"By imposing specific, strict time limits within which unilateral determinations must be made and trade sanctions must be taken, Sections 306 and 305 of the Trade Act of 1974 do not allow the United States to comply with the rules of the DSU in situations where a prior multilateral ruling under the DSU on the conformity of implementing measures has not yet been adopted by the DSB. Where measures have been taken to implement DSB recommendations, the DSU rules require either agreement between the parties to the dispute or a multilateral finding on non‑conformity under Article 21.5 DSU before any determination of non‑conformity can be made, let alone any measures of retaliation can be announced or implemented. The DSU procedure resulting in a multilateral finding, even if initiated immediately at the end of the reasonable period of time for implementation, cannot be finalised, nor can the subsequent DSU procedure for seeking compensation or suspension of concessions be complied with, within the time limits of Sections 306 and 305.

The European Communities considers that Title III, chapter 1 (Sections 301 ‑ 310) of the Trade Act of 1974, as amended, and in particular Sections 306 and 305 of that Act, are inconsistent with, in particular, but not necessarily exclusively, the following WTO provisions:

(a) Articles 3, 21, 22 and 23 of the DSU;

(b) Articles XVI:4 of the Marrakesh Agreement Establishing the World Trade Organization; and

(c) Articles I, II, III, VIII and XI of GATT 1994.

Through these violations of WTO rules, this legislation nullifies or impairs benefits accruing, directly or indirectly, to the European Communities under GATT 1994. This legislation also impedes important objectives of the GATT 1994 and of the WTO.

"To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS152/11, the matter referred to the DSB by the European Communities in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements".

Chairman: Mr. David Hawes

Member: Mr. Terje Johannessen

Mr. Joseph Weiler

"On the basis of the investigation initiated under section 302 and the consultations (and the proceedings, if applicable) under section 303, the [United States] Trade Representative shall … determine whether … the rights to which the United States is entitled under any trade agreement are being denied, or any act, policy, or practice described in sub-section (a)(1)(B) or (b)(1) of section 301 exists".³

"(iv) in extraordinary cases, where the taking of action... would have an adverse impact on the United States economy substantially out of proportion to the benefits of such action, taking into account the impact of not taking such action on the credibility of the provisions of this chapter";¹⁰ or

"(v) the taking of action under this subsection would cause serious harm to the national security of the United States".¹¹

"(3) Any action taken under paragraph (1) to eliminate an act, policy, or practice shall be devised so as to affect goods or services of the foreign country in an amount that is equivalent in value to the burden or restriction being imposed by that country on United States commerce".¹²

"(1) IN GENERAL.—If, on the basis of the monitoring carried out under subsection (a), the Trade Representative considers that a foreign country is not satisfactorily implementing a measure or agreement referred to in subsection (a), the Trade Representative shall determine what further action the Trade Representative shall take under section 301(a). For purposes of section 301, any such determination shall be treated as a determination made under section 304(a)(1).

(2) WTO DISPUTE SETTLEMENT RECOMMENDATIONS.—If the measure or agreement referred to in subsection (a) concerns the implementation of a recommendation made pursuant to dispute settlement proceedings under the World Trade Organization, and the Trade Representative considers that the foreign country has failed to implement it, the Trade Representative shall make the determination in paragraph (1) no later than 30 days after the expiration of the reasonable period of time provided for such implementation under paragraph 21 of the Understanding on Rules and Procedures Governing the Settlement of Disputes …".²⁹

to find that:

(a) inconsistently with Article 23.2(a) of the DSU:

- Section 304(a)(2)(A) of Trade Act of 1974 requires the USTR to determine whether another Member denies US rights or benefits under a WTO agreement irrespective of whether the DSB adopted a panel or Appellate Body finding on the matter; and

- Section 306(b) requires the USTR to determine whether a recommendation of the DSB has been implemented irrespective of whether proceedings on this issue under Article 21.5 of the DSU have been completed;

(b) inconsistently with Article 23.2(c) of the DSU:

- Section 306(b) requires the USTR to determine what further action to take under Section 301 in the case of a failure to implement DSB recommendations; and

- Section 305(a) requires the USTR to implement that action,

and this in both instances, irrespective of whether the procedures set forth in Articles 21.5 and 22 of the DSU have been completed; and

(c) Section 306(b) is inconsistent with Articles I, II, III, VIII and XI of the GATT 1994 because, in the case of disputes involving trade in goods, it requires the USTR to impose duties, fees or restrictions that violate one or more of these provisions; and

to rule on these grounds, that the United States, by failing to bring the Trade Act of 1974 into conformity with the requirements of Article 23 of the DSU and of Articles I, II, III, VIII and XI of the GATT 1994, acted inconsistently with its obligations under those provisions and under Article XVI.4 of the WTO Agreement and thereby nullifies or impairs benefits accruing to the European Communities under the DSU, the GATT 1994 and the WTO Agreement; and

to recommend that the DSB request the United States to bring its Trade Act of 1974 into conformity with its obligations under the DSU, the GATT 1994 and the WTO Agreement.

