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WTO ANALYTICAL INDEX: TEXTILES AND CLOTHING Agreement on Textiles and Clothing |
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> Preamble |
Article 6 1. Members recognize that during the transition period it may be necessary to apply a specific transitional safeguard mechanism (referred to in this Agreement as "transitional safeguard"). The transitional safeguard may be applied by any Member to products covered by the Annex, except those integrated into GATT 1994 under the provisions of Article 2. Members not maintaining restrictions falling under Article 2 shall notify the TMB within 60 days following the date of entry into force of the WTO Agreement, as to whether or not they wish to retain the right to use the provisions of this Article. Members which have not accepted the Protocols extending the MFA since 1986 shall make such notification within 6 months following the entry into force of the WTO Agreement. The transitional safeguard should be applied as sparingly as possible, consistently with the provisions of this Article and the effective implementation of the integration process under this Agreement.
2. Safeguard action may be taken under this Article when, on the basis of a determination by a Member(5), it is demonstrated that a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products. Serious damage or actual threat thereof must demonstrably be caused by such increased quantities in total imports of that product and not by such other factors as technological changes or changes in consumer preference.
(footnote original) 5 A customs union may apply a safeguard measure as a single unit or on behalf of a member State. When a customs union applies a safeguard measure as a single unit, all the requirements for the determination of serious damage or actual threat thereof under this Agreement shall be based on the conditions existing in the customs union as a whole. When a safeguard measure is applied on behalf of a member State, all the requirements for the determination of serious damage, or actual threat thereof, shall be based on the conditions existing in that member State and the measure shall be limited to that member State.
3. In making a determination of serious damage, or actual threat thereof, as referred to in paragraph 2, the Member shall examine the effect of those imports on the state of the particular industry, as reflected in changes in such relevant economic variables as output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits and investment; none of which, either alone or combined with other factors, can necessarily give decisive guidance.
4. Any measure invoked pursuant to the provisions of this Article shall be applied on a Member-by-Member basis. The Member or Members to whom serious damage, or actual threat thereof, referred to in paragraphs 2 and 3, is attributed, shall be determined on the basis of a sharp and substantial increase in imports, actual or imminent(6), from such a Member or Members individually, and on the basis of the level of imports as compared with imports from other sources, market share, and import and domestic prices at a comparable stage of commercial transaction; none of these factors, either alone or combined with other factors, can necessarily give decisive guidance. Such safeguard measure shall not be applied to the exports of any Member whose exports of the particular product are already under restraint under this Agreement.
(footnote original) 6 Such an imminent increase shall be a measurable one and shall not be determined to exist on the basis of allegation, conjecture or mere possibility arising, for example, from the existence of production capacity in the exporting Members.
5. The period of validity of a determination of serious damage or actual threat thereof for the purpose of invoking safeguard action shall not exceed 90 days from the date of initial notification as set forth in paragraph 7.
6. In the application of the transitional safeguard, particular account shall be taken of the interests of exporting Members as set out below:
(a) least-developed country Members shall be accorded treatment significantly more favourable than that provided to the other groups of Members referred to in this paragraph, preferably in all its elements but, at least, on overall terms;
(b) Members whose total volume of textile and clothing exports is small in comparison with the total volume of exports of other Members and who account for only a small percentage of total imports of that product into the importing Member shall be accorded differential and more favourable treatment in the fixing of the economic terms provided in paragraphs 8, 13 and 14. For those suppliers, due account will be taken, pursuant to paragraphs 2 and 3 of Article 1, of the future possibilities for the development of their trade and the need to allow commercial quantities of imports from them;
(c) with respect to wool products from wool-producing developing country Members whose economy and textiles and clothing trade are dependent on the wool sector, whose total textile and clothing exports consist almost exclusively of wool products, and whose volume of textiles and clothing trade is comparatively small in the markets of the importing Members, special consideration shall be given to the export needs of such Members when considering quota levels, growth rates and flexibility;
(d) more favourable treatment shall be accorded to re-imports by a Member of textile and clothing products which that Member has exported to another Member for processing and subsequent reimportation, as defined by the laws and practices of the importing Member, and subject to satisfactory control and certification procedures, when these products are imported from a Member for which this type of trade represents a significant proportion of its total exports of textiles and clothing.
7. The Member proposing to take safeguard action shall seek consultations with the Member or Members which would be affected by such action. The request for consultations shall be accompanied by specific and relevant factual information, as up-to-date as possible, particularly in regard to: (a) the factors, referred to in paragraph 3, on which the Member invoking the action has based its determination of the existence of serious damage or actual threat thereof; and (b) the factors, referred to in paragraph 4, on the basis of which it proposes to invoke the safeguard action with respect to the Member or Members concerned. In respect of requests made under this paragraph, the information shall be related, as closely as possible, to identifiable segments of production and to the reference period set out in paragraph 8. The Member invoking the action shall also indicate the specific level at which imports of the product in question from the Member or Members concerned are proposed to be restrained; such level shall not be lower than the level referred to in paragraph 8. The Member seeking consultations shall, at the same time, communicate to the Chairman of the TMB the request for consultations, including all the relevant factual data outlined in paragraphs 3 and 4, together with the proposed restraint level. The Chairman shall inform the members of the TMB of the request for consultations, indicating the requesting Member, the product in question and the Member having received the request. The Member or Members concerned shall respond to this request promptly and the consultations shall be held without delay and normally be completed within 60 days of the date on which the request was received.
8. If, in the consultations, there is mutual understanding that the situation calls for restraint on the exports of the particular product from the Member or Members concerned, the level of such restraint shall be fixed at a level not lower than the actual level of exports or imports from the Member concerned during the 12-month period terminating two months preceding the month in which the request for consultation was made.
9. Details of the agreed restraint measure shall be communicated to the TMB within 60 days from the date of conclusion of the agreement. The TMB shall determine whether the agreement is justified in accordance with the provisions of this Article. In order to make its determination, the TMB shall have available to it the factual data provided to the Chairman of the TMB, referred to in paragraph 7, as well as any other relevant information provided by the Members concerned. The TMB may make such recommendations as it deems appropriate to the Members concerned.
10. If, however, after the expiry of the period of 60 days from the date on which the request for consultations was received, there has been no agreement between the Members, the Member which proposed to take safeguard action may apply the restraint by date of import or date of export, in accordance with the provisions of this Article, within 30 days following the 60-day period for consultations, and at the same time refer the matter to the TMB. It shall be open to either Member to refer the matter to the TMB before the expiry of the period of 60 days. In either case, the TMB shall promptly conduct an examination of the matter, including the determination of serious damage, or actual threat thereof, and its causes, and make appropriate recommendations to the Members concerned within 30 days. In order to conduct such examination, the TMB shall have available to it the factual data provided to the Chairman of the TMB, referred to in paragraph 7, as well as any other relevant information provided by the Members concerned.
11. In highly unusual and critical circumstances, where delay would cause damage which would be difficult to repair, action under paragraph 10 may be taken provisionally on the condition that the request for consultations and notification to the TMB shall be effected within no more than five working days after taking the action. In the case that consultations do not produce agreement, the TMB shall be notified at the conclusion of consultations, but in any case no later than 60 days from the date of the implementation of the action. The TMB shall promptly conduct an examination of the matter, and make appropriate recommendations to the Members concerned within 30 days. In the case that consultations do produce agreement, Members shall notify the TMB upon conclusion but, in any case, no later than 90 days from the date of the implementation of the action. The TMB may make such recommendations as it deems appropriate to the Members concerned.
12. A Member may maintain measures invoked pursuant to the provisions of this Article: (a) for up to three years without extension, or (b) until the product is integrated into GATT 1994, whichever comes first.
