III. THE NARROW INTERPRETATION OF THE WORD “ACTION” SUGGESTED BY THE UNITED STATES IS NOT SUPPORTED BY ALL THREE AUTHENTIC VERSIONS OF THE AOA 12. As argued in Brazil’s Initial Brief of 5 June , Brazil believes that the word action refers to collective actions of the WTO Members, and not to actions by individual Members. Brazil further submits that the meaning the United States tries to impute to the word “action” is too narrow and inadequate.
13. Brazil recalls that the three versions of the WTO Agreements are authentic. The US interprets the word “action” in the English version as “legal process or suit”. Brazil agrees that this is a possible meaning of the word, but so is “the process or condition of acting or doing”; or “a thing done, a deed, an act...; habitual or ordinary deeds”.52 Therefore, the word action in the English language could mean either a legal process or a simple act or deed.
14. The French version uses the word “action” which also allows both connotations. It could have the ordinary connotation of: “ce que fait qqn et par quoi il réalise une intention ou un impulsion;” “exercice de la faculté d’agir;” but it could also have the more specific meaning of the “exercice d’un droit en justice”.53
15. The Spanish version however does not allow such interpretative flexibility. The word used in Article 13 is not the word “acción”, which would allow the arguable double meaning of the English and French versions: “resultado de hacer” or “[e]n sentido procesal, derecho a acudir a un juez o tribunal ...”54 (emphasis added). The word used in Article 13 of the Spanish version is “medidas.” While “medidas” could mean “disposición, prevención ... tomar, adoptar medidas”55, it could not possibly have the connotation of a legal action. Again, while the dictionary meanings of the word “acción” do include the possibility of a judicial measure, the same is not true for the word “medidas”.
16. Therefore, the Panel must avoid an interpretation of Article 13 that is possible in only two of the authentic versions, while there is another plausible – and in fact more adequate – interpretation that is equally possible in all three authentic versions. The Panel must accordingly reject the narrow interpretation suggested by the United States for the word “action”.
IV. THE OVERLY-BROAD US DEFINITION OF “EXEMPT FROM ACTION” IMPROPERLY CREATES NEW OBLIGATIONS AND PROCEDURES NOT CONTEMPLATED IN THE AOA OR THE DSU 17. The United States argues that the word “action” means “all stages of the dispute, including the ‘bringing [of] a case,’ consultations, and panel proceedings”.56 Brazil agrees with the arguments advanced by Argentina57, the European Communities58 and India59 that this broad US interpretation would exempt measures allegedly covered by the “peace clause” exemption from any aspect of the DSU, including consultations. As India and the European Communities correctly point out, the result would logically lead to two separate panel proceedings – an initial proceeding deciding the peace clause issues, and after the issuance of a decision, the initiation of a second proceeding beginning with consultations to challenge the measures under the ASCM.60 Yet, as these and other third parties highlight, there is no textual requirement or provision in the AoA, the DSU, or any other WTO provision for such a two-panel or two-stage process to resolve peace clause issues.
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 IN DSU APPENDIX 2 AND GIVE AOA ARTICLE 13 A SCOPE THAT WAS NOT INTENDED BY AOA DRAFTERS
18. The United States’ initial brief makes no reference to DSU Appendix 2, even though this provision was a key issue raised in Brazil’s 23 May letter to the Panel. Brazil repeats that Appendix 2 provides a closed list of all the “special and additional” provisions that trump the normal rules of dispute settlement under the DSU. Article 13 does not appear in Appendix 2. Set forth below are two additional reasons in support of this argument.
