UNITED STATES - IMPORT MEASURES ON CERTAIN PRODUCTS 
FROM THE EUROPEAN COMMUNITIES


AB-2000-9


Report of the Appellate Body

 (Continuation)

IX. Articles 23.2(a), 3.7 and 21.5 of the DSU

106. The Panel found that, by adopting the 3 March Measure, the United States acted inconsistently with its obligations under Articles 3.7, 21.5, 22.6, 23.1, 23.2(a) and 23.2(c) of the DSU. The United States appeals the Panel's findings of inconsistency with Articles 23.2(a), 3.7 and 21.5 of the DSU.

(a) Article 23.2(a) of the DSU

107. We first examine the appeal of the United States relating to Article 23.2(a) of the DSU. The Panel found that:

… the 3 March Measure constituted a unilateral determination contrary to Article 23.2(a) …⁶⁷ 

108. The United States contends that the European Communities' request for the establishment of a panel referred only to Article 23 of the DSU, and that the Appellate Body should reverse the Panel's finding of inconsistency with Article 23.2(a) on the basis that the panel request of the European Communities was insufficient to "present the problem clearly" as required by Article 6.2 of the DSU. The United States also argues that the European Communities "never requested or argued for" findings under Article 23.2(a), and that the European Communities failed to meet its burden of establishing a prima facie case of inconsistency with Article 23.2(a) of the DSU. The United States further submits that the Panel incorrectly found that a "determination as to the effect that a violation has occurred", within the meaning of Article 23.2(a) of the DSU, could be "implied" from the actions taken by the United States.

109. The request for the establishment of a panel of the European Communities stated:

The European Communities considers that this US measure is in flagrant breach of the following WTO provisions:

- Articles 3, 21, 22 and 23 of the DSU;

- Articles I, II, VIII and XI of GATT 1994.⁶⁸ 
 

110. Article 23 of the DSU states, in relevant part:

1. When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.

2. In such cases, Members shall: 

(a) not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding; …

111. Article 23.1 of the DSU imposes a general obligation of Members to redress a violation of obligations or other nullification or impairment of benefits under the covered agreements only by recourse to the rules and procedures of the DSU, and not through unilateral action. Subparagraphs (a), (b) and (c) of Article 23.2 articulate specific and clearly-defined forms of prohibited unilateral action contrary to Article 23.1 of the DSU. There is a close relationship between the obligations set out in paragraphs 1 and 2 of Article 23. They all concern the obligation of Members of the WTO not to have recourse to unilateral action. We therefore consider that, as the request for the establishment of a panel of the European Communities included a claim of inconsistency with Article 23, a claim of inconsistency with Article 23.2(a) is within the Panel's terms of reference.

112. However, the fact that a claim of inconsistency with Article 23.2(a) of the DSU can be considered to be within the Panel's terms of reference does not mean that the European Communities actually made such a claim. An analysis of the Panel record shows that, with the exception of two instances during the Panel proceedings ,⁶⁹ the European Communities did not refer specifically to Article 23.2(a) of the DSU. Furthermore, in response to a request from the United States to clarify the scope of its claim under Article 23, the European Communities asserted only claims of violation of Articles 23.1 and 23.2(c) of the DSU; no mention was made of Article 23.2(a).⁷⁰ Our reading of the Panel record shows us that, throughout the Panel proceedings in this case, the European Communities made arguments relating only to its claims that the United States acted inconsistently with Article 23.1 and Article 23.2(c) of the DSU.⁷¹ 

113. The Panel record does show that the European Communities made several references to what it termed the "unilateral determination" of the United States.⁷² However, in those references, the European Communities did not specifically link the alleged "unilateral determination" to a claim of violation of Article 23.2(a) per se. The European Communities' arguments relating to the alleged "unilateral determination" of the United States were made with reference to the alleged failure on the part of the United States to redress a perceived WTO violation through recourse to the DSU as required by Article 23.1 of the DSU. At no point did the European Communities link the notion of a "unilateral determination" on the part of the United States with a violation of Article 23.2(a).