(a) Section 304(a)(2)(A) is not inconsistent with Article 23 of the DSU because the EC has failed to demonstrate that it requires the Trade Representative to determine that U.S. agreement rights have been denied in the absence of DSB rulings;

(b) Section 306(b) is not inconsistent with Article 23 of the DSU because the EC has failed to demonstrate that it requires the Trade Representative to determine that U.S. agreement rights have been denied;

(c) Sections 306(b) and 305(a)(1) are not inconsistent with Article 23 of the DSU because the EC has failed to demonstrate that these provisions require the Trade Representative to suspend concessions without DSB authorization;

(d) Section 306(b) is not inconsistent with Articles I, II, III, VIII and XI of the GATT 1994 because the EC has failed to demonstrate that this provision requires the suspension of concessions in a manner inconsistent with DSB authorization; and

(e) Sections 301-310 are not inconsistent with Article XVI:4 because they do not mandate action in violation of any provision of the DSU or GATT 1994, nor do they preclude action consistent with those obligations.

"[t]he administration intends to use section 301 to pursue vigorously foreign unfair barriers that violate U.S. rights or deny benefits to the United States under the Uruguay Round agreements".³⁷

"… There is no basis for concern that the Uruguay Round agreements in general, or the DSU in particular, will make future Administrations more reluctant to apply Section 301 sanctions that may be inconsistent with U.S. trade obligations because such sanctions could engender DSU-authorized counter-retaliation. Although in specific cases the United States has expressed its intention to address an unfair foreign practice by taking action under Section 301 that has not been authorized by the GATT, the United States has done so infrequently. In certain cases the United States has taken such action because the foreign government has blocked adoption of a GATT panel report against it.

Just as the Unites States may now choose to take Section 301 actions that are not GATT-authorized, governments that are the subject of such actions may choose to respond in kind. That situation will not change under the Uruguay Round agreements".³⁸

"The history of Section 301 is a history of administration after administration of both parties refusing to implement the law. Instead, this president and his predecessors have used the wide discretion provided in the law to deny or to delay taking action sometimes for close to a decade… The administration will claim that [the proposed Section 301] reforms limit their discretion. But it is this very discretion which had led to the disastrous record of enforcement under Section 301".⁴²

The Chairman of the Senate Finance Committee, Senator Lloyd Bentsen, took a similar position:

"We need a trade policy that our trade partners can predict, and I maintain that requires limits on the President's discretion not to act. He needs plenty of discretion on what action to take, but limits have to be placed on his discretion to take no action".⁴³

"Section 301 is the H-bomb of trade policy; and in my judgement, H-bombs ought to be dropped by the President of the United States and not by anyone else".⁴⁵

"By imposing specific, strict time limits within which unilateral determinations must be made that other WTO Members have failed to comply with their WTO obligations and trade sanctions must be taken against such WTO Members, this legislation does not allow the United States to comply with the rules of the DSU and the obligations of GATT 1994 in situations where the Dispute Settlement Body has, by the end of those time limits, not made a prior determination…".⁴⁶

(a) Strengthening of the multilateral system (Article 23 of the DSU and the related provisions under Articles 21 and 22)

(b) Security and predictability of the multilateral trading system (Article 3 of the DSU)

(c) Ensuring the conformity of domestic law (Article XVI:4 of the Marrakech Agreement)

(a) Sections 301-310, on their face, mandate unilateral action by the US authorities in breach of Article 23 of the DSU (and consequently of Articles I, II, III, VIII and XI of the GATT 1994). This is true both under the former GATT 1947 standards concerning mandatory versus discretionary legislation and the present standards under the GATT 1994 and the Marrakech Agreement, which the European Communities considers the relevant sources of law applicable after the entry into force of the WTO Agreements. The European Communities recalls that the issue of the standards applicable to determine whether legislation is genuinely discretionary was examined at length, as shown below.

(b) In addition, Sections 301-310, even if they could be interpreted to permit the USTR to avoid WTO-inconsistent determinations and actions, could not be regarded as a sound legal basis for the implementation of the US obligations under the WTO. The lack of this "sound legal basis" produces a situation of threat and legal uncertainty against other WTO Members and their economic operators that fundamentally undermines the "security and predictability" of the multilateral trading system.

(c) Furthermore, Sections 301-310 are not in conformity with the United States' WTO obligations since they are an expression of a deliberate policy creating a pattern of executive action which is biased against WTO-conformity. Even if Sections 301-310 could be interpreted to provide the USTR with a legal basis for the implementation of the United States' obligations under the WTO, they could not be considered to be in conformity with WTO law within the meaning of Article XVI:4 of the Marrakech Agreement.

(a) that the verb "shall" in Sections 301-310 should be read to mean "may";

(b) that definite deadlines like those in Section 306 could be considered an "invitation" to the executive authorities, without showing a legal basis for such a reading of the text;

(c) that the legislation always authorizes USTR to determine that rights of the United States have not been denied and no failure to implement DSB recommendations has occurred, while the text of Section 304(a)(1) requires the USTR to base her determinations on the results of the investigation initiated under Section 302;

(d) that a chapter heading called "Mandatory action" containing a mandatory list of retaliatory measures or, in the alternative, the possibility of entering into a bilateral agreement whose main conditions are set by the law, shows that the executive has broad discretion what action to take;

(e) that the power of the President to give specific directions to the USTR in individual cases covers also the right to bar the USTR from implementing actions required by the text of Sections 301-310 and which are qualified as "mandatory" by the US Congress; and

(f) that the existence of a limited exception left in the hands of the President, which has never been used so far, conveys to the law the character of discretionary legislation.

