4 December 1992

180. The United States further pointed out that under United States legislation the effects of other factors could not support an affirmative finding of injury. In this case, the USITC had explicitly considered the other factors suggested by the Norwegian respondents, including various US industry production difficulties, non-subject imports, the inability of United States domestic producers to market their product year-round, and the effects of Pacific salmon. The USITC had ultimately determined that the subject imports from Norway had caused material injury to the domestic industry in the United States and that, while other factors might have had some adverse impact on the industry, they did not detract from the fact that Norwegian imports were injurious.

181. Norway also objected in this context to the USITC having made one collective injury determination for both the anti-dumping and the countervailing duty case. This also violated the requirement under Article 6:4 of the Agreement to exclude injuries caused by factors other than the subsidized imports under investigation. The Agreement contained no basis for this type of cross-cumulation. In fact, there had been no investigation and determination concerning the alleged material injury caused by the effects of the subsidized imports without regard to injury caused by the dumped imports. Consequently, the USITC had failed to demonstrate that material injury to the domestic industry had been caused through the effects of the alleged subsidies.

182. The United States considered as misplaced Norway's objection to the issuance by the USITC of one injury determination for both the anti-dumping and the countervailing duty investigations. In accordance with Article 6:4, the USITC had considered whether "the effects of the subsidy" as defined by the Agreement, i.e., the volume and price effects of the imports on the domestic industry, as set forth in Articles 6:2 and 6:3 were "causing injury within the meaning of this Agreement". Article 3:4 of the Agreement on Implementation of article VI of the General Agreement required the USITC to consider these identical factors in determining whether the effects of dumping were causing injury. Both Agreements required the investigating authorities to evaluate the impact which the imports were having on the domestic industry, and provided substantively identical criteria for making that evaluation. The dumped and subsidized imports from Norway were one and the same. The period of investigation was identical for both the anti-dumping and countervailing duty investigations. Consequently, the import volume and price effect and impact on the domestic industry had been identical for both investigations. In view of this complete congruity between the subject imports in both investigations, Norway's argument was without any basis.

183. Responding to a question by the Panel, the United States further submitted in this context that the issuance by the USITC of one injury determination for the purpose of both the anti-dumping and the countervailing duty investigation was not incompatible with the reference in footnote 20 ad Article 6:4 to "the volume and prices of non-subsidized imports" as a possible "other factor" causing injury to a domestic industry. In the present case the USITC had not, as a result of its "combined" analysis, attributed the effects of non-subsidized imports to the subsidized imports. This was because the exact same set of imports from Norway had been found to be both dumped and subsidized. Of course, even in a case in which the subsidized and dumped imports were not identical, the effects of non-subsidized, but dumped imports could render the domestic industry more vulnerable to injury from the subsidized imports. However, the present case did not involve differing dumped and subsidized imports.

5.5.2 Material injury caused by the subsidized imports, through the effects of the subsidy

184. Norway further submitted that the standard applied by the USITC in the case under consideration did not conform to the requirements of Article 6:4 in that the USITC had failed to examine the effects of the subsidies in determining whether a domestic industry was materially injured and had only made a finding that a domestic industry was materially injured (or threatened with material injury, or the establishment of a domestic industry had been materially retarded) "by reason of imports of that merchandise". Since a domestic industry would always be more able to charge higher prices if supply was restricted (e.g. by eliminating imports), imports could always be found to be causing some injury to the domestic industry, even if minimal. Thus, the interpretation of the United States would allow the imposition of countervailing measures any time the domestic industry was materially injured by any cause, as long as there were imports which had received some subsidy. This would make a mockery of the causation standard in Article 6:4 and defeat the purpose of the Agreement.

