WORLD TRADE
ORGANIZATION
WT/DS177/AB/R
WT/DS178/AB/R
1 May 2001
(01-2194)
Original: English
UNITED STATES – SAFEGUARD MEASURES ON
IMPORTS OF FRESH, CHILLED OR FROZEN
LAMB MEAT FROM NEW ZEALAND AND AUSTRALIA
AB-2001-1
Report of the Appellate Body
I. Introduction 1
II. Arguments of the Participants and Third Participant 4
A. Claims of Error by the United States – Appellant 4
1. Unforeseen Developments 4
2. Domestic Industry 6
3. Threat of Serious Injury 7
4. Causation 7
B. Arguments of Australia – Appellee 9
1. Unforeseen Developments 9
2. Domestic Industry 10
3. Threat of Serious Injury 10
4. Causation 11
C. Arguments of New Zealand – Appellee 12
1. Unforeseen Developments 12
2. Domestic Industry 13
3. Threat of Serious Injury 13
4. Causation 14
D. Claims of Error by Australia – Appellant 15
1. Unforeseen Developments 15
2. Threat of Serious Injury 16
3. Conditional Appeals 17
E. Claims of Error by New Zealand – Appellant 17
1. Threat of Serious Injury 17
2. Judicial Economy 19
3. Conditional Appeals 19
F. Arguments of the United States – Appellee 19
1. Unforeseen Developments 19
2. Threat of Serious Injury 20
3. Judicial Economy 21
4. Conditional Appeals 22
G. Arguments of the European Communities – Third Participant 22
1. Unforeseen Developments 22
2. Causation 22
III. Issues Raised in this Appeal 23
IV. Unforeseen Developments 24
V. Domestic Industry 30
VI. Threat of Serious Injury 36
A. Standard of Review 36
B. The Determination of a "Threat of Serious Injury" 42
1. Background 42
2. Meaning of the Term "Threat of Serious Injury" 43
3. Evaluation of Relevant Factors under Article 4.2(a) of the Agreement on Safeguards 45
4. Panel's Review of the USITC's Determination of a "Threat of Serious Injury" 50
VII. Causation 57
VIII. Judicial Economy 67
IX. Conditional Appeals 69
X. Findings and Conclusions 70
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia
United States, Appellant/Appellee
Australia, Appellant/Appellee
New Zealand, Appellant/Appellee
European Communities, Third Participant
AB-2001-1
Present:
Ehlermann, Presiding Member
Bacchus, Member
Ganesan, Member
I. Introduction
1. The United States, Australia and New Zealand appeal certain issues of law and legal interpretations in the Panel
Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and
Australia (the "Panel Report"). The Panel was established to consider complaints by Australia and New Zealand with
respect to a definitive safeguard measure imposed by the United States on imports of fresh, chilled and frozen lamb
meat.
2. On 7 October 1998, the United States International Trade Commission (the "USITC") initiated a safeguard investigation
into imports of lamb meat. By Proclamation of the President of the United States, dated 7 July 1999, the United States
imposed a definitive safeguard measure, in the form of a tariff-rate quota, on imports of fresh, chilled and frozen lamb
meat, effective as of 22 July 1999. The factual aspects of this dispute are set out in greater detail in the Panel
Report.
3. The Panel considered claims by Australia and New Zealand that, in imposing the safeguard measure on imports of lamb
meat, the United States acted inconsistently with Articles I, II, and XIX of the General Agreement on Tariffs and Trade
1994 (the "GATT 1994"), and with Articles 2, 3, 4, 5, 8, 11, and 12 of the Agreement on Safeguards.
4. In its Report, circulated to Members of the World Trade Organization (the "WTO") on 21 December 2000, the Panel
concluded:
(a) that the United States has acted inconsistently with Article XIX:1(a) of GATT 1994 by failing to demonstrate as
a matter of fact the existence of "unforeseen developments";
(b) that the United States has acted inconsistently with Article 4.1(c) of the Agreement on Safeguards because the
USITC, in the lamb meat investigation, defined the domestic industry as including input producers (i.e., growers and
feeders of live lamb) as producers of the like product at issue (i.e. lamb meat);
(c) that the complainants failed to establish that the USITC's analytical approach to determining the existence of a
threat of serious injury, in particular with respect to the prospective analysis and the time-period used, is
inconsistent with Article 4.1(b) of the Agreement on Safeguards (assuming arguendo that the USITC's industry definition
was consistent with the Agreement on Safeguards);
(d) that the complainants failed to establish that the USITC's analytical approach (see paragraphs 7.223-7.224) to
evaluating all of the factors listed in Article 4.2(a) of the Agreement on Safeguards when determining whether increased
imports threatened to cause serious injury with respect to the domestic industry as defined in the investigation is
inconsistent with that provision (assuming arguendo that the USITC's industry definition was consistent with the
Agreement on Safeguards and that the data relied upon by the USITC were representative within the meaning of Article
4.1(c) of the Agreement on Safeguards);
(e) that the United States has acted inconsistently with Article 4.1(c) of the Agreement on Safeguards because the
USITC failed to obtain data in respect of producers representing a major proportion of the total domestic production by
the domestic industry as defined in the investigation;
(f) that the United States has acted inconsistently with Article 4.2(b) of the Agreement on Safeguards because the
USITC's determination in the lamb meat investigation in respect of causation did not demonstrate the required causal
link between increased imports and threat of serious injury, in that the determination did not establish that increased
imports were by themselves a necessary and sufficient cause of threat of serious injury, and in that the determination
did not ensure that threat of serious injury caused by "other factors" was not attributed to increased imports;
(g) that by virtue of the above violations of Article 4 of the Agreement on Safeguards, the United States also has
acted inconsistently with Article 2.1 of the Agreement on Safeguards.
5. As the Panel was of the view that it had addressed those claims and issues that it considered necessary to enable the
Dispute Settlement Body ("DSB") to make sufficiently precise recommendations and rulings for the effective resolution of
the dispute, the Panel exercised "judicial economy" and declined to rule on the claims made under Articles I and II of
the GATT 1994, and under Articles 2.2, 3.1, 5.1, 8, 11 and 12 of the Agreement on Safeguards.
6. The Panel recommended that the DSB request the United States to bring its safeguard measure on imports of lamb meat
into conformity with its obligations under the Agreement on Safeguards and the GATT 1994.
7. On 31 January 2001, the United States notified the DSB of its intention to appeal certain issues of law covered in
the Panel Report and certain legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal
pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures "). On 12 February 2001, the
United States filed its appellant's submission. On 15 February 2001, Australia and New Zealand each filed an other
appellant's submission. On 26 February 2001, Australia, New Zealand and the United States each filed an appellee's
submission. On the same day, the European Communities filed a third participant's submission.
8. On 26 February 2001, the Appellate Body received letters from Canada and Japan indicating that they would not be
filing written submissions in this appeal. Canada stated that it "reserve[d] the right to intervene, as appropriate,
during the oral hearing" and Japan indicated that it wished "to reserve its right to present its views at the oral
hearing." On 6 March 2001, the Appellate Body Secretariat replied to Canada and Japan that the Division hearing this
appeal wished to have clarification as to whether Canada and Japan wanted to attend the oral hearing simply as "passive
observers" or to participate actively in the oral hearing. By their letters dated 9 March 2001, Canada stated that it
wished to attend the oral hearing as a "passive observer", while Japan stated that it "would like to hear the arguments
made by the parties to the dispute, and to intervene when necessary and [when] given an opportunity to do so by the
Appellate Body."
9. On 9 March 2001, the Appellate Body Secretariat informed the participants and third participants that the Division
hearing this appeal was "inclined to allow Canada and Japan to attend the oral hearing as passive observers, if none of
the participants or third participants object." No such objection was received. On 14 March 2001, the Division hearing
this appeal informed Canada, Japan, the participants and the European Communities, that Canada and Japan would be
allowed to attend the oral hearing as passive observers, that is, to hear the oral statements and responses to
questioning by Australia, the European Communities, New Zealand and the United States.
10. The oral hearing in the appeal was held on 22 and 23 March 2001. The participants and the European Communities, as
third participant, presented oral arguments and responded to questions put to them by the Members of the Division
hearing the appeal.
II. Arguments of the Participants and Third Participant
A. Claims of Error by the United States – Appellant
1. Unforeseen Developments
11. The United States appeals the Panel's finding that the United States acted inconsistently with Article XIX:1(a) of
the GATT 1994 with respect to the issue of "unforeseen developments". In the view of the United States, the Panel erred
in reading words into the text of Article XIX and thereby nullified the distinction between "conditions" for applying a
safeguard measure, and "circumstances" which must be demonstrated as a matter of fact in order to apply a safeguard
measure, in a manner that is inconsistent with the Appellate Body reports in Argentina – Safeguard Measures on Imports
of Footwear ("Argentina – Footwear Safeguard ") and Korea – Definitive Safeguard Measure on Imports of Certain Dairy
Products ("Korea – Dairy Safeguard ").
12. The United States emphasizes the fact that, according to the Panel, the United States breached Article XIX:1(a) of
the GATT 1994 because the published report of the USITC (the "USITC Report") did not include a "conclusion"
demonstrating the existence of unforeseen developments. However, Article XIX:1(a) contains neither the word "conclusion"
nor any guidance as to how a Member should approach the issue of unforeseen developments. The Panel implied the
"conclusion" requirement from an erroneous interpretation of Article 3.1 of the Agreement on Safeguards, which it viewed
as relevant context for interpreting Article XIX of the GATT 1994. However, while the "context" of a provision may help
to understand the meaning of a term, such "context " cannot serve as the basis for copying or reading an obligation from
one provision of an agreement into another provision in a different agreement. Furthermore, even as context, Article 3.1
of the Agreement on Safeguards does not support the Panel's conclusion, since the scope of competent authorities'
obligations to investigate "pertinent issues" and reach "reasoned conclusions" under that Article is bound by the scope
of the investigation to be conducted under the Agreement on Safeguards. Neither Article 2.1, nor Article 4.2, nor any
other provision in the Agreement on Safeguards suggests that, in addition to the requirements set out in that Agreement,
competent authorities must also conduct an investigation and reach a "reasoned conclusion" on the issue of unforeseen
developments. The United States emphasizes that such an obligation would elevate "unforeseen developments" into a
"condition" additional to those explicitly set forth in Article 2.1 of the Agreement on Safeguards.
13. In the view of the United States, a panel's role is to consider whether the Member taking the safeguard action has
demonstrated the existence of unforeseen developments as a matter of fact, and not whether the competent authorities
presented those facts in their report, as a separate finding, a "reasoned conclusion", or in any other form. The United
States invokes the practice of contracting parties under the GATT 1947 and the negotiating history of the Agreement on
Safeguards in support of its position, and considers that the Report of the Working Party in Hatters' Fur suggests that
specific developments in the marketplace leading to an injurious import surge will not normally be "foreseen" by
negotiators at the time of making tariff concessions. The United States adds that, to the extent that the factual record
in the instant case is clear and uncontested, the USITC's Report demonstrated the existence of unforeseen developments
as a matter of fact.
2. Domestic Industry
14. The United States argues that the Panel erred in finding that the United States' definition of the domestic
industry, which included growers and feeders of live lambs, as well as packers and breakers of lamb meat, was
inconsistent with Article 4.1(c) of the Agreement on Safeguards. In the view of the United States, where there is both a
continuous line of production and a coincidence of economic interests among various segments contributing to the
production of a finished product, the term "producer" in Article 4.1(c) of the Agreement on Safeguards may properly be
read to include the producers making the primary contribution to the value of the finished product. In this regard, the
United States points out that most sheep and lambs are meat-type animals kept primarily for the production of meat, and
that the value added by the growers and feeders of live lambs accounts for about 88 per cent of the wholesale cost of
lamb meat in the United States. A definition of "domestic industry" that excluded the growers and feeders would,
therefore, be artificial, and would render the determination of serious injury or a threat thereof meaningless. In
support of its arguments, the United States relies on the term "producers as a whole" in the definition set forth in
Article 4.1(c) of the Agreement on Safeguards and takes the position that this phrase allows the national competent
authorities some flexibility to define "domestic industry" on the facts and circumstances of each case.
15. The United States suggests that the term "producer" must be construed in terms of how the competent authorities will
conduct their injury analysis. Article 4.2(a) of the Agreement on Safeguards requires competent authorities to evaluate
"all relevant factors" bearing on the situation of the industry. This requires an authority to analyze all aspects of
the industry, which in some industries may include factors affecting the product in its raw stage. Limiting the
definition of "producer" to only those processors contributing very limited value-added at the final stage of a
continuous line of production would create an artificial "domestic industry" and improperly restrict the injury
analysis. On the facts of this case, to limit the domestic industry only to breakers and packers would have required the
USITC to examine only the portion of production responsible for approximately 12 percent of the value of the like
product, and to ignore the effects of the imports of lamb meat on producers whose economic interests were closely
intertwined with those of the breakers and packers and whose financial health was similarly likely to be affected by
lamb meat imports.
16. The United States argues that, in its findings on this issue, the Panel relied on panel reports under the GATT 1947
that are not apposite to this case, and erroneously concluded that the United States' approach would allow competent
authorities to devise an unfairly "open-ended" definition of the domestic industry. In fact, the USITC has developed
principles that do effectively limit the inclusion of particular producers in the definition of the domestic industry,
and, in applying its two-pronged test, the USITC has only rarely included both processors and growers in the same
domestic industry. Finally, the United States contends that the Panel's determination that the United States violated
Article 2.1 of the Agreement on Safeguards was based on its erroneous finding that the United States had violated
Article 4 of the Agreement on Safeguards and should, for that reason, be reversed.
3. Threat of Serious Injury
17. The United States requests the Appellate Body to reverse the Panel's finding that the USITC's data collection was
inconsistent with Article 4.1(c) of the Agreement on Safeguards. The United States asserts that, before the Panel,
Australia and New Zealand did not establish a prima facie case that the USITC's data collection was inconsistent with
Article 4.1(c), as they did not make any such claim, and did not adduce any evidence or argument in support of such a
claim. The United States also points out that none of the participants in the proceedings before the USITC argued that
the data was biased or inaccurately portrayed the condition of growers.
18. The United States maintains that, in addition to basing its finding on a claim that neither complainant advanced,
the Panel misinterpreted the provisions of the Agreement on Safeguards applicable to competent authorities' evaluation
of the data collected in a safeguard investigation. Neither Article 4.1(c) nor any other provision of the Agreement on
Safeguards imposes a standard of "representativeness" on competent authorities conducting safeguard investigations. The
United States adds that the USITC acted consistently with the provisions of the Agreement on Safeguards that are
relevant to the issue of data collection, namely, Articles 4.2(a) and 4.2(b), which simply require competent authorities
to evaluate all factors of "an objective and quantifiable nature" having a "bearing" on the state of the industry, and
to determine the existence of the causal link on the basis of "objective evidence". Lastly, the United States contends
that the Panel's finding regarding Article 2.1 of the Agreement on Safeguards was based on its erroneous finding that
the United States had violated Article 4 of the Agreement on Safeguards and should, for that reason, be reversed.
4. Causation
19. The United States submits that the Panel erred in finding that the USITC's causation analysis violated Article
4.2(b) of the Agreement on Safeguards. The Panel's analysis was, and was acknowledged by the Panel to be, nearly
identical to the approach of the panel in United States – Definitive Safeguard Measure on Imports of Wheat Gluten from
the European Communities ("United States – Wheat Gluten Safeguard ") , which was reversed by the Appellate Body. The
Panel found that the USITC had not acted consistently with Article 4.2(b) of the Agreement on Safeguards because it had
failed to demonstrate that: (i) increased lamb meat imports were themselves a "necessary and sufficient" cause of
serious injury to the U.S. lamb meat industry; and (ii) they alone accounted for a degree of injury that met the
threshold of "seriousness" required under Article 4.2(a) and 4.2(b). In United States – Wheat Gluten Safeguard, the
Appellate Body reversed that panel's finding "that increased imports 'alone', 'in and of themselves', or 'per se', must
be capable of causing injury that is 'serious'". The Appellate Body found that Article 4.2(b) does not suggest that
increased imports must be the sole cause of the serious injury, or that 'other factors' causing injury must be excluded
from the determination of serious injury. This reasoning applies equally in this case, and, according to the United
States, demonstrates that the Panel erred in its approach.
20. The United States is of the view that the factual findings made by the Panel are not sufficient to enable the
Appellate Body to complete the analysis and determine whether the USITC properly applied the causation standard mandated
by the Agreement on Safeguards. In particular, the Panel did not make factual findings necessary to determine whether
the complainants had shown that the USITC failed to demonstrate a genuine and substantial cause-and-effect relationship
between lamb meat imports and serious injury. Should the Appellate Body disagree, the United States submits that the
USITC met the requirements identified by the Appellate Body in its Report in United States – Wheat Gluten Safeguard. The
USITC first demonstrated that increased lamb meat imports were an important cause of threat of serious injury to the
domestic lamb meat industry. In determining that imports were a no less important cause of the threat of serious injury
than any other cause, the USITC analyzed all other relevant factors. Through this process, the USITC ensured that injury
arising from other causes was not attributed to imports and that the evidence on which it established causation by
increased imports reflected a genuine and substantial causal link. The United States adds that the Panel's further
finding under Article 2.1 of the Agreement on Safeguards was based on its erroneous finding that the United States had
violated Article 4 of the Agreement on Safeguards and should, for that reason, be reversed.
