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WTO ANALYTICAL INDEX: TEXTILES AND CLOTHING Agreement on Textiles and Clothing |
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> Preamble
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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. 39. In US — Cotton Yarn, the Appellate Body held that in applying Article 6 three different, although interrelated, elements of that provision have to be examined, 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(41); 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).”(42) (43) (b) Introduction of a restraint under Article 6 without notification to the TMB 40. 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’.”(44) 41. 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.”(45) 42. 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 41 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.”(46) 43. 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.”(47) 44. 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”.(48) 45. 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.”(49) 46. 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’.”(50) 47. For jurisprudence relating to the standard of review under the ATC, see Section XI.B.6(b) of the Chapter on the DSU. 48. 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.”(51) 49. On the same issue as referenced in paragraph 48 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.”(52) 50. 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 80–89 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 Article 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)”(53) (b) “a particular product is being imported” 51. 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.”(54) (c) “in such increased quantities” 52. 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.”(55) 53. 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, a five-year period, held that the reference period should be seen in its proper context, taking into account the continuous and significant decrease of imports of the relevant product in the years prior to the reference period: “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.” (56) (d) “serious damage, or actual threat thereof” (i) Concepts of “serious damage, or actual threat thereof” 54. In US — Underwear, the Panel noted that, contrary to the determination of “serious damage”, a determination of an “actual threat thereof” requires the competent authorities to carry out a prospective analysis in order that they can objectively conclude that unless action is taken, damage will surely occur in the near future: “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.(57) 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.”(58) 55. In US — Cotton Yarn, the Panel quoted the above-mentioned paragraph in US — Underwear as support for its finding that when a, “actual threat of serious damage” supplements the determination of existing serious damage, the former is redundant and not an autonomous concept. Consequently, to the extent that the serious damage is established, a determination of an “actual threat thereof” is supplementary and needs not to be followed by a prospective analysis. In a ruling not reviewed by the Appellate Body, the Panel held: “In our view, the US finding on actual threat of serious damage contained in the 1998 Market Statement is essentially a finding that the existing ‘serious damage’ to the domestic industry would continue if imports were to continue as before. It would seem a reasonable inference to assume that if the trend in imports were to continue, the trend in domestic sales would continue, and consequently, the existing ‘serious damage’ would continue. Under the terms of Article 6.4, there seems to be no basis for demanding any further ‘prospective analysis’ than taking into consideration the prospect that the price-undercutting of imports from Pakistan would likely continue, in contrast to Pakistan’s argument.
However, this US finding of ‘actual threat of serious damage’ in the 1998 Market Statement is totally dependent on the finding of serious damage. It is based on a finding that there is current serious damage and extrapolates to a conclusion that there is an actual threat of the serious damage continuing. This means that it does not serve as an independent (or alternative) determination of actual threat of serious damage. It is a redundant exercise and that means that if there is a fatal flaw in the serious damage determination, the actual threat determination necessarily falls, too. If the United States were to make an independent finding of actual threat of serious damage, further analysis would need to be done to substantiate the finding. In other words, a prospective analysis is required if an independent finding of actual threat is to be made rather than a redundant and dependant one as was effectively made by the United States in the 1998 Market Statement.”(59) (ii) Indicators of serious damage 56. 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.”(60) (iii) Choice of investigation period Length of the investigation period 57. 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”.(61) 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”. (62) 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.”(63) 58. 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.”(64) (e) “the domestic industry producing like and/or directly competitive products” (i) Product-oriented definition of domestic industry 59. In US — Cotton Yarn, which dealt with a safeguard measure introduced by the United States on imports of cotton yarn from Pakistan (see paragraph 70 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(65), was of the view that the definition of domestic industry is “product-oriented and not producer-oriented, and that the definition must be based on the products(66) produced by the domestic industry which are to be compared with the imported product in terms of their being like or directly competitive”. (67) 60. 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.”(68) (iii) “directly competitive products” Article III:2 of GATT 1994: interpretation of “directly competitive” 61. 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.(69) 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 the 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(70); the competitive relationship extends as well to potential competition.(71)
(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.(72)
(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.(73)
(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’.(74)”(75) 62. 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.”(76) Proximity in competitive relationship 63. 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.”(77) Dynamic competitive relationship 64. The Appellate Body on 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.”(78) “Directly” as a qualifier and limit to “competitive” 65. The Appellate Body on 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”.(79) 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. (80) 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.”(81) 66. 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(82) 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.”(83) 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.(84) 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.”(85) 67. 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.(86) The Panel, in a finding not addressed by the Appellate Body(87), 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. (88) … [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)(89) 68. At its meeting in November 1998, in examining certain transitional safeguard measures introduced by Colombia on imports from Korea and Thailand, the TMB noted that the ATC does not include a definition of “domestic industry” and that this leaves a certain discretion to the Members. However, to only account one company, representing 62 per cent of the total domestic production, as the whole domestic industry hindered the TMB in making a proper assessment of the domestic industry: “[T]he 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.”(90) 69. On the subject referenced in the above mentioned paragraph, the TMB noted that as a consequence of the incomplete information on the domestic industry, it could not be determined whether the commercial difficulties that the sole concerned domestic producer faced (who had requested the investigation) were due to the increase of imports or whether it was a result of enhanced competition between domestic producers: “[B]earing 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.”(91) 70. 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.”(92) 71. 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.”(93) (emphasis added) 72. At its meeting in June 1999, on the same matter, the TMB confirmed its findings referenced in paragraphs 70–71 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:
73. 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 it is not sufficient to merely make a mechanical causal link between the increase in imports and the alleged serious damage to the domestic industry in making a determination of whether the imports have caused serious damage to the domestic industry: “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.”(95) 74. 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 ACT there is an explicit obligation incumbent on the Member introducing the safeguard measure to demonstrate that the serious damage or actual threat thereof was not due to 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.”(96) (ii) Choice of investigation period 75. 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 stipulates 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.”(97) 76. As regards the investigation period for the determination of causation, see paragraphs 57–58 above. (a) List of conditions in Article 6.3 77. In US — Underwear, the Panel held that the criteria in inter alia Article 6.3 had to be fulfilled in order for transitional safeguard measures to be consistent with the ATC. Further on in the report, the Panel stated that despite its observation that the United States had failed to analyse all of the listed economic factors of Article 6.3 it could not be concluded that the finding of serious damage was inconsistent with that provision, because the economic factors in Article 6.3 represent only an illustrative list. In a finding, not reviewed by the Appellate Body, the Panel held that “Article 6.3 of the ATC contains an indicative list of economic variables that can be taken into account in order to assess the serious damage or actual threat thereof.”(98) 78. In US — Wool Shirts and Blouses, which the DSB adopted three months after US — Underwear, the Panel did not follow the approach adopted in US — Underwear. In a finding not reviewed by the Appellate Body, the Panel held that the criteria in Article 6.3 reflected an exhaustive, and not “indicative”, list of economic factors. Hence, all the 11 economic factors included in that paragraph had to be considered in order for the imposition of transitional safeguard measures to be consistent with the ATC.(99) The Panel held: “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.