13. Should the restraint measure remain in force for a period exceeding one year, the level for subsequent years shall be the level specified for the first year increased by a growth rate of not less than 6 per cent per annum, unless otherwise justified to the TMB. The restraint level for the product concerned may be exceeded in either year of any two subsequent years by carry forward and/or carryover of 10 per cent of which carry forward shall not represent more than 5 per cent. No quantitative limits shall be placed on the combined use of carryover, carry forward and the provision of paragraph 14.
14. When more than one product from another Member is placed under restraint under this Article by a Member, the level of restraint agreed, pursuant to the provisions of this Article, for each of these products may be exceeded by 7 per cent, provided that the total exports subject to restraint do not exceed the total of the levels for all products so restrained under this Article, on the basis of agreed common units. Where the periods of application of restraints of these products do not coincide with each other, this provision shall be applied to any overlapping period on a pro rata basis.
15. If a safeguard action is applied under this Article to a product for which a restraint was previously in place under the MFA during the 12-month period prior to the entry into force of the WTO Agreement, or pursuant to the provisions of Article 2 or 6, the level of the new restraint shall be the level provided for in paragraph 8 unless the new restraint comes into force within one year of:
(a) the date of notification referred to in paragraph 15 of Article 2 for the elimination of the previous restraint; or
(b) the date of removal of the previous restraint put in place pursuant to the provisions of this Article or of the MFA
in which case the level shall not be less than the higher of (i) the level of restraint for the last 12-month period during which the product was under restraint, or (ii) the level of restraint provided for in paragraph 8.
16. When a Member which is not maintaining a restraint under Article 2 decides to apply a restraint pursuant to the provisions of this Article, it shall establish appropriate arrangements which: (a) take full account of such factors as established tariff classification and quantitative units based on normal commercial practices in export and import transactions, both as regards fibre composition and in terms of competing for the same segment of its domestic market, and (b) avoid over-categorization. The request for consultations referred to in paragraphs 7 or 11 shall include full information on such arrangements.
36. In US - Cotton Yarn, the Appellate Body distinguished three different although interrelated elements in Article 6, namely "causation", "attribution" and "application": "[W]e have to distinguish three different, but interrelated, elements under Article 6: first, causation of serious damage or actual threat thereof by increased imports(37); second, attribution of that serious damage to the Member(s) the imports from whom contributed to that damage; and third, application of transitional safeguard measures to such Member(s)."(38) (39) (b) Introduction of a restraint under Article 6 without notification to the TMB 37. In the context of examining a new restriction introduced by the United States on Turkey's exports of certain textile products, as part of a broader understanding reached between the two Members, the TMB held that it required notification of restraint measures under Article 6: "Article 6 specifically provides in its paragraph 1 the possibility of introducing 'transitional safeguard' which, as stipulated in other provisions of the same Article, takes the form of restraint measures. However, the restraint measure or measures taken under this Article have to be notified to the TMB, whether agreed or applied unilaterally, as clearly set out in Articles 6.9, 6.10 and 6.11, so as to enable the TMB to examine the measure(s) in question, as required by the provisions of Article 6. Therefore, the measure agreed between Turkey and the United States could not have been taken under Article 6 since that Article requires notification and since both Members had stated to the TMB that the measure had been taken 'pursuant to a provision of the ATC which does not require notification to the TMB'."(40) 38. In US - Underwear, the United States provided the Panel with the statement issued by the United States authorities on 23 March 1995 (the "March Statement"), based upon which it proposed the transitional safeguard measure in question, and another statement which the United States later provided to the complainant in the TMB review proceedings (the "July Statement"). The Panel, in a statement not reviewed by the Appellate Body, restricted its review to an examination of the March Statement, noting as follows: "We believe that statements subsequent to the March Statement should not be viewed as a legally independent basis for establishing serious damage or actual threat thereof in the present case. A restriction may be imposed, in a manner consistent with Article 6 of the ATC, when based on a determination made in accordance with the procedure embodied in Article 6.2 and 6.4 of the ATC. This is precisely the role that the March Statement is called upon to play. Consequently, to review the alleged inconsistency of the US action with the ATC, we must focus our legal analysis on the March Statement as the relevant legal basis for the safeguard action taken by the United States."(41) 39. While it declined to consider a later statement which the United States had provided to the complainant (Costa Rica) in the TMB review proceedings, as referenced in paragraph 38 above, the Panel on US - Underwear, in a finding not reviewed by the Appellate Body, held that it could nevertheless "legitimately take the July Statement into account as evidence submitted by the United States in our assessment of the overall accuracy of the March Statement": "The March Statement included under the heading 'Market Situation' one sub-heading entitled 'Serious Damage to the Domestic Industry' (sub-heading A), which contained general information about the effect of underwear imports in Category 352/652, and a second sub-heading 'Industry Statements' (sub-heading B), which summarized statements to the US authorities by individual US companies. To some extent, there was an overlap between the information contained under the two sub-headings. The same categories of information were equally discussed in a statement submitted to the TMB by the United States in July 1995 (the 'July Statement'). While we have concluded that the July Statement should not be viewed as a legally independent basis for establishing serious damage or actual threat thereof, we feel that we can legitimately take the July Statement into account as evidence submitted by the United States in our assessment of the overall accuracy of the March Statement. Consequently, we will use the July Statement for this limited purpose only. By doing so, we do not share the concerns expressed by the United States that such use of the July Statement would impair proceedings in the TMB in the future. We consider that a reluctance to submit updated information would normally adversely affect Members concerned. The interest to cooperate as required by Articles 6.7 and 6.9 of the ATC would prevail."(42) 40. Also in the context of the scope of review, the Panel on US - Underwear held with respect to the information concerning bilateral negotiation between the parties: "In our view, the wording of Article 4.6 of the DSU makes it clear that offers made in the context of consultations are, in case a mutually agreed solution is not reached, of no legal consequence to the later stages of dispute settlement, as far as the rights of the parties to the dispute are concerned. Consequently, we will not base our findings on such information."(43) 41. In US - Cotton Yarn, the Appellate Body considered that the Panel, in assessing the due diligence required of the United States in making a determination under Article 6.2, had exceeded its mandate under Article 11 of the DSU by considering certain evidence that could not possibly have been examined by the United States when it made that determination. The Appellate Body concluded: "[I]f a Member that has exercised due diligence in complying with its obligations of investigation, evaluation and explanation, were held responsible before a panel for what it could not have known at the time it made its determination, this would undermine the right afforded to importing Members under Article 6 to take transitional safeguard action when the determination demonstrates the fulfilment of the specific conditions provided for in this Article".(44) 42. At its meeting in November 1998, in examining a safeguard measure introduced by Colombia against imports of certain products from Korea and Thailand, the TMB observed: "With respect to requesting additional information, as referred to by Colombia, the TMB was of the view that its review of the measures introduced by Colombia had to be based essentially on the information made available by Colombia in accordance with Article 6.7 at the time the request for consultations had been made."(45) 43. In US - Wool Shirts and Blouses, on the issue of the burden of proof regarding whether a certain transitional safeguard measure complied with the requirements in Article 6, the Appellate Body held that it was for India to demonstrate that the United States measure had been imposed in violation of Article 6. In so doing, the Appellate Body also indirectly reversed a statement by the Panel on US - Underwear, which had held, in a finding not reviewed by the Appellate Body, that the burden of proof under Article 6 fell upon the Member imposing the safeguard measure. In US - Wool Shirts and Blouses, the Appellate Body found that Article 6 embodied "a fundamental part of the rights and obligations of WTO Members concerning non-integrated textile and clothing products covered by the ATC during the transitional period": "We agree with the Panel that it was up to India to present evidence and argument sufficient to establish a presumption that the transitional safeguard determination made by the United States was inconsistent with its obligations under Article 6 of the ATC. With this presumption thus established, it was then up to the United States to bring evidence and argument to rebut the presumption. ... The transitional safeguard mechanism provided in Article 6 of the ATC is a fundamental part of the rights and obligations of WTO Members concerning non-integrated textile and clothing products covered by the ATC during the transitional period. Consequently, a party claiming a violation of a provision of the WTO Agreement by another Member must assert and prove its claim. In this case, India claimed a violation by the United States of Article 6 of the ATC. We agree with the Panel that it, therefore, was up to India to put forward evidence and legal argument sufficient to demonstrate that the transitional safeguard action by the United States was inconsistent with the obligations assumed by the United States under Articles 2 and 6 of the ATC. India did so in this case. And, with India having done so, the onus then shifted to the United States to bring forward evidence and argument to disprove the claim. This, the United States was not able to do and, therefore, the Panel found that the transitional safeguard action by the United States 'violated the provisions of Articles 2 and 6 of the ATC'."