B. Arguments of Australia – Appellee
1. Unforeseen Developments
21. Australia requests the Appellate Body to uphold the finding of the Panel that the United States acted inconsistently
with Article XIX:1(a) of the GATT 1994. The Panel interpreted Article XIX:1(a) of the GATT 1994 in a manner that gave
meaning and effect to all the applicable provisions, including the clause "unforeseen developments", and correctly
concluded that the USITC Report did not contain the required conclusion on "unforeseen developments". Should the
Appellate Body reverse the Panel's interpretation of Article XIX of the GATT 1994, Australia requests the Appellate Body
to complete the analysis and find that the United States failed to satisfy the "unforeseen developments" requirement in
Article XIX:1(a) of the GATT 1994.
22. Australia points out that Article 11.1(a) of the Agreement on Safeguards requires Members taking safeguard action
under Article XIX of the GATT 1994 to ensure that such measures conform with the provisions of the Agreement on
Safeguards. Members applying safeguard measures must, therefore, satisfy the requirements of both Article XIX of the
GATT 1994 and the Agreement on Safeguards, including Article 3.1 of the Agreement on Safeguards, which requires
competent authorities to provide "reasoned conclusions" on "all pertinent issues of fact and law". The Appellate Body
has held that "unforeseen developments" are "circumstances that must be demonstrated as a matter of fact". Therefore,
Australia submits that Article XIX:1(a) of the GATT 1994, read in the context of Article 3.1 of the Agreement on
Safeguards, requires competent authorities to reach a reasoned conclusion demonstrating the existence of "unforeseen
developments".
23. Australia contests the United States' view that Members are only required to demonstrate the existence of unforeseen
developments on an ex post facto basis in a WTO dispute settlement proceeding. This would allow an issue that was not
investigated, examined or even considered by the USITC to be discerned from its report. Australia also rejects the
United States' argument that the Panel's approach elevates the "unforeseen developments" requirement into an
"independent condition" for the application of a safeguard measure. To satisfy the "conditions" imposed under Articles 2
and 4 of the Agreement on Safeguards, competent authorities must make a determination that includes an evaluation of
"all relevant factors" and, as Article 4.2(c) explicitly provides, must also publish a "detailed analysis of the case
under investigation as well as a demonstration of the relevance of the factors examined". On the other hand, Australia
maintains, in order to satisfy the "unforeseen developments" requirement, competent authorities need only examine the
existence of unforeseen developments based on the factual evidence before them at the time of the investigation, reach a
conclusion based on that evidence that demonstrates the existence of "unforeseen developments" as a matter of fact, and
present that conclusion, in some manner, in the published report.
2. Domestic Industry
24. Australia requests the Appellate Body to uphold the Panel's finding that the USITC's inclusion of growers and
feeders of live lambs in the definition of producers of lamb meat was inconsistent with Article 4.1(c) of the Agreement
on Safeguards. The United States' approach to defining the domestic industry has no support in Article 4.1(c) of the
Agreement on Safeguards, interpreted in its context and in light of its object and purpose, or in previous panel
decisions.
25. Australia believes that the meaning of "producer of a like product" is clear. The producers of an article are simply
those who make that article. The term "as a whole" in Article 4.1(c) of the Agreement on Safeguards refers to the
comprehensiveness of the investigation that must be conducted once the domestic industry has been identified, but does
not go to the issue of how to define the scope of the domestic industry. Accepting the United States' standard would
leave it to the discretion of importing Members to choose "how far upstream and/or downstream [in] the production chain
of a given 'like' end product" they could go to define the "domestic industry". Australia adds that even if criteria
such as vertical integration, continuous lines of production, economic interdependence or substantial coincidence of
economic interests were relevant, the Panel made findings of fact which reveal that these criteria were not present in
the United States' lamb meat industry.
3. Threat of Serious Injury
26. Australia requests the Appellate Body to uphold the finding of the Panel with respect to the sufficiency of the
data. Although the United States seeks to characterize this issue as one of data collection, the Panel's finding relates
to the representativeness of the data rather than to data collection. Australia submits that the Panel correctly
concluded that the data used by the USITC in making its determination was not sufficiently representative of "those
producers whose collective output … constitutes a major proportion of the total domestic production of those products"
within the meaning of Article 4.1(c) of the Agreement on Safeguards and that the USITC's determination was, as a result,
inconsistent with Article 2.1 of that Agreement.
27. Before the Panel, Australia claimed that the safeguard measure imposed by the United States breached Article 4.2 of
the Agreement on Safeguards and, therefore, also breached Article 2.1 of the Agreement on Safeguards. The inadequacy of
the data was noted in Australia's submission, was also acknowledged in the USITC Report, and was reflected in the Panel
Report. Thus, Australia did establish a prima facie case that the data relied upon by the USITC was not sufficiently
representative of the domestic industry.
28. Contrary to the United States' assertion that the Agreement on Safeguards only requires that the factors evaluated
be "objective and quantifiable", and bear on the state of the industry, Australia supports the reasoning of the Panel
that Article 4.1(c) implicitly requires that the sample data used be sufficiently representative of the producers as a
whole. The failure of the United States to consider sufficiently representative data means that the state of the
"domestic industry" has not been properly evaluated. Furthermore, even if the Appellate Body reverses the Panel's
finding under Article 4.1(c), and even accepting the test suggested by the United States, Australia maintains that
relying on statistically invalid, incomplete or absent data, as the USITC did, cannot be objective or have any
meaningful bearing on the factors that must be evaluated under Article 4.2(a) of the Agreement on Safeguards. Australia,
therefore, submits that the USITC did not properly evaluate the relevant factors as required under that provision.
4. Causation
29. Australia contends that the Panel correctly found that the USITC's causation analysis did not comply with Article
4.2(b) of the Agreement on Safeguards, and that the Panel's findings are consistent with the Appellate Body Report in
United States – Wheat Gluten Safeguard. The requirement that there be a "genuine and substantial relationship" of cause
and effect between increased imports and the threat of serious injury implies more than a mere contribution to a threat
of serious injury. The Panel's test of "necessary and sufficient cause" seeks to articulate such a standard, even if
imports need not by themselves cause a threat of serious injury. Australia stresses that the Panel was careful to
distinguish its "necessary and sufficient" test from a "sole cause" test.
30. Australia submits that, in any event, the United States failed to meet the causation standard set out by the
Appellate Body in United States – Wheat Gluten Safeguard because the United States failed to demonstrate as a matter of
fact that any threat of serious injury caused by other factors had not been attributed to imports. The USITC limited
itself to examining other factors individually and simply considering whether each such factor was a "less important
cause" of injury than imports. The USITC, however, failed to assess the aggregate effect of the factors other than
increased imports, and failed to demonstrate that the injury caused by these other factors was not attributed to
imports. Australia adds that, independently of whether the USITC met the obligation of non-attribution, it did not make
a valid determination of whether a "causal link" existed between increased imports and the threat of serious injury.
Specifically, since the USITC only found that increased imports were an important cause and a cause that was not less
than any other cause, it did not ensure that the evidence on which it established causation reflected a "genuine and
substantial relationship" of cause and effect.
C. Arguments of New Zealand – Appellee
1. Unforeseen Developments
31. New Zealand considers that the Panel correctly found that the United States acted inconsistently with Article
XIX:1(a) of the GATT 1994. The United States seems to criticize the Panel for interpreting Article XIX in light of the
provisions of the Agreement on Safeguards, despite the fact that the Agreement on Safeguards itself, as well as previous
decisions of the Appellate Body, clearly establish that the Agreement on Safeguards and Article XIX must be read
together. Article 11.1(a) of the Agreement on Safeguards requires that Article XIX be applied in conformity with the
provisions of the Agreement on Safeguards. Article 3.1 of the Agreement on Safeguards clearly requires "reasoned
conclusions" on "all pertinent issues of fact or law". The Appellate Body has found that "unforeseen developments" are
"circumstances that must be demonstrated as a matter of fact in order for a safeguard measure to be applied". Thus, New
Zealand reasons, the failure of the USITC to provide a "conclusion" on unforeseen developments is a clear breach of
Article XIX:1(a) of the GATT 1994.
32. New Zealand does not agree with the United States that the Panel's approach effectively transformed a circumstance
requiring demonstration as a fact into an independent condition for the application of a safeguard measure. The Panel
explicitly recognized the distinction between such circumstances and conditions and, in pointing out that it was not
essential for the competent authorities, in their conclusions, to use the precise terminology of "unforeseen
developments", revealed its awareness that it was the factual demonstration, rather than the fulfilment of some
condition, that was specifically required. New Zealand also contests the United States' argument that "unforeseen
developments" could be assumed from a determination of threat of serious injury. Such an approach would render
ineffective the requirement to demonstrate unforeseen developments. New Zealand adds that the USITC did not demonstrate
the existence of unforeseen developments as a matter of fact. It is clear from the USITC Report that the USITC never
even considered, much less demonstrated, the existence of unforeseen developments. The United States is effectively
attempting to rewrite the USITC Report to reflect what it should have said, but did not. In any event, New Zealand
suggests, the descriptive statements contained in the USITC Report, that the United States relies upon, relate to
circumstances that were entirely foreseeable and foreseen.
2. Domestic Industry
33. New Zealand contends that the Panel correctly found that the USITC's definition of the domestic industry producing
lamb meat was inconsistent with Article 4.1(c) and Article 2.1 of the Agreement on Safeguards. The ordinary meaning of
Article 4.1(c) is clear and unambiguous. The "producers" of the "like product" constitute the "domestic industry" for
the purposes of a safeguard investigation. As there was no dispute that the "like product" in this case was lamb meat,
the function of the USITC was to determine the domestic industry based on who produced lamb meat. As the USITC did not
do this, the Panel correctly held that the United States acted inconsistently with the Agreement on Safeguards. New
Zealand adds that the term "as a whole" in Article 4.1(c) relates to a quantitative requirement for the application of a
safeguard measure and does not justify extending the scope of the domestic industry beyond those who produce the like
product.
34. New Zealand further observes that : (i) the degree of vertical integration in the present case remains highly
contested and, in any event, as the Panel pointed out, a safeguard measure that assists producers of a finished product
will also benefit upstream producers; (ii) the United States is unable to counter the Panel's concern with the
open-endedness of the USITC's approach, and, moreover, the historical evidence of how the USITC has applied its
principles is irrelevant to the question of consistency with the Agreement on Safeguards; and (iii) contrary to the
United States' claims, the GATT cases discussed by the Panel provide strong support for the approach of the Panel.
3. Threat of Serious Injury
35. New Zealand requests that the Appellate Body uphold the finding of the Panel that the data used as a basis for the
USITC's determination was not sufficiently representative within the meaning of Article 4.1(c) of the Agreement on
Safeguards, and that, therefore, the United States breached Article 2.1 of that Agreement. Contrary to the United
States' suggestion, the Panel did not find that United States' data collection was inconsistent with Article 4.1(c).
Rather, the Panel found that the data relied upon by the USITC in making its determination of threat of serious injury
was not sufficiently representative of "those producers whose collective output ... constitutes a major proportion of
the total domestic production of those products" within the meaning of Article 4.1(c), and, thus, that the USITC's
threat of serious injury finding was inconsistent with Article 2.1 of the Agreement on Safeguards.
36. New Zealand recalls that, before the Panel, it claimed that the safeguard measure imposed by the United States
breached Article 2.1 of the Agreement on Safeguards because of flaws in the safeguard investigation conducted by the
USITC, including the inadequacy of the data relied upon by the USITC in making its determination of threat of serious
injury. The information provided by New Zealand in its first submission to the Panel clearly established a prima facie
case in this regard.
37. New Zealand considers that, in its arguments on this issue, the United States ignores the fact that Article 4.1(c)
of the Agreement on Safeguards refers to the number of producers that must be included in an investigation: either
"producers as a whole" or "those whose collective output ... constitutes a major proportion of domestic production". The
Panel focused on this quantitative aspect in making its findings on the representativeness of the data and correctly
interpreted Article 4.1(c) of the Agreement on Safeguards. With respect to the United States' arguments that the
sufficiency of data is only relevant under Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards, New Zealand
contends that the reliance by the USITC on questionnaire data in the present case was also inconsistent with those
provisions. Article 4.2(a) requires an examination of factors as they affect the "domestic industry". The USITC's
failure to consider sufficiently representative data means, at the outset, that the state of the "domestic industry" has
not properly been evaluated. Furthermore, the terms "objective" and "quantifiable" in Article 4.2(a) of the Agreement on
Safeguards themselves imply a threshold regarding the representativeness of data relied upon by competent authorities in
evaluating relevant factors and making determinations under the Agreement on Safeguards which, in the view of New
Zealand, the United States did not meet.
4. Causation
38. New Zealand requests that the Appellate Body uphold the Panel's finding that the USITC's causation analysis failed
to comply with Article 4.2(b) of the Agreement on Safeguards, and that, by virtue of failing to comply with Article 4 of
the Agreement on Safeguards, the United States also acted inconsistently with Article 2.1 of the Agreement on
Safeguards. The approach of the Panel to causation was consistent with the Appellate Body's approach in United States –
Wheat Gluten Safeguard. New Zealand argues that, in any event, application of the test enunciated by the Appellate Body
in United States – Wheat Gluten Safeguard must lead to a conclusion that the United States acted inconsistently with
Article 4.2(b) of the Agreement on Safeguards because the United States has failed to demonstrate that the USITC
complied with any of the three steps of the process for determining causation mentioned by the Appellate Body in that
case.
39. New Zealand argues, first, that the USITC failed to distinguish properly the injurious effects caused by increased
imports from the injurious effects caused by other factors. Despite the attempt of the United States to portray the
USITC Report as making such a distinction, the USITC's analysis contains no overall assessment of the effects of the
other factors causing serious injury, which would have allowed them to be distinguished from the effects of increased
imports. Second, although it acknowledged that a number of factors were also causing a threat of serious injury, the
USITC failed to attribute injury to increased imports on the one hand, and to all other relevant factors on the other
hand. The non-attribution requirement of the Agreement on Safeguards is not met where the competent authorities merely
identify different effects of other factors in the market. Rather, having found that a number of factors other than
imports were contributing in a significant way to serious injury, the USITC was required to demonstrate that the injury
caused by those other factors was not attributed to increased imports. Finally, the USITC failed to address the question
whether there was a genuine and substantial relationship of cause and effect between increased imports and serious
injury. A finding on the existence of a "genuine and substantial" relationship is clearly different from a finding that
increased imports are "an important cause and one that is no less important than any other cause". New Zealand adds
that, since the USITC failed to show that it had not attributed to increased imports injury caused by other factors, it
was not in a position to make any finding of a "genuine and substantial" relationship.
40. Were the Appellate Body to conclude that the Panel's reasoning on causation was incorrect, New Zealand requests the
Appellate Body to complete the analysis, and to conclude that the United States failed to meet its obligations under
Article 4.2(b) of the Agreement on Safeguards. New Zealand submits that, contrary to the assertions of the United
States, the Panel's factual findings and the factual evidence on the record provide an ample basis for the Appellate
Body to do so.
D. Claims of Error by Australia – Appellant
1. Unforeseen Developments
41. If the Appellate Body reverses the Panel's ultimate conclusion on Article XIX:1(a) of the GATT 1994, then Australia
appeals the Panel's finding that a change in the product mix and/or cut size of imported lamb meat could qualify as
"unforeseen developments" within the meaning of that provision. The Panel's finding was based on an erroneous
interpretation of the Working Party report in Hatters' Fur. That report provides no support for the conclusion that a
simple change in the structure of imports, in and of itself, can constitute an "unforeseen development". As the changes
in the product mix and/or the cut size of imported lamb meat are the only factors which the United States argues
constitute "unforeseen developments", Australia requests the Appellate Body to find that the United States failed to
demonstrate as a matter of fact the existence of unforeseen developments, as required by Article XIX:1(a) of the GATT
1994.
2. Threat of Serious Injury
(a) Standard of Review
42. Australia appeals the Panel's interpretation and application of the standard of review. Australia claims that the
Panel erred in its interpretation and application of Article 11 of the DSU, and showed inappropriate deference to the
USITC. Australia submits that, in interpreting its standard of review, the Panel wrongly believed that it was sufficient
that the necessary findings and conclusions could be discerned from the totality of the USITC Report examined in light
of the arguments made by the United States to the Panel. Australia adds that, because the Panel indicated that it would
proceed by "taking at face value, arguendo, the data and reasoning contained in the USITC's report" , a number of
assertions made by the United States about the evidence and the conclusions drawn from it were not tested through the
process of "objective assessment" that panels are required to undertake pursuant to Article 11 of the DSU. Australia
believes that this led the Panel to draw favourable inferences from gaps in the data on the basis of assertions made by
the United States, whereas the Panel should have assessed objectively whether the USITC Report contained an adequate
explanation of how the facts supported its determination of "threat of serious injury". Australia argues that the
standard of review articulated by the Panel in paragraph 7.141 would allow competent authorities to avoid their
obligation to evaluate all relevant factors under Article 4.1(a) of the Agreement on Safeguards simply by stating that
it would be difficult to obtain relevant data. Finally, as set forth in further detail below, Australia appeals the
Panel's application of the standard of review to the USITC's determination of the existence of a threat of serious
injury.
