Australia and WTO Dispute Settlement

Before the Appellate Body of the World Trade Organization

United States - Safeguard measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia (WT/DS177 & 178)

(AB-2001-1)

Other Appellant’s Submission of Australia pursuant to Rule 23 of the Working Procedures for Appellate Review

Geneva, 15 February 2001

Table of contents

1. Executive summary
2. Introduction
3. Standard of review
4. Threat of serious injury
5. Unforeseen developments
6. Judicial economy
7. Conclusions

1. Executive summary

1. Australia appeals two aspects of the decision by the Panel, specifically:

1. the Panel’s interpretation and application of the appropriate standard of review; and
2. the Panel’s interpretation and application of the standard for determining the existence of threat of serious injury under Article 4.1 (b) and 4.2 (a) of the Safeguards Agreement.

2. In the event that the Appellate Body reverses the Panel’s ultimate conclusion on Article XIX, Australia appeals the Panel’s legal finding that a change in the product mix and/or cut size of imported lamb meat could qualify as "unforeseen developments".

3. Australia claims that the Panel erred in its interpretation and application of Article 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), including by adopting an inappropriate deference to the competent authority. Specifically, the Panel:

• wrongly applied the standard of review by failing to objectively assess whether the competent authority provided an adequate explanation of how the facts supported its determination of "threat of serious injury"
• wrongly interpreted the standard of review by excluding from its consideration facts and information that were not provided to the Panel during its investigation.
  Threat of Serious Injury

4. Australia claims that the Panel erred in its interpretation and application of the relevant legal standard for determining "threat of serious injury". The Panel relied on data only from the recent past, despite the fact that earlier data may be "relevant" in determining the existence of threat of serious injury. A key issue is the way the Panel dealt with the meaning of the term "clearly imminent". Australia claims that the Panel wrongly interpreted the Safeguards Agreement by failing to examine whether the report by the competent authority did, as a matter of fact, demonstrate that "serious injury" was "clearly imminent". 

5. Australia claims that the Panel erred in its application of the legal standard in determining that a "significant overall impairment" was "clearly imminent". By showing inappropriate deference to the competent authority, the Panel adopted a lower standard than that required in the Safeguards Agreement.

6. Australia also claims that the Panel erred in finding that the competent authority had satisfied the requirement of conducting a prospective analysis when making its determination of "threat of serious injury". The Safeguards Agreement does not draw a distinction between, or attribute weightings to, the factors to be taken into account in determining "threat of serious injury". In this case, such factors included capacity utilisation, employment, productivity and profits and losses

Unforeseen Developments

7. In the event that the Appellate Body reverses the Panel’s ultimate conclusion on Article XIX, Australia appeals the Panel’s legal finding that a change in the product mix and/or cut size of imported lamb meat could qualify as "unforeseen developments".

8. The Panel’s finding was based on an erroneous interpretation of the Working Party report in Hatters’ Fur. The report provides no support for the conclusion that a simple change in the structure of imports in and of itself constitutes "unforeseen developments".

9. Given that a change in the product mix and/or cut size of imported lamb meat is the only factor relied upon by the United States as "unforeseen developments", Australia requests the Appellate Body to find 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.

Judicial Economy

10. Australia requests that, should the Appellate Body reverse any conclusion reached by the Panel based on the arguments made in this proceeding by the United States, the Appellate Body complete the analysis for which the Panel exercised judicial economy in respect of the claims made by Australia to the Panel. 

2. Introduction

11. Australia agrees with the majority of the findings and recommendations of the Panel. However, it seeks review by the Appellate Body of certain specific legal findings where it claims that the Panel was in legal error, as set out below.

12. Australia claims that, in the interpretation and application of the appropriate standard of review, the Panel:

1. gave inappropriate deference to the competent authority;
2. misinterpreted the obligations of the competent authority under the Safeguards Agreement;
3. drew inferences which were not, as required under Article 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), based on adequate supporting evidence; and
4. failed to objectively assess whether the USITC provided a reasoned or adequate explanation of how the facts supported the determination made.

13. Australia also claims that, in setting the legal standard for determining threat of serious injury, the Panel:

5. applied the wrong standard to the determination that "significant overall impairment" was "clearly imminent";
6. erred by relying solely on data from the recent past to prove "threat of serious injury";
7. erred in finding that the USITC had satisfied the requirement of conducting a prospective analysis when making its determination of "threat of serious injury";
8. wrongly interpreted Article 4.1(b) of the Safeguards Agreement by failing to examine whether the USITC Report did as a matter of fact demonstrate that "serious injury" was "clearly imminent"; and
9. erred in the standard of review in making its own interpretation of the criteria for determining whether a factor, listed in Article 4.2(a), had been evaluated, in particular "capacity utilization", "employment", "productivity" and "profits and losses".

14. Should the Appellate Body reverse any conclusions reached by the Panel based on arguments made in this proceeding by the United States, Australia requests the Appellate Body to complete the analysis for which the Panel exercised judicial economy in respect of the claims made by Australia to the Panel. 

