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REPERTORY OF APPELLATE BODY REPORTS

Order of Analysis — Use of Assumptions


ON THIS PAGE:

> US — Gasoline, p. 22, DSR 1996:I, p. 3 at 20
> US — Shrimp, para. 119
> US — FSC, para. 89 and Footnote 99
> Canada — Autos, para. 151
> US — Steel Safeguards, Footnote 494 to para. 481
> Canada — Wheat Exports and Grain Imports, para. 109
> Canada — Wheat Exports and Grain Imports, para. 122
> Canada — Wheat Exports and Grain Imports, paras. 126–129
> US — Upland Cotton, paras. 431–433
> US — Upland Cotton, para. 628
> US — Gambling, para. 292
> US — Zeroing (EC) (Article 21.5 — EC), paras. 277–279
> China — Publications and Audiovisual Products, para. 213
> US — Large Civil Aircraft (2nd complaint), paras. 584–585
> US — Large Civil Aircraft (2nd complaint), paras. 587–589
> US — Large Civil Aircraft (2nd complaint), paras. 726–727, 729
> US — Large Civil Aircraft (2nd complaint), para. 739
> US — Large Civil Aircraft (2nd complaint), para. 740
> US — Large Civil Aircraft (2nd complaint), para. 741 and Footnote 1562
> US — Large Civil Aircraft (2nd complaint), para. 970
> Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.4–5.5
> Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.6, 5.8

O.2.1 US — Gasoline, p. 22, DSR 1996:I, p. 3 at 20     back to top
(WT/DS2/AB/R)

… In order that the justifying protection of Article XX may be extended to it, the measure at issue must not only come under one or another of the particular exceptions — paragraphs (a) to (j) — listed under Article XX; it must also satisfy the requirements imposed by the opening clauses of Article XX. The analysis is, in other words, two-tiered: first, provisional justification by reason of characterization of the measure under XX(g); second, further appraisal of the same measure under the introductory clauses of Article XX.
 

O.2.2 US — Shrimp, para. 119     back to top
(WT/DS58/AB/R)

The sequence of steps indicated above in the analysis of a claim of justification under Article XX reflects, not inadvertence or random choice, but rather the fundamental structure and logic of Article XX. The Panel appears to suggest, albeit indirectly, that following the indicated sequence of steps, or the inverse thereof, does not make any difference. To the Panel, reversing the sequence set out in United States — Gasoline “seems equally appropriate”. We do not agree.
 

O.2.3 US — FSC, para. 89 and Footnote 99     back to top
(WT/DS108/AB/R)

We start with the United States’ argument that the Panel erred by failing to begin its examination of the European Communities’ claim under Article 3.1(a) of the SCM Agreement with Footnote 59 of that Agreement. Instead, the Panel began its examination with the general definition of a “subsidy” that is set forth in Article 1.1 of the SCM Agreement. This definition applies throughout the SCM Agreement, to all the different types of “subsidy” covered by that Agreement. In our view, it was not a legal error for the Panel to begin its examination of whether the FSC measure involves export subsidies by examining the general definition of a “subsidy” that is applicable to export subsidies in Article 3.1(a). In any event, whether the examination begins with the general definition of a “subsidy” in Article 1.1 or with Footnote 59, we believe that the outcome of the European Communities’ claim under Article 3.1(a) would be the same. The appropriate meaning of both provisions can be established and can be given effect, irrespective of whether the examination of the claim of the European Communities under Article 3.1(a) begins with Article 1.1 or with Footnote 59.99
 

O.2.4 Canada — Autos, para. 151     back to top
(WT/DS139/AB/R, WT/DS142/AB/R)

In United States — Import Prohibition of Certain Shrimp and Shrimp Products, we said, in the context of Article XX of the GATT 1994, that a panel may not ignore the “fundamental structure and logic” of a provision in deciding the proper sequence of steps in its analysis, save at the peril of reaching flawed results. Similarly, here, the fundamental structure and logic of Article I:1, in relation to the rest of the GATS, require that determination of whether a measure is, in fact, covered by the GATS must be made before the consistency of that measure with any substantive obligation of the GATS can be assessed.
 

