Order Code RL32014
CRS Report for Congress
Received through the CRS Web
WTO Dispute Settlement:
Status of U.S. Compliance
in Pending Cases
Updated March 1, 2006
Jeanne J. Grimmett
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress
WTO Dispute Settlement:
Status of U.S. Compliance in Pending Cases
Summary
Although the United States has complied with adverse rulings in many past
World Trade Organization (WTO) disputes, 14 cases are pending in which rulings
have not yet been implemented or the United States has taken action and the dispute
has not yet been settled. A WTO Member found to have violated a WTO obligation
will generally be given a reasonable period of time to comply. While the Member
is expected to withdraw the offending measure, compensation and temporary
retaliation are available if the Member has not complied by the established deadline.
As a result of the 2004 repeal of the WTO-inconsistent Extraterritorial Income
Exclusion Act (American Jobs Creation Act, P.L. 108-357), complainant European
Communities (ECs) suspended the WTO-authorized tariffs it had been imposing but
also secured a compliance panel, which in September 2005 faulted transition and
grandfather provisions in the new law; the AB upheld the panel in February 2006.
The United States has not yet complied in a case faulting a trademark statute
affecting property confiscated by Cuba. S. 328, S.Amdt. 281 to S. 600, H.R. 208,
H.R. 579, and H.R. 719 would repeal the provision; S. 691 would amend the law.
Legislation to amend a statute involving the factual basis of dumping determinations
(H.R. 2473) was introduced in May 2005 to resolve a dispute with Japan. Mid-2005
compliance deadlines in the trademark and dumping cases were not extended, but
complainants have reserved their retaliation rights. Compliance deadlines have
expired in the case challenging the Continued Dumping and Subsidy Offset Act, a
statute authorizing distribution of antidumping and countervailing duties to U.S.
firms; P.L. 109-171 repeals the statute but allows the distribution of duties on goods
entered before October 1, 2007. Complainants EC, Canada, Japan, and Mexico are
currently imposing added tariffs on selected U.S. products and have expressed
concerns about the continued payments allowed under the new law. P.L.109-171
also repeals a WTO-inconsistent cotton program at issue in a dispute with Brazil over
U.S. cotton subsidies; other U.S. agricultural programs were also faulted, and Brazil
may seek further compliance measures. The United States has pledged to
legislatively clarify a federal law at fault in a dispute with Antigua and Barbuda over
U.S. cross-border gambling measures; the compliance period ends April 3, 2006.
In seven pending cases, compliance involves administrative action under
existing authorities. The United States modified a privatization methodology used
in 12 countervailing duty (CVD) proceedings involving EC steel products and issued
new determinations in each. An August 2005 compliance panel report faulted two
of the determinations; the report was adopted in September 2005. Three cases
involve the final dumping, subsidy, and threat of injury determinations in
antidumping and CVD investigations of Canadian softwood lumber. Canada has
challenged the new U.S. determinations in each and is also seeking to impose
sanctions. Argentina has requested consultations regarding U.S. compliance
measures in a case involving the sunset (five-year) review of an antidumping order
on oil country tubular goods (OCTG) from that country. Mexico and the United
States have agreed on a May 28, 2006, deadline in a case involving the sunset review
of an antidumping order on OCTG from Mexico. This report will be updated.
Contents
WTO Dispute Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Uruguay Round Agreements Act (URAA): Statutory
Requirements for Implementing WTO Decisions . . . . . . . . . . . . . . . . . . . . . 3
Section 102 of the URAA: Domestic Legal Effect of WTO Decisions . . . . . 4
Federal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
State Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Preclusion of Private Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Implementation of WTO Decisions Involving Administrative Action . . . . . 7
Section 123 of the URAA: WTO Cases Involving Regulatory
Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 129 of the URAA: WTO Cases Involving
Trade Remedy Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Implementation of WTO Rulings in Pending Cases . . . . . . . . . . . . . . . . . . . . . . 12
Pending Cases Involving Legislative Action . . . . . . . . . . . . . . . . . . . . . . . . 13
Foreign Sales Corporation (FSC) Statute (Tax Exemption
for “Foreign Trade Income”) (DS108) . . . . . . . . . . . . . . . . . . . . . 13
Section 110(5)(B) of the Copyright Act (Music Copyrights)
(DS160) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 211 of the Omnibus Appropriations Act of 1998
(Trademark Exclusion Involving Property Confiscated
by Cuba) (DS176) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Antidumping Measures on Hot-Rolled Steel Products from
Japan (DS184) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Continued Dumping and Subsidy Offset Act (DS 217/DS234) . . . . . 24
Subsidies on Upland Cotton (DS267) . . . . . . . . . . . . . . . . . . . . . . . . . 31
Measures Affecting Cross-Border Supply of Gambling
and Betting Services (DS 285) . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Pending Cases Involving Administrative Action . . . . . . . . . . . . . . . . . . . . . 42
Countervailing Measures Concerning Certain Products from
the European Communities (DS212) . . . . . . . . . . . . . . . . . . . . . . 42
Final Countervailing Duty Determination with Respect
to Certain Softwood Lumber from Canada (DS257) . . . . . . . . . . 47
Final Dumping Determination on Softwood Lumber from
Canada (DS264) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sunset Reviews of Anti-Dumping Measures on Oil
Country Tubular Goods from Argentina (DS268) . . . . . . . . . . . . 53
Investigation of the International Trade Commission in Softwood
Lumber from Canada (DS277) . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Antidumping Measures on Oil Country Tubular Goods (OCTG)
from Mexico (DS282) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Countervailing Duty Investigation on Dynamic Random Access
Memory Semiconductors (DRAMS) from Korea (DS296) . . . . . 62
WTO Dispute Settlement:
Status of U.S. Compliance
in Pending Cases
This report provides a summary of the status of U.S. compliance efforts in
pending World Trade Organization (WTO) disputes that have resulted in adverse
rulings against the United States.1 Although the United States has complied with
adverse rulings in many past WTO disputes, a number of cases are currently pending
in which the United States has not fully implemented adopted WTO panel and
Appellate Body reports or has taken action but the dispute is not yet definitively
resolved. In some cases, original or subsequently extended deadlines have expired,
while in others, the original deadline will lapse in 2006. Compliance in these cases
may implicate either legislative or administrative action by the United States.
The report begins with an overview of WTO dispute settlement procedures,
focusing on the compliance phase of the process, followed by a discussion of U.S.
laws relating to WTO dispute proceedings. The report continues with a listing of the
pending WTO disputes in the compliance phase and a summary of the compliance
history for each case.
WTO Dispute Settlement Procedures
WTO disputes are conducted under the terms of the WTO Understanding on the
Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement
Understanding or DSU).2 The DSU, which entered into force with the establishment
1 The case histories in this report are primarily based on WTO documents, available at
[http://www.wto.org] or the WTO dispute settlement website indicated below. This report
does not address the cases in which the United States has implemented adverse reports to
the satisfaction of the complaining party and thereby settled the disputes, nor does it discuss
the compliance history of other WTO Members. For further information on WTO disputes,
see Office of the United States Trade Representative, “Dispute Settlement Update” at
[http://www.ustr.gov/assets/Trade_Agreements/Monitoring_Enforcement/Dispute_Settle
ment/asset_upload_file343_5697.pdf] and “Snapshot of WTO Cases Involving the United
States,” at [http://www.ustr.gov/assets/Trade_Agreements/Monitoring_Enforcement
/Dispute_Settlement/WTO/asset_upload_file291_5696.pdf?ht=]; the annual Trade Policy
Agenda and Annual Report of the President of the United States on the Trade Agreements
Program, at [http://www.ustr.gov] under “Reports”; and WTO, Update of WTO Dispute
Settlement Cases (updated regularly) at [http://www.wto.org/english/tratop_e/dispu_e/
dispu_e.htm].
2 For additional information on WTO dispute settlement procedures, see “Dispute
Settlement Gateway,” at the WTO website, supra note 1, and CRS Report RS20088, Dispute
(continued...)
CRS-2
of the World Trade Organization on January 1, 1995, carries forward and expands
upon dispute settlement practices developed under the General Agreement on Tariffs
and Trade (GATT). The DSU is administered by the WTO Dispute Settlement Body
(DSB), which is composed of all WTO Members. Where individual WTO
agreements contain special or additional dispute settlement rules that differ from
those in the DSU, the former will prevail. A list of these agreements and rules (e.g.
special timelines for subsidy disputes in the Agreement on Subsidies and
Countervailing Measures) is contained in Appendix 2 of the DSU.
WTO dispute settlement may be characterized as a three-stage process: (1)
consultations; (2) panel and, if requested, Appellate Body (AB) proceedings; and (3)
implementation. Within this process, the DSB establishes panels; adopts panel and
appellate reports; authorizes countermeasures when requested; and monitors the
implementation of dispute settlement results. The establishment of panels, adoption
of panel and AB reports, and authorization of countermeasures are actions that are
subject to a “reverse consensus” rule under which the DSB will take the proposed
action unless all DSB Members vote not to do so. In effect, these particular decisions
are virtually automatic.
After the DSB adopts an adverse panel and any Appellate Body report, the
defending Member must inform the DSB of its compliance plans. If it is
impracticable for the Member to comply immediately, the Member will be allowed
a “reasonable period of time” to do so. Where a timeframe proposed by the Member
is not approved by the DSB, the disputing parties may negotiate a compliance period;
if this fails, the period will be arbitrated. A WTO Member found to have violated
WTO obligations is expected to comply by withdrawing the offending measure, with
compensation and temporary retaliation available to the prevailing party as
alternative remedies. Full compliance is the preferred outcome, however, so as to
ensure that negotiated rights and obligations are preserved and maintained.
Article 22 of the DSU provides that if the prevailing Member in a dispute
believes that the other Member has not implemented the WTO rulings and
recommendations by the end of the compliance period, it may request the other
Member to negotiate a compensation agreement or may ask the DSB for
authorization to suspend WTO concessions (usually to impose higher tariffs on items
from the other country). The Member may choose the latter option without first
seeking compensation.
Under the DSU, the DSB is to authorize the retaliation request, subject to the
reverse consensus rule, within 30 days after the compliance period expires. If the
defending Member objects to the request, however, the proposed retaliation will be
arbitrated and the 30-day deadline for approving the retaliation request effectively
extended. The objection may relate to the level of nullification or impairment of
benefits involved or whether DSU rules as to the choice of retaliatory measures have
been followed. Under the DSU, the arbitration is to be carried out by the original
panel, if members are available, or by an arbitrator appointed by the WTO Director
2 (...continued)
Settlement in the World Trade Organization: An Overview, by Jeanne Grimmett.
CRS-3
General. The arbitration is ordinarily to be completed within 60 days after the
compliance period expires. The DSB then meets to authorize the retaliation request
to the extent the proposed retaliation is consistent with the arbitrator’s decision.
In addition, Article 21.5 of the DSU provides for further dispute settlement
proceedings in the event the disputing parties disagree as to whether the defending
Member has implemented the WTO rulings and recommendations in a particular
case. Once a compliance panel is convened, it has 90 days to issue a report; the
report may then be appealed. Since the DSU fails to incorporate Article 21.5
proceedings into the 30-day period for approving countermeasures and the timeframe
for any subsequent arbitration, a procedural problem, referred to as “sequencing,” has
resulted. Members have often filled the gap, however, by entering into ad hoc
bilateral agreements. Such agreements may provide, for example, that the prevailing
party will request authorization to impose countermeasures, the defending party will
request arbitration of the proposal, and the arbitration will be suspended until the
compliance panel procedure is completed.3
If a prevailing Member is ultimately authorized to impose countermeasures, the
Member is not required to implement them and, as shown in the cases below,
Members may manage disputes in a variety of ways at the compliance phase short of
imposing sanctions.
Uruguay Round Agreements Act (URAA): Statutory
Requirements for Implementing WTO Decisions
The legal effect of Uruguay Round agreements and WTO dispute settlement
results in the United States is comprehensively dealt with in the Uruguay Round
Agreements Act (URAA), P.L. 103-465, which addresses the relationship of WTO
agreements to federal and state law and prohibits private remedies based on alleged
violations of WTO agreements.4 The statute also requires the United States Trade
Representative (USTR) to keep Congress informed of disputes challenging U.S. laws
once a dispute panel is established, any U.S. appeal is filed, and a panel or Appellate
Body report is circulated to WTO Members.5 In addition, the URAA places
requirements on regulatory action taken to implement WTO decisions and contains
provisions specific to the implementation of panel and appellate reports that fault
U.S. actions in trade remedy proceedings.
3 See Sylvia A. Rhodes, The Article 21.5/22 Problem: Clarification Through Bilateral
Agreements? 3 J. Int’l Econ. L. 553 (2000).
4 For background discussions regarding the effect of treaties and international agreements
in domestic law, see CRS Report RL32528, International Law and Agreements: Their Effect
Upon U.S. Law, by Michael Garcia and Arthur Traldi; Ronald A. Brand, Direct Effect of
International Economic Law in the United States and the European Union, 17 Nw. J. Int’l
L. & Bus. 556 (1996-97); and John H. Jackson, Status of Treaties in Domestic Legal
Systems: A Policy Analysis, 86 Am. J. Int’l L. 310 (1992).
5 Uruguay Round Agreements Act (URAA), § 123(d)-(f), 19 U.S.C. § 3533(d)-(f).
CRS-4
Section 102 of the URAA: Domestic Legal Effect of WTO
Decisions
Section 102 of the URAA and its legislative history establish that domestic law
supersedes any inconsistent provisions of the Uruguay Round agreements and that
congressional or administrative action, as the case may be, is required to implement
adverse decisions in WTO dispute settlement proceedings.
Federal Law. Section 102(a)(1), 19 U.S.C. § 3512(a)(1), provides that “[n]o
provision of any of the Uruguay Round Agreements, nor the application of any such
provision to any person or circumstance, that is inconsistent with any law of the
United States shall have effect.” The URAA further provides, at § 102(a)(2), 19
U.S.C. § 3512(a)(2), that nothing in the statute “shall be construed ... to amend or
modify any law of the United States ... or ... to limit any authority conferred under
any law of the United States ... unless specifically provided for in this act.”
As explained in Statement of Administrative Action (SAA) that accompanied
the Uruguay Round agreements when they were submitted to Congress in 1994, “[i]f
there is a conflict between U.S. law and any of the Uruguay Round agreements,
section 102(a) of the implementing bill makes clear that U.S. law will take
precedence.”6 Moreover, section 102 is further intended to clarify that all changes
to U.S. law “known to be necessary or appropriate” to implement the WTO
agreements are incorporated in the URAA and that any unforeseen conflicts between
U.S. law and the WTO agreements “can be enacted in subsequent legislation”7
Congress has traditionally treated potential conflicts with prior GATT agreements
and free trade agreements in this way, treatment that it also deems to be “consistent
with the Congressional view that necessary changes in Federal statutes should be
specifically enacted, not preempted by international agreements.”8
This approach carries over into the implementation of WTO dispute settlement
results, a situation explained as follows in URAA legislative history:
Since the Uruguay Round agreements as approved by the Congress, or any
subsequent amendments to those agreements, are non-self-executing, any dispute
settlement findings that a U.S. statute is inconsistent with an agreement also
cannot be implemented except by legislation approved by the Congress unless
consistent implementation is permissible under the terms of the statute.9
6 Uruguay Round Agreements, Statement of Administrative Action, H.Doc. 103-316(I) at
659 (1994)[hereinafter cited as Uruguay Round SAA]. The SAA, which was expressly
approved in the URAA, is “regarded as an authoritative expression by the United States
concerning the interpretation and application of the Uruguay Round Agreements and ... [the
URAA] in any judicial proceeding in which a question arises concerning such interpretation
or application.” URAA, § 102(d), 19 U.S.C. § 3512(d).
7 H.Rept. 103-826(I), at 25; see also S.Rept. 103-412, at 13.
8 H.Rept. 103-826(I), at 25; see also S.Rept. 103-412, at 13.
9 H.Rept. 103-826(I), at 25; see also S.Rept. 103-412, at 13, and the Uruguay Round SAA,
supra note 6, at 1032-33. The latter states as follows:
(continued...)
CRS-5
State Law. Where State law is at issue in a WTO dispute, the URAA provides
for federal-state cooperation in the proceeding and limits any domestic legal
challenges to such law to the United States.10 The act’s general preclusion of private
remedies (discussed below) further centralizes the response to adverse WTO
decisions involving State law in the federal government.11
Section 102(b) provides as follows:
No State law, or the application of a such a State law, may be declared invalid
as to any person or circumstance on the ground that the provision or its
application is inconsistent with any of the Uruguay Round Agreements, except
in an action brought by the United States for the purposes of declaring such law
or application invalid.12
According to legislative history, the provision “makes clear that the Uruguay Round
agreements do not automatically preempt State laws that do not conform to their
provisions, even if a WTO dispute settlement panel or the Appellate Body were to
determine that a particular State measure was inconsistent with one or more of the
9 (...continued)
Reports issued by panels or the Appellate Body under the DSU have no binding
effect under the law of the United States and do not represent an expression of
U.S. foreign or trade policy. They are no different in this respect than those
issued by GATT panels since 1947. If a report recommends that the United
States change federal law to bring it into conformity with a Uruguay Round
agreement, it is for the Congress to decide whether any such change will be
made.
10 Two recent WTO cases have involved the WTO-consistency of U.S. state laws. In the
challenge by Antigua and Barbuda to federal and state laws affecting the cross-border
supply of gambling and betting services, the United States prevailed on the issue of whether
the state measures infringed market access obligations under the General Agreement on
Trade in Services (GATS). The WTO Appellate Body found that the panel had erred in
considering whether the eight laws at issue violated the Agreement because the complainant
had not presented sufficient evidence and legal arguments to establish a prima facie case.
United States — Measures Affecting the Cross-Border Supply of Gambling and Betting
Services, WT/DS285. See infra text accompanying notes 155-176 for further discussion of
this case.
A challenge by Brazil to Florida’s equalizing excise tax on processed orange and
grapefruit products (WT/DS250) was resolved in 2004 without panelists having been
appointed after Florida amended its statute. Notification of Mutually Agreed Solution,
United States — Equalizing Excise Tax Imposed by Florida on Processed Orange and
Grapefruit Products, WT/DS250/3 (June 2, 2004); U.S. Brazil Settle Long-standing Dispute
Over Florida Tax to Promote Citrus Products, 21 Int’l Trade Rep. (BNA) 945 (2004).
11 For further discussion, see Uruguay Round SAA, supra note 6, at 676.
12 URAA, § 102(b)(2)(A), 19 U.S.C. § 3512(b)(2)(A). The term “State law” is defined to
include “any law of a political subdivision of a State, as well as any State law that regulates
or taxes the business of insurance.” URAA, § 102(b)(3), 19 U.S.C. § 3512(b)(3). The term
is intended to encompass “any provision of a state constitution, regulation, practice or other
state measure.” Uruguay Round SAA, supra note 6, at 674.
CRS-6
Uruguay Round agreements.”13 The statute also contains certain restrictions in any
such legal action brought by the United States, including that the report of the WTO
dispute settlement panel or the Appellate Body may not be considered binding or
otherwise accorded deference.14 Any such suit by the United States is expected to be
a rarity.15
Preclusion of Private Remedies. Private remedies are prohibited under
§ 102(c)(1) of the URAA, 19 U.S.C. § 3512(c)(1), which provides that “[n]o person
other than the United States ... shall have a cause of action or defense under any of
the Uruguay Round Agreements or by virtue of congressional approval of such an
agreements” or “may challenge, in any action brought under any provision of law,
any action or inaction by any department, agency, or other instrumentality of the
United States, any State, or any political subdivision of a State, on the ground that
such action or inaction is inconsistent with such agreement.”
Congress has additionally stated in § 102(c)(2) of the URAA, 19 U.S.C. §
3512(c)(2), that it intends, through the prohibition on private remedies:
to occupy the field with respect to any cause of action or defense under or in
connection with any of the Uruguay Round Agreements, including by precluding
any person other than the United States from bringing any action against any
State or political subdivision thereof or raising any defense to the application of
State law under or in connection with any of the Uruguay Round Agreements —
(A) on the basis of a judgment obtained by the United States in an action
brought under any such agreement; or
(B) on any other basis.
13 S.Rept. 103-412, at 15; see also H.Rept. 103-826(I), at 25, and Uruguay Round SAA,
supra note 6, at 670.
14 URAA, § 102(b)(2)(B), 19 U.S.C. § 3512(b)(2)(B). In addition, the United States will
have the burden of proving that the State law or its application is inconsistent with the WTO
agreement in question; any State whose interests may be impaired or impeded by the suit
will have the unconditional right to intervene as a party, and the United States will be
entitled to amend its complaint to include a claim or cross-claim concerning the law of a
State that does intervene; and any State law that is declared invalid will not be considered
to have been invalid in its application during any period before the court’s judgment
becomes final and all timely appeals are exhausted. The statute also requires the United
States Trade Representative to notify Congress before bringing any such suit. URAA, §
102(b)(2)(C), 19 U.S.C. § 3512(b)(2)(C).
15 Uruguay Round SAA, supra note 6, at 674; H.Rept. 103-826(I), at 26; S.Rept. 103-412,
at 15. The SAA states, inter alia, that the Attorney General “will be particularly careful in
considering recourse to this authority where the state measure involved is aimed at the
protection of human, animal, or plant health or of the environment or the state measure is
a state tax of a type that has been held to be consistent with the requirements of the U.S.
Constitution. In such a case, the Attorney General would entertain use of this statutory
authority only if consultations between the President and the Governor of the State
concerned failed to yield an appropriate alternative.” Uruguay Round SAA, supra note 6,
at 674.
CRS-7
The House Ways and Means Committee report on the URAA discusses the
rationale and implications of § 102(c) as follows:
For example, a private party cannot bring an action to require, preclude, or
modify government exercise of discretionary or general “public interest”
authorities under other provisions of law. These prohibitions are based on the
premise that it is the responsibility of the Federal Government, and not private
citizens, to ensure that Federal or State laws are consistent with U.S. obligations
under international agreements such as the Uruguay Round agreements.16
The SAA notes, however, that § 102(c) “does not preclude any agency of
government from considering, or entertaining argument on, whether its action or
proposed action is consistent with the Uruguay Round agreements, although any
change in agency action would have to be authorized by domestic law.”17 In addition,
federal courts have not viewed the provision as precluding them from considering
U.S. WTO obligations in challenges to agency actions implicating WTO
agreements.18
Implementation of WTO Decisions Involving Administrative
Action
In addition to the URAA provisions that limit the direct effect of WTO rules and
decisions in U.S. law, the URAA also places requirements on agencies in their
16 H.Rept. 103-826(I), at 26.
17 Uruguay Round SAA, supra note 6, at 676.
18 E.g., SNR Roulements v. United States, 341 F.Supp.2d 1334, 1341 (Ct. Int’l Trade 2004);
Timken v. United States, 240 F.Supp. 2d 1228, 1238 (Ct. Int’l Trade 2002); Gov’t of
Uzbekistan v United States, 2001 WL 1012780, at *3 (Ct. Int’l Trade Aug. 30, 2001). As
stated in Timken, which reviewed a challenge to a final Department of Commerce dumping
determination: “[Foreign producer] Koyo ... is not bringing this action under any WTO
agreement; rather, Koyo is arguing that the Department’s application and interpretation of
U.S. law violates its international obligations pursuant to a WTO agreement. Koyo is
certainly ‘free to argue that Congress would never have intended to violate an agreement it
generally intended to implement, without expressly saying so.’” 240 F.Supp. at 1238,
quoting Gov’t of Uzbekistan, supra, at *3.
