II. THE QUESTION AT ISSUE FALLS WITHIN THE PANEL’S DISCRETION AS TO THE ORGANISATION OF ITS OWN PROCEDURES 4. Both parties seem to consider that the Panel is required to rule, as a matter of substance, on whether the US measures fall under Article 13 of the Agreement on Agriculture, and if not, whether they are consistent with Article XVI GATT and the SCM Agreement. Brazil’s contention that the US measures are inconsistent with Article XVI GATT and the SCM Agreement, because they are not covered by Article 13 of the Agreement on Agriculture requires the Panel to determine whether Article 13 is applicable. Similarly, the United States’ claim that Article 13 of the Agreement on Agriculture prevents the Panel from ruling on Brazil’s other claims requires adjudication of the issue of the applicability of Article 13.
5. The European Communities finds support for its view that the choice between a single and multistage procedure is a matter for the Panel’s discretion in the fact that Article 13 of the Agreement on Agriculture is not set up as a specific rule which can be distinguished from the normal DSU procedures. Thus, for instance, Article 13 is not mentioned in Annex 2 of the DSU listing special or additional rules and procedures contained in the covered agreements. Moreover, Article 19 of the Agreement on Agriculture states that the provisions of Article XXII and XXIII GATT, as elaborated in the DSU, apply to the Agreement on Agriculture. Consequently, there are no special rules foreseen in respect of Article 13 in the event that a Member requests dispute settlement in which it may be raised as an issue.
6. In order further to demonstrate that this is a matter for the Panel’s discretion, it is instructive to consider the United States’ arguments on the meaning of exempt from action”. The United States argues that the meaning of the term “exempt from action” is that no formal proceedings can be launched with respect to the matter exempt from action, and that in the WTO, this would mean that a Member could not request consultations and later request the establishment of a panel.38 The implications of this are unclear however. The logical conclusion would appear to be that the United States is suggesting that Brazil should first bring a panel arguing that Article 13 of the Agreement on Agriculture is not applicable, and then (if it is successful) bring a second panel to adjudicate its claims under Article XVI GATT and the SCM Agreement? This notion seems implausible for a number of reasons. First, in considering whether Article 13 of the Agreement on Agriculture is applicable, the first Panel would not be adjudicating a dispute but would be requested to issue a declaratory judgement. Second, a Member is not under an obligation to act consistently with Article 13 of the Agreement on Agriculture – failing to respect Article 13 implies that a Member no longer enjoys the protection thereof. Consequently, and third, Article 13 of the Agreement on Agriculture can only be seen as a defence against a claim brought under other aspects of the WTO Agreements which regulate the provision of subsidies. It would seem bizarre if, before Brazil could bring a claim with respect to subsidies which it considered did not respect the US’s WTO obligations, Brazil had first to establish that potential US defences did not apply.
7. The European Communities notes that, although this situation is the logical continuation of the US interpretation of the term “exempt from action”, the United States does not suggest that Brazil should have launched two successive WTO panels. Rather it maintains that the Panel’s hearing argument and evidence on Article XVI GATT and the SCM Agreement would amount to an “action” which cannot be brought against it until it is determined that the US measures do not conform to Article 13 of the Agreement on Agriculture. Why the United States considers that hearing evidence would amount to such a prohibited “action”, while requesting consultations or the establishment of a panel does not amount to maintaining an “action” is unclear. Indeed, the European Communities would presume that the United States would agree that Article 13 of the Agreement on Agriculture has the ultimate effect of not requiring any subsidy maintained consistently with Article 13 of the Agreement on Agriculture and otherwise inconsistent with the SCM Agreement to be brought into conformity with the provisions of the SCM Agreement (typically through its withdrawal). For the European Communities, therefore, the issue of whether a measure falls under Article 13 is necessarily a question which a Panel must decide before it decides whether the measure might violate Article XVI GATT or the SCM Agreement. However, the mere fact that the Article 13 issues must be decided before the other claims are decided does not imply that a panel, when it is examining evidence and considering arguments with respect to Article 13 of the Agreement on Agriculture, is precluded from hearing the evidence and arguments relating to Article XVI GATT or the SCM Agreement until after it has decided on the applicability of Article 13 of the Agreement on Agriculture.
