Mexico definitive countervailing measures on olive oil from the european communities



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Applicability of the Provision


    1. The first issue we must address is whether Article 13(b)(i) of the Agreement on Agriculture applies to the Mexican measures in this case. By its own terms, Article 13 of the Agreement on Agriculture applied only "[d]uring the implementation period," which is defined in Article 1(f) of that Agreement as follows:

. . . the six-year period commencing in the year 1995, except that, for the purposes of Article 13, it means the nine-year period commencing in 1995;

            1. Both parties agree that the "implementation period" ran at least until the end of 2003.86 The European Communities indicated, in response to a question from the Panel, that depending on whether 'years' are defined as financial or marketing years, the date of expiry of the implementation period might have been some point during 2004.87

            2. Although the parties do not agree on the actual date on which the implementation period expired, the claims raised by the European Communities relate to Mexico's initiation of the olive oil investigation.88 As we have found in paragraph B.2(a)ii.3 above, the investigation was initiated on 17 July 2003. This date was well within the implementation period and before Article 13 expired. Therefore, we do not need to decide, for the purposes of this case, precisely when Article 13 expired. It is clear that Article 13 was in force and applicable at the time Economía initiated the countervailing duty investigation on olive oil imports from the European Communities.89 Therefore, we hold that Article 13 applies to the initiation of the countervailing duty investigation by Mexico in this case.
        1. Article 13(b)(i) of the Agreement on Agriculture


            1. There are three legal elements in Article 13(b)(i). First, the chapeau of paragraph (b) provides that the obligations and exemptions set forth in the succeeding subparagraphs only apply to "domestic support measures" which conform fully to the provisions of Article 6 of the Agreement on Agriculture. Second, subparagraph (i) exempts such products from the imposition of countervailing duties, unless a determination of injury or threat thereof is made in accordance with Part V of the SCM Agreement. Third, subparagraph (i) also requires that "due restraint shall be shown in initiating any countervailing duty investigations" in relation to those measures.

            2. The European Communities, as the complainant, bears the burden of proving that the provisions of Article 13(b)(i) are applicable to the measures at issue and that Mexico has acted inconsistently with its obligations under those provisions.90 Therefore, the European Communities must first demonstrate that its domestic support measures satisfy the requirement in the chapeau of paragraph (b), namely that they conform fully to Article 6 of the Agreement on Agriculture. Then, the European Communities must demonstrate that Mexico has not complied with the provisions of subparagraph (i) of paragraph (b).
          1. Domestic Support Measures which Fully Conform with Article 6 of the Agreement on Agriculture

            1. In its first written submission, the European Communities asserts that the production aid provided to olive growers by the European Communities, which are the basis for the imposition of countervailing duties, conform fully to Article 6 of the Agreement on Agriculture.91

            2. Mexico did not specifically dispute this assertion and, in fact, conducted its countervailing duty investigation as if the European Communities' domestic support measures were in conformity with Article 6 of the Agreement on Agriculture.92

            3. As Mexico conducted the olive oil investigation as if Article 13(b) of the Agreement on Agriculture applied to that investigation, we will proceed on the basis of the same assumption, arguendo, for the purposes of this dispute.93 We note, however, that had this issue been contested between the parties, it would have been incumbent upon the European Communities in the first instance to demonstrate that the provision was applicable.
          2. Exempt from Imposition of Countervailing Duties Unless a Determination of Injury or Threat Thereof is Made

            1. The European Communities argues that Mexico acted inconsistently with Article 13(b)(i) because it accepted an application on the basis of an allegation of material retardation, which is not referred to in that provision, rather than an allegation of injury or threat thereof, which are referred to therein.94 In particular, the first part of subparagraph (i) provides that products covered by the chapeau of paragraph (b) are "exempt from the imposition of countervailing duties unless a determination of injury or threat thereof is made in accordance with Article VI of GATT 1994 and Part V of the Subsidies Agreement."

            2. We note that the first clause of Article 13(b)(i) refers inter alia to "injury or threat thereof… in accordance with …Part V of the Subsidies Agreement." The paragraph does not refer to "material injury", but rather to "injury". "Injury", in turn, is defined in footnote 45 of the SCM Agreement as "material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of such an industry" (emphasis added.) In other words, the definition of the term "injury" for purposes of the SCM Agreement encompasses the concept of material retardation. We therefore do not find that the first clause of subparagraph (i) prohibits the imposition of duties on the basis of a determination of material retardation as opposed to determinations of material injury or threat of material injury.