3. Standard of Review

3.1 Paragraph 7.3

15. The Panel set out its application of the standard of review in respect of the "threat determination" at paragraph 7.3:

"Thus we conclude that 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."

16. Australia submits that the Panel misinterpreted the obligations on a competent authority when, in elaborating its own standard of review in paragraph 7.3, the Panel said that its task was to examine if "the published report provides an adequate explanation of how the facts as a whole support the USITC's threat determination". As specified in the text of the Safeguards Agreement and in paragraph 121 of the Appellate Body's report on Argentina - Footwear Safeguard, an assessment of "threat of serious injury", must, inter alia:

1. show that the competent authority examined all the relevant facts;
2. provide a demonstration of the relevance of the factors examined; and
3. set forth the competent authority's findings and reasoned conclusions.

17. The issue is not just whether the "report provides an adequate explanation of how the facts as a whole support the determination", which means no more than that a reader can after the event construct some justification for the determination. The Safeguards Agreement requires that the published report actually contain the reasoned conclusions of the competent authority for making its findings.

18. The Panel's interpretation of its standard of review, is not that it had to ensure that the USITC Report contained those findings and reasoned conclusions, but rather that it had only to see whether a finding could be discerned from the totality of the USITC Report, presumably including clarifications made by the USA to the Panel. 

19. Australia submits that this, in effect, allowed the USA to rewrite the USITC Report. For example, as explained below, at paragraph 7.184 the Panel allowed the USA to attribute references in the section on causation to the quite separate section on "threat of serious injury". 

20. Australia submits that the Panel was in legal error in applying this standard of review.

3.2 Paragraph 7.138

21. The Panel declined to exercise judicial economy to bring its consideration of the matters before it to an end following its finding that the USA acted inconsistently with Article 4.1(c) of the Safeguards Agreement because the USITC defined the domestic industry as including input producers (growers and feeders of live lamb) as producers of the like product at issue (lamb meat). 

22. Taking account of the Appellate Body’s caution against exercising "false judicial economy" which it delivered in Australia – Measures Affecting the Import of Salmon, the Panel went on to address the threat claims as well. Prior to doing so, it set out the standard of review it would apply at paragraph 7.138, stating that it would be:

"…..taking at face value, arguendo, the data and reasoning contained in the USITC’s report, and without prejudice to our above finding concerning the definition of the domestic industry in this investigation."

23. The approach implied by the expression "at face value" represents a deference to both the competent authority and to the respondent government in the complaint which is not consistent with the standard of review set out by the Appellate Body and required by DSU Article 11. As made clear by the Appellate Body in European Communities – Hormones:

"…the applicable standard of review is neither de novo review as such, nor 'total deference', but rather the 'objective assessment of the facts'."

24. The standard applied by the Panel resulted in assertions by the USA about the existence of evidence and the conclusions drawn from that evidence remaining untested through a process of objective assessment. For example, there is the treatment of information that was supposedly in the confidential report and is not in the public report of the USITC. In the case of the one breaker that was not also a packer and that responded to the questionnaire, the USA was not even prepared to provide the indexed information on its operations (Table 20) that it did for some other tables. Thus, for firms that are just breakers, the Panel took the USITC Report and USA's ex post facto assertions "at face value".

25. The Appellate Body ruled comprehensively at paragraphs 168-176 in United States - Wheat Gluten on the issue of "Failure to Draw the Appropriate Inferences". Australia submits that the Panel committed a legal error in drawing inferences about facts that were not before it, while making no explanation of why it accepted the USA's assertions. Australia submits that, just as there should not be an automatic adverse-inference rule, there should not be an automatic favourable-inference rule.

26. A Member can only impose a safeguard measure when specified steps are taken, and this includes the existence of the requisite circumstances and the reasoned conclusions in the report. If a safeguard measure is justified, the full report will speak for itself. All the respondent should have to do is to provide the full report to the panel under appropriate assurances of protection of any confidential information.

27. The task of a panel in a safeguard dispute will not normally be to say that there was no injury, but rather that the respondent acted inconsistently with Article 4 of the Safeguards Agreement in one way or another in its investigation and report. If the respondent will not produce the basis for rebutting the complainant, then the panel has only to accept that there is no basis and so find against it. This is not drawing adverse inferences, but rather determining whether the facts before the panel supported the conclusions of the competent authority. 

28. Australia submits that there is no basis for a panel to draw favourable inferences from gaps in the data on the basis of assertions by the respondent without any supporting evidence in the report.

3.3 Paragraph 7.141

29. The standard of review set out in paragraph 7.141 derives from a combination of the Panel's legal errors in setting out its more general standard of review in paragraphs 7.3 and 7.138, and a legal misinterpretation of the requirements of Article 4.2(a). The panel in Korea - Dairy Safeguard said at paragraph 7.58:

"In considering each of the factors listed in Article 4.2, and any others found to be relevant by the authority, the investigating authority has two options: for each factor, the investigating authority can consider it either for all segments, or if it decides to examine it for only one or some segment(s), it must provide an explanation of how the segment(s) chosen is (are) objectively representative of the whole industry."