For discussions of the relationship of WTO decisions and U.S. administrative and
judicial actions, see, e.g., Gregory Husisian, When a New Sheriff Comes to Town: The
Impending Showdown Between the U.S. Trade Courts and the World Trade Organization,
17 St. John’s J. Legal Comment. 457 (2003); Roger P. Alford, Federal Courts, International
Tribunals, and the Continuum of Deference, 43 Va. J. Int’l L. 675, 731-46 (2003); Julie
Dunne, Delverde and the WTO’s British Steel Decision Foreshadow More Conflict Where
the WTO Subsidies Agreement, Privatization, and United States Countervailing Duty Law
Intersect, 17 Am. U. Int’l L. 79 (2001); Michael F. Williams, Charming Betsy, Chevron, and
the World Trade Organization: Thoughts on the Interpretive Effect of International Trade
Law, 32 Law & Pol’y Int’l Bus. 677 (2001); Jane A. Restani & Ira Bloom, Interpreting
International Trade Statutes: Is the Charming Betsy Sinking? 24 Fordham Int’l L. J. 1533
(2001), Sixteenth Annual Judicial Conference of the United States Court of Appeals for the
Federal Circuit, 193 F.R.D. 263, 403-416 (1999); Thirteenth Annual Judicial Conference
of the United States Court of Appeals for the Federal Circuit, 166 F.R.D. 515, 609-638
(1995).
CRS-8
implementation of WTO panel and Appellate Body reports. These provisions apply
to (1) regulatory action in general and (2) new agency determinations in response to
WTO decisions involving trade remedy proceedings and the implementation of such
determinations.
Section 123 of the URAA: WTO Cases Involving Regulatory Action.
Section 123(g) of the URAA, 19 U.S.C. § 3533(g), provides that in any WTO case
in which a departmental or agency regulation or practice has been found to be
inconsistent with a WTO agreement, the regulation or practice may not be rescinded
or modified in implementation of the decision “unless and until” the USTR and
relevant agencies meet certain consultation requirements and the final rule or other
modification has been published in the Federal Register.19
Section 129 of the URAA: WTO Cases Involving Trade Remedy
Proceedings. Section 129 of the URAA, 19 U.S.C. § 3538, sets forth authorities
and procedures for administrative action by the U.S. International Trade Commission
(ITC) and the Department of Commerce (DOC) to implement adverse WTO reports
involving U.S. safeguards, antidumping, and countervailing duty statutes. U.S.
actions in these types of trade remedy proceedings are subject to obligations under
the GATT 1994 and, as the case may be, the WTO Agreement on Safeguards, the
WTO Antidumping Agreement, and the WTO Agreement on Subsidies and
Countervailing Measures (SCM Agreement).
The ITC is charged under U.S. safeguards law, set forth in Title II of the Trade
Act of 1974, with conducting investigations to determine whether or not increased
imports are a substantial cause of serious injury to a domestic industry. If the ITC
makes an affirmative injury determination, it recommends remedial measures to the
President, who ultimately determines whether or not to take action. In addition, in
antidumping and countervailing duty investigations carried out under Title VII of the
Tariff Act of 1930, the ITC determines whether dumped or subsidized imports, as the
case may be, cause material injury to domestic industries. The Department of
Commerce (DOC) makes determinations as to the existence and level of dumping or
subsidization in these investigations.
Implemented § 129 determinations in antidumping and countervailing duty
cases are reviewable in the U.S. Court of International Trade and by binational panels
established under Chapter 19 of the North American Free Trade Agreement
(NAFTA).20 Chapter 19 panels are available to review final agency determinations
19 An example of the use of the § 123 process may be found in the Commerce Department’s
issuance in 2003 of a modified privatization methodology for use in making subsidy
determinations in countervailing duty proceedings. The modification was issued in response
to adverse panel and appellate reports in DS212, discussed later in this report, a challenge
by the European Communities to 12 U.S. countervailing duty orders based on what the EC
alleged were WTO-inconsistent methodologies. See infra pp. 42-47.
20 URAA, § 129(e), adding Tariff Act of 1930, § 516A(a)(2)(B)(vii), 19 U.S.C. §
1516a(a)(2)(B)(vii)), and amending Tariff Act of 1930, § 516A(g)(8)(A)(i), 19 U.S.C. §
1516a(g)(8)(A)(i).
(continued...)
CRS-9
in antidumping and countervailing duty investigations involving NAFTA countries
in lieu of judicial review in the country in which the determination is made.
U.S. International Trade Commission. If an interim WTO panel report
or a WTO Appellate Body report concludes that an action by the ITC in connection
with a trade remedy proceeding is inconsistent with U.S. obligations under the WTO
Antidumping Agreement, SCM Agreement, or the Agreement on Safeguards, the
USTR may request the ITC to issue an advisory report on whether U.S. antidumping,
countervailing duty, or safeguards law, as appropriate, allows the ITC to take steps
with respect to the proceeding at issue that would render its action “not inconsistent
with” the panel or AB findings.21
The ITC is to report to the USTR within 30 calendar days of the USTR’s request
where an interim report is involved, and within 21 calendar days in case of an AB
report.22 These deadlines are aimed at ensuring that the USTR will receive the
requested advice in time to decide whether to appeal a panel’s interim report or to
implement an adverse report, and to estimate how long of a period for implementing
the WTO decision may be needed.23
If a majority of the Commissioners have found that action may be taken under
existing law, the USTR must consult with the House Ways and Means Committee
and the Senate Finance Committee and may request the ITC in writing to issue a new
determination in the underlying proceeding that would render the ITC action “not
inconsistent with” the WTO findings.24 The new determination must be issued
within 120 days of the USTR’s request.25 The time limitation is intended to allow
20 (...continued)
The Uruguay Round SAA states the following regarding the legal implications of
possible parallel judicial proceedings regarding the same agency determinations :
Since implemented determinations under section 129 may be appealed, it
is possible that Commerce or the ITC maybe in the position of simultaneously
defending determinations in which the agency reached different conclusions. In
such situations, the Administration expects that courts and binational panels will
be sensitive to the fact that under the applicable standard of review, as set forth
in statute and case law, multiple permissible interpretations of the law and the
facts may be legally permissible in any particular case, and the issuance of a
different determination under section 129 does not signify that the initial
determination was unlawful.
Uruguay Round SAA, supra note 6, at 1027.
21 URAA, § 129(a)(1), 19 U.S.C. § 3538(a)(1).
22 URAA, § 129(a)(2), 19 U.S.C. § 3538(a)(2).
23 Uruguay Round SAA, supra note 6, at 1023.
24 URAA, § 129(a)(3),(4), 19 U.S.C. § 3538(a)(3),(4).
25 ITC authority to issue a new determination is granted “notwithstanding any provision of
Tariff Act of 1930 ... or title II of the Trade Act of 1974.” The SAA explains that “[m]any
of the ITC’s proceedings are time-limited by statute, and the ITC cannot revisit its actions
(continued...)
CRS-10
the USTR to propose a reasonable period of time for implementation to the WTO
once a panel and any appellate report is adopted.26
Further Action in Antidumping and Countervailing Duty Proceedings. If
an antidumping or countervailing duty order must be revoked in whole or in part
because it is no longer supported by an affirmative ITC determination, the USTR
may direct DOC to revoke the order to the extent needed.27 The USTR must consult
with the House Ways and Means and Senate Finance Committees before the ITC’s
new determination is implemented.28 Determinations that are implemented under this
authority apply to unliquidated entries of the subject merchandise that are entered,
or withdrawn from warehouse for consumption, on or after the date on which the
USTR directs the Commerce Department to revoke the order in question.29 Notices
25 (...continued)
in those proceedings in the absence of the authority provided by subsection (a)(4) or a
remand.” Uruguay Round SAA, supra note 6, at 1024.
26 Id.
27 URAA, § 129(a)(6), 19 U.S.C. § 3538(a)(6).
28 URAA, § 129(a)(3),(5), 19 U.S.C. § 3538(a)(3),(5).
29 URAA, § 129(c)(1), 19 U.S.C. § 3538(c)(1). Unliquidated entries are those for which the
Customs Service has not ascertained a final rate and amount of duty. U.S. Customs and
Border Protection, Importing into the United States; A Guide for Commercial Importers
105-106 (2002 ed.), at [http://www.customs.gov/xp/cgov/toolbox/publications/trade].
The SAA explains this provision as follows:
Consistent with the principle that GATT panel recommendations apply only
prospectively, subsection 129(c)(1) provides that where determinations by the
ITC or Commerce are implemented under subsections (a) or (b), such
determinations have prospective effect only. That is, they apply to unliquidated
entries of merchandise entered, or withdrawn from warehouse, for consumption
on or after the date on which the Trade Representative directs implementation.
Thus, relief available under subsection 129(c)(1) is distinguishable from relief
available in an action brought before a court or a NAFTA binational panel,
where, depending on the circumstances of the case, retroactive relief may be
available. Under 129(c)(1), if implementation of a WTO report should result in
the revocation of an antidumping or countervailing duty order, entries made prior
to the date of Trade Representative’s direction would remain subject to potential
duty liability.
Uruguay Round SAA, supra note 6, at 1026. See also H.Rept. 103-826(I), at 39; S.Rept.
103-412, at 27.
Canada unsuccessfully challenged § 129(c)(1) in a WTO dispute settlement proceeding
in January 2001, arguing that the provision precludes the United States from complying fully
with WTO rulings since, in Canada’s view, it requires U.S. agencies to ignore a WTO ruling
with respect to unliquidated imports that enter before the date that USTR directs
implementation even though the final determination assessing those duties will be made
after the U.S. compliance deadline in the case. Canada alleged violations of the DSU,
Article VI of the GATT 1994, and the WTO Antidumping Agreement and the Agreement
(continued...)
CRS-11
of the implementation of § 129 determinations must be published in the Federal
Register.30
Further Action in Safeguards Proceedings. Where a safeguard proceeding
is at issue, the President is authorized, after receiving a new ITC determination, to
reduce, modify, or terminate the safeguard notwithstanding other statutory
requirements regarding changes in existing safeguard measures.31 The President is
required to consult with the House Ways and Means Committee and Senate Finance
Committee before acting under this authority.32 The USTR must publish a notice of
the implementation of any ITC determination in the Federal Register.33
Department of Commerce. A procedure for USTR and agency interaction,
including congressional consultation requirements, is also set forth with respect to
DOC determinations in antidumping and countervailing duty proceedings, though
without the requirement for an initial agency advisory report regarding the extent of
its statutory discretion. Instead, promptly after the issuance of a WTO panel or
appellate report finding that a DOC action in an antidumping or countervailing duty
proceeds is inconsistent with U.S. obligations under the WTO Antidumping
Agreement or the SCM Agreement, the USTR is to consult with DOC and the House
Ways and Means and Senate Finance Committees, and may request DOC in writing
to issue a determination in connection with the underlying proceeding that would
render its action “not inconsistent with” the panel or appellate findings.34 DOC must
29 (...continued)
on Subsidies and Countervailing Measures (SCM Agreement). See WTO Dispute
Settlement Proceeding Regarding Section 129(c)(1) of the Uruguay Round Agreements Act,
66 Fed. Reg. 41649 (Aug. 8, 2001). The panel in the case concluded that Canada had failed
to establish that the provision violated the cited WTO obligations and thus made no
recommendations to the WTO Dispute Settlement Body. Panel Report, United States —
Section 129(c)(1) of the Uruguay Round Agreements Act, WT/DS221 (July 15, 2002).
Canada did not appeal and the report was adopted August 30, 2002. See generally WTO
Panel Rejects Canadian Challenge to U.S. Rules to Correct Antidumping Fees, 19 Int’l
Trade Rep. (BNA) 1275 (2002).
30 URAA, § 129(c)(2), 19 U.S.C. § 3538(c)(2).
31 URAA, § 129(a)(7), 19 U.S.C. § 2254(b)(3).
32 Id.
33 URAA, § 129(c)(2)(B), 19 U.S.C. § 3538(c)(2)(B).
34 URAA, § 129(b)(1),(2), 19 U.S.C. § 3538(b)(1),(2). Senate legislative history indicates
that USTR is expected to “consult closely with Commerce in order to ensure that it benefits
from Commerce’s expertise with respect to both the panel or Appellate Body reports and
the appropriate implementing action (if any), including the implications of any such action
on the administration of the antidumping or countervailing duty law.” S.Rept. 103-412, at
27. The Senate Finance Committee has further stated that it “expects to be consulted closely
by the Administration throughout this process, and to be informed and provided an
explanation should USTR decide to implement an adverse panel or Appellate Body decision
notwithstanding a contrary recommendation by Commerce.” Id. If USTR directs
Commerce to implement the new determination, “Commerce may do so even if litigation
is pending with respect to the initial agency determination.” H.Rept. 103-826(I), at 39.
CRS-12
issue a determination within 180 days of the request.35 After consulting with DOC
and the above-named congressional committees, USTR may direct DOC to
implement its determination in whole or in part.36
Implementation of WTO Rulings in Pending Cases
Seven WTO dispute proceedings that involve federal statutes are now at the
compliance stage — that is, panel and appellate reports adverse to the United States
have been adopted by the DSB and compliance issues have not yet been fully
resolved.37 At issue are challenges to
! the Foreign Sales Corporation (FSC) statute and its replacement
statute, the Extraterritorial Income (ETI) Exclusion Act;
! § 110 of the Copyright Act, a statute affecting music licensing;
! § 211 of the Omnibus Appropriations Act of 1998, a statute affecting
trademarks affecting property confiscated by Cuba;
! a provision of antidumping law involving the calculation of dumping
rates for producers and exporters that are not individually
investigated by the Commerce Department;
! the Continued Dumping and Subsidy Offset Act (CDSOA), which
requires the distribution of collected antidumping and countervailing
duties to petitioners and interested parties in the underlying trade
proceedings;
! statutes providing cotton subsidies to U.S. producers and exporters;
and
! federal laws governing the remote supply of gambling services.
While the WTO proceeding involving U.S. cotton subsidies, United States —
Subsidies on Upland Cotton (WT/DS267), also implicates regulatory action by the
United States, this report focuses on statutory aspects of U.S. compliance.
Seven pending cases involve regulatory action in trade remedy proceedings
under existing statutory authorities. At issue are the following:
! whether the Department of Commerce (DOC) properly determined
if subsidies were provided to privatized EC steel companies;
35 URAA, § 129(b)(2), 19 U.S.C. § 3538(b)(2).
36 URAA, § 129(b)(3),(4), 19 U.S.C. § 3538(b)(3),(4).
37 Further information on these disputes is available at the USTR and WTO sources listed
at supra note 1.
CRS-13
! a question as whether a subsidy bestowed on lumber produced by
one Canadian enterprise was “passed through” to unrelated
downstream entities;
! the administrative practice of “zeroing” used by the Department of
Commerce in determining dumping margins for Canadian softwood
lumber;
! the basis of a threat of injury determination by the U.S. International
Trade Commission (ITC) in combined antidumping and
countervailing duty investigations of Canadian lumber imports;
! the implications of waiving participation in sunset (five-year)
reviews of antidumping orders; and
! DOC findings in a sunset review that dumping was likely to
continue or recur; and
! whether, in a countervailing duty proceeding, the ITC attributed to
imports injury caused by other factors.
In the fifth bulleted case, United States — Sunset Reviews of Anti-Dumping
Measures on Oil Country Tubular Goods from Argentina (WT/DS268), the panel
found both a U.S. statute and its related regulations to be inconsistent with WTO
obligations. In implementing the ruling, however, the United States took only
regulatory action to comply.
Pending Cases Involving Legislative Action
Foreign Sales Corporation (FSC) Statute (Tax Exemption for
“Foreign Trade Income”) (DS108). This case concerns U.S. tax statutes
governing the treatment of export income, which were found to constitute prohibited
export subsidies under the WTO Agreement on Subsidies and Countervailing
Measures (SCM Agreement) and to violate other WTO obligations.38 Although the
United States sought to comply with the original adverse ruling involving the FSC
statute by repealing the provisions and establishing new rules for the treatment of
extraterritorial income (FSC Repeal and Extraterritorial Income Exclusion Act of
2000, P.L. 106-519), complainant European Communities (EC) requested
authorization to retaliate, arguing that the new law did not satisfy WTO requirements.
Following a U.S. request for an arbitral panel on the level of retaliation, the
parties agreed to suspend the arbitration until the completion of compliance
proceedings. A compliance panel report, generally upheld by the Appellate Body,
38 For additional information on the history of this dispute and the statutes involved, see the
following: CRS Report RL31660, A History of the Extraterritorial Income (ETI) and
Foreign Sales Corporation (FSC) Export Tax-Benefit Controversy, by David L. Brumbaugh;
and CRS Report RS20746, Export Tax Benefits and the WTO: The Extraterritorial Income
Exclusion and Foreign Sales Corporations, by David L. Brumbaugh.
CRS-14
found that the new law also provided an export subsidy in violation of WTO rules;
the reports were adopted in January 2002. The arbitration resumed, with the EC
asking for some $4 billion in countermeasures and the United States arguing that
$956 million was proper. The arbitral panel ruled August 30, 2002, that $4 billion
was appropriate in this case. The EC received authorization from the DSB to impose
the retaliatory measures May 7, 2003, but stated that it would review U.S. actions in
the following months before deciding whether to take further action.39 The United
States pledged to comply with the WTO rulings.40
The EC subsequently announced that it would impose an additional 5% ad
valorem duty on a list of U.S. products as of March 1, 2004, if the statute were not
repealed as of that date. The duty would increase automatically by 1% each month,
and would reach a maximum 17% on March 1, 2005, if the United States did not
comply in the interim. The duty was imposed as announced.41
The ETI statute was repealed in October 2004 in § 101 of the American Jobs
Creation Act (Jobs Act), P.L. 108-357; the repeal provisions entered into force
January 1, 2005.42 The statute also provides a two-year transition period for phase-
out of the ETI benefit, continues the benefit for transactions in the ordinary course
of business pursuant to a binding contract between the taxpayer and an unrelated
person in effect on September 17, 2003, and contains numerous other corporate tax
provisions. Upon enactment of the new law, then EU Trade Commissioner Lamy
announced that he intended to ask the EU Council to suspend the sanctions as of the
effective date of the statute, but that the European Commission would seek review
of the legislation under the WTO dispute settlement system, focusing on the
exemption for transactions under the contracts described above.43
39 “Foreign Sales Corporations: Following WTO authorisation to apply countermeasures of
up to $4 billion, EU expects to ensure compliance with WTO rules before the beginning of
next year,” EC Press Release, IP/03/642, May 7, 2003, at [http://europa.eu.int].
40 H.R. 5095 (Thomas), a 107th Congress proposal to repeal the statute and revise various
international tax provisions in U.S. law, was not acted upon. Multilateral negotiations on
the issue were also proposed. The Administration, in its FY2004 budget proposal, called
for repeal of the law and stated an intent to work with Congress for statutory reform of
international tax rules.
41 See Council Regulation (EC) No 2193/2003 of 8 December 2003, at [http://europa.eu.int/
eur-lex], and “Foreign Sales Corporations (FSC): Commission prepares for the imposition
of countermeasures on U.S. products,” EC Press Release, IP/03/1505, November 5, 2003,
at [http://europa.eu.int]. For detailed discussion and analysis of the EC retaliation, see CRS
Report RS21742, European Trade Retaliation: The FSC-ETI Case, by Raymond J. Ahearn.
42 For a discussion of the enacted legislation, see CRS Report RL32652, The 2004
Corporate Tax and FSC/ETI Bill: The American Jobs Creation Act of 2004, by David L.
Brumbaugh.
43 EU News Release No. 147-04, Oct. 25, 2004, at [http://www.eurunion.org][hereinafter
cited EU News Release]; EU to End Sanctions in Wake of Export Bill But Plans Appeal of
Grandfather Provisions, 21 Int’l Trade Rep. (BNA) 1744 (2004). With regard to the
transition period in the statute, the EC press release states that “during discussions with the
US Congress the EU had signaled its willingness to accept a two-year transition period
(continued...)
CRS-15
Recent developments. On January 14, 2005, the EC requested that a
compliance panel review the Jobs Act, claiming that the statute contained provisions
“which will allow US exporters to continue benefiting from the tax exemptions
already found to be WTO incompatible (a) in the years 2005 and 2006 with respect
to all transactions and (b) for an indefinite period with respect to certain contracts”
and that thus “the United States has failed to implement the DSB’s recommendations
and rulings by failing to withdraw without delay schemes found to be prohibited
subsidies under the SCM Agreement and to bring its legislation into conformity with
its obligations under the SCM Agreement, the Agreement on Agriculture and the
GATT 1994.”44 Later that month, the EU Council directed that sanctions be
suspended, retroactive to January 1, 2005, with the proviso that they be reimposed
at 14% ad valorem as of January 1, 2006, or 60 days after the DSB adopts any WTO
ruling that the United States is noncompliant in the case, whichever is later.45
The WTO panel report, issued September 30, 2005, ruled in favor of the EC,
stating that “[i]t is clear that continuing to grant subsidies found to be prohibited is
not consistent with the obligation to ‘withdraw’ prohibited export subsidies, in the
sense of ‘removing’ or ‘taking away.’”46 It found that “to the extent that the United
43 (...continued)
provided all other aspects of the bill were satisfactorily addressed.” EU News Release,
supra. See also Lamy Decision on FSC-ETI May Signal Link to Boeing, Beef Hormone
Fights, Inside U.S. Trade, Oct. 29, 2004, at 1.
The Senate Finance Committee report on S. 1637, which contained an exemption for
transactions under pre-September 18, 2003, contracts, states the contracts covered by the
provision primarily involve long-term leasing arrangements, which “typically entail a U.S.
lessor purchasing the manufactured goods from the manufacturer and subsequently entering
into a long-term lease with a foreign lessee.” S.Rept. 108-192, at 9. “Under these
circumstances,” the report states, “the FSC/ETI tax benefit accrues to the lessor rather than
the manufacturer of the leased good.” Id. The report further states that “[l]easing is a
service and is recognized as such within the WTO.” It maintains that providing “non-
discriminatory subsidies to service suppliers is not prohibited under the WTO General
Agreement on Trade in Services (“GATS”)” and therefore “an extension of FSC/ETI
benefits for existing long-term leasing contracts does not appear to be inconsistent with the
WTO obligations of the United States under the GATS.” Id. The report further adds, that
the extension of the tax benefits for such contracts “will have no effect on future exports.”
Id.. The House bill, H.R. 4520, also contained an exemption for such transactions, but also
contained a sentence, included in the enacted legislation, stating that for purposes of the
provision, “a binding contract shall include a purchase option, renewal option, or
replacement option which is included in such contract and which is enforceable against the
seller or lessor.” P.L. 108-357, § 101(f).
44 Request for the Establishment of a Panel, Second Recourse to Article 21.5 of the DSU by
the European Communities, United States — Tax Treatment for “Foreign Sales
Corporations,” WT/DS108/29 (Jan. 14, 2005).
45 Council Regulation (EC) No 171/2005 of 31 January 2005 amending and suspending the
application of Regulation (EC) No. 2193/2003 establishing additional customs duties on
imports of certain products originating in the United States of America, at
[http://europa.eu.int/eur-lex].
46 Panel Report, Second recourse to Article 21.5 of the DSU by the European Communities,
(continued...)
CRS-16
States, by enacting Section 101 of the Jobs Act, maintains prohibited FSC and ETI
subsidies, through these transitional and grandfathering measures, it continues to fail
to implement fully the operative DSB recommendations and rulings to withdraw the
prohibited subsidies and to bring its measures into conformity with its obligations
under the relevant covered agreements.”47 The panel further stated that because the
WTO rulings and recommendations made in 2000 “remained operative through the
results of the compliance proceedings in 2002, we make no new recommendation.”48
The United States appealed the ruling on November 14, 2005.49 The EC
appealed on November 28, 2005, requesting, in part, that were the Appellate Body
to reverse any of the panel’s findings, the AB consider other listed EC claims.50 On
February 13, 2006, the AB issued a ruling upholding the challenged panel findings.51
Under WTO rules, the report is to be adopted by the DSB within 30 days after its
issuance. While the United States has called on the EC not to reimpose sanctions,
EC Trade Commissioner Mandelson has stated that the tariff surcharges will be
reimposed 60 days after adoption of the panel and AB reports unless a mutually
agreed solution is reached before that time.52
Section 110(5)(B) of the Copyright Act (Music Copyrights) (DS160).