            3. Furthermore, and in any case, we note that the claim of the European Communities focuses on the basis of Economía's initiation of the olive oil investigation, and not on the basis for the imposition of the measures. In particular, the argument of the European Communities is that no investigation should have been initiated on the basis of a form of injury (material retardation) that was not permitted as a basis for the imposition of measures. Even assuming arguendo that the European Communities were correct that the first clause of Article 13(b)(i) excluded determinations of material retardation, we disagree that this clause is relevant to initiation. Instead, the plain language at issue is expressly limited to the "imposition of countervailing duties". Here, we are mindful of the guidance of the Appellate Body not to impute into a treaty words that are not there or to import concepts that were not intended.95 We also recognize that our duty is to interpret the words actually used in the agreement under examination, not the words the interpreter (or one of the parties) may feel should have been used.96

            4. Finally, even if the European Communities were correct both that the first clause of Article 13(b)(i) is relevant to initiation, and that it precludes initiation based on claims of material retardation, we note as a factual matter that Economía initiated the olive oil investigation on the basis of "injury", in the broad sense of the term as defined in footnote 45 of the SCM Agreement, and that it imposed provisional and final countervailing duties on the basis of "material injury"97, not material retardation.

            5. For these reasons, assuming arguendo that Article 13(b)(i) of the Agreement on Agriculture applied to the olive oil investigation, we find that the European Communities has not established that Mexico failed to comply with the requirement in Article 13(b)(i) of the Agreement on Agriculture to exempt olive oil from imposition of countervailing duties “unless a determination of injury or threat thereof is made in accordance with Article VI of GATT 1994 and Part V of the Subsidies Agreement.”
          3. Due Restraint Shall be Shown in Initiating Any Countervailing Duty Investigation

            1. The European Communities argues that Mexico acted inconsistently with Article 13(b)(i) by failing to show "due restraint" in initiating the countervailing duty investigation on imports of olive oil from the European Communities. The European Communities defines the verb "to restrain" as to "hold back or prevent from some course of action" or "restrict, limit."98

            2. Mexico argues that "due restraint" simply means adopting an appropriate and reasonable standard for allowing an investigation to be initiated, and that it does not involve doing anything differently in cases of agricultural, as compared with non-agricultural, products.99

            3. The term "due restraint" has not been interpreted by panels or the Appellate Body to date. To assist in determining the ordinary meaning of the terms "due" and "restraint", we look first to dictionary definitions. Black's Law Dictionary defines "due" as "just, proper, regular, and reasonable."100 The definition in Webster's New Encyclopedic Dictionary is similar, referring to "appropriate", "adequate" and "regular".101 The New Shorter Oxford English Dictionary defines "restraint" as "(self-) control; the ability to restrain oneself; reserve; absence of excess or extravagance." 102 The review of the French and Spanish texts, which are equally authentic,103 suggests similar interpretations. In the French version the relevant term to be interpreted is the word "modération". The dictionary Le Grand Robert de la langue française104 defines "modération" as "circonspection, pondération, reserve" and "retenue", which shows that all of these words express reserve, caution and balancing. Regarding the Spanish terms "debida moderación", the Diccionario de la lengua española105 provides for the word "debida" the definition "como corresponde o es lícito" and "a causa de, en virtud de".106 "Moderación" is defined as "cordura, sensatez, templanza en las palabras o acciones"107 Therefore, considered on the basis of all three authentic texts of Article 13(b)(i) the ordinary meaning of "due restraint" is "a proper, regular, and reasonable demonstration of self-control, caution, prudence and reserve".

            4. We consider this definition to be consistent with the context of Article 13 as a whole, as well as with the object and purpose of the provision, which is to provide a "peace clause", during the implementation period, for Members taking actions permitted under the SCM Agreement against subsidies that are provided consistent with the provisions of the Agreement on Agriculture.

            5. Having determined what the obligation to show "due restraint" requires, we now apply that standard to the facts of this case to determine whether the European Communities has demonstrated that Mexico did not comply with this obligation in initiating the countervailing duty investigation.

            6. The European Communities provides three reasons why, in its view, Economía failed to exercise "due restraint" within the meaning of Article 13(b)(i).108 These are that: (1) Economía did not wait to hold consultations with the European Communities prior to initiation, but plunged into the investigation at the first possible moment109; (2)  Economía did not spend adequate time investigating, prior to initiation, whether there were domestic producers other than Fortuny, but paused only to take account of Fortuny's position; and (3) Economía accepted an application which was clearly based on "material retardation" and converted it into one of "material injury."110

            7. We will examine each of these specific circumstances to determine whether Economía's actions in the olive oil investigation evince such a lack of restraint as to fall short of the "due restraint" obligation of Article 13(b)(i) of the Agreement on Agriculture as interpreted above, again assuming arguendo that that obligation applied to the investigation.