30. The Panel in the present case quoted this text in footnote 180 of its Report, but provided no elaboration. There is a divergence between the two panels on the approach to be taken where only a limited number of industry segments are to be examined. The Panel in Korea – Dairy Safeguard would require a competent authority to explain why the segment(s) objectively represent(s) the whole industry. In paragraph 7.141 of the current Panel’s Report, however, it proposed a substantial change to this approach through a new three-option test. Australia submits that this was in legal error as it is not supported by the text of the Safeguards Agreement.

31. In option (i) in paragraph 7.141, the "evaluation" of Article 4.2(a) and the "objectively representative" of the Korea - Dairy Safeguard panel report are replaced by the much weaker: "an adequate explanation … of … why conclusive inferences … can be drawn" from one segment about another segment. The Panel offered no explanation in support of such a weakening.

32. The other two options in paragraph 7.141 have no relation to the issue of the existence of more than one industry segment. These two options would provide justification for the competent authority's failure to evaluate factors listed in Article 4.2(a) in any safeguard investigation. Presumably these options reflect a certain interpretation of the wording from Article 4.2(a):

"all relevant factors of an objective and quantifiable nature".

33. However, previous panels and the Appellate Body have interpreted this wording as including all the factors listed in Article 4.2(a). If a competent authority were able to simply say that it thought that it would be difficult to get data or that it would not be very useful to look at a particular factor, then this would be to negate the clear requirement to evaluate all the listed factors. The listed factors are deemed by Article 4.2(a) to be relevant factors of an objective and quantifiable nature. Of course any particular factor may not give decisive guidance, but that is not something that the competent authority is allowed to decide in advance without an evaluation.

34. Australia submits that the Panel was, therefore, in legal error in adopting the approach contained in paragraph 7.141 of its Report, which is without basis in the text of the Safeguards Agreement.

4. Threat of serious injury

4.1 Paragraph 8.1 (c)

4.1.1 Analytic structure of the USITC Report

35. Australia submits that, to fulfil the USA’s responsibilities under the Safeguards Agreement and Article XIX of GATT 1994, the USITC was required to set out its reasoning in a logical, coherent form for each of its findings. The USITC Report, however, set out the basis for its finding of "threat of serious injury" separately and before its causation analysis. The causation analysis was predicated upon the prior finding of "threat of serious injury". The USITC Report did not merge the two separate, sequential determinations. 

36. At paragraph 7.184, the Panel said:

"We recall that the Safeguards Agreement does not set out a particular methodology to be followed by competent national authorities in determining serious injury or threat and causation. We do not consider it decisive how the USITC itself structured analytically its report on the investigation and determination, as long as the competent authority's threat and causation analysis in their totality establish the existence of threat of serious injury as well as of a causal link between increased imports and such threat consistent with the Safeguards Agreement. [Footnote 209: From a contextual perspective, we also note that "threat" determinations under the AD and SCM Agreements, too, blend the trends and projections for imports and for the domestic industry indicators.]" [Emphasis added.]

37. Australia submits that the Panel was in legal error here. This flows from the Panel's legal error in setting out its standard of review in paragraph 7.3. Under Articles 3.1 and 4.2(c), the competent authority has to demonstrate that the requirements of the Safeguards Agreement are met. The competent authority is obliged to provide findings and reasoned conclusions on "threat of serious injury" and on "causal link". The requirement is not that "the competent authority's threat and causation analysis in their totality establish" in the sense that the analysis of each can be discerned or derived ex post facto from the competent authority's report. Conceptually it may be possible to structure a report that looks at both aspects together, and arguably that should be done in the case of "threat of serious injury". However, that was not what was done by the USITC for Lamb Meat. Australia submits that that was a legal error for the Panel to show such deference to a competent authority.

4.1.2 The requirements to prove "threat of serious injury"

38. The USITC made a finding of "threat of serious injury" before it examined causation. The Panel considered (in paragraph 7.129) that a threat analysis requires, inter alia,:

"that the analysis needs to determine whether injury of a serious degree will actually occur in the near future unless safeguard action is taken."

39. This means that the increased imports were the actual cause and that serious injury could thus be prevented by safeguard action. The USITC never did this. Indeed, even the causation analysis that the USITC did carry out was only after its finding of "threat of serious injury" according to the USA’s interpretation of the meaning of the term. The causation analysis was predicated upon that finding.

40. Subsequently as part of the remedy phase of the investigation the USITC did recommend a safeguard measure. However, the assertion that the recommended tariff quota would benefit at least some of the industry segments in the short term did not constitute a demonstration that serious injury was imminent unless safeguard action was taken.