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.”(100) (emphasis original) 79. The conclusions of panels and the Appellate Body on the interpretation of the similarly worded provision can be found in Section V.B.4(a)(viii) of the Chapter on the Agreement on Safeguards; in Section III.B.6(c) 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 80. 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)”(101) 81. 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. (102) The first requirement is that “the attribution be confined to only those Members from whom imports have shown a sharp and substantial increase”. (103) 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.” (104) (i) First requirement: only those Members from whom imports have shown a sharp and substantial increase 82. 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.(105) These interpretations of the Panel have not been appealed and are, therefore, not before us.”(106) “sharp” and “substantial” increase in imports 83. The Panel on US — Cotton Yarn interpreted the terms “sharp” and “substantial”. These interpretations were not considered by the Appellate Body.(107) The Panel interpreted the “term ‘sharp’ to refer to the percentage increase and the term ‘substantial’ to refer to the absolute increase”.(108) Attribution to all Members whose imports cause serious damage or threat thereof 84. 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. (109) The Panel also ruled that Article 6.4 requires attribution to all Members whose imports cause serious damage or actual threat thereof.(110) The Appellate Body, further to upholding the Panel’s first finding regarding US inconsistency with Article 6.4(111), considered that its findings on that first issue(112) 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”.(113) (ii) Second requirement: comparative analysis 85. 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.(114) 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.”(115) Why is a comparative analysis required? 86. 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.(116) 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 “‘misattribution’ 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.”(117) 87. 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)(118): “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.(119) In the same vein, we note that Article 22.4 of the DSU(120) 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. (121) 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.(122) 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.”(123) 88. 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.”(124) How to conduct a comparative analysis 89. 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.(125) 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 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 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. 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 other Members (from whom imports have also increased sharply and substantially) taken individually.”(126) 90. In US — Underwear, the Panel considered on comparative basis whether the attribution of serious damage in the United States’ domestic industry Costa Rican imports was consistent with the requirements under Article 6.4. In this context the Panel analysed the five bilateral agreements that the United States had concluded with five different exporting States which represented a substantial portion all United States’ imports. In these agreements the United States agreed to ensure unrestricted imports to the United States’ territory of more than 170 million “dozen units of a product (an increase of 478 per cent over then current import levels).”(127) The Panel concluded, in a finding not reviewed by the Appellate Body, that the attribution of serious damage to Costa Rican imports was inconsistent with the requirements of Article 6.4 as follows: “In light of (i) the fact that restrictions under Article 6 of the ATC are to be applied only sparingly, (ii) the fact that the United States has the burden of proving that it has complied with the requirements of Article 6 of the ATC, (iii) the deficiencies detailed above in respect of the evidence on the existence of serious damage, which raise serious questions in our view as to whether there was serious damage shown under Article 6.2 at all, (iv) the fact that the United States failed to demonstrate adequately that the cause of serious damage was imports, and (v) the fact that the United States voluntarily agreed to accept import limits from other countries exporting underwear to the United States that permitted increases over their current export levels that were far in excess of Costa Rica’s export levels to the United States, we conclude that the United States failed to demonstrate adequately in the March Statement that its domestic industry suffered serious damage that could be attributed to Costa Rican imports and thus, by imposing import restrictions on imports of Costa Rican underwear, the United States failed to comply with its obligations under Article 6.2 and 6.4 of the ATC.”(128) 91. With respect to the definition of “least-developed country Members”, see excerpts referenced in the Chapter on the WTO Agreement, Article XI:2. 92. 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 reimports, 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.”(129) 93. 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.”(130) 94. 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 months that had taken place between the investigation concluded by INCOMEX and the time at which Colombia had requested consultations with, inter alia, Brazil and India. The TMB recalled in this respect that, according to Article 6.7, the information referred to in Articles 6.3 and 6.4 shall be related, as closely as possible, to the reference period set out in Article 6.8, i.e. the 12–month period terminating two months preceding the month in which the request for consultation was made […]. The TMB recognised that this formulation allowed for some flexibility, in particular in view of the availability of most recent data. In the view of the TMB, however, 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.”(131) 95. At its meeting in November 1998, examining a transitional safeguard measure taken by Colombia on imports from Korea and Thailand, the TMB stated as follows: “The TMB […] decided to make an examination, on the basis of the information available, of the possible effects of the increased quantities in total imports of plain polyester filaments on the state of the particular industry, as specified in Article 6.3. The TMB noted in this respect that it could not base its assessment on estimates provided by Colombia for the year 1998; and that the monthly averages provided by Colombia could not be considered in most cases as providing reliable indications.”(132) 96. At its meeting in January 1999, the TMB provided a clarification on its statement referenced in paragraph 95 above. The TMB agreed that Article 6 did not “lay down a single methodology for the presentation of the information in question”. Furthermore, the TMB emphasized that in its statement referenced in paragraph 95 above, it had not made a finding on “how information regarding imports or the variables used for determining serious damage to the domestic industry should be presented under Article 6”, but rather “had expressed a view on the difficulties it was facing because of the problems in comparing certain data provided by Colombia in the present case”: “[T]he TMB agreed with Colombia that Article 6 does not lay down a single methodology for the presentation of the information in question. The TMB had recalled what were the time periods covered by the information presented by Colombia pursuant to Article 6.7. ‘[T]he technical report prepared by INCOMEX contained data regarding the performance of total imports for the 12–month periods June to May of 1995–1996, 1996–1997 and 1997–1998, the reference period referred to in Article 6.8. The data and information incorporated into the report regarding the economic variables set out in Article 6.3 referred to calendar years; for 1998, it incorporated actual data for the period January to May and provided estimates for the full calendar year. In addition, the report provided monthly averages regarding each variable for 1995, 1996, 1997 and January to May 1998’ (G/TMB/R/49, paragraph 11). The TMB could not agree with the contention of Colombia that the TMB had omitted to observe that information had been presented in three different forms. The TMB had not qualified whether these forms were mutually supportive, as claimed by Colombia, since the Body had not found that certain such forms were convincing. This had been reflected in the report adopted by the TMB: ‘[t]he TMB noted […] that it could not base its assessment on estimates provided by Colombia for the year 1998; and that the monthly averages provided by Colombia could not be considered in most cases as providing reliable indications.’ (G/TMB/R/49, paragraph 21, emphasis added). Therefore, the TMB had added that ‘[f ]or data to be meaningful Colombia would have had in the present case to have provided comparisons either on a January/May basis or on a year-ending May basis’ (same paragraph, emphasis added). In the view of the TMB, the above excerpts of its report made it clear that (i) the report faithfully reflected the forms of information provided, including the respective time-frames; (ii) the TMB had not provided any interpretation, but had expressed the view that in the present case the presentation was such that it did not allow a reliable comparison of the developments or changes in the relevant economic variables referred to in Article 6.3. The reference of the TMB to the January/May comparisons was not an interpretation and was not contrary to any provision of Article 6, since the Body had not suggested that this information should have been provided in lieu of the information submitted, but in addition to what had been made available. Without such additional information it was not possible for the TMB to assess whether developments during the first five months of 1998 could be an indication of serious damage caused by imports or whether they constituted a seasonal phenomenon which had characterised the domestic industry in the same period of the preceding years as well. The TMB recognized that Colombia had explained that the product subject to safeguard measures was not subject to seasonal factors. This statement, however, had not been substantiated by the information presented pursuant to Article 6.7.