O.2.5 US — Steel Safeguards, Footnote 494 to para. 481     back to top
(WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R)

In paragraph 10.278 of the Panel Reports, the Panel stated that it “assumed for the purposes of its consideration of the issue of causation”, that the relevant domestic producers had been correctly defined and that serious injury or threat thereof existed. We note that the Panel found no “increased imports” for five product categories — CCFRS, hot-rolled bar, stainless steel rod, tin mill, and stainless steel wire. However, the Panel must also have assumed, tacitly, that, for the purposes of its causation analysis, imports had increased for those five products. We do not see anything improper per se in panels making such assumptions, especially when doing so enables panels to make findings they otherwise would not have made, thereby facilitating appellate review. We are mindful that the volume and complexity of this case may have prompted the Panel to exercise judicial economy on several issues and to rely on the corresponding interdependent assumptions. We note, however, that the cumulation of several interrelated assumptions could have affected our ability to complete the Panel’s legal analysis had we pursued a ruling on causation.
 

O.2.6 Canada — Wheat Exports and Grain Imports, para. 109     back to top
(WT/DS276/AB/R)

Thus, in each case it is the nature of the relationship between two provisions that will determine whether there exists a mandatory sequence of analysis which, if not followed, would amount to an error of law. In some cases, this relationship is such that a failure to structure the analysis in the proper logical sequence will have repercussions for the substance of the analysis itself. …
 

O.2.7 Canada — Wheat Exports and Grain Imports, para. 122     back to top
(WT/DS276/AB/R)

… the approach taken by the Panel in this case must be distinguished from the approach taken by the panels in US — Shrimp and Canada — Autos. Those panels proceeded directly to an analysis under one provision, without having engaged in any analysis under, or made any assumptions relating to, a provision setting forth a logically prior analytical step.
 

O.2.8 Canada — Wheat Exports and Grain Imports, paras. 126–129     back to top
(WT/DS276/AB/R)

… we wish to express some concern about the manner in which the Panel conducted its analysis of the consistency of the CWB Export Regime with Article XVII:1(a) and (b). As a general principle, panels are free to structure the order of their analysis as they see fit. In so doing, panels may find it useful to take account of the manner in which a claim is presented to them by a complaining Member. Furthermore, panels may choose to use assumptions in order to facilitate resolution of a particular issue or to enable themselves to make additional and alternative factual findings and thereby assist in the resolution of a dispute should it proceed to the appellate level.
 

At the same time, panels must ensure that they proceed on the basis of a properly structured analysis to interpret the substantive provisions at issue. As the Appellate Body found in US — Shrimp and Canada — Autos, panels that ignore or jump over a prior logical step of the analysis run the risk of compromising or invalidating later findings. This risk is compounded in the case of two legally interrelated provisions, where one of those provisions must, as a matter of logic and analytical coherence, be analyzed before the other, as is the case with subparagraphs (a) and (b) of Article XVII:1 of the GATT 1994.
 

Furthermore, an over-reliance on the use of assumptions as an aid to analysis can detract from the clarity of a panel’s analysis or have other adverse effects at the appellate stage. …
 

The intertwining of analysis and assumption may, in some cases, create a degree of uncertainty as to the precise findings that a panel did make. This could pose difficulties for parties in deciding whether and what to appeal. We thus recommend that when using assumptions as a tool to facilitate analysis — which we recognize can be useful — panels ensure that they are clear and explicit as to exactly what is assumed and what they have concluded based on these assumptions.
 

O.2.9 US — Upland Cotton, paras. 431–433     back to top
(WT/DS267/AB/R)

As noted above, Article 6.3(c) is silent as to the sequence of steps to be followed in assessing whether the effect of a subsidy is significant price suppression. We note that Article 6.8 indicates that the existence of serious prejudice pursuant to Articles 5(c) and 6.3(c) is to be determined on the basis of information submitted to or obtained by the panel, including information submitted in accordance with Annex V of the SCM Agreement. Annex V provides some limited guidance about the type of information on which a panel might base its assessment under Article 6.3(c). But we find little other guidance on this issue. The text of Article 6.3(c) does not, however, preclude the approach taken by the Panel to examine first whether significant price suppression exists and then, if it is found to exist, to proceed further to examine whether the significant price suppression is the effect of the subsidy. The Panel evidently considered that, in the absence of significant price suppression, it would not need to proceed to analyze the effect of the subsidy. We see no legal error in this approach.
 

One might contend that, having decided to separate its analysis of significant price suppression from its analysis of the effects of the challenged subsidies, the Panel’s price suppression analysis should have addressed prices without reference to the subsidies and their effects. …
 

However, the ordinary meaning of the transitive verb “suppress” implies the existence of a subject (the challenged subsidies) and an object (in this case, prices in the world market for upland cotton). This suggests that it would be difficult to make a judgement on significant price suppression without taking into account the effect of the subsidies. The Panel’s definition of price suppression, explained above, reflects this problem; it includes the notion that prices “do not increase when they otherwise would have” or “they do actually increase, but the increase is less than it otherwise would have been”. The word “otherwise” in this context refers to the hypothetical situation in which the challenged subsidies are absent. Therefore, the fact that the Panel may have addressed some of the same or similar factors in its reasoning as to significant price suppression and its reasoning as to “effects” is not necessarily wrong.
 