(46) 44. For jurisprudence relating to the standard of review under the Agreement on Textiles and Clothing see the Chapter on DSU, paragraphs 287-289. 45. At its meeting in March 1997, in examining a transitional safeguard measure taken by Brazil, with respect to the desired nature of information underpinning such measures, the TMB stated: "[I]n case of recourse to Article 6, it was important to provide as much factual information and data as possible that was specific to the product category itself, as product-specific information and data should have a major impact on the overall assessment whether serious damage or actual threat thereof could be demonstrated."(47) 46. On the same issue as referenced in paragraph 45 above, the TMB continued: "[T]he Body agreed with Hong Kong's main contention according to which a determination of serious damage could not be made almost entirely by reference to, and therefore by inferences drawn from, data relating to much broader industries in respect of which damage is claimed."(48) 47. In US - Cotton Yarn, the Appellate Body explained that Article 6.2 provides for three analytical steps which precede the attribution exercise demanded by Article 6.4 (see paragraphs 77-86 below): "Attribution is preceded by three analytical steps which are set forth in Article 6.2: (i) an assessment of whether the domestic industry is suffering serious damage (or actual threat thereof) according to Articles 6.2 and 6.3; (ii) an examination of whether there is a surge in imports as envisaged by Article 6.2; and, (iii) an establishment of a causal link between the surge in imports and the serious damage (or actual threat thereof); according to the last sentence of Article 6.2, '[s]erious damage ... must demonstrably be caused by such increased quantities in total imports of that product and not by ... other factors'. (emphasis added)"(49) (b) "a particular product is being imported" 48. At its fourth meeting in July 1998, in examining a transitional safeguard measure introduced by Colombia on imports of certain products from Brazil and India, the TMB held the phrase "is being imported" indicated a temporal proximity between the serious damage and the request for consultation: "Article 6.2 referred to a situation where 'a particular product is being imported [...] in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry' (emphasis added). This causal link seemed to indicate that the serious damage had to occur in a period close to the time at which the request for consultation was made. It followed that the information provided to demonstrate the serious damage had to be recent."(50) (c) "in such increased quantities" 49. At its meeting in January 2000, the TMB considered the reasons given by Argentina for its inability to conform with the TMB's recommendation to rescind a safeguard measure imposed on certain imports from Brazil. The TMB pointed to the decline in imports and held: "Regarding the need to consider the increase in imports not only in absolute terms, but 'also in relation to the parameters for determining the damage mentioned in Article 6.3', as claimed by Argentina, the TMB observed that the conditions defined in Article 6.2 did not allow for the application of transitional safeguard measures in cases where imports were declining, even though their share in the apparent market were increasing."(51) 50. At its meeting in September 2001, the TMB examined the safeguard measure imposed by Poland on imports of certain textile products from Romania. The TMB, observing the trend of imports over a five-year period, stated: "In analysing the above information, the TMB noted that there had been an increase in the volume of total imports in the year 2000, the reference period, compared to the previous year. It could not be ignored, however, that the volume of imports continuously decreased in 1998 and 1999, and that the level achieved in 2000 still remained well below the volume of total imports in 1996 and 1997, respectively. In this light, the trends indicated, at most, a recovery of total imports, but did not appear to substantiate the claim of a significant increase compared to the performance achieved in previous years. As to the argument of Poland that the decrease experienced in 1998 and 1999 was only in absolute terms, but not relative to consumption, the TMB observed that the ATC does not incorporate the concept of increased quantities of imports relative to other factors.
In light of the trends described above, the TMB was of the view that the 10.5 per cent increase in total imports reported for the reference period should be assessed in its proper context. Noting the argument by Romania that it had serious doubts as to whether an increase of total imports of this magnitude could constitute a sufficient demonstration in the meaning of Article 6.2, which requires the demonstration that 'a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products' (emphasis added), the TMB also expressed its doubts that the alleged serious damage could be caused by the 10.5 per cent increase in total imports during the reference period. These doubts notwithstanding, the TMB decided to review the state of the Polish domestic industry and to revert to this aspect of the case, if necessary, at a subsequent stage of its examination."(52) (d) "serious damage, or actual threat thereof" (i) Concepts of serious damage and threat of serious damage 51. The Panel on US - Underwear examined the fact-finding of the competent United States authority in its statement (the "March Statement") underlying a transitional safeguard measure. In this context the Panel explained the terms "serious damage" and "actual threat thereof" and concluded that the March Statement did not support the finding of a threat of serious damage: "Article 6.2 and 6.4 of the ATC make reference to 'serious damage, or actual threat thereof'. The word 'thereof', in our view, clearly refers to 'serious damage'. The word 'or' distinguishes between 'serious damage' and 'actual threat thereof'. In our view, 'serious damage' refers to a situation that has already occurred, whereas 'actual threat of serious damage' refers to a situation existing at present which might lead to serious damage in the future. Consequently, in our view, a finding on 'serious damage' requires the party that takes action to demonstrate that damage has already occurred, whereas a finding on 'actual threat of serious damage' requires the same party to demonstrate that, unless action is taken, damage will most likely occur in the near future.(53) The March Statement contains no elements of such a prospective analysis. In our view, even if the mention of 'actual threat' in the Diplomatic Note accompanying the March Statement were to be considered, the fact that the March Statement made no reference to actual threat and contained no elements of such a prospective analysis was dispositive per se. Consequently, we do not agree with the US argument that the March Statement supports a finding on actual threat of serious damage."(54) (ii) Indicators of serious damage 52. In US - Cotton Yarn, Pakistan had argued that the United States should not have treated as indicators of damage to its domestic industry the fact that establishments producing combed cotton yarn had been retooled to produce carded cotton yarn or any other products. The Panel, in a statement not addressed by the Appellate Body, considered that this issue related to the interpretation of "damage" under Article 6.2 and concluded "the fact that an establishment changed its products to those which are neither like nor directly competitive products should be treated as an indicator of 'serious damage' to a subject domestic industry": "In the Panel's view, this issue concerns the interpretation of the term 'damage' under Article 6.2. Transitional safeguard measures are permitted to protect the domestic industry producing - rather than individual companies which are producers of - 'like and/or directly competitive products' from import competition. Pakistan itself argues that the scope of the domestic industry is determined not by producers but by products. Otherwise, changes in ownership of domestic enterprises producing 'like and/or directly competitive products' could be deemed as an indicator of 'serious damage' to the 'domestic industry'.
In this connection, we recall that Pakistan argued that 'if a plant produces carded instead of combed yarn, thrives in its new capacity and retains its workforce, the increase in imports obviously did not cause grave injury that impaired its value or usefulness.' However, we disagree with this argument. Assume that, in reaction to import surge, domestic producers of certain textile products merged into companies in another industry; and the establishments of the acquired producers, after retooling to produce totally different products, achieved the same level of production, sales, profit, employment, etc. In this situation, indeed, the 'value' of the retooled establishments may not have been impaired in some overall sense, but it would be obviously unreasonable that no transitional safeguard measure would be permitted since the 'domestic industry' producing the textile products was driven out by the import surge. In our view, the fact that an establishment changed its products to those which are neither like nor directly competitive products should be treated as an indicator of 'serious damage' to a subject domestic industry."(55) (iii) Choice of investigation period Length of the investigation period 53. In US - Cotton Yarn, Pakistan had argued that the eight-month investigation period chosen by the United States authorities for determining serious damage and causation was not enough. The Panel, in a finding not addressed by the Appellate Body, "deem[ed] it inappropriate to set out a general guideline on the length of the period during which damage or causation occurs, when there is no specific treaty language in the ATC".(56) The Panel further considered that the question of whether an eight-month period was sufficiently long for finding serious damage and causation should be done on a "case-by-case determination".(57) The Panel dismissed Pakistan's claim on the ground that Pakistan had not established that the eight-month period was unjustifiable: "The Panel first notes that Article 6.2 does not explicitly set forth any specific period of time as the minimum period for investigation, or for determining whether damage is serious or, in turn, is caused by the subject imports. The parties agreed on this point.