The TMB reiterated that it had not provided any interpretation regarding how information regarding imports or the variables used for determining serious damage to the domestic industry should be presented under Article 6. Instead, it had expressed a view on the difficulties it was facing because of the problems in comparing certain data provided by Colombia in the present case.” (emphasis original)(133) 97. At its meeting in October 1999, concerning the choice of periods for comparison, the TMB held that two data series for overlapping periods were insufficient for the purposes of Article 6.7. In the specific case, there had been an overlap of eight months. The TMB emphasized that “[r]eliable indications cannot be obtained but by comparing data for identical time-periods”: “The TMB recalled that the relevant provisions of the ATC (Article 6.7) required, inter alia, that ‘[i]n respect of requests [for consultations] 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’ of Article 6. In the particular cases referred to the TMB and subject to the present review, this reference period, in accordance with Article 6.8, corresponded to the period May 1998/April 1999, for which category-specific information had been provided by Argentina. It had to be observed, however, that in the factual information given by Argentina developments of this most recent period could not be compared to the state of the domestic industry as reflected in the different variables during a preceding corresponding period, i.e. during May 1997/April 1998, since all other data had been provided on a calendar-year basis. Though Argentina gave indications (expressed in terms of percentages) regarding ‘changes over 12 months’, these indications could not be considered to provide a reliable basis, as they compared data relating to May 1998/April 1999 to those reported for January/December 1998. Therefore, between the two data series compared there had been an overlap of eight months. Reliable indications cannot be obtained but by comparing data for identical time-periods. Though Argentina had explained that there had not been indications referring to the existence of seasonal factors, the TMB was of the view that the availability of data for the calendar-year 1998 and for the period May 1998/April 1999 could give an indication for comparing trends between January-April 1998 and the same period in 1999, but did not allow for more far-reaching comparisons.” (134) 98. At its meeting in November 2001, the TMB examined a notification by Poland which considered itself unable to conform with the recommendation the TMB had made regarding a transitional safeguard measure introduced by Poland on imports of certain products from Romania. The TMB found that “developments that occurred prior to the period covered by the factual information provided pursuant to Article 6.7 can hardly be considered as a valid reason for a Member’s inability to conform with the TMB’s recommendation”: “[T]he TMB recognized that the ATC does not provide specific guidance as to how long the period of investigation (and, consequently, the period covered in the specific and relevant information in the sense of Article 6.7) should be. Therefore, the definition of the length of the period of investigation is very much left to the discretion of the authorities of the Member invoking the provisions of Article 6. While the use of the present tense of the verb in Article 6.2 (i.e. ‘… a particular product is being imported …’) and the reference to the information ‘as up-to-date as possible’ in Article 6.7 appear to indicate that the information to be provided should at the minimum, include developments of the recent past, there is no similar guidance regarding what should be the starting-point of the period covered by the factual information. In view of this, the TMB had proceeded to the examination of the matter under Article 6.10 on the basis of the information provided by Poland for the period of 12 months (from 1 January 2000 to 1 January 2001);
It follows from the above that reference to developments that occurred prior to the period covered by the factual information provided pursuant to Article 6.7 can hardly be considered as a valid reason for a Member’s inability to conform with the TMB’s recommendation;”(135) 99. In US — Underwear, the Appellate Body examined the Panel’s finding that a transitional safeguard measure imposed by the United States was inconsistent with Article 6. The Panel had held that the wording of Article 6.10 did not provide any guidance on whether backdating a transitional safeguard measure was permissible. Proceeding to the provisions of the GATT 1994, the Panel then took Article X:2 thereof as its applicable and controlling text. (136) The Appellate Body disagreed with these findings of the Panel. As to whether Article 6 permits the retroactive application of transitional safeguard measures, referring to Article 6.10, the Appellate Body held that there was a “presumption [in the] very text of Article 6.10 that such a measure may be applied only prospectively”: “It is essential to note that, under the express terms of Article 6.10, ATC, the restraint measure may be ‘applied’ only ‘after the expiry of the period of 60 days’ for consultations, without success, and only within the ‘window’ of 30 days immediately following the 60–day period. Accordingly, we believe that, in the absence of an express authorization in Article 6.10, ATC, to backdate the effectivity of a safeguard restraint measure, a presumption arises from the very text of Article 6.10 that such a measure may be applied only prospectively. This presumption appears to us entirely appropriate in respect of measures which are limitative or deprivational in character or tenor and impact upon Member countries and their rights or privileges and upon private persons and their acts.”(137) 100. Further, the Appellate Body considered that the context of Article 6.10, “includ[ing], of course, the whole of Article 6”, supported its finding referenced in paragraph 99 above: “Article 6.1 directs that transitional safeguard measures be applied ‘as sparingly as possible’ on the one hand and, on the other, applied ‘consistently with the provisions of [Article 6] and the effective implementation of the integration process under [the ATC]’. It appears to the Appellate Body that to inject into Article 6.10 an authorization for backdating the effectivity of a restraint measure will encourage return to the practice of backdating restraint measures which appears to have been widespread under the regime of the MFA, a regime which has now ended, as discussed below, with the advent of the ATC. Such an introjection would moreover loosen up the carefully negotiated language of Article 6.10, which reflects an equally carefully drawn balance of rights and obligations of Members, by allowing the importing Member an enhanced ability to restrict the entry into its territory of goods in the exportation of which no unfair trade practice such as dumping or fraud or deception as to origin, is alleged or proven. For retroactive application of a restraint measure effectively enables the importing Member to exclude more goods by enforcing the quota measure earlier rather than later.”