4.1.3 Timing issues

41. There are three separate issues of timing in the case of "threat of serious injury". The competent authority needs to assess:

1. whether there will be future injury, and this can only be done on the basis of a prospective analysis;
2. when there will be future injury, and this can only be done on the basis of very recent data;
3. over a considerable period, what are the longer term circumstances of the "domestic industry" in order to determine from what point of time it should be looking at how factors are changing: this overlaps with the issue of demonstrating causation of serious injury in the future where an industry is subject to long term secular decline.

4.1.4 Prospective analysis

42. Australia submits that the Panel was in legal error when it found that the USITC had satisfied the requirement of conducting a prospective analysis when making its determination of "threat of serious injury". At paragraph 7.182 the Panel said:

"The United States points as proof of the USITC's prospective analysis of future developments in the industry’s condition to its causation finding, in particular to the projections obtained in the investigation that lamb meat exports from Australia and New Zealand to the United States would continue to increase in 1999. It also refers to the declining trend in import and domestic prices for lamb meat at the end of the period of investigation."

43. Then at paragraph 7.187 the Panel said:

"We agree in general with the complainants’ argument that a threat of increased imports as such cannot be equated with threat of serious injury. However, in our view, this is not what the USITC has done in this case."

44. While the Safeguards Agreement does not state explicitly how a competent authority must write its report, it does require the competent authority to "publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law". [Emphasis added.] This means that where the competent authority reaches a conclusion of the existence of a "threat of serious injury" it must explain how it reached that conclusion. This is not a matter of being able to discern the reasoning from other parts of the report after the event. If the USITC performed a prospective analysis in the causation section, then why did it not include such an analysis in the "threat of serious injury" section of its report?

45. Of course, as betrayed in paragraph 7.182, this prospective analysis was no more than the assessment that imports would increase, i.e. it was a threat of increased imports, which the Panel at paragraph 7.187 said was not sufficient to equate with "threat of serious injury".

46. Again while a competent authority does have some flexibility in how it writes up its report, the process of its reasoning is critical to how it reaches its conclusion on matters of fact and law. The USITC Report set out the way in which the USITC reached its conclusions. The determination of "threat of serious injury" occurred before it undertook its causation analysis, and therefore that analysis cannot have contained the prospective analysis required for the determination of "threat of serious injury".

47. What the Panel addressed in paragraph 7.182 was no more than an ex post facto rewriting of the USITC Report by the USA for the benefit of the Panel. Indeed, this demonstrates that the USITC Report did not make a prospective analysis in reaching its determination on "threat of serious injury", since otherwise the USA and the Panel would have pointed to it as a matter of fact. As noted by the Appellate Body in paragraphs 160 and 161 of United States - Wheat Gluten, in a somewhat different context, "reasoned conclusions" and "a detailed analysis" must figure in the competent authority's report. It is not up to the USA to clarify what the USITC might have done if it chose. Thus Australia submits that the Panel erred in law through a misinterpretation of what is required to be shown to demonstrate "threat of serious injury".

48. Moreover, the analysis in the causation section of the USITC Report was based on the assumption of the previous determination that there was "threat of serious injury". The existence of "threat of serious injury" cannot be validly demonstrated by an argument that is based on the assumption that there was "threat of serious injury". Australia submits that, even if it was permissible for the USA to provide clarifications after the event, the Panel also erred in law. Australia claims that it was in error in asserting an analysis based on the premise of what was to be proved was sufficient to meet the USITC's requirements in demonstrating "threat of serious injury".

4.1.5 "Clearly imminent"

49. The Panel considered the meaning of "imminent" in paragraph 7.127. The Panel also used phrases such as "imminent future" and "imminent in the near future", e.g. in paragraph 7.129. However, in paragraph 7.204 the Panel simply deferred to the USITC determination without requiring the USITC to have made a determination about what it meant by "imminent".

50. Safeguard action is an extraordinary action in the event of a genuine emergency. Action on the basis of "threat of serious injury", as emphasized in Article 4.1(b), is to be based on facts. It is essential that proper attention is paid to whether the threatened "serious injury" is genuinely "clearly imminent", or whether it is simply a concern for the future. Where "serious injury" is being experienced, action may be required to remedy the situation. However, Article 6 of the Safeguards Agreement always provides for provisional measures, if it turns out to be necessary in the future. Thus there is no need for precautionary action on the basis of "threat of serious injury" unless the facts show that increased imports are going to cause "serious injury" imminently in the absence of safeguard action. Otherwise, safeguard action will be simply another form of protection in complying with industry’s assertions about the future.

51. As a matter of fact, the USITC did not make any finding or take any view on the issue of what it meant by "imminent".

52. The requirement of Article 4.1(b) is that the competent authority must show that the "serious injury" is "clearly imminent". As a pertinent issue of fact and law, the competent authority must set out what it has found and why the standard has been met. The USITC failed to do this. Australia submits that the Panel was in legal error when it found that there was no need for the USITC to have done so.