"Section 301 is an intricate maze of mandatory commands in one place and extremely wide loopholes in the other. One needs a wiring diagram to trace whether mandatory commands given in one part will actually reach their final target without passing through at least one discretionary exit point. Even with the aid of such a diagram, one cannot predict actual outcomes".⁵⁷

"Although there are plausible ways to interpret the statutory provisions of regular Section 301 so as to give the President discretion to act consistently with the Uruguay Round dispute settlement rules, in a few cases, particularly in Section 301(a) (mandatory provision) the interpretations to do this are a bit strained. It would clearly therefore be better if the statute were amended to give the President and the Trade Representative in all cases under the statute the discretion to act in a way consistently with U.S. international obligations".⁵⁸

Sen. Packwood: "Do you think any trade [bill] that we have should require mandatory retaliation?"

Mr. Strauss: "Well, I am a little hesitant to require mandatory retaliation …I hate to make [Section 301] mandatory. I think somewhere in between…[M]ore mandatory is a bum choice of words".

Sen. Packwood: "But not compulsory".⁵⁹

The advice to "make retaliation mandatory but not compulsory" was frequently referred to throughout the debate in the Senate on mandatory retaliation.

"It is true that Article 23.2(a) of the DSU was drafted with Sections 301-310 of the Trade Act of 1974 in mind. But this means, of course, that the Uruguay Round participants had also in mind the threat to the security and predictability of the international trade relations created by the text of the Trade Act as it was drafted in the 1988 version. They had therefore in mind the need to insert in the covered agreements language that would constitute the second leg of what the EC has proposed in its oral statement of 29 June to call the 'Marrakesh deal'.

A law that requires a determination in all cases whether a violation of WTO law has occurred therefore comprises the requirement to determine in certain cases that a violation of WTO law has occurred. Such a law therefore mandates determinations that are inconsistent with Article 23".

"1. When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding

2. In such cases, Members shall:

(a) not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding;

…

(c) follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations under the covered agreements in response to the failure of the Member concerned to implement the recommendations and rulings within that reasonable period of time".

"not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding".

"We have introduced a new principle in international economic relations. We have asked the nations of the world to confer upon an international organisation the right to limit their power to retaliate. We have sought to tame retaliation, to discipline it, to keep it within bounds. By subjecting it to the restraints of international control, we have endeavoured to check its spread and growth, to convert it from a weapon of economic warfare to an instrument of international order".⁶²

"Reliance on the Procedures of the Charter

1. The Members undertake that they will not have recourse, in relation to other Members and to the Organisation, to any procedure other than the procedures envisaged in this Charter for complaints and the settlement of differences arising out of its operation.

2. The Members also undertake, without prejudice to any other international agreement, that they will not have recourse to unilateral economic measures of any kind contrary to the provisions of this Charter".

"Wherever it could, the United States would challenge unfair practices under the dispute settlement provisions of the General Agreement or the Tokyo Round Codes, but where other contracting parties prevented or impeded that process or blocked efforts to ensure that their practices were covered by multilateral disciplines, the United States would act to protect its interests. If such action was considered unilateral, it should be nevertheless recognised as perfectly justifiable, responsive action necessitated by the failure of bilateral or multilateral efforts to address a problem. The way to minimise or avoid unilateralism was to create a credible multilateral system - by strengthening the existing system".⁶⁶

(a) the possibility of blocking the dispute settlement procedures was eliminated;

(b) the Uruguay Round results were adopted as a "single undertaking" replacing the GATT 1947. This ensured that, notwithstanding the most-favoured-nation provisions of the GATT 1947, only those countries that accepted the additional obligations were accorded the corresponding rights;

(c) as a result, all WTO Members are now bound by agreements similar to the Tokyo Round Codes and the main areas the United States had found missing in the GATT 1947 - protection of intellectual property rights and trade in services - were made subject to enforceable rules.

"When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding".

"The foundation of dispute settlement under Article XXIII of the GATT 1994 is the assurance to Members of the benefits accruing directly or indirectly to them under the GATT 1994. This was true as well of dispute settlement under the GATT 1947. If any Member should consider that its benefits are nullified or impaired as the result of circumstances set out in Article XXIII, then dispute settlement is available. With respect to complaints of violation of obligations pursuant to Article XXIII:1(a) of the GATT 1994, Article 3.8 of the DSU codifies previous GATT 1947 practice:

'In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the complaint has been brought to rebut the charge'.

Article 3.8 of the DSU provides that in cases where there is an infringement of the obligations assumed under a covered agreement – that is, in cases where a violation is established – there is a presumption of nullification or impairment. Article 3.8 then goes on to explain that "the Member against whom the complaint has been brought" must rebut this presumption. However, the issue in this case is not what happens after a violation is established; the issue in this case is which party must first show that there is, or is not, a violation. …

In addressing this issue, we find it difficult, indeed, to see how any system of judicial settlement could work if it incorporated the proposition that the mere assertion of a claim might amount to proof. It is, thus, hardly surprising that various international tribunals, including the International Court of Justice, have generally and consistently accepted and applied the rule that the party who asserts a fact, whether the claimant or the respondent, is responsible for providing proof thereof. Also, it is a generally-accepted canon of evidence in civil law, common law and, in fact, most jurisdictions, that the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence. If that party adduces evidence sufficient to raise a presumption that what is claimed is true, the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption".⁶⁷

"In public international law, an international tribunal may treat municipal law in several ways. Municipal law may serve as evidence of facts and may provide evidence of state practice. However, municipal law may also constitute evidence of compliance or non-compliance with international obligations. For example, in Certain German Interests in Polish Upper Silesia, the Permanent Court of International Justice observed:

It might be asked whether a difficulty does not arise from the fact that the Court would have to deal with the Polish law of July 14th, 1920. This, however, does not appear to be the case. From the standpoint of International Law and of the Court which is its organ, municipal laws are merely facts which express the will and constitute the activities of States, in the same manner as do legal decisions and administrative measures. The Court is certainly not called upon to interpret the Polish law as such; but there is nothing to prevent the Court's giving judgment on the question whether or not, in applying that law, Poland is acting in conformity with its obligations towards Germany under the Geneva Convention. (original emphasis)

In this case, the Panel was simply performing its task in determining whether India's 'administrative instructions' for receiving mailbox applications were in conformity with India's obligations under Article 70.8(a) of the TRIPS Agreement. It is clear that an examination of the relevant aspects of Indian municipal law and, in particular, the relevant provisions of the Patents Act as they relate to the 'administrative instructions,' is essential to determining whether India has complied with its obligations under Article 70.8(a). There was simply no way for the Panel to make this determination without engaging in an examination of Indian law. But, as in the case cited above before the Permanent Court of International Justice, in this case, the Panel was not interpreting Indian law 'as such'; rather, the Panel was examining Indian law solely for the purpose of determining whether India had met its obligations under the TRIPS Agreement. To say that the Panel should have done otherwise would be to say that only India can assess whether Indian law is consistent with India's obligations under the WTO Agreement. This, clearly, cannot be so".

"The Panel states:

'As the Appellate Body report on Shirts and Blouses points out, 'a party claiming a violation of a provision of the WTO Agreement by another Member must assert and prove its claim'. In this case, it is the United States that claims a violation by India of Article 70.8 of the TRIPS Agreement. Therefore, it is up to the United States to put forward evidence and legal arguments sufficient to demonstrate that action by India is inconsistent with the obligations assumed by India under Article 70.8. In our view, the United States has successfully put forward such evidence and arguments. Then,... the onus shifts to India to bring forward evidence and arguments to disprove the claim. We are not convinced that India has been able to do so (footnotes omitted)'.

This statement of the Panel is a legally correct characterization of the approach to burden of proof that we set out in United States - Shirts and Blouses. However, it is not sufficient for a Panel to enunciate the correct approach to burden of proof; a Panel must alsoapply the burden of proof correctly. A careful reading of paragraphs 7.35 and 7.37 of the Panel Report reveals that the Panel has done so in this case. These paragraphs show that the United States put forward evidence and arguments that India's 'administrative instructions' pertaining to mailbox applications were legally insufficient to prevail over the application of certain mandatory provisions of the Patents Act. India put forward rebuttal evidence and arguments. India misinterprets what the Panel said about "reasonable doubts". The Panel did not require the United States merely to raise "reasonable doubts" before the burden shifted to India. Rather, after properly requiring the United States to establish a prima facie case and after hearing India's rebuttal evidence and arguments, the Panel concluded that it had 'reasonable doubts' that the 'administrative instructions' would prevail over the mandatory provisions of the Patents Act if a challenge were brought in an Indian court".

"The United States contended that, by any standard, the evidence submitted by the United States was sufficient to establish a presumption of a violation of Article II. In fact, the Panel needed look no further than the face of the Argentine resolutions and decrees imposing the specific duties that were the subject of this dispute. … Previous GATT jurisprudence had made clear that this potential, in and of itself, was a sufficient basis for the Panel to find that Argentina had violated Article II.

The United States also argued that a Panel could condemn Argentina's mandatory minimum specific import duties even if they were not yet being applied".⁶⁸

"We consider that when the Appellate Body refers to the obligation of the complainant party to provide sufficient evidence to establish a "presumption", it refers to two aspects: the procedural aspect, i.e. the obligation for the complainant to present the evidence first, but also to the nature of evidence needed. In the present case, we consider that it was for the United States to raise a presumption that Argentina did violate the provisions of Article II of GATT. Then, it is for Argentina to provide sufficient evidence to rebut the said presumption. When, however, Argentina is claiming a specific affirmative defense, such that its national challenge procedure can be used to correct any alleged violation of GATT rules, it is for Argentina to raise first a presumption that such system operates in a way that there is, in effect, no infringement of GATT/WTO rules".⁶⁹

(a) to submit the text of the relevant provisions of Sections 301-310 and

(b) to indicate how, on their face, their wording is in contradiction with the US WTO obligations.

"When it is the intention of the State making the declaration that it should become bound according to its terms, that intention confers on the declaration the character of a legal undertaking, the State being thenceforth legally required to follow a course of conduct consistent with the declaration. An undertaking of this kind, if given publicly, and with an intent to be bound, even though not made within the context of international negotiations, is binding".

It appears from the judgement that the ICJ considered the intent of being bound, the public character of the declaration and the rank of the representatives of France decisive for its finding that the declaration created international obligations for France.

"There is no basis for concern that the Uruguay Round agreements in general, or the DSU in particular, will make future Administrations more reluctant to apply section 301 sanctions that may be inconsistent with U.S. trade obligations because such sanctions could engender DSU-authorized counter-retaliation. Although in specific cases the United States has expressed its intention to address an unfair foreign practice by taking action under section 301 that has not been authorized by the GATT, the United States has done so infrequently. In certain cases, the United States has taken such action because a foreign government has blocked adoption of a GATT panel report against it.