Second, Article 6.7 of the ATC requires that when the Member invoking a transitional safeguard measure seeks consultations with the Member or Members which would be affected by such action, it shall provide the Member or Members with 'specific and relevant factual information, as up-to-date as possible, particularly in regard to: (a) the factors ... on which the Member invoking the action has based its determination of the existence of serious damage or actual threat of damage; and (b) the factors ... on the basis of which it proposes to invoke the safeguard action with respect to the Member or Members concerned.' Also, that Article provides that 'the information shall be related, as closely as possible, to identifiable segments of production and to the reference period set out in paragraph 8', which period is defined under paragraph 8 as 'the 12-month period terminating two months preceding the month in which the request for consultation was made.' In our view, Article 6.7 does not address, directly or indirectly, the length of either investigation periods or periods during which damage occurs. For example, the requirement that the information to be provided to the exporting Member or Members 'be related, as closely as possible, to the [12-month] reference period' does not give any guidance as to how long the investigation period should be or how long damage should continue in order to constitute 'serious damage' and causation thereof.
In this respect, we recall Pakistan's argument that 'since the damage must be determined to be 'serious', the period must be adequately long to discern that the effect of imports was more than just temporary.' However, it is unclear how this general consideration demands that the period during which the serious damage occurred must be longer than the eight months utilised by the United States. In our view, whether or not the chosen period is justifiably long would depend on, at least partly, the extent of the damage suffered by a subject domestic industry during that period. Thus, we deem it inappropriate to set out a general guideline on the length of the period during which damage or causation occurs, when there is no specific treaty language in the ATC."(58) Most recent period 54. At its meeting in October 1999, the TMB examined certain transitional safeguard measures taken by Argentina on imports of several products from Brazil. With respect to the choice of the investigation period, the TMB stated that "a determination of serious damage, in the sense of Article 6, could not be based on developments that had affected the domestic industry years before the actual determination was being made": "[T]he TMB reiterated that in examining and assessing the determination of serious damage, or actual threat thereof, caused to the domestic industry producing like and/or directly competitive products by increased quantities of imports, decisive guidance had to be provided by the developments which had occurred in the most recent period, while data related to the longer time-period provided supplementary information that could support the justification of the determination made. The evidence that developments in the most recent period should have a decisive role in such a determination was, in the view of the TMB, supported by the time-frame referred to in Articles 6.7 and 6.8, by the requirements defined in Article 6.2 that in a determination it has to be demonstrated that a particular product 'is being imported' in increased quantities, and by the period of validity of a determination of serious damage or actual threat thereof for the purpose of invoking safeguard as stated in Article 6.5. Also, the object and the nature of the ATC (constituting an agreement for a transition period) as well as Article 6.12 (allowing for the maintenance of a transitional safeguard measure for up to three years without extension) confirmed that a determination of serious damage, in the sense of Article 6, could not be based on developments that had affected the domestic industry years before the actual determination was being made."(59) (e) "the domestic industry producing like and/or directly competitive products" (i) Product-oriented definition of domestic industry 55. In US - Cotton Yarn, which dealt with a safeguard measure introduced by the United States on imports of cotton yarn from Pakistan (see paragraph 66 below), the issue of the exclusion by the United States from the scope of its definition of domestic industry of the vertically integrated fabric producers who produce yarn for their own internal use was considered. The Appellate Body, which upheld the Panel's finding that such an exclusion was inconsistent with Article 6.2(60), was of the view that the definition of domestic industry is "product-oriented and not producer-oriented", and that it "must be based on the products(61) produced by the domestic industry which are to be compared with the imported product in terms of their being like or directly competitive".(62) 56. In US - Cotton Yarn, the Appellate Body defined the scope of the term "producing" in Article 6.2 as producing for commercial purposes and concluded that its meaning was not dependent on what the producer chooses to do with its product: "[T]he term 'producing' in Article 6.2 means producing for commercial purposes and that it cannot be interpreted, in itself, to be limited to or qualified as producing for sale on the merchant or any other segment of the market. The definition of the domestic industry, in terms of Article 6.2, is determined by what the industry produces, that is, like and/or directly competitive products. In our view, the term "producing", in itself, cannot be given a different or a qualified meaning on the basis of what a domestic producer chooses to do with its product."(63) (iii) "directly competitive products" Article III:2 of GATT 1994: interpretation of "directly competitive" 57. In US - Cotton Yarn, the Appellate Body looked into the concept of directly competitive products. In this case, the United States had claimed that its exclusion of yarn produced by vertically integrated fabric producers from the definition of the domestic industry was not because they were not producing a like product, but because they were not producing a directly competitive product.(64) The Appellate Body, which had not yet interpreted this concept in the context of Article 6.2, started its analysis by referring to its previous decisions in Korea - Alcoholic Beverages and Japan - Taxes on Alcoholic Beverages, interpreting the term "directly competitive" products in the context of Interpretative Note Ad Article III:2 of the GATT 1994. (In this respect, see also Section IV.C.3 of the Chapter on GATT 1994.) The Appellate Body described the key elements of its interpretation of "directly competitive": "(a) The word 'competitive' means 'characterised by competition'. The context of the competitive relationship is necessarily the marketplace, since that is the forum where consumers choose different products that offer alternative ways of satisfying a particular need or taste. As competition in the marketplace is a dynamic and evolving process, the competitive relationship between products is not to be analyzed exclusively by current consumer preferences(65); the competitive relationship extends as well to potential competition.(66)
(b) According to the ordinary meaning of the term 'directly competitive', products are competitive or substitutable when they are interchangeable or if they offer alternative ways of satisfying a particular need or taste.(67)
(c) In the context of Article III:2, second sentence, the qualifying word 'directly' in the Ad Article suggests a degree of proximity in the competitive relationship between the domestic and imported products. The word 'directly' does not, however, prevent a consideration of both latent and extant demand.(68)
(d) 'Like' products are a subset of directly competitive or substitutable products: all like products are, by definition, directly competitive or substitutable products, whereas not all 'directly competitive or substitutable' products are 'like'.(69)"(70) 58. At the same time, the Appellate Body in US - Cotton Yarn dismissed the United States' argument that the above elements could not be applied to a definition of "directly competitive products" under Article 6.2 of the ATC, because they have been developed to define not only "directly competitive" products but also "directly substitutable" products pursuant to Article III:2 of the GATT 1994. In the Appellate Body's view, "the mere absence of the word 'substitutable' in Article 6.2 of the ATC" does not "[render] our interpretation of the term 'directly competitive' under Article III:2 of the GATT 1994 irrelevant in terms of its contextual significance for the interpretation of that term under Article 6.2 of the ATC."(71) Proximity in competitive relationship 59. As regards the definition of "directly competitive" in the specific context of Article 6.2 of the ATC, the Appellate Body in US - Cotton Yarn put an emphasis on the critical importance of the degree of proximity between domestic and imported products in their competitive relationship to underpin the reasonableness of a safeguard action against an imported product: "We must bear in mind that Article 6.2 permits a safeguard action to be taken in order to protect a domestic industry from serious damage (or actual threat thereof) caused by a surge in imports, provided the domestic industry is identified as the industry producing 'like and/or directly competitive products' in comparison with the imported product. The criteria of 'like' and 'directly competitive' are characteristics attached to the domestic product in order to ensure that the domestic industry is the appropriate industry in relation to the imported product. The degree of proximity between the imported and domestic products in their competitive relationship is thus critical to underpin the reasonableness of a safeguard action against an imported product."(72) Dynamic competitive relationship 60. The Appellate Body in US - Cotton Yarn further indicated that the competitive relationship between domestic and imported products is not static but dynamic since "products which are competitive may not be actually competing with each other in the marketplace at a given moment for a variety of reasons, such as regulatory restrictions or producers' decisions": "According to the ordinary meaning of the term 'competitive', two products are in a competitive relationship if they are commercially interchangeable, or if they offer alternative ways of satisfying the same consumer demand in the marketplace. 