8. In conclusion, the Panel has substantial discretion in deciding how it will manage these issues. Article 12.1 DSU makes it quite clear that the Working Procedures set out in Appendix 3 of the DSU may be departed from if the Panel decides this is appropriate. Therefore, it is a matter for the Panel’s discretion whether to arrange a multistage procedure as proposed by the United States or a single stage procedure as proposed by Brazil.
9. The European Communities considers that the normal procedure proposed by Brazil should be followed by the Panel for the reasons set out in the next section.
III. SEVERAL FACTORS MILITATE IN FAVOUR OF EXAMINING THE EVIDENCE AND ARGUMENTS PRESENTED IN RESPECT OF ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE AT THE SAME TIME AS THE OTHER CLAIMS 10. The European Communities submits that the Panel should consider evidence and argument relating to both the applicability of Article 13 of the Agreement on Agriculture, and the other provisions which Brazil has alleged the United States has acted inconsistently with.
A. THE APPLICATION OF ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE IS DEPENDENT ON THE EXAMINATION OF QUESTIOnS OF SUBSTANCE
11. As the United States and Brazil appear to have recognised, the question of the applicability of Article 13 of the Agreement on Agriculture is dependent on the assessment of substantive issues, notably the conformity of the measures in question with other provisions of the Agreement on Agriculture. In order for the Panel to establish whether Article 13 applies, the Panel will have to consider detailed arguments and evidence. For that reason, the applicability of Article 13 should be subjected to the normally applicable procedures by which Panel deal with complex issues of fact and law and not adjudicated in some form of preliminary procedure. The European Communities note, for instance, that this was the approach taken by the panel in the United States – Export Restraints dispute, which refused to rule on a number of preliminary objections brought by the United States (as the defendant) which went to the substance of the matter.39
B. ASSESSING THE APPLICABILITY OF ARTICLE 13 AS A PRELIMINARY MEASURE MAY DELAY THE ISSUANCE OF THE REPORT
12. In the same vein, it can be noted that hearing evidence and considering arguments on the applicability of Article 13 would inevitably require a considerable amount of time, as will hearing and assessing the arguments and evidence on the other issues which could only be considered after the preliminary decision on Article 13 was taken. Given the substantial number of claims brought, their complex nature, and the substantial interest in this dispute from third parties, the Panel may, if it splits up the dispute into three stages, have problems issuing its report within nine months, as it is required to do under the Article 12.9 DSU.
13. The European Communities also has some sympathy for the concerns set out by Brazil, in section V of its Initial Submission, as to the effect of splitting the procedure on Brazil’s ability to present its case.
C. THIRD PARTY DUE PROCESS RIGHTS MAY BE INFRINGED BY A DECISION TO SPLIT THE PROCEDURE INTO THREE STAGES
14. As the Panel is aware, Article 10.3 DSU provides that third parties are entitled to receive the submissions of the parties to the first meeting with the Panel. If the first panel meeting is limited to considering the applicability of Article 13 of the Agreement on Agriculture and thus parties submissions are limited to that question, the third parties will not have an opportunity to be heard on issues other than Article 13 of the Agreement on Agriculture. If the Panel decides to adopt a three stage procedure, in order to avoid such a situation arising, the European Communities respectfully submits that the Panel should make provision to ensure that third parties have adequate access, and the opportunity to be heard on all matters (that is, also in the third stage of procedures). Inevitably, however, setting up such a procedure will involve additional work for both the Panel and the Secretariat.
IV. CONCLUSION 15. In conclusion, the European Communities respectfully submits that, while the Panel is obliged to decide on the applicability of Article 13 of the Agreement on Agriculture before it may take a decision with respect to Brazil’s claims under Article XVI GATT and the SCM Agreement it is not precluded from considering evidence or argument on these claims until after it has decided on the applicability of Article 13 of the Agreement on Agriculture. As the European Communities has explained above, there are several reasons militating in favour of the Panel considering all arguments and evidence simultaneously.