(138) 101. Finally, the Appellate Body also held that backdating measures imposed pursuant to Article 6.10 would “diminish the utility and significance of prior consultations with the identified exporting Member or Members”: “It further appears to us that to read Article 6.10 as somehow authorizing the backdating, as a matter of course, of the effectivity or operation of a restraint measure, will tend to diminish the utility and significance of prior consultations with the identified exporting Member or Members. Article 6.7 of the ATC provides for those consultations in very substantial detail. Thus, Article 6.7 requires that the request for consultations be accompanied by specific, relevant and up-to-date information on the factors which led the importing Member to make a determination of ‘serious damage’ (listed in Article 6.3) and the factors which led to the unilateral attribution of such damage to an identified exporting Member or Members (referred to in Article 6.4). One clear objective of requiring a 60–day period for consultations is to give such Member or Members a real and fair, not merely pro forma, opportunity to rebut or moderate those factors. The requirement of consultations is thus grounded on, among other things, due process considerations; that requirement should be protected from erosion or attenuation by a treaty interpreter. It is, again, noteworthy that Article 6.7 refers repeatedly to the Member ‘proposing to take safeguard action’, or who ‘proposes to invoke the safeguard action’ and to the level at which imports of the goods specified ‘are proposed to be restrained’. The common, day-to-day, implication which arises from this language is clear to us: the restraint is to be applied in the future, after the consultations, should these prove fruitless and the proposed measure not withdrawn. The principle of effectiveness in treaty interpretation(139) sustains this implication.”(140) 102. In addition to its reasoning referenced in paragraphs 99–101 above, the Appellate Body in US — Underwear also addressed “the prior existence and demise, as it were, of the MFA” and pointed out that one particular provision of the MFA expressly permitted backdating: “Article 3(5)(i) of the MFA expressly permitted backdating of the effectivity of a restraint measure to the date of the importing Member’s call for consultations.(141) The above underscored clause of Article 3(5)(i), MFA, however, disappeared with the supersession of the MFA by the new ATC; no comparable clause was carried over into Article 6.10 of the ATC. The Panel did not draw any operable inference from the disappearance of the MFA clause.(142) Appellant Costa Rica urges that the absence of an equivalent clause in Article 6.10 of the ATC means that backdating of a restraint measure may no longer be resorted to under Article 6.10, ATC. Appellee United States, in contrast, insists that such backdating is nevertheless available under the regime of the ATC.”(143) 103. With respect to the fact that a provision of the MFA expressly provided for the possibility to backdate preliminary safeguard measures, the Appellate Body held that the disappearance in the ATC of this provision “strongly reinforces the presumption that such retroactive application is no longer permissible”: “We believe the disappearance in the ATC of the earlier MFA express provision for backdating the operative effect of a restraint measure, strongly reinforces the presumption that such retroactive application is no longer permissible. This is the commonplace inference that is properly drawn from such disappearance. We are not entitled to assume that that disappearance was merely accidental or an inadvertent oversight on the part of either harassed negotiators or inattentive draftsmen. That no official record may exist of discussions or statements of delegations on this particular point is, of course, no basis for making such an assumption. At the oral hearing, the United States stated that since 1974, for over 20 years, all importing countries had ‘counted’ imports in the textile area against quotas imposed by restraints from the date of the request for consultations. While that may well have been the practice of many importing countries, it was, of course, the practice under the MFA. Two considerations bear upon this matter. Firstly, assuming, arguendo only, that the WTO Members had wanted to keep that practice, it is very difficult to understand why the treaty basis for such practice was not maintained but was instead wiped out. Secondly, it has not been suggested that such a widely followed practice has arisen under Article 6.10 of the ATC notwithstanding the absence of the MFA backdating clause. At any rate, it is much too early for practice to have arisen under the ATC regime which commenced only on 1 January 1995.”(144) (emphasis original) 104. Further, in response to the United States claim that the retroactive application of transitional safeguard measures was needed to deal with flood of imports after an announcement of a request for consultations under the ATC, the Appellate Body stated: “When and to the extent that a speculative ‘flood of imports’ turns out, in a particular situation, to be a real and serious problem engaging the legitimate interests of the Member proposing a safeguard measure, we consider that recourse may be had to Article 6.11 of the ATC. Article 6.11 authorizes the importing Member, ‘in highly unusual and critical circumstances, where delay would cause damage which would be difficult to repair’, to impose and apply immediately, albeit provisionally, the restraint measure authorized under Article 6.10. The request for consultations and the notification to the Textile Monitoring Board must, however, be issued within five working days after the taking of provisional action. In other words, the requirements of Article 6.10 must nevertheless be observed. Action under Article 6.11 of the ATC is not in lieu of, and does not supersede, action taken or begun under Article 6.10, ATC. Provisional action under Article 6.11 is folded into action under Article 6.10. Considering that Article 6.11 permits the provisional imposition of a restraint measure even before consultations, a fortiori it would permit such imposition after consultations have in fact begun, so long as the requisites of both Articles 6.10 and 6.11 are met or continue to be met. … The conclusion we have arrived at, in respect of the issue of permissibility of backdating, is that the giving of retroactive effect to a safeguard restraint measure is no longer permissible under the regime of Article 6 of the ATC and is in fact prohibited under Article 6.10 of that Agreement. The presumption of prospective effect only, has not been overturned; it is a proposition not simply presumptively correct but one requiring our assent. We believe, accordingly, and so hold, that the Panel erred in ruling that Article 6.10 of the ATC had nothing to say on the issue of backdating and that such backdating to 21 April 1995, the date of publication of the call for consultations, was permissible under Article X:2 of the General Agreement. The importing Member is, however, not defenceless against a speculative ‘flood of imports’ where it is confronted with the circumstances contemplated in Article 6.11. Its appropriate recourse is, in other words, to action under Article 6.11 of the ATC, complying in the process with the requirements of Article 6.10 and Article 6.11.”(145) (emphasis original) 105. In this connection, the Appellate Body held therefore with respect to the finding of the Panel on the permissibility of backdating, referenced in paragraph 99 above, that “[o]ur finding, therefore, that the safeguard restraint measure here involved is properly regarded as ‘a measure of general application’ under Article X:2 does not conflict with, and does not affect our conclusion under the first issue above that backdating the effectivity of a restraint measure is prohibited by Article 6.10 of the ATC.”(146) 106. At its meeting in January 2000, as regards the view of Pakistan that the request for consultations and the notification to the TMB had been made by Argentina more than five working days after the action had been taken, contrary to what is stipulated in Article 6.11, the TMB stated as follows: “The measure had been introduced as from 31 July 1999 and the respective notification and request for consultation had been made on 4 August 1999 ‘within no more than five working days’ as stipulated in Article 6.11, from the implementation of the provisional safeguard measure.
The notion of ‘taking’ a safeguard action is not defined clearly by Articles 6.10 and 6.11, at least as far as a possible distinction between ‘taking’ and ‘applying’ a measure is concerned.
There can be a reading that an action is being taken in the sense of the above provisions when the restraint is effectively implemented, while another reading according to which ‘taking’ and ‘applying’ the measure are distinct actions, cannot be excluded either.