185. In support of its claim that the USITC did not consider the effects of the subsidy in determining whether subsidized imports were causing material injury to a domestic industry, Norway also pointed out that the Courts in the United States had upheld the approach of the USITC, while acknowledging that the GATT would appear to require the investigating authorities to consider the effects of the subsidy. Specifically, the United States Court of International Trade, in discussing what the "effects" language of Article 3 of the Agreement on Implementation of Article VI of the General Agreement required and how this language was implemented in the legislation of the United States had held:

The interpretation of Article 6:4 advocated by the United States in the proceedings before this Panel would have the Panel ignore the "through the effects" clause of Article 6:4 in its entirety. Such an interpretation was inconsistent with the ordinary meaning of the words and with the drafting history of the paragraph. The Vienna Convention on the Law of Treaties required that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose". Thus, international interpretive practice was to give meaning to all phrases in a text.

186. In response to a question of the Panel as to whether Norway considered that the term "through the effects of the subsidy" in Article 6:4 of the Agreement required the investigating authorities to consider factors other than those identified in Articles 6:2 and 6:3, Norway submitted that the investigating authorities must certainly consider the factors listed in Articles 6:2 and 6:3 but that a consideration of only those factors was not sufficient to meet the requirements of Article 6:4. For example, it would be odd not to consider the level of subsidization found to exist and its possible trade effects. This view had been recognized by United States scholars. Thus, one author had written that:

Moreover, this interpretation was consistent with the object and purpose of the Agreement. The Agreement sought to prevent unjustified impediments to the flow of international trade. Consequently, the Agreement required a strong showing that the injury to be prevented was caused by the effects of the subsidies and thus, that the remedy (the countervailing duty measures) would, in fact offset this material injury. If the injury were to be caused by other factors, the countervailing duty measures would not offset the injury and would impede trade to no lawful purpose.

187. The United States considered that Norway erred in arguing that United States law did not require a consideration of the effects of the subsidy. In fact, both the Agreement and the United States' law required the USITC to consider identical factors in examining the effect of the subsidy on the domestic industry. Specifically, both required an evaluation of the volume and price effects of the imports on the domestic industry. Contrary to Norway's assertion, the USITC did not issue an affirmative injury determination whenever the domestic industry was injured and imports present in the market, as numerous USITC investigations make clear. United States law required precisely what the Agreement required: that subsidized imports cause material injury through volume and price effects, as specified in Article 6:2, and that material injury attributed to other causes cannot be the basis of an affirmative finding.Norway's argument was readily refuted by the number of negative determinations issued by the USITC in the circumstances described by Norway.

188. The United States argued that as indicated by footnote 19 ad Article 6:4, "the effects of the subsidy" referred to in Article 6:4 of the Agreement were defined in Articles 6:2 and 6:3 as the volume and price effects of the subsidized imports, and the consequent impact of these imports on the domestic industry. The meaning of this language was clearly defined in the Agreement and there was no basis to attribute some other meaning to this language. Norway had not been able to define exactly what, in its view, the additional analysis was which was required by this language in Article 6:4 and its imprecise method of construing the Agreement stood in contrast to the plain meaning construction put forth by the United States. Contrary to Norway's assertion, the United States was not asking the Panel to disregard the "through the effects of the subsidy" language in Article 6:4. Rather, the United States asked the Panel to give that language the precise meaning set forth in the Agreement: the "effects of the subsidy" were measured through the volume and price effects of the imports and their impact on the domestic industry. While the Agreement specifically defined the meaning of the term "through the effects of the subsidy" and contained two paragraphs concerning the analysis of imports, it provided no guidance concerning the interpretation of this term beyond analysis of the imports. If the Agreement had required an additional mode of analysis beyond that set forth in Articles 6:2 and 6:3, one would expect at least a further definition of the "effect of the subsidy" and some guidance on the proper analysis to assess these effects. There was none, however, providing yet another strong indication that the Agreement imposed no requirement other than an examination of import volume and price effects and the impact of the imports on domestic producers.

189. Norway noted that the interpretation of the "through the effects of ..." language in Article 6:4 advocated by the United States had been refuted by Professor Jackson as follows:

190. The United States considered that the statements from Professor Jackson cited by Norway concerning the meaning of the term "through the effects of ..." did not analyze the text of footnote 19 but set forth a policy which Professor Jackson would like to see adopted. These proposals might be of interest to the negotiators of a new Agreement but were certainly not reflected in the text of the current Agreement.