(b) Evaluation of Relevant Factors
43. Australia claims that the Panel made a number of errors in its interpretation and application of the relevant legal
standard for determining "threat of serious injury". First, the Panel erred in its application of the legal standard in
determining that a "significant overall impairment" was "clearly imminent". The Panel adopted a lower standard than that
required in the Agreement on Safeguards and showed inappropriate deference to the USITC. Second, although the Panel
correctly stated that a threat analysis should examine whether serious injury would occur unless safeguard action was
taken, the Panel ignored the fact that the USITC never undertook such an examination. Third, the Panel erred in finding,
based on certain explanations given by the United States to the Panel, that the USITC had satisfied the requirement of
making a "prospective analysis", when in fact the only prospective analysis undertaken by the USITC was that imports
would increase. Fourth, the Panel wrongly deferred to the USITC's determination that serious injury was "imminent" even
though the USITC did not make any finding or express any opinion on what was meant by "imminent". Fifth, the Panel
wrongly accepted the fact that the USITC relied on data only from the recent past. However, in order to assess whether
serious injury is clearly imminent, it is necessary to measure the alleged "significant overall impairment" against the
base position of the domestic industry, and therefore, a threat determination may need to take into account the longer
term state of that industry. In this case, the USITC wrongly focused only on declines following a spike in prices that
occurred in the latter part of the period of investigation. Sixth, the data relied on by the USITC was insufficient for
its determination of a threat of serious injury.
44. Australia also maintains that the Panel erred in finding that the USITC had evaluated all relevant factors listed in
Article 4.2(a) of the Agreement on Safeguards. In particular, according to Australia, the USITC did not evaluate
capacity utilization, employment, productivity or profits and losses.
3. Conditional Appeals
45. Australia requests the Appellate Body, in the event that it reverses any of the conclusions reached by the Panel
based on the arguments made by the United States, to complete the analysis for which the Panel exercised judicial
economy; specifically, this relates to Australia's claims under Articles 2.2, 3.1, 5.1, 8.1, 11.1(a), and 12.3 of the
Agreement on Safeguards.
E. Claims of Error by New Zealand – Appellant
1. Threat of Serious Injury
(a) Standard of Review
46. New Zealand claims that the Panel erred in its interpretation and application of Article 11 of the DSU, and adopted
an approach of inappropriate deference to the USITC. The Panel wrongly interpreted the appropriate standard of review by
limiting its consideration to evidence and arguments contained in the published report of the USITC. The Panel
considered that alternative explanations for the declines in the United States industry's performance put forward by New
Zealand and Australia were relevant "only to the extent that they were raised in the investigation". New Zealand
submits, however, that in order to make an "objective assessment" as required by Article 11 of the DSU, a panel must
examine evidence and arguments that will allow it to determine whether the actions of a Member are in conformity with
the covered agreements, and this may require the panel to go beyond the confines of a published report and the evidence
collected by the competent authorities. The Panel also wrongly applied the standard of review. Despite the evidence on
prices, in particular the high price levels in 1996 and early 1997, the improvement in prices in 1998, and the
projection of increased domestic prices in 1999, there was no reasoned or adequate explanation of how these facts
supported the USITC's determination of a threat of serious injury. Therefore, New Zealand submits, the Panel erred in
finding that the USITC's analysis provided a reasoned or adequate explanation of how the facts supported its
determination that increased imports threatened to cause serious injury.
(b) Evaluation of Relevant Factors
47. New Zealand claims that the Panel erred in its interpretation and application of the relevant legal standard for
determining a "threat of serious injury", and, as a result, erroneously concluded that the USITC's analytical approach
to the determination of threat of serious injury and to the evaluation of all relevant factors was not inconsistent with
the Agreement on Safeguards. New Zealand requests the Appellate Body to reverse the Panel's conclusions on these issues.
48. New Zealand submits that the Panel erred, first, in relying solely on data from the recent past. In order reliably
to predict what will happen in the future, data from the recent past, while important, cannot be examined in isolation,
particularly when information from an earlier period forms part of the investigation by the competent authorities and is
relevant to the determination of whether increased imports have threatened to cause serious injury. By allowing the
USITC to ignore data from the beginning of the period of investigation, the Panel excluded evidence which may have had a
bearing on the situation of the domestic industry, contrary to Article 4.2(a) of the Agreement on Safeguards.
Furthermore, New Zealand submits, by simply assuming, without further analysis, that the future will mirror the recent
past, the Panel allowed the USITC to base its threat determination on "conjecture", contrary to Article 4.1(b) of the
Agreement on Safeguards.
49. New Zealand argues that the Panel further erred in finding that the USITC's determination was based on "fact-based
projections concerning developments in the industry's condition". The USITC looked only at projections concerning
imports. However, in order to determine what is soon to happen, projections of "all relevant factors" that have a
bearing on the situation of the industry must be considered. In New Zealand's view, by looking at projections of imports
alone, the USITC and the Panel failed to take account of "all relevant factors" as required under Article 4.2(a) of the
Agreement on Safeguards.
50. New Zealand contends that the Panel applied the wrong legal standard in assessing the USITC's determination that
increased imports threatened to cause serious injury and, in effect, lowered the threshold for making such a
determination. New Zealand refers to the Panel's statement that a continuation of imports at an already increased level
"may suffice" to threaten serious injury, and to its statement that serious injury may be threatened "even if the
majority of firms within the relevant industry is not facing declining profitability". These statements demonstrate that
the Panel was too lax in its application of the standard for assessing threatened significant overall impairment. New
Zealand also challenges the Panel's assessment of the requirement that serious injury be "clearly imminent", since the
Panel, like the USITC, did not require a demonstration of urgent need for a safeguard measure.
2. Judicial Economy
51. New Zealand appeals the Panel's application of judicial economy to its claim under Article 5.1 of the Agreement on
Safeguards. The Panel's rulings relate solely to the safeguard investigation, not to the safeguard measure. A further
ruling on the safeguard measure itself is needed to ensure a positive solution to this dispute. New Zealand recalls that
the measure applied by the United States differed from the measure recommended by the USITC, and argues that the measure
applied is inconsistent with Article 5.1 of the Agreement on Safeguards because it is more trade restrictive than the
alternative proposed by the USITC, and because it is not necessary to facilitate adjustment in the United States' lamb
meat industry.
3. Conditional Appeals
52. If the Appellate Body were to find against New Zealand on matters relating to the USITC's safeguard investigation,
then New Zealand requests that the Appellate Body complete the analysis in relation to its claims under Articles 2.2,
3.1 and 5.1 of the Agreement on Safeguards, and Articles I and II of the GATT 1994, which the Panel did not consider for
reasons of judicial economy.
F. Arguments of the United States – Appellee
1. Unforeseen Developments
53. The United States requests the Appellate Body to dismiss Australia's appeal on "unforeseen developments". In its
appeal, Australia appears to view the Working Party report in Hatters' Fur as establishing as a matter of law that a
change in the structure of imports can never constitute an unforeseen development. However, there is no basis for
reading such a limitation into the text of Article XIX:1(a) of the GATT 1994. The United States also contests
Australia's argument that the United States failed to demonstrate the existence of unforeseen developments as a matter
of fact. As the complainant, Australia had the burden of demonstrating that the developments in the marketplace that the
USITC identified in its report were not "unforeseen" developments, and it had failed to do so. The United States
maintains that, to the extent that the factual record in the instant case is clear and uncontested, it demonstrates the
existence of unforeseen developments as a matter of fact.
2. Threat of Serious Injury
(a) Standard of Review
54. The United States requests the Appellate Body to dismiss the appeal of Australia and New Zealand under Article 11 of
the DSU regarding the standard of review. The Appellate Body has made it clear that an appellant seeking to rely on
Article 11 must overcome a high hurdle. The challenge by Australia and New Zealand to the Panel's interpretation and
application of the standard of review does not provide any basis whatsoever for finding a violation of Article 11 of the
DSU. On the contrary, the Panel properly interpreted the standard of review as precluding it from conducting a de novo
examination of the USITC's determination. The Panel objectively assessed the matter before it by evaluating the USITC's
investigation and published report, and judging whether the USITC had examined all the relevant facts and had provided a
reasoned explanation of how the facts supported its determination. Thus, the United States concludes, the Panel Report
demonstrates that the Panel approached its task in good faith, and that it took into account the arguments of Australia
and New Zealand in reaching its determination.
(b) Evaluation of Relevant Factors
55. The United States urges the Appellate Body to dismiss the appeal of Australia and New Zealand that the Panel erred
in interpreting and applying the legal standard for determining "threat of serious injury". The Panel properly
interpreted and applied the legal standards for assessing "significant overall impairment in the position of the
industry" and "clearly imminent". The examples of error cited by New Zealand are anecdotal and ignore the fact that the
USITC and the Panel both recognized that what is critical in a "threat" case is that the overall economic condition of
the domestic industry is likely to be seriously injured as a result of increased imports. The USITC and the Panel
conducted their analysis accordingly. As for the "clearly imminent" standard, the United States submits that the
Agreement on Safeguards does not require competent authorities to make a "finding" on the meaning of that phrase, that
the Panel properly identified and applied the definition of "clearly imminent", and that, in this case, there was, in
fact, an urgent need for a safeguard measure.
56. The United States contests the argument by Australia and New Zealand that the Panel erred in upholding the USITC's
heavy reliance on data covering the latter part of the period of investigation. In fact, neither the Panel nor the USITC
relied "solely" on post-1996 data. The USITC collected and examined data on imports and the condition of the domestic
industry for a five year period, but focused on data from January 1997 through September 1998, which it found to be the
most probative in determining the threat of serious injury. The United States considers this approach to be consistent
with the Appellate Body's reasoning in Argentina – Footwear Safeguard.
57. The United States asserts that the Panel also correctly found that the USITC had conducted a valid prospective
analysis. Contrary to the claims of Australia and New Zealand, the USITC did not base its analysis solely on projections
of increased imports. Rather, the USITC made projections for factors other than imports and assessed the relevant
factors as a whole in determining that serious injury was imminent. The United States adds that the appeals on this
issue appear to invite the Appellate Body to revisit factual questions, and, thereby, to exceed the scope of appellate
review.
58. Finally, in response to Australia's claim that the Panel erred in upholding the USITC's reliance on the available
data to make factual findings and draw reasonable inferences about the "relevant factors", the United States argues that
the Panel correctly found that the USITC properly considered the evidence, explained why it could not collect certain
data or did not find such data to be probative, and evaluated the "relevant factors", in accordance with the
requirements of Article 4.2(a) of the Agreement on Safeguards.
3. Judicial Economy
59. The United States urges the Appellate Body to dismiss New Zealand's appeal of the Panel's decision to exercise
judicial economy with respect to New Zealand's Article 5.1 claim. This case cannot be distinguished from other cases
where the Appellate Body concluded that panels had exercised judicial economy properly. Furthermore, the factual record
is insufficient to support a finding that New Zealand has satisfied its burden of proof under Article 5.1. The United
States adds that New Zealand's appeal is based on a misinterpretation of the Agreement on Safeguards, since Article 5.1
does not require a Member to identify and apply the measure that is the "least trade restrictive".
4. Conditional Appeals
60. Should the Appellate Body reach this issue, the United States argues that it should reject all of the conditional
appeals made by Australia and New Zealand. The United States argues that, as demonstrated in its arguments before the
Panel, the United States complied with its obligations under Articles 2.2, 3.1, 8, 11 and 12 of the Agreement on
Safeguards, and under Articles I and II of the GATT 1994.
G. Arguments of the European Communities – Third Participant
1. Unforeseen Developments
61. The European Communities considers that the Panel correctly found that the United States acted inconsistently with
Article XIX:1(a) of the GATT 1994 since the USITC Report did not contain any ascertainable and conclusive demonstration
of the existence of unforeseen developments. While the Panel correctly stated that the demonstration of "unforeseen
developments" does not require the precise terminology of "unforeseen developments" to be used, it is nevertheless
necessary that the circumstances referred to in Article XIX:1(a) of the GATT 1994 are in substance identified as such,
namely: (i) circumstances which constitute developments leading to an injurious import surge; and (ii) circumstances
which show that such developments were unforeseen. Such a demonstration cannot be made ex post facto. In this regard,
the European Communities agrees with the Panel's use of Article 3.1 of the Agreement on Safeguards as relevant context.
Article 3.1 refers broadly to "all pertinent issues of fact" and, therefore, its scope is not limited to issues arising
under the Agreement on Safeguards. If an issue is pertinent, by virtue of Article XIX:1(a) of the GATT 1994, it must
also be "pertinent" in the context of Article 3.1 of the Agreement on Safeguards. The European Communities reasons that
any other reading would effectively read the provisions of Article XIX out of the "inseparable package of rights and
disciplines" that govern safeguard measures.
2. Causation
62. The European Communities requests the Appellate Body to uphold the Panel's articulation of the standard of
causation. The European Communities cautions that the interpretation of the causation standard suggested by the United
States is inconsistent with the object and purpose of the Agreement on Safeguards, would allow the imposition of trade
restrictions against imports to remedy difficulties of the domestic industry which are not related to imports, and would
result in a lower injury standard being applied in safeguard actions than in anti-dumping and countervailing duty
actions.
63. The European Communities stresses that the legal structure governing safeguard measures in WTO law emphasizes an
exclusive link between the import surge and the serious injury to the domestic industry, as shown in Article 2.1 of the
Agreement on Safeguards and the first sentence of Article 4.2(b). In the view of the European Communities, the second
sentence of Article 4.2(b) means that the process of assessing "serious injury" as a legally defined standard does not
end with the assessment of the "relevant factors" listed in Article 4.2(a) of the Agreement on Safeguards, but further
requires that the "non-attribution" process be completed. No determination under Article 4.2(a) of the Agreement on
Safeguards can be made unless and until the effects of factors other than imports have been disregarded. While it is
correct to say that imports will not be alone in contributing to the situation of the domestic industry, and that the
Agreement on Safeguards does not require that only imports should have contributed to the state of the domestic
industry, a "serious injury" finding under Article 4 of the Agreement on Safeguards must be based on the sole impact of
imports. The European Communities concludes that this is precisely what the Panel meant by referring to imports as the
"necessary and sufficient " cause of serious injury.
III. Issues Raised in this Appeal
64. This appeal raises the following issues:
(a) whether the Panel erred in finding, in paragraph 8.1(a) of the Panel Report, that the United States acted
inconsistently with Article XIX:1(a) of the GATT 1994 by failing to demonstrate, as a matter of fact, the existence of
"unforeseen developments"; and, if so, whether changes in the product mix of imported lamb meat and/or in the cut size
of imported lamb meat constitute "unforeseen developments" within the meaning of Article XIX:1(a) of the GATT 1994;
(b) whether the Panel erred in finding, in paragraphs 7.118 and 8.1(b) of the Panel Report, that, by defining the
relevant domestic industry for purposes of its safeguard investigation to include growers and feeders of live lambs, the
United States acted inconsistently with Article 4.1(c) of the Agreement on Safeguards and, in consequence, also with
Article 2.1 of that Agreement;
(c) whether the Panel erred in its review of the USITC's determination that there existed a "threat of serious
injury", in particular, in the Panel's interpretation and application of the appropriate standard of review under
Article 11 of the DSU, and in its interpretation and application of the requirement in Article 4.2(a) of the Agreement
on Safeguards to "evaluate all relevant factors";
(d) whether the Panel erred in finding, in paragraph 8.1(f) of the Panel Report, that the examination of causation
by the USITC was inconsistent with Article 4.2(b) of the Agreement on Safeguards and, in consequence, also with Article
2.1 of that Agreement;
(e) whether the Panel erred in its exercise of judicial economy, in particular in declining to rule on New Zealand's
claim under Article 5.1 of the Agreement on Safeguards; and
(f) if the Appellate Body finds that the Panel erred in finding the United States' safeguard measure to be
inconsistent with Articles 2.1, 4.1(c) and 4.2(b) of the Agreement on Safeguards, whether that safeguard measure is
inconsistent with Articles I and II of the GATT 1994, and with Articles 2.2, 3.1, 5.1, 8.1, 11.1(a) and 12.3 of the
Agreement on Safeguards.
IV. Unforeseen Developments
65. Before the Panel, Australia and New Zealand claimed that the United States failed to comply with the requirements of
Article XIX:1(a) of the GATT 1994 regarding "unforeseen developments". The Panel found:
Article XIX:1 read in the context of SG Article 3.1 requires the competent national authority, in its determination, to
reach a conclusion demonstrating the existence of "unforeseen developments" in the sense of GATT Article XIX:1.