'Competitive' is a characteristic attached to a product and denotes the capacity of a product to compete both in a current or a future situation. The word 'competitive' must be distinguished from the words 'competing' or 'being in actual competition'. It has a wider connotation than 'actually competing' and includes also the notion of a potential to compete. It is not necessary that two products be competing, or that they be in actual competition with each other, in the marketplace at a given moment in order for those products to be regarded as competitive. Indeed, products which are competitive may not be actually competing with each other in the marketplace at a given moment for a variety of reasons, such as regulatory restrictions or producers' decisions. Thus, a static view is incorrect, for it leads to the same products being regarded as competitive at one moment in time, and not so the next, depending upon whether or not they are in the marketplace."(73) "Directly" as a qualifier and limit to "competitive" 61. The Appellate Body in US - Cotton Yarn also stressed the relevance of the word "directly" which qualifies and limits the word "competitive" "to signify the degree of proximity that must obtain in the competitive relationship when the products in question are unlike". In the Appellate Body's view, "[u]nder this definition of 'directly', a safeguard action will not extend to protecting a domestic industry that produces unlike products which have only a remote or tenuous competitive relationship with the imported product".(74) In its view: "It is significant that the word 'competitive' is qualified by the word 'directly', which emphasizes the degree of proximity that must obtain in the competitive relationship between the products under comparison. As noted earlier, a safeguard action under the ATC is permitted in order to protect the domestic industry against competition from an imported product. To ensure that such protection is reasonable, it is expressly provided that the domestic industry must be producing 'like' and/or 'directly competitive products'. Like products are, necessarily, in the highest degree of competitive relationship in the marketplace.(75) In permitting a safeguard action, the first consideration is, therefore, whether the domestic industry is producing a like product as compared with the imported product in question. If this is so, there can be no doubt as to the reasonableness of the safeguard action against the imported product.
When, however, the product produced by the domestic industry is not a 'like product' as compared with the imported product, the question arises how close should be the competitive relationship between the imported product and the 'unlike' domestic product. It is common knowledge that unlike or dissimilar products compete or can compete in the marketplace to varying degrees, ranging from direct or close competition to remote or indirect competition. The more unlike or dissimilar two products are, the more remote or indirect their competitive relationship will be in the marketplace. The term 'competitive' has, therefore, purposely been qualified and limited by the word 'directly' to signify the degree of proximity that must obtain in the competitive relationship when the products in question are unlike. Under this definition of 'directly', a safeguard action will not extend to protecting a domestic industry that produces unlike products which have only a remote or tenuous competitive relationship with the imported product."(76) Captive production 62. In US - Cotton Yarn, the United States had excluded from the scope of its definition of domestic industry those vertically integrated United States' fabric manufacturers producing yarn for their own captive consumption. The United States had argued that such yarn was not directly competitive with imported yarn (in spite of being like products) because it was not offered for sale on the market (except when the captive production was "out of balance", and even then only in de minimis quantities). The United States also argued that vertically integrated fabric producers were not dependent on the merchant market for meeting any of their requirements of yarn except to a de minimis extent. The Appellate Body did not subscribe to the United States' arguments because it was a "static(77) view which makes the competitive relationship between yarn sold on the merchant market and yarn used for internal consumption by vertically integrated producers dependent on what they choose to do at a particular point in time."(78) The Appellate Body concluded that a proper analysis of the competitive relationship between the two products would clearly show that they were "directly competitive" within the meaning of Article 6.2.(79) The Appellate Body also dismissed the United States' argument that its decision in US - Hot-Rolled Steel supported the United States' contention that the captive segment of the market can be separated from the merchant market segment because the Appellate Body had observed that captive production was "shielded from direct competition": "We did not hold, however, that captive production can be excluded from either the definition of the domestic industry or from the injury analysis. We said that, while an injury analysis can be carried out segment-by-segment before assessing damage to the domestic industry as a whole, an analysis of the captive segment of the market cannot be excluded. Our observation that captive steel production was 'shielded from direct competition' did not mean that steel produced in the captive market segment is not directly competitive with imported steel destined for the merchant market. Our ruling in United States - Hot-Rolled Steel, therefore, does not support the argument of the United States."(80) 63. In US - Cotton Yarn, the parties disagreed on the interpretation of the connectors "and/or" in Article 6.2. According to Pakistan, a subject domestic industry consisted of producers of: (i) like products; or (ii) directly competitive products; or (iii) both like products and directly competitive products. In contrast, the United States argued that Members are permitted to identify a "domestic industry" as an industry producing a product that is: (i) like but not directly competitive; or (ii) unlike but directly competitive; or (iii) both like and directly competitive.(81) The Panel, in a finding not addressed by the Appellate Body(82), analysed the various possible combinations and concluded that the United States' interpretation was flawed because: (i) it included "like but not directly competitive products" which is a meaningless alternative; and (ii) it permitted Members to impose transitional safeguard measures for domestic producers of "unlike but directly competitive products": "Both of the parties' interpretations of the term 'and/or' are grammatically possible. However, in our view, the chart shows that the US interpretation is flawed in that among other things, one of the categories of a domestic industry, i.e. the producers of [like but not directly competitive products], is a meaningless alternative. Imports of any textile product cannot damage producers of "like but not directly competitive products" through market competition. The United States itself conceded that "if the products of domestic producers are not directly competitive with imports - such as in the case of yarn manufactured by vertically integrated producers for their internal consumption - the need for safeguard action would not arise." Indeed, not only would the need not arise, but the case could not be made because causation could not be demonstrated. Thus, the treaty would give a meaningless right. In this respect, the US interpretation is inconsistent with the principle of effectiveness in treaty interpretation.(83) ... [I]n our view, the US interpretation is problematic in permitting Members to impose transitional safeguard measures for domestic producers of "unlike but directly competitive products". This means that "serious damage" would be found based upon the examination of the situation regarding these producers, without taking into consideration the situation regarding producers of "like and directly competitive products", which are core products competing with subject imports. To give an example of the absurdity of the potential result from the US formulation, take the following example of an investigation with respect to an industry producing directly competitive but unlike products. In such a case the imported products could be combed cotton yarn as in the present case, but the domestic industry would not be the cotton yarn industry; rather, it could be the synthetic yarn industry if such products were found to be directly competitive. But because the chosen category is unlike but directly competitive, then the combed cotton yarn producers would be excluded from the investigation. This would leave open the possibility of finding serious damage and causation thereof even where the domestic combed cotton yarn industry was flourishing, but the synthetic yarn industry was in trouble. This would seem to be in direct conflict with the requirement of the treaty language in Article 6.2 that "Serious damage or actual threat thereof must demonstrably be caused by such increased quantities in total imports of that product and not by such other factors as technological changes or changes in customer preferences." (emphasis added)(84) 64. At its meeting in November 1998, in examining certain transitional safeguard measures introduced by Colombia on imports from Korea and Thailand, the TMB noted: "[T]hat the Colombian investigating authorities had determined that one company, which had requested the application of the safeguard measure on imports, represented on average 62 per cent of the total domestic production of plain polyester filaments and, therefore, could be considered to represent the domestic industry. It followed from this determination that Colombia had provided information regarding the economic variables referred to in Article 6.3 which reflected data pertaining to that one company. The TMB observed in this respect that the ATC does not provide a definition of what constitutes the domestic industry. The TMB noted, however, that Colombia had failed to provide information on a significant part of its domestic industry producing plain polyester filaments. This lack of information brought about important uncertainties and, therefore, hampered the TMB's ability to assess the situation of the Colombian industry producing plain polyester filaments."