53. The USITC in its threat analysis of the state of the industry segments relied on evidence only up to September 1998, and in the case of grower/feeders only to 1997. The measure, however, was imposed in July 1999. Even where the data included the interim periods in 1997 and 1998, the safeguard measure was imposed more than 9 months after the data period. However, this is a case where the measure was imposed to prevent "serious injury" from being caused in the future. In the absence of any attempt at all to say what time frame is meant by "imminent", the USA clearly did not know what or when anything might happen.

4.1.6 The need to look at data over long period

54. The determination of the USITC was based on a decline in some indicators over a short period of time. The Panel stated in paragraph 7.192 of its Report that:

"In our view, 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."

55. This does not address the issue of what the USITC Report considered to be a "significant overall impairment" and when it considered that that would occur. What occurred was a short spike in prices of lambs due to the flock liquidation. The declines measured by the USITC Report and the Panel were against increased returns in that period. Australia submits that to reach a finding on the basis of such declines, which vary in any case from industry segment to industry segment, does not prove that a "significant overall impairment" was "clearly imminent". Australia submits that this is an error in legal interpretation of the meaning of "serious injury" and "significant overall impairment" in particular.

56. The ordinary meaning of "impairment" is: "[t]he fact or state of being damaged, weakened, or diminished". The issue is to what period must this be compared. For example, could a profitable industry, which was super profitable for a year but then was returning to its normal state, be considered to be suffering "significant overall impairment"? Australia submits that in the context of safeguard action, the "significant overall impairment" must be relative to the longer term position of the industry. This is consistent with the requirement of "unforeseen developments" in Article XIX:1(a), since it is hardly unforeseen that a temporary spike would end. It is also consistent with the causation requirements in Article 4.2, since the spike and subsequent fall would be due to other factors and so if the injury is the fall from the spike it could not be attributed to increased imports.

57. Moreover, the demonstration that "serious injury" was "clearly imminent" would need to take into account the longer term state of the "domestic industry" in question. In this case a prospective analysis would be needed to show that the decline would result in a "significant overall impairment" against the base position of the "domestic industry". Australia submits that the Panel was in legal error in paragraph 7.192, which was a misinterpretation of "significant overall impairment" and so of "threat of serious injury". The fact is that the USITC Report focused on declines in indicators from a high after the flock liquidation following the abolition of the National Wool Act subsidies. The USITC Report did not show a "significant overall impairment" as such. Against the long-term secular decline of the various industry segments, there was no demonstration of "threat of serious injury".

4.1.7 Inadequacy of the data

58. The data relied on by the USITC was patchy. For example, only 27 out of the 49 growers provided interim data and the grower/feeders did not provide interim data. This is related to the issues of the representativeness of the data and "significant overall impairment". The Panel found that the data was not representative, including on the basis of the lack of interim data from grower/feeders. As a result the Panel found that the USA had not acted consistently with Article 4.1(c).

59. Australia agrees with the Panel in respect of both its findings on Article 4.1(c). However, the Panel's finding set out in paragraph 8.1(c) is arguendo only "that the USITC's industry definition was consistent with the Agreement on Safeguards". This contrasts with the finding in paragraph 8.1(d) which at least is arguendo also that "that the data relied upon by the USITC were representative within the meaning of Article 4.1(c)".

60. Australia submits that the Panel was in legal error in accepting the data used by the USITC for its determination of "threat of serious injury".

4.1.8 Conclusion

61. In conclusion, Australia requests the Appellate Body to find that the Panel has erred in its legal interpretation of the appropriate standard of review and of Article 4.1(b) and 4.2(a). Australia, therefore, requests that the Appellate Body reverse the Panel's finding in paragraph 8.1(c).

4.2 Paragraph 8.1(d)

62. The USITC's failure to evaluate "capacity utilization", "employment", "productivity", and "profits and losses"

Australia submits that the USITC did not evaluate all of the factors listed in Article 4.2(a) even apart from the question of the representativeness of the data.

4.2.1 "Capacity utilization"

63. The Panel was in legal error in its assessment of whether there had been an evaluation in respect of "capacity utilization" for the following reasons.

64. The Panel showed total deference to the assertions about why the USITC did not collect data for growers and for feeders, which was little more than that it might be difficult. (See paragraphs 7.147 and 7.148 of the Panel Report.) Australia submits that it was an error in law for the Panel to decide that the factor of capacity utilization was not objective and quantifiable and not relevant to the question of determining injury.

65. Sheep farms are usually described in terms of their carrying capacity, and hence their production capacity. This together with infrastructure contributes to the asset value of a farm. For example, in the second paragraph on page II-51 of the USITC Report, two growers reported that they could not increase production because of their public grazing allotments. In the shorter term, the ability to produce lambs will also depend on factors such as the size of the breeding flock. Of course, factors such as flock size are variable over time, but so are the capacities of factories and manufacturing firms and industries. Factors such as the capacity of a farm, the relative sizes of the breeding flock and the total flock are critical to the profitability of a farm. Capacity utilization is an objective and quantifiable factor and, as set in Article 4.2(a), must be evaluated.