INDIA’S COMMENTS ON PRELIMINARY ISSUE
REGARDING THE PEACE CLAUSE OF THE
AGREEMENT ON AGRICULTURE
10 June 2003
1. India thanks the panel for being provided an opportunity to comment on the submissions of Brazil and the United States on the following question concerning Article 13 of the Agreement on Agriculture posed by the Panel:
Whether Article 13 of the Agreement on Agriculture precludes the Panel from considering Brazil’s claims under the Agreement on Subsidies and Countervailing Measures in these proceedings in the absence of a prior conclusion by the Panel that certain conditions of Article 13 remain unfulfilled.40
2. India notes that both Brazil and the United States evidently agree that “exempt from actions” means that a complaining Member cannot receive authorization from the DSB to obtain a remedy against another Member’s domestic or export support measures that are in compliance with various provisions of the Peace Clause. In other words, a measure must be in conformity with: (a) provisions of Annex 2 of the Agreement on Agriculture in respect of green box domestic support measures; (b) provisions of Article 6 of the Agreement on Agriculture in respect of amber and blue box support measures; and (c) Part V of the Agreement on Agriculture as reflected in each member’s Schedule in respect of export subsidies to attract the exemption from obtaining a remedy under the Peace Clause.
3. However the United States seems to argue in various paragraphs of its submission, including in paragraphs 7, 9 and 12, that this exemption extends to “any action, including action under the DSU, based on the corresponding provisions of the Subsidies Agreement and GATT 1994”. The United States thereby suggests that resort cannot be had to the dispute settlement proceedings by asserting legal claims in respect of measures claimed by a Member to be Peace Clause protected.
4. Thus, on the question posed by the Panel, the United States is of the view that the Panel should organize its procedures to first determine whether Brazil may maintain any “action” based on provisions exempted by the Peace Clause. On the other hand, Brazil has asserted that the phrase “exempt from actions” in Article 13 of the Agreement on Agriculture does not compel the Panel to first make a Peace Clause finding before considering the substance of Brazil’s other claims.
5. The United States seeks to interpret “action” to “include all stages of a dispute, including the “bringing [of] a case,” consultations, and panel proceedings.” Subsequently, the United States suggests a reading of “exempt from actions” in Article 13 to mean “not subject to” the “taking of legal steps to establish a claim” or “not resorting to dispute settlement by asserting legal claims”.
6. In India’s view, if the interpretation of “exempt from actions” under Article 13 of the Agreement on Agriculture, as sought by the United States, extends to exemption from “any action” such that resorting to dispute settlement by asserting legal claims is precluded in respect of Peace Clause protected measures, then consequences follow that have systemic implications. This interpretation would result in countries being precluded from even resorting to the dispute settlement process in respect of measures claimed by the country to be complained against to be conforming to the Peace Clause unless there is a prior finding on the lack of conformity of the measure with the Peace Clause. This interpretation of “exempt from actions” taken to its logical end would imply that even consultations under the DSU cannot be sought in respect of such a measure, unless there is a prior finding on non-conformity of the measure with the Peace Clause. A complaining country would therefore have to resort to the dispute settlement process twice in respect of the same measure; first, for obtaining a finding whether the measure is in conformity with the Peace Clause and, if not, then whether the measure is in conformity with obligations under various WTO Agreements. In India’s view this result is neither desirable nor envisaged under the DSU or any other covered agreements.
7. India believes that neither the phrase “exempt from actions” nor Article 13 of the Agreement on Agriculture compel the Panel to first make a peace clause finding before considering the substance of Brazil’s claims in various issues in this dispute. India is of the view that Article 13 of the Agreement on Agriculture is not a “special and additional” rule set out in Appendix 2 to the DSU. Article 19 of the Agreement on Agriculture makes all DSU provisions applicable to the Agreement on Agriculture. Thus there is no legal basis under the DSU or any of the covered agreements that would support the two stage approach suggested by the United States in this dispute whereby the Panel would first make a Peace Clause finding before considering claims on other agreements.
8. In conclusion, India believes that the phrase “exempt from actions” when viewed in the context of DSU provisions does not require the Panel to first make a Peace Clause non-compliance finding before hearing or considering any of the evidence or arguments relating to the various claims under other agreements.