(85) 65. On the subject referenced in paragraph 64 above, the TMB stated as follows: "The TMB, bearing in mind in particular the information that had been made available by Colombia pursuant to Article 6.7, continued to be of the view that in the absence of any information on a significant part of the domestic industry, it had not been possible to assess the state of the industry producing plain polyester filaments, in particular the effect of increased imports on the companies constituting the domestic industry producing the particular product. Therefore, it had been impossible to determine whether the difficulties encountered by the company requesting the investigation could be attributed to a possible damage caused by the increased volume of total imports or to other factors such as, for example, an important increase in the production of the other domestic company producing plain polyester filaments, resulting in an increased competition between the domestic producers; ... The TMB observed that it had not provided any interpretation of the definition of the term 'domestic industry', as claimed by Colombia. Similarly, the TMB had not suggested that the information on the domestic industry should cover 100 per cent of the domestic producers of such products."(86) 66. At its meeting in April 1999, the TMB examined a safeguard measure introduced by the United States on certain imports from Pakistan. The United States had determined, with respect to the term "domestic industry producing like and/or directly competitive products" a category of "vertically integrated firms whose yarn did not ordinarily enter normal channels of trade and did not compete with yarn produced for sale in the open market" and that had not provided the TMB with information concerning this category. The TMB recalled that: "[A]ccording to Article 6.2, '[s]afeguard action may be taken under this Article when, on the basis of a determination by a Member, it is demonstrated that a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products. Serious damage or actual threat thereof must demonstrably be caused by such increased quantities in total imports of that product and not by such other factors as technological changes or changes in consumer preference'. It followed from this that the factual information referred to in Article 6.7 had to be provided with respect to the domestic industry producing like and/or directly competitive products."(87) 67. The TMB then went on to hold that it "would ordinarily be up to the Body, on the basis of the detailed information provided pursuant to Article 6.7, to determine whether it was justified in excluding a particular segment of production": "The TMB noted that the particular product subject to the safeguard measure introduced by the United States was combed cotton yarn identified as US category 301. The TMB observed, furthermore, that in terms of its characteristics any combed cotton yarn was identical, i.e. alike in all respects, including common end-uses, with respect to the particular product subject to the safeguard measure in question.
The TMB noted that the United States had defined the domestic industry producing products like and/or directly competitive with imports of combed cotton yarn (category 301) as the US industry segment that produced spun yarn for sale, chief weight combed cotton defined as category 301, sold to other firms for use in the manufacture of fabric and finished textile products. It followed from this that the United States had provided information regarding all the economic variables referred to in Article 6.3 with respect to that segment of the industry. As regards the other segment of the US industry producing cotton spun yarn, chief weight combed cotton, the United States had explained that this segment had been composed of vertically integrated firms whose yarn did not ordinarily enter normal channels of trade and did not compete with yarn produced for sale in the open market. ... The TMB noted that the United States had provided arguments why, in its view, the combed cotton yarn production of the vertically integrated mills should be excluded from the scope of the investigation and, by extension, why it had not provided data pursuant to Article 6.3 with respect to this segment of production. The TMB observed that it would ordinarily be up to the Body, on the basis of the detailed information provided pursuant to Article 6.7, to determine whether it was justified to exclude a particular segment of production. Therefore the TMB would have expected to receive, to the extent practicable, sufficient information to allow it to do so."(88) 68. At its meeting in June 1999, on the same matter, the TMB confirmed its findings referenced in paragraphs 66 and 67 above: "The United States had claimed, in view of the lack of 'direct competitiveness' between the two segments of the industry, that the vertically integrated segment should be excluded from the definition of the domestic industry and, therefore, from the investigation conducted under Article 6 without the necessity to provide specific information on the economic variables, pursuant to Article 6.7, regarding the vertically integrated firms. The TMB, on the other hand, guided by the fact that the domestic industry producing combed cotton yarn encompassed two segments (i.e. that of the 'for sale' companies as well as that of the vertically integrated firms), had held the view that:
69. The Panel on US - Underwear, referring to Article 6.2, second sentence, emphasized, in a finding not reviewed by the Appellate Body, the word "demonstrably" and found that "in a discussion of whether such trade has caused serious damage, it is necessary to look at this trade to determine its effects on the industry. Because of the nature of the trade it is not possible in these circumstances to conclude from the simple fact that there has been a fall in production that there has also been serious damage": "Nowhere in the March Statement [on which the United States proposed the subject transitional safeguard measure] could we find a discussion or demonstration of causality as required under this provision, beyond the mere statement that the imports were responsible for the damage. This assertion is inadequate, in our view, because of special factors affecting trade in underwear between the United States and a number of exporting Members including Costa Rica. (As noted above, most of this trade with Costa Rica - at least 94 per cent - is apparently 807 or 807A trade.) While such trade may certainly cause damage to the domestic industry, the nature of the trade is such that it may benefit the domestic firms that participate in it (see paragraph 7.44). Thus, in a discussion of whether such trade has caused serious damage, it is necessary to look at this trade to determine its effects on the industry. Because of the nature of the trade it is not possible in these circumstances to conclude from the simple fact that there has been a fall in production that there has also been serious damage. The March Statement undertakes no such discussion. Moreover, the March Statement suggests other possible causes of serious damage, such as rising cotton prices (see paragraph 7.44), but does not consider their role as a cause of such damage. Thus, it cannot be said that the March Statement 'demonstrably' shows that serious damage was caused by increased levels of imports. We find, therefore, that an objective assessment of the March Statement leads to the conclusion that the United States failed to comply with its obligations under Article 6.2 of the ATC by imposing a restriction on imports of Costa Rican underwear without adequately demonstrating that increased imports had caused serious damage."(90) 70. In US - Wool Shirts and Blouses, with respect to the term "demonstrably", the Panel found, in a statement not reviewed by the Appellate Body, that under Article 6.2 of the Agreement on Textiles and Clothing, there was "at least an explicit obligation to address the question whether serious damage or actual threat thereof to the particular domestic industry was caused by changes in consumer preferences or technological changes": "[T]he clear wording of Article 6.2 of the ATC ' ... Serious damage or actual threat thereof must demonstrably be caused by ... and not by such other factors as technological changes or changes in consumer preference' imposes on the importing Member at least an explicit obligation to address the question whether serious damage or actual threat thereof to the particular domestic industry was caused by changes in consumer preferences or technological changes. The importing Member remains free to choose the method of assessing whether the state of its particular domestic industry was caused by such other factors as technological changes or changes in consumer preferences, but it must demonstrate that it has addressed the issue."(91) 71. The Panel on US - Wool Shirts and Blouses, also emphasized that "serious damage or actual threat thereof to the domestic industry must not have been caused by other factors such as technological changes or changes in consumer preferences": "Article 6.2 of the ATC requires that serious damage or actual threat thereof to the domestic industry must not have been caused by such other factors as technological changes or changes in consumer preferences. The explicit reference to specific factors imposes an additional requirement on the importing Member to address the question of whether the serious damage or actual threat thereof was not caused by such other factors as technological changes or changes in consumer preference."(92) (iii) Choice of investigation period 72. At its meeting in April 2000, the TMB reviewed certain transitional safeguard measures taken by Argentina on certain textile products imported from Korea. Korea claimed that since there was a five-month gap between the end of the period investigated and the application of the safeguard measures, Argentina had failed to establish the substantial increase in imports under Article 6.2 and had violated Article 6.7, which states that "the information shall be related, as closely as possible, to ... the reference period set out in paragraph 8" of Article 6. The TMB responded as follows: "In the present case, Argentina should have provided in the relevant factual data information at least with respect to the developments in total imports and imports from Korea for the period August 1998-July 1999. At the same time, the TMB recognized that the formulation of Article 6.7 (i.e. that the information shall be related as closely as possible to the reference period) permitted certain flexibility in providing information on the different economic variables listed in Article 6.3, depending on the availability of the relevant data and information. However, the safeguard measures in question had been applied by Argentina pursuant to the provisions of Article 6.11, which required the existence of 'highly unusual and critical circumstances, where delay would cause damage which would be difficult to repair'. The TMB was of the view that the existence of such circumstances could only be proven if information was provided regarding developments which occurred in the very recent period, i.e. during or very close to the reference period.