114. On the basis of our review of the European Communities' submissions and statements to the Panel, we conclude that the European Communities did not specifically claim before the Panel that, by adopting the 3 March Measure, the United States acted inconsistently with Article 23.2(a) of the DSU. As the European Communities did not make a specific claim of inconsistency with Article 23.2(a), it did not adduce any evidence or arguments to demonstrate that the United States made a "determination as to the effect that a violation has occurred" in breach of Article 23.2(a) of the DSU.⁷³ And, as the European Communities did not adduce any evidence or arguments in support of a claim of violation of Article 23.2(a) of the DSU, the European Communities could not have established, and did not establish, a prima facie case of violation of Article 23.2(a) of the DSU.⁷⁴ 

115. For these reasons, we conclude that the Panel erred in finding that the United States acted inconsistently with Article 23.2(a) of the DSU. Therefore, we reverse this finding of the Panel.

(b) Article 3.7 of the DSU

116. We next examine the appeal of the United States relating to Article 3.7 of the DSU. In paragraph 6.87 of the Panel Report, the Panel found that:

… the 3 March Measure constituted a suspension of concessions or other obligations within the meaning of Articles 23.2(c), 3.7 last sentence and 22.6 last sentence, … Having reached the prior conclusion that the 3 March Measure was a measure seeking to redress a WTO violation within the meaning of Article 23.1, we find that when it put in place the 3 March Measure, prior to any DSB authorization … the United States did not abide by the rules of the DSU - violating Articles 23.2(c), 3.7 and 22.6 of the DSU ...

117. We recall that the United States does not appeal the Panel's findings of inconsistency with Articles 22.6 and 23.2(c) of the DSU. Instead, the United States appeals the Panel's finding of inconsistency with Article 3.7 of the DSU. The United States argues that the European Communities "never requested or argued for" findings under Article 3.7 of the DSU.⁷⁵ Furthermore, the United States submits that the Panel erred in concluding that Article 3.7, last sentence, contains a specific obligation which can be the subject of a dispute under the DSU.

118. Article 3.7, last sentence, of the DSU states:

The last resort which this Understanding provides to the Member invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis the other Member, subject to authorization by the DSB of such measures. (emphasis added)

119. Article 3.7 is part of Article 3 of the DSU, which is entitled "General Provisions" and sets out the basic principles and characteristics of the WTO dispute settlement system. Article 3.7 itself lists and describes the possible temporary and definitive outcomes of a dispute, one of which is the suspension of concessions or other obligations to which the last sentence of Article 3.7 refers. The last sentence of Article 3.7 provides that the suspension of concessions or other obligations is a "last resort" that is subject to DSB authorization.

120. The obligation of WTO Members not to suspend concessions or other obligations without prior DSB authorization is explicitly set out in Articles 22.6 and 23.2(c), not in Article 3.7 of the DSU. It is, therefore, not surprising that the European Communities did not explicitly claim, or advance arguments in support of, a violation of Article 3.7, last sentence. The European Communities argued that the 3 March Measure is inconsistent with Articles 22.6 and 23.2(c) of the DSU. We consider, however, that if a Member has acted in breach of Articles 22.6 and 23.2(c) of the DSU, that Member has also, in view of the nature and content of Article 3.7, last sentence, necessarily acted contrary to the latter provision.

121. Although we do not believe that it was necessary or incumbent upon the Panel to find that the United States violated Articles 3.7 of the DSU, we find no reason to disturb the Panel's finding that, by adopting the 3 March Measure, the United States acted inconsistently with "Articles 23.2(c), 3.7 and 22.6 of the DSU".⁷⁶ 

(c) Article 21.5 of the DSU

122. Finally, the United States appeals the Panel's finding of inconsistency with Article 21.5 of the DSU. The United States argues that this finding was based on "argumentation" that was not presented by the European Communities and on the "Panel's erroneous conclusion" that the 3 March Measure is inconsistent with Article 23.2(a) of the DSU.⁷⁷ 

123. This appeal by the United States raises the question whether a panel is entitled to develop its own legal reasoning in reaching its findings and conclusions on the matter under its consideration. In our Report in European Communities ? Hormones, we held: 

Panels are inhibited from addressing legal claims falling outside their terms of reference. However, nothing in the DSU limits the faculty of a panel freely to use arguments submitted by any of the parties ? or to develop its own legal reasoning ? to support its own findings and conclusions on the matter under its consideration.⁷⁸

The Panel in this case exercised its discretion to develop its own legal reasoning. Contrary to what the United States argues, the Panel was not obliged to limit its legal reasoning in reaching a finding to arguments presented by the European Communities. We, therefore, do not consider that the Panel committed a reversible error by developing its own legal reasoning.