66. The Panel was of the view that the USITC's statements concerning the "changes in product mix" or the "increase in
cut size" of imported lamb meat were "simple descriptive statements", and that those statements did not constitute "a
conclusion" on the existence of unforeseen developments, in the sense of Article XIX:1 of the GATT 1994. On this
reasoning, the Panel concluded that the United States had acted inconsistently with Article XIX:1(a) of the GATT 1994 by
"fail[ing] to demonstrate as a matter of fact the existence of unforeseen developments".
67. The United States argues on appeal that the Panel made two significant errors. First, the United States argues that
the Panel erred in finding that Article XIX:1(a) requires the competent authorities, in demonstrating the existence of
"unforeseen developments", to set forth in their report a finding or a "conclusion" with respect to those "unforeseen
developments". According to the United States, it is sufficient for purposes of Article XIX:1(a) that the existence of
unforeseen developments can be inferred from the factual record of the investigating authority, and that the existence
of such developments can be "demonstrated during" dispute settlement proceedings in the WTO. The United States maintains
that there is no basis for "copying into" or "reading into" Article XIX of the GATT 1994 the requirements from Article
3.1 of the Agreement on Safeguards relating to the publication of a "report" by the "competent authorities". Second, the
United States argues that, in any event, the Panel erred in finding that the USITC Report failed to demonstrate, as a
matter of fact, the existence of "unforeseen developments" under Article XIX:1(a); in the view of the United States, the
existence of unforeseen developments, namely, the shift in product mix from frozen to fresh lamb meat, and from smaller
to larger cuts, may be discerned from the contents of the USITC Report. In this regard, we note that, at the oral
hearing, the United States confirmed that its appeal on this issue is limited to the Panel's finding that the United
States acted inconsistently with Article XIX:1(a) of the GATT 1994 because the Report did not contain a "reasoned
conclusion" on unforeseen developments.
68. We begin by noting that the claim made by both Australia and New Zealand before the Panel was that the United States
acted inconsistently with its obligation in Article XIX:1(a) of the GATT 1994 relating to "unforeseen developments".
Article XIX:1(a) of the GATT 1994 reads:
If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this
Agreement, including tariff concessions, any product is being imported into the territory of that Member in such
increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that
territory of like or directly competitive products, the Member shall be free, in respect of such product, and to the
extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in
part or to withdraw or modify the concession.
69. In our Reports in Argentina – Footwear Safeguard and Korea – Dairy Safeguard, we examined the relationship between
Article XIX of the GATT 1994 and the Agreement on Safeguards and, in particular, whether, with the entry into force of
the Agreement on Safeguards, Article XIX continues to impose obligations on WTO Members when they apply safeguard
measures. We observed in those two appeals that "the provisions of Article XIX of the GATT 1994 and the provisions of
the Agreement on Safeguards are all provisions of one treaty, the WTO Agreement", and we said that these two texts must
be read "harmoniously" and as "an inseparable package of rights and disciplines". We derived support for this
interpretation from Articles 1 and 11.1(a) of the Agreement on Safeguards. We observed, in both the Reports, that:
Article 1 states that the purpose of the Agreement on Safeguards is to establish "rules for the application of safeguard
measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994." (emphasis added)
The ordinary meaning of the language in Article 11.1(a) – "unless such action conforms with the provisions of that
Article applied in accordance with this Agreement" – is that any safeguard action must conform with the provisions of
Article XIX of the GATT 1994 as well as with the provisions of the Agreement on Safeguards. Thus, any safeguard measure
imposed after the entry into force of the WTO Agreement must comply with the provisions of both the Agreement on
Safeguards and Article XIX of the GATT 1994.
70. We reiterate: Articles 1 and 11.1(a) of the Agreement on Safeguards express the full and continuing applicability of
Article XIX of the GATT 1994, which no longer stands in isolation, but has been clarified and reinforced by the
Agreement on Safeguards.
71. Based on this interpretation of the relationship between Article XIX of the GATT 1994 and the Agreement on
Safeguards, we found in both these previous Reports:
The first clause in Article XIX:1(a) – "as a result of unforeseen developments and of the obligations incurred by a
Member under the Agreement, including tariff concessions … " – is a dependent clause which, in our view, is linked
grammatically to the verb phrase "is being imported" in the second clause of that paragraph. Although we do not view the
first clause in Article XIX:1(a) as establishing independent conditions for the application of a safeguard measure,
additional to the conditions set forth in the second clause of that paragraph, we do believe that the first clause
describes certain circumstances which must be demonstrated as a matter of fact in order for a safeguard measure to be
applied consistently with the provisions of Article XIX of the GATT 1994. In this sense, we believe that there is a
logical connection between the circumstances described in the first clause – "as a result of unforeseen developments and
of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions … " – and the
conditions set forth in the second clause of Article XIX:1(a) for the imposition of a safeguard measure. (underlining
added)
72. Although we stated in these two Reports that, under Article XIX:1(a) of the GATT 1994, unforeseen developments "must
be demonstrated as a matter of fact", we did not have occasion, in those two appeals, to examine when, where or how that
demonstration should occur. In conducting such an examination now, we note that the text of Article XIX provides no
express guidance on this issue. However, as the existence of unforeseen developments is a prerequisite that must be
demonstrated, as we have stated, "in order for a safeguard measure to be applied" consistently with Article XIX of the
GATT 1994, it follows that this demonstration must be made before the safeguard measure is applied. Otherwise, the legal
basis for the measure is flawed. We find instructive guidance for where and when the "demonstration" should occur in the
"logical connection" that we observed previously between the two clauses of Article XIX:1(a). The first clause, as we
noted, contains, in part, the "circumstance" of "unforeseen developments". The second clause, as we said, relates to the
three "conditions" for the application of safeguard measures, which are also reiterated in Article 2.1 of the Agreement
on Safeguards. Clearly, the fulfilment of these conditions must be the central element of the report of the competent
authorities, which must be published under Article 3.1 of the Agreement on Safeguards. In our view, the logical
connection between the "conditions" identified in the second clause of Article XIX:1(a) and the "circumstances" outlined
in the first clause of that provision dictates that the demonstration of the existence of these circumstances must also
feature in the same report of the competent authorities. Any other approach would sever the "logical connection" between
these two clauses, and would also leave vague and uncertain how compliance with the first clause of Article XIX:1(a)
would be fulfilled.
73. In this case, we see no indication in the USITC Report that the USITC addressed the issue of "unforeseen
developments" at all. It is true that the USITC Report identifies two changes in the type of lamb meat products imported
into the United States. These were: the proportion of imported fresh and chilled lamb meat increased in relation to the
proportion of imported frozen lamb meat; and, the cut size of imported lamb meat increased. The USITC Report mentions
the first of these changes in examining the "like products" at issue, and mentions both changes under the heading
"causation" while describing the substitutability of domestic and imported lamb meat in the domestic marketplace.
However, we observe that the USITC Report does not discuss or offer any explanation as to why these changes could be
regarded as "unforeseen developments" within the meaning of Article XIX:1(a) of the GATT 1994. It follows that the USITC
Report does not demonstrate that the safeguard measure at issue has been applied, inter alia, "… as a result of
unforeseen developments …".
74. The USITC's failure to address the existence of unforeseen developments, in the USITC Report of April 1999, is not
surprising, as the USITC is not obliged by any United States legislation, regulation, or other domestic rule, to examine
the existence of unforeseen developments in its investigation into the situation of a domestic industry. Although the
United States has subsequently modified its position on this issue , we recall that, as a third participant in both
Korea – Dairy Safeguard and Argentina – Footwear Safeguard, the United States argued that the omission of unforeseen
developments from the Agreement on Safeguards meant that it was no longer necessary to demonstrate the existence of
unforeseen developments. Our Reports in Korea – Dairy Safeguard and Argentina – Footwear Safeguard, in which we found
that unforeseen developments must be demonstrated as a matter of fact, were circulated on 14 December 1999, that is to
say, more than seven months after the report of the USITC on the domestic lamb meat industry was published in April
1999. Our two Reports were, therefore, not known to the USITC when it rendered its report in the present case.
75. Accordingly, although we do not agree with every aspect of the Panel's reasoning, we uphold the Panel's conclusion,
in paragraphs 7.45 and 8.1(a) of the Panel Report, "that the United States has failed to demonstrate as a matter of fact
the existence of unforeseen developments as required by Article XIX:1(a) of GATT 1994". In view of this finding, we do
not find it necessary to examine Australia's conditional appeal on the issue of whether a change in the product mix
and/or the cut size of imported lamb meat could qualify as "unforeseen developments" within the meaning of Article
XIX:1(a) of the GATT 1994; the condition on which that issue is appealed has not been fulfilled.
76. We emphasize that neither Australia nor New Zealand has claimed that the United States acted inconsistently with
Article 3.1 of the Agreement on Safeguards with respect to unforeseen developments. We do not, therefore, rule on
whether the USITC, and, hence, the United States, acted inconsistently with Article 3.1 of the Agreement on Safeguards
because the USITC failed to "set[] forth … findings and reasoned conclusions" on this issue. Nonetheless, we observe
that Article 3.1 requires competent authorities to set forth findings and reasoned conclusions on "all pertinent issues
of fact and law" in their published report. As Article XIX:1(a) of the GATT 1994 requires that "unforeseen developments"
must be demonstrated, as a matter of fact, for a safeguard measure to be applied, the existence of "unforeseen
developments" is, in our view, a "pertinent issue[] of fact and law", under Article 3.1, for the application of a
safeguard measure, and it follows that the published report of the competent authorities, under that Article, must
contain a "finding" or "reasoned conclusion" on "unforeseen developments".
V. Domestic Industry
77. The USITC defined the domestic industry in this case to include growers and feeders of live lambs, as well as
packers and breakers of lamb meat. The USITC did so because it considered that there was a "continuous line of
production from the raw to the processed product", and that there was a "substantial coincidence of economic interests"
between and among the growers and feeders of live lambs, and the packers and breakers of lamb meat.
78. Before the Panel, Australia and New Zealand claimed that the USITC had improperly interpreted the term "domestic
industry" by including in that industry growers and feeders of live lambs, even though they did not produce the product
at issue, lamb meat. In assessing this claim, the Panel examined the definition of the term "domestic industry" in
Article 4.1(c) and stated that:
We find no basis in the text of this phrase ["producers … of the like or directly competitive products"] for considering
that a producer that does not itself make the product at issue, but instead makes a raw material or input that is used
to produce that product, can nevertheless be considered a producer of the product.
…
… the relevant industry consists of producers that themselves have "output" of the "like" or "directly competitive"
products. (emphasis added)
79. The Panel added that the phrase "producers as a whole", which forms part of the definition in Article 4.1(c),
offered no support for the broader approach adopted by the USITC. The Panel also examined previous GATT panel reports
which had addressed this issue, and concluded that these reports supported its reading of Article 4.1(c) of the
Agreement on Safeguards.
80. On the basis of this reasoning, the Panel found:
… that the USITC's inclusion in the lamb meat investigation of input producers (i.e., growers and feeders of live lamb)
as producers of the like product at issue (i.e. lamb meat) is inconsistent with Article 4.1(c), and thus also with
Article 2.1 of the Agreement on Safeguards.
81. The United States appeals this finding and argues that the USITC's determination of "domestic industry" is correct,
in particular, in its reliance on the criteria of a "continuous line of production" and a "coincidence of economic
interests" to assess which producers make up the domestic industry. The United States argues that the Agreement on
Safeguards allows Members some discretion when defining the term "producers" in the light of the facts and circumstances
of each case. Moreover, the United States argues that the Panel's own criteria for determining the scope of the domestic
industry are devoid of a textual basis. In this respect, the United States asserts that the Panel incorrectly stated
that the USITC had found growers and feeders to be producers of a product separate and distinct from lamb meat. The
United States maintains that the USITC's approach in this case is appropriate in order to capture in full the affected
domestic industry.
82. As a preliminary matter, we note that the USITC clearly stated in its report that the issue of whether the producers
of an input product could be included in the domestic industry producing the processed product is not addressed in the
United States safeguard statute. In response to questioning at the oral hearing, the United States confirmed that the
two-pronged test applied by the USITC in deciding this issue is not mandated either by the United States safeguard
statute or by any provision of the United States Code of Federal Regulations that applies to safeguard investigations
and determinations. The United States also confirmed, at the oral hearing, that the USITC has adopted this test for
defining a "domestic industry" in safeguard actions as a matter of practice in the evolution of its own case law; for
safeguard actions, the test has not been enacted into law or promulgated as a regulation.
83. We begin our analysis with the definition of the term "domestic industry" in Article 4.1(c) of the Agreement on
Safeguards, which reads:
(c) in determining injury or threat thereof, a "domestic industry" shall be understood to mean the producers as a
whole of the like or directly competitive products operating within the territory of a Member, or those whose collective
output of the like or directly competitive products constitutes a major proportion of the total domestic production of
those products." (emphasis added)
84. The definition of "domestic industry" in this provision refers to two elements. First, the industry consists of
"producers". As the Panel indicated, "producers" are those who grow or manufacture an article; "producers" are those who
bring a thing into existence. This meaning of "producers" is, however, qualified by the second element in the definition
of "domestic industry". This element identifies the particular products that must be produced by the domestic
"producers" in order to qualify for inclusion in the "domestic industry". According to the clear and express wording of
the text of Article 4.1(c), the term "domestic industry" extends solely to the "producers … of the like or directly
competitive products". (emphasis added) The definition, therefore, focuses exclusively on the producers of a very
specific group of products. Producers of products that are not "like or directly competitive products" do not, according
to the text of the treaty, form part of the domestic industry.
85. This definition of "domestic industry" in Article 4.1(c) of the Agreement on Safeguards is further supported by
Article 2.1 of that Agreement, which forms part of the relevant context and which establishes the basic "conditions" for
the imposition of a safeguard measure. According to Article 2.1:
A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set
out below, that such product is being imported into its territory in such increased quantities, absolute or relative to
domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry
that produces like or directly competitive products . (emphasis added)
86. Thus, a safeguard measure is imposed on a specific "product ", namely, the imported product. The measure may only be
imposed if that specific product ("such product") is having the stated effects upon the "domestic industry that produces
like or directly competitive products." (emphasis added) The conditions in Article 2.1, therefore, relate in several
important respects to specific products. In particular, according to Article 2.1, the legal basis for imposing a
safeguard measure exists only when imports of a specific product have prejudicial effects on domestic producers of
products that are "like or directly competitive" with that imported product. In our view, it would be a clear departure
from the text of Article 2.1 if a safeguard measure could be imposed because of the prejudicial effects that an imported
product has on domestic producers of products that are not "like or directly competitive products" in relation to the
imported product.
87. Accordingly, the first step in determining the scope of the domestic industry is the identification of the products
which are "like or directly competitive" with the imported product. Only when those products have been identified is it
possible then to identify the "producers" of those products.
88. There is no dispute that in this case the "like product" is "lamb meat", which is the imported product with which
the safeguard investigation was concerned. The USITC considered that the "domestic industry" producing the "like
product", lamb meat, includes the growers and feeders of live lambs. The term "directly competitive products" is not,
however, at issue in this dispute as the USITC did not find that there were any such products in this case.
89. The United States argues, nevertheless, that it is permissible, on the facts and circumstances of this case, to
include in the "domestic industry" the growers and feeders of live lambs because, as the USITC has found: (1) there is a
"continuous line of production" from the raw product, live lambs, to the end-product, lamb meat; and (2) there is a
"substantial coincidence of economic interests" between the producers of the raw product and the producers of the
end-product.
90. This interpretation may well have a basis in the USITC case law, but there is no basis for this interpretation in
the Agreement on Safeguards. The text of Article 4.1(c) defines the "domestic industry" exclusively by reference to the
"producers … of the like or directly competitive product". There is no reference in that definition to the two criteria
relied upon by the United States. In our view, under Article 4.1(c), input products can only be included in defining the
"domestic industry" if they are "like or directly competitive" with the end-products. If an input product and an
end-product are not "like" or "directly competitive", then it is irrelevant, under the Agreement on Safeguards, that
there is
a continuous line of production between an input product and an end-product, that the input product represents a high
proportion of the value of the end-product, that there is no use for the input product other than as an input for the
particular end-product, or that there is a substantial coincidence of economic interests between the producers of these
products. In the absence of a "like or directly competitive" relationship, we see no justification, in Article 4.1(c) or
any other provision of the Agreement on Safeguards, for giving credence to any of these criteria in defining a "domestic
industry".