191. Norway further argued in this context that the interpretation by the United States of the term "through the effects of ..." in Article 6:4 was inconsistent with the drafting history of that provision. Since it appeared that the United States found the wording of Article 6:4 ambiguous, it was appropriate to have recourse to the drafting history of this provision. This drafting history supported an interpretation which accorded meaning to the term "through the effects of ...". The Draft Subsidies Code dated 19 December 1978 had contained the following formulation of the provision now appearing in Article 6:4:

This draft noted that this formulation had been developed by some but not all of the participating delegations. The mark-up of this draft at the Helsinki meeting of 12-13 February 1979 had resulted in what was virtually the final language:

Thus, the drafters of the Agreement had deliberately inserted the "through the effects" clause in the text of this provision. They must have intended the clause to have meaning beyond mere consideration of the imports; if not, there would have been no reason to insert this language. The interpretation advocated by the United States would read Article 6:4 to have the meaning found in the draft of 19 December 1978, rather than in the final text. This could not be a proper interpretation of the Agreement requirements.

192. The United States denied that, as suggested by Norway, it considered the text of Article 6:4 to be ambiguous. On the contrary, the United States believed that this text was susceptible to only one interpretation. In any event, the documents referred to by Norway pertaining to the drafting history of Article 6:4 did not support the conclusion drawn by Norway. Rather, they demonstrated the opposite: that the drafters considered the earlier draft standard, that "imports are causing" injury, to be substantially identical. Norway had neglected to mention the relevant footnote in document MTN/NTM/W/210, which stated that "this formulation has been developed by some but not all of the participating delegations" and that "other delegations have suggested alternate texts for consideration". The standard ultimately adopted was simply another way of stating the earlier standard.

193. In response to a question of the Panel, Norway stated that footnote 19 ad Article 6:4 did not detract from the need to consider the effects of the subsidy. If Article 6:4 only required an analysis of the effects of the imports as stated in Articles 6:2 and 6:3, there would be no distinction between the determination of the existence of injury and the determination of the cause of the injury. In that case, the "through the effects of the subsidy" language in Article 6:4 would not have been necessary. Thus, Article 6:4 had to be interpreted to require more than a consideration of the effects of the imports as stated in Articles 6:2 and 6:3.

194. The United States also noted that the Panel's decision in Canada Grain Corn stated that the proper focus of an investigation was on subsidized imports, and specifically rejected the view that investigating authorities may consider the effect of a subsidy in the abstract. The United States further noted that footnote 17 of the Agreement provided that, in the context of assessing threat of injury, the investigating authorities "may" consider the trade effects of export subsidies. This permissive language - "may consider" - was inconsistent with Norway's view that such consideration was mandatorily directed elsewhere in the Agreement.

5.5.3 Whether the imports under investigation were causing present material injury to the domestic Atlantic salmon industry in the United States

195. Norway considered that the affirmative final determination of the USITC in its investigation of imports from Norway of fresh and chilled Atlantic salmon was inconsistent with Article 6:4 of the Agreement in that imports of Atlantic salmon from Norway had not been a cause of present material injury to the domestic industry in the United States at the time this determination was made. Article 6:4 required that it be demonstrated that the subsidized imports under investigations "are ... causing" material injury. It followed from the present tense of the wording of Article 6:4 that material injury must be found to exist at the time the decision was taken to impose countervailing duties. The purpose of the imposition of such duties was not to punish past behaviour but to prevent future harm to the domestic industry resulting from imports which were currently causing material injury.

196. In the view of Norway, the majority of the USITC had ignored this requirement to focus on present injury caused by imports under investigation when it had given less weight to the decline in the volume of imports from Norway in 1990 than to the earlier increase in that volume. However, the acting Chairman had explicitly stated that the crucial question before the Commission was whether "material injury is being caused as of the day of our determination, not the date of the petition". She had taken this view based inter alia on relevant GATT provisions, such as Article 6:4 of the Agreement and in light of the necessity to interpret domestic legislation in conformity with international obligations of the United States.