In any case, while it could be argued that the effect of a restraint begins immediately once it is announced, the decision in the present case was taken on 13 July 1999, but was published (and, therefore, became known to the foreign and domestic economic operators) only later and the difference of slightly more than two weeks in administrative terms, including the preparation of the implementation through appropriate procedures, did not seem to be excessive.”(147) 107. At its meeting in April 2000, the TMB reviewed certain transitional safeguard measures taken by Argentina on certain textile products imported from Korea. With respect to Article 6.11, the TMB held that “the Member invoking the provisions of Article 6.11 and applying a safeguard measure provisionally was under clear obligation to respect also the relevant procedural requirements, including those related to notifications within established time-frames”: “[T]he language of Article 6.11 does not specify explicitly which of the Members involved has to submit such a notification within the deadline clearly defined. However, it followed from the logic and structure of Article 6, in particular of Articles 6.10 and 6.11, that the Member invoking the provisions of Article 6.11 and applying a safeguard measure provisionally was under clear obligation to respect also the relevant procedural requirements, including those related to notifications within established time-frames. It could be assumed as well that the Member affected by the provisional application of the safeguard measure would also have every interest in informing the TMB about developments as expeditiously as possible, in particular in case of lack of agreement as a result of consultations, since in these circumstances the provisionally applied safeguard measure would remain in place, at least until the TMB would have conducted its examination and made appropriate recommendations to the Members concerned. The TMB also observed that the tight deadlines inscribed in Article 6.11 had been defined on purpose: while this provision enabled the importing Member to take action immediately, on a provisional basis, the respective procedures had been accelerated compared to those foreseen under Article 6.10 with a view to limiting the uncertainties regarding the justification of the measures, or lack thereof, thus introduced and limiting also the potentially adverse effects of the safeguards applied in case they were not to be found justified by the TMB under the provisions of Article 6.”(148) (c) “highly unusual and critical circumstances” 108. At its meeting in November 1996, in examining certain transitional safeguard measures taken by Brazil under Article 6.11, the TMB stated as follows: “The TMB was of the view that in cases where the provisions of paragraph 11 of Article 6 were invoked, the expectation was that the elements envisaged in paragraphs 2, 3 and 4 of Article 6 would indicate as unambiguously as possible the highly unusual and critical character of the circumstances. The TMB was also of the view that, unless such circumstances were met, any action taken under Article 6 should be preceded by consultations between the parties.”(149) 109. At its meeting in January 2000, in examining certain transitional safeguard measures introduced by Argentina on imports of certain products from Pakistan, the TMB distinguished between procedural and substantive elements of Article 6.11: “[T]he TMB noted that Article 6.11 involves procedural and substantive elements. In the view of the TMB, the procedural requirements, in particular the notification of the measure within a narrowly defined time period, had been met. As to the substantive elements, they can be summarized as follows:
110. After distinguishing between procedural and substantive elements of Article 6.11, as referenced in paragraph 109 above, the TMB stated that it was not convinced by Argentina’s argument that in the case before it, “the continued increases of such imports during the period investigated had created a situation that was one as described in Article 6.11”. The TMB held that: “[A]rgentina had not provided any explanation in the factual information of the reasons why it had considered that the circumstances were highly unusual and critical. Subsequently, Argentina had explained that developments in total imports could have, in its view, fully justified taking action pursuant to Article 6 earlier, and that the continued increases of such imports during the period investigated had created a situation that was one as described in Article 6.11. The TMB had not found this argument to be a convincing one. It noted, among other things, that the rate of increase of total imports seemed to have decelerated since the beginning of 1999. Consequently, the circumstances could not be highly unusual and critical, since some of the difficulties experienced by the industry had started earlier and the situation had, perhaps, gradually worsened throughout the period investigated.
In light of the above, the TMB continued to be of the view that Argentina’s recourse to the procedures laid down in Article 6.11 had not been appropriate. Whether such an inappropriate recourse to Article 6.11 can invalidate a transitional safeguard measure or not, was, in the view of the TMB, a decision to be taken case-by-case, on the basis of the consideration of all the relevant elements involved. In the present case the TMB found, on the one hand, that serious damage caused by increased imports had been demonstrated and that it could be attributed, inter alia, to imports from Pakistan. Furthermore, the procedural requirements under Article 6.11 had been met. On the other hand, the detailed examination of the determination of serious damage as well as the lack of convincing explanations pursuant to Article 6.11 revealed that the recourse to this provision, i.e. to apply the restraint provisionally, without having exhausted the possibility of prior consultations, had not been justified. The TMB came to the overall conclusion, however, that in this particular case the inappropriate recourse to Article 6.11, although it constituted an important shortcoming, would not lead to the conclusion that the safeguard measure should be rejected on that basis.”(151) 111. At its meeting in April 2000, the TMB examined certain transitional safeguard measures taken by Argentina under Article 6.11 on imports of certain products originating in Korea. With respect to the measure affecting one category of products, the TMB recalled: “[T]hat in examining a previous case involving recourse to the provisions of Article 6.11 it had stated, inter alia, the following: ‘[w]hether … an inappropriate recourse to Article 6.11 can invalidate a transitional safeguard measure or not, was, in the view of the TMB, a decision to be taken case-by-case, on the basis of the consideration of all the relevant elements involved’ (emphasis added)(152). In the present case the TMB, in its thorough analysis of the developments affecting the Argentinian industry, was unable to identify any significant element of the case where it could find that the situation corresponded to the circumstances defined in Article 6.11.
The TMB concluded that Argentina had not demonstrated successfully that the products of category 229/629 were being imported into Argentina in the reference period in such increased quantities as to cause serious damage to the domestic industry producing like and/or directly competitive products and, in particular, as to substantiate the highly unusual and critical circumstances where delay would cause damage that would be difficult to repair. The TMB recommended, therefore, that Argentina rescind the safeguard measure applied provisionally on imports of these products originating from Korea.”(153) 112. At the same meeting, with respect to another safeguard measure on imports of another category of products, the TMB found a recourse by Argentina to Article 6.11 to be justified, even though no separate analysis had been provided by the National Commission for Foreign Trade of Argentina to support its statement that “the unusual and critical circumstances mentioned in Article 6.11 of the ATC existed”: “The TMB recalled that Argentina had decided to apply provisionally the safeguard measure on imports from Korea pursuant to the provisions of Article 6.11, which refers to ‘highly unusual and critical circumstances, where delay would cause damage which would be difficult to repair’. It was observed that in its findings, on 30 July 1999, the National Commission for Foreign Trade of Argentina had considered, inter alia, that ‘the unusual and critical circumstances mentioned in Article 6.11 of the ATC existe[d], enabling the provisional application of measures’. Though no separate analysis was provided by this Commission to substantiate this statement, on the basis of the examination of this case pursuant to Articles 6.2, 6.3 and 6.4, the TMB came to the view that at the end of July 1999 the existence of the highly unusual and critical circumstances had been demonstrated on the basis of data covering the period June 1998–May 1999. Practically all the elements examined supported such a conclusion: the sharp and continuous rise of imports, both from all sources and from Korea; the significant and continuous decline of output and domestic sales of local production, while consumption continued to increase dynamically; the decline in productivity and employment; the low rate of utilization of capacity and, not the least, the important pressure import prices put on the domestic market. All these, i.e. the elements envisaged in Articles 6.2, 6.3 and 6.4, seemed to indicate without ambiguity the existence of the highly unusual and, in particular, the critical nature of the circumstances.”