This dispute involves legislation enacted in 1998 (17 U.S.C. § 110(5)(b), as added
by P.L. 105-298, § 202(a)), which provides that it is not a copyright infringement for
bars and restaurants and other retail outlets to play radio and television music without
authorization from the copyright holder or the payment of fees so long as the
46 (...continued)
United States — Tax Treatment for “Foreign Sales Corporations,” ¶ 7.62, WT/DS108/RW2
(Sept. 30, 2005). Referring to a statement in the prior compliance panel ruling in the case
“that the obligation to withdraw prohibited subsidies is unaffected by contractual obligations
that the Member itself may have assumed under its applicable domestic legislation or
regulation,” the panel stated that “[s]imilarly, this obligation cannot be affected by
contractual arrangements which private parties may have made in reliance on laws
conferring prohibited export subsidies.” Id. ¶ 7.63 (emphasis added).
47 Id. ¶ 8.1.
48 Id. ¶ 8.2
49 Notification of an Appeal by the United States, Second Recourse to Article 21.5 of the
DSU by the European Communities, United States — Tax Treatment for “Foreign Sales
Corporations,” WT/DS108/32 (Nov. 16, 2005).
50 Notification of an Other Appeal by the European Communities, Second Recourse to
Article 21.5 of the DSU by the European Communities, United States — Tax Treatment for
“Foreign Sales Corporations,” WT/DS108/33 (Nov. 30, 2005).
51 Appellate Body Report, Second Recourse to Article 21.5 of the DSU by the European
Communities, United States — Tax Treatment for “Foreign Sales Corporations,”
WT/DS108/AB/RW2 (Feb. 13, 2006).
52 EC Seeks Negotiated Solution on FSC But Warns of Retaliation, Inside U.S. Trade, Feb.
24, 2006, at 1; U.S. Urges EU Not to Reimpose Sanctions After Losing WTO FSC Appeal,
Inside U.S. Trade, Feb. 17, 2006, at 1; WTO Appeals Body Finds U.S. Not Complying in
FSC/ETI Ruling; EU to Reimpose Sanctions, 23 Int’l Trade Rep. (BNA) 226 (2006).
CRS-17
establishments meet certain size limitations or equipment requirements.53
Challenged by the EC in 1999, this so-called “small business” exemption was found
to be an improper rights limitation in violation of Article 13 of the Agreement on
Trade-Related Intellectual Property Rights (TRIPS).
In the absence of U.S. legislative action by the end of the initial compliance
period (July 27, 2001), complainant EC agreed to extend the period to the end of
2001, and to consider U.S. compensation for the EC music industry based on an
amount of trade injury determined by arbitration under Article 25 of the DSU, a free-
standing arbitration provision. A November 9, 2001 arbitral award determined that
some $1.1 million in EC trade benefits are affected annually.
Notwithstanding the arbitration, the EC on January 7, 2002, requested
authorization to impose countermeasures on the ground that the United States had not
fully complied by the extended deadline, proposing to suspend concessions under the
TRIPS Agreement by “levying a special fee from US nationals in connection with
border measures concerning copyright goods.” While the United States asked for
arbitration of the proposal, the United States and the EC on February 26, 2002, asked
that the arbitration be suspended, with the understanding that it could be reactivated
by either party after March 1, 2002.
In April 2003, Congress appropriated $3.3 million for a “one-time only, lump-
sum payment” to the EC to cover a three-year period of nullification and impairment
of benefits in the dispute (P.L. 108-11).54 The parties notified the WTO in late June
2003 that the payment, which will be made into a fund for EC performers, constitutes
a temporary settlement of the dispute.55 They also agreed that the EC may request that
the suspended arbitration be resumed any time after December 20, 2004, or if the
United States fails to pay within 45 days after being notified that the fund has been
established.
Recent developments. Shortly before the three-year U.S.-EC agreement
expired, the EC complained to the DSB that the United States had taken only
minimal steps to secure the passage of legislation that would bring the United States
53 For further discussion of this provision, see CRS Report RS21107, Copyright Law’s
“Small Business Exception”: Public Performance Exemptions for Certain Establishments,
by Todd B. Tatelman.
54 See H.Rept. 108-76 at 33, 92. As does the House report on the enacted appropriation, the
House report on the House-passed FY2004 appropriation for the USTR (H.R. 2799) points
out that approval of the payment was intended as a “one-time only” funding measure and
further states that “[t]here is a long-established practice of using suspension of tariff
concessions to resolve trade disputes and the Committee does not intend to appropriate
funds to settle these matters.” H.Rept. 108-221 at 65. In addition, the Committee “cautions
U.S. negotiators that there should be no commitments made within trade agreements to use
funds from the U.S. Treasury that have neither been requested nor appropriated to resolve
trade disputes.” Id.
55 Notification of a Mutually Satisfactory Temporary Arrangement, United States — Section
110(5) of the US Copyright Act, WT/DS160/23 (June 26, 2003).
CRS-18
into full compliance in the case.56 The continued existence of the provision was also
mentioned in the European Union’s December 2004 report on US. trade barriers,
which stated “the US is under an obligation to amend its legislation in the light of the
WTO ruling” and that “the US has still not taken any definitive action in order to
comply with the DSB recommendation to bring the Copyright Act into conformity
with WTO rules.”57 Earlier in 2005, the EC was reportedly seeking continued
compensation in the case, an action that would require an appropriation by
Congress.58 The EC regularly raises the issue of U.S. noncompliance at DSB
meetings held in 2005, noting that it has reserved its right to reactivate the arbitration
on its retaliation request at any time,59 while the United States continues to report to
the DSB that it is working with Congress on the matter.60
Section 211 of the Omnibus Appropriations Act of 1998 (Trademark
Exclusion Involving Property Confiscated by Cuba) (DS176). This case
involves a statute (P.L. 105-277, 112 Stat. 2681-88), which prohibits the registration
or enforcement in the United States, without the consent of the original owner or
successors, of a trademark that is the same or substantially the same as one used in
connection with a business or assets confiscated by the Cuban government.
Challenged by the EC in 1999, the law was ultimately found to violate national
treatment and most-favored-nation obligations in the TRIPS Agreement in that it
limited the prohibition on registration and enforcement of rights to rights asserted by
Cuba and Cuban nationals or their successors-in-interest. Panel and Appellate Body
reports in the case were adopted January 2, 2002.61
Recent developments. The original compliance period, as agreed upon by
the United States and the EC, expired December 31, 2002; it was extended four
56 Dispute Settlement Body, Minutes of Meeting, Nov. 24 and 26, 2004, at 7,
WT/DSB/M/178 (Jan. 17, 2005).
57 European Commission, Report on United States Barriers to Trade and Investment 2004
at 67, 88 (Dec. 2004), at [http://europa.eu.int/comm/trade/issues/bilateral/countries/
usa/pr231204_en.htm]. See also European Commission, Directorate-General for Trade,
General Overview of Active WTO Dispute Settlement Cases Involving the EC as
Complainant or Defendant, 15 April 2005, at 16, at [http://trade-info.cec.eu.int/doclib/docs/
2005/April/tradoc_118122.pdf].
58 EU Seeks Continued Copyright Payment from U.S. in Irish Music Case, Inside U.S. Trade,
Feb. 25, 2005, at 6.
59 E.g., WTO News, Dispute Settlement Body, Nov. 28, 2005, at
[http://www.wto.org/english/news_e/news05_e/dsb_28nov05_e.htm]; Dispute Settlement
Body, Minutes of Meeting, Aug. 31, 2005, at 7, WT/DSB/M/196 (Sept. 30, 2005)
[hereinafter DSB Minutes (Aug. 31, 2005)].
60 E.g., Status Report by the United States, Addendum, United States — Section 110(5) of
the US Copyright Act, WT/DS160/24/Add.13 (Jan. 10, 2006).
61 For more detailed information on the legal issues involved in this case, see CRS Report
RS21764, Restricting Trademark Rights of Cubans: WTO Decision and Congressional
Response, by Margaret Mikyung Lee.
CRS-19
times, also by agreement, most recently to June 30, 2005.62 The United States did not
comply by this date. Instead of agreeing to an extension of the deadline or,
alternatively, requesting authorization to retaliate, the EC has entered into an
agreement with the United States regarding rights and procedures involving any
future EC retaliation request.63 The EC has agreed not to request authorization to
suspend concessions for the time being, but if it chooses to do so later, it has pledged
to notify and consult with the United States before making such a request to the DSB.
For its part, the United States has agreed not to block any retaliation request by the
EC on the ground that the request is outside the 30-day window provided for in
Article 22.6 of the DSU; the United States also retains the right to object to a
proposed retaliation request and to refer the matter to arbitration.
Two 109th Congress bills would amend § 211 to make it applicable to all
persons claiming rights in trademarks confiscated by Cuba, whatever their nationality
(S. 691 [Domenici]; H.R. 1689 [Feeney]).64 Two other 109th Congress bills would
repeal the provision (H.R. 3372 [Flake] and S. 1604 [Craig]). S. 328 (Craig) and
H.R. 719 (Moran) would repeal § 211 along with enacting various Cuba-related trade
facilitation provisions. A pending amendment to S. 600, foreign relations
authorization legislation for FY2006 and FY2007, would do the same (S.Amdt. 281
[Baucus]). Other 109th Congress legislation would repeal § 211 along with removing
the current trade embargo on Cuba (H.R. 208 [Serrano]; H.R. 579 [Paul]). To date,
no action has been taken on any of the legislation.
As the EC and Cuba continue to raise the issue of U.S. noncompliance at recent
DSB meetings,65 the United States has been regularly reporting to the DSB that
legislative proposals related to § 211 have been introduced in the House and Senate
62 Modification of the Agreement under Article 21.3(b) of the DSU, United States —
Section 211 Omnibus Appropriations Act of 1998, WT/DS176/15 (Dec. 21, 2004).
63 Understanding between the European Communities and the United States, United States
— Section 211 Omnibus Appropriations Act of 1998, WT/DS176/16 (July 1, 2005).
64 See 151 Cong. Rec. S3153 (daily ed. April 4, 2005)(remarks of Mr Domenici). Two 108th
Congress bills, H.R. 4225 (Smith) and S. 2373 (Domenici), would also have amended the
statute to extend its prohibition on judicial recognition of trademark rights to rights asserted
by nationals of all countries. Neither was acted upon.
A number of bills that would have repealed § 211 were introduced in the 108th
Congress, but no action was taken on any of these proposals. Three bills would have
repealed § 211 in connection with the removal of the U.S. trade embargo with Cuba: H.R.
188 (Serrano); S. 403 (Baucus); and H.R. 1698 (Paul). A fourth bill, H.R. 2494 (Rangel),
the United States-Trademark Protection Act of 2003, introduced June 13, 2003, would have
repealed § 211 and made other changes in U.S. law relating to trademarks involving Cuba.
An identical Senate bill, S. 2002 (Baucus/Craig), was introduced December 9, 2003.
The Senate Judiciary Committee held a hearing on Section 211 issues on July 13,
2004. See “An Examination of Section 211 of the Omnibus Appropriations Act of 1998,”
at [http://judiciary.senate.gov], for witness lists, testimony and Members statements.
65 E.g., WTO News, Dispute Settlement Body, Nov. 28, 2005, at
[http://www.wto.org/english/news_e/news05_e/dsb_28nov05_e.htm]. Note also DSB
Minutes (Aug. 31, 2005), supra note 59, at 2-4. Cuba has also criticized the U.S.-EC
Understanding, alleging, among other things, a lack of transparency. Id. at 3-4.
CRS-20
and that it is working with the Congress “with respect to appropriate statutory
measures that would resolve this matter.”66
Antidumping Measures on Hot-Rolled Steel Products from Japan
(DS184). This case involves a challenge to preliminary and final agency
determinations issued in 1998 and 1999 in an antidumping investigation of hot-rolled
steel products from Japan. The panel, as upheld by the Appellate Body, found that
the United States was in violation of the WTO Antidumping Agreement because (1)
U.S. law, specifically § 735(c)(5)(A) of the Tariff Act of 1930, requires the
Commerce Department to include dumping margins based in part on “facts
available,” including those contained in petitions, in calculating the antidumping duty
rate for companies not investigated individually in a case (all-others rate); (2) the
Commerce Department improperly applied facts available in calculating dumping
margins for specific producers; and (3) the Department had improperly excluded
from the calculation of the normal value of the products under investigation certain
home market sales to parties affiliated with the exporter involved.67 The Appellate
Body also ruled against the United States with respect to the ITC’s injury
determination, reversing panel findings that the ITC had properly applied a captive
production provision and that the agency had found a causal link between the
dumped imports and material injury to the industry involved. With regard to Japan’s
causation claim, however, the AB found that there was an insufficient factual record
to allow completion of the required analysis.68
The arbitrated compliance period in the case expired November 23, 2002.
While Japan had threatened trade retaliation earlier in November because it found it
unlikely that the United States would comply with each element of the ruling by this
deadline, the deadline was extended until December 31, 2003, or the end of the 108th
Congress, 1st Session (whichever was earlier), to comply fully with the panel and
appellate reports in the case.69
66 E.g., Status Report by the United Status, Addendum, United States — Section 211
Omnibus Appropriations Act of 1998, WT/DS176/11/Add.38 (Jan. 10, 2006).
67 Panel Report, United States — Anti-dumping Measures on Certain Hot-Rolled Steel
Products from Japan, WT/DS184/R (Feb. 28, 2001)[hereinafter Hot-Rolled Steel Panel
Report]; Appellate Body Report, United States — Anti-dumping Measures on Certain Hot-
Rolled Steel Products from Japan, WT/DS184/AB/R (July 24, 2001)[hereinafter Hot-Rolled
Steel Appellate Body Report].
68 Hot-Rolled Steel Appellate Body Report, supra note 67, at ¶ 235-236.
69 After consultations with Japan, the United States requested that deadline be extended to
the dates noted; the DSB approved the extension on December 5, 2002. See Status Report
by the United States, Addendum, United States — Anti-dumping Measures on Certain Hot-
Rolled Steel Products from Japan, WT/DS184/15/Add.3 (Dec. 9, 2002).
The United States and Japan had reportedly been in disagreement regarding
implementation of the ruling as it relates to the ITC’s application of the statutory captive
production provision. See Japan Threatens Retaliation Against U.S. For Hot-Rolled Steel
Antidumping Duties, 19 Int’l Trade Rep. (BNA) 1965 (2002); U.S. Response Leaves WTO
Ruling on Hot-Rolled Injury Claims Untouched, Inside U.S. Trade, Nov. 15, 2002, at 3; U.S.
Gets Extra Year to Comply with WTO Hot-rolled Steel Decision, Inside U.S. Trade, Dec. 6,
(continued...)
CRS-21
Administrative compliance. In partial implementation of the WTO rulings,
the Commerce Department modified the test that it uses to determine which
transactions are made by an exporter or producer to an affiliate at arm’s length and
are therefore “in the ordinary course of trade” 70 The panel, as upheld by the
Appellate Body, found that the test that the United States had applied in the dumping
investigation at issue violated Article 2.1 of the Antidumping Agreement, which
provides that a product “is to be considered dumped, i.e. introduced into the
commerce of another country at less than its normal value, if the export price of the
product exported from one country to another is less than the comparable price, in the
ordinary course of trade, for the like product when destined for consumption in the
exporting country.”71 Sales that are outside the “ordinary course of trade” are thus
to be excluded by national authorities when calculating normal value.
Under past practice, the Department considered sales of a product to an affiliate
to be at arm’s length if the prices charged were on average at least 99.5 percent of the
prices charged to unaffiliated comparison market customers. The Department’s new
test provides that for affiliate sales to be considered, the sales prices “must fall, on
average, within a defined range, or band, around sales prices of the same or
comparable merchandise sold by that exporter or producer to all unaffiliated
customer’s. The band applied for this purpose will provide that the overall ratio
calculated for an affiliate be between 98 percent and 102 percent, inclusive, of prices
to unaffiliated customers ....”72
According to the Department, the regulatory revision “is consistent with the
view, expressed by the WTO Appellate Body, that rules aimed at preventing the
distortion of normal value through sales between affiliates should reflect, ‘even-
handedly,’ that ‘both high and low-price sales between affiliates might not be ‘in the
ordinary course of trade.’”73 The Department stated that the new methodology would
be used to implement the WTO findings regarding the Japan hot-rolled steel AD
proceeding, and applied in all investigations and reviews initiated on or after
November 23, 2002.74
69 (...continued)
2002, at 13. No action has been taken by the ITC in response to the WTO decision.
70 Antidumping Proceedings: Affiliated Party Sales in the Ordinary Course of Trade, 67 Fed.
Reg. 69186 (Nov. 15, 2002)[hereinafter Modification of Antidumping Methodology]. See
also Antidumping Proceedings: Affiliated Party Sales in the Ordinary Course of Trade, 67
Fed. Reg. 53339 (Aug. 15, 2002)(request for public comment).
71 Hot-Rolled Steel Panel Report, supra note 67, at ¶¶ 7.91-7.120, Hot-Rolled Steel
Appellate Body Report, supra note 67, ¶¶ 131-173.
72 Modification of Antidumping Methodology, supra note 70, 67 Fed. Reg. at 69186. The
Department noted that its modification was the same as that proposed in August 2002, “with
the exception of comparing prices of ‘similar’ products where an identical comparison
product was not sold to unaffiliated parties ....” Id. at 69187.
73 Id.
74 Id.
CRS-22
On December 3, 2002, the Department announced a new dumping determination
in the AD proceeding at issue, stating that in implementation of the WTO rulings and
recommendations, it had recalculated dumping margins for three affected Japanese
producers using the new methodology; addressed issues related to the use of adverse
facts available; and recalculated the all-others rate based on the new rates for the
respondent companies.75 The recalculations resulted in reduced dumping margins for
the three companies as well for all other exporters.
Legislative compliance. As noted earlier, the dispute panel, as upheld by
the Appellate Body, concluded that the United States was in violation of its WTO
obligations because of its use of dumping margins based in part on facts available in
determining the all-others rate in antidumping proceedings. Article 9.4 of the WTO
Antidumping Agreement provides, in pertinent part, that the all-others rate may not
exceed the weighted average margin established with respect to individually
investigated producers or exporters, excluding any zero and de minimis margin and
“margins established under the circumstances referred to in” Article 6.8 of the
Agreement, that is, “made on the basis of facts available.”76 Section 735(c)(5)(A)
of the Tariff Act of 1930, 19 U.S.C. § 1673d(c)(5)(A) states that, for purposes of
preliminary and final dumping determinations, the estimated dumping rate for
producers not investigated individually “shall be an amount equal to the weighted
average of the estimated weighted average dumping margins established for exporters
and producers individually investigated, excluding any zero and de minimis margins,
and any margins determined entirely under section 776.”77 Section 776 of the Tariff
Act governs the use of facts available by the DOC and ITC in making dumping,
subsidy, and injury determinations.78 The WTO panel, as affirmed on appeal,
75 Notice of Determination Under Section 129 of the Uruguay Round Agreements Act:
Antidumping Measures on Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products
from Japan, 67 Fed. Reg. 71936 (Dec. 3, 2002).
76 Article 6.8 provides, in full text, as follows:
In cases in which any interested party refuses access to, or otherwise does not
provide, necessary information within a reasonable period or significantly
impedes the investigation, preliminary and final determinations, affirmative or
negative, may be made on the basis of facts available. The provisions of Annex
II shall be observed in the application of this paragraph.
Annex II, titled “Best Information Available in Terms of Paragraph 8 or Article 6,” provides
guidelines for the collection and use of information by investigating authorities in
antidumping proceedings.
77 (Emphasis added).
78 The Tariff Act generally directs the Commerce Department and the International Trade
Commission to use “the facts otherwise available” in reaching their subsidy, dumping, and
injury determinations if: (1) necessary information is not available on the record or (2) an
interested party or any other person withholds requested information, fails to provide such
information by the deadline or in the form and manner requested, significantly impedes an
antidumping or countervailing duty proceeding, or provides information that cannot be
verified. Tariff Act of 1930, § 776(a), 19 U.S.C. § 1677e(a). Before using “facts available,”
however, the agencies must enable a person submitting information in response to an agency
(continued...)
CRS-23
concluded that § 735(c)(5)(A) is inconsistent with Article 9.4 because it requires
DOC to consider dumping margins based in part on facts available in determining
the all-others rate, while the cited WTO article was found to require the exclusion of
dumping margins based either in whole or in part on such facts.79
Recent developments. Absent legislative compliance by the United States,
the December 2003 deadline referred to earlier was extended twice, most recently to
July 31, 2005.80 The deadline lapsed without U.S. action; in an understanding
between the disputing parties reached earlier in the month, Japan stated that it would
not request authorization to retaliate at the time but might choose to do so in the
future.81
H.R. 2473 (Shaw), which would amend § 735(c)(5) of the Tariff Act of 1930
to remove the word “entirely” each time it is used, was introduced May 19, 2005.
The bill has since been listed for possible inclusion in 109th Congress miscellaneous
tariff legislation proposed in the House.82 Action has not been taken on the former,
and the latter has not yet been introduced.
While having pledged to comply with the WTO decision, the United States has
also submitted a proposal to the Doha Round Negotiating Group on Rules that the
WTO Antidumping Agreement be clarified to allow the practice that was invalidated
in the case.83
78 (...continued)
request to remedy or explain any deficiencies in the original response. Tariff Act of 1930,
§ 782(d), 19 U.S.C. § 1677m(d). The agencies are allowed to use adverse inferences in
selecting from fact available where an interested party “has failed to cooperate by not acting
to the best of its ability” to comply with an agency information request.” Tariff Act of 1930,
§ 776(b), 19 U.S.C. § 1677e(b). As noted by the U.S. Court of International Trade, the
ability of an agency to use “facts available” in an investigation acts as “an inducement for
respondents to provide complete and accurate information in a timely manner.” Maui
Pineapple Company v. United States, 264 F.Supp. 2d 1244, 1257 (Ct. Int’l Trade 2003).
79 (Emphasis added). See Hot-Rolled Steel Panel Report, supra note 67, at ¶¶ 7.83-7.90,
8.1(b); Hot-Rolled Steel Appellate Body Report, supra note 67, ¶¶ 111-130.
80 See Dispute Settlement Body, Minutes of Meeting, Aug. 31, 2004, at 6-7, WT/DSB/M/175
(Sept 24, 2004).
81 Understanding between Japan and the United States, United States — Anti-dumping
Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/19 (July 28, 2005).
The United States has agreed not to block any retaliation request on the ground that the 30-
day period for requesting authorization to suspend concessions in Article 22.6 has expired,
but has reserved the right to have any retaliation request referred to arbitration.
82 Comments submitted to the Trade Subcommittee of the House Ways and Means
Committee on the possible inclusion of this legislation in a future bill are available at
[http://waysandmeans.house.gov/hearings.asp?formmode=comment&hearing=440&com
m=5].
83 U.S. Seeks to Reverse WTO Ruling on ‘Facts Available’ Dumping Rates, 21 Int’l Trade
Rep. (BNA) 1540 (2004); Negotiating Group on Rules, All-Others Rate (Article 9.4 ADA);
Communication from the United States, TN/RL/GEN/16 (Sept. 15, 2004), as corrected
(continued...)
CRS-24
Continued Dumping and Subsidy Offset Act (DS 217/DS234). The
Continued Dumping and Subsidy Offset Act (CDSOA), 19 U.S.C. § 1675c, also
known as the Byrd Amendment, requires the annual disbursement of antidumping
and countervailing duties to petitioners and interested parties in the underlying trade
remedy proceedings.84 The EC and ten other WTO members challenged the October
2000 statute shortly after enactment as violative of the WTO Antidumping
Agreement, the WTO Agreement on Subsidies and Countervailing Measures (SCM
Agreement), and other WTO obligations. The complainants based their argument
in part on the prohibitions in Article 18.1 of the Antidumping Agreement and Article
32.1 of the SCM Agreement against Members’ taking any “specific action against”
dumping and subsidization, respectively, except for action taken in accordance with
the GATT 1994 as interpreted by the respective Agreement.85
The WTO panel found that the CDSOA did create an impermissible “specific
action against” dumping and subsidization and that it provided a financial incentive
for domestic producers to file or support antidumping and countervailing duty
petitions, thereby undermining the industry support requirements in the Antidumping
and SCM Agreements. At the same time, the panel rejected complainants’ argument
that the act would make it more difficult for the United States to enter into subsidy
and price undertakings with foreign governments allowing the suspension of
investigations (“suspension agreements”), along with Mexico’s claim that the act
83 (...continued)
[hereinafter U.S. Communication]. See also Negotiating Group on Rules, Identification of
Certain Major Issues Under the Anti-Dumping and Subsidies Agreements; Submission by
the United States, TN/RL/W/72, at 2-3 (March 19, 2003).