197. Norway considered that, even if one were to assume that the domestic industry had been injured at the time of the filing of the petition in February 1990, such a conclusion was definitely not justified at the time of the final determination of the USITC in spring 1991. Norway reiterated in this respect that the market share held by Norwegian imports in the United States had been declining during the period covered by the USITC's investigation, mainly to the benefit of imports from third countries. This decline in market share had been caused inter alia by the combined effect of the large depreciation of the US dollar and declining prices in the US market. There was no evidence to suggest any kind of strategic behaviour of the exporters, as had been suggested by the voting majority of the USITC.

198. In response to Norway's argument that an affirmative final determination of injury was not justified because imports of Atlantic salmon from Norway had no longer been injuring the US domestic industry at the time of the USITC's determination, the United States made the following points. Norway reached this conclusion based on the decline in import volume and increase in prices in 1990, following the initiation of the investigation and the imposition of provisional measures. The decline in import volume was simply the expected result of the pendency of the investigation and, especially, the imposition of provisional measures, rather than of market forces. Moreover, Norway's argument ignored that the USITC had determined that the domestic industry was materially injured by Norwegian imports at the time of its determination. In particular, the USITC had pointed to the continuing injurious effects of the Norwegian imports, in the form of financial losses, reduced size, and difficulty in obtaining financing. The United States also observed that the grave financial losses suffered by the domestic industry - on the order of 50 per cent of net sales in 1989 - could not be expected to disappear some months later in early 1991. The negative effects of the industry's reduced production of young salmon which began in 1990 as a result of the price decline through 1989 was especially pernicious. Because production of Atlantic salmon for sale, i.e., the industry's capacity to produce marketable salmon, was the result of prior years' production of younger salmon, this reduction continued to injure the domestic industry throughout the period of investigation and beyond. Another ongoing negative effect cited by the USITC was the continuing reluctance of banks to lend to domestic producers.

199. In the view of the United States, the Agreement allowed signatories to take account of these continuing, present injurious effects on the industry's capacity and ability to raise capital attributable to recent imports. In an analogous context, the Agreement expressly contemplated examination of future effects of imports. Thus, Article 6 permitted the imposition of countervailing duties in cases in which imports had not yet caused injury but threatened to do so. If the future effects of present imports could thus be considered, it followed that the present, ongoing impact of imports which had entered in the recent past could also be taken into account.

200. The United States further considered that Norway's argument represented a flawed interpretation of the Agreement. Norway's theory would allow exporters to ensure a negative determination by reducing their exports and raising their prices. An unscrupulous exporter could guarantee the outcome of any investigation and simply resume its injurious subsidized exports once a negative determination had been entered. It would make no difference that their exports had caused injury at the time the case was filed. The Agreement did not provide for such a loophole. Article 6:2 directed investigating authorities to consider whether there had been a significant increase in subsidized imports and whether there had been a significant price undercutting by the subsidized imports. This provision on its face permitted a retrospective analysis. Moreover, the intended consequence of provisional remedies under Article 5 was to remedy injury during an investigation, through a reduction of import volume or an increase in import prices. Norway's theory would undercut the purpose of provisional measures, for if injury were avoided within the meaning of Article 5:1, it would in all cases mandate a negative determination under Article 6:4. The Agreement did not envision such an absurd result.

201. Norway considered that the United States had mischaracterized Norway's position in arguing that Norway had concluded that there was no present injury caused by Norwegian imports based on the decline in import volume and increases in prices in 1990, following the initiation of the investigation and the imposition of provisional measures. Norway's position that there was no basis for a determination of present material injury caused by Norwegian imports at the time of the determination of the USITC was based on (1) the fact that the volume of imports from Norway had declined prior to the initiation of the investigation; (2) the decline in the market share held by the Norwegian imports throughout the period covered by the USITC's investigation; (3) the fact that Norwegian salmon commanded a price premium over United States salmon; (4) the fact that US domestic producers had tripled their market share in the same period; (5) the fact that the decline of the Norwegian import volume after the imposition of the provisional measures was essentially due to other factors such as changes in exchange rates, and (6) the failure of the United States to take action to prevent injury caused by other factors from being attributed to the imports from Norway.