66. The capacity of feeders is also able to be determined. The claim that the USITC did not examine capacity and capacity utilization because the feeding times could be varied does not make sense. Factories can operate on different shifts at different times. The calculation of capacity in those circumstances would depend on an assessment of the normal throughput. It is impossible to credit that a feeder has no idea of how many feeder lambs it can buy and no idea how many it is likely to put on the market at some time in the future. The capacity and capacity utilization of feeders must be an important factor in their investment decisions, in their viability, and in their profitability. This is why Article 4.2(a) requires capacity utilization to be evaluated.

67. The USITC Report did not explain why the packer and breaker segments are objectively representative of all four industry segments as a whole for the evaluation of capacity utilization. Thus the USITC Report did not comply with the requirement under the Safeguards Agreement set out at paragraph 7.58 of the Korea - Dairy Safeguard panel report. Australia has claimed that the Panel was in legal error in its interpretation as set out in paragraph 7.141. Australia submits that the Panel was in legal error in not ensuring that this requirement was met.

68. Therefore, on the basis of the proper interpretation of the obligations under Article 4.2(a), the USITC did not evaluate capacity utilization even for the definition of "domestic industry" used by the USITC Report.

4.2.2 "Employment"

69. In respect of "employment", Australia submits the Panel is in legal error at paragraph 7.175 where the Panel argued that employment was considered for packers and breakers by way "of an inference drawn from these establishments’ financial information as to labour productivity".

70. Australia claims that this is a further and different interpretation of the obligations under Article 4.2. This standard does not even comply with the interpretation set out by the Panel in paragraph 7.141. The USITC Report does not contain any such inference, which appears to have been made by the Panel drawing on argument by the USA, for example at paragraph 169 of the USA's First Submission (page A-324). Such a clarification after the event by the USA is merely an attempt to rewrite the USITC Report. The Appellate Body was clear at paragraph 162 of United States - Wheat Gluten that ex post facto "clarification" cannot cure a defect in the competent authority's report. Moreover, the explanation is at odds with the lack of analysis by the USITC Report of the degree in which packers and breakers produce meat from species other than sheep. If the production of meat from other species is so integrated with that of lamb meat that it is impossible to calculate the employment figures for lamb meat, then such production would be an important relevant factor in the injury analysis. However, it was not examined.

71. Moreover, Article 4.2(a) has explicit references to "employment" and to "productivity". Therefore each of them has to be evaluated. The Panel Report is saying that the USA equates "labour productivity" with "productivity". Assume arguendo that this was permissible under Article 4.2(a). Then to argue that the evaluation of "employment" as a factor can be inferred from the treatment of "productivity" as a factor is to say that the competent authority can pick and choose which of the factors listed in Article 4.2(a) it wants to consider.

72. In the USITC Report (at page I-20) the so-called evaluation of "labour productivity" for packers and breakers is drawn by inference from "labor costs". There is no analysis of "productivity" or "labour productivity", let alone "employment". Thus the conclusion about "employment" is an ex post facto inference drawn from labour productivity which was an inference drawn from information about labor costs. Australia submits that this type of inference-on-inference argument cannot serve as a basis for an objective evaluation of fact.

73. In paragraph 7.141 the Panel set out its standard in relation to why data might not be evaluated for a particular segment. However, the situation of breakers and feeders does not comply with any of the three circumstances in the Panel's own interpretation of the requirements of Article 4.2(a). No claim is made that inferences can be drawn for packers and breakers from the data concerning growers and feeders. The USITC Report did not claim or explain why data could not be collected. No claim is made that employment is not probative as an injury factor for packers and breakers. Yet the Panel found, inconsistent with its own interpretation in paragraph 7.141, that "employment" had been investigated for the "domestic industry" used by the USITC Report. Australia submits that the Panel was in legal error in doing so, even if arguendo the interpretation in paragraph 7.141 was correct.

4.2.3 "Productivity"

74. It is unclear what the USITC Report examines in respect of "productivity" for growers and feeders. However, the USITC Report only examined "productivity" for packers and breakers by looking at data on direct labour costs. This was taken by the Panel at paragraph 7.175 as being "labour productivity". "Labour productivity" is a measure of the productivity of one factor, i.e. labour. However, an evaluation of "productivity" requires the examination of other factors, in particular capital. There is no indication in the USITC Report of any evaluation of factors other than the inference about labour drawn from labour costs. Thus, Australia submits that the USITC did not evaluate "productivity" for at least packers and breakers, and did not provide any explanation of this even in terms of the Panel's interpretation in paragraph 7.141 or even the lower standard set out in paragraph 7.175.

4.2.4 "Profits and losses"

75. Australia will limit itself here to the issues of grower/feeders. This overlaps to some extent with the finding in paragraph 8.1(e) on representativeness of data.

76. The USITC had no financial data for grower/feeders for the interim periods, i.e. no data were provided beyond 1997. No explanation was given why factors such as "profits and losses" could be evaluated properly for a "threat of serious injury" analysis for grower/feeders on the basis of 1997 data.