In presenting its proposal to WTO negotiating partners, the United States has explained
that it interpreted Article 9.4 of the Antidumping Agreement as providing that only margins
based entirely on facts available are to be excluded from calculating the all-others rate
ceiling because “the United States believed that this was a reasonable interpretation of the
statute and because, in the United States’ experience, some level of facts available is often
necessary to determine a company’s dumping margin.” U.S. Communication, supra, at 1.
In the U.S. view, whether the “facts available” data used with respect to a firm are small or
substantial, “the resulting margin represents the best estimate of the level of dumping by that
particular company” and it is thus “appropriate to use such a margin when establishing a
duty rate for unexamined firms based on the dumping found to exist for firms actually
examined.” Id. It continued: “We therefore interpreted the Agreement as distinguishing
those situations from situations in which a firm’s data are so flawed or unreliable that it is
necessary to base its antidumping duty entirely on facts available.” Id.
84 For more detailed examination of the statute and additional discussion of the WTO
proceeding, see CRS Report RL33045, The Continued Dumping and Subsidy Offset Act
(“Byrd Amendment”), by Jeanne J. Grimmett and Vivian C. Jones. See also U.S.
Government Accountability Office, International Trade: Issues and Effects of Implementing
the Continued Dumping and Subsidy Offset Act (Sept. 2005)(GAO-05-979).
85 Article 18.1 of the Antidumping Agreement had been successfully used by EC and Japan
in their WTO challenges of the U.S. Antidumping Act of 1916, 15 U.S.C. § 72, which
provided a private right of action and criminal penalties against dumping. See Appellate
Body Report, United States — Anti-Dumping Act of 1916, ¶¶ 103-138, WT/DS136/AB/R,
WT/DS162/AB/R (Aug. 28, 2000)(adopted Sept. 26, 2000). The 1916 Act statute was
prospectively repealed in late 2004. P.L. 108-429, § 2006.
CRS-25
itself constituted a subsidy.86 The Appellate Body upheld the panel’s finding that the
statute created a “specific action against” dumping and subsidization not allowed
under WTO agreements, but reversed the panel on its conclusion regarding industry
support requirements.87 Further, whereas the panel had recommended that the
provision be repealed, the Appellate Body recommended only that the United States
“bring the CDSOA into conformity with its obligations” under WTO agreements.88
The Appellate Body concluded that an impermissible “specific action against”
dumping and subsidization existed because the statute fulfilled two basic elements
of the term. First, the CDSOA constituted “specific” action because offset payments
were found to be “inextricably linked to, and strongly correlated with a determination
of dumping ... or a determination of a subsidy” or, as alternatively characterized by
the AB, the payments “can be made only following a determination that the
constituent elements of dumping or subsidization are present.”89 Second, the AB
stated that a measure would be considered to be an action “against” dumping or
subsidization if it “has the effect of dissuading the practice of dumping or the practice
of subsidization, or creates an incentive to terminate such practices.”90 The AB found
that, given its “design and structure,” the CDSOA “effects a transfer of financial
resources from the producers/exporters to their domestic competitors” and as a result
the requisite incentives are created.91 Because the CDSOA did not take the form of
the responses to dumping or subsidization permitted under WTO agreements, the AB
concluded that the statute fell within the scope of the prohibitions in above-cited
agreement articles.92
The reports were adopted January 27, 2003, and the compliance period was
subsequently determined by arbitration to expire December 27, 2003. The arbitrator
emphasized in his award, published June 13, 2003, that it is for the United States to
86 Panel Report, United States — Continued Dumping and Subsidy Offset Act, WT/DS217/R,
WT/DS234/R (Sept. 16, 2002)[hereinafter CDSOA Panel Report].
87 Appellate Body Report, United States — Continued Dumping and Subsidy Offset Act, ¶¶
224-299, WT/DS217/AB/R, WT/DS234/AB/R (Jan. 16, 2003)[hereinafter CDSOA
Appellate Body Report].
88 Id. ¶ 319; CDSOA Panel Report, supra note 86, at VIII.
89 CDSOA Appellate Body Report, supra note 87, at ¶ 242.
90 Id. ¶ 254.
91 Id. ¶¶ 256.
92 Id. ¶¶ 264-274. The AB stated that three responses to dumping were allowed under
Article VI of the GATT and the Antidumping Agreement: definitive antidumping duties;
provisional measures (i.e. a provisional duty or security imposed in the event of a
preliminary affirmative dumping determination); and price undertakings (suspension
agreements). Id. ¶ 264. The AB found that four responses to a countervailable subsidy were
permitted under GATT Article VI and the SCM Agreement: definitive countervailing duties;
provisional measures; price undertakings; and multilaterally-sanctioned countermeasures
under the WTO dispute settlement system. Id. ¶ 269.
CRS-26
decide on the manner of implementation, which may be through repeal or
modification of the law.93
Because the United States did not comply by the December 2003 deadline, eight
complaining Members — Brazil, Chile, EC, India, Japan, Korea, Canada, and
Mexico — asked the WTO in January 2004 for authorization to impose retaliatory
measures.94 The United States has objected to the requests, sending them to
arbitration.95 The remaining three complainants — Australia, Indonesia, and
Thailand — agreed to give the United States until December 27, 2004, to comply.96
Under WTO rules, the level of suspension of concessions authorized by the DSB
must be equivalent to the level of the nullification or impairment of WTO benefits
caused by the infringing measure.
Each of the eight Members seeking to retaliate proposed the imposition of
additional tariffs on U.S. goods in an amount to be determined each year that is equal
to: (1) the amount of offset payments attributable to antidumping and countervailing
duties collected on the Member’s products and (2) except for Chile, a proportionate
amount of the balance of offset payments less those attributed to the products of the
other Members authorized to retaliate.97 The United States contested the requests on
the ground that the proposed retaliation is not based on actual harm to the
complainants’ exports and has noted as particularly troublesome the use of the
amount of duties imposed on goods from countries that are not party to the WTO
proceeding as a basis for determining the amount of permissible retaliation.98
93 Award of the Arbitrator, United States — Continued Dumping and Subsidy Offset Act of
2000; ¶ 50, WT/DS217/14, WTDS234/22 (June 13, 2003).
94 See WTO documents WT/DS217/20 (Brazil); WT/DS217/21(Chile); WT/DS217/22 (EC);
WT/DS217/23 (India); WT/DS217/24 (Japan); WT/DS217/25 (Korea); WT/DS234/25
(Canada); WT/DS234/26 (Mexico).
95 See Dispute Settlement Body, Minutes of Meeting, Jan. 26, 2004, WT/DSB/M/164 (Mar.
12, 2004)[hereinafter DSB Minutes (Jan. 26, 2004)].
96 See WTO documents WT/DS217/17 (Thailand); WT/DS217/18 (Australia); and
WT/DS217/19 (Indonesia).
97 Regarding the measures the complainants intended to take, Brazil, Chile, the EC, India,
Japan, and Korea each stated that retaliation would take the form of additional import duties
on a final list of U.S. products (see WTO documents WT/DS217/20 through
WT/DS217/25). Canada stated that it intended either to place additional import duties on
U.S. products or to suspend the application of specified obligations under the WTO
Antidumping Agreement and the WTO SCM Agreement “to determine that the effect of
dumping or subsidization of products from the United States is to cause or threaten material
injury to an established domestic injury [sic], or is to retard materially the establishment of
a domestic industry,” or to do both (WT/DS234/25). Mexico requested authorization to “to
suspend the application to the United States of obligations in the trade in goods sector”
(WT/DS234/26).
98 Statement of the United States Representative to the WTO Dispute Settlement Body,
January 26, 2004, at [http://www.us-mission.ch/press2004/0216DSB.html]; DSB Minutes
(Jan. 26, 2004), supra note 95, at 6.
CRS-27
In awards issued August 31, 2004, the WTO Arbitrator (a panel of three)
determined that each of the eight Members could impose countermeasures on an
annual basis in an amount equal to 72% of the CDSOA disbursements for the most
recent year for which official U.S. data are available relating to antidumping and
countervailing duties paid on imports from the Member at that time.99 The Arbitrator
stated that the disbursements “operate, in economic terms, as subsidies that may
generate import substitution production”100 and used an economic model to determine
the level of nullification or impairment of benefits, or what the arbitrator
characterized as “a value of trade” affected by application of the CDSOA.101 The
arbitrator also made clear that each Member would need to ensure that the total value
of U.S. trade subject to the proposed duty increase does not exceed the total value of
trade determined to constitute the level of nullification or impairment or else propose
other forms of suspending concessions to the DSB that are less likely to have trade
effects exceeding this level in terms of value of U.S. exports to the country involved.
U.S. executive and legislative response. The Administration proposed
repeal of the CDSOA in its FY2004 and FY2005 budgets (allowing, however, for
current disbursements), stating in the latter that payments under the act “provide a
significant additional benefit to producers that already gain protection from the
increased import prices provided by the [compensatory] tariffs.” 102 Some consuming
industries have also argued in favor of eliminating CDSOA payments to domestic
firms.
At the same time, considerable congressional opposition has been expressed to
repeal, evidenced in part in a letter, signed by 70 Senators and sent to the President
shortly after the WTO reports were adopted, in which the Senators urged negotiations
with U.S. trading partners aimed at recognizing a right to disburse antidumping and
countervailing duties in the manner prescribed by the statute “prior to any attempt to
change our laws.”103 Moreover, the USTR and the Department of Commerce were
99 E.g., Decision by the Arbitrator, Recourse to Arbitration by the United States under
Article 22.6 of the DSU; United States — Continued Dumping and Subsidy Offset Act of
2000 (Original Complaint by the European Communities), at ¶¶ 5.1-5.2,
WT/DS217/ARB/EEC (Aug. 31, 2004).
100 Id. at ¶ 3.41.
101 Id. at ¶¶ 3.72, 3.80-3.151, 4.7.
102 Office of Management and Budget, Budget of the United States, Fiscal Year 2005 —
Appendix at 13, 847 (2004), at [http://www.whitehouse.gov/omb/][hereinafter cited as
FY2005 Budget Appendix]. The Administration had also urged the House to adopt its repeal
proposal in the Statement of Administration Policy on H.R. 2989, as reported, the
Departments of Transportation and Treasury appropriation for FY2004, arguing in the latter
that repeal “could provide savings to the taxpayer of over $300 million per year” and further
that the statute “provides an unwarranted subsidy to entities that already benefit from higher
import prices due to the duties.” The President’s FY2005 Budget additionally proposes
deleting language providing for negotiations regarding the distribution of antidumping and
countervailing duties from the FY2005 appropriation for the USTR. FY2005 Budget
Appendix, supra.
103 Two-Thirds of Senate Defends Byrd Law, Casting Doubt on Repeal, Inside U.S. Trade,
(continued...)
CRS-28
expressly directed to initiate such talks in the WTO in the Consolidated
Appropriations Act, 2004, P.L. 108-199, signed January 23, 2004.104 In April 2004,
the USTR submitted a proposal to this effect to the Doha Development Round
Negotiating Group on Rules, which is negotiating on antidumping and countervailing
duty issues.105 The Commerce Department and USTR were again directed to
continue WTO negotiations regarding the CDSOA in their appropriations act for
FY2005, P.L. 108-447.106
Recent developments. Seven of the complainants — the European Union,
India, Japan, Korea, Brazil, Canada, and Mexico — received formal authorization
from the DSB to impose retaliatory measures in late November 2004; Chile was
authorized to retaliate in December 2004. In contrast, Thailand, Indonesia, and
Australia entered into agreements with the United States in January 2004 under
which they would not seek authorization to suspend concessions at that time, but
retained the right to pursue retaliation in the future.107
The EC and Canada began to impose countermeasures in the form of higher
tariffs and surcharges on selected U.S. products, respectively, as of May 1, 2005.108
Mexico began to impose $20.9 million in retaliatory tariffs effective August 18,
2005.109 The official Mexican Government notice states that the tariff decree will
remain in effect for 12 months and that it will no longer apply when the Ministry of
the Economy places a notice in the Diario Oficial that the United States has complied
103 (...continued)
Feb. 7, 2003, at 7 (text of letter appended to article).
104 P.L. 108-199, Division B, Title II, 118 Stat. 64-65 (USTR), 118 Stat. 65 (Department of
Commerce). The Senate Appropriations Committee report on S. 1585, the bill in which the
directive originated, states that the Committee is aware of the WTO Appellate Body ruling
on the CDSOA and instructs the USTR and the Department of Commerce, in consultation
with each other, to initiate negotiations immediately and to report regularly to the
Committee on their progress. S.Rept. 108-144, at 69-70, 72. The conference agreement
adopted the Senate report language by reference. H.Rept. 108-401 at 573, 575.
105 Negotiating Group on Rules, Three Issues Identified for Discussion by the Negotiating
Group on Rules; Communication from the United States, at 2, TN/RL/W/153 (Apr. 26,
2004).
106 See H.Rep. 108-792, at 65, 67-68, 780, 782. See also S.Rept. 108-344 at 70, 73.
107 See WTO documents: WT/DS217/17 (Thailand); WT/DS217/18 (Australia);
WT/DS217/19 (Indonesia).
108 Communication from the European Communities, United States — Continued Dumping
and Subsidy Offset Act, WT/DS217/47 (May 4, 2005); Canada Implements Retaliatory
Surtax on U.S. Goods Due to Byrd Amendment, 22 Int’l Trade Rep. (BNA) 796 (2005).
109 “Decreto por el que se modifica temporalmente el artículo 1 del Decreto por el que se
establece la Tasa Aplicable durante 2003, del Impuesto General de Importación, para las
mercancías originarias de América del Norte, publicado el 31 de diciembre de 2002, por lo
que respecta a las mercancías originarias de América del Norte, publicado el 31 de
diciembre de 2002, por lo que respecta a las mercancías originarias de EE.UU.,” Diario
Oficial, 17 de agosto de 2005, as printed in [http://www.insidetrade.com][hereinafter
Decreto]; “Mexico Announces $20.9 Million in Byrd Retaliation Against U.S. Exports,
Inside U.S. Trade, Aug. 19, 2005, at 1.
CRS-29
with the WTO decision, at which time tariffs will return to their original rates.110 In
addition, Japan imposed additional tariffs of 15% on 15 categories of U.S. goods as
of September 1, 2005.111 Australia, Indonesia, and Thailand are postponing any
further action against U.S. goods, though they have reserved the right to do in the
future under agreements reached with the United States.112
A provision repealing the CDSOA, but providing for the distribution of “duties
on entries of goods made and filed before October 1, 2007,” is contained in P.L. 109-
171, the Deficit Reduction Act of 2005, signed by the President on February 8, 2006
(P.L. 109-171).113 While the United States has informed the WTO that it has taken
110 Decreto, supra note 109, “Transitorios.”
111 Communication from Japan, United States — Continued Dumping and Subsidy Offset Act
of 2000, WT/DS217/48 (Aug. 19, 2005); Japan, Ministry of Economy, Trade and Industry,
“US Byrd Amendment: Japan Decides to Start Retaliation,” Press Release, August 1, 2005,
at [http://www.meti.go.jp/english/information/data/WTOByrd050801e.html][hereinafter
METI Press Release]; Japan OKs Countervailing Duties on 15 U.S. Products Because of
Byrd Amendment, 22 Int’l Trade Rep. (BNA) 13424 (2005). According to Japan, the level
of retaliation will not exceed $52 million, which, it stated, is the amount authorized by the
WTO based on the amount of CDSOA disbursements involving Japanese goods in fiscal
2004. METI Press Release, supra.
112 See WTO documents WT/DS217/44 (Australia), WT/DS217/45 (Thailand), and
WT/DS217/46 (Indonesia).
113 The repeal, contained in § 7601(a) of the Act, is to be effective “upon the date of
enactment.” Section 7701 of S. 1932 provides that Title VII of the bill, which contains the
repeal provision, “shall take effect as if enacted on October 1, 2005.” The provision for
future distributions, set forth at § 7601(b) of the legislation, states as follows:
All duties on entries of goods made and filed before October 1, 2007, that would,
but for subsection (a) of this section, be distributed under section 754 of the
Tariff Act of 1930, shall be distributed as if section 754 of the Tariff Act of 1930
had not been repealed by subsection (a).
There is no discussion of § 7601 in the “Joint Explanatory Statement of the Committee of
Conference,” as it relates to Title VII of the bill. See 151 Cong Rec. H12735-H12736 (daily
ed. Dec. 18, 2005).
The repeal, with no provision for future distributions, first appeared in § 8701 of H.R.
4241, the House budget reconciliation bill, as reported. In addition, repeal legislation had
been introduced as free-standing legislation earlier in the 109th Congress (H.R. 1121
(Ramstad/Shaw), and the bill was later suggested for inclusion in proposed House
miscellaneous tariff legislation. Comments submitted to the Trade Subcommittee of the
House Ways and Means Committee on the possible inclusion of this legislation in a future
bill are available at [http://waysandmeans.house.gov/hearings.asp?formmode=comment
&hearing=440&comm=5]. The Administration had proposed repeal of the statute in its
FY2006 budget. Office of Management and Budget, Budget of the United States, Fiscal
Year 2006, under Department of the Treasury, at [http://www.whitehouse.gov/
omb/budget/fy2006/ treasury.html].
Two bills that would have repealed the measure were introduced in the 108th Congress,
though no action was taken on either. H.R. 3933 (Ramstad/Crane), introduced March 10,
2004, would have repealed the CDSOA and transferred all amounts remaining in CDSOA
special accounts on the date of enactment to the general fund of the Treasury. S. 1299
(continued...)
CRS-30
the actions necessary to implement the WTO rulings,114 and complaining countries
have expressed support for the repeal, the complainants have also stated their
concerns that the transitional provision will allow the continued distribution of duties
through 2007 and possibly afterward.115 The Members imposing sanctions have
reportedly indicated that they are likely to continue to do so as long as distributions
are made.116
At the same time, the Commerce Department and USTR have been directed to
conduct negotiations in the WTO “to recognize the right of members to distribute
monies collected from antidumping and countervailing duties” in P.L. 109-108, the
Science, State, Justice, Commerce and Related Agencies Appropriations Act, 2006,
marking the third time the agencies have been so directed.117 As noted earlier, the
USTR submitted a proposal to this effect to the Doha Round Negotiating Group on
Rules in 2004.
113 (...continued)
(Snowe), introduced June 19, 2003, would have repealed the CDSOA and directed the
Secretary of Commerce to provide financial and technical assistance to communities
determined to be “negatively impacted by trade.” The bill would have funded the
readjustment assistance authorized under the measure through a Trust Fund in the U.S.
Treasury consisting of (1) transfers of any funds in current CDSOA Special Accounts and
(2) transfers out of the general fund of the Treasury of amounts that the Treasury Secretary
determines are equivalent to the amounts received into the general fund after the effective
date of the measure that are attributable to duties imposed under AD and CVD orders and
AD findings.
114 Statements by the United States at the February 17 Meeting of the WTO Dispute
Settlement Body, Item 1, in U.S. Mission to the United Nations in Geneva, Press Release,
Feb. 17, 2006, at [http://www.us-mission.ch/Press2006/0217DSB.html][hereinafter U.S.
Statements (Feb. 17, 2006)].
115 Trading Partners Reject U.S. Claims of WTO Compliance in Byrd Act Dispute, 23 Int’l
Trade Rep. (BNA) 260 (2006); EU, Canada Expected to Keep Sanctions in Place Despite
Byrd Repeal, Inside U.S. Trade, Feb. 17, 2006, at 3; European Union, US Congress Repeals
the Byrd Amendment; Allows for Transition Period, News Release, No. 09/06 (Feb. 1,
2006), at [http://www.eurunion.org/News/press/2006/2006009.htm]l; WTO News, Dispute
Settlement Body, Jan. 20, 2006, at [http://www.wto.org/english/news_e/news06_e/
dsb_20jan06_e.htm].
116 Trading Partners Reject U.S. Claims of WTO Compliance in Byrd Act Dispute, 23 Int’l
Trade Rep. (BNA) 260 (2006); EU, Canada Expected to Keep Sanctions in Place Despite
Byrd Repeal, Inside U.S. Trade, Feb. 17, 2006, at 3.
117 The President’s signing statement on the legislation appears to indicate that the Executive
Branch will treat the provision (inasmuch as it affects the Commerce Department) as
“advisory” on the ground that it interferes with the President’s foreign affairs authority. The
statement provides in pertinent part:
The executive branch shall construe as advisory the provisions of the Act that
purport to direct or burden the Executive’s conduct of foreign relations,
including the authority to ... negotiate international agreements on behalf of the
United States .... These provisions include ... language under the headings
[Department of Commerce] “International Trade Administration, Operations and
Administration” ....
CRS-31
A First Amendment challenge to the CDSOA is currently pending in the U.S.
Court of International Trade, 118 along with a suit brought by Canada and Canadian
industry groups against the United States claiming that the CDSOA violates the
NAFTA Implementation Act.119
Subsidies on Upland Cotton (DS267). In September 2002, Brazil
requested consultations with the United States regarding U.S. statutes and programs
that it claimed provided prohibited and actionable subsidies to U.S. producers, users,
and exporters of upland cotton. Brazil alleged violations of the WTO Agreement on
Subsidies and Countervailing Measures (SCM Agreement), the Agreement on
Agriculture, and national treatment obligations in the GATT,120 adding in its
subsequent panel request in February 2003 a claim based on subsidy obligations in
GATT Article XVI.121
WTO Members have made commitments in the Agreement on Agriculture to
reduce both agricultural export subsidies and domestic support programs in favor of
agricultural producers. Article 9.1 of the Agreement lists the types of export
subsidies that are subject to reduction commitments. A WTO Member’s export and
domestic support commitments are outlined in the Member’s Schedule attached to
the SCM Agreement.122 With certain exceptions, a Member may not provide export
subsidies enumerated in Article 9.1 regarding agricultural products or groups of
118 The plaintiff is arguing that the statute infringes its free speech rights by conditioning
eligibility for CDSOA funds on support of the relevant antidumping or countervailing duty
investigation, thus placing an unconstitutional condition on the receipt of a government
benefit. PS Chez Sidney, L.L.C. v. U.S. International Trade Commission, No. 02-00635 (Ct.
Int’l Trade). A claim that the CDSOA turned statutory antidumping provisions into a penal
law, thereby granting the plaintiff a Fifth Amendment right to a neutral judicial hearing
before antidumping duties could be imposed, was rejected by the U.S. Court of Appeals for
the Federal Circuit in March 2003. Huaiyin Foreign Trade Corp. v. United States, 322 F.3d
1369 (Fed. Cir 2003), aff’g 201 F.Supp.2d 1351 (Ct. Int’l Trade 2002).
119 Plaintiffs are claiming that the CDSOA violates § 408 of NAFTA Implementation Act,
P.L. 103-182, 19 U.S.C. § 3438, which provides that, after the NAFTA enters into force for
the United States, an amendment that is made to Title VII of the Tariff Act of 1930 may
apply to goods from a NAFTA country only to the extent specified in the amendment. Title
VII contains U.S. antidumping and CVD laws as well as the CDSOA. See, e.g., Complaint,
Government of Canada v. United States, No. 05-00327 (Ct. Int’l Trade filed, April 29,
2005).
Section 408 of the statute implements Article 1902 of the NAFTA, which sets out
obligations regarding amendments to domestic antidumping and CVD laws as they affect
NAFTA Parties and, among other things, requires that the amendment, as applicable to the
NAFTA party, not be inconsistent with the GATT, the WTO Antidumping Agreement or
the WTO Agreement on Subsidies and Countervailing Measures.