202. Norway argued that the continued imposition of countervailing duties by the United States on imports of fresh and chilled Atlantic salmon from Norway was inconsistent with the requirements of Article 4:9 of the Agreement, which provided that a countervailing duty shall remain in force only as long as, and to the extent necessary, to counteract subsidies which are causing material injury. At the time of the affirmative final determination of the USITC in the salmon case, no material injury was caused to the domestic industry in the United States by reason of imports from Norway. In addition, imports of Atlantic salmon from Norway were certainly no longer causing any present injury to the domestic industry in the United States. Consequently, the United States was under an obligation to terminate the imposition of countervailing duties on imports of salmon from Norway.

203. The United States submitted that Norway's argument that the imports from Norway were not causing injury at the time of the USITC's determination was factually incorrect. ¹³⁵ Furthermore, as to events occurring subsequent to the completion of the investigation, there were no such facts on that issue on the record of the USITC, simply because the USITC's investigation ended within the deadline set by statute for a final determination concerning the existence of material injury. Norway could seek a review investigation by the USITC, which, if warranted, would concern later developments. In any event, a lack of further injury following imposition of a countervailing duty order would not be surprising since the Agreement presumed that an order might remove the injury to the domestic industry caused by the subject imports. Apparently, Norway was arguing that once an order was imposed, it must be removed immediately. This was absurd on its face.

1. INTRODUCTION

204. The Panel noted that the issues before it arise essentially from the following facts: On 12 April 1991, the United States imposed a countervailing duty order on imports of fresh and chilled Atlantic salmon from Norway following an affirmative final determination of subsidization by the United States Department of Commerce and an affirmative final determination of injury by the United States International Trade Commission (USITC) with respect to these imports. The investigation leading to these determinations was initiated by the Department of Commerce on 20 March 1990 in response to a petition for the initiation of an investigation submitted by the Coalition for Fair Atlantic Salmon Trade, comprised of domestic producers of fresh and chilled Atlantic salmon.

205. Norway requested the Panel to find that the imposition by the United States of the countervailing duty order was inconsistent with the obligations of the United States under the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the "Agreement"). In particular, Norway requested the Panel to find that:

Norway asked the Panel to recommend that the Committee request the United States to revoke the countervailing duty order and reimburse any countervailing duties paid.

206. The United States requested that the Panel:

2. PRELIMINARY OBJECTIONS

207. The United States had raised a number of preliminary objections. Firstly, it had objected to the admissibility of two claims of Norway, regarding the United States' failure to carry out an "upstream subsidy analysis" in the countervailing duty investigation (concerning whether subsidies to smolt were passed through to salmon), and regarding continued application of the countervailing duty order under Article 4:9, on the grounds that these claims were not within the Panel's terms of reference and were otherwise not admissible because these claims had not been raised during the consultations and the conciliation phase which had preceded the establishment of the Panel. Secondly, the United States had argued with regard to Norway's claim concerning the initiation of the countervailing duty investigation, that the failure of Norway or private Norwegian respondents to raise this matter before the investigating authorities and "exhaust administrative remedies" precluded Norway from raising this claim before the Panel.

208. The Panel examined the relation between the scope of the matter before it and the terms of reference. The Panel considered that terms of reference served two purposes: definition of the scope of a panel proceeding, and provision of notice to the defending signatory and other signatories that could be affected by the panel decision and the outcome of the dispute. The notice function of terms of reference was particularly important in providing the basis for each signatory to determine how its interests might be affected and whether it would wish to exercise its right to participate in a dispute as an interested third party. The Panel observed that terms of reference often were standard terms of reference, as in the present dispute, in which the definition of the matter had been supplied by a written statement prepared entirely by the complaining signatory. In the light of these considerations, the Panel concluded that a matter, including each claim composing that matter, could not be examined by a panel under the Agreement unless that same matter were within the scope of, and had been identified in, the written statement or statements referred to in its terms of reference.