19. First, providing a special proceeding for determining peace clause defences would effectively add Article 13 to DSU Appendix 2. In the first dispute settlement proceeding on Guatemala Cement, the panel found that Article 17 of the Anti-Dumping Agreement (ADA)replaced the DSU system as a whole because ADA Articles 17.4-17.7 were listed as special and additional provisions in Appendix 2 even though ADA Articles 17.1-17.3 were not included.61 The Appellate Body reversed the panel’s implied determination to treat ADA Articles 17.1-17.3 as special and additional rules when it found that DSU provisions generally do not apply to disputes brought pursuant to the ADA:
Article 17.3 of the Anti-Dumping Agreement is not listed in Appendix 2 of the DSU as a special or additional rule and procedure. It is not listed precisely because it provides the legal basis for consultations to be requested by a complaining Member under the Anti-Dumping Agreement.62
The special or additional provisions listed in Appendix 2 of the DSU are designed to deal with the particularities of dispute settlement relating to obligations arising under a specific covered agreement, while Article 1 of the DSU seeks to establish an integrated and comprehensive dispute settlement system for all of the covered agreements of the WTO Agreements as a whole. . . 63
20. The effect of the United States argument and interpretation of “action” in this case would be to include AoA Article 13 as a special and additional rule in Appendix 2. Were the Panel to agree with the United States, it would create a precedent for applying a special procedure whenever a peace clause defence might be invoked. However, this is precisely what the Appellate Body rejected in Guatemala Cement, emphasizing that the WTO’s dispute settlement system is a unified system, not one fragmented according to topic.64
21. Second, the negotiating history confirms that AoA Article 13 was not intended to alter normal dispute settlement procedures. The concept of “due restraint” first appeared in Article 18.2 of the Agriculture text in the Dunkel Draft of December 1991, which provided:
On the basis of the commitments undertaken in the framework of this Agreement, Members will exercise due restraint in the application of their rights under the General Agreement in relation to products included in the reform programme.65
The concept of special and additional provisions and Appendix 2 then emerged during the work of the Legal Drafting Group on dispute settlement in Spring 1992. The final Legal Drafting Group DSU text dated 15 June 1992 included AoA Article 18.2 in its Appendix 2, as a special and additional provision.66
22. The United States and the EC then reached the Blair House Agreements in November 1992, providing inter alia for the Dunkel Draft text of Article 18.2 to be deleted, and for the insertion in the AoA of a text corresponding to the present Article 13. In the fall of 1993, the Institutions Group discussed both institutions and dispute settlement; the DSU text resulting from its work, as circulated on 15 November 1993, placed AoA Article 18.2 in brackets.67
23. During this period, further discussions also took place on the AoA. After a US-EU settlement in early December 1993 adjusting the Blair House deal, the Blair House changes as adjusted were made to the AoA. In the December 15, 1993 Final Act, the text of the AoA reflected those changes68, and Appendix 2 of the DSU69 included no reference to the AoA. The negotiating record thus confirms that if negotiators had intended to include the peace clause in Appendix 2, they had ample opportunity to do so. The changes in the “peace clause” component of the Blair House agreements involved deleting former Article 18.2, which was a dispute settlement provision listed in Appendix 2, and substituting Article 13. However, although Article 13 limits the ultimate “action” that the DSB may take, as a drafting matter it is not placed together with the dispute settlement provisions of the AoA, it is not labeled as a dispute settlement provision, and it is not included in Appendix 2 of the DSU. Reading Article 13 as the United States requests would be inconsistent with DSU Article 3.2 by impermissibly altering the balance of rights and obligations in the WTO and its dispute settlement procedures.
24. Furthermore, AoA Article 13 deliberately makes no reference to any provisions relating to dispute settlement under the Agreement on Agriculture itself (Article 19) or other relevant WTO Agreements (ASCM Articles 4 and 7; DSU or GATT 1994 Articles XXII and XXIII). The AoA Article 13 drafting denotes that Uruguay Round negotiators were concerned about the relationship between substantive provisions of the SCM Agreement (Articles 3, 5 and 6) and GATT 1994 (Article XVI) and the substantive provisions on domestic support and export subsidies under the AoA. In short, what Article 13 does is to protect Members that comply with Article 13 conditions from actions derived from a violation of the substantive provisions cited therein, namely ASCM Articles 3, 5 and 6 and GATT 1994 Article XVI. What Article 13 does not, given the way it was drafted, is to shield Members from the dispute settlement procedures which would be necessary to identify or to confirm the substantive violation of those Articles.