120 Request for Consultations by Brazil, United States — Subsidies on Upland Cotton,
WT/DS267/1 (Oct. 3, 2002).
121 Request for the Establishment of a Panel by Brazil, United States — Subsidies on Upland
Cotton, WT/DS267/7 (Feb. 7, 2003).
122 Agreement on Agriculture, Art. 3.1, at [http://www.wto.org/english/docs_e/legal_e/
legal_e.htm].
CRS-32
products specified in the Member’s Schedule (“scheduled products”) in excess of the
budgetary outlay and quantity commitments specified in the Schedule.123 Moreover,
a Member may not provide Article 9.1 export subsidies with respect to any
agricultural product that is not specified in the Schedule (“unscheduled products”).124
In addition, Article 10.1 of the Agreement provides, in pertinent part, that export
subsidies that are not listed in Article 9.1 “shall not be applied in a manner which
results in, or which threatens to lead to, circumvention of export subsidy
commitments....” Finally, subject to certain Agreement provisions, a Member may
not provide support in favor of domestic producers in excess of the commitments
levels specified in its Schedule.125
Agricultural subsidies may be challenged under the SCM Agreement, which
prohibits export subsidies and subsidies contingent on the use of domestic over
imported products (“import substitution” subsidies) (Art. 3) and makes any subsidy
“actionable” if it is alleged to cause certain types of trade injury to the Member’s
interests, including what the Agreement deems “serious prejudice” (Art. 5).126 The
United States argued in the case that certain of its agricultural programs were covered
by the now-expired Article 13 of the WTO Agreement on Agriculture — the so-
called Peace Clause — which provides that certain domestic support measures and
export subsidies that conformed fully with specified Agreement requirements were
“exempt from actions” under specified subsidy-related provisions in the GATT and
the SCM Agreement through the end of 2003.
In a panel report issued September 8, 2004, the panel found that the United
States was maintaining prohibited export and import substitution subsidies as well
as actionable subsidies that caused serious prejudice to the interests of Brazil.123
First, the panel found that three U.S. export credit guarantee programs — as they
applied to exports of upland cotton and other unscheduled agricultural commodities
supported under the programs, and to exports of rice (a scheduled commodity) — are
export subsidies applied in a manner that illegally circumvents U.S. export subsidy
commitments in the Agriculture Agreement.124 The three programs are the
Commodity Credit Corporation (CCC) Export Credit Guarantee Program (GSM
102), providing export credit guarantees for up to 3 years; the CCC Intermediate
Export Credit Guarantee Program (GSM 103), providing export credit guarantees for
up to 10 years; and the Supplier Credit Guarantee Program (SCGP). As these
123 Agreement on Agriculture, Art. 3.3.
124 Id.
125 Agreement on Agriculture, Art. 3.2.
126 Agreement on Subsidies and Countervailing Measures (SCM Agreement), at
[http://www.wto.org/english/docs_e/legal_e/ legal_e.htm].
123 Panel Report, United States — Subsidies on Upland Cotton, WT/DS267/R (Sept. 8,
2004)[hereinafter Cotton Panel Report]. For further information on the agricultural
programs at issue and the bases for the panel and Appellate Body findings, see CRS Report
RL32571, Background on the U.S.-Brazil WTO Cotton Subsidy Dispute, by Randy Schnepf.
See also Eliza Patterson, The WTO Decision on U.S. Cotton Subsidies, ASIL Insight (Mar.
2005), at [http://www.asil.org/insights/2005/ 03/insights050323.html].
124 Cotton Panel Report, supra note 123, at ¶¶ 7.787-7.948, 8.1(d)(i).
CRS-33
programs did not conform fully to export subsidy obligations in the SCM Agreement,
they were found not to be covered by the Peace Clause and thus subject to
challenge.125 The panel went on to find that these programs are prohibited export
subsidies under Article 3.1(a) of the SCM Agreement.126
Second, the panel found that § 1207(a) of the Farm Security and Rural
Investment Act of 2002, 7 U.S.C. § 7937(a), or the so-called Step 2 program, to the
extent that it provides for payments to exporters for their purchase of higher priced
upland cotton, constitutes an export subsidy for that product that was not scheduled
by the United States, and therefore inconsistent with U.S. obligations under the
Agreement on Agriculture.127 As such, this part of the Step 2 program was also
found not to be covered by the Peace Clause, to be subject to challenge, and, as
further found by the panel, to constitute a prohibited export subsidy under the Article
3.1(a) of the SCM Agreement.128 Similarly, the panel also determined that § 1207(a),
insofar as it provides for payments to domestic users of upland cotton, constitutes an
import substitution subsidy prohibited under Article 3.1(b) of the SCM Agreement.129
Third, the panel found that various U.S. domestic support programs, including
counter-cyclical payments, market loss assistance payments, market loan program
payments, and Step 2 payments for U.S. cotton producers, granted support to a
“specific commodity in excess of that decided during the1992 marketing year” and
thus were not covered by a provision of the Peace Clause that could be invoked only
if such support was not being provided.130 The panel then found that the four above-
cited programs — characterized as mandatory price-contingent subsidies — caused
serious prejudice to Brazil’s interests for purposes of Article 5(c) of the SCM
Agreement, in the form of significant price suppression in the world upland cotton
market.131 Among other things, the panel also found that an agricultural program
could be challenged in the WTO even though it had expired so long as the program
was in force during the nine-year Agreement implementation period beginning in
1995 and continued to have an adverse effect on the complaining Member,132 a
finding that allowed Brazil to challenge flexibility contract payments (FCP) and
market loss assistance payments, the legislative basis of which had expired in 2002.
Brazil was unable, however, to show serious prejudice from the FCP program.
The panel recommended that the prohibited subsidies be removed “without
delay” and specified that this be done at the latest within six months of the date of
125 Id. ¶¶ 7.943-7.944, 8.1(d)(i).
126 Id. ¶¶ 7.946-7.948, 8.1(d)(i).
127 Id. ¶¶ 7.692-7.749, 8.1(e)(i).
128 Id. ¶¶ 7.751-7.761, 8.1(e)(ii)-(iii).
129 Id. ¶¶ 7.1030-7.1098, 8.1(f).
130 Id. ¶ ¶ 7.415-7.608, 8.1(c).
131 Id. ¶¶ 7.1109-7.1416, 8.1(g)(i).
132 Id . ¶¶ 7.528-7.530.
CRS-34
adoption of the panel report or July 1, 2005, whichever was earlier.133 The panel
cited Article 4.7 of the SCM Agreement, which requires that where an export subsidy
is found, the panel recommend expeditious removal and specify a time period for
such action. The panel also recommended that the adverse effects of the actionable
subsidies, or alternatively, the subsidies themselves, be removed, as provided in
Article 7.8 of the SCM Agreement.134 The United States appealed, and the Appellate
Body, in a March 5, 2005, report, largely upheld the panel.135 The reports were
adopted at the DSB meeting of March 21, 2005.136
Along with the deadline for removal of the prohibited subsidies, the finding of
serious prejudice implicated a deadline for actionable subsidies provided for in
Article 7.9 of the SCM Agreement. This provision accords a prevailing Member the
right to request authorization to retaliate with regard to an actionable subsidy in the
event the defending Member “has not taken appropriate steps to remove the adverse
effects of the subsidy or withdraw the subsidy within six months” after the date the
panel or Appellate Body report is adopted, or, in this case September 21, 2005,
provided there is no agreement between the disputing parties on compensation.137
The United States told the Dispute Settlement Body on April 20, 2005, that it
would implement the WTO rulings, but that it would need a reasonable period to
comply and that it had begun to consider its options for doing so.138 Brazil
complained that the U.S. statement was not sufficiently detailed and made reference
to the panel’s recommended compliance date.139 The EC noted that because the
subsidies at issue were found to infringe both the SCM Agreement and the
Agreement on Agriculture, the United States was entitled to a reasonable period to
comply with the latter.140
133 Id. ¶ 8.3(b)-(c). Article 4.7 of the SCM Agreement provides that, in the event a panel
finds that a prohibited subsidy exists, the panel “shall recommend that the subsidizing
Member withdraw its measure without delay” and “shall specify in its recommendation the
time-period within which the measure must be withdrawn.”
134 Id. ¶ 8.3(d).
135 Appellate Body Report, United States — Subsidies on Upland Cotton, WT/DS267/AB/R
(March 3, 2005).
136 Dispute Settlement Body, Minutes of Meeting, Mar. 21, 2005, at 7-13, WT/DSB/M/186
(Apr. 14, 2005).
137 Article 7.9 further provides that the DSB “shall grant authorization to the complaining
Member to take countermeasures, commensurate with the degree and nature of the adverse
affects determined to exist,” subject to the reverse consensus rule. Article 7.10 of the SCM
Agreement provides that if arbitration is requested, the arbitrator is to determine “whether
the countermeasures are commensurate with the degree and nature of the adverse effects
determined to exist.”
138 Dispute Settlement Body, Minutes of Meeting, Apr. 20, 2005, at 7, WT/DSB/M/188 (May
18, 2005)[hereinafter DSB Minutes (Apr. 20, 2005)].
139 Id. at 8.
140 Id.
CRS-35
Recent Developments. In response to the WTO finding that fees charged
by the Commodity Credit Corporation (CCC) guarantee programs be risk-based, the
United States Department of Agriculture (USDA) announced that as of July 1, 2005,
CCC would use a risk-based fee structure for both the GSM-102 and SCGP program,
and that CCC would no longer accept applications for payment guarantees under the
GSM-103 program.141 In addition, USDA announced that to further comply with the
WTO decision, it was sending proposed statutory changes to Congress to eliminate
the Step 2 cotton program, to remove a 1% cap on fees that can be charged under the
export credit programs, and to terminate the GSM-103 program.142 According to
USDA, repealing the Step 2 program “would remove both the export subsidies and
import substitution subsidies that the WTO cited and address issues related to
suppression of cotton prices in world markets.”143
Because prohibited export subsidies had not been removed by July 1, 2005,
Brazil requested that the DSB meet on July 15 to consider its request for
authorization to impose countermeasures against the United States. Brazil proposed
to suspend tariff concessions as well as obligations under the WTO Agreement on
Trade-Related Intellectual Property Rights (TRIPS) and the General Agreement on
Trade in Services (GATS) until the United States withdrew the exports subsidies
identified by the WTO, in an amount corresponding to (1) the Step 2 payments made
in the most recent concluded marketing year and (2) the total of exporter applications
received under the GSM-102, GSM-103 and SGCP programs, for all unscheduled
commodities and for rice, for the most recent concluded fiscal year.144 Brazil
estimated the annual total for both to be $3 billion.145
On July 5, 2005, Brazil and the United States notified the DSB that they had
entered into a procedural agreement which, along with specifying steps that could or
could not be taken by the disputing parties in the implementation phase of the
dispute, recognized the changes to the CCC programs announced June 30, 2005, and
the legislative proposal that had been sent to Congress to repeal the Step 2
program.146 Pursuant to the agreement, the United States requested arbitration of
141 Id.
142 Id.
143 Id.
144 Recourse to Article 4.10 of the SCM Agreement and Article 22.2 of the DSU by Brazil,
United States — Subsidies on Upland Cotton, WT/DS267/21 (July 5, 2005).
145 Brazil stated that this amount represented “Step 2 payments estimated for marketing year
2004-2005 and total amount of applications received for export credit guarantees under
GSM 102, GSM 103, and SGCP during fiscal year 2004.” Id. at 2, note 1.
146 Understanding between Brazil and the United States Regarding Procedures under Articles
21 and 22 of the DSU and Article 4 of the SCM Agreement, United States — Subsidies on
Upland Cotton, WT/DS267/22 (July 8, 2005). It was agreed, among other things, that Brazil
would make its retaliation request at the July 15 DSB meeting; the United States would
object to the retaliation request (thus sending it to arbitration); the two would request shortly
thereafter that the arbitration be suspended; Brazil would be entitled to request an Article
21.5 compliance panel, which either party could appeal; were the United States found to be
(continued...)
CRS-36
Brazil’s retaliation proposal; the DSB referred the matter to arbitration at the July 15
meeting of the DSB;147 and the two countries, on August 17, 2005, requested that the
arbitration be suspended.148 While the agreement also provides that Brazil may
request an Article 21.5 compliance panel at any time after the July 15 meeting, Brazil
to date has not done so.
Further, because the United States had not complied with its WTO obligations
regarding the actionable subsidies by September 21, 2005, Brazil on October 6
proposed to suspend tariff concessions as well as obligations under the Agreement
on TRIPS and the GATS in the annual amount of $1.037 billion until the United
States withdrew the four domestic subsidies enumerated above or removed their
adverse effects.149 The United States objected to the proposal on October 17,150 and
the matter was referred to arbitration at the DSB meeting held the following day.151
On November 21, 2005, the parties requested that the arbitration be suspended,
“noting that the United States reaffirmed” at the November 18 DSB meeting “its
commitment to implement the recommendations and rulings of the DSB in this
disputes, and in light of the preference for WTO-consistent solutions mutually
acceptable to the parties to a dispute set out in DSU Article 3.7.”152 The parties also
agreed that if either desired to resume the arbitration, that party would inform the
other 30 days before making such a request.
As part of the congressional budget reconciliation process, the Senate
Agriculture Committee, on October 19, 2005, approved legislation repealing the Step
146 (...continued)
out of compliance, Brazil could request that the arbitration of its retaliation request be
resumed; if the United States were found to be in compliance, Brazil would withdraw its
retaliation request; and a mutually agreed solution, if reached, would be notified to the DSB,
whereupon Brazil would withdraws its retaliation request, an action that would terminate
the arbitration.
147 Dispute Settlement Body, Minutes of Meeting, July 15, 2005, WT/DSB/M/193 (July 28,
2005).
148 See Communication from the Arbitrator, Recourse by the United States to Article 22.6
of the DSU and Article 4.11 of the SCM Agreement, United States — Subsidies on Upland
Cotton, WT/DS267/25 (Aug. 18, 2005). Regarding possible future action by Brazil, see
With U.S. Inaction on Parts of WTO Ruling Brazil May Restart Cotton Subsidy Dispute,
Daily Rep. for Executives (BNA) No. 13, at A-1 (Jan. 20, 2006); Brazil Threatens to Renew
WTO Arbitration Proceeding on Cotton, Inside U.S. Trade, Jan. 20, 2006, at 1.
149 Recourse to Article 7.9 of the SCM Agreement and Article 22.2 of the DSU by Brazil,
United States — Subsidies on Upland Cotton, WT/DS267/26 (Oct. 7, 2005).
150 Request by the United States for Arbitration under Article 22.6 of the DSU and Article
7.10 of the SCM Agreement, United States — Subsidies on Upland Cotton, WT/DS267/27
(Oct. 18, 2005).
151 See Note by the Secretariat, Constitution of the Arbitrator, Recourse by the United States
to Article 22.6 of the DSU and Article 7.10 of the SCM Agreement, United States —
Subsidies on Upland Cotton, WT/DS267/29 (Dec. 7, 2005).
152 See Communication from the Arbitrator, Recourse by the United States to Article 22.6
of the DSU and Article 7.10 of the SCM Agreement, United States — Subsidies on Upland
Cotton, WT/DS267/29 (Dec. 7, 2005).
CRS-37
2 program, effective August 1, 2006; a repeal provision was also approved by the
House Agriculture Committee on October 28, 2005.153 A repeal provision with the
same effective date is contained in § 1103 of P.L. 109-171, the Deficit Reduction Act
of 2005, signed by the President on February 8, 2006. While Brazil has continued
to question whether the United States has fully complied in the case, it has reportedly
not yet decided whether to take further compliance action in the WTO.154
Measures Affecting Cross-Border Supply of Gambling and Betting
Services (DS 285). In a March 21, 2003, complaint, Antigua and Barbuda
(Antigua) requested consultations with the United States regarding federal, state, and
local laws affecting the remote supply of gambling and betting services, alleging that
the overall effect of these laws was to prevent the supply of gambling and betting
services from the territory of one WTO Member into the United States in violation
of U.S. market access commitments in Article XVI of the General Agreement on
Trade in Services (GATS).155 Article XVI(a) of the GATS prohibits a WTO
Member, in sectors where it undertakes market access commitments, from
maintaining or adopting, unless specified in its Schedule, “limitations on the number
of service suppliers whether in the form of numerical quotas, monopolies, exclusive
service suppliers or the requirements of an economic needs test.” Article XVI(c)
prohibits a Member, in any such sectors, from maintaining or adopting, unless
specified in its Schedule, “limitations on the total number of service operations or on
the total quantity of service output expressed in terms of designated numerical units
in the form of quotas or the requirement of an economic needs test.”
While the United States did not expressly identify gambling and betting services
in its Schedule of Specific Commitments to the GATS, the WTO panel, in its
November 2004 report, interpreted the services sub-sector titled “Other Recreational
Services (except sporting)” as including gambling and betting services, and
concluded that the United States, by not placing any limitations on the supply of such
services from the territory of one WTO Member into the United States, had made
market access commitments in the area.156 The panel then found that three federal
153 See Senate Agriculture Narrowly Approves $3 Billion in Cuts to Agriculture Spending,
Daily Rep. for Executives (BNA) No. 202, at A-23 (Oct. 20, 2005); House Agriculture
Committee Approves $3.7 Billion in Cuts for Reconciliation Plan, Daily Rep. for Executives
(BNA) No. 209, at A-12 (Oct. 31, 2005).
154 Brazilians Continue to Have ‘Doubts’ on U.S. Compliance in WTO Cotton Case, Daily
Rep. for Executives (BNA), Feb. 27, 2006, at A-11; Brazil Still Considering Next Actions
on WTO Cotton Fight, Feb. 17, 2006, at 8; Press Release, Brazilian Ministry of External
Relations, Brasilia, Feb. 2, 2006, as distributed by Brazilian Embassy, Washington, DC.
155 Request for Consultations by Antigua and Barbuda, United States — Measures Affecting
the Cross-Border Supply of Gambling and Betting Services, WT/DS285/1 (Mar. 27, 2003).
156 Panel Report, United States — Measures Affecting the Cross-Border Supply of Gambling
and Betting Services, WT/DS285/R (Nov. 10, 2004)[hereinafter Gambling Panel Report].
Each Party to the General Agreement on Trade in Services (GATS) submits a Schedule
of Specific Commitments to the Agreement, in which it inscribes the service sectors for
which it is making commitments and lists any terms, limitations, and conditions on the
supply of services in these sectors for each of four modes of service supply : (1) from the
(continued...)
CRS-38
statutes and provisions of four state laws conflicted with these obligations. The
federal statutes were the Wire Act, the Travel Act, and the Illegal Gambling Business
Act (IGBA);157 the state laws were those of Louisiana, Massachusetts, South Dakota,
and Utah. The panel found that by preventing one, several, or all means of delivering
gambling and betting services, the statutes constituted impermissible limitations on
the number of service suppliers for purposes of Article XVI:2(a) of the GATS or,
alternatively, on the total number of total number or service operations or total
quantity of service output for purposes of Article XVI:2(c).
The panel further found that, with regard to the federal laws, the United States
could not successfully invoke exceptions in GATS Article XIV for “measures
necessary to protect public morals or to maintain public order” (Article XIV(a)) or
for “measures necessary to secure compliance with” GATS-consistent laws and
regulations (Article XIV(c)) because the United States had not shown that the
measures were “necessary” to achieve the stated end or that they were consistent with
the Article XIV proviso, which requires that measures justified under the exception
not be applied “in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where like conditions prevail.” Under
WTO jurisprudence, discrimination may occur not only between the different
exporting Members but also between an exporting Member and the importing
Member and thus in this case between foreign and domestic providers of Internet
gambling services.158
On appeal, the WTO Appellate Body, using a different mode of analysis than
the panel, nonetheless determined that the United States had made sectoral
commitments regarding gambling and betting services.159 Though the AB upheld the
156 (...continued)
territory of one Member into the territory of any other Member; (2) in the territory of one
Member to the service consumer of any other Member; (3) by a service supplier of one
Member, through commercial presence in the territory of any other Member; and (4) by a
service supplier of one Member, through presence of natural persons of a Member in the
territory of any other Member. See General Agreement on Trade in Services (GATS), Arts.
I, XX, at [http://www.wto.org/english/docs_e/legal_e/ legal_e.htm]. The first mode of
supply is at issue in this dispute. GATS obligations regarding market access (Article XVI)
and national treatment (Article XVII) are applicable only with respect to scheduled
commitments, subject to the terms, limitations and conditions outlined in the Member’s
Schedule. Other GATS obligations apply to all services-related measures maintained by a
Member.
157 The Wire Act, P.L. 87-216, § 2, as amended, 18 U.S.C. § 1084, prohibits the transmission
of wagering information. The Travel Act, P.L. 87-228, § 1(a), as amended, 18 U.S.C. §
1952, prohibits interstate and foreign travel or transportation in aid of certain unlawful
activities, including business enterprises involving gambling in violation of U.S. or state
law. The Interstate Gambling Business Act, P.L. 91-452, § 803(a), as amended, 18 U.S.C.
§ 1955, prohibits illegal gambling businesses, as defined in the statute.
158 See Gambling Panel Report, supra note 156, at ¶ 6.578.
159 Appellate Body Report, United States — Measures Affecting the Cross-Border Supply
of Gambling and Betting Services, ¶¶ 158-213,373(B),WT/DS285/AB/R (Apr. 7, 2005)
[hereinafter Gambling AB Report].
CRS-39
panel’s finding of a violation of GATS market access obligations,160 it reversed the
panel on its finding that the United States could not justify the federal measures
under GATS exceptions.161 The AB also reversed the panel’s finding that four state
laws were inconsistent with the GATS, finding that because Antigua had not made
a prima facie case that eight state measures violated the Agreement, the panel had
improperly examined their GATS-consistency.162
With respect to the GATS exceptions, the AB found that the panel had
erroneously concluded that the three federal statutes could not be considered
“necessary” for purposes of Articles XIV(a) and XIV(c) because the United States
had not entered into consultations with Antigua to find a less trade-restrictive
alternative. The AB ultimately found that statutes were “necessary to protect public
morals or to protect public order” for purposes of Article XVI(a) and that they thus
fell within the scope of this exception.163 At the same time, the AB also found that,
in light of a provision in the Interstate Horseracing Act (IHA) that might facially
continue to allow the remote supply of wagering on horseracing by domestic firms,
the United States had not shown that the Wire Act, the Travel Act, and the IGBA
were being applied consistently with the Article XVI proviso, that is, that they may
possibly be used to prosecute foreign, but not domestic, providers of remote
horserace gambling services.164
Antigua had based its argument that the United States was applying the three
statutes inconsistently with the Article XIV proviso on two aspects of the IHA, a
statute allowing the acceptance of interstate off-track wagers provided certain
conditions are met, making violators civilly liable for damages to named entities,
including the state in which the subject horserace takes place, and authorizing certain
civil suits against violators.165 First, Antigua cited § 5 of the act, which it
characterized as expressly allowing an interstate off-track wager to be accepted by
an off-track betting system, where consent is obtained from certain organizations.166
160 Id. ¶¶ 214-265, 373(C)(i)-(ii). Inter alia, the AB stated that “limitations amounting to a
zero quota are quantitative limitations and fall within the scope of Article XVI:2(a)” and
that prohibitions on service supply “amount to a ‘zero quota’ on service operations or output
with respect to such services ... [and a]s such fall within the scope of Article XVI:2(c).” Id.
¶pp 238, 251.
161 Id. ¶¶ 300-327, 335-336, 373(D)(iii)(b),(iv)(a).
162 Id. ¶¶ 133-155, 373(A)(iii),(C)(iii).
163 Because it had found that the U.S. statutes were “necessary” for purposes of XVI(a), the
AB did not address whether the statutes fulfilled the “necessity” test of Article XIV(c). Id.
¶¶ 337, 373(D)(iv)(b).
164 Id. ¶¶ 338-372, 373(v),(vi).
165 Interstate Horseracing Act of 1978 (IHA), P.L. 95-515, 15 U.S.C §§ 3001-3006. See
Gambling AB Report, supra note 159, at ¶ 361.