            8. With respect to Economía 's initiating the countervailing duty investigation prior to holding consultations, we note that Article 13(b)(i) of the Agreement on Agriculture requires investigating authorities to show "due restraint" in initiating any countervailing duty investigation on products covered by the chapeau of paragraph (b). As noted in our findings relating to the European Communities' claim under Article 13.1 of the SCM Agreement, a Member is not required to hold the consultations referred to in that provision prior to initiation. Therefore, we do not see how the failure to take an action that is not required for initiation can be considered evidence of a lack of due restraint in initiating the countervailing duty investigation. We also note that we have found that Mexico did not infringe its obligations under Article 13.1 of the SCM Agreement to invite the European Communities to consultations prior to initiation (see, para. B.2(b)i.11, supra). Having made this finding, we do not see how the timing of this invitation is evidence of "haste" or of a lack of self-control or reserve, as alleged by the European Communities.

            9. With respect to the lack of investigation into other possible domestic producers besides Fortuny we note, as described in Section VII.I, that in its application Fortuny asserted that it accounted for 100 per cent of the olive oil production on the commercial market in Mexico and that there were no other domestic producers other than those operating on a "local" or "experimental" basis.111 Fortuny also provided a table of monthly production for 2000, 2001, and 2002.112 Economía sent a "prevención" or supplemental questionnaire to Fortuny asking for, inter alia, additional data on injury indicators, annual capacity and capacity utilization as well as information on any government support programmes that may have been affected by the increase of subsidized imports, information on the world olive oil market, including European production and exports, and audited financial statements for 2000, for the 2001 separation of Formex-Ybarra, and for 2002 for Fortuny and an income statement for the like product for 2000-2002.113 Fortuny responded with additional data, some based on simple worksheets that were in its possession rather than audited financial records that were in the possession of Distribuidora Ybarra.114

            10. Economía compared the data provided by Fortuny to information from other sources, namely the government of Baja California and the article published in Claridades Agropecuarias about the olive oil industry in Mexico, which were also provided in the application. Economía found that these other sources corroborated Fortuny's statement that it comprised the entire domestic industry.

            11. The evidence before us shows that Economía received an application from Fortuny. Economía, seeking to ensure that it had all the necessary information for initiation, sent additional questions to Fortuny and awaited a reply. Economía also checked the assertions of Fortuny against information from independent sources, the government of Baja California and the magazine Claridades Agropecuarias, which were provided by Fortuny as attachments to its application. Through this process, which took approximately four months, Economía satisfied itself that it had information sufficient to meet the requirements for initiating a countervailing duty investigation.

            12. We find nothing in this behaviour that exhibits a lack of self-control or reserve. Therefore, we find that Economía did not fail to exercise due restraint by neglecting to investigate the extent of the domestic industry prior to initiation.

            13. The European Communities also alleges that Economía's "conversion" of an application based on material retardation into one of material injury evinces a lack of due restraint within the meaning of Article 13(b)(i) of the Agreement on Agriculture.

            14. In this regard, Mexico argues that Economía, upon reviewing Fortuny's application, concluded that it was not possible in principle to initiate an investigation for material retardation in respect of an enterprise that had been producing olive oil since the 1940s.115 Because of this, Economía sent additional questions to Fortuny with respect to the history of olive oil production in Mexico and the production history of Formex-Ybarra (Fortuny's predecessor company).116 Economía concluded that it would be best to initiate an investigation in respect of injury in general and then, during the course of the investigation, determine the specific nature of any injury caused to the domestic industry by subsidized imports.117 Consequently, Economía initiated the investigation on the basis of "injury" in the broad sense of the term within the meaning of footnote 45 of the SCM Agreement.118

            15. We consider Economía's decision to delay initiation in order to gather more information from the applicant and to avoid initiating on a basis not supported by the evidence in the application to be indicative of self-control and reserve rather than the lack thereof. Therefore, we find that the European Communities has not established that Economía failed to exercise due restraint by "converting" Fortuny's application from one of material retardation into an investigation of injury.

            16. In sum, we find that none of the reasons presented by the European Communities demonstrates a lack of due restraint on the part of Economía. To the contrary, based on our examination of the facts before us, Economía appears to have proceeded with prudence and caution, indicating self-restraint rather than a lack thereof. Therefore, we conclude that the European Communities has not established as a factual matter that Economía failed to show due restraint in initiating the countervailing duty investigation on olive oil.

            17. Assuming arguendo that Article 13(b)(i) of the Agreement on Agriculture was applicable to the olive oil investigation, we find that the European Communities has not demonstrated that Mexico failed to comply with the requirement in that provision to exempt olive oil from imposition of countervailing duties "unless a determination of injury or threat thereof is made in accordance with Article VI of GATT 1994 and Part V of the Subsidies Agreement". Nor has the European Communities demonstrated that Mexico failed to show due restraint in initiating the countervailing duty investigation on olive oil. Therefore, we find that the European Communities has not established that Mexico acted inconsistently with Article 13(b)(i) of the Agreement on Agriculture.
    1. article 12.4.1 of the scm agreement


            1. The European Communities asserts that Mexico failed to require interested parties to provide non-confidential summaries of confidential information and that Mexico therefore acted inconsistently with its obligations under Article 12.4.1 of the SCM Agreement.



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