O.2.10 US — Upland Cotton, para. 628     back to top
(WT/DS267/AB/R)

Before proceeding further, we refer to the order followed by the Panel in its analysis of Brazil’s claims against the United States’ export credit guarantee programs. We do not find that the Panel’s order of analysis was wrong or that it constituted legal error. Nor has the United States made such a claim on appeal. Nevertheless, we are struck by the fact that the Panel addressed Article 10.2 only at the end of its analysis, especially given that this provision constituted the core of the United States’ defence that the disciplines of the Agreement on Agriculture currently do not apply to export credit guarantees at all.
 

O.2.11 US — Gambling, para. 292     back to top
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

Article XIV of the GATS, like Article XX of the GATT 1994, contemplates a “two-tier analysis” of a measure that a Member seeks to justify under that provision. A panel should first determine whether the challenged measure falls within the scope of one of the paragraphs of Article XIV. This requires that the challenged measure address the particular interest specified in that paragraph and that there be a sufficient nexus between the measure and the interest protected. The required nexus — or “degree of connection” — between the measure and the interest is specified in the language of the paragraphs themselves, through the use of terms such as “relating to” and “necessary to”. Where the challenged measure has been found to fall within one of the paragraphs of Article XIV, a panel should then consider whether that measure satisfies the requirements of the chapeau of Article XIV.
 

O.2.12 US — Zeroing (EC) (Article 21.5 — EC), paras. 277–279     back to top
(WT/DS294/AB/RW, WT/DS294/AB/RW/Corr.1)

… we consider that, in fulfilling its duties under Article 11 of the DSU, a panel may depart from the sequential order suggested by the complaining party, in particular, when this is required by the correct interpretation or application of the legal provisions at issue.
 

In the US — Continued Suspension / Canada — Continued Suspension disputes, the European Communities similarly argued that the panel erroneously disregarded the conditional order of its legal claims when it examined the European Communities’ alternative claim that the measure at issue was consistent with the Agreement on the Application of Sanitary and Phytosanitary Measures (the “SPS Agreement”), having found earlier, in response to one of the European Communities’ main claims, that the United States and Canada had acted inconsistently with Articles 23.1 and 23.2(a) of the DSU. The Appellate Body rejected this argument, and reasoned that the fact that the European Communities described its claims that the measures at issue achieved substantive compliance with the relevant provisions of the SPS Agreement as “alternative claims” did not preclude the panel from evaluating those claims, because this was required by the correct interpretation of Article 22.8 of the DSU.
 

Accordingly, we find that the Panel did not exceed its mandate, and act inconsistently with Article 11 of the DSU, in addressing the European Communities’ alternative “close nexus” claim without first addressing the European Communities’ “omissions” claim.
 

O.2.13 China — Publications and Audiovisual Products, para. 213     back to top
(WT/DS363/AB/R)

… Reliance upon an assumption arguendo is a legal technique that an adjudicator may use in order to enhance simplicity and efficiency in decision-making. Although panels and the Appellate Body may choose to employ this technique in particular circumstances, it may not always provide a solid foundation upon which to rest legal conclusions. Use of the technique may detract from a clear enunciation of the relevant WTO law and create difficulties for implementation. Recourse to this technique may also be problematic for certain types of legal issues, for example, issues that go to the jurisdiction of a panel or preliminary questions on which the substance of a subsequent analysis depends. …
 

O.2.14 US — Large Civil Aircraft (2nd complaint), paras. 584–585     back to top
(WT/DS353/AB/R)

We note that the characterization of the measures challenged by the European Communities was heavily contested from the outset of this dispute. …
 

The Panel was therefore confronted with contrasting characterizations of the … measures before it. However, instead of first resolving the dispute over the proper characterization of the measures, the Panel embarked on an interpretative exercise based on the assumption that the measures are purchases of services. Only after it had completed its interpretative exercise on the basis of that assumption did the Panel return to the question of what was the proper characterization of the measures at issue. This seems an odd approach. It would seem more logical to determine first the issue of the proper characterization of the measures at issue and, once the measures have been properly determined, to examine the question of whether such types of measures fall within the scope of Article 1.1(a)(1) of the SCM Agreement.
 