Just as the United States may now choose to take section 301 actions that are not GATT authorized, governments that are the subject of such actions may choose to respond in kind. That situation will not change under the Uruguay Round agreements. The risk of counter-retaliation under the GATT has not prevented the United States from taking action in connection with such matters as semiconductors, pharmaceuticals, beer, and hormone-treated beef".⁸²

· invoke DSU dispute settlement procedures, as required under current law;

· base any section 301 determination that there has been a violation or denial of U.S. rights under the relevant agreement on the panel or Appellate Body findings adopted by the DSB;

· following adoption of a favorable panel or Appellate Body report, allow the defending party a reasonable period of time to implement the report's recommendations; and

· if the matter cannot be resolved during that period, seek authority from the DSB to retaliate.⁹²

"… as in the case cited above before the Permanent Court of International Justice, in this case, the Panel was not interpreting Indian law "as such"; rather, the Panel was examining Indian law solely for the purpose of determining whether India had met its obligations under the TRIPS Agreement".

"…The general prohibition of quantitative restrictions under Article XI... and the national treatment obligation of Article III... have essentially the same rationale, namely to protect expectations of the contracting parties as to the competitive relationship between their products and those of the other contracting parties. Both articles are not only to protect current trade but also to create the predictability needed to plan future trade. That objective could not be attained if contracting parties could not challenge existing legislation mandating actions at variance with the General Agreement until the administrative acts implementing it had actually been applied to their trade. Just as the very existence of a regulation providing for a quota, without it restricting particular imports, has been recognised to constitute a violation of Article XI.1, the very existence of mandatory legislation providing for an internal tax, without it being applied to a particular imported product, should be regarded as falling within the scope of Article III.2, first sentence. The Panel noted that the tax on certain imported substances had been enacted, that the legislation was mandatory and that the tax authorities had to apply it after the end of next year and hence within a time frame within which the trade and investment decisions that could be influenced by the tax are taken. The Panel therefore concluded that Canada and the EEC were entitled to an investigation of their claim that this tax did not meet the criteria of Article III.2, first sentence".¹⁰¹

"The Panel then proceeded to consider the United States argument that the provisions in the state of Illinois permitting manufacturers to sell directly to retailers were not given effect. In this regard, the Panel recalled the decisions of the CONTRACTING PARTIES on the relevance of the non-application of laws in dispute. Recent panels addressing the issue of mandatory versus discretionary legislation in the context of both Articles III.2 and III.4 concluded that legislation mandatorily requiring the executive authority to take action inconsistent with the General Agreement would be inconsistent with Article III, whether or not the legislation were being applied, whereas legislation merely giving the executive authority the possibility to act inconsistently with Article III would not, by itself, constitute a violation of that Article. The Panel agreed with the above reasoning and concluded that because the Illinois legislation in issue allows a holder of a manufacturer's license to sell beer to retailers, without allowing imported beer to be sold directly to retailers, the legislation mandates governmental action inconsistent with Article III.4".¹⁰²

"The Panel then proceeded to consider the United States argument that the Mississippi law was not being applied. In this regard, the Panel recalled its previous discussion of this issue.... The Panel noted that the option law in Mississippi provides discretion only for the reinstatement of prohibition, but not for the discriminatory treatment of imported wines. The Panel concluded, therefore, that because the Mississippi legislation in issue, which permits native wines to be sold in areas of the state which otherwise prohibit the sale of alcoholic beverages, including imported wine, mandates governmental action inconsistent with Article III.4, it is inconsistent with that provision whether or not the political subdivisions are currently making use of their power to reinstate prohibition".¹⁰³

"In respect of the United States contention that the Massachusetts measure was not being enforced and that the Rhode Island measure was only nominally enforced, the Panel recalled its discussion of mandatory versus discretionary laws in the previous section. The Panel noted that the price affirmation measures in both Massachusetts and Rhode Island are mandatory legislation. Even if Massachusetts may not currently be using its police powers to enforce this mandatory legislation, the measure continues to be mandatory legislation which may influence the decisions of economic operators. Hence, a non-enforcement of a mandatory law in respect of imported products does not ensure that imported beer and wine are not treated less favourably than like domestic products to which the law does not apply. Similarly, the contention that Rhode Island only ‘nominally' enforces its mandatory legislation a fortiori does not immunise this measure from Article III.4. The mandatory laws in these two states by their terms treat imported beer and wine less favourably than the like domestic products. Accordingly, the Panel found that the mandatory price affirmation laws in Massachusetts and Rhode Island are inconsistent with Article III.4, irrespective of the extent to which they are being enforced".¹⁰⁴

"The mailbox system … had a rationale common to many other WTO obligations, "namely to protect expectations of the contracting parties as the competitive relationship between their products and those of other contracting parties". The Superfund report had established clearly the importance of "creat[ing] the predictability needed to plan future trade". (…) Despite India's claim that it had decided for the moment not to enforce the mandatory provisions of (…) its Patent Act … that "measure continues to be mandatory legislation which may influence the decisions of economic operators". The economic operators in the present case - potential patent applicants - had no confidence that a valid mailbox system had been established … To paraphrase the Beer II panel, a non-enforcement of a mandatory law that violated a WTO obligation did not ensure that the obligation was not being broken".¹⁰⁶

"In the light of these provisions, the current administrative practice creates a certain degree of legal insecurity in that it requires India officials to ignore certain mandatory provisions of the Patents Act. We recall that the Malt Beverages panel dealt with a similar issue. There the respondent offered as a defence that certain GATT-inconsistent legislation was not currently enforced. The panel rejected this defence by stating as follows:

'Even if Massachusetts may not currently be using its policy powers to enforce this mandatory legislation, the measure continues to be mandatory legislation which may influence the decisions of economic operators. Hence, a non-enforcement of a mandatory law in respect of imported products does not ensure that imported beer and wine are not treated less favourably than like domestic products to which the law does not apply'.