With reference to the five-month gap between the end of the period investigated (i.e. May 1999) and the provisional application of the safeguard measures in question (i.e. October 1999), as raised by Korea, the TMB observed that the National Commission for Foreign Trade of Argentina had made its finding regarding the determination of the existence of serious damage caused by increased imports on 30 July 1999, on the basis of information including the 12-month period ending in May 1999. Therefore, had the Government of Argentina decided to invoke the provisions of Article 6 soon thereafter, it could have provided all the information referred to in Articles 6.2 and 6.3 covering the reference period specified in Articles 6.7 and 6.8. The TMB noted the explanation of the representative of Argentina that this finding had only been a step in the internal administrative procedures, and that the formal determination of serious damage could only be made by the Minister for the Economy and Public Works and Services. In view of the administrative procedures involved, this decision was made only on 28 October 1999. The TMB considered that it would be inappropriate for it to comment on the internal administrative procedures involved in any Member's recourse to the provisions of the ATC. The Body had to observe, however, that possible delays in taking decisions, as a result of such procedures, may have an impact on the findings and conclusions the TMB could reach, in accordance with the provisions of the ATC, regarding the justification of the measures in question or aspects thereof."(93) 73. As regards the investigation period for the determination of causation, see paragraphs 53-54 above. 74. The Panel on US - Wool Shirts and Blouses, with respect to the scope of those factors which must examined under Article 6, held, in a finding not reviewed by the Appellate Body, that all the factors listed in Article 6.3 had to be addressed: "In our view, the wording of Article 6.2 and 6.3 of the ATC makes it clear that all relevant economic factors, namely, all those factors listed in Article 6.3 of the ATC, had to be addressed by CITA, whether subsequently discarded or not, with an appropriate explanation. The wording of paragraph 3, which reads
'... the Member shall examine the effect of those imports on the state of the particular industry, as reflected in changes in such relevant economic variables as output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits and investment.', (emphasis added)
implies two requirements. First, the relevant economic variables must be examined. Second, output, productivity, utilization of capacity, etc. ... are relevant economic variables. The wording of Article 6.3 of the ATC '... the Member shall examine the effects ... on the state of the particular industry, as reflected in changes in such relevant economic variables as output, productivity, etc. ...' makes clear that each of the listed factors is not only relevant but must be examined. Effectively, the listed economic variables are examples of relevant economic variables, they are presumed to be 'relevant economic variables' and must be examined by the importing country in its determination."
The wording of the first sentence of Article 6.3 of the ATC imposes on the importing Member the obligation to examine, at the time of its determination, at least all of the factors listed in that paragraph. The importing Member may decide - in its assessment of whether or not serious damage or actual threat thereof has been caused to the domestic industry - that some of these factors carry more or less weight. At a minimum, the importing Member must be able to demonstrate that it has considered the relevance or otherwise of each of the factors listed in Article 6.3 of the ATC."(94) 75. With respect to its findings referenced in paragraph 74 above, the Panel held that the last part of Article 6.3 confirmed its interpretation: "The last part of Article 6.3 of the ATC, which states that 'none of which, either alone or combined with other factors, can necessarily give decisive guidance', confirms that some consideration and a relevant and adequate explanation have to be provided of how the facts as a whole support the conclusion that the determination is consistent with the requirements of the ATC."(95) 76. The conclusions of panels and the Appellate Body on the interpretation of the similarly worded provision can be found in paragraphs 109-115 of the Chapter on the Agreement on Safeguards; in paragraphs 95 and 101-105 of the Chapter on the Anti-Dumping Agreement, and Article 15.4 of the Chapter on the SCM Agreement. (a) Steps preceding the attribution of serious damage to individual Members 77. In US - Cotton Yarn, the Appellate Body explained that before carrying out the attribution exercise demanded by Article 6.4 it is necessary to apply the three analytical steps set forth in Article 6.2: "Attribution is preceded by three analytical steps which are set forth in Article 6.2: (i) an assessment of whether the domestic industry is suffering serious damage (or actual threat thereof) according to Articles 6.2 and 6.3; (ii) an examination of whether there is a surge in imports as envisaged by Article 6.2; and, (iii) an establishment of a causal link between the surge in imports and the serious damage (or actual threat thereof); according to the last sentence of Article 6.2, "[s]erious damage ... must demonstrably be caused by such increased quantities in total imports of that product and not by ... other factors". (emphasis added)"(96) 78. In US - Cotton Yarn, the Appellate Body emphasized the two requirements mandated by Article 6.4 to which the attribution of serious damage to individual Members must conform.(97) The first requirement is that "the attribution be confined to only those Members from whom imports have shown a sharp and substantial increase".(98) The second requirement is "a comparative analysis, in the event that there is more than one Member from whom imports have shown a sharp and substantial increase in its imports."(99) (i) First requirement: only those Members from whom imports have shown a sharp and substantial increase 79. In US - Cotton Yarn, the Appellate Body referred to the first attribution requirement as follows: "The first requirement is that the attribution be confined to only those Members from whom imports have shown a sharp and substantial increase. Such Members will be identified on an individual basis by virtue of the wording in Article 6.4, second sentence, 'on the basis of a sharp and substantial increase in imports, actual or imminent, from such a Member or Members individually'. The Panel interpreted the term 'sharp' to refer to the rate of the import increase, and the term 'substantial' to the amount of that increase.(100) These interpretations of the Panel have not been appealed and are, therefore, not before us."(101) "sharp" and "substantial" increase in imports 80. The Panel in US - Cotton Yarn interpreted the terms "sharp" and "substantial". These interpretations were not considered by the Appellate Body.(102) The Panel interpreted the "term 'sharp' to refer to the percentage increase and the term 'substantial' to refer to the absolute increase".(103) Attribution to all Members whose imports cause serious damage or threat thereof 81. In US - Cotton Yarn, the Panel had found that the United States had acted inconsistently with Article 6.4 by not examining the effect of imports from Mexico (and possibly other appropriate Members) individually when attributing serious damage to Pakistan.(104) The Panel also ruled that Article 6.4 requires attribution to all Members whose imports cause serious damage or actual threat thereof.(105) The Appellate Body, further to upholding the Panel's first finding regarding US inconsistency with Article 6.4(106), considered that its findings on that first issue(107) resolved the dispute as defined by Pakistan's claims before the Panel. The Appellate Body therefore declined to rule on the issue of whether Article 6.4 requires attribution to all Members whose imports are causing serious damage or actual threat thereof and indicated that "[i]n these circumstances, the Panel's interpretation on this question is of no legal effect".(108) (ii) Second requirement: comparative analysis 82. In US - Cotton Yarn, the Appellate Body referred to the second attribution requirement: "The second requirement of Article 6.4, second sentence, is a comparative analysis, in the event that there is more than one Member from whom imports have shown a sharp and substantial increase in its imports.(109) The conduct of the comparative analysis is governed by the latter part of the second sentence of Article 6.4, which requires the analysis to address certain specific factors, namely: (i) the level of imports as compared with imports from other sources; (ii) market share; and (iii) import and domestic prices at a comparable stage of commercial transaction. Article 6.4 further specifies that none of these factors, either alone or combined with other factors, can necessarily give decisive guidance."(110) Why is a comparative analysis required? 83. In US - Cotton Yarn, the Appellate Body faced the question of why a comparative analysis is needed under Article 6.4 as the means to respond to another question, namely how to conduct a comparative analysis since Article 6.4 does not directly address this issue.(111) The Appellate Body concluded that attributing damage actually caused to the domestic industry by imports from a Member to a different Member imports amounted to a "'mis-attribution' of damage and would be inconsistent with the interpretation in good faith of the terms of Article 6.4": "Article 6.4 provides, in relevant part, that '[t]he Member or Members to whom serious damage ... is attributed, shall be determined on the basis of a sharp and substantial increase in imports ... from such a Member or Members'. (emphasis added) The clear inference from this phrase is that the sharp and substantial increase of imports from such a Member determines not only the basis, but also the scope of attribution of serious damage to that Member.