91. In this respect, we are not persuaded that the words "as a whole" in Article 4.1(c), appearing in the phrase
"producers as a whole", offer support to the United States' position. These words do not alter the requirement that the
"domestic industry" extends only to producers of "like or directly competitive products". The words "as a whole" apply
to "producers" and, when read together with the terms "collective output" and "major proportion" which follow, clearly
address the number and the representative nature of producers making up the domestic industry. The words "as a whole" do
not imply that producers of other products, which are not like or directly competitive with the imported product, can be
included in the definition of domestic industry. Like the Panel, we see the words "as a whole" as no more than "a
quantitative benchmark for the proportion of producers … which a safeguards investigation has to cover." (emphasis
added)
92. The Panel examined in some detail the GATT panel reports in United States – Wine and Grapes, Canada – Beef, and New
Zealand – Transformers. We agree largely with the Panel's analysis that these cases support the Panel's interpretation,
with which we have also recorded our agreement, of Article 4.1(c) of the Agreement on Safeguards. We do, however, have
one reservation worth mentioning. In the course of examining the panel report in Canada – Beef, the Panel considered the
importance to be attached to the degree of integration of the production process for a product. Based on statements of
the panel in Canada – Beef, the Panel made the following observation:
We agree that the factors of vertical integration or common ownership are not in themselves determinative or even
particularly relevant for the scope of the domestic industry. Rather, the issue is (i) whether the products at various
stages of production are different forms of a single like product or have become different products; and (ii) whether it
is possible to separately identify the production process for the like product at issue, or whether instead common
ownership results in such complete integration of production processes that separate identification and analysis of
different production stages is impossible. (underlining added)
93. The Panel went on to examine whether the production process of lamb meat involved separate products or different
forms of a single like product. The Panel took the view that the USITC itself had found that live lambs and lamb meat
were separate products, and that it was possible to identify separate stages of their production processes.
94. Although we do not disagree with the Panel's analysis of the USITC Report, nor with the conclusions it drew from
that analysis, we have reservations about the role of an examination of the degree of integration of production
processes for the products at issue. As we have indicated, under the Agreement on Safeguards, the determination of the
"domestic industry" is based on the "producers … of the like or directly competitive products". The focus must,
therefore, be on the identification of the products, and their "like or directly competitive" relationship, and not on
the processes by which those products are produced.
95. We recall that, in this case, the USITC determined that the like products at issue were domestic and imported lamb
meat and that the USITC did not find that live lambs or any other products were directly competitive with lamb meat. On
the basis of this finding of the USITC, we consider that the "domestic industry" could only include the "producers" of
lamb meat. By expanding the "domestic industry" to include producers of other products, namely, live lambs, the USITC
defined the "domestic industry" inconsistently with Article 4.1(c) of the Agreement on Safeguards.
96. As a result, the imposition of the safeguard measure at issue was based on a determination of serious injury caused
to an industry other than the relevant "domestic industry". In addition, that measure was imposed without a
determination of serious injury to the "domestic industry", which, properly defined, should have been limited only to
packers and breakers of lamb meat. Accordingly,
we uphold the Panel's finding, in paragraph 7.118 of the Panel Report, that the safeguard measure at issue is
inconsistent with Articles 2.1 and 4.1(c) of the Agreement on Safeguards.
VI. Threat of Serious Injury
A. Standard of Review
97. At the outset of its findings, the Panel considered the standard of review appropriate for examination of the claims
made by Australia and New Zealand. After citing our Report in Argentina – Footwear Safeguard, the Panel formulated the
standard in the following terms:
… the standard of review that applies in safeguard disputes, as set out above, requires us to refrain from a de novo
review of the evidence reflected in the report published by the competent national authorities. Our task is limited to a
review of the determination made by the USITC and to examining whether the published report provides an adequate
explanation of how the facts as a whole support the USITC's threat determination.
98. When the Panel came to examine the specific claims of Australia and New Zealand under Article 4.2, the Panel stated:
In examining the USITC's threat of serious injury determination we examine, first, whether the USITC evaluated "all
relevant factors of an objective and quantifiable nature having a bearing on the situation of [the] industry", in
particular, the factors listed in SG Article 4.2(a), as well as any other relevant factors. Second, we examine whether
the approach followed by the USITC consisted of a fact-based, future-oriented consideration of increased imports and of
the condition of the US domestic industry. (emphasis in original)
99. Australia and New Zealand challenge two aspects of the Panel's standard of review. First, they argue that the Panel
erred in its interpretation, and, therefore, formulation, of the legal standard to be used to review the determinations
made by competent authorities in safeguard investigations. Second, they assert that, in reviewing the USITC's
determination of a threat of serious injury, the Panel erred in its application of the standard of review.
100. As the Panel noted, we had occasion to examine, in Argentina – Footwear Safeguard, the standard of review
appropriate to a panel's examination of claims made under the Agreement on Safeguards. In that appeal, we observed that:
[t]he Agreement on Safeguards … is silent as to the appropriate standard of review. Therefore, Article 11 of the DSU,
and, in particular, its requirement that "… a panel should make an objective assessment of the matter before it,
including an objective assessment of the facts of the case and the applicability of and conformity with the relevant
covered agreements", sets forth the appropriate standard of review for examining the consistency of a safeguard measure
with the provisions of the Agreement on Safeguards.
101. As regards the standard of review contained in Article 11 of the DSU, we recall that, in European Communities –
Hormones, we stated that "the applicable standard is neither de novo review as such, nor 'total deference', but rather
the 'objective assessment of the facts' ".
102. In our Report in Argentina – Footwear Safeguard, we gave certain indications as to the application of the standard
of review in Article 11 of the DSU in disputes where claims are made under Article 4 of the Agreement on Safeguards:
… with respect to its application of the standard of review, we do not believe that the Panel conducted a de novo review
of the evidence, or that it substituted its analysis and judgement for that of the Argentine authorities. Rather, the
Panel examined whether, as required by Article 4 of the Agreement on Safeguards, the Argentine authorities had
considered all the relevant facts and had adequately explained how the facts supported the determinations that were
made. Indeed, far from departing from its responsibility, in our view, the Panel was simply fulfilling its
responsibility under Article 11 of the DSU in taking the approach it did. To determine whether the safeguard
investigation and the resulting safeguard measure applied by Argentina were consistent with Article 4 of the Agreement
on Safeguards, the Panel was obliged, by the very terms of Article 4, to assess whether the Argentine authorities had
examined all the relevant facts and had provided a reasoned explanation of how the facts supported their determination.
(underlining added)
103. Thus, an "objective assessment" of a claim under Article 4.2(a) of the Agreement on Safeguards has, in principle,
two elements. First, a panel must review whether competent authorities have evaluated all relevant factors, and, second,
a panel must review whether the authorities have provided a reasoned and adequate explanation of how the facts support
their determination. Thus,
the panel's objective assessment involves a formal aspect and a substantive aspect. The formal aspect is whether the
competent authorities have evaluated "all relevant factors". The substantive aspect is whether the competent authorities
have given a reasoned and adequate explanation for their determination.
104. This dual character of a panel's review is mandated by the nature of the specific obligations that Article 4.2 of
the Agreement on Safeguards imposes on competent authorities. Under Article 4.2(a), competent authorities must, as a
formal matter, evaluate "all relevant factors". However, that evaluation is not simply a matter of form, and the list of
relevant factors to be evaluated is not a mere "check list". Under Article 4.2(a), competent authorities must conduct a
substantive evaluation of "the 'bearing ', or the 'influence ' or 'effect ' " or "impact" that the relevant factors have
on the "situation of [the] domestic industry". (emphasis added) By conducting such a substantive evaluation of the
relevant factors, competent authorities are able to make a proper overall determination, inter alia, as to whether the
domestic industry is seriously injured or is threatened with such injury as defined in the Agreement.
105. It follows that the precise nature of the examination to be conducted by a panel, in reviewing a claim under
Article 4.2 of the Agreement on Safeguards, stems, in part, from the panel's obligation to make an "objective assessment
of the matter" under Article 11 of the DSU and, in part, from the obligations imposed by Article 4.2, to the extent that
those obligations are part of the claim. Thus, as with any claim under the provisions of a covered agreement, panels are
required to examine, in accordance with Article 11 of the DSU , whether the Member has complied with the obligations
imposed by the particular provisions identified in the claim. By examining whether the explanation given by the
competent authorities in their published report is reasoned and adequate, panels can determine whether those authorities
have acted consistently with the obligations imposed by Article 4.2 of the Agreement on Safeguards.
106. We wish to emphasize that, although panels are not entitled to conduct a de novo review of the evidence, nor to
substitute their own conclusions for those of the competent authorities, this does not mean that panels must simply
accept the conclusions of the competent authorities. To the contrary, in our view, in examining a claim under Article
4.2(a), a panel can assess whether the competent authorities' explanation for its determination is reasoned and adequate
only if the panel critically examines that explanation, in depth, and in the light of the facts before the panel. Panels
must, therefore, review whether the competent authorities' explanation fully addresses the nature, and, especially, the
complexities, of the data, and responds to other plausible interpretations of that data. A panel must find, in
particular, that an explanation is not reasoned, or is not adequate, if some alternative explanation of the facts is
plausible, and if the competent authorities' explanation does not seem adequate in the light of that alternative
explanation. Thus, in making an "objective assessment" of a claim under Article 4.2(a), panels must be open to the
possibility that the explanation given by the competent authorities is not reasoned or adequate.
107. In this respect, the phrase "de novo review" should not be used loosely. If a panel concludes that the competent
authorities, in a particular case, have not provided a reasoned or adequate explanation for their determination, that
panel has not, thereby, engaged in a de novo review. Nor has that panel substituted its own conclusions for those of the
competent authorities. Rather, the panel has, consistent with its obligations under the DSU, simply reached a conclusion
that the determination made by the competent authorities is inconsistent with the specific requirements of Article 4.2
of the Agreement on Safeguards.
108. In this case, as we have noted, the Panel formulated the standard of review by reference to our Report in Argentina
– Footwear Safeguard, and the Panel also, explicitly, rejected any standard implying a de novo review of the evidence.
Indeed, the Panel quoted the passage in our Report in Argentina – Footwear Safeguard to which we have just referred, and
specifically drew attention to our statement, in that passage, that panels must examine whether competent authorities
have examined all relevant factors and whether those authorities have provided a reasoned and adequate explanation for
their determination. Accordingly, we find that the Panel correctly interpreted the standard of review appropriate to the
examination of the claims by Australia and New Zealand.
109. It will be recalled, though, that Australia and New Zealand have also appealed the Panel's application of the
standard of review. For the most part, their appeal on the application of the standard of review is related to these
participants' respective appeals that the Panel erred in finding that the USITC had acted consistently with Article 4.2
of the Agreement on Safeguards in determining that there existed a threat of serious injury to the United States'
domestic lamb meat industry. We will, therefore, examine most of these arguments when we consider the issues relating to
the existence of a threat of serious injury.
110. However, one aspect of New Zealand's appeal on the application of the standard of review raises a general
procedural question we will address now. This pertains to the arguments that a panel is entitled to consider in
reviewing competent authorities' determinations. The Panel said in this regard:
… to the extent that any of the alternative explanations put forward by Australia and New Zealand are in effect new
analyses of the record evidence, they are not relevant to our review. Rather, these factual and legal arguments would be
relevant to our review only to the extent that they were raised in the investigation, in which case we would need to
consider whether the USITC gave a reasoned explanation of why the facts supported its conclusions in respect of them,
and whether that explanation is persuasive. (emphasis added)
111. Thus, the Panel confined its own review of the competent authorities' determination to an examination of that
determination in terms of the factual and legal arguments put forward by the interested parties during the domestic
investigation conducted under Article 3.1 of the Agreement on Safeguards.
112. In our report in Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel H-Beams
from Poland, in the course of our examination of the specificity of Poland's request for the establishment of a panel
under Article 6.2 of the DSU, we said:
The Panel's reasoning seems to assume that there is always continuity between claims raised in an underlying
anti-dumping investigation and claims raised by a complaining party in a related dispute brought before the WTO. This is
not necessarily the case. The parties involved in an underlying anti-dumping investigation are generally exporters,
importers and other commercial entities, while those involved in WTO dispute settlement are the Members of the WTO.
Therefore, it cannot be assumed that the range of issues raised in an anti-dumping investigation will be the same as the
claims that a Member chooses to bring before the WTO in a dispute. (emphasis added)
113. Although the claim under examination in that appeal was different, the same reasoning applies in respect of the
relationship between domestic investigations culminating in the imposition of a safeguard measure, and dispute
settlement proceedings under the DSU regarding that safeguard measure. In arguing claims in dispute settlement, a WTO
Member is not confined merely to rehearsing arguments that were made to the competent authorities by the interested
parties during the domestic investigation, even if the WTO Member was itself an interested party in that investigation.
Likewise, panels are not obliged to determine, and confirm themselves the nature and character of the arguments made by
the interested parties to the competent authorities. Arguments before national competent authorities may be influenced
by, and focused on, the requirements of the national laws, regulations and procedures. On the other hand, dispute
settlement proceedings brought under the DSU concerning safeguard measures imposed under the Agreement on Safeguards may
involve arguments that were not submitted to the competent authorities by the interested parties.
114. Furthermore, we recall that, in United States – Wheat Gluten Safeguard, we reversed a finding by the panel that
competent authorities are obliged to evaluate only those other relevant factors, under Article 4.2(a), which were
actually raised by the interested parties during the investigation before it. We said there that competent authorities
have an independent duty of investigation and that they cannot "remain[] passive in the face of possible short-comings
in the evidence submitted, and views expressed, by the interested parties." (emphasis added) In short, competent
authorities are obliged, in some circumstances, to go beyond the arguments that were advanced by the interested parties
during the investigation. As competent authorities themselves are obliged, in some circumstances, to go beyond the
arguments of the interested parties in reaching their own determinations, so too, we believe, panels are not limited to
the arguments submitted by the interested parties to the competent authorities in reviewing those determinations in WTO
dispute settlement.
115. We wish to emphasize that the discretion that WTO Members enjoy to argue dispute settlement claims in the manner
they deem appropriate does not, of course, detract from their obligation, under Article 3.10 of the DSU, "to engage in
dispute settlement procedures 'in good faith in an effort to resolve the dispute'." It follows that WTO Members cannot
improperly withhold arguments from competent authorities with a view to raising those arguments later before a panel. In
any event, as a practical matter, we think it unlikely that a Member would do so.
116. At the oral hearing before us, New Zealand indicated that, in its view, the Panel had failed to consider the
econometric arguments it had set forth in Exhibit NZ-13 on the ground that these arguments had not been presented to the
USITC. In view of our findings below, we do not find it necessary to examine the significance of Exhibit NZ-13.
B. The Determination of a "Threat of Serious Injury"
1. Background
117. Before the Panel, Australia and New Zealand both claimed that the USITC's determination of a threat of serious
injury was inconsistent with Article 4.2(a) of the Agreement on Safeguards because the USITC did not properly evaluate
"all relevant factors", as required by Article 4.2(a). As part of this claim, the parties asserted that the USITC did
not have sufficient data to allow it to make a proper evaluation of the situation of the domestic industry.
118. The Panel found, first, that the USITC had "investigated" all the relevant factors mentioned in Article 4.2(a) of
the Agreement on Safeguards. The Panel next considered the approach the USITC took in determining whether there existed
a "threat" of serious injury. The Panel concluded that there was "no conceptual fault with the USITC's analytical
approach" and that this approach was "sufficiently fact-based and future-oriented". However, the Panel was "not
persuaded" that the data used as a basis for the USITC’s determination in this case was sufficiently representative of
the domestic industry , and the Panel, therefore, concluded:
… that the United States has acted inconsistently with Article 4.1(c) of the Agreement on Safeguards because the USITC
failed to obtain data in respect of producers representing a major proportion of the total domestic production by the
domestic industry as defined in the investigation.
Consequently, the Panel also found that the USITC's determination of a threat of serious injury was inconsistent with
Article 2.1 of the Agreement on Safeguards. Australia and New Zealand appeal certain aspects of the Panel's findings on
the threat of serious injury. So, too, does the United States, with respect to another aspect of these findings.
119. Although not identical in all respects, the appeals by Australia and New Zealand on this issue both challenge the
Panel's interpretation and application of the term "threat of serious injury". Their arguments on the misapplication of
this term are closely entwined with their arguments that the Panel erred, under Article 4.2(a), first, in concluding
that the USITC had evaluated "all relevant factors" and, second, in concluding that the USITC had adopted a proper
analytical approach to the evaluation
of the data in a case of alleged "threat" of serious injury. Both participants assert that in reaching these
conclusions, the Panel showed undue deference to the USITC. Accordingly, they argue that the Panel failed to apply the
appropriate standard to its review of the USITC's determination.
120. For its part, the United States appeals the Panel's finding that, because the data before the USITC was not
sufficiently representative of the domestic industry, the United States acted inconsistently with Article 4.1(c) of the
Agreement on Safeguards. The United States argues that Article 4.1(c) simply defines the term "domestic industry" and
does not impose any obligation on Members regarding the sufficiency of data about a "domestic industry". In any event,
the United States adds, the USITC complied with the relevant obligations on data collection. As the United States sees
it, Article 4.2(a) requires no more than that competent authorities evaluate all relevant factors of an "objective and
quantifiable nature" having a "bearing" on the situation of the domestic industry, while Article 4.2(b) requires that
those authorities' determination of the causal link be made on the basis of "objective evidence". The United States
contends that the Agreement on Safeguards does not require that the data collected by competent authorities be
representative of a particular proportion of the domestic industry.