25. Had the AoA drafters intended to carve domestic support and/or export subsidy measures out of the WTO dispute settlement mechanism they would have done it expressly, but they did not. This is further confirmed by the example of Article 6 of the TRIPS Agreement, which clearly states that the issue of the exhaustion of intellectual property rights cannot be addressed through dispute settlement.70 Unlike AoA Article 13, TRIPS Article 6 expressly prohibits a Member from resorting to the WTO dispute settlement mechanism to challenge certain matters. Against all these evident facts, the only argument the US has to read a prohibition to resort to dispute settlement into Article 13 is based on a groundless definition of “action”, as shown above.
VI. A SPECIAL PEACE CLAUSE PROCEDURE WOULD AMOUNT TO HAVING THE PANEL ISSUE A DECLARATORY JUDGMENT FOR THE US AFFIRMATIVE DEFENCE
26. Brazil’s request for the establishment of a panel (as well as its consultation request) 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 . . .”.71 The third-party statements of the European Communities, Australia, and Argentina agree with Brazil’s description of the peace clause as a “defence”. Each of these third parties agree that the United States is required to assert and prove that all the peace clause conditions apply. For example, the European Communities stated that AoA Article 13
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.72
27. In addition, Australia argues that “Article 13 is in the nature of an ‘affirmative defence’ for measures which are inconsistent with the specified provisions”. 73 Argentina also takes the view that this provision is in the nature of an affirmative defence, stating that “the Member who alleges to be protected by the Peace Clause has the burden of proving the fulfillment of its legal requirement”.74
28. The United States’ Initial Brief alleges in paragraph 2 that “the US support measures at issue conform with the Peace Clause”. Based on this allegation, the United States concludes that “Brazil cannot maintain any action – and the United States cannot be required to defend any such action. . .”75 The United States has not labeled this as a defence, or an “affirmative defence”. However, this assertion by the United States suggests its intent to invoke such a defence as part of its First Submission that it will file on 11 July 2003.76
29. Brazil agrees with the European Communities, Australia and Argentina that the peace clause is a defence requiring the United States – not Brazil – to demonstrate that it has met all of its conditions. Brazil also agrees with the European Communities that it would be bizarre if Brazil were required to establish that potential US defences did not apply before it could bring its own claims. And Brazil further agrees with the European Communities that what the United States is requesting in this dispute is effectively a “declaratory judgment” that the United States defences of the peace clause do or do not apply.
30. Brazil will present evidence in its First Submission that the US measures do not meet the conditions of the various peace clause provisions. Brazil will do this because the United States is on record before this Panel in asserting that its support measures are fully in compliance with the peace clause. However, Brazil is not required to present any evidence on the peace clause to assert its actionable and prohibited subsidy claims under the ASCM. Rather, this is the US burden defending against Brazil’s various claims. The time and place for the Panel to hear and consider any evidence proffered by the US in any such defence is during the normal panel process, as Brazil has argued in this Comments, in its Initial Brief and in its letter dated 23 May 2003. There is no basis for the United States to demand, or for the Panel to grant, a declaratory judgment that the US peace clause defences are legitimate or not.
31. For the reasons set forth above, Brazil’s Initial Brief and its letter dated 23 May 2003, Brazil requests that this Panel find that it is not precluded from hearing evidence and considering Brazil’s claims under the ASCM or Article XVI of GATT 1994 without first concluding that the peace clause conditions of AoA Article 13(b)(ii) and 13(c)(ii) remain unfulfilled.
COMMENTS OF THE UNITED STATES ON THE
COMMENTS BY BRAZIL AND THE THIRD PARTIES
ON THE QUESTION POSED BY THE PANEL
13 June 2003
I. OVERVIEW 1. The United States thanks the Panel for this opportunity to provide its views on the comments by Brazil and the third parties on the question concerning Article 13 of the Agreement on Agriculture (“Agriculture Agreement”) posed by the Panel in its fax of 28 May 2003.77 The interpretation of Article 13 (the “Peace Clause”) advanced by Brazil and endorsed by some of the third parties is deeply flawed. Simply put, Brazil fails to read the Peace Clause according to the customary rules of interpretation of public international law. Its interpretation does not read the terms of the Peace Clause according to their ordinary meaning, ignores relevant context, and would lead to an absurd result.