We find great force in this line of reasoning. There is no denying that economic operators - in this case the patent applicants - are influenced by the legal insecurity created by the continued existence of mandatory legislation that requires the rejection of product patent applications in respect of pharmaceutical and agricultural chemical products".¹⁰⁷

"We recall the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation. For example, in United States – Tobacco, the panel "recalled that panels had consistently ruled that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority... to act inconsistently with the General Agreement could not be challenged as such; only the actual application of such legislation inconsistent with the General Agreement could be subject to challenge". (citation omitted)¹¹⁰

"[W]hether [the regulations] will eliminate the need to impose the penalty tax and whether they will establish complete equivalence between domestic and imported products, as required by Article III:2, first sentence, remain open questions. From the perspective of the overall objectives of the General Agreement it is regrettable that the Superfund Act explicitly directs the United States tax authorities to impose a tax inconsistent with the national treatment principle but, since the Superfund Act also gives them the possibility to avoid the need to impose that tax by issuing regulations, the existence of the penalty rate provisions as such does not constitute a violation of the United States obligations under the General Agreement".¹¹⁷

"[T]he Panel noted that there was no clear interpretation on the meaning of the term "comparable" as used in the 1993 legislative amendment. It appeared to the Panel that the term "comparable", including the ordinary meaning thereof, was susceptible of a range of meanings. The Panel considered that this range of meanings could encompass the interpretation advanced by the United States in this proceeding, an interpretation which could potentially enable USDA to comply with the obligation of Article VIII:1(a) not to impose fees in excess of the cost of services rendered, while at the same time meeting the comparability requirement of [the US law]".¹²³

"The European Communities … believes that Sections 301-310 must be amended to make clear that the United States administration is required to act in accordance with the United States' obligations under the WTO agreements in all circumstances and at all times". (emphasis added)

"[This Regulation] shall be without prejudice to other measures which may be taken pursuant to Article 113 of the Treaty, as well as to Community procedures for dealing with matters concerning obstacles to trade raised by Member States in the committee established by Article 113 of the Treaty".¹³⁶

"Following an exchange of views on the provisions of the Rome Treaty in the field of quantitative restrictions, the Sub-Group noted that these provisions were not mandatory and imposed on the Members of the Community no obligation to take action which would be inconsistent with the General Agreement. On the other hand because of the very general scope and competence conferred on the institutions of the Community, it could be within their powers to take measures which could be inconsistent with the GATT whatever the interpretation given to the provisions of Article XXIV. The Six pointed out that many contracting parties had permissive domestic legislation of a general character which, if implemented in full, would enable them to impose restrictions in a manner contrary to Article XI. These countries were not, however, required to consult with the contracting parties about their possible intentions as regards the implementation of such legislation. The six could not accept that any contracting party by virtue of its adherence to the Rome Treaty should be subjected to additional requirements or obligations as to the consultations about the use of quantitative restrictions".¹³⁹

"The Governments of … undertake … to apply provisionally on and after January 1, 1948 … Part II of that Agreement to the fullest extent not inconsistent with existing legislation" (emphasis added)

"the intent is that it should be what the executive authority can do - in other words, the administration would be required to give effect to the general provisions to the extent that it could do so without either (1) changing the existing legislation or (2) violating existing legislation. If a particular administrative regulation is necessary to carry out the law… that regulation would, of course, have to stand; but to the extent that the administration had the authority within the framework of existing laws to carry out these provisions, it would be required to do so".¹⁴¹ (emphasis added)

"The working party agreed that a measure is so permitted, provided that the legislation on which it is based is by its terms or expressed intent of a mandatory character - that is, it imposes on the executive authority requirements which cannot be modified by executive action"¹⁴² (emphasis added).

"… These regulations have not yet been adopted. Thus, whether they will eliminate the need to impose the penalty tax and whether they will establish complete equivalence between domestic and imported products, … remain open questions. From the perspective of the overall objectives of the General Agreement it is regrettable that the Superfund Act explicitly directs the United States tax authorities to impose tax inconsistent with the national treatment with respect to that case … The Panel noted with satisfaction the statement of the United States that, given the tax authorities' regulatory authority under the Act, 'in all probability the 5 per cent penalty rate would never be applied'" (emphasis added)".

"…the mere existence of the anti-circumvention provision in the EEC's anti-dumping Regulation is not inconsistent with the EEC's obligations under the General Agreement. Although it would, from the perspective of the overall objectives of the General Agreement, be desirable if the EEC were to withdraw the anti-circumvention provision, the EEC would meet its obligations under the General Agreement if it were to cease to apply the provision in respect to contracting parties".¹⁴⁶

"be mandatory in character by its terms or expressed intent".

"the record does not support the conclusion that the inconsistent state liquor legislation at issue in this proceeding is 'mandatory existing legislation' in terms of the PPA".