121. Before addressing these appeals, we note that the Panel's analysis of these issues was based on the assumption that
the USITC's findings on the definition of the "domestic industry" were consistent with the Agreement on Safeguards. We
have found that the Panel correctly concluded that the USITC improperly defined the "domestic industry". Even so, as the
relevant findings of the Panel on the "threat of serious injury" have in fact been appealed, we think it appropriate for
us to examine the "issues of law" and "legal interpretations" raised in this appeal regarding these findings. In doing
so, we will use the same assumption employed by the Panel.
2. Meaning of the Term "Threat of Serious Injury"
122. We first address, briefly, the interpretation of the term "threat of serious injury", which is defined in Article
4.1(b) of the Agreement on Safeguards as follows:
(b) "threat of serious injury" shall be understood to mean serious injury that is clearly imminent, in accordance
with the provisions of paragraph 2. A determination of the existence of a threat of serious injury shall be based on
facts and not merely on allegation, conjecture or remote possibility; (emphasis added)
123. An integral element of this definition is the reference to "serious injury", which is defined in Article 4.1(a) of
the Agreement on Safeguards as follows:
(a) "serious injury" shall be understood to mean a significant overall impairment in the position of a domestic
industry; (emphasis added)
124. The standard of "serious injury" set forth in Article 4.1(a) is, on its face, very high. Indeed, in United States –
Wheat Gluten Safeguard, we referred to this standard as "exacting". Further, in this respect, we note that the word
"injury" is qualified by the adjective "serious", which, in our view, underscores the extent and degree of "significant
overall impairment" that the domestic industry must be suffering, or must be about to suffer, for the standard to be
met. We are fortified in our view that the standard of "serious injury" in the Agreement on Safeguards is a very high
one when we contrast this standard with the standard of "material injury" envisaged under the Anti-Dumping Agreement,
the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement") and the GATT 1994. We believe that the word
"serious" connotes a much higher standard of injury than the word "material". Moreover, we submit that it accords with
the object and purpose of the Agreement on Safeguards that the injury standard for the application of a safeguard
measure should be higher than the injury standard for anti-dumping or countervailing measures, since, as we have
observed previously:
[t]he application of a safeguard measure does not depend upon "unfair" trade actions, as is the case with anti-dumping
or countervailing measures. Thus, the import restrictions that are imposed on products of exporting Members when a
safeguard action is taken must be seen, as we have said, as extraordinary. And, when construing the prerequisites for
taking such actions, their extraordinary nature must be taken into account.
125. Returning now to the term "threat of serious injury", we note that this term is concerned with "serious injury"
which has not yet occurred, but remains a future event whose actual materialization cannot, in fact, be assured with
certainty. We note, too, that Article 4.1(b) builds on the definition of
"serious injury" by providing that, in order to constitute a "threat", the serious injury must be "clearly imminent ".
The word "imminent" relates to the moment in time when the "threat" is likely to materialize. The use of this word
implies that the anticipated "serious injury" must be on the very verge of occurring. Moreover, we see the word
"clearly", which qualifies the word "imminent", as an indication that there must be a high degree of likelihood that the
anticipated serious injury will materialize in the very near future. We also note that Article 4.1(b) provides that any
determination of a threat of serious injury "shall be based on facts and not merely on allegation, conjecture or remote
possibility." (emphasis added) To us, the word "clearly" relates also to the factual demonstration of the existence of
the "threat". Thus, the phrase "clearly imminent" indicates that, as a matter of fact, it must be manifest that the
domestic industry is on the brink of suffering serious injury.
126. We recall that, in Argentina – Footwear Safeguard, we stated that "it is essential for a panel to take the
definition of 'serious injury' in Article 4.1(a) of the Agreement on Safeguards into account in its review of any
determination of 'serious injury'." The same is equally true for the definition of "threat of serious injury" in Article
4.1(b) of that Agreement. Thus, in making a determination on either the existence of "serious injury", or on a "threat"
thereof, panels must always be mindful of the very high standard of injury implied by these terms.
3. Evaluation of Relevant Factors under Article 4.2(a) of the Agreement on Safeguards
127. So far, we have examined the interpretation of the term "threat of serious injury" in the abstract. However, the
Agreement on Safeguards also imposes obligations on competent authorities with respect to the process by which they
arrive at a determination of serious injury or threat thereof. Article 4.2(a) of the Agreement provides that, in making
an injury determination, the competent authorities must "evaluate all relevant factors". This appeal raises two general
interpretive questions concerning the way in which competent authorities actually conduct their "evaluation" of "all
relevant factors". The first of these questions is whether the "evaluation" by the competent authorities, under Article
4.2(a), must be based on data that is sufficiently representative of the domestic industry. The second question is
whether there is an appropriate temporal focus for the competent authorities' "evaluation" of the data in determining
that there is a "threat" of serious injury in the imminent future.
(a) Sufficiency of the Data
128. The Panel found that, in order to make a determination regarding the "domestic industry", as defined in Article
4.1(c) of the Agreement on Safeguards, competent authorities must rely on data that is sufficiently representative of
that industry. The United States appeals this interpretation and asserts that the sole requirements in the Agreement on
Safeguards on data collection are that the factors to be evaluated must be "of an objective and quantifiable nature" and
that these factors have a "bearing on the situation of [the domestic] industry".
129. We note that no provision of the Agreement on Safeguards specifically addresses the question of the extent of data
collection, and in particular, whether competent authorities must have before them data that is representative of the
domestic industry. However, we note as well that, under Article 4.2(a) of the Agreement on Safeguards, competent
authorities are required to investigate whether the "domestic industry" is facing a situation of "serious injury". To do
so, competent authorities are obliged to "evaluate" all relevant factors of an "objective and quantifiable" nature.
Moreover, in conducting this evaluation, Article 4.2(a) requires competent authorities to evaluate the "bearing" that
the relevant factors have on the "situation of [the domestic] industry". On this basis, competent authorities must make
an "overall" determination as to whether the "domestic industry" is seriously injured, or threatened with such injury.
130. We recognize that the clause "of an objective and quantifiable nature" refers expressly to "factors", but not
expressly to data. We are, however, convinced that factors can only be "of an objective and quantifiable nature" if they
allow a determination to be made, as required by Article 4.2(b) of the Agreement on Safeguards, on the basis of
"objective evidence". Such evidence is, in principle, objective data. The words "factors of an objective and
quantifiable nature" imply, therefore, an evaluation of objective data which enables the measurement and quantification
of these factors.
131. The term "domestic industry" is defined as meaning, at least, the producers of "a major proportion of the total
domestic production" of the products at issue. In our view, the requirement for competent authorities to evaluate the
"bearing" that the relevant factors have on the "domestic industry " and, subsequently, to make a determination
concerning the overall "situation of that industry ", means that competent authorities must have a sufficient factual
basis to allow them to draw reasoned and adequate conclusions concerning the situation of the "domestic industry". The
need for such a sufficient factual basis, in turn, implies that the data examined, concerning the relevant factors,
must be representative of the "domestic industry". Indeed, a determination made on the basis of insufficient data would
not be a determination about the state of the "domestic industry", as defined in the Agreement, but would, in reality,
be a determination pertaining to producers of something less than "a major proportion of the total domestic production"
of the products at issue. Accordingly, we agree with the Panel that the data evaluated by the competent authorities must
be sufficiently representative of the "domestic industry" to allow determinations to be made about that industry.
132. We do not wish to suggest that competent authorities must, in every case, actually have before them data pertaining
to all those domestic producers whose production, taken together, constitutes a major proportion of the domestic
industry. In some instances, no doubt, such a requirement would be both impractical and unrealistic. Rather, the data
before the competent authorities must be sufficiently representative to give a true picture of the "domestic industry".
What is sufficient in any given case will depend on the particularities of the "domestic industry" at issue. In this
case, the Panel's conclusion that the data before the USITC was not sufficiently representative is, in our view, a
finding that turns on the particularities of the United States' lamb meat industry, as defined by the USITC, and we see
no reason to disturb this finding of the Panel. We note, moreover, that the USITC itself acknowledged that the data
before it for growers did not represent a "statistically valid sample".
133. We, therefore, uphold the Panel's finding that the USITC, and, hence, the United States, acted inconsistently with
the Agreement on Safeguards by making a determination regarding the "domestic industry" on the basis of data that was
not sufficiently representative of that industry. However, we find that, in so doing, the United States acted
inconsistently with Article 4.2(a) of the Agreement on Safeguards, read together with the definition of "domestic
industry" in Article 4.1(c). Article 4.1(c) contains nothing more than a definition of the term "domestic industry" and
does not, by itself, impose any obligation on WTO Members. We, therefore, disagree with the Panel's ultimate conclusion
on this point that the United States acted inconsistently with Article 4.1(c) alone.
134. Accordingly, we modify the Panel's conclusion, in paragraph 8.1(e) of the Panel Report, by holding that the United
States acted inconsistently with Article 4.2(a) of the Agreement on Safeguards in making a determination regarding the
"domestic industry" on the basis of data that
was not sufficiently representative of that industry.
(b) Temporal focus of the data evaluation
135. Before the Panel, the parties disagreed as to which part of the period of investigation was the most relevant in
"evaluating" the state of the domestic industry when making a "threat" determination. The Panel opined that, "due to the
future-oriented nature of a threat analysis, it would seem logical that occurrences at the beginning of an investigation
period are less relevant than those at the end of that period." The Panel went on to conclude that:
… the USITC was correct to focus on the most recent data available from the end of the investigation period. We also
consider that data from 1997 and interim-1998 cover an adequate and reasonable time-period if complemented by
projections extrapolating existing trends into the imminent future so as to ensure the prospective analysis which a
threat determination requires. (emphasis added)
Therefore, we consider that, by basing its determination on events at the end of the investigation period (i.e., one
year and nine months) rather than over the course of the entire investigation period, the USITC analysed sufficiently
recent data for making a valid evaluation of whether significant overall impairment was "imminent" in the near future.
(emphasis added)
136. We recall that, in making a "threat" determination, the competent authorities must find that serious injury is
"clearly imminent". As we have already concluded, this requires a high degree
of likelihood that the anticipated serious injury will materialize in the very near future. Accordingly,
we agree with the Panel that a threat determination is "future-oriented". However, Article 4.1(b) requires that a
"threat" determination be based on "facts" and not on "conjecture". As facts, by their very nature, pertain to the
present and the past, the occurrence of future events can never be definitively proven by facts. There is, therefore, a
tension between a future-oriented "threat" analysis, which, ultimately, calls for a degree of "conjecture" about the
likelihood of a future event, and the need for a fact-based determination. Unavoidably, this tension must be resolved
through the use of facts from the present and the past to justify the conclusion about the future, namely that serious
injury is "clearly imminent". Thus, a fact-based evaluation, under Article 4.2(a) of the Agreement on Safeguards, must
provide the basis for a projection that there is a high degree of likelihood of serious injury to the domestic industry
in the very near future.
137. Like the Panel, we note that the Agreement on Safeguards provides no particular methodology to be followed in
making determinations of serious injury or threat thereof. However, whatever methodology is chosen, we believe that data
relating to the most recent past will provide competent authorities with an essential, and, usually, the most reliable,
basis for a determination of a threat of serious injury. The likely state of the domestic industry in the very near
future can best be gauged from data from the most recent past. Thus, we agree with the Panel that, in principle, within
the period of investigation as a whole, evidence from the most recent past will provide the strongest indication of the
likely future state of the domestic industry.
138. However, we believe that, although data from the most recent past has special importance, competent authorities
should not consider such data in isolation from the data pertaining to the entire period of investigation. The real
significance of the short-term trends in the most recent data, evident at the end of the period of investigation, may
only emerge when those short-term trends are assessed in the light of the longer-term trends in the data for the whole
period of investigation. If the most recent data is evaluated in isolation, the resulting picture of the domestic
industry may be quite misleading. For instance, although the most recent data may indicate a decline in the domestic
industry, that decline may well be a part of the normal cycle of the domestic industry rather than a precursor to
clearly imminent serious injury. Likewise, a recent decline in economic performance could simply indicate that the
domestic industry is returning to its normal situation after an unusually favourable period, rather than that the
industry is on the verge of a precipitous decline into serious injury. Thus, we believe that, in conducting their
evaluation under Article 4.2(a), competent authorities cannot rely exclusively on data from the most recent past, but
must assess that data in the context of the data for the entire investigative period.
139. In this case, the Panel interpreted Article 4.2(a) of the Agreement on Safeguards to mean that the USITC was
entitled to "base its determination" of a "threat of serious injury" on data pertaining to the last 21 months of the
five year period of investigation. In our view, as we will see below, the Panel's interpretation of the temporal aspects
of the competent authorities' evaluation, under Article 4.2(a), placed too much emphasis on certain data from the most
recent past, while neglecting
other, even more recent data. Also, the Panel did not ensure that the data was assessed in the context of the data for
the entire period of investigation. The Panel's approach improperly excluded the possibility that short-term trends in
the data, evident in the last 21 months of the period of investigation, could possibly be a misleading indicator of the
likely future state of the domestic industry, when viewed in the context of the data for the entire period of
investigation.
4. Panel's Review of the USITC's Determination of a "Threat of Serious Injury"
140. We have examined, so far, the interpretation of the appropriate standard of review, and the interpretation of the
term "threat of serious injury" defined in Article 4.1(b) of the Agreement on Safeguards. We have also examined certain
interpretive questions relating to the competent authorities' evaluation, under Article 4.2(a) of that Agreement, in
making a determination that there is such a "threat". With all these considerations in mind, we will now examine the
heart of the appeal by Australia and New Zealand on this point: whether the Panel applied the appropriate standard of
review to the USITC's evaluation of the state of the domestic industry, under Article 4.2(a), and to the USITC's
determination that there existed a "threat of serious injury".
141. We have already said that, in examining a claim under Article 4.2 of the Agreement on Safeguards, a panel's
application of the appropriate standard of review of the competent authorities' determination has two aspects. First, a
panel must review whether the competent authorities have, as a formal matter, evaluated all relevant factors and,
second, a panel must review whether those authorities have, as a substantive matter, provided a reasoned and adequate
explanation of how the facts support their determinations.
142. As regards the formal aspects of the Panel's review, we observe that the Panel found that "the USITC has
investigated all the relevant injury factors". (emphasis added) The Panel reached this conclusion after describing, in
summary form, the data before the USITC concerning the relevant factors. Although Australia argues that the Panel erred
in finding that the USITC had evaluated all of the relevant factors , we consider that the Panel was correct to conclude
that, as a formal matter,
the USITC did evaluate each of the relevant factors, with respect to some part of the domestic industry, as the USITC
defined that industry. However, we see the essence of Australia's appeal, on this point, as directed more toward the
Panel's review of the substantive aspects of the USITC's evaluation of the relevant factors, and to the USITC's
determination that the domestic industry was threatened with serious injury. New Zealand also appeals the substantive
aspects of the Panel's review. Both of these appellants assert that the Panel erred in finding that the USITC's
explanation of its evaluation of the relevant factors was adequate to support its determination that there existed a
threat of serious injury to the domestic industry.
143. On our reading of the Panel Report, we see that the Panel examined, first, whether the USITC formally evaluated all
the relevant factors. Next, the Panel examined "the USITC's analytical approach" and concluded that there was "no
conceptual fault" with that approach because it was "sufficiently fact-based and future-oriented". The Panel reached
this conclusion after reviewing the "[p]rojections relevant to a threat of injury finding" and the "[r]elevant
time-period for the threat analysis". The Panel also made an "[e]valuation of data pertaining to the period from January
1997 to September 1998". This period was the last 21 months of the period of investigation, on which the Panel said the
USITC could "bas[e] its determination". In the course of evaluating the data from this period, the Panel noted:
… the complainants do not, as such, challenge the USITC's findings that there were declines in 1997 and interim-1998 for
most of the indicators referred to by the USITC in its determination.
144. After summarizing the remainder of the parties' views on the data, the Panel then observed, correctly, that the
competent authorities are not required "to show that each listed injury factor is
declining" but, rather, they must reach a determination in light of the evidence as a whole. Without any further
analysis, the Panel concluded:
Therefore, in the light of the specific evidence, explanations and prospective analysis reflected in the USITC report,
we consider the USITC's reliance, among other difficulties, on factors including the domestic industry's market share,
production, shipments, profitability and prices as a sufficient basis for determining whether threat of serious injury
exists. We also consider that the USITC's analysis of the overall picture of trends reflected in and projected from the
most recent data (especially from 1997 and interim-1998) along with the projections concerning further increases in
imports (assuming arguendo that the data on which these trends and projections were based were representative of a major
proportion of the producers forming the relevant industry), seem to confirm the USITC determination that a "significant
overall impairment" in the overall position of the domestic industry was clearly imminent. (underlining added)
145. Finally, the Panel examined, and upheld, the claim by Australia and New Zealand that the USITC did not have
sufficiently representative data to make a determination about the lamb meat industry, as defined by the USITC.