(154) 113. With respect to the relationship with Article 6.10, see the excerpt from the Appellate Body Report on US — Underwear, referenced in paragraph 104 above. 9. Relationship with Article 2.4 114. In US — Underwear, the Panel examined whether certain transitional safeguard measures imposed by the United States on imports from Costa Rica were inconsistent with Article 6. The Panel, in a finding not addressed by the Appellate Body, stated with respect to the relationship between Articles 2.4 and 6 that “one of the central elements of the ATC is the prohibition, in principle, for Members to have recourse to any new restrictions beyond those notified under Article 2.1 of the ATC”. Based on this reasoning, the Panel on US — Underwear concluded that “Article 6 of the ATC is an exception to the rule of Article 2.4 of the ATC”.(155) The Appellate Body did not address these findings upon review. However, in its report in US — Wool Shirts and Blouses, the Appellate Body held that Article 6 was an integral part of the balance of rights and obligations under the ATC, that Article 6 did not have exceptional character and that the burden of proof in this context fell upon the complaining party. See paragraph 46 above. 115. In US — Wool Shirts and Blouses, the Panel examined whether a certain United States transitional safeguard measure was consistent with Article 6. With respect to the relationship between Articles 2.4 and 6, the Panel, in a statement not reviewed by the Appellate Body, indicated as follows: “Since we conclude that the safeguard action taken by the United States violated the provisions of Article 6 of the ATC, it is our view that the United States applied a restraint not authorized under the ATC, which, therefore, constitutes also a violation of Article 2.4 of the ATC.”(156) 10. Relationship with other WTO Agreements (a) Article III.2 of the GATT 1994 116. As regards the relationship between Article 6.2 and Article III.2 and the concept of “directly competitive” products, see paragraph 61 above. (b) Article X:2 of the GATT 1994 117. In US — Underwear, the Appellate Body addressed the Panel’s finding on Article X:2 of the GATT 1994 and its applicability to transitional safeguard measures within the meaning of Article 6 of the ATC. The Panel reviewed the measure at issue in the light of Article X:2 of the GATT 1994 because it had found that Article 6.10 of the ATC did not provide guidance on the issue of whether backdating a transitional safeguard measure was permissible; see paragraph 99 above. While the Appellate Body disagreed with the Panel’s reading of Article 6.10 of the ATC(157), it agreed that the safeguard restraint measure was a measure of general application within the meaning of Article X:2: “The Panel found that the safeguard restraint measure imposed by the United States is ‘a measure of general application’ within the contemplation of Article X:2. We agree with this finding. While the restraint measure was addressed to particular, i.e. named exporting Members, including Appellant Costa Rica, as contemplated by Article 6.4, ATC, we note that the measure did not try to become specific as to the individual persons or entities engaged in exporting the specified textile or clothing items to the importing Member and hence affected by the proposed restraint.”(158)
VIII. Article 7 back to top Article 7 1. As part of the integration process and with reference to the specific commitments undertaken by the Members as a result of the Uruguay Round, all Members shall take such actions as may be necessary to abide by GATT 1994 rules and disciplines so as to:
(a) achieve improved access to markets for textile and clothing products through such measures as tariff reductions and bindings, reduction or elimination of non-tariff barriers, and facilitation of customs, administrative and licensing formalities;
(b) ensure the application of policies relating to fair and equitable trading conditions as regards textiles and clothing in such areas as dumping and anti-dumping rules and procedures, subsidies and countervailing measures, and protection of intellectual property rights; and
(c) avoid discrimination against imports in the textiles and clothing sector when taking measures for general trade policy reasons.
Such actions shall be without prejudice to the rights and obligations of Members under GATT 1994.
2. Members shall notify to the TMB the actions referred to in paragraph 1 which have a bearing on the implementation of this Agreement. To the extent that these have been notified to other WTO bodies, a summary, with reference to the original notification, shall be sufficient to fulfil the requirements under this paragraph. It shall be open to any Member to make reverse notifications to the TMB.
3. Where any Member considers that another Member has not taken the actions referred to in paragraph 1, and that the balance of rights and obligations under this Agreement has been upset, that Member may bring the matter before the relevant WTO bodies and inform the TMB. Any subsequent findings or conclusions by the WTO bodies concerned shall form a part of the TMB’s comprehensive report. No jurisprudence or decision of a competent WTO body.
IX. Article 8 back to top Article 8 1. In order to supervise the implementation of this Agreement, to examine all measures taken under this Agreement and their conformity therewith, and to take the actions specifically required of it by this Agreement, the Textiles Monitoring Body (“TMB”) is hereby established. The TMB shall consist of a Chairman and 10 members. Its membership shall be balanced and broadly representative of the Members and shall provide for rotation of its members at appropriate intervals. The members shall be appointed by Members designated by the Council for Trade in Goods to serve on the TMB, discharging their function on an ad personam basis.
2. The TMB shall develop its own working procedures. It is understood, however, that consensus within the TMB does not require the assent or concurrence of members appointed by Members involved in an unresolved issue under review by the TMB.
3. The TMB shall be considered as a standing body and shall meet as necessary to carry out the functions required of it under this Agreement. It shall rely on notifications and information supplied by the Members under the relevant Articles of this Agreement, supplemented by any additional information or necessary details they may submit or it may decide to seek from them. It may also rely on notifications to and reports from other WTO bodies and from such other sources as it may deem appropriate.
4. Members shall afford to each other adequate opportunity for consultations with respect to any matters affecting the operation of this Agreement.
5. In the absence of any mutually agreed solution in the bilateral consultations provided for in this Agreement, the TMB shall, at the request of either Member, and following a thorough and prompt consideration of the matter, make recommendations to the Members concerned.
6. At the request of any Member, the TMB shall review promptly any particular matter which that Member considers to be detrimental to its interests under this Agreement and where consultations between it and the Member or Members concerned have failed to produce a mutually satisfactory solution. On such matters, the TMB may make such observations as it deems appropriate to the Members concerned and for the purposes of the review provided for in paragraph 11.
7. Before formulating its recommendations or observations, the TMB shall invite participation of such Members as may be directly affected by the matter in question.
8. Whenever the TMB is called upon to make recommendations or findings, it shall do so, preferably within a period of 30 days, unless a different time period is specified in this Agreement. All such recommendations or findings shall be communicated to the Members directly concerned. All such recommendations or findings shall also be communicated to the Council for Trade in Goods for its information.
9. The Members shall endeavour to accept in full the recommendations of the TMB, which shall exercise proper surveillance of the implementation of such recommendations.
10. If a Member considers itself unable to conform with the recommendations of the TMB, it shall provide the TMB with the reasons therefor not later than one month after receipt of such recommendations. Following thorough consideration of the reasons given, the TMB shall issue any further recommendations it considers appropriate forthwith. If, after such further recommendations, the matter remains unresolved, either Member may bring the matter before the Dispute Settlement Body and invoke paragraph 2 of Article XXIII of GATT 1994 and the relevant provisions of the Dispute Settlement Understanding.
11. In order to oversee the implementation of this Agreement, the Council for Trade in Goods shall conduct a major review before the end of each stage of the integration process. To assist in this review, the TMB shall, at least five months before the end of each stage, transmit to the Council for Trade in Goods a comprehensive report on the implementation of this Agreement during the stage under review, in particular in matters with regard to the integration process, the application of the transitional safeguard mechanism, and relating to the application of GATT 1994 rules and disciplines as defined in Articles 2, 3, 6 and 7 respectively. The TMB’s comprehensive report may include any recommendation as deemed appropriate by the TMB to the Council for Trade in Goods.
