7:48 AM May 26, 1997

DSB ADOPTS APPELLATE BODY RULING

Geneva 23 May (TWN) -- The Dispute Settlement Body of the World Trade Organization adopted by consensus the ruling of its panel and of the Appellate body in the dispute raised by India against the United States over the US measures affecting imports of Woven Wool Shirts and Blouses from India.

The panel ruled against the United States, but India had taken up in appeal some of its legal arguments and reasonings on the issue of the burden of proof, as also on the failure of the panel to provide a finding on all the issues raised by India, on the argument of judicial restraint.

The Appellate body however upheld the panel on these issues. The three-members of the Appellate body who heard the case and provided the ruling were Mr. Christopher Beeby of New Zealand, Mr. James Bacchus of the US, and Mituso Matsuhita of Japan.

Ironically, while the appellate body, with the participation of the US member, has upheld 'judicial restraint' principle in not providing a ruling on all the points against the US raised in the textiles and clothing dispute, the banana panel, hearing a complaint against the EC, put forward by the US and several Latin American countries provided a ruling, which was circulated Friday to the WTO members, running into some 1700 pages, where reportedly it has answered almost all the issues raised by the complainants.

The Dispute Settlement Understanding provides for the adoption of panel and appellate body rulings automatically, unless there is a consensus against it. However, the DSU also makes clear that the panel rulings cannot create new WTO rights or obligations, and the responsibility for providing agreed interpretations rests with the WTO membership.

In a statement to the DSB, the Indian Ambassador, Mr. Narayanan reiterated the Indian position that the panel and the Appellate body erred in dealing with the burden of proof and it was for the US to prove that it had complied with the requirements of Art. 6 of the ATC in imposing restrictions.

Safeguard actions, India insisted, were exception measures and it is for the party invoking them to justify it.

The panel and appellate body's findings on socalled distribution of the burden of proof (in the case brought by India) was also inconsistent with the findings on the same issue by another panel (and the appellate body) in the complaint by Costa Rica against the US on the US restrictions on underwear.

The Appellate body in the Indian case, while acknowledging the point that as per customary GATT practice, the party invoking a provision identified as exception must offer the burden of proof, has however argued that the earlier GATT panel rulings were not relevant since the present case involved Art. & of the ATC which was a fundamental part of carefully drawn balance of rights and obligations. Thus, the appellate body seems to suggest that Art. & is not an exception.

India was rather concerned with this approach, since Art. 6 of the ATC is the only provision of the WTO legal framework enabling imposition of discriminatory trade measures to protect domestic users.

The Indian representative noted that the Appellate body in the Indian case quoted from the Appellate body ruling on the Costa Rica underwear case, and used the argument of balance of rights and obligations for opposite ends: one to justify a narrow interpretation and the other to arrive at an expansive interpretation of the same provisions of the ATC.

In the underwear case, the Appellate body used the argument about carefully negotiated language of the agreement, but in the Indian case relating to Shirts and Blouses it uses the same argument for the view against India that Art 6 is an exception and should be interpreted narrowly.

The panel, India noted, had tried to distinguish between the work of the TMB and that of the panel as a two-track approach, rather than a two-stage procedure, implying that the TMB and the Panel would be reviewing different measures -- the TMB whether a safeguard action would be appropriate at the time of its examination, and the panel whether the original measure was justified.

If the TMB examines not the safeguard action actually taken, but instead whether on the basis of new information the safeguard action would be appropriate, then it eliminates effectively an important step in the dispute settlement procedures. But it was a matter of surprise that the Appellate dismisses these findings as not constituting legal finding and thus not giving its ruling on them.

India disagreed with the Appellate body view and reasonings in not providing a finding on this point raised by India -- namely that the panel's view was only a gratuitous observation. However the appellate body viewing the panel observation in this way is that the panel's views are totally wrong, but cannot damage the system.

On the issue of judicial economy, used by the panel and upheld by the Appellate body in not providing findings on all claims raised, India said that under the ATC, a member's request for consultation, its determination of damage and causalities as well as retroactive application of measures are separate steps in a safeguard proceedings, with each of them subject to distinct legal obligations.