209. The Panel noted that its terms of reference were: "To review the facts of the matter referred to the Committee by Norway in SCM/123 and SCM/123/Add.1 and, in light of such facts, to present to the Committee its findings concerning the rights and obligations of the signatories party to the dispute under the relevant provisions of the General Agreement as interpreted by the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement." Examining documents SCM/123 and SCM/123/Add.1, the Panel found that Norway did not refer in them to upstream subsidies, nor did it refer to the continued application of the countervailing duty order under Article 4:9. The Panel noted Norway's arguments that documents SCM/123 and SCM/123/Add.1 should be interpreted to include upstream subsidies in the scope of this proceeding. First, Norway had argued that references therein to calculation of the level of alleged subsidies and to application of the proper injury and causation standard (including consideration of trade effects of subsidies) included upstream subsidy issue by implication; second, Norway had argued that the "matter" referred to the Committee in these documents consisted of the imposition of countervailing duties on salmon from Norway, which would therefore include the question of the treatment of upstream subsidies; third, Norway had argued that the United States was required to demonstrate that it had considered all relevant facts (including the trade effects of regional programmes) in determining whether to impose countervailing duties.

210. The Panel considered that, because Norway had in its request for the establishment of a panel (SCM/123 and Add.1) defined its concerns regarding the calculation of the amount of subsidies as pertaining to two specific issues (the failure of the United States to adjust the amount of subsidization for income tax effects, and the method of calculation of the interest rate benchmark for the valuation of loan subsidies), the alleged failure of the United States to conduct an upstream subsidy analysis was not within the Panel's terms of reference as an aspect of Norway's claim regarding the calculation of the amount of the subsidies.

211. The Panel further noted that while Norway had in document SCM/123 and Add.1 stated a claim regarding the failure of the United States to properly consider the trade effects of the subsidies under investigation, the four aspects of this claim identified in SCM/123/Add.1 did not include the question of a failure of the United States to conduct an upstream subsidy analysis. The Panel therefore found that this issue was not within the Panel's terms of reference as an aspect of the claim stated by Norway in documents SCM/123 and Add.1 regarding the failure of the United States to properly consider the trade effects of the subsidies under investigation.

212. The Panel considered that the "matter" referred to the Committee by Norway in its request for the establishment of a panel (SCM/123 and Add.1) was not the imposition of countervailing duties by the United States on imports of fresh and chilled Atlantic salmon from Norway; rather, this "matter" consisted of the specific claims stated by Norway in these documents with respect to the imposition of these duties by the United States. The Panel considered that the logical implication of the definition advanced by Norway of the "matter" before the Panel was that whenever a panel was established in a dispute concerning the imposition of countervailing duties, such a panel could examine any aspect of the procedures followed and determinations made by the investigating authorities of the signatory which had imposed the countervailing duties, regardless of whether that aspect had been referred to in the complaining signatory's request for the establishment of a panel. There would then be practically no limit to the claims which could be raised before a panel without any advance notice to the defending party or to third parties. The Panel recalled in this connection its observations in paragraph 208 regarding the functions of panels' terms of reference.

213. The Panel then turned to Norway's argument that the upstream subsidy issue was within the Panel's terms of reference because the United States was under an obligation to demonstrate that it had considered all relevant facts before imposing countervailing duties. The Panel recalled that "the matter" before it consisted of the specific claims stated by Norway in the documents referred to in the Panel's terms of reference. A broad examination of whether the United States had considered "all relevant facts", including facts not mentioned in these documents, would be inconsistent with this definition in the Panel's terms of reference of the matter before the Panel.

214. Finally, the Panel noted that its examination of Norway's request for consultations under Article 3 of the Agreement (SCM/115) its request for conciliation (SCM/117) and the Minutes of the conciliation meeting held in July 1991 under Article 17 of the Agreement (SCM/M/52) also found no specific reference to the failure of the United States to conduct an upstream subsidy analysis.

TO CONTINUE WITH IMPOSITION OF COUNTERVAILING DUTIES ON IMPORTS OF FRESH AND CHILLED ATLANTIC SALMON FROM NORWAY

¹³² Algoma Steel Corp. v. United States, 688 F. Supp. 639, 645 (CIT 1988).

¹³³ Jackson, The World Trading System (1989), p.242.

¹³⁴ Jackson, The World Trading System (1989), p.242.

¹³⁵ Supra, paragraph 198.