12. In the light of its review the Council for Trade in Goods shall by consensus take such decisions as it deems appropriate to ensure that the balance of rights and obligations embodied in this Agreement is not being impaired. For the resolution of any disputes that may arise with respect to matters referred to in Article 7, the Dispute Settlement Body may authorize, without prejudice to the final date set out under Article 9, an adjustment to paragraph 14 of Article 2, for the stage subsequent to the review, with respect to any Member found not to be complying with its obligations under this Agreement. 118. At the 1996 meeting, in Singapore, with respect to the role of the TMB, the Ministerial Conference declared as follows: “We agree that, keeping in view its quasi-judicial nature, the Textiles Monitoring Body (TMB) should achieve transparency in providing rationale for its findings and recommendations. We expect that the TMB shall make findings and recommendations whenever called upon to do so under the Agreement. We emphasize the responsibility of the Goods Council in overseeing, in accordance with Article IV:5 of the WTO Agreement and Article 8 of the ATC, the functioning of the ATC, whose implementation is being supervised by the TMB.”(159) 119. The Panel on US — Wool Shirts and Blouses, in statements not addressed by the Appellate Body, elaborated on the difference between the role and the function of dispute settlement panels on the one hand and the role and function of the TMB on the other. The Panel pointed out, inter alia, the lack of specific terms of reference for the TMB and the generally more “multifaceted role” of the TMB, in particular its investigative powers: “The wording of the ATC and the DSU confirms that the role and function of DSU panels differ substantially from that of the TMB. For instance, the TMB is not limited to any specific terms of reference as DSU panels are (Article 7 of the DSU). The function of the TMB is to supervise the implementation of the ATC generally and to examine measures taken, agreements reached and any other matters referred to it. The nature of these broad functions confirms the special and multifaceted role of the TMB. This is also reflected in the TMB’s rules of procedure, its decision-making rule and its composition. The TMB members are appointed by WTO Members designated by the Council for Trade in Goods but discharge their function on an ad personam basis. Pursuant to a General Council Decision, the TMB’s membership is composed of constituencies, in most cases of several Members, where most members also appoint alternates. Furthermore, a TMB member appointed by a WTO Member involved in a dispute before the TMB, participates in the TMB’s deliberations, although such TMB member cannot block a consensus (Article 8.2 of the ATC). On the contrary, panelists under the DSU are not selected on the basis of constituencies and the citizens of any party to a dispute under the DSU cannot participate as panelists, absent agreement of the parties (Article 8.3 of the DSU). In addition, a panelist may issue a dissenting opinion under the DSU, while the TMB can only act by consensus. Moreover, Article 8.3 of the ATC is clear as to the wide investigative authority of the TMB:
‘The TMB shall be considered as a standing body and shall meet as necessary to carry out the functions required of it under this Agreement. It shall rely on notifications and information supplied by the Members under the relevant Articles of this Agreement, supplemented by any additional information or necessary details they may submit or it may decide to seek from them. It may also rely on notifications to and reports from other WTO bodies and from such other sources as it may deem appropriate.’”(160) 120. The Panel also noted that after completion of the TMB process, a Member was still free to request the establishment of a panel, but that the TMB process in these circumstances replaced consultations under Article 4 of the DSU: “We note also that, according to Article 8.10 of the ATC, when the TMB process has been completed, a Member which remains unsatisfied with the TMB recommendations can request the establishment of a panel without having to request consultations under Article 4 of the DSU. This is to say that the TMB process can replace the consultation phase in the dispute settlement process under the DSU and is distinct from the formal adjudication process by panels(161).
Therefore when differences arise, the ATC requires parties first to seek consultations with a view to reaching a mutually satisfactory solution to the problem, within the specific parameters or considerations set out in the relevant provision(s) of the ATC. If a mutually satisfactory solution is not reached in the consultations, the matter may be or shall be, depending on the applicable provision, referred to the TMB for review and recommendations. In the case of recourse to Article 6 of the ATC, the object of the consultations is to see whether there is a mutual understanding that the situation calls for restraint on the exports of the particular product or not. If there is such a mutual understanding, details of the agreed restraint measure shall be communicated to the TMB which has to determine whether the agreement is justified in accordance with the provisions of Article 6 of the ATC. If there is no agreement between the parties concerned and the safeguard action is taken, the matter also has to be referred to the TMB. According to Article 6.10 of the ATC, in order to conduct such an examination, ‘… the TMB shall have available to it the factual data provided to the Chairman of the TMB, referred to in paragraph 7 [of Article 6], as well as any other relevant information provided by the Members concerned’. During the review process, the TMB is not limited to the initial information submitted by the importing Member as parties may submit additional and other information in support of their positions, which, we understand, may relate to subsequent events. Moreover, the TMB may hear witnesses on these facts and perform a genuine fact finding and evidence-building exercise on the continuing situation of the parties concerned with the safeguard action, in order to settle the dispute. TMB members deliberate on the basis of all the information presented to decide whether the safeguard action taken by the importing Member is justified and whether serious damage or actual threat thereof to the domestic industry of the importing Member and causation exist.
The second track is the DSU. If, after recourse to Articles 6.10 and 8.10 of the ATC, the exporting Member is not satisfied with the recommendation of the TMB, such exporting Member can challenge the safeguard action and bring it to the formal dispute settlement process under the DSU. Unlike the TMB, a DSU panel is not called upon, under its terms of reference, to reinvestigate the market situation. When assessing the WTO compatibility of the decision to impose national trade remedies, DSU panels do not reinvestigate the market situation but rather limit themselves to the evidence used by the importing Member in making its determination to impose the measure. In addition, such DSU panels, contrary to the TMB, do not consider developments subsequent to the initial determination. In respect of the US determination at issue in the present case, we consider, therefore, that this Panel is requested to make an objective assessment as to whether the United States respected the requirements of Article 6.2 and 6.3 of the ATC at the time of the determination.”(162) a) “The TMB shall consist of a Chairman and 10 members.” 121. The General Council decided on the original composition of the TMB at its meeting of 31 January 1995.(163) The General Council further decided on the composition of the TMB at its meeting of 10 December 1997.(164) b) TMB members “discharge […] their functions on an ad personam basis” 122. The Working Procedures adopted by the TMB state the following: “In discharging their functions […], TMB members and alternates undertake not to solicit, accept or act upon instructions from governments, nor to be influenced by any other organisations or undue extraneous factors. They shall disclose to the Chairman any information that they may consider likely to impede their capacity to discharge their functions on an ad personam basis. Should serious doubts arise during the deliberations of the TMB regarding the ability of a TMB member to act on an ad personam basis, they shall be communicated to the Chairman. The Chairman shall deal with the particular matter as necessary.”(165) 123. The Council for Trade in Goods, at its meeting of 27 January 1997, further clarified the status of TMB Members: “WTO Members which, pursuant to the decision of the General Council of 31 January 1995, appoint TMB members under Article 8.1 of the Agreement on Textiles and Clothing accept that TMB members discharge their function on an ad personam basis and not as government representatives. Consequently, they shall not give TMB members instructions, nor seek to influence them, with regard to matters before the TMB. The same applies to alternates.”