2. Brazil reads the Peace Clause phrase “exempt from actions” to mean only that “a complaining Member cannot receive authorization from the DSB [Dispute Settlement Body] to obtain a remedy against another Member’s domestic and export support measures that otherwise would be subject to the disciplines of certain provisions of the Agreement on Subsidies and Countervailing Measures . . . or Article XVI of GATT 1994'".78 However, Brazil’s reading simply ignores parts of the definition of “actions” that it quotes: "The dictionary definition of ‘actions’ is ‘the taking of legal steps to establish a claim or obtain a remedy".79 Thus, while the United States would agree that the phrase “exempt from actions” precludes “the taking of legal steps to . . . obtain a remedy”, Brazil provides no explanation of why the term “exempt from actions” would not, based on its ordinary meaning, also preclude "the taking of legal steps to establish a claim".80
3. Brazil also bases its reading in part on the assertion that "[i]n a multilateral system such as the WTO (like GATT 1947 before it), ‘actions’ are taken collectively by Members".81 Brazil cannot explain, however, why “actions” should be limited to only those actions taken collectively. Read in the context of provisions in the WTO agreements in which the term “action” does not refer to collective action by Members, “action” in the Peace Clause refers broadly to the “taking of legal steps to establish a claim or obtain a remedy”.
4. In addition, Brazil’s suggested reading of the Peace Clause would lead to an absurd result. If the phrase “exempt from actions” means nothing more than that “a complaining Member cannot receive authorization from the DSB to obtain a remedy”, then a panel would be perfectly free to make findings that a measure that conforms to the Peace Clause is inconsistent with the relevant provisions of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) or the Agreement on Subsidies and Countervailing Measures (“Subsidies Agreement”). Under the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), the DSB would be unable to avoid adopting the panel findings of inconsistency with the Subsidies Agreement or GATT 1994 or recommendations to bring the measure into conformity, thus depriving the Peace Clause of any meaning.
5. The remainder of Brazil’s arguments do not go to a proper interpretation of the Peace Clause under the customary rules of interpretation of public international law and so do not assist in answering the question posed by the Panel concerning the Peace Clause. Nonetheless, the United States addresses various of these misplaced concerns. For example, Brazil argues that the Peace Clause is not a special or additional rule set out in Appendix 2 of the DSU; however, the Peace Clause need not be a special or additional rule because the Panel may properly deal with the Peace Clause issue under normal DSU rules. Brazil also tries to cite to unrelated issues in completely distinct disputes, arguing that some of these other panels have delayed making “complex threshold findings” until final panel reports. None of these panels is relevant since none of them has been presented with the issues presented by the Peace Clause. Brazil also asserts that consideration of alleged administrative burdens should override the plain meaning of the text of the Agriculture Agreement – an obviously erroneous approach.
6. As the United States explained in its initial brief on the Panel’s question82, the phrase “exempt from actions” (read in accordance with the customary rules of interpretation of public international law) means “not exposed or subject to” a “legal process or suit” or the “taking of legal steps to establish a claim”. Therefore, Brazil cannot maintain any action – and the United States cannot be required to defend any such action – based on provisions specified in the Peace Clause since the US support measures for upland cotton conform to the Peace Clause.
7. In light of the correct interpretation of the Peace Clause, the United States affirms that it respectfully requests the Panel to organize its procedures to first determine whether Brazil may maintain any action based on provisions exempted by the Peace Clause. Bifurcation of the legal issues in this proceeding is not only required under the Peace Clause but, as an exercise of the Panel’s discretion to organize its procedures, would assist the Panel in resolving the complex issues involved in this dispute in a logical and orderly fashion.