"2.6 This legislation, in effect at the time the United States acceded to the GATT in 1947, was inconsistent with Article VI:6(a), which proscribes the levy of countervailing duties without a determination of injury. However, Section 303 was covered by the "existing legislation" clause of paragraph 1(b) of the Protocol of Provisional Application of the General Agreement (the "PPA"). Paragraph 1(b) of the PPA states that GATT contracting parties shall apply Part II of the General Agreement (which includes Article VI) "to the fullest extent not inconsistent with existing legislation". Section 303 remains in effect today and applies to dutiable imports from all countries that are not signatories to the Subsidies Agreement.

2.7 It was under Section 303 that the countervailing duty order on non‑rubber footwear from Brazil was imposed in 1974, without the benefit of an injury test.

2.8 In 1974, the United States enacted Section 331 of the Trade Act of 1974,¹⁴⁷ amending its countervailing duty law to apply also to imports of duty‑free products. The United States acknowledged that this provision was not in existence in 1947 and, therefore, was not sheltered by the PPA. Accordingly, the United States law provided that, with respect to imports of duty‑free products from a GATT contracting party, the United States would provide an injury test before the imposition of countervailing duties". (emphasis added)

"(a)(2) In the case of any imported article or merchandise which is free of duty, duties may be imposed under this section only if there is an affirmative determination by the Commission under subsection (b)(1)...

(b) Injury Determination With Respect to Duty‑Free Merchandise; Suspension of Liquidation.—(1) Whenever the Secretary makes a final determination under subsection (a) that a bounty or grant is being paid or bestowed with respect to any article or merchandise which is free of duty and a determination by the Commission is required under subsection (a)(2), he shall—

(A) so advise the Commission, and the Commission shall determine within three months thereafter, and after such investigation as it deems necessary, whether an industry in the United States is being or is likely to be injured, or is prevented from being established, by reason of the importation of such article or merchandise into the United States; and the Commission shall notify the Secretary of its determination;...

(c) Application of Affirmative Determination.‑‑An affirmative determination by the Secretary under subsection (a) with respect to any imported article or merchandise shall apply with respect to articles entered... on or after the date of the publication in the Federal Register of such determination. In the case of any imported article or merchandise which is free of duty, so long as a finding of injury is required by the international obligations of the United States, the preceding sentence shall apply only if the Commission makes an affirmative determination of injury under subsection (b)(1)".

"6.13 Having found that Section 331 of the 1974 Act and Section 104(b) of the 1979 Act are applicable to like products, the Panel examined whether this legislation as such is consistent with Article I:1. The Panel noted that the CONTRACTING PARTIES had decided in previous cases that legislation mandatorily requiring the executive authority to impose a measure inconsistent with the General Agreement was inconsistent with that Agreement as such, whether or not an occasion for the actual application of the legislation had arisen. The Panel recalled that the backdating provisions of the two Acts are mandatory legislation, that is they impose on the executive authority requirements which cannot be modified by executive action, and it therefore found that these provisions as such, not merely their application in concrete cases, have to be consistent with Article I:1". (footnote omitted)

"the administration has discretion whether or not to apply a countervailing duty on subsidized products. The requirement that the Administration not apply the injury criterion if it decides to apply a countervailing duty was nevertheless regarded to be mandatory".

"We recall the distinction that GATT/WTO panels have consistently drawn between discretionary legislation and mandatory legislation. For example, in United States Tobacco, the panel 'recalled that panels had consistently ruled that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority... to act inconsistently with the General Agreement could not be challenged as such; only the actual application of such legislation inconsistent with the General Agreement could be subject to challenge'".¹⁷¹ (citation omitted)

"each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations [under the WTO agreements]".

"'an object and purpose of the WTO Agreement, generally, as well as of the GATT 1994'".

(a) Unlike under the GATT 1947, a conflict between a pre-existing incompatible legislation and any obligation under the covered agreements must be resolved in favour of the latter and to the detriment of the former. As the Appellate Body has decided in the India - Patents (US) case¹⁷⁵, this new rule is applicable with no exceptions as from 1 January 1995;

(b) The obligations under Article XVI:4 encompass not only legislation but also regulations and administrative procedures and thus include the type of law that is normally adopted and amended by actions of executive authorities. The distinction between law that binds the executive authorities and law that can be modified by them is thus no longer relevant.

(c) As was recalled in the EC's oral statement of 29 June 1999, the terms "ensure" and "conformity" in Article XVI:4, taken together in their context, indicate that that provision obliges all WTO Members not merely to grant their executive authorities formally the right to act consistently with WTO law but to structure their law in a manner that "makes certain" that the objectives of the covered agreements will be achieved.¹⁷⁶

(d) Article 3.2 of the DSU and the principle of "good faith" implementation of international obligations under Article 26 of the Vienna Convention on the Law of Treaties no longer allow the existence of legal situations, under domestic legislation, regulations, administrative procedures or under any combination of them, which could seriously impair the security and predictability of the international trading system. A domestic law, regulation or administrative procedure whose structure and architecture is specifically designed to create uncertainty for the trade with other Members could therefore never be deemed to ensure conformity with WTO law.

"phytosanitary measures include all relevant laws, decrees, regulations, requirements and procedures".