166 Section 4 of the IHA, 15 U.S.C. § 3003, prohibits a person from accepting an “interstate
off-track wager” except as provided in the act. Section 5(a) of the IHA , 15 U.S.C. §
3004(a), states that “[a]n interstate off-track wager may be accepted by an off-track betting
system only if consent is obtained from — (1) the host racing association ...; (2) the host
(continued...)
CRS-40
Second, it cited the statutory definition of “interstate off-state wager,” which, in
pertinent part, includes pari-mutuel wagers “placed or transmitted by an individual
in one State via telephone or other electronic media and accepted by an off-track
betting system in the same or another State,” provided the wagers are lawful in the
States involved.167 In the words of the AB, Antigua thus argued that:
the IHA, on its face, authorizes domestic service suppliers, but not foreign
service suppliers, to offer remote betting services in relation to certain horse
races. To this extent, in Antigua’s view, the IGHA “exempts” domestic service
suppliers from the prohibitions of the Wire Act, the Travel Act, and the IGBA.168
As further described by the AB, “[t]he Panel found that the evidence provided by the
United States was not sufficiently persuasive to conclude that, as regards wagering
on horseracing, the remote supply of such services by domestic firms continues to be
prohibited notwithstanding the plain language of the IHA.”169 The AB concluded that
the panel did not err in making this finding.
The appellate report and the panel report, as modified by the AB, were adopted
April 20, 2005.170 The United States reported at the May 19, 2005, meeting of the
DSB that it intended to implement the rulings and had begun to consider options for
doing so, but that it would need a reasonable period to comply.171
Recent developments. After the disputing parties had failed to agree on a
reasonable period of time for compliance, Antigua requested that the compliance
period be arbitrated.172 In an award made public August 19, 2005, the Arbitrator
determined that the compliance period would last 11 months and 2 weeks from the
date of adoption of the panel and AB reports, thus expiring April 3, 2006.173
In its submission to the Arbitrator, the United States stated that compliance
would be achieved “by further clarifying the relationship between the IHA and
preexisting federal criminal laws” and that clarification would be sought “through
166 (...continued)
racing commission; (3) the off-track racing commission.”
167 IHA, § 3(3), 15 U.S.C § 3002(3).
168 Gambling AB Report, supra note 159, ¶ 361 (footnotes omitted)(emphasis in original).
169 Id. ¶ 364( emphasis in original).
170 DSB Minutes (Apr. 20, 2005), supra note 138, at 15.
171 Dispute Settlement Body, Minutes of Meeting, May 19, 2005, at 9, WT/DSB/M/189 (June
17, 2005)[hereinafter DSB Minutes (May 19, 2005)].
172 Request from Antigua and Barbuda for Arbitration under Article 21.3(c) of the DSU,
United States — Measures Affecting the Cross-Border Supply of Gambling and Betting
Services, WT/DS285/11(June 9, 2005).
173 Award of the Arbitrator, Arbitration under Article 21.3 of the Understanding on Rules
and Procedures Governing the Settlement of Dispute, United States — Measures Affecting
the Cross-Border Supply of Gambling and Betting Services, WT/DS285/13 (Aug. 19, 2005)
CRS-41
legislation.”174 In seeking a 15-month compliance period, the United States stressed
that such legislative action would be “technically complex”:
... It requires consideration of the relationship between the IHA and three
different federal criminal statutes — the Wire Act, the Travel Act, and the Illegal
Gambling Business statute The Appellate Body has made no finding as to
whether the activity that is prohibited by these statutes is permitted under the
IHA. Instead the Appellate Body has emphasized the need to “demonstrate[] that
— in the light of the existence of the Interstate Horseracing Act — the Wire Act,
the Travel Act, and the Illegal Gambling Business Act are applied consistently
with the requirements of the [Article XIV] chapeau.” Accordingly a reasonable
legislative option would have the effect of clarifying that relevant U.S. federal
laws entail no discrimination between foreign and domestic service suppliers in
the application of measures prohibiting remote supply of gambling and betting
services.
... There will be ample room for reasonable and principled disagreements among
legislators as to precisely how to achieve such a clarification in the context of
Internet gambling. ...
... A legislative clarification will be further complicated by the fact that , starting
in the 105th Congress (1997-98), and continuing in each subsequent Congress
through the 108th Congress (2003-04), U.S. federal lawmakers have considered
a wide range of proposals to address Internet gambling. Members of Congress
are actively considering introduction of Internet gambling bills in the current
109th Congress (2005-06), and will undoubtedly find it necessary to consider the
need for compliance with the DSB’s recommendations and rulings in the context
of this continuing debate, and the variety of broader proposals already supported
by different groups of legislators. The issue of how to achieve compliance with
the DSB’s recommendations and rulings is thus further complicated by its
potential to affect, and be affected by, elements of an already complex legislative
debate that has gone unresolved over the past four Congresses.175
Antigua has written to the USTR, claiming that two bills introduced in the
current Congress — H.R. 4777 (Goodlatte), which would, inter alia, amend the Wire
Act to prohibit internet gambling and the use of credit and other forms of payment
for unlawful wire gambling, and H.R. 4411 (Leach), which would prohibit the use
of certain types of payment instruments for unlawful internet gambling — are “in key
respects contrary to” the WTO decision. Antigua is reportedly considering the
imposition of countermeasures against the United States if it does not comply by the
April 3 deadline.176
174 Submission of the United States, Arbitration under Article 21.3 of the DSU, United States
— Measures Affecting the Cross-Border Supply of Gambling and Betting Services,
WT/DS285, July 12, 2005, at 5, at [http://www.ustr.gov/assets/Trade_Agreements/
Monitoring_Enforcement/Dispute_Settlement/WTO/Dispute_Settlement_Listings/asset_
upload_file504_5581.pdf].
175 Id. at 5-7.
176 Antigua Preparing to Impose WTO Sanctions Against U.S. in Internet Gambling Dispute,
23 Int’l Trade Rep. (BNA) 281 (2006); Letter of Feb. 16, 2006, from Dr. John W. Ashe,
Ambassador/Permanent Representative to the WTO to Mr. Rob Portman, USTR, available
(continued...)
CRS-42
Pending Cases Involving Administrative Action
Countervailing Measures Concerning Certain Products from the
European Communities (DS212). The European Communities (EC) in a
November 2000 complaint alleged violations of the WTO Agreement on Subsidies
and Countervailing Measures (SCM Agreement) stemming from methodologies used
by the Department of Commerce in 12 countervailing duty (CVD) proceedings to
determine whether a countervailable subsidy existed subsequent to the privatization
of a firm. In its panel request, the EC claimed that the United States had imposed
duties without first establishing that a benefit was received by the producers under
investigation, all of which were privatized steel companies.177 Under Article 1.1 of
the SCM Agreement, a subsidy is “deemed to exist” if there is a “financial
contribution” by a government or public entity and “a benefit is thereby conferred.”
The EC argued that the Department had applied a methodology in 11 CVD cases
after the methodology was successfully challenged in an earlier WTO proceeding;
that it had applied a revised methodology in a twelfth case that replicates the
violative aspects of the prior approach; and that § 771(5)(F) of the Tariff Act of 1930,
setting forth a statutory rule for considering change in ownership, impermissibly
allows the Department to impose countervailing duties without initially determining
176 (...continued)
at [http://www.insidetrade.com]; Goodlatte Bill Would Outlaw Credit Card Use for Internet
Gambling, Target Illegal Activity, Daily Rep. for Executives (BNA), Feb. 17. 2006, at A-35.
177 Request for the Establishment of a Panel by the European Communities, United States
— Countervailing Measures Concerning Certain Products from the European
Communities, WT/DS212/4 (Aug.10, 2001).
CRS-43
the existence of a countervailable subsidy.178 Section 771(5)(F), codified at 19
U.S.C. § 1677(5)(F), states as follows:
A change in ownership of all or part of a foreign enterprise or the productive
assets of a foreign enterprise does not by itself require a determination by the
administering authority that a past countervailable subsidy received by the
enterprise no longer continues to be countervailable, even if the change in
ownership is accomplished through an arm’s length transaction.
178 The U.S. privatization methodology first faulted by the WTO was at issue in the EC’s
successful challenge of countervailing duties imposed on lead and carbon steel products
produced and exported by a British firm. United States — Imposition of Countervailing
Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the
United Kingdom, WT/DS138. The British firm had originally been created as a joint
venture between the state-owned British Steel Corporation (BSC) and a private company,
and was eventually fully owned by a British Steel PLC, the privatized BSC; both parties in
the WTO dispute had agreed that the privatization, which had taken place through a sale of
shares, “was ‘at arm’s length, for fair market value and consistent with commercial
considerations.’” Panel Report, United States — Imposition of Countervailing Duties on
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United
Kingdom, ¶ 2.3, WT/DS/138/R (Dec. 23, 1999)[hereinafter UK Steel Panel Report ].
Under the challenged methodology, the Commerce Department treated nonrecurring
subsidies provided to the seller as “potentially allocable to the production transferred to the
purchaser in a privatization or other change-in-ownership transaction.” First Written
Submission of the United States, United States — Imposition of Countervailing Duties on
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United
Kingdom, ¶ 46, WT/DS138 (May 18, 1999), as printed in UK Steel Panel Report, supra, at
162-205. The methodology was based on the principle that the benefit of a subsidy exists
at the time the subsidy is bestowed, and thus the determination that a benefit exists, once
made, was not to be reconsidered; instead, the Department of Commerce would take into
account a change in ownership by reallocating the subsidy benefit. Id. ¶¶ 9-10. The
unamortized subsidies could, however, be repaid. Id. ¶¶ 47-48.
The WTO panel, as upheld by the AB, found that the United States had not shown that
a benefit was conferred on the privatized company as required by the SCM Agreement.
Panel and Appellate Body reports in the case were adopted in June 2000. When the United
States presented its implementation plan to the DSB in July 2000, it announced that it was
considering a change in CVD regulations governing its change-in-ownership methodology
in response to both the adverse WTO reports in the case and recent U.S. legal developments.
Because the challenged duty order had been revoked, however, the United States considered
that it had complied with the DSB rulings and recommendations in the proceeding. Dispute
Settlement Body, Minutes of Meeting, July 5, 2000, at 9, WT/DSB/M/85 (Sept. 25, 2000),
as corrected; see also “U.S. Tells WTO Commerce CVD Rules Under Review After British
Steel Decision, 17 Int’l Trade Rep. (BNA) 1090 (2000).
The referenced domestic legal development was the February 2000 federal court
decision in Delverde, SrL v. United States), 202 F.3d 1360 (Fed. Cir. 2000), reh’g denied
(2002), a case involving a CVD investigation in which the Commerce Department had
analyzed a private-to-private sale of a company using its “spin-off” methodology for
corporate restructurings. The U.S. Court of Appeals for the Federal Circuit held that “the
Tariff Act as amended does not allow Commerce to presume conclusively that the subsidies
granted to the former owner of Delverde’s corporate assets automatically ‘passed through’
to Delverde following the sale,” but instead “requires that Commerce make such a
determination by examining the particular facts and circumstances of the sale and
determining whether the new owner received a financial contribution and benefit from the
government.” Id. at 1364.
CRS-44
The panel report, circulated to the WTO Members July 31, 2002, concluded that
the United States had violated the SCM Agreement in imposing and maintaining
countervailing duties in the 12 challenged proceedings without determining whether
a benefit continues to exist.179 The panel not only found that the U.S. privatization
methodologies were inconsistent with the SCM Agreement, but also concluded that
the Agreement required a per se rule under which a sale concluded at fair market
value or an arm’s-length transaction always extinguishes earlier subsidies.180 The
panel further found that while the plain wording of § 771(5)(F) did not mandate a
violation of the Agreement, the statute, in light of its legislative history, object and
purposes, and judicial interpretation, prohibited the Commerce Department from
adopting a general rule applicable in all cases and was thus inconsistent with the
Agreement.181
Following a U.S. appeal, the Appellate Body (AB), in a report released
December 9, 2002, upheld the panel’s determination that the CVD orders were
improperly based, but reversed the finding that the SCM Agreement required the
privatization rule articulated by the panel and the panel’s conclusion that § 771(5)(F)
was inconsistent with the Agreement.182 The AB stated that it agreed with both the
United States and the EC that § 771(5)(F) does not dictate any particular
179 Panel Report, United States — Countervailing Measures Concerning Certain Products
from the European Communities, WT/DS212/R (July 31, 2002)(hereinafter Countervailing
Measures on Certain EC Products Panel Report). The methodologies were used by the
Department of Commerce in original subsidy determinations, administrative reviews, and
sunset (i.e. five-year) reviews, depending on the CVD order in question. The panel, as
upheld by the Appellate Body, concluded that the requirement that a benefit be found
applies at each of these stages of a CVD investigation. Countervailing Duties on Certain
EC Products Panel Report, supra, ¶¶ 7.98, 7.113-7.114.
180 Id . ¶¶ 7.60-7.89.
181 Id. ¶¶ 7.129-7.158
182 Appellate Body Report, United States — Countervailing Measures Concerning Certain
Products from the European Communities, WT/DS212/AB/R (December 9, 2002). The AB
found, however, that WTO Members must maintain a presumption against the existence of
a continued benefit where an arm’s length, fair market value privatization has occurred,
characterizing the obligation under the SCM Agreement as follows:
... privatization at arm’s length and for fair market value ... presumptively
extinguishes any benefit received from the non-recurring financial contribution
bestowed upon a state-owned firm. The effect of such a privatization is to shift
to the investigating authority the burden of identifying evidence which
establishes that the benefit from the previous financial contribution does indeed
continue beyond privatization. In the absence of such proof, the fact of the arm’s-
length, fair market value privatization is sufficient to compel a conclusion that
the ‘benefit’ no longer exists for the privatized firm, and, therefore, that
countervailing duties should not be levied.
Id. ¶ 126 (emphasis in original).
CRS-45
methodology and thus “as such, does not prevent the USDOC from determining
whether a ‘benefit’ continues to exist, as required by the SCM Agreement.”183
The appellate and modified panel reports in the WTO proceeding were adopted
by the DSB January 8, 2003. The United States informed the DSB at its January 27,
2003, meeting that it would implement the rulings but that it needed a reasonable
period of time to do so. The disputing parties later agreed on a compliance deadline
of November 8, 2003. In implementation of the WTO rulings, the Commerce
Department issued a Federal Register notice March 21, 2003, announcing a proposed
revision of its privatization methodology and seeking comments on the revisions.184
As described by the Department, the new methodology is “structured as a series of
rebuttable presumptions,” which starts with the “‘baseline presumption’ ... that non-
recurring subsidies can benefit the recipient over a period of time (i.e., allocation
period) normally corresponding to the average useful life of the recipient’s assets.”185
The Commerce Department issued a final notification of its methodology June 23,
2003, stating that the revised analytical approach would be used in reviewing the 12
cases at issue, as well as in all CVD investigations and reviews initiated on or after
June 30, 2003.186
On October 23, 2003, the Commerce Department issued 12 determinations
under § 129 of the Uruguay Round Agreements Act (Section 129 determinations) in
response to the WTO rulings.187 Once implemented, the determinations resulted in
revised cash deposit rates for certain companies in five CVD orders, full revocation
of two CVD orders on imports from France, and revocation of a CVD order on
imports from Italy with respect to the subject privatized company. The remaining
four Section 129 determinations concerned sunset (i.e., five-year) reviews of CVD
orders on goods from France, Germany, Spain, and the United Kingdom.188 The
USTR did not direct the Commerce Department to implement these determinations
because, as the United States later explained to the DSB, the Department had
determined that “application of its new WTO-consistent analysis would not change
183 Id. at ¶ 159.
184 Notice of Proposed Modification of Agency Practice Under Section 123 of the Uruguay
Round Agreements Act and Request for Public Comment, 68 Fed. Reg. 13897 (Mar. 21,
2003).
185 Id. at 13899.
186 Notice of Final Modification of Agency Practice Under Section 123 of the Uruguay
Round Agreements Act, 68 Fed. Reg. 37125 (June 23, 2003).
187 See Notice of Implementation Under Section 129 of the Uruguay Round Agreements
Act; Countervailing Measures Concerning Certain Steel Products from the European
Communities,” 68 Fed. Reg. 64858-59 (Nov. 17, 2003)[hereinafter EC Steel Products
Implementation Notice]. Regarding Section 129 determinations, see supra pp. 8-12.
188 For a description of sunset reviews, see infra pp. 54-55.
CRS-46
its original conclusions that continued subsidization was likely.”189 As a result of
these actions, the United States considered that it had fully complied in the case.190
Recent developments. On March 17, 2004, the EC requested that the
United States enter into consultations with respect to the Commerce Department’s
new “change-in-ownership” methodology, and its application in the four Section 129
determinations involving sunset reviews.191 Consultations having failed to resolve
the matter, an Article 21.5 compliance panel was established at the EC’s request on
September 27, 2004. As requested by the EC, the panel focused on reviews
involving imports from France, Spain, and the United Kingdom.192 In a report
publicly circulated August 17, 2005, the compliance panel upheld the Section 129
determination involving French imports, but found fault with the two others.193 The
panel found that the Commerce Department had failed to determine in each whether
the privatization involved was at arm’s length and for fair market value and whether
the privatized producer received any benefit from the previous nonrecurring
189 Dispute Settlement Body, Minutes of Meeting, Nov. 7, 2003, at 6, WT/DSB/M/157 (Dec.
18, 2003)[hereinafter DSB Minutes (Nov. 7, 2003)]. See EC Steel Products Implementation
Notice, supra note 187, 68 Fed. Reg. at 64859.
190 DSB Minutes (Nov. 7, 2003), supra note 189, at 6.
191 Request for Consultations, Recourse to Article 21.5 of the DSU by the European
Communities, United States — Countervailing Measures Concerning Certain Products from
the European Communities, WT/DS212/14 (March 19, 2004). In its request, the EU stated
that the new Commerce Department privatization methodology continued to be inconsistent
with the SCM Agreement because it “provides that the unamortized amount of any pre-sale
subsidy continues to be countervailable if a privatization is found not to be at arm’s length
and for fair market value.” Id. at 2. The EC disputed “that this is necessarily the case and
that the amount of any subsidy that may exist corresponds to the ‘unamortized amount’ of
the original subsidy.” Id. (citation omitted).
192 Dispute Settlement Body, Minutes of Meeting, Sept. 27, 2004, at 11-13, WT/DSB/M/176
(Oct. 19, 2004). See also Request for the Establishment of a Panel, Recourse to Article 21.5
of the DSU by the European Communities, United States — Countervailing Measures
Concerning Certain Products from the European Communities, WT/DS212/15 (September
19, 2004). The EC claimed that in the sunset review involving French imports the
Commerce Department had “failed to properly examine the existence, continuation or
likelihood of recurrence of subsidization,” basing this assertion on the Department’s alleged
improper analysis of whether, in the privatization involved, the price for employees’ and
retirees’ shares constituted a subsidy or that it led to any continuation of a countervailiable
subsidy.” Id. at 2. The EC further claimed that in the reviews involving the United
Kingdom and Spain the Department had “failed to properly determine whether ... there was
continuation or recurrence of subsidization and injury, because it did not examine the nature
of the privatizations in question and their impact on the continuation of the alleged
subsidization “ Id. The EC also stated in its panel request that it “continues to reserve its
rights in respect of all other aspects of the United States’ purported compliance with its
obligations in this case,” and that “[i]n particular, the European Communities reserves it
right to challenge the revised methodology in the light of the eventual outcome of a number
of court challenges seeking to overturn it.” Id.
193 Panel Report, Recourse to Article 21.5 of the DSU by the European Communities, United
States — Countervailing Measures Concerning Certain Products from the European
Communities, WT/DS212/RW (Aug. 17, 2005).
CRS-47
subsidization of the state-owned firm. The panel thus concluded that, by not properly
determining the likelihood or recurrence of subsidization before deciding to maintain
the CVD orders, the United States violated obligations under both the SCM
Agreement and the GATT. The panel also found that the United States had acted
inconsistently with the SCM Agreement in refusing to consider new evidence
submitted during the Section 129 proceeding involving imports from the United
Kingdom.
The United States did not appeal, and the panel report was adopted on
September 27, 2005. According to a February 2006 statement by the United States
before the DSB, the USTR on November 29, 2005, requested the Commerce
Department to issue revised determinations with respect to the sunset reviews
involving Spain and the United Kingdom in an expeditious manner, and the
Department initiated such proceedings shortly thereafter.194
Final Countervailing Duty Determination with Respect to Certain
Softwood Lumber from Canada (DS257). This case involves Canada’s
challenge to the final affirmative subsidy determination issued by the Department of
Commerce on March 25, 2002, regarding certain softwood lumber imports from
Canada.195 As a result of the CVD investigation, a CVD order was issued in May
2002, prescribing duties reflecting a country-wide net subsidy rate of 18.79% ad
valorem.196
While the United States generally prevailed in this WTO proceeding, it was
found to violate the WTO Agreement on Subsidies and Countervailing Measures
(SCM Agreement) and the GATT 1994 with respect to one aspect of its analysis
underlying the countervailing duty order — namely, its failure to analyze whether the
arm’s-length sale of logs by harvesters who owned sawmills to unrelated lumber
producers resulted in a “pass through” of subsidies, or, in other words, whether a
benefit was conferred on those producers for purposes of the SCM Agreement’s
194 U.S. Statements (Feb. 17, 2006), supra note 114, at Item 3.
195 This determination was also challenged by Canada before a binational review panel
established under the North American Free Trade Agreement (NAFTA), a option available
under Chapter 19 of the NAFTA in lieu of judicial review in the country in which the
determination is issued. Binational panels, which may review final agency determinations
in antidumping and countervailing duty proceedings, are charged with determining whether
determinations are in accordance with domestic law. As a result of ongoing binational panel
review of the Commerce Department’s subsidy determination in the lumber case, the
Department in November 2005 calculated a subsidy margin of 0.80%, a de mininis rate that
does not permit the imposition of countervailing duties. The panel is currently reviewing
this determination. For further information on the NAFTA proceeding, see CRS Issue Brief
IB10081, Lumber Imports from Canada: Issues and Events, by Ross W. Gorte and Jeanne
J. Grimmett, and CRS Congressional Distribution Memorandum, Status of NAFTA and WTO
Challenges to Final Agency Determinations in Antidumping and Countervailing Duty
Investigations Involving Softwood Lumber from Canada, by Jeanne J. Grimmett (available
from the American Law Division, CRS).
196 Notice of Amended Final Affirmative Countervailing Duty Determination and Notice of
Countervailing Duty Order: Certain Softwood Lumber Products from Canada, 67 Fed. Reg.
36070, 36076 (May 22, 2002).
CRS-48
definition of a “subsidy.” As noted earlier, a subsidy will be found to exist when
there is a financial contribution by a government and “a benefit is thereby conferred.”
The panel report in the case, publicly circulated August 29, 2003, upheld the
Commerce Department finding that provincial stumpage programs were financial
contributions by the government and that the subsidies were specific to an industry,
a WTO requirement for finding a countervailable domestic subsidy.197 The panel
faulted the Department, however, on its use of cross-border comparisons and its
determination that the subsidy from the stumpage program passed through to
downstream users. The report was appealed by both the United States and Canada.
In a January 19, 2004, decision, the WTO Appellate Body upheld the panel’s
stumpage determination, but reversed the panel on its finding that cross-border
comparisons could not be used in determining a benefit and on its consequential
finding that the U.S. determination of the existence and amount of the benefit
violated WTO rules.198 Because of insufficient information, however, the Appellate
Body could not complete the analysis as to whether the benchmark that the United
States did use was proper and consequently whether the U.S. benefit finding and
ultimately its imposition of countervailing duties based on that determination
comported with WTO rules.
Regarding downstream users, the issue before the Appellate Body concerned
situations where harvesting and processing were not carried out by vertically
integrated, thus requiring an examination of “whether the subsidy conferred on
products of certain enterprises in the production chain was ‘passed through,’ in arm’s
length transactions, to other enterprises producing the countervailed product.”199 The
Appellate Body upheld the panel’s finding that United States had violated WTO
obligations when the Department of Commerce failed to conduct a pass-through
analysis regarding arm’s-length sales of logs by tenured harvesters/sawmills to
unrelated sawmills, but reversed the panel on its finding that Department of
Commerce acted inconsistently with WTO obligations when it failed to conduct a
pass-through analysis regarding arm’s-length sales of primary lumber by such sellers
to unrelated remanufacturers.