124. The United States further argues that the Panel's finding under Article 21.5 should be reversed because, in making this finding, the Panel relied on its "erroneous Article 23.2(a) finding".⁷⁹ According to the United States, the Panel did not undertake any analysis separate from that under Article 23.2(a) in finding a violation of Article 21.5. The United States submits that the Panel:

… simply quoted the language of Article 23.2(a), stated that this provision prohibits "unilateral determinations" and that the 3 March Measure "necessarily implies" such a unilateral determination, and concluded that this unilateral determination was "contrary to Article 23.2(a) and 21.5 of the DSU".⁸⁰ 

125. The Panel stated in relevant part:

We consider that the obligation to use the WTO multilateral dispute settlement mechanism (i.e. as opposed to unilateral or even regional mechanisms) to obtain any determination of WTO compatibility, is a fundamental obligation that finds application throughout the DSU. For us, the prohibition against unilateral determinations of WTO violation contained in the first sentence of Article 21.5 of the DSU is comparable to that of Article 23.2(a) of the DSU.⁸¹ 

We conclude, therefore, that Article 21.5, first sentence is another DSU obligation (similar to Article 23.2(a)) which, although not explicitly listed in Article 23.2, is covered by Article 23.1, when the measure at issue was seeking to redress a WTO obligation.⁸² 

… when the United States put in place the 3 March Measure, no WTO adjudicating body had determined that the EC implementing measure was WTO incompatible. The United States, therefore, when it put in place the 3 March Measure violated Article 21.5 of the DSU …⁸³ 

126. Our reading of the Panel Report does not lead us to conclude that the Panel based its finding of the inconsistency of the 3 March Measure with Article 21.5 on its conclusion that the measure was inconsistent with Article 23.2(a). Although the Panel considered that the obligation under Article 21.5 was "comparable" and "similar" to the obligation under Article 23.2(a), it explicitly stated that "Article 21.5, first sentence is another DSU obligation … which, although not explicitly listed in Article 23.2, is covered by Article 23.1 …"⁸⁴. The Panel's references to Article 23.2(a) cannot be construed as the basis upon which the Panel reached its conclusions under Article 21.5. On the contrary, the Panel based its finding of inconsistency on the uncontested fact that, when the United States put in place the 3 March Measure, the WTO-consistency of the European Communities' implementing measure had not been determined through recourse to the WTO dispute settlement procedures as required by Article 21.5 of the DSU.⁸⁵ 

127. We, therefore, uphold the Panel's finding that, by adopting the 3 March Measure, the United States acted inconsistently with its obligations under Article 21.5 of the DSU.

X. Findings and Conclusions

128. For the reasons set out in this Report, the Appellate Body:

(a) upholds the Panel's findings that the measure at issue in this dispute is the 3 March Measure, which is the "increased bonding requirements as of 3 March on EC listed products", that this measure is no longer in existence, that the 3 March Measure is legally distinct from the 19 April action and that the 19 April action is not within the terms of reference of the Panel;

(b) concludes, for the reasons stated in paragraph 89 of this Report, that the Panel erred by stating that the WTO-consistency of a measure taken by a Member to comply with recommendations and rulings of the DSB can be determined by arbitrators appointed under Article 22.6 of the DSU, and, thus, concludes that the Panel's statements on this issue have no legal effect;

(c) concludes, for the reasons stated in paragraph 96 of this Report, that the Panel erred by stating that "[o]nce a Member imposes DSB authorised suspensions of concessions or obligations, that Member's measure is WTO compatible (it was explicitly authorised by the DSB)", and, thus, concludes that this statement has no legal effect;

(d) reverses the Panel's findings that the increased bonding requirements are inconsistent with Articles II:1(a) and II:2(b), first sentence, of the GATT 1994; and

(e) reverses the Panel's finding that, by adopting the 3 March Measure, the United States acted inconsistently with Article 23.2(a) of the DSU, finds no reason to disturb the Panel's finding that the United States acted inconsistently with "Articles 23.2(c), 3.7 and 22.6 of the DSU", and upholds the Panel's finding of inconsistency of the 3 March Measure with Article 21.5 of the DSU.