"8,111 Even though the varietal testing requirement is not mandatory – in that exporting countries can demonstrate quarantine efficiency by other means – in our view, it does constitute a "phytosanitary regulation" subject to the publication requirement in Annex B. The footnote to paragraph 1 of Annex B refers in general terms to "phytosanitary measures such as laws, decrees or ordinances".¹⁷⁷ Nowhere does the wording of this paragraph require such measures to be mandatory or legally enforceable. Moreover, Paragraph 1 of Annex A to the SPS Agreement makes clear that "phytosanitary measures include all relevant laws, decrees, regulations, requirements and procedures". It does not, in turn, require that such measures be mandatory or legally enforceable. The interpretation that measures need not be mandatory to be subject to WTO disciplines is confirmed by the context of the relevant SPS provisions, a context which includes provisions of other WTO agreements and the way these provisions define "measure", "requirement" or "restriction"¹⁷⁸, as interpreted in GATT and WTO jurisprudence.¹⁷⁹This context indicates that a non-mandatory government measure is also subject to WTO provisions in the event compliance with this measure is necessary to obtain an advantage from the government or, in other words, if sufficient incentives or disincentives exist for that measure to be abided by". (emphasis added)

"6.45 In respect of the Argentine argument that the US claim should not be considered because it addresses only a potential violation - in support of which it refers to the Tobacco Panel report – we note that the Argentine measures, the specific duties, are mandatory measures. Argentina admits that its customs officials are obligated to collect the specific duties on all imports. GATT/WTO case law is clear in that a mandatory measure can be brought before a Panel, even if such an adopted measure is not yet in effect, and independently of the absence of trade effect of such measure for the complaining party:

'[T]he very existence of mandatory legislation providing for an internal tax, without it being applied to a particular imported product, should be regarded as falling within the scope of Article III:2, first sentence'.

We are also of the view that the Tobacco Panel report merely confirms this principle.

6.46 Moreover, in Bananas III, the Appellate Body confirmed that the principles developed in Superfund were still applicable to WTO disputes and that any measure, which changes the competitive relationship of Members, nullifies any such Members' benefits under the WTO Agreement.

'Article III:2, first sentence, cannot be interpreted to protect expectations on export volumes; it protects expectations on the competitive relationship between imported and domestic products. A change in the competitive relationship contrary to that provision must consequently be regarded ipso facto as a nullification or impairment of benefits accruing under the General Agreement'.

We consider that this principle is also appropriate when dealing with the application of the obligations contained in Article II of GATT which requires a 'treatment no less favourable than that" provided in a Member's Schedule. In the present dispute we consider that the competitive relationship of the parties was changed unilaterally by Argentina because its mandatory measure clearly has the potential to violate its bindings, thus undermining the security and the predictability of the WTO system'". (emphasis added).

(a) domestic law that is merely meant to transfer decision-making authority from one constitutional body (most often the Parliament) to another constitutional body (most often the executive authorities) within specified parameters, and

(b) domestic law that does not preclude the executive authorities from acting consistently with WTO law but that is - by its design, structure and architecture - manifestly intended to encourage violations of WTO law or is otherwise biased against WTO-consistent action.

"Statements by a government against WTO interests (e.g. indicating a protective purpose or design) are most probative. Correspondingly, it is less likely that self-serving comments by a government attempting to justify its measure would be particularly probative".

(a) The administration is required to follow as a matter of principle the (WTO-inconsistent) rule;

(b) The use of the exception is limited to specific and limited cases;

(c) The existence of the exception confirms the existence of the (WTO-inconsistent) rule in the first place.

(d) Consequently, the exceptions could not be implemented in such a way as to systematically replace the rule without amending the law itself and, in any case, without defeating its overall (WTO-inconsistent) purpose that the legislative body intended to achieve.

"In our view, good faith interpretation requires the protection of legitimate expectations derived from the protection of intellectual property rights provided for in the Agreement".¹⁹²

"The Panel misunderstands the concept of legitimate expectations in the context of the customary rules of interpretation of public international law. The legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself. The duty of a treaty interpreter is to examine the words of the treaty to determine the intentions of the parties. This should be done in accordance with the principles of treaty interpretation set out in Article 31 of the Vienna Convention. But these principles neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended".¹⁹⁴

"we must determine not only whether the measure on its own undermines the WTO multilateral trading system, but also whether such type of measure, if it were to be adopted by other Members, would threaten the security and predictability of the multilateral trading system".²⁰¹

"a standard or a test that finds no basis either in the text of the chapeau or in that of either of the two specific exceptions claimed by the United States. The panel, in effect, constructed an a priori test that purports to define a category of measures which, ratione materiae, fall outside the justifying protection of Article XX".²⁰³

"The question is consequently raised as to how international obligations can be implemented in good faith if the possibility of deviation exists in a domestic legislation? Are there expectations that the international obligations will be observed and not impaired when the possibility of deviation is expressis verbis provided for in a domestic legislation? Is the predictability, necessary to plan future trade as the Superfund panel acknowledged, not affected when trading partners know ex ante that their partners have enacted legislation which allows them to disregard their international obligations?"

"[W]hether [the regulations] will eliminate the need to impose the penalty tax and whether they will establish complete equivalence between domestic and imported products, as required by Article III:2, first sentence, remain open questions. From the perspective of the overall objectives of the General Agreement it is regrettable that the Superfund Act explicitly directs the United States tax authorities to impose a tax inconsistent with the national treatment principle but, since the Superfund Act also gives them the possibility to avoid the need to impose that tax by issuing regulations, the existence of the penalty rate provisions as such does not constitute a violation of the United States obligations under the General Agreement".²¹²

"Protection of legitimate expectations of WTO Members regarding conditions of competition is as central to trade relating to intellectual property as it is to trade in goods that do not relate to intellectual property".²³⁷