THIRD PARTY COMMENTS BY NEW ZEALAND
ON PRELIMINARY ISSUE REGARDING
ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE
("THE PEACE CLAUSE")
10 June 2003
New Zealand welcomes the opportunity to comment on the preliminary issue addressed in the Panel's 28 May 2003 request:
"Whether Article 13 of the Agreement on Agriculture precludes the Panel from considering Brazil's claims under the Agreement on Subsidies and Countervailing Measures in these proceedings in the absence of a prior conclusion of the Panel that certain conditions of Article 13 remain unfulfilled …"
In New Zealand's view, a Panel is not required to make any prior conclusion concerning the applicability of Article 13 (the "Peace Clause") before proceeding to hear evidence and submissions relating to substance of legal claims brought under the Agreement on Subsidies and Countervailing Measures (ASCM) and GATT Article XVI. New Zealand notes in this regard that the overlapping nature of the evidence required to establish both the applicability of the Peace Clause as well as actionable and prohibited subsidies claims would make a separation of submissions and hearings on each aspect artificial.
In relation to the Panel's request for views on the term "exempt from actions" in Article 13(b)(ii) and 13(c)(ii), New Zealand considers that these words simply mean that a Member cannot receive authorization from the DSB to obtain a remedy against another Member's domestic or export support measures that are otherwise protected by the "Peace Clause". New Zealand does not consider that this phrase should be interpreted so as to suggest that substantive claims under the ASCM and GATT Article XVI can only be addressed in written or oral submissions after a Panel has made a ruling that the Peace Clause apply.
In summary, New Zealand considers that the Panel is not precluded from hearing evidence and considering claims under the Agreement on Subsidies and Countervailing Measures or Article XVI of the GATT without first concluding that Peace Clause conditions remain unfulfilled.
submission of paraguay
comments on the "peace clause"
10 June 2003
Paraguay does not see how, under the provisions of the Dispute Settlement Understanding (DSU), the Panel can establish that a matter calls for a "preliminary and special ruling" when the DSU does not provide for such a procedure.
If this were so, many complaints would be subject to the prior demonstration of the existence of the conditions for bringing the action, when in fact, what needs to be resolved is the main subject of the dispute and the effects caused by the failure to comply with the rules and regulations of world trade.
Paraguay considers that to set a precedent of this kind would be to undermine the DSU's purpose of providing a flexible and prompt dispute settlement procedure, since countries would be faced with an unnecessary delay in the process involving costs and time beyond their "predictions".
Since there is no established procedural rule in this respect, the Panel must proceed to the analysis of the substantive issue, and permit the parties, in this case especially Brazil as complainant – and by extension Paraguay – to demonstrate that the subsidies and support measures benefiting upland cotton have effects on trade and production by the cotton industry in the world.
Paraguay has a supreme interest in ensuring the application of strict justice with respect to this complaint, since cotton production is the sustenance of the poorest segments of its population. Indeed, 70 per cent of the country's small farmers depend on cotton production for their living.
As already stated in the past, of Paraguay's population of approximately 5,300,000, some 150,000 families work in cotton production, and the damage caused by the kinds of subsidies and support measures at issue in this case have caused an exodus of this rural population to urban areas with no relief or solution in sight, further aggravating the country's economic situation.
In view of the above, Paraguay considers that since Article XIII is not a rule forming part of the procedural system established by the DSU, a preliminary ruling by the Panel on the "Peace Clause" would be inappropriate.
