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E. The EC claim that sections 305 and 306 are inconsistent with Article 23.2(c) of the DSU
7.171 The EC claims that Section 306 (b) is inconsistent with Article 23.2(c) of the DSU because it requires the USTR to determine within 30 days after the expiration of the reasonable period of time what further action to take under Section 301 in case of a failure to implement DSB recommendations. The EC also claims that Section 305 (a)(2) is inconsistent with Article 23.2(c) of the DSU because it requires the USTR to implement the action determined earlier under Section 306 within 60 days after the expiration of the reasonable period of time.
7.172 As noted earlier, Article 23.2(c) provides that in cases where WTO Members seek redress of WTO inconsistencies, Members shall
Article 23.2(c) thus includes two cumulative obligations:
7.173 After considering the submissions of the parties in relation to this claim, detailed exhaustively in the descriptive part of this Report, we reach the following conclusions.
2. The EC claim in respect of Determinations on Action under Section 306 (b)
7.174 Whereas the previous EC claim dealt with the "consideration" that implementation had failed under Section 306, this claim concerns the subsequent determination on action following such a determination of non-implementation. At issue here is the second phase of Section 306 as outlined above.717 We recall that this determination has to be made within 30 days after the expiry of the reasonable period of time and that, in the circumstances referred to by the EC, it may, indeed, be mandated before the completion of Article 21.5 procedures on implementation.
7.175 We find, as a matter of fact, that this determination on what action to take under the second phase of Section 306 is only mandated if the USTR has determined under the first phase that implementation failed.
7.176 As we did in respect of the previous claim, we will examine the conformity of Section 306 with Article 23.2(c) on the assumption, first, that the US view on Articles 21.5 and 22 is correct and, then, on the alternative assumption that the EC view in this respect is the correct one.
7.177 We recall that if one were to accept the US view on the relationship between Articles 21.5 and 22, then the US would effectively be obligated, or at least authorized, under Article 22 – in the event it determines that implementation failed – to make a determination on what action to take within 30 days after the expiry of the reasonable period of time. If not, it would lose the right to obtain DSB authorization by negative consensus. In that event, any determination on action made under Section 306 in the circumstances referred to in the EC claim would "follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations" and thus be consistent with Article 23.2(c).
7.178 Turning now to the EC view on Articles 21.5 and 22, we found in examining the first phase of Section 306 that – if one were to accept the EC view – discretion to make a determination of non-implementation before the completion of Article 21.5 procedures would be prima facie inconsistent with Article 23.2(a). If such discretion were maintained, it would spill over to the second phase of Section 306 as well. However, we have already found that – assuming the EC view is correct – the discretion afforded to the USTR to make a determination that implementation has failed prior to the exhaustion of DSU proceedings under Article 21.5 would be effectively curtailed by the undertakings given by the US Administration both internally and internationally. So long as the US undertakings are in place, the trigger for the determination of action under the second phase of Section 306 would thus be disabled and any potential violation also of Article 23.2(c) eliminated.718 Indeed, in these circumstances, any determination on action under the second phase of Section 306 would – as the determination on consistency under the first phase – take place subsequent to the completion of Article 21.5 procedures in accordance with the EC view on Article 22. Any such determination on action would thus "follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations" and be consistent with Article 23.2(c).
7.179 For the reasons outlined above, we find that Section 306 – irrespective of whether we accept the US or the EC approach in respect of Articles 21.5 and 22 – is not inconsistent with US obligations under Article 23.2(c). The same caveats made in our findings as regards Section 304 also apply here.719
3. The EC claim in respect of Implementation of Action under Section 305
7.180 Similar reasoning applies to the EC claim in respect of Section 305. Any action the USTR determined to take pursuant to Section 306, constituting the suspension of concessions or other obligations under the WTO, has to be implemented within "30 days after the date on which such determination is made" in accordance with Section 305(a)(1). In other words, if the USTR determines to take action within 30 days after the expiry of the reasonable period of time as referred to in Section 306, it will be obligated to implement such action within 60 days after the expiry of the reasonable period of time. We agree with the EC that Article 21.5 and even Article 22.6 arbitration procedures on the level of suspension may not be over within this 60 days period.720 As a result, Section 305(a)(1) read in isolation may, in certain circumstances, mandate the implementation of action before receiving DSB authorization to do so.