77. The USITC did not make any attempt to obtain later data and considered that it did not need to do so. As emphasized by the Appellate Body at paragraph 55 in United States - Wheat Gluten it was the USITC's responsibility to obtain the information. No explanation was put forward by the USITC Report for not doing this in terms of any of the three interpretations in the Panel Report, of the panel report on Korea - Dairy Safeguard, at paragraph 7.141, or at paragraph 7.175.

78. The "evaluation" by the USITC Report reached the conclusion that there was a "threat of serious injury" in 1999. This lack of data for the interim periods for grower/feeders was one of the reasons for the finding of fact by the Panel (at paragraph 7.218) on the lack of representativeness of the data. Australia submits that for grower/feeders the relevant data were not simply not representative but did not exist for the purpose of a determination of "threat of serious injury".

79. Australia submits that it is a legal error to accept that such historical data can be used for evaluating "profits and losses" under Article 4.2(a), especially for the determination of "threat of serious injury".

4.2.5 Conclusion

80. In conclusion, Australia, requests the Appellate Body to find that the Panel has erred in its legal interpretation of the appropriate standard of review and of Article 4.2(a). Australia, therefore, requests that the Appellate Body reverse the Panel's finding in paragraph 8.1(d).

5. Unforeseen developments

81. In the event the Appellate Body reverses the Panel’s ultimate conclusion on Article XIX:1(a), Australia requests the Appellate Body to review the Panel’s finding that a change in the product mix and/or cut size of imported lamb meat could qualify as "unforeseen developments".

82. Australia claims that the Panel’s conclusion was based on an erroneous interpretation of the Working Party report in Hatters’ Fur. The Working Party report considers that a change in internal consumer preferences could in some circumstances constitute "unforeseen developments". It provides no support for the conclusion that a simple change in the structure of imports in and of itself constitutes "unforeseen developments".

83. At paragraph 7.24 of its report, the Panel concludes that:

"Thus, while the Working Party in Hatters’ Fur did not view fashion changes over time per se as an "unforeseen development", it nevertheless accepted that the scale of the particular change in fashion and its duration as well as the degree of its impact on the competitive situation was unforeseen in that case. In other words, fashion changes in general are foreseeable ("change is the law of fashion"), but the extent of the fashion change in the US market relating to women’s fur felt hats (and hat bodies) was unforeseen." (Footnote omitted)

84. The Panel therefore seems to conclude that "the extent of ... changes in the market" was the critical factor that was unforeseen. This reasoning is picked up at paragraph 7.31 where the Panel concludes that:

"'two-step' causation is not required under GATT Article XIX:1, i.e., that 'unforeseen developments' may be unforeseen changes in the conditions of competition which result in the increased imports causing or threatening to cause serious injury." 

85. In this way, the Panel elaborates on its interpretation of the meaning of "unforeseen developments" shifting from "unforeseen ... changes in the market" to "unforeseen changes in the conditions of competition". The Panel then explicitly relies on the United States’ argument that "a shift in the product mix of imports from frozen lamb meat to chilled/fresh lamb meat occurred towards the end of the investigation period, and that this change increased competition between domestic and imported lamb" to formulate the legal question that it needed to examine in the circumstances of this case:

"We thus need to examine whether the USITC demonstrated, as a matter of fact, that the product-mix of imports constituted a development in the conditions under which the imports entered the United States that was unforeseen or unexpected by the United States within the meaning of GATT Article XIX:1." 

86. The Panel also implicitly accepts the validity of the second factual element advanced by the United States at paragraph 7.5 of its Report.

87. The logical flaw in the Panel’s analysis is its acceptance of a change in the structure of imports (i.e. from frozen to chilled and the increase in cuts) as a factual element that would come within the meaning of a "changes in the market" as that term was used in the Hatters’ Fur Working Party report. It is clear from the Working Party report that the type of changes that were being considered in the special circumstances of that cases were internal changes in consumer preferences.

88. In the circumstances of the present dispute, it is possible that internal market factors such as changes in consumers’ preference for frozen or chilled meat or for a particular size of cut of meat might qualify as "unforeseen developments". It is also feasible that the change in supply patterns in response to changes in consumer demand, including through changes in imports, might qualify as "unforeseen developments".

89. However, in the present dispute, there was no change in consumption preferences. United States consumers did not suddenly prefer chilled product. Neither the United States nor the USITC have claimed or demonstrated that there has been any change in consumer preferences.

90. As such, a simple change in the structure of imports cannot, in and of itself, qualify as "unforeseen developments". To claim that increased imports of chilled lamb meat was an "unforeseen development" is to say that increased imports of the product under investigation was an "unforeseen development". This is clearly inconsistent with the Appellate Body’s finding in Korea – Dairy that: "the clause in Article XIX:1(a) – "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions ..." – must have meaning." 

5.2 Conclusion

91. In conclusion, in the event the Appellate Body reverses the Panel’s ultimate conclusion on Article XIX:1(a) of GATT 1994, Australia requests the Appellate Body to find that the Panel made an error of law by finding that a change in the product mix and/or cut size of imported lamb meat could qualify as "unforeseen developments". 