BRAZIL’S COMMENTS ON THE BRIEFS BY THE UNITED STATES
AND THE THIRD PARTIES ON CERTAIN PRELIMINARY ISSUES
REGARDING THE “PEACE CLAUSE” OF THE
AGREEMENT ON AGRICULTURE
13 June 2003
TABLE OF CONTENTS
I. INTRODUCTION 30 II. THE US TEXTUAL AND CONTEXTUAL ARGUMENTS CONCERNING “EXEMPT FROM ACTIONS” ARE INCONSISTENT
WITH THE MULTILATERAL NATURE OF “ACTIONS” UNDER THE
DSU AND WITH US CONDUCT IN THIS DISPUTE 30 III. THE NARROW INTERPRETATION OF THE WORD “ACTION”
SUGGESTED BY THE UNITED STATES IS NOT SUPPORTED BY ALL
THREE AUTHENTIC VERSIONS OF THE AOA 32 IV. THE OVERLY-BROAD US DEFINITION OF “EXEMPT FROM
ACTION” IMPROPERLY CREATES NEW OBLIGATIONS
AND PROCEDURES NOT CONTEMPLATED IN THE AOA OR THE DSU 33 V. THE US PROPOSAL FOR A SEPARATE PROCEEDING FOR PEACE
CLAUSE ISSUES WOULD EFFECTIVELY ADD AOA ARTICLE 13
TO THE CLOSED LIST OF SPECIAL AND ADDITIONAL PROVISIONS
WAS NOT INTENDED BY AOA DRAFTERS 33 VI. A SPECIAL PEACE CLAUSE PROCEDURE WOULD AMOUNT TO
HAVING THE PANEL ISSUE A DECLARATORY JUDGMENT FOR
THE US AFFIRMATIVE DEFENCE 35 VII. CONCLUSION 37
1. Brazil welcomes the opportunity to provide its comments regarding the third party submissions of Argentina, Australia, the European Communities, India, New Zealand, and Paraguay filed on 10 June 2003, and to respond to the Initial Brief of the United States of America on the Questions Posed by the Panel (US Initial Brief), filed on 5 June 2003.
II. THE US TEXTUAL AND CONTEXTUAL ARGUMENTS CONCERNING “EXEMPT FROM ACTIONS” ARE INCONSISTENT WITH THE MULTILATERAL NATURE OF “ACTIONS” UNDER THE DSU AND WITH US CONDUCT IN THIS DISPUTE 2. The customary rules of interpretation of public international law do not support the United States’ reading of Article 13 of the Agreement on Agriculture (AoA). The United States relies on a legal dictionary for a definition of “action” and then concludes incorrectly that “action” means any “proceeding in a court of justice” including any “legal steps to establish a claim”.41 This interpretation misreads Article 13 because it starts from fundamentally mistaken premises.
3. A WTO panel is not a “court” because the WTO panel process is founded on, and guided by, collective action by the Members. A lawsuit in a US or Brazilian court of law starts automatically when a plaintiff takes the “action” of filing papers that are in the proper form. But a DSU panel proceeding commences only when the Members of the WTO take collective “action” to establish the panel. The DSU rules “elaborate and apply”42 the rules in GATT Article XXIII:2, which speak of an investigation by the CONTRACTING PARTIES – which under GATT Article XXV:1 are all the contracting parties "acting jointly". Whereas a US or Brazilian judge has broad powers conferred on him or her constitutionally, a WTO panel is a body of limited jurisdiction acting only with powers delegated to it by the DSB. For example, defending parties challenge claims as going beyond the terms of reference under DSU 6.2, because the terms of reference define the limits of the powers delegated to the panel by the DSB through the DSB's action to establish the panel.
4. The “negative consensus” provisions in DSU Article 16.4 further support Brazil’s position that “action” in AoA Article 13 must be interpreted as joint action by WTO Members. Decisions of a court are directly and immediately binding on the parties to the litigation, but such is not the case for decisions of a panel or the Appellate Body. Instead, the drafters of the DSU decided that the Members acting jointly would retain ultimate control of whether a panel or Appellate Body report has any binding effect. Similarly, the recommendations and rulings referred to in DSU Articles 21 and 22 are not recommendations and rulings of a panel or the Appellate Body, but are recommendations and rulings of the DSB. Accordingly, DSU 21.7 refers to further actions that the DSB must consider when a matter (not an “action”) has been raised by a developing country.
5. The United States misinterprets DSU Article 3.7.43 In this provision (“Before bringing a case, a Member shall exercise its judgment as to whether action under these procedures would be fruitful"), “actions” could and should be read in a collective context, as referring to the DSB’s action to adopt a panel report and (if need be) to authorize suspension of concessions. DSU Article 3.7 transposed a provision in the 1979 Understanding Regarding Notification, Dispute Settlement and Surveillance44 which refers to "action under Article XXIII:2." As discussed in Brazil’s Initial Brief, such “action” has always meant joint action by the CONTRACTING PARTIES, not individual action by a particular contracting party. Article 3.7 simply restates the common-sense advice that litigants must consider in advance whether the persuasive effect of a collective determination of rule violation and a collective authorization of suspension of concessions would be useful in eliminating the concrete problem. It cannot be read to suggest that any Member should be able to pressure another into dropping a valid legal claim by arguing that enforcing rights through litigation is not “fruitful.”