7.181 However, under Section 305 (a)(2) there is discretion to suspend any implementation of action for up to 180 days beyond the 60 days after the expiration of the reasonable period of time. The USTR may do so if it determines, for example, that a delay is "necessary or desirable to obtain United States rights", for example, DSB authorization to suspend concessions.721 In addition, implementation of action under Section 305 is also subject to "the specific direction, if any, of the President regarding any such action".722
7.182 The requirement to implement action within 60 days – unless exceptions are made – even in cases where DSB authorization has not yet been obtained, may constitute a prima facie violation of the US obligation under Article 23.2(c) to "obtain DSB authorization in accordance with [Article 22] procedures before suspending concessions or other obligations". The fact that implementation can be delayed does not, in our view, necessarily meet the US guarantee granted under Article 23.2(c) to all WTO Members and, through them, economic operators in the market-place, that determinations contrary to Article 23.2(c) will not be made.
7.183 However, even if the existence of such discretion were to constitute a prima facie violation, the undertakings given by the US would remove it and no violation of Article 23.2(c) could be found. We note, in particular, that under the SAA the USTR is obligated to do the following:
7.184 As a result, after evaluation of all elements relevant to Section 305, we come to the conclusion that the USTR under US law is precluded from exercising his or her discretion under Section 305 in a way that results in implementation of action before DSB authorization has been obtained.724 We note that USTR discretion in this respect has been lawfully curtailed. Section 305 (a)(2)(ii), in particular, allows the USTR to delay action when "necessary or desirable to obtain United States rights", in this case, the right to be obtained from the DSB to suspend concessions or other obligations.725
7.185 For the reasons set out above, we find that Section 305, in the circumstances referred to in the EC claim, is not inconsistent with US obligations under Article 23.2(c). The same caveats made in our findings as regards Section 304 also apply here.726
F. The EC Claims under GATT 1994
7.186 The EC submits, finally, that in disputes involving goods, Section 306 requires the USTR "unilaterally" to impose measures as a consequence of a "unilaterally" determined failure to implement DSB recommendations, not authorized under the DSU, that necessarily violate Article I, II, III, VIII or XI of GATT 1994. Therefore, the EC concludes, also Section 306 itself violates the said GATT provisions.
7.187 We note, first, that these GATT claims depend on acceptance of the EC claims under the DSU.727 If action is explicitly allowed under the DSU, it can arguably not be prohibited under the more general GATT 1994. Since we have found that Section 306 is not inconsistent with Article 23 of the DSU, we can presume also that the dependent claim under GATT should be rejected.728
7.188 Moreover, on the substance of its argument, the EC did not further develop this claim.729 It did not even refer to the text of the GATT provisions invoked.
7.189 On these grounds, we find that the EC has not met its burden of proving that Section 306 as such constitutes a violation of GATT 1994.
8.1 In the light of the statutory and non-statutory elements of Sections 301-310, in particular the US undertakings articulated in the Statement of Administrative Action approved by the US Congress at the time it implemented the Uruguay Round agreements and confirmed and amplified in the statements by the US to this Panel, we conclude that those aspects of Sections 301-310 of the US Trade Act brought before us in this dispute are not inconsistent with US obligations under the WTO. More specifically we conclude that
Significantly, all these conclusions are based in full or in part on the US Administration's undertakings mentioned above. It thus follows that should they be repudiated or in any other way removed by the US Administration or another branch of the US Government, the findings of conformity contained in these conclusions would no longer be warranted.
Signed in the original this 8th of November 1999 by:
TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974
717 See paras. 7.142-7.143 above.
718 We note that in addition to the discretion granted to the USTR under the first phase of Section 306 allowing it to delay a determination of non-implementation the USTR has also been granted a certain discretion under the second phase of Section 306, as well as under Section 301, allowing it not to determine what action to take until the completion of Article 21.5 procedures. The determination mandated in Section 306 on what action to take refers to "mandatory action" under Section 301 (a). Section 301 (a) itself provides for several exceptions where the USTR is not required to take action. Under this provision, action is not required, inter alia, if the DSB has adopted a report or ruling finding that US rights have not been denied; if the Member concerned is taking satisfactory measures to grant the US rights at issue under the WTO Agreement, including an expression of intention to comply with DSB recommendations; or if, in extraordinary cases, action would have a disproportionate adverse impact on the US economy or cause serious harm to the national security of the US. An additional discretionary element allowing the USTR to determine that no action is to be taken is that action under Section 301(a) is subject to "the specific direction, if any, of the President regarding any such action". Even if the existence of the discretion under both phases of Section 306 and under Section 301 were to constitute a prima facie violation, the undertakings given by the US would remove these.