(166) (a) “The TMB shall develop its own working procedures” 124. At its first meeting, in March to July 1995, the TMB adopted its working procedures.(167) 125. At its meeting in December 1996, in relation to working procedures, the TMB took note of the decision of the DSB on 3 December 1996 to adopt rules of conduct for the DSU(168), “in view of the fact that such Rules apply, inter alia, to the Chairman of the TMB and other members of the TMB secretariat called upon to assist the TMB in formulating recommendations, findings or observations pursuant to the ATC, as well as, to the extent prescribed in the relevant Section of the Rules, to members of the TMB.”(169) (b) “consensus within the TMB” 126. The decision of 31 January 1995 by the General Council on the composition of the TMB provides that “[t]he Textiles Monitoring Body will take all decisions by consensus”.(170) This general statement is qualified in that decision that “[a]s provided for in Article 8.2 of the Agreement on Textiles and Clothing, in case of an unresolved issue under review by the TMB, it is understood that consensus within the TMB does not require the assent or concurrence of members appointed by members involved in such unresolved issue.”(171) 127. The Working Procedures adopted by the TMB state the following: “Consensus within the TMB does not require the assent or concurrence of TMB members appointed by WTO Members involved in an unresolved issue under review by the TMB.(172) however, at least seven TMB members shall be present when deciding on such unresolved issues, except in cases where one or two TMB members have been appointed by WTO Members involved in an unresolved issue, where eight TMB members shall be present. For the purpose of this paragraph the term ‘TMB members’ covers the respective alternates in case a TMB member is absent.”(173) 128. In US — Underwear, addressing the issue of “standard of review” with reference to Articles 8.3 and 8.5, the Panel stated that it could not engage in a de novo review of the national measure at issue and added that such de novo review was, “if at all, to be conducted by the TMB”: “A de novo review, if at all, is to be conducted by the TMB. Article 8.3 of the ATC reads as follows: ‘The TMB … shall rely on notifications and information supplied by the Members under the relevant Articles of the Agreement, supplemented by any additional information or necessary details they may submit or it may decide to seek from them’. Article 8.5 of the ATC calls for a ‘thorough and prompt’ review of the matter by the TMB.”(174) 129. The Panel on US — Wool Shirts and Blouses addressed the issue of the legal force of the TMB’s recommendations and found that the recommendations of the TMB are not binding: “Concerning India’s claim that the US restraint is invalid because the TMB did not endorse the measure which the United States attempted to justify in the Market Statement and on which consultations were held, we note that under Article 6.10 of the ATC, the United States, should it be entitled to impose a restraint, could do so without TMB authorization, although it would be required to refer the matter to the TMB for appropriate recommendations. Article 8.9 of the ATC confirms that the recommendations of the TMB are not binding:
‘The Members shall endeavour to accept in full the recommendations of the TMB, which shall exercise proper surveillance of the implementation of such recommendations.’ (emphasis added)
We, therefore, reject India’s claim that under the ATC a safeguard action can be maintained only if adequately endorsed by the TMB.”(175) 130. At its meeting in March 1997, with reference to the reasons provided by hong Kong for its inability to conform to the TMB’s recommendations, the TMB noted as follows: “[P]aragraph 10 of Article 8 did not provide any express guidance on the reasons which can be given by a Member for its inability to conform with the recommendations of the TMB”(176) 131. At its meeting in November 2001, whilst examining the reasons why Poland considered itself unable to conform with the TMB recommendation made at a previous meeting to rescind the transitional safeguard measure Poland had introduced on imports of certain products from Romania, the TMB addressed, inter alia, the question of the period for making notifications pursuant to Article 8.10, as follows: “The TMB first addressed the argument made by Romania that Poland’s communication regarding its inability to conform with the TMB’s recommendation had not been made within the period established by Article 8.10, which requires that the Member concerned submit such a communication ‘not later than one month after receipt of such recommendations’. Noting the arguments of Romania in this regard, the TMB took the view that the one-month period started on the date when the report containing the TMB’s examination, together with the conclusions reached and recommendations adopted, had been officially communicated to the Member concerned. In this particular case, this had been done on 17 September 2001 when the TMB’s report on the examination of the safeguard measure had been circulated to all WTO Members(177) and the Chairman of the TMB had provided a separate official communication to the Polish authorities in this regard. The communication made by Poland under Article 8.10 was dated 17 October 2001 and had been received by the TMB on that same day, i.e. within the deadline specified in Article 8.10.”(178) 132. The following table lists the disputes in which panel and/or Appellate Body reports have been adopted where the provisions of the ATC were invoked:
(a) “a major review before the end of each stage of the integration process” 133. Pursuant to Article 8.11, to assist in the review by the Council for Trade in Goods, on 31 July 1997, the TMB adopted and subsequently circulated a comprehensive report on the implementation of the ATC during the first stage of integration.(179) The Council for Trade in Goods conducted a major review of the first stage of the integration process.(180) Furthermore, on 26 July 2001, the TMB adopted and subsequently circulated a comprehensive report on the implementation of the ATC during the second stage of the integration process.(181)
X. Article 9 back to top Article 9 This Agreement and all restrictions thereunder shall stand terminated on the first day of the 121st month that the WTO Agreement is in effect, on which date the textiles and clothing sector shall be fully integrated into GATT 1994. There shall be no extension of this Agreement. 134. This Agreement was terminated as scheduled on 1 January 2005, together with all the restrictions maintained under its jurisdiction. 135. As part of its overall assessment on the implementation of the ATC, the TMB submitted a comprehensive report to the Council for Trade in Goods. In its comments on the implementation of the ATC during the third and final stage of the integration process(182), the TMB observed: “[I]n the respective official notifications repeated assurances have been recently provided regarding the timely and full implementation of the ATC. The Agreement will be fully implemented as scheduled and provided for in Article 9. Thus the ATC and all restrictions thereunder shall stand terminated on 1 January 2005, on which date the textiles and clothing sector shall be fully integrated into GATT 1994, thereby putting an end to a special and discriminatory regime that has been in application for more than four decades.”(183)
XI. Annex back to top Annex: List of Products Covered by This Agreement 1. This Annex lists textile and clothing products defined by harmonized Commodity Description and Coding System (HS) codes at the six-digit level. 2. Actions under the safeguard provisions in Article 6 will be taken with respect to particular textile and clothing products and not on the basis of the HS lines per se. 3. Actions under the safeguard provisions in Article 6 of this Agreement shall not apply to: (a) developing country Members’ exports of handloom fabrics of the cottage industry, or hand-made cottage industry products made of such handloom fabrics, or traditional folklore handicraft textile and clothing products, provided that such products are properly certified under arrangements established between the Members concerned; (b) historically traded textile products which were internationally traded in commercially significant quantities prior to 1982, such as bags, sacks, carpetbacking, cordage, luggage, mats, mattings and carpets typically made from fibres such as jute, coir, sisal, abaca, maguey and henequen; (c) products made of pure silk. For such products, the provisions of Article XIX of GATT 1994, as interpreted by the Agreement on Safeguards, shall be applicable. [The list of products is omitted.] No jurisprudence or decision of a competent WTO body.
Footnotes: 41. (footnote original) The element of
causation of serious
damage is referred to in paragraph 2 of Article 6 of the ATC. The second
sentence of paragraph 2 provides that serious damage “must
demonstrably be caused by such increased quantities in total imports of
that product” and not by “other factors” such as technological
changes or changes in consumer preferences. back to text |
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