O.2.15 US — Large Civil Aircraft (2nd complaint), paras. 587–589     back to top
(WT/DS353/AB/R)

We note that the Panel in this dispute did not ultimately arrive at a definitive characterization of the NASA procurement contracts and USDOD assistance instruments. … However, having rejected the characterization advocated by each party, the Panel never provided a definitive view on what it considered to be the correct characterization of these measures. …
 

The other curious feature about the Panel’s approach is that it framed its inquiry as one seeking to determine whether a category of measures not expressly mentioned (purchases of services) is “excluded” from the scope of Article 1.1(a)(1) of the SCM Agreement. It is not clear to us why, in the face of arguments by the European Communities that the payments under the contracts fall within the scope of Article 1.1(a)(1)(i) because they are grants — a category of financial contributions expressly mentioned in that provision — the Panel started from the premise that it was required to determine whether purchases of services — a category that is not mentioned in that provision — are excluded from its scope.
 

We consider that the Panel should first have examined the measures to determine their relevant characteristics, and then considered whether, in the light of a proper interpretation of Article 1.1(a)(1), these measures, properly characterized, fall within the scope of that provision. …
 

O.2.16 US — Large Civil Aircraft (2nd complaint), paras. 726–727, 729     back to top
(WT/DS353/AB/R)

… the European Communities challenged the patent rights allocation under NASA/USDOD contracts and agreements independently from its challenge to the payments and other support provided to Boeing under certain NASA/USDOD contracts and agreements. However, … the allocation of patent rights played a central role in the characterization of the contracts and agreements between NASA/USDOD and Boeing and this, in turn, was determinative for the conclusion that the payments and other support provided under the contracts and agreements constitute subsidies. The allocation of patent rights … is also an important element in our analyses of financial contribution and benefit.
 

This gives rise to the following question: Was there an overlap between the European Communities’ claims and, if so, does this have any legal consequences? …
 

...
 

Neither participant … has appealed the Panel’s approach to the potential overlap between the European Communities’ claims. We do not need to resolve the differences between the participants’ views, because the Panel proceeded on the assumption that the allocation of patent rights is in some respects a self-standing subsidy that is separate from the payments and other support provided under the NASA/USDOD contracts and agreements. To the extent that such a self-standing subsidy could exist, we will assess the Panel’s finding of specificity on the basis of the Panel’s assumption.
 

O.2.17 US — Large Civil Aircraft (2nd complaint), para. 739     back to top
(WT/DS353/AB/R)

The chapeau of Article 2.1 of the SCM Agreement states that the analysis of specificity is directed at “a subsidy, as defined in paragraph 1 of Article 1”. We understand that this is a reference to the measure that has been determined to be a subsidy under Article 1.1 because the measure is a financial contribution that confers a benefit. This suggests that the “subsidy, as defined in paragraph 1 of Article 1” is the starting point of the assessment of specificity. The analysis of specificity called for in Article 2.1 presupposes that the subsidy has already been found to exist. No such finding was made here given that the Panel never performed an analysis under Article 1 but, rather, chose to start its assessment with the issue of specificity. The Panel thought that its adoption of an arguendo approach was consistent with the Appellate Body’s guidance in China — Publications and Audiovisual Products. However, in that case, the Appellate Body identified precisely the same problem that arises here when it said that recourse to an arguendo approach “may also be problematic for certain types of legal issues, for example, issues that go to the jurisdiction of a panel or preliminary questions on which the substance of a subsequent analysis depends”. As we have explained, the assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving little, if any, room for the adoption of an arguendo approach.
 

O.2.18 US — Large Civil Aircraft (2nd complaint), para. 740     back to top
(WT/DS353/AB/R)

The Panel’s failure to make an assessment under Article 1.1 of the SCM Agreement is problematic in this case because there may be some overlap in the claims put forward by the European Communities. … the open question as to the precise relationship between the claims of the European Communities illustrates the problems that may arise when a panel does not conduct a thorough examination of the subsidy at issue under Article 1.1 before turning to the assessment of specificity pursuant to Article 2.1 of the SCM Agreement. Indeed, at the oral hearing, the European Union and the United States had different views as to what precisely the Panel “assumed” to be a self-standing subsidy for purposes of its assessment of specificity. …
 

O.2.19 US — Large Civil Aircraft (2nd complaint), para. 741 and Footnote 1562     back to top
(WT/DS353/AB/R)