In consequence, where imports from more than one Member contribute to serious damage, it is only that part of the total damage which is actually caused by imports from such a Member that can be attributed to that Member under Article 6.4, second sentence. Damage that is actually caused to the domestic industry by imports from one Member cannot, in our view, be attributed to a different Member imports from whom were not the cause of that part of the damage. This would amount to a 'mis-attribution' of damage and would be inconsistent with the interpretation in good faith of the terms of Article 6.4. Therefore, the part of the total serious damage attributed to an exporting Member must be proportionate to the damage caused by the imports from that Member. Contrary to the view of the United States, we believe that Article 6.4, second sentence, does not permit the attribution of the totality of serious damage to one Member, unless the imports from that Member alone have caused all the serious damage."(112) 84. As support for its conclusions on the reasons why a comparative analysis is needed, the Appellate Body in US - Cotton Yarn referred to the rules of general international law on state responsibility and Article 22.4 of the DSU (suspension of concessions):(113) "Our view is supported further by the rules of general international law on state responsibility, which require that countermeasures in response to breaches by states of their international obligations be commensurate with the injury suffered.(114) In the same vein, we note that Article 22.4 of the DSU(115) stipulates that the suspension of concessions shall be equivalent to the level of nullification or impairment. This provision of the DSU has been interpreted consistently as not justifying punitive damages.(116) These two examples illustrate the consequences of breaches by states of their international obligations, whereas a safeguard action is merely a remedy to WTO-consistent 'fair trade' activity.(117) It would be absurd if the breach of an international obligation were sanctioned by proportionate countermeasures, while, in the absence of such breach, a WTO Member would be subject to a disproportionate and, hence, 'punitive', attribution of serious damage not wholly caused by its exports. In our view, such an exorbitant derogation from the principle of proportionality in respect of the attribution of serious damage could be justified only if the drafters of the ATC had expressly provided for it, which is not the case."(118) 85. Also in support for its conclusions on the reasons why a comparative analysis is needed, the Appellate Body pointed out: "Finally, and most significantly, if the totality of serious damage could be attributed to only one of those Members the imports from whom have contributed to it, there would be no need to undertake a comparative analysis of the effects of imports from that one Member, once the imports from that Member have been found to have increased sharply and substantially; such an interpretation would reduce a whole segment of Article 6.4 to inutility."(119) How to conduct a comparative analysis 86. Further to responding to the question why a comparative analysis is needed, the Appellate Body in US - Cotton Yarn focussed on the question how to conduct a comparative analysis since this is not expressly stated in the wording of Article 6.4, second sentence.(120) In this regard, the Appellate Body considered that such an analysis "is to be seen in the light of the principle of proportionality as the means of determining the scope or assessing the part of the total serious damage that can be attributed to an exporting Member." The Appellate Body further concluded that "an assessment of the share of total serious damage, which is proportionate to the damage actually caused by imports from a particular Member, requires a comparison according to the factors envisaged in Article 6.4 with all other Members (from whom imports have also increased sharply and substantially) taken individually" (emphasis added): "We now turn to the question of how to conduct the comparative analysis required by Article 6.4. This analysis is to be seen in the light of the principle of proportionality as the means of determining the scope or assessing the part of the total serious damage that can be attributed to an exporting Member. We recall that Article 6.4 enjoins the importing Member to conduct this comparative analysis on a multi-factor basis including "levels of imports", "market share" and "prices", while specifying that none of these factors alone or in combination with other factors can necessarily give decisive guidance. The comparison is to take place between the effects of imports from the Member in question, on the one hand, and those of imports from other sources, on the other. The comparison must thus be based on a variety of factors, each of which has a different significance and weight, and is to be measured on a different scale.
It is of course possible to compare the level of imports of one Member with the level of imports from other sources taken together. Likewise, it is possible to establish the market share of one Member in comparison with all other imports and the output of the domestic industry. However, the full effects of the level of imports from, and the market share of, one Member can only be assessed if this level and this share are compared individually with the level of imports from, and the market share of, the other Members from whom imports have also increased sharply and substantially. This conclusion is even more obvious for the comparison of import and domestic prices. The price of imports from one Member can be compared with the average price of imports from other sources and with domestic prices. However, prices of imports from the other Members may vary widely from one another. A fair assessment of the effects of the price of imports from one Member will therefore require a comparison with the price of imports from other Members taken individually. Moreover, these different factors interact in different ways, producing different effects, under different circumstances, not to mention the possible existence of other relevant factors (and their effects) that must be taken into account in the comparison according to the proviso at the end of Article 6.4, second sentence.
An assessment of the share of total serious damage, which is proportionate to the damage actually caused by imports from a particular Member, requires, therefore, a comparison according to the factors envisaged in Article 6.4 with all other Members (from whom imports have also increased sharply and substantially) taken individually."(121) 87. With respect to the definition of "least-developed country Members", see excerpts referenced in the Chapter on the WTO Agreement, Article XI:2. 88. The Panel on US - Underwear examined whether the United States, in its application of the transitional safeguard measure at issue, accorded more favourable treatment to re-imports into its territory in accordance with Article 6.6(d) Specifically, the Panel held that the United States could not have complied with Article 6.6(d) merely by offering Costa Rica enhanced access for its textiles exports under certain other programmes: "The 'chapeau' to Article 6.6(d) of the ATC makes it clear that the more favourable treatment must be granted 'in the application of the transitional safeguard' (emphasis added). This means, in our view, that Members availing themselves of the Article 6 transitional safeguard are obliged to grant more favourable treatment to re-imports, independently of whether such treatment has been previously rejected by the affected Member during the bilateral consultations or whether other privileges were envisaged to be accorded to such a Member in negotiations based upon the implemented safeguard measure. The term 'more favourable treatment' is not further qualified in the ATC. We, therefore, reject the United States argument (paragraph 5.157) that they had complied with Article 6.6(d) of the ATC by offering Costa Rica enhanced access under GAL programmes during the course of the consultations."(122) 89. In response to the Costa Rican claim for quotas larger than those required under Article 6.8, the Panel on US - Underwear rejected the notion that more favourable treatment within the meaning of Article 6.6(d) necessarily implies the availability of larger quotas: "We agree with Costa Rica that quantitatively more favourable treatment for the full three-year period is one of the options available to Members in order to comply with the requirements of Article 6.6(d) of the ATC. We do not consider it, however, to be the only option. In our view, a Member could, for example, comply with the requirements under Article 6.6(d) of the ATC by imposing a restriction for a period shorter than three years."(123) 90. At its meeting in July 1998, the TMB examined a transitional safeguard measure taken by Colombia on imports of denim from Brazil and India. The TMB stated that while Article 6.7 "allowed for some flexibility, in particular in view of the availability of most recent data", this "did not provide for the possibility of taking a safeguard measure on the basis of economic variables describing the status of the industry almost two years before the time at which the request for consultation had been made": "[T]he TMB addressed the time-lag of about fifteen month |