719 See paras. 7.131-7.136 above.
720 In respect of Article 21.5 procedures, see para. 7.145 above. Since Article 21.5 procedures may seemingly start on or about the date of expiry of the reasonable period of time and, as a general rule, take 90 days, it is likely that such procedures would not be completed within the 60 day deadline of Section 305. In respect of Article 22.6 arbitration procedures, we note that Article 22.6 provides that the arbitration has to be completed within 60 days after the expiry of the reasonable period of time, i.e. the time-limit in Section 305. However, even if the arbitration is completed by then, it may take some more time for the DSB to actually authorize the suspension of concessions consistent with the arbitration report. Considering footnote 7 in the Bananas III arbitration report (WT/DS27/ARB), even the completion of arbitration procedures within 60 days is not a certainty: "On the face of it, the 60-day period specified in Article 22.6 does not limit or define the jurisdiction of the Arbitrators ratione temporis. It imposes a procedural obligation on the Arbitrators in respect of the conduct of their work, not a substantive obligation in respect of the validity thereof. In our view, if the time-periods of Article 17.5 and Article 22.6 of the DSU were to cause the lapse of the authority of the Appellate Body or the Arbitrators, the DSU would have explicitly provided so. Such lapse of jurisdiction is explicitly foreseen, e.g. in Article 12.12 of the DSU which provides that 'if the work of the panel has been suspended for more than 12 months, the authority for establishment of the panel shall lapse' ".
721 Thus, even if the US view on the relationship between Articles 21.5 and 22 were correct, the USTR could after having made determinations on WTO consistency and Section 301 action before the completion of Article 21.5 procedures as required, or at least authorized, under its reading of Article 22 still delay the implementation of any such action it may have determined to take until it has obtained DSB authorization to implement such action consistently with Article 23.2(c).
722 We note also that activation of Section 305 is dependent on a determination of action under Section 306 (second phase) and that the determination of action under Section 306 (second phase) is dependent on a "consideration that implementation has not taken place under Section 306 (first phase). Since the initial trigger of determining that implementation has not taken place would following the EC view on the relationship between Articles 21.5 and 22 be removed the consequent implementation of action would also be delayed at least until completion of Article 21.5 procedures.
723 SAA, p. 366, fourth bullet point.
724 We agree with the US that if the maximum delay were imposed, the total of 240 days subsequent to the lapse of the reasonable period of time the original 60 day time-frame combined with the 180 days delay should be sufficient for the USTR to await in all cases the completion of both Article 21.5 and Article 22.6 procedures as well as DSB authorization to suspend concessions.
725 By so finding, we explicitly leave open the question of how DSB authorization to suspend concessions is to be applied ratione temporis, a question that is subject to another panel proceeding.
726 See paras. 7.131-7.136 above.
727 The EC seems to agree with this when it states, in para. 11 of its rebuttal submission, that "Section 301-310, on their face, mandate unilateral action by the US authorities in breach of Article 23 of the DSU (and consequently of Articles I, II, III, VIII and XI of the GATT 1994)" (emphasised added).
728 In this respect we note, in addition, that action under Section 301 can also be consistent with GATT provisions even when it is not explicitly allowed under the DSU. This could be the case, for example, when the action consists of a rise in applied tariffs to a level within the bound rate, implemented on an MFN basis.
In its rebuttal submission, at p. 22, the EC only stated the following on this claim: "Given that Sections 304(a)(2)(A) and 306(b),
as amended, require the United States to resort to retaliatory trade action within certain
time limits irrespective of the result of WTO dispute settlement procedures, the actions
taken in the area of trade in goods and not authorised pursuant to Article 3.7 and 22 of
the DSU will necessarily be in violation of US obligations under one or more of the
following GATT obligations: the Most-Favoured Nation clause (Article I GATT 1994), the
tariff bindings undertaken by the United States (Article II GATT 1994), the National
Treatment clause (Article III GATT 1994), the obligation not to collect excessive charges
(Article VIII GATT 1994) and the prohibition of quantitative restrictions (Article XI GATT
1994)". See para. 4.1013 of this Report.