129. As we have upheld the Panel's finding that the 3 March Measure, the measure at issue in this dispute, is no longer in existence, we do not make any recommendation to the DSB pursuant to Article 19.1 of the DSU.


Signed in the original at Geneva this 10th day of November 2000 by:

_________________________
James Bacchus
Presiding Member


 

_________________________                                       _______________ __________
Julio Lacarte-Muró                                                                           Yasuhei Taniguchi
       Member                                                                                            Member


 

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67. Panel Report, para. 6.107.

68. WT/DS165/8, 11 May 1999.

69. In paragraph 42 of its oral statement at the second Panel meeting, the European Communities cites Article 23.2(a) in support of its argument in paragraph 43 that "the revised EC banana regime ... was never determined to be incompatible with the EC's WTO obligations in a dispute settlement procedure initiated by the US". In paragraph 86 of its second written submission, the European Communities argues that Articles 23.1 and Article 23.2(a) "specify that such a [determination] can only be made under the rules and procedures of the DSU".

70. In its response to the United States' request for clarification, the European Communities explained as follows:

As we have already explained in detail in our first written submission, the US measures that are the subject matter of the present complaint by the European Communities were taken in flagrant violation of the obligations of all WTO Members to respect the provisions of Article 23 of the DSU. . .
The guiding principle of Article 23 is contained in its paragraph 1 which also governs the more detailed provisions of paragraph 2 . . .

The European Communities then quoted Article 23.2(c) of the DSU in full and argued:

The EC submits that the measures complained of in the present case are obviously in breach of this explicit provision concerning the sequence between the procedures under Article 22 of the DSU and the recourse to the suspension of concessions or other obligations.

See paragraphs 13-15 of the European Communities' oral statement at the first Panel meeting.


71. The two specific references to Article 23.2(a) of the DSU, in paragraph 42 of the European Communities' oral statement at the second Panel meeting and in paragraph 86 of the European Communities' second written submission (see supra, footnote 70), were made in the context of the European Communities' arguments on its claim of violation of the general obligation in Article 23.1 of the DSU.

72. European Communities' first written submission, paras. 5, 10, 20, and 28; European Communities' second written submission, para. 30; and European Communities' oral statement at second Panel meeting, Addendum to the Panel Report, p. 44.

73. We note that in addition to the 3 March Measure, the European Communities referred in its submissions and statements to the Panel, to various public notices published in the United States' Federal Register (first written submission, para. 18, and oral statement at first Panel meeting, paras.10-11), as well as to statements made by the Deputy USTR at a press conference held on 3 March 1999 (first written submission, para. 15). However, the European Communities has not argued, let alone demonstrated, that any of these notices or statements constitute a "determination as to the effect that a violation has occurred" within the meaning of Article 23.2(a).

74. We recall that in our Report in EC Measures Concerning Meat and Meat Products (Hormones) ("European Communities - Hormones"), we held that:

 . . a prima facie case is one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case.

See WT/DS26/AB/R, WT/DS44/AB/R, adopted 13 February 1998, para. 104.

75. United States' appellant's submission, para. 56.

76. Panel Report, para. 6.87.

77. United States' appellant's submission, para. 64.

78. Appellate Body Report, supra, footnote 74, para. 156.

79. United States' appellant's submission, para. 66.

80. Ibid.

81. Panel Report, para. 6.92.

82. Panel Report, para. 6.129.

83. Ibid., para. 6.130.

84. Ibid., para. 6.129.

85. Ibid., para. 6.130.