II. BRAZIL’S INITIAL BRIEF DOES NOT READ THE PEACE CLAUSE ACCORDING TO THE CUSTOMARY RULES OF INTERPRETATION OF PUBLIC INTERNATIONAL LAW AND LEADS TO ABSURD RESULTS A. THE ORDINARY MEANING OF “EXEMPT FROM ACTIONS” DOES NOT SUPPORT BRAZIL’S READING
8. According to the customary rules of interpretation of public international law83, the terms of the Peace Clause should be interpreted according to their ordinary meaning in their context, in light of the object and purpose of the Agriculture Agreement.84 The United States agrees completely with Brazil in terms of the dictionary definition of “actions”. Under that definition, “action” means "the taking of legal steps to establish a claim or obtain a remedy".85 As the Panel’s question has highlighted, one of the key issues in this dispute is whether the Peace Clause permits Brazil to “take legal steps” so Brazil can “establish” its Subsidies Agreement “claims”.
9. Yet, as soon as Brazil provides the correct definition of “action”, Brazil urges an approach that would ignore it. Combining this definition with that for the word "exempt"86, Brazil reads the term “exempt from actions” to mean “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 ‘peace clause’ protected".87 Strikingly, neither Brazil nor any of the third parties who share this interpretation88 provides any basis in the text of the Peace Clause for ignoring that portion of the definition of “actions” that refers to “the taking of legal steps to establish a claim".89 10. As the United States has demonstrated, the ordinary meaning of “action” encompasses not only the “taking of legal steps to . . . obtain a remedy” but also the “taking of legal steps to establish a claim”. Other dictionary definitions of “action” – such as “the right to institute a legal process”, “[a] legal process or suit”, “a lawsuit brought in court”, “a formal complaint”, “a legal or formal demand of one’s right”, and “all the formal proceedings in a court of justice attendant upon the demand of a right made by one person of another in such court"90 – provide additional support for this reading. Thus, while the United States agrees that the phrase “exempt from actions” would also preclude “the taking of legal steps to . . . obtain a remedy"91, the United States disagrees with Brazil that one may ignore that “exempt from actions” also precludes “the taking of legal steps to establish a claim.” Nothing in the text of the Peace Clause authorizes departing from the ordinary meaning of the Peace Clause phrase “exempt from actions” to narrow this text to refer solely to "obtaining a remedy".92
B. THE CONTEXT FOR “EXEMPT FROM ACTIONS” DOES NOT SUPPORT BRAZIL’S READING
11. In its analysis of the phrase “exempt from actions”, Brazil quickly moves beyond the ordinary meaning of the term “action” it quotes (which encompasses “the taking of legal steps to establish a claim”) to examine what it deems relevant context for the term. Brazil asserts that “[i]n a multilateral system such as the WTO (like GATT 1947 before it), ‘actions’ are taken collectively by Members"93, citing DSU Article 2.1 (last sentence), GATT 1994 Article XVI:1, and DSU Article 2294, and concludes: "In sum, ‘actions’ are multilaterally agreed decisions of WTO bodies including the DSB."95 Brazil’s argument overlooks the fact that there are numerous instances in various WTO agreements in which the term “action ” is used to refer to action by an individual Member, not just collective action by Members.
12. Brazil notes that the term “actions” is sometimes used in the DSU to refer to collective “decisions or actions” by the DSB.96 This observation is accurate, but the conclusion that Brazil draws from it is a non sequitur. The fact that the term “action” can mean “collective decision or action by the DSB” does not imply that the term “action” can mean only “collective decision or action by the DSB”.