6. The United States also misinterprets DSU Article 4.5 ("before resorting to further action under this Understanding, Members should attempt to obtain satisfactory adjustment of the matter.").45 Read correctly, DSU Article 4.5 simply refers to the “action” of the DSB to grant a request for establishment of a panel.46 Thus, Article 4.5 urges a Member to attempt to obtain satisfactory adjustment of the “matter” (not the “action”) before it requests the DSB to take action to establish a panel.
7. The United States also cites footnote 35 of the SCM Agreement (“The provisions of Parts III and V shall not be invoked regarding measures considered non-actionable in accordance with the provisions of Part IV.”).47 Yet “shall notbeinvoked” is a different legal standard that goes substantially farther than “shall be . . . exempt from actions.” Under footnote 35, no DSB authorization could be obtained to establish a panel against a non-actionable subsidy granted by another Member. By contrast, AoA Article 13 exempts certain agricultural subsidies from actions by the DSB adopting a panel or Appellate Body report or authorizing suspension of concessions, but only under certain conditions. The DSB can only take “actions” against such subsidies if it decides that those conditions are unfulfilled (based on the recommendations in the report of the panel and/or Appellate Body). But this conditionality means that a panel must address the conditions of the peace clause if they are invoked by the Member providing the domestic support – as the United States appears to have indicated it will do in this dispute. If the drafters had intended to protect agricultural subsidies against even an invocation ofPart II and III of the SCM Agreement, they would have said so, and they did not.
8. The United States argues in paragraph 9 that its subsidies are even “exempt” from consultations under the DSU. Paragraph 9 highlights the logical challenges presented by the US argument—particularly in light of the fact, discussed below, that Article 13 does not create any exception to the normal rules of WTO dispute settlement.
9. Moreover, the United States’ own conduct in this dispute is at odds with paragraph 9 of the US brief. Brazil’s consultation request dated 3 October 2002 clearly stated that “the United States has no basis to assert a defence under Article 13(b)(ii) . . . [and] Article 13(c)(ii) of the Agreement on Agriculture . . ”.48 Yet, the United States said nothing during three rounds of consultations about any requirement for a separate panel proceeding regarding the peace clause. Brazil’s panel request also referred to the lack of any basis for the United States to assert a peace clause “defence”.49 The DSB minutes reflect that the United States did not mention the peace clause at all in the meetings of the DSB that considered the panel request.50 The first official US assertion regarding special procedural requirements relating to the peace clause did not come until a meeting in the office of the Director of the Legal Services Division, on 25 March 2003, one week after the Panel was established on 18 March 2003.
10. In considering the US request for a special “peace clause” proceeding, the Panel should take note that the panel and Appellate Body in the US - FSC dispute rejected US procedural claims of an allegedly defective EC consultation request. In that dispute the United States engaged in three rounds of consultations without mentioning the problem once and then attempted to raise the defect consultations request as a preliminary objection to the panel. The panel and the Appellate Body both rejected the objection. As the Appellate Body found:
It seems to us that, by engaging in consultations on three separate occasions, and not even raising its objections in the two DSB meetings at which the request for establishment of a panel was on the agenda, the United States acted as if it had accepted the establishment of the Panel in this dispute, as well as the consultations preceding such establishment. In these circumstances, the United States cannot now, in our view, assert that the European Communities' claims under Article 3 of the SCM Agreement should have been dismissed and that the Panel's findings on these issues should be reversed.51
11. In this dispute, the United States sat mute on the subject of peace clause procedures through three rounds of consultations and two DSB meetings. Had the United States raised this particular procedural issue on a timely basis, other WTO Members may have reserved their rights under DSU Article 10. To permit such an issue to be raised on such an untimely basis also denies those other Members their rights under the DSU.