197 Panel Report, United States — Final Countervailing Duty Determination with Respect
to Certain Softwood Lumber from Canada, WT/DS257/R (Aug. 29, 2003). The panel found
that because the Canadian provincial stumpage programs give tenure holders a right to cut
standing timber that is in the nature of a proprietary right, the governments are in essence
providing standing timber to timber harvesters and thus providing a good for WTO
purposes. Id. at ¶¶ 7.09-7.30; see also Appellate Body Report, infra note 198, ¶¶ 46-76.
198 Appellate Body Report, United States — Final Countervailing Duty Determination with
Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R (Jan. 19, 2004).
199 Id. ¶ 124. Canada argued in the appeal that by not conducting a pass-through analysis,
the United States “acted inconsistently with: (i) Article 10 of the SCM Agreement, by failing
to ‘take all necessary steps’ to determine subsidization in accordance with the provisions of
the SCM Agreement and Article VI:3 of the GATT 1994; (ii) Article 32.1 of the Agreement,
by taking action against a subsidy not in accordance with the provisions of the GATT 1994,
as interpreted by the SCM Agreement, and (iii) Article VI:3 of the GATT 1994, by imposing
duties without establishing the existence of indirect subsidization and failing to ensure that
countervailing duty measures are not in excess of the subsidy found to exist.” Id. ¶ 133.
CRS-49
The appellate and modified panel reports were adopted by the DSB on February
17, 2004, and the United States and Canada later agreed on a compliance deadline
ending December 17, 2004.200 The Department of Commerce issued a revised CVD
determination pursuant to § 129 of the Uruguay Round Agreements Act on December
10, 2004, and instructed Customs to collect estimated countervailing duties of
18.62% on goods entered for consumption or withdrawn from warehouse after that
date, a reduction of 0.17% from the original net subsidy rate.201
Recent developments. Although the United States stated at the December
17, 2004, meeting of the DSB that it had complied in the case, Canada requested a
compliance panel as well as authorization to retaliate in the amount of approximately
$200 million (Can.).202 Citing various deficiencies in the Commerce Department’s
use of pass-though analysis, Canada challenged not only the Section 129
determination, but also U.S. action in the first administrative review of the CVD
order. The administrative review, which covered imports from the period May 22,
2002, though March 31, 2003, and established the official duty rate for imports
entered during this period, resulted in a reduction of the net subsidy rate to 16.37%
ad valorem.203
A compliance panel was established January 14, 2005. In addition, the United
States objected to Canada’s retaliation request, an action that automatically sent the
request to arbitration. In an agreement between the two countries, the arbitral
proceeding has been suspended until the resulting from the compliance process are
adopted, at which time either party may request that the arbitration be resumed.204
In a report circulated August 1, 2005, the compliance panel found that the
Department of Commerce had not carried out the necessary pass-though analysis
regarding non-arm’s-length sales of logs by tenured timber harvesters to unrelated
200 Agreement under Article 21.3(b) of the DSU, United States — Final Countervailing
Duty Determination with Respect to Certain Softwood Lumber from Canada,
WT/DS257/13 (Apr. 30, 2004).
201 Notice of Implementation Under Section 129 of the Uruguay Round Agreements Act;
Countervailing Measures Concerning Certain Softwood Lumber Products from Canada, 69
Fed. Reg. 75305 (Dec. 16, 2004); Section 129 Determination available at
[http://ia.ita.doc.gov/frn/0412frn/E4-3683.txt].
202 Request for the Establishment of a Panel, Recourse to Article 21.5 of the DSU by
Canada, United States — Final Countervailing Duty Determination with Respect to Certain
Softwood Lumber from Canada, WT/DS257/15 (Jan. 4, 2005); Recourse to Article 22.2
of the DSU by Canada, United States — Final Countervailing Duty Determination with
Respect to Certain Softwood Lumber from Canada, WT/DS257/16 (Jan. 4, 2005).
203 Notice of Final Results of Countervailing Duty Administrative Review and Rescission
of Certain Company-Specific Reviews: Certain Softwood Lumber Products from Canada,
69 Fed Reg. 75917, 75919 (Dec. 20, 2004), amended by Notice of Amended Final Results
of Countervailing Duty Administrative Review: Certain Softwood Lumber Products from
Canada, 70 Fed. Reg. 9046, 9048 (Feb. 24, 2005).
204 Communication from the Arbitrator, Recourse to Article 22.6 of the DSU by the United
States, United States — Final Countervailing Duty Determination with Respect to Certain
Softwood Lumber from Canada, WT/DS257/21 (Mar. 1, 2005).
CRS-50
lumber producers and concluded that, in both its Section 129 determination and the
first administrative review, the Department had made its calculations using
transactions for which it had not demonstrated that the benefits of subsidized log
inputs had passed through to the processed product.205 The United States appealed
the decision September 6, 2005, arguing that the first administrative review was
outside the scope of the panel’s jurisdiction. In a report issued December 5, 2005,
the AB upheld the conclusion of the panel that examination of the first administrative
review fell within its mandate to the extent the pass-though analysis was involved.206
The United States had not requested that the AB review the panel’s substantive
findings regarding the use of pass-through analysis in the administrative review and
the AB went on to find that the panel had acted within the scope of its authority in
making its legal conclusions regarding U.S. actions in the review.
The panel and AB reports were adopted by the DSB on December 20, 2005.207
Final Dumping Determination on Softwood Lumber from Canada
(DS264). This case involves Canada’s claim that the United States violated
provisions of the GATT and the WTO Antidumping Agreement in its investigation
of dumping of Canadian softwood lumber. Canada argued that the Commerce
Department had improperly initiated the case; improperly applied a number of
methodologies, resulting in artificial or inflated dumping margins; not established a
correct product scope for its investigation; and failed to adhere to various WTO
requirements involving procedural matters in the investigation.208
The panel circulated its final report April 13, 2004, generally rejecting Canada’s
claims, though (with one dissent) faulting the United States for calculating dumping
margins with the use of “zeroing.”209 Briefly, this practice involves assigning a
“zero” value to transactions in which the export price or constructed export price
exceeds normal value (i.e., where there is no dumping), and as a result not using the
higher prices in these transactions to offset the lower prices in other sales. The
United States appealed the panel report on this issue.
On August 11, 2004, the Appellate Body upheld the panel’s conclusions on
“zeroing,” and, regarding an issue appealed by Canada, reversed the panel’s finding
205 Panel Report, Recourse by Canada to Article 21.5, United States — Final Countervailing
Duty Determination with Respect to Certain Softwood Lumber from Canada,
WT/DS257/RW (Aug. 1, 2005).
206 Appellate Body Report, Recourse by Canada to Article 21.5, United States — Final
Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada,
WT/DS257/AB/RW (Dec. 5, 2005).
207 Action by the Dispute Settlement Body, Appellate Body Report and Panel Report
pursuant to Article 21.5 of the DSU, United States — Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/25
(Dec. 22, 2005).
208 Request for the Establishment of a Panel by Canada, United States — Final Dumping
Determination on Softwood Lumber from Canada, WT/DS264/2 (Dec. 9, 2002).
209 Panel Report, United States — Final Dumping Determination on Softwood Lumber from
Canada, WT/DS264/R (Apr. 13, 2004).
CRS-51
that the United States had not infringed various Antidumping Agreement provisions
in calculating financial expenses for softwood lumber for one company under
investigation (Abitibi).210 Since the reversal focused only on the panel’s
interpretation of the legal standard that the panel used to evaluate the Commerce
Department’s approach, the Appellate Body did not make any findings as to whether
the United States in fact acted consistently or inconsistently with the provisions
involved. The reports were adopted by the DSB August 31, 2004.211
The practice of “zeroing” had earlier been ruled to violate the Antidumping
Agreement in a case brought by India against the EC.212 In the EC’s challenge of the
U.S. practice as used in over 30 antidumping investigations, the WTO panel, in an
October 31, 2005, report, found that “zeroing” is not permitted in an initial
investigation, but is allowed in an administrative review.213 The EC has appealed the
ruling.214 A broad challenge to the U.S. practice brought by Japan is currently before
a panel,215 and the issue has been raised in a number of other WTO challenges to U.S.
antidumping investigations and orders.216 Federal courts have consistently held
“zeroing” to be valid under U.S. antidumping law, finding the statute to be silent on
the issue and deferring to the Commerce Department’s statutory interpretation.217
210 Appellate Body Report, United States — Final Dumping Determination on Softwood
Lumber from Canada, WT/DS264/AB/R (Aug. 11, 2004).
211 Dispute Settlement Body, Minutes of Meeting, Aug. 31, 2005, at 10, WT/DSB/M/189
(June 17, 2005).
212 European Communities — Anti-Dumping Duties on Imports of Cotton-Type Bed-Linen
from India (WT/DS141).
213 Panel Report, United States — Laws, Regulations, and Methodology for Calculating
Dumping Margins (“Zeroing”), WT/DS294/R (Oct. 31, 2005).
214 Notification of an Appeal by the European Communities, United States — Laws,
Regulations, and Methodology for Calculating Dumping Margins (“Zeroing”),
WT/DS294/12 (Jan. 17, 2006).
215 The panel hopes to complete its work in March 2006. See Communication from the
Chairman, United States — Measures Related to Zeroing and Sunset Reviews, WT/DS322
(Nov. 17, 2005).
216 United States — Anti-Dumping Measures on Shrimp from Ecuador, WT/DS335 (in
consultations); United States — Anti-Dumping Determinations regarding Stainless Steel
from Mexico, WT/DS325 (in consultations); United States — Provisional Anti-Dumping
Measures on Shrimp from Thailand, WT/DS324 (in consultations); United States — Anti-
Dumping Measures on Cement from Mexico, WT/DS281 (panel proceedings suspended in
January 2006 at request of the United States and Mexico); United States — Anti-Dumping
Duties on Silicon Metal from Brazil, WT/DS239 (in consultations).
217 The statutory provisions generally cited with respect to “zeroing” are § 703 of the Tariff
Act of 1930, 19 U.S.C. § 1673, the basic authority for the imposition of antidumping duties,
and § 771 of the same Act, 19 U.S.C. § 1677, which contains definitions for the terms
“dumped,” “dumping,” and “dumping margin.”
In January 2004, the Court of Appeals for the Federal Circuit held that the antidumping
statute does not directly address the issue of negative-value dumping margins and, applying
Chevron deference, held that the Department of Commerce based its practice on a
reasonable interpretation of the statute. The Timken Co. v. United States, 354 F.3d 1334
(continued...)
CRS-52
To comply with the decision, the Department of Commerce in January 2005
issued a preliminary Section 129 determination in which it continued to find
dumping.218 The Department applied a mode of comparing foreign and U.S. prices
that was not used in the original dumping determination, maintaining that the WTO
rulings applied only to the use of “zeroing” in the methodology involved in the case
and did not apply to other methodologies, an approach that resulted in higher
dumping margins that those in the original determination. With a May 2, 2005,
compliance deadline in place,219 the Department published a final Section 129
determination in the May 2 Federal Register in which it used the same methodology
that it had used in the preliminary determination and again posted higher dumping
margins.220
217 (...continued)
(2004), aff’g 240 F.Supp. 2d 1228 (Ct. Int’l Trade 2002). Similarly, the Court of
International Trade (CIT), applying Chevron, held in August 2004 that the plain language
of the statute is ambiguous, neither clearly requiring nor prohibiting zeroing, and that the
Commerce Department’s practice is based on a permissible construction of the statute. SNR
Roulements et al. v. United States, 2004 WL 1790178 (CIT), at *8-*10. The Department
of Commerce has argued that the antidumping statute unambiguously requires that sales
with negative dumping margins be given a zero value. Id. at *9.
In a 1996 decision, the CIT had stated that it was “aware of the statistical bias inherent
in Commerce’s methodology” but that it was:
not prepared ... to invalidate that methodology because the practice combats
masked dumping, an apparently legitimate goal consistent with the antidumping
statute. Unless and until it becomes clear that such practice is impermissible or
unreasonable (because, e.g., Commerce erroneously placed too much
significance on the phenomenon of masked dumping), the Court must defer to
Commerce’s methodology.”
Böwe Passat Reinigungs-Und Wäschereitechnik GMBH et al. v. United States, 926 F.Supp.
1138, 1150 (Ct. Int’l Trade 1996).
As described in a still earlier CIT opinion, the practice “ensures that sales made at less
than fair value on a portion of a company’s product line to the United States market are not
negated by more profitable sales.” Serampore Industries Pvt. Ltd. v. United States Dep’t of
Commerce, 675 F.Supp. 1354, 1360 (Ct. Int’l Trade 1987). The court continued:
“Commerce has interpreted the statute in such a way as to prevent a foreign producer from
masking its dumping with more profitable sales. Commerce’ interpretation is reasonable
and is in accordance with law.” Id. at 1361.
218 Preliminary Determination under Section 129 available at [http://ia.ita.doc.gov/download/
section129/Canada-Lumber-129-Prelim-013105.pdf].
219 Modification of the Agreement under Article 21.3(b) of the DSU, United States — Final
Dumping Determination on Softwood Lumber from Canada, WT/DS264/15 (Feb. 17, 2005).
220 Notice of Determination Under Section 129 of the Uruguay Round Agreements Act:
Antidumping Measures on Certain Softwood Lumber Products from Canada, 70 Fed. Reg.
22636 (May 2, 2005).
Canada also challenged the dumping determination before a NAFTA binational panel,
which in July 2003 unanimously affirmed the determination in part and remanded it in part.
After two remands, the Commerce Department lowered the average dumping margin to
(continued...)
CRS-53
Recent developments. The United States announced at the May 19, 2005,
meeting of the DSB that in implementing the new dumping determination it had
complied with its WTO obligations in the proceeding.221 Canada subsequently
challenged the U.S. measure, requesting a compliance panel as well as authorization
to suspend concessions in the amount of $400 million (Canadian) for the year 2005
and, for each subsequent year, in an amount that equals “the portion of the total anti-
dumping duties illegally collected and not refunded for that year as a result of the
United States non-compliance.”222 The United States objected to the retaliation
request, sending it to arbitration. Under a procedural agreement between United
States and Canada, arbitration of the retaliation request has been suspended pending
the completion of the compliance panel proceeding.223 An interim panel ruling has
reportedly upheld the new U.S. determination; the decision is expected to be
circulated publicly in March 2006.224
Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular
Goods from Argentina (DS268). Argentina requested consultations with the
United States in October 2002 regarding affirmative determinations by the
Commerce Department and the ITC in a sunset review of an antidumping duty order
on oil country tubular goods (OCTG) from that country.225 The determinations
resulted in the continued imposition of antidumping duties in the amount of 1.36%.226
220 (...continued)
7.92%. Dep’t of Commerce, Second Remand Redetermination, signed April 21, 2004,
available at [http://ia.ita.doc.gov/remands/index.html]. The panel remanded a third time in
June 2005, citing the WTO decision discussed here and directing the Commerce Department
to recalculate the dumping margins without the use of zeroing. The panel also directed the
department to issue a de minimis margin for one producer. As it did in the WTO proceeding
the Department recalculated all margins using zeroing but applied a different mode of price
comparison and arrived at higher dumping margins. The Department also asked the panel
to reconsider certain procedural and analytical issues in the panel’s June 2005 decision,
including that the decision, as it involved the Department’s price comparison methodology,
was in conflict with federal appeals court rulings. The panel has not yet issued a decision
in the proceeding. For further information on binational panels, see supra note 195.
221 DSB Minutes (May 19, 2005), supra note 171, at 23.
222 Recourse to Article 21.5 of the DSU by Canada, United States — Final Dumping
Determination on Softwood Lumber from Canada, WT/DS264/17 (May 20, 2005);
Recourse to Article 22.2 of the DSU by Canada, United States — Final Dumping
Determination on Softwood Lumber from Canada, WT/DS264/17 (May 20, 2005).
223 Communication from the Arbitrator, Recourse by the United States for Arbitration under
Article 22.6 of the DSU, United States — Final Dumping Determination on Softwood
Lumber from Canada, WT/DS264/22 (June 16, 2005).
224 U.S. Industry Welcomes WTO Interim Ruling on U.S. Compliance with Lumber AD
Ruling, 23 Int’l Trade Rep. (BNA) 287 (2006).
225 Request for Consultations by Argentina, United States — Sunset Reviews of Anti-
Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/1 (Oct 10,
2002).
226 See Final Results of Expedited Sunset Reviews: Oil Country Tubular Goods from
Argentina, Italy, Japan, and Korea, 65 Fed. Reg. 66701, 66703 (Nov. 7, 2000).
CRS-54
The rate applied to one individually investigated company (Siderca SAIC) as well as
to all other exporters (all others rate).
A “sunset review” is a five-year agency review of an antidumping or
countervailing duty order conducted to determine if the duty order should be
continued. Both the WTO Antidumping Agreement, at Article 11.3, and the
Agreement on Subsidies and Countervailing Measures, at Article 21.3, require that
duties be terminated after five years unless domestic authorities determine in a
review initiated before that date on their own motion, or “upon a duly substantiated
request made by or on behalf of the domestic industry within a reasonable period of
time prior to that date,” that termination of the duty “would be likely to lead to
continuation or recurrence” of dumping or subsidization and injury.
Sunset reviews are provided for in U.S. law in § 751(c)-(e) of the Tariff Act of
1930, 19 U.S.C. § 1675(c)-(e). In a sunset review, the ITC determines whether
revocation of an antidumping or CVD order “would be likely to lead to continuation
or recurrence of material injury within a reasonably foreseeable time,”227 while DOC
determines, as the case may be, whether revocation of a countervailing duty order
“would be likely to lead to continuation or recurrence of a countervailable
subsidy,”228 or whether revocation of an antidumping duty order “would be likely to
lead to continuation or recurrence of sales of the subject merchandise at less than fair
value.”229 Special rules to be followed by the agencies in making these determinations
are set forth in § 752 of the act, 19 U.S.C. § 1675a. Regulations are set forth at 19
C.F.R. § 351.218(d) and elsewhere in 19 C.F.R. Part 351. In addition, DOC has
issued a document known as the Sunset Policy Bulletin (SPB), which contains a set
of departmental policies regarding the conduct of sunset reviews pursuant to §§ 751
and 752 and related regulations.230 As described by the Department, the policies set
out in the SPB are “intended to complement the applicable statutory and regulatory
provisionby providing guidance on methodological or analytical issues not explicitly
addressed by the statute and regulations.”231
Section 751(c)(4) of the act, 19 U.S.C § 1675(c)(4), provides for the waiver of
participation in reviews by certain interested parties. Under § 751(c)(4)(A), parties
that produce, export or import the subject merchandise (respondent parties) may elect
not to participate in the DOC portion of a sunset review and to participate only in the
portion conducted by the ITC.232 Section 751(c)(4)(B) provides that in a review in
227 Tariff Act of 1930, § 752(a)(1), 19 U.S.C. § 1675a(a)(1)(2000).
228 Tariff Act of 1930, § 752(b)(1), 19 U.S.C. § 1675a(b)(1(2000).
229 Tariff Act of 1930, § 752(c)(1), 19 U.S.C. § 1675a(c)(1)(2000).
230 Policies Regarding the Conduct of Five-year (“Sunset”) Reviews of Antidumping and
Countervailing Duty Orders: Policy Bulletin, 63 Fed. Reg. 18871-77 (Apr. 16, 1998).
231 Id. at 18871.
232 Tariff Act of 1930, § 751(c)(4)(A), 19 U.S.C. § 1675(c)(4)(A)(2000). The parties who
may waive participation in the sunset review are: (1) a foreign manufacturer, producer or
exporter of the subject merchandise; (2) the U.S. importer of the subject merchandise; (3)
a trade or business association a majority of whose members are producers, exporters or
(continued...)
CRS-55
which any such party waives its participation, DOC “shall conclude that revocation
of the order ... would be likely to lead to continuation or recurrence of dumping or
a countervailable subsidy (as the case may be) with respect to that party.”
Under the so-called “deemed” waiver regulation, 19 C.F.R. §
351.218(d)(2)(iii),233 the Commerce Department treated “the failure by a respondent
interested party to file a complete substantive response to a notice of initiation [of a
sunset review] ... as a waiver of participation in a sunset review before the
Department.” Under 19 C.F.R. § 351.218(e)(1)(ii), the Department generally makes
its determination of the adequacy of responses by a respondent party on a case-by-
case basis, but the Department will normally conclude that an adequate response is
provided where it receives complete substantive responses under the DOC regulation
prescribing the information to be filed.234 Where interested parties provide
“inadequate responses” to a notice of initiation of a sunset review, the statute
provides for so-called “expedited” sunset reviews. In such cases, DOC, within 120
days after the review is initiated, or ITC, within 150 days after initiation, “may issue,
without further investigation, a final determination based on facts available,” as
provided for in § 776 of the Tariff Act, 19 U.S.C. § 1766e.”235
In its panel request, Argentina maintained that § 751(c)(4) of the Tariff Act and
related regulations “operate in certain instances to preclude the Department from
conducting a sunset review and making a determination as to whether termination of
an anti-dumping duty measure would be likely to lead to continuation or recurrence
of dumping,” in violation of various articles of the WTO Antidumping Agreement.236
Argentina claimed that when a respondent party is deemed to have waived
participation, U.S. law requires the Department to find that termination of the order
would be likely to have this effect “without requiring the Department to conduct a
substantive review or to make a determination based on the substantive review.”237
Argentina argued that the application of expedited review procedures in the
sunset review at issue was inconsistent with the Agreement because one individually
investigated company (Siderca) was deemed to have waived its right to participate
in the review “despite its full cooperation” with the Commerce Department; that the
Department did not conduct a “review” as contemplated in Article 11.3 of the
232 (...continued)
importers of such merchandise; and (4) the government of a country in which such
merchandise is produced or manufactured or from which such merchandise is exported. See
Tariff Act of 1930, § 771(9)(A), (B), 19 U.S.C. § 1677(9)(A), (B)(2000).
233 See Procedures for Conducting Five-year (“Sunset”) Reviews of Antidumping and
Countervaiilng Duty Orders, 54 Fed. Reg. 13516, 13521 (Mar. 20, 1998).
234 See 19 C.F.R. §§ 351.218(d)(3).
235 Tariff Act of 1930, § 751(c)(3)(B), 19 U.S.C, § 1675(c)(3)(B). Regarding statutory
authorities governing the use of “facts available, see supra note 78.
236 Request for the Establishment of a Panel by Argentina, United States — Sunset Reviews
of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, at 2,
WT/DS268/20 (Apr. 4, 2003).
237 Id.
CRS-56
Agreement; and that the Department failed to “determine” whether or not future
dumping was likely as required under Article 11.3.238 Among other arguments,
Argentina claimed that the Department’s sunset determination in the case was based
on a “virtually irrefutable presumption under US law as such” (i.e. on its face, rather
than as applied) that termination of the antidumping order would likely lead to more
dumping, given DOC’s consistent practice in such reviews, as based on U.S. law and
the Department’s Sunset Policy Bulletin.239
Regarding the ITC, Argentina alleged, among other things, that the
Commission had improperly used a lower standard than the “likely” standard in
assessing whether termination of the order was likely to lead to continuation or
recurrence of injury; that it failed both to conduct an objective injury examination
and to use “positive evidence” as the basis for its injury determination; and that the
Antidumping Agreement did not provide for the ITC’s use of “cumulative” injury
analysis in sunset reviews.240
The panel, in a report issued in July 2004, concluded that provisions of §
751(c)(4)(B) related to affirmative waivers and the related DOC regulation regarding
“deemed waivers” (19 U.S.C. § 351.218(d)(2)((iii) were inconsistent with Article
11.3 of the Antidumping Agreement.241 It also found that the regulation was
inconsistent with Article 6.1, which requires that parties be given notice of the
information required by authorities and ample opportunity to present the evidence
they consider relevant to an investigation, and with Article 6.2, which requires that
all parties to a proceeding have a full opportunity to defend their interests.242
Regarding the “irrefutable presumption” alleged by Argentina, the panel found that
the Sunset Policy Bulletin (SPB) was a “measure” that could be challenged in a WTO
dispute settlement proceeding,243 and that provisions of the SPB were inconsistent
with the Department’s obligation under Article 11.3 to determine the likelihood of
continuation or recurrence of dumping.244 The panel also found that, in making its
determinations in the sunset review at issue, DOC had acted inconsistently with
Articles 11.3 and 6.2 of the Agreement, but had not violated Article 6.1 or other
agreement obligations allowing the use of facts available in certain circumstances and
requiring public notice of antidumping investigations and explanation of
determinations.245 In addition, the panel upheld the U.S. legal standards for finding
238 Id. at 3.
239 Id. at 3.
240 Id. at 3-4.
241 Panel Report, United States — Sunset Review of Anti-Dumping Measures on Oil Country
Tubular Goods from Argentina, ¶¶ 7.80-7.103, 8.1(a)(i)-(ii), WT/DS268/R (July 16, 2004).
