 and 22.

4.915  The United States also claims that as with the analysis of other agreement provisions, the analysis of the relationship between Articles 21.5 and 22 must be based on the text. As already explained in more detail, the text of Article 22 nowhere references Article 21.5 for any purpose. Moreover, by its terms Article 23.2(c) only requires that Article 22 procedures be followed; it makes no reference to Article 21.5. For these reasons and others set forth earlier and in the Article 22 Arbitration report in Bananas, the DSU does not presently require that a Member resort to Article 21.5 proceedings before requesting authorization to suspend concessions pursuant to Article 22.

4.916  In response to the Panel's question as to whether the issue would be moot if an agreement were reached on this relationship before the completion of this Panel's proceedings, the United States answers in the affirmative. More importantly, however, if an agreement were reached by which parties would resort to an amended Article 21.5 process prior to resorting to Article 22 procedures, nothing in Sections 301-310 would preclude the United States from acting consistently with such an agreement.