13. Brazil has moreover failed to consider those instances in which the term “action” is used to refer to individual action by Members.97 For example, Article 3.7 of the DSU, which states that “[b]efore bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful,” does not by its terms refer to “multilaterally agreed decisions of WTO bodies including the DSB”. Similarly, Article 4.5 of the DSU states: “In the course of consultations in accordance with the provisions of a covered agreement, before resorting to further action under this Understanding, Members should attempt to obtain satisfactory adjustment of the matter” (emphasis added). In the Subsidies Agreement, subsidies are divided into prohibited, actionable, and non actionable categories, and a Member may impose countervailing duties against prohibited and “actionable” subsidies without first obtaining authorization through a “multilaterally agreed decision of WTO bodies including the DSB".98 Brazil’s interpretation is at odds with all of these provisions – for example, since during consultations the DSB will not have taken any action with respect to a dispute, how could a Member attempt to settle a matter before resorting to further action? These provisions make clear that, read in the context of the DSU and the Subsidies Agreement, “actions” has a broader scope than Brazil would like: as indicated by its ordinary meaning, “actions ” refers to “the taking of legal steps to establish a claim or obtain a remedy,” encompassing all stages of a dispute – obtaining DSB authorization for retaliation would only constitute one, final step.99
14. Indeed, had Members intended the scope of the Peace Clause to be limited solely to collective decisions taken by the DSB, they could have used in the Peace Clause the same construction as used in DSU Article 2.1 – for example, “measures . . . shall be . . . exempt from actions taken by the DSB based on” specified provisions. Members did not do so, however.
15. Finally, the United States notes that Brazil has asserted that GATT 1994 Article XVI:1 and DSU Article 22 provide relevant context for the term “actions”. However, neither of these provisions uses the term “action” at all100, and they do not support Brazil’s assertion that “actions” in the Peace Clause must be read to refer solely to “multilaterally agreed decisions of WTO bodies including the DSB.” Similarly, Brazil refers to GATT 1994 Article XXV, entitled “Joint Action by the Contracting Parties.” The fact that the drafters referred to this one kind of “action” as joint action only reinforces that the term “action” by itself is not intended to be limited to only “joint” or “collective” action. The phrase “contracting parties acting jointly” in Article XXV would be unnecessary if Brazil’s interpretation of “action” were correct.101 C. BRAZIL’S INTERPRETATION OF THE PEACE CLAUSE WOULD LEAD TO ABSURD RESULTS
16. Brazil’s suggested reading of the Peace Clause would rob this provision of any real meaning. Brazil would expose measures that conform to the Peace Clause to finding of inconsistency with the relevant GATT 1994 and Subsidies Agreement provisions and would expose them to retaliation unless the complaining party were to agree not to adopt the findings or authorize retaliation.
17. Under Brazil’s interpretation, the phrase “exempt from actions” means only that “a complaining Member cannot receive authorization from the DSB to obtain a remedy” – that is, the Peace Clause would exempt conforming measures from actions taken by the DSB to authorize remedies but not from findings by the Panel. A panel would therefore be perfectly free to make findings in its final report that a challenged measure that conforms to the Peace Clause is inconsistent with, inter alia, the Subsidies Agreement. Under the DSU, the DSB would be unable to avoid adopting the panel findings of inconsistency with the relevant GATT 1994 or Subsidies Agreement provisions or recommendations to bring the measure into conformity.102 Panel reports are adopted automatically by the DSB under the “negative consensus” rule103 and authorization to retaliate is also automatically given unless the DSB decides by consensus against this.104 As a result, the DSB could not decline to adopt the report or authorize remedies unless the complaining party agreed. Thus, under Brazil’s reading, the phrase “measures . . . shall be . . . exempt from actions” in the Peace Clause would exempt conforming measures from DSB authorization to retaliate, but only if the complaining Member itself agreed not to authorize a remedy. This would be a strange and strained interpretation of the Peace Clause indeed and would effectively render it inutile, contrary to customary rules of treaty interpretation.
18. This absurd result would also conflict with the object and purpose of the Peace Clause and the Agriculture Agreement: namely, to exempt agricultural subsidies, under certain conditions, from the subsidies disciplines of the Subsidies Agreement and GATT 1994 while Members continue negotiations to move towards the “long term objective . . . to provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time".105 Brazil also has not explained why, on its reading, Members would have chosen to allow actions, with all of their attendant burden on Members’ (and the WTO’s) resources, up to but not including authorization for retaliation.