146. The only part of the Panel Report where the Panel purports to conduct a substantive review of whether the USITC
provided a reasoned and adequate explanation of how the facts supported its determination is in the section dealing with
the "[e]valuation of data pertaining to the period from January 1997 to September 1998". However, even there, the Panel
did not demonstrate any substantive review of the factors which it considered provided "a sufficient basis" for the
USITC's determination – "market share, production, shipments, profitability and prices". The Panel seemed to regard it
as sufficient for its own conclusion, first, that most economic indicators were in decline in 1997 and 1998 and, second,
that not every economic indicator need be in decline.
147. Australia and New Zealand made a number of substantive arguments before the Panel about the USITC's evaluation, and
about its determination that the domestic industry was "threatened with serious injury" at the end of the period of
investigation in 1998. These arguments were that: lamb meat prices actually rose in late 1998 and in 1999; the USITC's
price comparisons were inappropriate; the USITC did not properly evaluate capacity, capacity utilization, inventories
and productivity; lamb growers' production, sales and productivity increased over the entire period of investigation;
shipments of live lambs increased in 1998; and, growers' productivity and employment levels increased in 1998. The Panel
summarized the substantive arguments made by Australia and New Zealand regarding the USITC's evaluation and
determination. Yet, nowhere do we see that the Panel actually addressed them.
148. These arguments by Australia and New Zealand were evidently intended to cast doubt on the adequacy of the
explanation provided by the USITC as to how the facts, in the form of the data, supported the USITC's "threat of serious
injury" determination. In our view, by failing to review the USITC's determination in light of these detailed
substantive arguments, the Panel failed to examine critically whether the USITC had, indeed, provided a reasoned and
adequate explanation of how the facts supported its determination that there existed a "threat of serious injury".
149. In consequence, we find that the Panel has not applied the appropriate standard of review, under Article 11 of the
DSU, in examining whether, as a substantive matter, the USITC provided a reasoned and adequate explanation of how the
facts support a determination of "threat of serious injury" under Article 4.2(a) of the Agreement on Safeguards.
150. Having found that the Panel did not properly review the USITC's determination that there existed a "threat of
serious injury", we now turn to examine ourselves the claims of Australia and New Zealand on this issue. We will focus
on the arguments by Australia and New Zealand relating to prices, and we will base our determination exclusively on the
facts presented in the USITC Report, which form part of the Panel record and are uncontested.
151. The USITC made the following statement about prices:
We find that financial performance across all industry segments has worsened due largely to falling prices. Commission
questionnaires show a marked decline in prices for various lamb meat products beginning in mid-1997. Although prices
recovered to some degree in 1998, prices remained depressed through September 1998, the end of the period surveyed.
Weighted average U.S. delivered prices for virtually all of the products surveyed were substantially lower beginning
with the third quarter of 1997. In several instances
prices for several of the products were 20 percent or more below comparable quarters in 1996 and early 1997. (emphasis
added)
In summarizing the data on prices, the USITC Report states:
Respondents have questioned whether the domestic industry is injured when slaughter prices, the price felt most directly
by the segment of the industry that petitioners have stated are most injured, ended the period of investigation higher
than they began. Respondents argued that prices are returning to normal after a temporary increase brought about by
decreased domestic supply. Petitioners state that the Commission should focus on the price decline in 1996 and 1997 and
that 1993 is not a good year for comparison because it was one of the worst years on record. To examine this question,
staff converted monthly slaughter lamb prices (Jan. 1985-Aug. 1998) to constant 1985 dollars using the BLS producer
price index to remove the effects of inflation. The average real price per CWT was $62.96 for the full-period (Jan.
1985-Aug. 1998) and $56.19, $55.61, $64.86, $71.50, $73.32, and $64.73, respectively, for years 1993-interim 1998. Thus,
prices were below the full-period average in 1993 and 1994, increased above the average level in 1995-97, and decreased
to slightly above the average in interim 1998.
152. Australia and New Zealand argued, before the Panel, that it was not appropriate for the USITC to use prices from
1996 and 1997 as the benchmark for comparison with prices in 1998, at the end of the period of investigation, because
prices in 1996 and 1997 were unusually high. The fall in prices between 1996 and 1998 was, they argued, a misleading
indicator of price trends because prices were simply returning to their normal levels and were not in general decline.
In addition, Australia and New Zealand argued that, in any event, the most recent price data indicates that prices were
rising in 1998, at the end of the period of investigation. This rise in prices indicated, they argued, that the
situation of the lamb meat industry was improving and that it was not faced imminently with "serious injury".
153. We note that the price data set out in the USITC Report, which we have just summarized, indicates that prices in
1996 and 1997 were considerably higher than at any other point during the period of investigation. The data also shows
that prices were significantly lower in August 1998 than in 1996 and 1997. Prices in 1998 were, nonetheless, markedly
higher than the prices in 1993 and 1994, the early part of the period of investigation. In addition, the price data in
the Part II of the USITC Report, and in United States' Exhibit US-41, submitted to the Panel, indicates that there was a
sharp rise in prices in the last few months of the period of investigation, in mid-1998.
154. Accordingly, the uncontested data demonstrates that, during the period of investigation, lamb meat prices generally
rose until 1996/1997, then dropped until mid-1998, and rose again until the end of the period of investigation. At that
time, prices were higher than they had been at the beginning of the period of investigation.
155. We emphasize that we are not in a position to reach any definitive conclusions on the significance of these price
trends for the situation of the domestic lamb meat industry. However, these trends raise doubts for us about the
adequacy of the USITC's explanation of the "bearing" of prices on the situation of the domestic industry.
156. In the passage we quoted previously, from page I-20 of the USITC Report, the USITC expressed the view that the
"worsen[ing]" financial performance of the domestic industry was "due largely to falling prices" for lamb meat. It is
clear from this passage that the USITC determined that prices were "falling" through a comparison between prices in 1998
and prices in 1996/1997. However, it seems to us that there is a legitimate doubt as to which prices during the period
of investigation should have been used as the appropriate benchmark. That doubt stems from the fact that prices in 1996
and 1997 were around 30 percent higher than they had been in 1993 and, during those two years, were also at their peak
for the period of investigation. In these circumstances, we consider that the USITC Report should have explained why
prices in 1996 and 1997 were the appropriate benchmark rather than prices in 1993, 1994 or 1995. The USITC provides no
such explanation and, instead, assumes that prices in 1996 and 1997 were the appropriate benchmark. We do not wish to
suggest that prices in 1996 and 1997 could not be used as the benchmark, or that prices from another year should have
been the benchmark. Our point is that the USITC has not justified its decision – which was key to its overall evaluation
of prices and, thus, also, of the financial performance of the domestic industry – that prices in 1996 and 1997 were the
appropriate benchmark for comparison with prices in 1998.
157. For similar reasons, we are not satisfied that the USITC explained adequately its conclusion that "prices remained
depressed through September 1998" because, compared with price levels in 1993 and 1994, prices in September 1998 were
markedly higher, and were not "depressed". (emphasis added) Again, the USITC's conclusion overlooks entirely the
evolution of prices across the entire period of investigation, and fails to explain why the overall rise in prices
between 1993 and 1998 is not relevant to the determination.
158. In addition, we have already observed that there was a sharp rise in lamb meat prices in the last few months of the
period of investigation. However, the USITC's consideration of this rise in prices was confined to the observation that,
"[a]lthough prices recovered to some degree in 1998, prices remained depressed through September 1998". (emphasis added)
The USITC did not elaborate further on the importance to the domestic industry of the rise in prices in 1998. Nor did
the USITC explain the likely future evolution of prices in light of these price rises which were, in some cases, rather
significant. The USITC did not, therefore, explain, at all, whether it considered that prices would continue to rise;
whether the price rises would be reversed; or whether prices would remain at the level reached at the end of the period
of investigation.
159. We see a contradiction between the most recent price rises, in 1998, and the USITC's conclusion that the price data
supports its determination that the domestic industry is threatened with serious injury. A rise in prices, particularly
if significant, should, in the ordinary course of events, be beneficial for an industry. Conceivably, such a rise could
lead to an increase in revenues, and could increase margins and profits, and, possibly, also, production levels, if the
price rises are sustained. Thus, if an industry is not yet in a state of serious injury, and that industry has enjoyed
rising prices in the most recent past, it is, at least, questionable whether the industry is highly likely to suffer
serious injury in the very near future. In such a situation, the competent authorities should devote particular
attention to explaining the apparent contradiction between the most recent price rises and their view that the industry
is still threatened with serious injury. In this case, the USITC offered no such explanation.
160. We wish to emphasize again that our remarks about the price data are not intended to suggest that the domestic
industry was not threatened with serious injury. Rather, our conclusion is simply
that the USITC has not adequately explained how the facts relating to prices support its determination, under Article
4.2(a), that the domestic industry was threatened with such injury.
161. Accordingly, we find that the United States acted inconsistently with Article 4.2(a) of the Agreement on Safeguards
and, hence, also with Article 2.1 of that Agreement.
VII. Causation
162. In assessing the claims made by Australia and New Zealand relating to causation, the Panel began with a "[g]eneral
interpretative analysis" of the relevant provisions of the Agreement on Safeguards, before turning to the application of
that interpretation to the facts of this dispute. The Panel took note of the terms of Articles 4.2(a) and 4.2(b) of that
Agreement and, after examining the ordinary meaning of the word "cause" , stated:
It is not enough that increased imports cause just some injury which may then be intensified to a "serious" level by
factors other than increased imports. In our view, therefore, the ordinary meaning of these phrases describing the
Safeguards Agreement’s causation standard indicates that increased imports must not only be necessary, but also
sufficient to cause or threaten a degree of injury that is "serious" enough to constitute a significant overall
impairment in the situation of the domestic industry. (underlining added)
163. The Panel added that:
… the second sentence of SG Article 4.2(b) also makes clear … that increased imports need not be the sole or exclusive
causal factor present in a situation of serious injury or threat thereof, as the requirement not to attribute injury
caused by other factors by implication recognises that multiple factors may be present in a situation of serious injury
or threat thereof.
…
… where a number of factors, one of which is increased imports, are sufficient collectively to cause a significant
overall impairment of the position of the domestic industry, but increased imports alone are not causing injury that
achieves the threshold of "seriousness" set up by SG Article 4.2(a) and 4.2(b), the conditions for imposing a safeguard
measure are not satisfied. While we believe that a Member remains free to determine any appropriate method of assessing
causation, any method that it selects would need to ensure that the injury caused by increased imports, considered
alone, is "serious injury", i.e., causing a significant overall impairment in the situation of the domestic industry.
Moreover, we cannot see how a causation standard that does not examine whether increased imports are both a necessary
and sufficient cause for serious injury or threat thereof would ensure that injury caused by factors other than
increased imports is not attributed to those imports. (underlining added)
164. The United States appeals the Panel's finding that the USITC's causation analysis was inconsistent with the
Agreement on Safeguards. According to the United States, there is no basis in Article 4.2(b) of that Agreement to
support the Panel's interpretation that increased imports must be a "necessary and sufficient cause" of, or must,
"considered alone", cause, serious injury or a threat thereof. The United States asserts that the Panel's approach is
indistinguishable from the approach of the panel in United States – Wheat Gluten Safeguard, which we reversed on appeal.
The United
States concludes that, for the reasons we gave in that appeal, we must also reverse the Panel's findings on causation
in this dispute.
165. We agree with the United States that the Panel's interpretation of the causation requirements in Articles 4.2(a)
and 4.2(b) of the Agreement on Safeguards is very similar to the interpretation of the same provisions by the panel in
United States – Wheat Gluten Safeguard. Both panels reasoned that increased imports, considered on their own, must be
capable of causing, or threatening to cause, injury which is "serious". Both panels stated that increased imports must
be "sufficient" to cause serious injury. Moreover, both panels accepted that the situation of the domestic industry may
be aggravated by other factors which are also contributing to the injury and, therefore, that increased imports need not
be the sole cause of injury, but may be one of several causes. Furthermore, we note that, in this case, the Panel relied
on the interpretation of the causation requirements given by the panel in United States – Wheat Gluten Safeguard and
stated that its interpretation of causation "is consistent as well with the findings of the Panel in US – Wheat Gluten
(currently on appeal)". (emphasis added) As the United States points out, we did indeed reverse those findings on appeal
in our own Report in United States – Wheat Gluten Safeguard.
166. In that appeal, in examining the causation requirements in the Agreement on Safeguards, we observed that the first
sentence of Article 4.2(b) of the Agreement on Safeguards provides that a determination "shall not be made unless [the]
investigation demonstrates … the existence of the causal link between increased imports … and serious injury or threat
thereof." (emphasis added) In interpreting this phrase, we said:
… the term "the causal link" denotes, in our view, a relationship of cause and effect such that increased imports
contribute to "bringing about", "producing" or "inducing" the serious injury. Although that contribution must be
sufficiently clear as to establish the existence of "the causal link" required, the language in the first sentence of
Article 4.2(b) does not suggest that increased imports be the sole cause of the serious injury, or that "other factors"
causing injury must be excluded from the determination of serious injury. To the contrary, the language of Article
4.2(b), as a whole, suggests that "the causal link" between increased imports and serious injury may exist, even though
other factors are also contributing, "at the same time", to the situation of the domestic industry.
167. We also noted in that appeal the crucial significance of the second sentence of Article 4.2(b), which states that
competent authorities "shall not … attribute" to increased imports injury caused by other factors, and we found that:
Clearly, the process of attributing "injury", envisaged by this sentence, can only be made following a separation of the
"injury" that must then be properly "attributed". What is important in this process is separating or distinguishing the
effects caused by the different factors in bringing about the "injury".
168. We emphasized there that the non-attribution language in the second sentence of Article 4.2(b) means that the
effects of increased imports, as separated and distinguished from the effects of other factors, must be examined to
determine whether the effects of those imports establish a "genuine and substantial relationship of cause and effect"
between the increased imports and serious injury.
169. We also addressed, in that appeal, the language in Articles 2.1 and 4.2(a) of the Agreement on Safeguards, which we
found to support our reading of the non-attribution language in the second sentence of Article 4.2(b). By way of
conclusion, we:
… reverse[d] the Panel's interpretation of Article 4.2(b) of the Agreement on Safeguards that increased imports "alone",
"in and of themselves", or "per se", must be capable of causing injury that is "serious".
170. In view of the close similarity between the respective interpretations of the causation requirements in the
Agreement on Safeguards given by this Panel and by the panel in United States – Wheat Gluten Safeguard, we are of the
view that, for the reasons we gave in United States – Wheat Gluten Safeguard, the Panel in this dispute erred in its
interpretation of the causation requirements in the Agreement on Safeguards. As we held in United States – Wheat Gluten
Safeguard, the Agreement on Safeguards does not require that increased imports be "sufficient" to cause, or threaten to
cause, serious injury. Nor does that Agreement require that increased imports "alone" be capable of causing, or
threatening to cause, serious injury.
171. Accordingly, we reverse the Panel's interpretation of the causation requirements in the Agreement on Safeguards, as
set forth in paragraphs 7.238, 7.241 and 7.247 of the Panel Report.
172. Having reversed the Panel's "[g]eneral interpretative analysis" of "causation", we go on to consider whether the
Panel was correct nonetheless in concluding that the United States acted inconsistently with the causation requirements
in Article 4.2 of the Agreement on Safeguards. Our own examination of this issue is based exclusively on the facts
presented in the USITC Report, which form part of the Panel record and are uncontested. Furthermore, notwithstanding the
findings we have made previously in this appeal , we must assume in our examination: first, that the definition of the
domestic industry given by the USITC is correct, and, second, that the USITC correctly found that the domestic industry
is threatened with serious injury. On this basis, we must examine whether the USITC properly established, in accordance
with the Agreement on Safeguards, the existence of the required "causal link" between increased imports and threatened
serious injury.
173. At the outset, we note that this appeal does not involve any claim relating to the causation standard set forth in
the United States statute. The Panel issued a preliminary ruling that the United States statute as such does not fall
within the Panel's terms of reference , and this ruling has not been appealed. Therefore, like the Panel, our task on
this issue is confined to examining the application of the United States' statutory causation standard by the USITC in
its determination in the lamb meat investigation for its consistency with the Agreement on Safeguards.
174. The claims by Australia and New Zealand relating to causation focus principally on the requirement, in Article
4.2(b) of the Agreement on Safeguards, that injury caused by factors other than increased imports should not be
"attributed" to those imports. In the view of Australia and New Zealand, it is uncontested that the USITC acknowledged
that other factors were having injurious effects on the domestic industry. However, Australia and New Zealand argue that
the USITC failed to explain what the injurious effects of the other factors were, and, therefore, that the United States
failed to demonstrate compliance with the "non-attribution" requirement in the second sentence of Article 4.2(b) of the
Agreement on Safeguards.
175. Accordingly, we must consider whether the USITC properly ensured that injury caused, or threatened, by factors
other than increased imports was not attributed to increased imports, as required by Article 4.2(b). In so considering,
we recall that, as we have already elaborated at some length in this Report, when examining a claim under Article 4.2 of
the Agreement on Safeguards, panels must review whether the competent authorities have acted consistently with the
obligations in Article 4.2 by examining whether those authorities have given a reasoned and adequate explanation as to
how the facts support their determination.