A finding limited to determination alone does not give India any assurance that the other party would cease violating the ATC in respect of request for consultations and retroactive application of restraint. The matters referred by India to the panel was a legal claim made in respect of a specific measure (and thus India was entitled to get a ruling on it).

The Indian representative contrasted the appellate body's argument and findings on this with that of the Appellate body in the case of the Philippians against Brazil in the desiccated coconut case to the effect that the "matter referred to a panel for consideration consists of the specific claims stated by the parties to the dispute in the relevant documents specified in the terms of reference". The function of a panel was to examine all legal claims made in respect of all measures at issue.

While one could understand the Appellate body reading Art. 11 of the DSU to the effect that panels need not address in all instances all legal claims made by parties inasmuch as there may be instances where a finding on one matter resolves the dispute on another matter.

"But we do not understand when the Appellate body goes to argue that a requirement regarding rulings by a panel on all the claims made is not consistent with the aim of the dispute settlement system." India had sought a ruling on the claims within the four corners of the ATC and the DSU and did not ask the WTO panel or appellate body to make law or provide authoritative interpretations of the WTO agreement, Narayanan observed.

On another 'procedural point', India complained that an important point made by it had not even figured in the appellate body's ruling or argument, even though this had not caused any prejudice to India.$

The Appellate Body's report is an important document and of interest and relevance to all DSB members and it is necessary to present the arguments of participants and the reasoning of the appellate body for coming to a particular conclusion in as great a detail as possible so that Members not involved in a dispute can fully understand the position of the parties and the thinking of the Appellate body.

The US, in its statement, supporting the adoption of the rulings of the panel and the appellate body, drew attention to the fact that the US had in fact withdrawn the measures complained against and that hence the US had met its obligations in this matter, with the adoption of the reports of the panel and the appellate body. The matter before the DSB had hence been concluded.

Earlier, the DSB was advised by the United States that its Environment Protection Agency (EPA) has notified its proposed rules under the Clean Air act to comply with the WTO rulings on gasoline mixtures. Any comments to the EPA must be provided by June 9, the US added.

Brazil and Venezuela, the complaints in the case, welcomed the proposed rules having been made public, but were concerned over the time periods involved. In their view the internal requirements about hearings would mean that the US would not be able to comply with the WTO rulings in time -- namely, by the 20 August deadline. Brazil wanted full details of the different stages of the rule-making and modification process.

The EC welcomed the US moves but was concerned that in one particular aspect the proposal would not seem to comply with the legal requirements spelt out by the Appellate body and the panel.

The US proposal requires that imported conventional gasoline should be made subject to a quality benchmark, to a monitoring mechanism and to an increase in the statutory baseline if the benchmark is exceeded.

This requirement applied only to the imported gasoline. The US authorities seek to justify this as necessary to avoid the overall quality of such gasoline from deteriorating. This would occur if foreign refiners with a below-average quality of gasoline seek an individual baseline while those with an above-average quality of gasoline do not and if the latter then lower the quality of their gasoline to that of the statutory baseline - a scenario referred to as 'gaming'.

But the consequence of increasing the statutory baseline in such a situation would again be that imported gasoline would be subject to stricter requirements than the identical domestic gasoline to which rules would not apply. This would again place imported gasoline at a disadvantage visavis domestic gasoline.

The EC also warned against overly complex and excessively strict implementation of rules for foreign refiners and importers and said whether intended or not this would have the effect of stifling imports.

In another item on the agenda, the EC brought up its complaint against the Indonesian national car project and sought a panel to be established. With the EC request coming up for the first time, Indonesia withheld consensus and blocked it.

It noted in this connection that it was continuing bilateral consultations with Japan which has brought up a similar complaint and sought a panel at the last meeting (which Indonesia had then blocked).

Japan, in a response, agreed that bilateral talks were taking place and that it was awaiting Indonesian proposals as to how it proposed to implement its measures in line with the WTO accords.

Japan noted that it had not brought up the request for the panel to this meeting (when establishment of a panel would have been automatic), because the talks it had held and the views there did not provide enough time to repeat the request for the DSB meeting in time before the cut off date for agenda items. Japan had also taken note of Indonesian domestic requirements -- a reference presumably to the current election campaign.