Another problem with the arguendo approach adopted by the Panel in this case is that, were the Appellate Body to disagree with the Panel’s finding, it could lead to the claim remaining unresolved. … Article 3.3 of the DSU provides that one of the purposes of the WTO dispute settlement system is the “prompt settlement of situations in which a Member considers that any benefits accruing to it directly or indirectly under the covered agreements are being impaired by measures taken by another Member”. This purpose is frustrated when, upon completion of the adjudication, a Member’s claim is left unresolved because the Appellate Body was unable to complete the analysis of aspects of the claim with respect to which the panel had adopted an arguendo approach. An arguendo approach may initially appear to be more efficient, but ultimately may result in inefficient outcomes.1562
 

O.2.20 US — Large Civil Aircraft (2nd complaint), para. 970     back to top
(WT/DS353/AB/R)

… we do not agree … that the Panel improperly “extrapolated” the effects of the three composites programmes to the other NASA and USDOD programmes. The causal link found to exist between all of the R&D programmes at issue and the 787 technologies did not rest on extrapolation. Reasoning from “extrapolation” would imply an assumption that, because certain programmes gave rise to technologies that are used on the aircraft, other programmes automatically do the same. That was not the Panel’s reasoning. …
 

O.2.21 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.4–5.5     back to top
(WT/DS412/AB/R, WT/DS426/AB/R)

… Japan argued that the Panel should have commenced its evaluation with Japan’s claim under the SCM Agreement … [and asked] us to commence our own analysis with the allegations of error relating to the SCM Agreement. …
 

Both the national treatment obligations in Article III:4 of the GATT 1994 and the TRIMs Agreement, and the disciplines in Article 3.1(b) of the SCM Agreement, are cumulative obligations. Article III:4 of the GATT 1994 and the TRIMs Agreement, as well as Article 3.1(b) of the SCM Agreement, prohibit the use of local content requirements in certain circumstances. These provisions address discriminatory conduct. We see nothing in these provisions to indicate that there is an obligatory sequence of analysis to be followed when claims are made under Article III:4 of the GATT 1994 and the TRIMs Agreement, on the one hand, and Article 3.1(b) of the SCM Agreement, on the other hand. …
 

O.2.22 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.6, 5.8     back to top
(WT/DS412/AB/R, WT/DS426/AB/R)

We are aware that, in a series of previous disputes, issues concerning the sequence of analysis have been dealt with by seeking to identify the agreement that “deals specifically, and in detail, with” the measures at issue. Japan and the European Union both emphasized … that the focus of their complaints is the domestic content requirements … . [W]e are not persuaded that, compared to the GATT 1994 and the TRIMs Agreement, the SCM Agreement can be described as regulating more “specifically, and in detail”, the measures challenged in this dispute.
 

...
 

Issues of sequencing may become relevant to a logical consideration of claims under different agreements. However, no such issues arise in this case. The Panel examined the claims under Article III:4 of the GATT 1994 and the TRIMs Agreement, and then the claims under the SCM Agreement. Japan has not indicated why commencing the analysis with the SCM Agreement could lead to a different outcome than commencing with the GATT 1994 and the TRIMs Agreement, as the Panel did in this case. We see no obligation in this case to begin the analysis with the claims under the SCM Agreement. Ultimately, the decision in this case as to whether to commence the analysis with the claims under the SCM Agreement or those under the GATT 1994 and the TRIMs Agreement was within the Panel’s margin of discretion. The Panel opted to commence the analysis with the claims under the GATT 1994 and the TRIMs Agreement. We see some practical value in following the same sequence as the Panel. Therefore, we decline Japan’s request that we commence our evaluation with the allegations of error relating to the SCM Agreement.
 

 

99. We note that the relationship between Article 1.1 and Footnote 59 of the SCM Agreement is, therefore, different in this way from the relationship between the chapeau of Article XX of the GATT 1994 and the particular exceptions listed in sub-paragraphs (a) to (j) of that Article. In our Report in United States — Import Prohibitions of Certain Shrimp and Shrimp Products (“United States — Shrimp”), we observed that the application of the general standards of the chapeau of Article XX of the GATT 1994 is rendered very difficult, if not impossible, if the treaty interpreter does not, first, identify and examine the specific exception at issue (WT/DS58/AB/R, adopted 6 November 1998, para. 120).     back to text

1562. In justifying its use of the arguendo approach, the Panel also noted that, having found that the alleged subsidies are not specific under Article 2 of the SCM Agreement, its reliance upon the arguendo assumption created no issues or difficulties from the point of view of the implementation of DSB recommendations and rulings. … This holds true only once a finding of non-specificity has been made, which cannot be known at the outset of the analysis. The Panel’s reasoning seems to have been based on an anticipated result, whether or not such a result would have been arrived at on the basis of its analysis. The Panel therefore seems to have gotten its logic backwards.     back to text


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