176. Article 4.2(b) of the Agreement on Safeguards provides:
(b) The determination referred to in [Article 4.2(a)] shall not be made unless this investigation demonstrates, on
the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and
serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry
at the same time, such injury shall not be attributed to increased imports. (emphasis added)
177. In our Report in United States – Wheat Gluten Safeguard, we said:
Article 4.2(b) presupposes, therefore, as a first step in the competent authorities' examination of causation, that the
injurious effects caused to the domestic industry by increased imports are distinguished from the injurious effects
caused by other factors. The competent authorities can then, as a second step in their examination, attribute to
increased imports, on the one hand, and, by implication, to other relevant factors, on the other hand, "injury" caused
by all of these different factors, including increased imports. Through this two stage process, the competent
authorities comply with Article 4.2(b) by ensuring that any injury to the domestic industry that was actually caused by
factors other than increased imports is not "attributed" to increased imports and is, therefore, not treated as if it
were injury caused by increased imports, when it is not. In this way, the competent authorities determine, as a final
step, whether "the causal link" exists between increased imports and serious injury, and whether this causal link
involves a genuine and substantial relationship of cause and effect between these two elements, as required by the
Agreement on Safeguards.
178. We emphasize that these three steps simply describe a logical process for complying with the obligations relating
to causation set forth in Article 4.2(b). These steps are not legal "tests" mandated by the text of the Agreement on
Safeguards, nor is it imperative that each step be the subject of a separate finding or a reasoned conclusion by the
competent authorities. Indeed, these steps leave unanswered many methodological questions relating to the
non-attribution requirement found in the second sentence of Article 4.2(b).
179. The primary objective of the process we described in United States – Wheat Gluten Safeguard is, of course, to
determine whether there is "a genuine and substantial relationship of cause and effect" between increased imports and
serious injury or threat thereof. As part of that determination, Article 4.2(b) states expressly that injury caused to
the domestic industry by factors other than increased imports "shall not be attributed to increased imports." In a
situation where several factors are causing injury "at the same time", a final determination about the injurious effects
caused by increased imports can only be made if the injurious effects caused by all the different causal factors are
distinguished and separated. Otherwise, any conclusion based exclusively on an assessment of only one of the causal
factors – increased imports – rests on an uncertain foundation, because it assumes that the other causal factors are not
causing the injury which has been ascribed to increased imports. The non-attribution language in Article 4.2(b)
precludes such an assumption and, instead, requires that the competent authorities assess appropriately the injurious
effects of the other factors, so that those effects may be disentangled from the injurious effects of the increased
imports. In this way, the final determination rests, properly, on the genuine and substantial relationship of cause and
effect between increased imports and serious injury.
180. As we said in our Report in United States – Wheat Gluten Safeguard, the non-attribution language in Article 4.2(b)
indicates that, logically, the final identification of the injurious effects caused by increased imports must follow a
prior separation of the injurious effects of the different causal factors. If the effects of the different factors are
not separated and distinguished from the effects of increased imports, there can be no proper assessment of the injury
caused by that single and decisive factor. As we also indicated, the final determination about the existence of "the
causal link" between increased imports and serious injury can only be made after the effects of increased imports have
been properly assessed, and this assessment, in turn, follows the separation of the effects caused by all the different
causal factors.
181. We emphasize that the method and approach WTO Members choose to carry out the process of separating the effects of
increased imports and the effects of the other causal factors is not specified by the Agreement on Safeguards. What the
Agreement requires is simply that the obligations in Article 4.2 must be respected when a safeguard measure is applied.
182. In this case, the USITC Report states that the "worsen[ing]" financial situation of the domestic industry, as
defined by the USITC, had occurred as "a result of the increase in imports." The USITC identified six factors other than
increased imports which were alleged to be contributing to the situation of the domestic industry at the same time.
Applying the statutory standard established in United States law, the USITC considered whether, individually, each of
these six factors was a "more important cause" of the threat of serious injury than the increased imports. The USITC
concluded that each of these factors was not a more important cause than the increased imports. The USITC then
concluded, echoing the United States statutory standard, that "the increased imports are an important cause, and a cause
no less important than any other cause, of the threat of serious injury".
183. According to Australia and New Zealand, the USITC's determination on this issue is inconsistent with Article
4.2(b) of the Agreement on Safeguards because the methodology used by the USITC did not ensure that injury caused by the
six other factors was not attributed to increased imports. Our examination, therefore, focuses on the issue of
non-attribution. As we have just stated, in a situation such as this, where there are several causal factors, the
process of ensuring that injury caused by other causal factors is not attributed to increased imports must include a
separation of the effects of the different causal factors.
184. By examining the relative causal importance of the different causal factors, the USITC clearly engaged in some kind
of process to separate out, and identify, the effects of the different factors, including increased imports. Although an
examination of the relative causal importance of the different causal factors may satisfy the requirements of United
States law, such an examination does not, for that reason, satisfy the requirements of the Agreement on Safeguards. On
the record before us in this case, a review of whether the United States complied with the non-attribution language in
the second sentence of Article 4.2(b) can only be made in the light of the explanation given by the USITC for its
conclusions on the relative causal importance of the increased imports, as distinguished from the injurious effects of
the other causal factors.
185. In that respect, we see nothing in the USITC Report to indicate how the USITC complied with the obligation found in
the second sentence of Article 4.2(b) and, therefore, we see no basis for either the Panel or us to assess the adequacy
of the USITC process with respect to the "non-attribution" requirement of Article 4.2(b) of the Agreement on Safeguards.
The USITC Report, on its face, does not explain the process by which the USITC separated the injurious effects of the
different causal factors, nor does the USITC Report explain how the USITC ensured that the injurious effects of the
other causal factors were not included in the assessment of the injury ascribed to increased imports. The USITC
concluded only that each of four of the six "other factors" was, relatively, a less important cause of injury than
increased imports. As Australia and New Zealand argue, and as the Panel expressly found , in doing so, the USITC
acknowledged implicitly that these factors were actually causing injury to the domestic industry at the same time. But,
to be certain that the injury caused by these other factors, whatever its magnitude, was not attributed to increased
imports, the USITC should also have assessed, to some extent, the injurious effects of these other factors. It did not
do so. The USITC did not explain, in any way, what injurious effects these other factors had on the domestic industry.
For instance, of the six "other factors" examined, the USITC focused most on the cessation of the payments under the
National Wool Act of 1954 (the "Wool Act") subsidy. The USITC recognized that the Wool Act subsidies represented an
important contribution to the profits of the growers and feeders of live lambs. Yet the USITC's analysis of the
injurious effects of this "factor" is confined largely to the statement that "the loss of Wool Act payments hurt lamb
growers and feeders and caused some to withdraw from the industry." (emphasis added) This explanation provides no
insight into the nature and extent of the "hurt" caused to the domestic industry by this factor. The USITC stated also
that "the effects of termination of the Wool Act payments can be expected to recede further with each passing month."
The USITC, thereby, acknowledged that the Wool Act will have on-going effects, but it did not elaborate on what these
effects are likely to be nor how quickly they will disappear. In varying degree, the same is true as well for the
remaining "other factors" examined. Thus, although the USITC acknowledged that these other factors were having some
injurious effects, it did not explain what these effects were, nor how those injurious effects were separated from the
threat of serious injury caused by increased imports.
186. In the absence of any meaningful explanation of the nature and extent of the injurious effects of these six "other"
factors, it is impossible to determine whether the USITC properly separated the injurious effects of these other factors
from the injurious effects of the increased imports. It is, therefore, also impossible to determine whether injury
caused by these other factors has been attributed to increased imports. In short, without knowing anything about the
nature and extent of the injury caused by the six other factors, we cannot satisfy ourselves that the injury deemed by
the USITC to have been caused by increased imports does not include injury which, in reality, was caused by these
factors.
187. In this respect, we also recall that, on this issue, the Panel concluded:
… that the USITC's application of the "substantial cause" test in the lamb meat investigation as reflected in the USITC
report did not ensure that threat of serious injury caused by other factors has not been attributed to increased
imports.
188. For the foregoing reasons, we find that the USITC, in its Report, did not adequately explain how it ensured that
injury caused to the domestic industry by factors other than increased imports was not attributed to increased imports.
In the absence of such an explanation, we uphold, albeit for different reasons, the Panel's conclusions that the United
States acted inconsistently with Article 4.2(b) of the Agreement on Safeguards, and, hence, with Article 2.1 of that
Agreement.
VIII. Judicial Economy
189. The Panel made a single finding on the claims of Australia and New Zealand under Articles I and II of the GATT 1994
and under Articles 2.2, 3.1, 5.1, 8, 11 and 12 of the Agreement on Safeguards:
Bearing in mind the statements of the Appellate Body on "judicial economy" in the disputes on United States – Shirts and
Blouses and Australia – Salmon, we believe that in the foregoing sections we have addressed all those claims and issues
which we considered necessary for the resolution of the matter in order to enable the DSB to make sufficiently precise
recommendations and rulings for the effective resolution of the dispute before us. Therefore, we see no need to rule on
the complainants' claims under SG Articles 2.2, 3.1, 5.1 and GATT 1994 Articles I and II, or on Australia's claims under
SG Articles 8, 11 and 12.
190. New Zealand appeals the Panel's decision to exercise judicial economy by not examining its claim under Article 5.1
of the Agreement on Safeguards on the nature of the safeguard measure applied by the United States. New Zealand submits
that the Panel's rulings relate solely to the investigation required to underpin safeguard measures, but do not address
the appropriateness of the safeguard measure itself. Therefore, New Zealand concludes that, in declining to rule on the
claim under Article 5.1 of the Agreement on Safeguards, the Panel has failed to enable the DSB to make sufficiently
precise recommendations and rulings for the effective resolution of this dispute.
191. We recall that, on the issue of panels' exercise of judicial economy, we have previously explained that panels
"need only address those claims which must be addressed in order to resolve the matter in issue in the dispute." At the
same time, the "discretion" a panel enjoys to determine which claims it should address is not without limits , as a
panel is obliged "to address those claims on which a finding is necessary in order to enable the DSB to make
sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member with those
recommendations and rulings".
192. We have considered appeals from panels' application of judicial economy in the context of challenges to safeguard
measures on two previous occasions. In Argentina – Footwear Safeguard, the European Communities requested that we
address its claim on "unforeseen developments". In United States – Wheat Gluten Safeguard, the European Communities made
a similar appeal concerning its "unforeseen developments" claim. In that case, the European Communities also asked us to
overturn that panel's exercise of judicial economy and to address the European Communities' claims under Article I of
the GATT 1994 and Article 5 of the Agreement on Safeguards. However, in both Argentina – Footwear Safeguard and in
United States – Wheat Gluten Safeguard, we upheld the respective panel's findings that the safeguard measure imposed was
inconsistent with the requirements of Articles 2 and 4 of the Agreement on Safeguards. In both cases, we determined,
therefore that the respective panel had correctly found that the safeguard measure lacked a legal basis, and, in both
cases, we found that, for this reason, the panel had acted within its discretion in declining to address the issue of
"unforeseen developments" under Article XIX:1(a) of the GATT 1994. In United States – Wheat Gluten Safeguard, in
considering the further claims of the European Communities, we observed:
The same reasoning also holds true for the European Communities' claim under Article I of the GATT 1994 and Article 5 of
the Agreement on Safeguards. As the Panel had found the measure to be inconsistent with Articles 2.1 and 4.2 of the
Agreement on Safeguards, the Panel was within its discretion in declining to examine these claims. Once again, a finding
on this claim would not have added anything to the ability of the DSB to make sufficiently precise recommendations and
rulings in this dispute.
193. In this case, the Panel found that the United States had acted inconsistently with Article XIX:1(a) of the GATT
1994, with various provisions of Article 4 of the Agreement on Safeguards, and with Article 2.1 of the Agreement on
Safeguards. The Panel found that the United States had failed to "demonstrate", as a matter of fact "the existence of
unforeseen developments", had defined the United States' domestic lamb industry inconsistently with the provisions of
Article 4.1(c) of the Agreement on Safeguards, had relied on data insufficient to support its determination of a threat
of serious injury pursuant to Article 4.2(a), and had erred in its assessment of causation under Article 4.2(b). These
findings concern the substantive determinations made by the USITC, and, as in Argentina – Footwear Safeguard and United
States – Wheat Gluten Safeguard, the findings made by the Panel – as upheld by us on appeal – deprive the safeguard
measure at issue of a legal basis.
194. In consequence, we are of the view that there is no meaningful distinction to be drawn between the Panel's exercise
of judicial economy in this case with respect to New Zealand's claim under Article 5.1 of the Agreement on Safeguards,
and the exercise of judicial economy with respect to the claim under that Article by the panel in United States – Wheat
Gluten Safeguard. Having found that the safeguard measure applied by the United States lacked a legal basis, the Panel
was entitled to decline to address further claims that the same measure is inconsistent with other provisions of the
Agreement on Safeguards. We also observe that a finding on New Zealand's claim under Article 5.1 of the Agreement on
Safeguards would not have enhanced the ability of the DSB to make sufficiently precise recommendations and rulings in
this dispute.
195. We, therefore, conclude that the Panel did not err in its exercise of judicial economy with respect to New
Zealand's claim under Article 5.1 of the Agreement on Safeguards.
IX. Conditional Appeals
196. Australia makes a conditional appeal against the Panel's exercise of judicial economy in declining to examine its
claims under Articles 2.2, 3.1, 4.2, 5.1, 8.1, 11.1(a) and 12.3 of the Agreement on Safeguards. New Zealand makes a
conditional appeal against the Panel's exercise of judicial economy in declining to examine its claims under Articles
2.2, 3.1 and 5.1 of the Agreement on Safeguards, and under Articles I and II of the GATT 1994. These appeals, however,
are made only if we reverse the Panel's conclusions that the safeguard measure at issue was inconsistent with the
Agreement on Safeguards and Article XIX:1(a) of the GATT 1994. As the conditions on which these requests are predicated
have not been fulfilled, there is no need for us to examine the conditional appeals of Australia and New Zealand. We
recall, as well, that we found above that there was no need for us to examine Australia's conditional appeal relating to
the Panel's findings on "unforeseen developments".
X. Findings and Conclusions
197. For the reasons set forth in this Report, the Appellate Body:
(a) upholds the Panel's finding, in paragraphs 7.45 and 8.1(a) of the Panel Report, that the United States acted
inconsistently with Article XIX:1(a) of the GATT 1994 by failing to demonstrate, as a matter of fact, the existence of
"unforeseen developments";
(b) upholds the Panel's finding, in paragraphs 7.118, 8.1(b) and 8.1(g) of the Panel Report, that the United States
acted inconsistently with Articles 2.1 and 4.1(c) of the Agreement on Safeguards because the USITC defined the relevant
"domestic industry" to include growers and feeders of live lambs;
(c) upholds the Panel's finding, in paragraph 7.221 of the Panel Report, that the USITC made a determination
regarding the "domestic industry" on the basis of data that was not sufficiently representative of that industry; but
modifies the Panel's ultimate finding, in paragraph 8.1(e) and 8.1(g) of the Panel Report, that the United States
thereby acted inconsistently with Articles 2.1 and 4.1(c) of the Agreement on Safeguards by finding, instead, that the
United States thereby acted inconsistently with Articles 2.1 and 4.2(a) of that Agreement;
(d) finds that the Panel correctly interpreted the standard of review, set forth in Article 11 of the DSU, which is
appropriate to its examination of claims made under Article 4.2 of the Agreement on Safeguards; but concludes that the
Panel erred in applying that standard in examining the claims made concerning the USITC's determination that there
existed a threat of serious injury; and finds, moreover, that the United States acted inconsistently with Articles 2.1
and 4.2(a) of the Agreement on Safeguards because the USITC Report did not explain adequately the determination that
there existed a threat of serious injury to the domestic industry;
(e) reverses the Panel's interpretation of the causation requirements in the Agreement on Safeguards but, for
different reasons, upholds the Panel's ultimate finding, in paragraphs 7.279, 8.1(f) and 8.1(g) of the Panel Report,
that the United States acted inconsistently with Articles 2.1 and 4.2(b) of the Agreement because the USITC's
determination that there existed a causal link between increased imports and a threat of serious injury did not ensure
that injury caused to the domestic industry, by factors other than increased imports, was not attributed to those
imports;
(f) upholds the Panel's exercise of judicial economy, in paragraph 7.280 of the Panel Report, in declining to rule
on the claim of New Zealand under Article 5.1 of the Agreement on Safeguards; and,
(g) declines to rule on the respective conditional appeals of Australia and New Zealand relating to Articles I, II
and XIX:1(a) of the GATT 1994, and to Articles 2.2, 3.1, 5.1, 8.1, 11.1(a) and 12.3 of the Agreement on Safeguards.
198. The Appellate Body recommends that the DSB request that the United States bring its safeguard measure found in this
Report, and in the Panel Report as modified by this Report, to be inconsistent with the GATT 1994 and the Agreement on
Safeguards, into conformity with its obligations under those Agreements.
Signed in the original at Geneva this 12th day of April 2001 by:
_________________________
Claus-Dieter Ehlermann
Presiding Member
_________________________ _________________________
James Bacchus A. V. Ganesan
Member Member