92. Given that a change in the product mix and/or cut size of imported lamb meat is the only factor relied upon by the United States as "unforeseen developments", Australia requests the Appellate Body to find 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.

6. Judicial economy

93. At paragraph 7.280 of its Report, the Panel concluded that:

"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 to DSB to make sufficiently precise recommendations and rulings for the effective resolution of the dispute before us."

and, accordingly, did not make findings in respect of claims under Articles 2, 3, 5, 8, 11, and 12 of the Safeguards Agreement and Articles I and II of GATT 1994.

94. The imposition of a safeguard measure is consistent with the Safeguards Agreement and GATT 1994 Article XIX only if the requisite steps and actions have all been met by the Member and its authorities. Australia’s complaint against the USA was based on a wide range of issues where the USA had failed to comply with its obligations. The upholding of the claims not addressed by the Panel would result in the measure being found to be inconsistent.

95. Australia requests that the Appellate Body apply the approach to judicial economy it adopted in Argentina – Footwear Safeguard and United States – Wheat Gluten. Accordingly, if the Appellate Body finds that the measure is inconsistent with the Safeguards Agreement, then Australia does not ask for it to complete the analysis on those claims that the Panel did not address. However, if it is necessary to resolve the dispute and to provide the DSB with sufficiently precise recommendations and rulings to make a proper adjudication in this dispute, then Australia requests the Appellate Body to address the outstanding claims.

96. If the Appellate Body considers it necessary to go to these claims, then Australia refers the Appellate Body to the argumentation contained in the record of the Panel rather than reiterating the substance of the claims in this submission.

6.1 Australia's claims under Articles 3.1 and 5.1 of the Safeguards Agreement

97. Australia submits that the USA violated the above articles because:

• The USA acted inconsistently with the requirements of Article 5.1 for a determination that the measure is applied only to the extent "necessary to prevent or remedy serious injury and to facilitate adjustment." Neither the USITC recommendation nor the action ultimately taken by the US President was justified under Article 5.1.
• The USA failed to publish a report justifying the measure imposed and so acted inconsistently with Article 3.1. Moreover, to the extent that the USA carried out any investigation subsequent to the report of the USITC, it was in breach of the requirements of Article 3.1.

6.2 Australia's claims under Articles 8.1 and 12.3 of the Safeguards Agreement

98. Australia submits that the USA violated the above articles because:

• The US acted inconsistently with its obligations under Article 8.1 and Article 12.3, which require a Member to endeavour to maintain a substantially equivalent level of concessions and other obligations and to enter into consultations in good faith to achieve that objective.

6.3 Australia's claim under Articles 2.2 and 4.2 of the Safeguards Agreement

99. Australia submits that the USA violated the above articles because:

· it excluded Canada from the coverage of the measure, even after it had included it in the determinations of "threat of serious injury" and causation.

6.4 Australia's claim under Article 11.1(a) of the Safeguards Agreement

100. Australia submits that the USA acted inconsistently with the above article because:

"the measure was not emergency action and did not conform to the provisions of GATT Article XIX and other provisions of the Safeguards Agreement."

7. Conclusions

101. In light of the above submission, Australia respectfully requests the Appellate Body to find that the Panel committed errors of law and fact: 

(a) in interpreting and applying Article 11 of the DSU in a way that is not in conformity with the DSU and established WTO decisions; and

(b) in basing its conclusions regarding the USITC’s determination of "threat of serious injury" on erroneous findings and interpretation, including in relation to Articles 4.1(b) and 4.2(a) of the Safeguards Agreement.

102. In the event that the Appellate Body reverses the Panel’s ultimate conclusion on Article XIX:1(a) of GATT, Australia requests the Appellate Body to consider its claim that the Panel erred in its interpretation of the legal standard relating to "unforeseen developments".

103. As a consequence of these errors, Australia requests the Appellate Body to reverse the Panel's findings in:

1. paragraphs 7.222, 7.224 and 8.1(c) that the USA had not acted inconsistently with Articles 4.1(b) of the Safeguards Agreement; and 
2. paragraphs 7.223, 7.224 and 8.1(d) that the USA had not acted inconsistently with Article 4.2(a) of the Safeguards Agreement in failing to evaluate all the factors listed in Article 4.2(a);

104. On Australia’s conditional claim on "unforeseen developments", Australia also requests the Appellate Body to reverse the Panel’s findings in paragraphs 7.16, 7.31 (first conclusion), 7.35 and 7.37 that a change in product mix and/or cut size of imported lamb meat could qualify as "unforeseen developments" under GATT 1994. 

105. Australia also requests the Appellate Body, in the event that it reverses any conclusions reached by the Panel based on the arguments made in this proceeding by the USA, to complete the analysis for which the Panel exercised judicial economy, specifically over Australia’s claims concerning, Articles 2.2, 3.1, 5.1, 8.1, 11.1(a), and 12.3 of the Safeguards Agreement.