242 Id. ¶¶ 7.107-7.128, 8.1(a)(iii).
243 Id. ¶ 7.136.
244 Id. ¶¶ 7.134-7.144, 7.152-7.173, 8.1(b).
245 Id. ¶¶ 7.201-7.236, 7.239-7.245, 8.1(d).
CRS-57
a likelihood of the continuation or recurrence of injury and ITC’s affirmative
likelihood of injury determination in the case.246
The United States appealed the panel’s conclusions regarding the WTO-
inconsistency of U.S. law relating to affirmative and deemed waivers as well as the
panel’s conclusion that the SPB violated the Antidumping Agreement, including the
finding at that the SPB was a “measure” that could be challenged in a WTO dispute
settlement proceeding.247
Ruling in November 2004, the AB largely upheld the panel’s findings that §
751(c)(4)(B) and its related regulations were inconsistent with Articles 11.3, 6.1 and
6.2 of the Antidumping Agreement.248 While the AB also agreed that the SPB could
be challenged in a WTO dispute settlement proceeding, it reversed the panel on its
finding that a particular portion of the SPB was inconsistent with the Antidumping
Agreement on the ground that the panel had not made an “objective assessment” of
the issue, as required under the DSU.249 The reports were adopted on December 17,
2004.
Recent developments. The compliance deadline in the case, determined by
arbitration, expired on December 17, 2005.250 In a submission to the Arbitrator, the
United States stated that, in order to comply, it needed to amend its regulation
246 Id. ¶ ¶ 7.178-7.193, 7.258-7.260, 7.268-7.312, 8.1(e).
247 Notification of an Appeal by the United States, United States — Sunset Review of Anti-
Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/5 (Aug. 31,
2004). The United States also appealed the panel’s finding that Argentina’s initial panel
request met the requirements of the Dispute Settlement Understanding.
248 Appellate Body Report, United States — Sunset Review of Anti-Dumping Measures on
Oil Country Tubular Goods from Argentina, WT/DS268/AB/R (Nov. 29, 2004). The AB
described the obligation in Article 11.3 as follows:
The plain meaning of the terms “review” and “determine” in Article 11.3
... compel an investigating authority in a sunset review to undertake an
examination, on the basis of positive evidence, of the likelihood of continuation
or recurrence of dumping and injury. In drawing conclusions from that
examination, the investigating authority must arrive at a reasoned determination
resting on a sufficient factual basis; it may not rely on assumptions or conjecture.
Id. ¶ 180.
249 Argentina had appealed panel findings regarding the U.S. injury standard used in sunset
reviews and the ITC actions in the review. See id. ¶¶ 61-93. The AB upheld the panel’s
conclusions on these issues.
250 Award of the Arbitrator, Arbitration under Article 21.3(c) of the Understanding on Rules
and Procedures Governing the Settlement of Disputes, United States — Sunset Review of
Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/12
(June 7, 2005).
CRS-58
regarding waivers and to make a new determination of the likelihood of continuation
or recurrence of dumping in the sunset review at issue.251
In August 2005, DOC issued preliminary regulations amending 19 C.F.R. §
351.218(d)(2), regarding waivers by responding parties;252 final regulations were
issued on October 28, 2005.253 DOC also modified a portion of the regulations
involving participation in hearings in an expedited sunset review. After the final
regulations were issued, DOC issued a Section 129 determination in which it
continued to find that revocation of the order would be likely to led to continuation
or recurrence of dumping.254
According to DOC, the three modifications made to § 351.218(d)(2) “eliminate
the possibility that the Department’s order-wide likelihood determinations would be
based on assumptions about likelihood of continuation or recurrence of dumping or
a countervailable subsidy due to interested parties’ waiver of participation in the
sunset reviews.”255 The Department stated that it “will make its order-wide
determinations on the basis of the facts and information available on the record of the
sunset review.”256
First, DOC amended paragraph (2)(i), under which a responding party may
choose not to participate in a sunset review by filing a Statement of Waiver within
30 days of initiation of the sunset review. DOC now requires that the filing include
a statement that the party “is likely to dump or benefit from a countervailable subsidy
(as the case may be) if the order is revoked or terminated.”257 Second, DOC removed
paragraph (d)(2)(ii), under which the responding party was “deemed” to have waived
participation in the sunset review when it failed to file a complete substantive
response to a notice of initiation.258 As a result, the Department “will no longer make
company-specific likelihood findings for companies that fail to file a statement of
waiver and fail to file a substantive response to the notice of initiation.”259 Third,
DOC amended subparagraphs dealing with waiver of participation by a foreign
government in a CVD sunset review, to remove a cross-reference to the eliminated
provision, and “to eliminate certain language that might suggest the possibility that
251 Id. at 2.
252 Procedures for Conducting Five-year (“Sunset”) Reviews of Antidumping and
Countervailing Duty Orders, 70 Fed. Reg. 47738 (Aug. 15, 2005)(proposed rule and request
for comments).
253 Procedures for Conducting Five-year (“Sunset”) Reviews of Antidumping and
Countervailing Duty Orders, 70 Fed. Reg. 62061 (Oct. 28, 2005)(final rule).
254 See U.S. Statements to the DSB, infra note 263; Section 129 Determination (A-357-810),
available at [http://www.insidetrade.com]; Antidumping and Countervailing Duty Orders
in Place as of December 30, 2005, by Country, at [http://info.usitc.gov/oinv/sunset.nsf].
255 70 Fed. Reg. at 62062.
256 Id.
257 19 C.F.R. § 351.218(d)(2)(ii), as amended, 70 Fed. Reg. at 62064.
258 70 Fed. Reg. at 62062.
259 Id.
CRS-59
the Department’s sunset regulations would be based on assumptions about likelihood
of continuation or recurrence of a countervailable subsidy.”260
The Department rejected the suggestion of commenters on the preliminary
regulations that § 751(c)(4)(B) of the Tariff Act of 1930, having been found to be
WTO-inconsistent, needed to be amended or withdrawn in order to comply with the
WTO decision. The Department again stated that by modifying the waiver
regulations, it had “eliminated the possibility that its Department’s order-wide
likelihood determinations would be based on assumptions about likelihood of
continuation or recurrence of dumping or a countervailable subsidy due to interested
parties’ waiver of participation in the sunset reviews.”261 The Department continued:
Section 751(c)(4)(B) of the Act only mandates an affirmative company-specific
likelihood finding as a consequence of a party electing to waive its participation
in the sunset review. Thus, the modified regulatory waiver requirements result
in elimination of any assumption about likelihood because a party waiving
participation would have already indicated to the Department that it was likely
to dump or benefit from a countervailable subsidy if the order were revoked.262
Recent developments. While the United States announced at the December
20, 2005, meeting of the DSB that it had implemented the WTO rulings and
recommendations in the case,263 Argentina stated at the same meeting that it did not
view the United States as having complied.264 In January 2006, Argentina and the
United States entered into a procedural agreement addressing Argentina’s possible
request for a compliance panel and any subsequent appeal.265 It was agreed, inter
alia, that Argentina would not request authorization to suspend concessions or other
obligations until any panel and appellate rulings adverse to the United States were
adopted by the DSB. Argentina filed a request for consultations with the United
States on its compliance measures in late January 2006.266 The procedural agreement
allows Argentina to request a compliance panel once 15 days after the date the
request was circulated (i.e., January 30, 2006) have elapsed. To date, Argentina has
not done so.
260 Id.
261 Id. at 62062-63 (emphasis added)
262 Id. at 63063 (emphasis in original).
263 Statements by the United States at the December 20th Meeting of the WTO Dispute
Settlement Body, Item 4, in U.S. Mission to the United Nations in Geneva, Press Release,
Dec. 21, 2005, at [http://www.us-mission.ch/Press2005/1221DSBmeeting.html].
264 See Argentina-United States Procedural Agreement, infra note 265, at 2.
265 Understanding between Argentina and the United States Regarding Procedures under
Articles 21 and 22 of the DSU, United States — Sunset Review of Anti-Dumping Measures
on Oil Country Tubular Goods from Argentina, WT/DS268/14 (Jan. 8, 2006).
266 Request for Consultations, Recourse to Article 21.5 of the DSU by Argentina, United
States — Sunset Review of Anti-Dumping Measures on Oil Country Tubular Goods from
Argentina, WT/DS268/15 (Jan. 30, 2006).
CRS-60
Investigation of the International Trade Commission in Softwood
Lumber from Canada (DS277). On December 20, 2002, Canada requested
consultations with the United States regarding the International Trade Commission’s
injury investigation in the U.S. antidumping and countervailing duty cases involving
softwood lumber from Canada. In May 2002, the ITC had determined that an
industry in the United States was threatened with material injury by reason of imports
of softwood lumber that had been earlier found by the Commerce Department to be
subsidized by the Canadian Government and sold in the United States at less than fair
value. Canada claimed violations of the GATT, the Antidumping Agreement, and
the Agreement on Subsidies and Countervailing Measures, alleging, among other
things, that the ITC based its threat of injury determination “on allegation, conjecture
and remote possibility” and that it failed to consider properly a number of relevant
factors in its determinations of injury or threat.267
A final panel report faulting the ITC’s threat determination and its causal
analysis was issued to the parties February 10, 2004, and publicly circulated March
22, 2004.268 While the panel recommended that the United States bring its measures
into conformity with the WTO Antidumping and SCM Agreements, it declined to
recommend any ways for the United States to do so. The United States took issue
with the panel’s negative findings, but chose not to appeal and the report was adopted
April 26, 2004.269 The United States told the WTO Dispute Settlement Body that it
intended to comply,270 and the United States and Canada subsequently agreed on a
nine-month compliance period, beginning April 26, 2004, and ending January 26,
2005.271
Recent developments. On November 24, 2004, the U.S. International Trade
Commission issued a Section 129 determination affirming its earlier threat of injury
determination. The USTR later requested the Department of Commerce to
implement the new ITC determination, which it did by amending the antidumping
and countervailing duty orders to reflect its issuance and implementation.272 The
United States maintains that the Section 129 determination legally supports the
267 Request for the Establishment of a Panel by Canada, United States — Investigation of the
International Trade Commission in Softwood Lumber from Canada, WT/DS277/2 (Apr. 4,
2003).
268 Panel Report, United States — Investigation of the International Trade Commission in
Softwood Lumber from Canada, WT/DS277/R (Mar. 22, 2004).
269 WTO Adopts Ruling Condemning ITC Probe on Softwood Lumber; U.S. Declines Appeal,
21 Int’l Trade Rep. (BNA) 751 (2004).
270 Dispute Settlement Body, Minutes of Meeting, May 19, 2004, at 8, WT/DSB/M/169 (June
30, 2004).
271 Agreement under Article 21.3(b) of the DSU, United States — Investigation of the
International Trade Commission in Softwood Lumber from Canada, WT/DS277/7 (Oct. 4,
2004).
272 See Amendment to Antidumping and Countervailing Duty Orders on Certain Softwood
Lumber Products from Canada, 69 Fed. Reg. 75916 (Dec. 20, 2004). The text of the Section
129 determination is available at [http://www.usitc.gov/trade_remedy/
TR_opinions_reports.htm].
CRS-61
continued imposition of antidumping and countervailing duties on Canadian
softwood lumber, notwithstanding the ITC’s “no threat” determination issued in
September 2004 at the direction of a NAFTA binational panel.273 Canada and
Canadian producers have challenged implementation of the Section 129
determination in the U.S. Court of International Trade.274
Although the United States considers itself in compliance in the WTO case,275
Canada, in February 2005, requested the establishment of a compliance panel as well
as authorization to impose $4.25 billion (Can.) in sanctions, an amount it stated
represents the total amount of CVD and antidumping duty cash deposits collected
and not refunded as a result of the United States’ failure to revoke the May 2002
CVD and antidumping orders, which Canada views as proper implementation of the
WTO rulings in the case.276 The United States objected to the retaliation request,
thus sending it to arbitration.277 Under an agreement between the parties, the
arbitration has been suspended until the rulings in the compliance procedure are
adopted, with either party reserving the right to request that the arbitration be
resumed if the rulings are ultimately adverse to the United States.278
The compliance panel upheld the ITC determination in a report issued
November 15, 2005.279 Canada appealed the panel decision on January 13, 2006.280
273 NAFTA Lumber Panel Orders ITC to Find No Injury Threat in 10 Days, Inside U.S.
Trade, Sept. 3, 2004, at 1; ITC Reverses Threat Ruling in Canadian Softwood Cases, 21 Int’l
Trade Rep. (BNA) 1522 (2004). An Extraordinary Challenge Committee (ECC) requested
by the United States upheld the panel decision in August 2005. For further information on
binational panels, see supra note 195.
274 E.g., Tembec Inc. v. United States, No. 05-00028 (Ct. Int’l Trade Jan. 19, 2005).
275 See Dispute Settlement Body, Minutes of Meeting, Jan. 25, 2005, at 6, WT/DSB/M/182
(Feb. 17. 2005).
276 Request for the Establishment of a Panel, Recourse to Article 21.5 of the DSU by
Canada, United States — Investigation of the International Trade Commission in Softwood
Lumber from Canada, WT/DS277/8 (February 15, 2005), and Recourse to Article 22.2 of
the DSU by Canada, United States — Investigation of the International Trade Commission
in Softwood Lumber from Canada (WT/DS277/9)(Feb. 15, 2005).
277 Request by the United States for Arbitration under Article 22.6 of the DSU, United
States — Investigation of the International Trade Commission in Softwood Lumber from
Canada, WT/DS277/10 (Feb. 24, 2005).
278 Understanding between Canada and the United States Regarding Procedures under
Articles 21 and 22 of the DSU, United States — Investigation of the International Trade
Commission in Softwood Lumber from Canada WT/DS277/11 (Feb. 24, 2005).
279 Panel Report, Recourse to Article 21.5 of the DSU by Canada, United States —
Investigation of the International Trade Commission in Softwood Lumber from Canada,
WT/DS277/RW (Nov. 15, 2005).
280 Notification of an Appeal by Canada, Recourse to Article 21.5 of the DSU by Canada,
United States — Investigation of the International Trade Commission in Softwood Lumber
from Canada, WT/DS277/16 (Jan. 16, 2005).
CRS-62
Antidumping Measures on Oil Country Tubular Goods (OCTG) from
Mexico (DS282). In 2003, Mexico challenged DOC and ITC actions in a sunset
review of an antidumping duty order on oil country tubular goods (OCTG) from that
country, as well as U.S. laws, policies, and regulations involving such reviews.281
The panel generally rejected Mexico’s claims, but it held that the DOC had made its
determination as to the likelihood of continued or recurred dumping entirely on the
basis of decline in import volumes and did not consider other possibly relevant
evidence.282 Both Mexico and the United States appealed, with the United States
focusing its appeal on the panel’s finding that the Department’s Sunset Policy
Bulletin, which lays out procedures for the conduct of sunset reviews, was
inconsistent with the WTO Antidumping Agreement.283 The Appellate Body, on
November 2, 2005, upheld the panel finding that the ITC had acted consistently with
the Antidumping Agreement but reversed the panel on its adverse finding regarding
the Sunset Policy Bulletin.284 The panel and AB reports were adopted on November
28, 2005.285
Becuase the panel’s adverse findings regarding the DOC’s action were adopted
by the WTO, administrative action is needed to comply with this portion of the WTO
decision. In February 2006, the United States and Mexico agreed on a compliance
deadline of May 28, 2006.286
Countervailing Duty Investigation on Dynamic Random Access
Memory Semiconductors (DRAMS) from Korea (DS296). Korea requested
consultations with the United States in June 2003 regarding U.S. agency
determinations in a countervailing duty investigation involving dynamic random
access memory semiconductors (DRAMS) from that country.287 Following a final
affirmative subsidy determination by DOC and a final affirmative injury
determination by ITC, a countervailing duty order was issued in August 2003
281 Request for the Establishment of a Panel by Mexico, United States — Anti-Dumping
Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/2 (Aug. 8,
2003).
282 Panel Report, United States — Anti-Dumping Measures on Oil Country Tubular Ggoods
(OCTG) from Mexico, WT/DS282/R (June 20, 2005).
283 Notification of an Other Appeal by the United States, United States — Anti-Dumping
Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/7 (Aug. 19,
2005); regarding the Sunset Policy Bulletin, see supra note 230.
284 Appellate Body Report, United States — Anti-Dumping Measures on Oil Country
Tubular Goods (OCTG) from Mexico, WT/DS282/AB/R (Nov. 2, 2005).
285 Action by the Dispute Settlement Body, United States — Anti-Dumping Measures on Oil
Country Tubular Goods (OCTG) from Mexico, WT/DS282/10 (Dec. 2, 2005).
286 Agreement under Article 21.3(b) of the DSU, United States — Anti-Dumping Measures
on Oil Country Tubular goods (OCTG) from Mexico, WT/DS282/11 (Feb. 17, 2006).
287 Request for Consultations by Korea, United States — Countervailing Duty Investigation
on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/1
(July 8, 2003).
CRS-63
directing that Customs collect cash deposits equal to a net subsidy rate of 44.29%.288
In its November 2003 panel request, Korea alleged violations of the GATT and
the Agreement on Subsidies and Countervailing Measures (SCM Agreement). As
noted earlier, under Article 1.1 of the Agreement, a subsidy will be “deemed to exist”
where there is a “financial contribution by a government” (Art. 1.1(a)) and “a benefit
is thereby conferred” (Art. 1.1(b)). Article 1.1(a)(1)(iv) provides that a financial
contribution by a government occurs where a government “entrusts or directs a
private body to carry out” a function that would be considered a financial
contribution under the Agreement, such as granting loans, where the function “would
normally be vested in the government and the practice, in no real sense, differs from
practices normally followed by governments.” In addition, for a domestic subsidy
to be countervailable, it must be specific to an industry (Arts. 1.2, 2).
Korea claimed that DOC had improperly determined that certain commercial
financial institutions were under the direction or entrustment of the Government of
Korea and therefore their loans to Korean producers were a financial contribution by
the government; that DOC had failed to use market benchmarks in determining
whether a benefit was conferred on Korean producer Hynix Semiconductor, Inc. in
receiving the loans in question; that DOC had erroneously established that subsidies
were specific to Hynix in that it had disregarded that similar debt restructuring had
been undergone by many other Korean companies; and that ITC had improperly
assessed the volume and price effects of the subject imports as well as the overall
condition of the domestic industry, and had failed to demonstrate the required causal
link between the subject imports and material injury.289
The February 2005 panel report found that DOC’s final subsidy determination,
ITC’s final injury determination, and the countervailing duty order on DRAMS from
Korea based on these determinations, were inconsistent with, as the case may be,
Articles 1, 2 and 15.5 of the SCM Agreement.290 The panel found that the United
States had not shown entrustment or direction with respect to two groups of creditors
for purposes of Article 1.1(a)(1)(iv), but that the United States had done so with
respect to one private bank. The panel also found that DOC had not shown that a
benefit was conferred on those companies that had received loans for purposes of
Article 1.1(b) and that DOC had not shown that the subsidy was specific to the
semiconductor industry under the criteria set out in Article 2 of the Agreement.
In addition, the panel found that it was not clear from the face of the ITC’s
injury determination “whether, or how, the ITC separated and distinguished the injury
caused by ... slowing in the growth in demand from (a) the injury caused by the
decline in demand inherent in the business cycle and more importantly, (b) the injury
288 Notice of Countervailing Duty Order: Dynamic Random Access Memory Semiconductors
(DRAMS) from the Republic of Korea, 68 Fed. Reg. 47546 (Aug. 11, 2003).
289 Request for the Establishment of a Panel by Korea, United States — Countervailing Duty
Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
WT/DS296/2 (Nov. 21, 2003).
290 Panel Report, United States — Countervailing Duty Investigation on Dynamic Random
Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/R (Feb. 21, 2005).
CRS-64
caused by subject imports” and that as a result the ITC had violated Article 15.5 of
the SCM Agreement, which requires that domestic authorities not attribute to
subsidized imports injury caused by other factors.291
The panel rejected Korea’s claims that the United States had violated Article 2
of the SCM Agreement in finding that subsidies provided by one group of creditors
were specific to an industry, and a variety of other claims under Article 15 of the
Agreement regarding ITC’s injury determination.
The United States appealed the panel’s conclusions that DOC had improperly
found that the Government of Korea had entrusted or directed two groups of creditors
for purposes of Article 1.1(a)(1)(iv), challenging, inter alia, the panel’s evidentiary
standard and its standard of review.292 The United States also appealed the panel’s
findings that DOC’s benefit determination and the agency’s finding of specificity
regarding these two groups of creditors were inconsistent with the Agreement,
inasmuch as these panel findings were based the allegedly erroneous panel
determination regarding entrustment.293 Korea appealed the panel’s finding regarding
entrustment or direction of one’s private bank.294 Neither the United States nor Korea
appealed panel findings regarding the ITC.
The Appellate Body reversed the panel’s findings that DOC’s determination of
governmental entrustment of the two groups of Hynix creditors, DOC’s benefit
determination, and DOC’s finding of specificity as it related to the two groups of
creditors were inconsistent with the SCM Agreement.295 The Appellate Body and
modified panel reports were adopted August 3, 2005, at which time the United States
stated that it intended to comply but needed a reasonable period of time in which to
do so.296 The United States and Korea subsequently agreed on a compliance period
ending March 8, 2006.297
291 Id. at ¶ 7.368.
292 Notification of an Appeal by the United States, United States — Countervailing Duty
Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
at 1-2, WT/DS296/5 (Apr. 1, 2005).
293 Id. at 2-3. The United States also appealed the panel’s legal conclusion that Korea’s
consultation request regarding the countervailing duty order sufficiently indicated the legal
basis of the complaint for purposes of DSU requirements. Id. at 3.
294 Notification of an Other Appeal by Korea, United States — Countervailing Duty
Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
WT/DS296/6 (Apr. 11, 2005).
295 Appellate Body Report, United States — Countervailing Duty Investigation on Dynamic
Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R (June
27, 2005).
296 Dispute Settlement Body, Minutes of Meeting, Aug. 3, 2005, at 2, WT/DSB/M/195 (Sept.
6, 2005).
297 Agreement under Article 21.3(b) of the DSU, United States — Countervailing Duty
Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
WT/DS296/11 (Nov. 8, 2005).
CRS-65
On September 22, 2005, the ITC informed the USTR of the Commission’s
determination that Title VII of the Tariff Act permits it to take steps in connection
with its action in the CVD investigation that would render its action not inconsistent
with the WTO decision.298 Following a request from USTR on October 14, 2005, the
ITC instituted a proceeding under Section 129 of the Uruguay Round Agreements for
the purpose of issuing a new injury determination.299 Given the WTO ruling, the ITC
stated that the only issue being addressed in the proceeding is “whether the
Commission attributed to the subject imports any injury that may have been caused
by declines in demand.”300 The ITC must issue its Section 129 determination no later
than 120 days after the USTR’s request was made
298 See DRAMs and DRAM Modules from Korea, 70 Fed. Reg. 66848 (Nov. 3, 2005).
299 Id.
300 Id. at 66849.