WORLD TRADE
ORGANIZATIONWT/DS192/AB/R
8 October 2001
(01-4858)
Original:  English
UNITED STATES – TRANSITIONAL SAFEGUARD MEASURE ON
COMBED COTTON YARN FROM PAKISTAN
AB-2001-3
Report of the Appellate BodyWT/DS192/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of the Participan ts and Third Pa rticipan ts ................................................................4
A. Claims of Error by the United States – Appellant ..........................................................4
1. Standard of Review ...........................................................................................4
2. Definition of the Domestic Industry..................................................................6
3. Attribution of Serious Damage..........................................................................8
B. Arguments by Pakistan – Appellee ...............................................................................10
1. Standard of Review .........................................................................................10
2. Definition of the Domestic Industry................................................................12
3. Attribution of Serious Damage........................................................................14
C. Arguments of the Third Participants ............................................................................16
1. European Communities ...................................................................................16
2. India.................................................................................................................16
III. Issues Raised in this Appeal............................................................................................... .......18
IV. Standard of Review.......................................................................................................... .........19
V. Definition of the Domestic Industry .........................................................................................2 5
VI. Attribution of Serious Damage ............................................................................................... ..33
VII. Findings and Conclusions ................................................................................................... ......40WT/DS192/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Transitional Safeguard Measure
on Combed Cotton Yarn from Pakistan
United States,  Appellant
Pakistan,  Appellee
European Communities,   Third Participant
India,  Third ParticipantAB-2001-3
Present:
Abi-Saab,  Presiding Member
Ehlermann,  Member
Ganesan,  Member
I. Introduction
1. The United States appeals from certain issues of law and legal interpretations in the Panel
Report,  United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan  (the
"Panel Report"). 1  The Panel was established on 19 June 2000 to consider a complaint by Pakistan
with respect to a transitional safeguard measure imposed by the United States under Article 6.2 of theAgreement on Textiles and Clothing   (the " ATC ") on Category 301 imports of combed cotton yarn
("yarn") from Pakistan.
2. On 24 December 1998, the United States filed a request for bilateral consultations with
Pakistan, pursuant to Article 6.7 of the  ATC,  on the proposed safeguard measure.  The United States
attached to this request its Report of Investigation and Statement of Serious Damage or Actual ThreatThereof:  Combed Cotton Yarn for Sale:  Category 301 (December 1998)  (the "Market Statement"),which formed the basis for the proposed safeguard measure.  This Market Statement set out the resultsof the investigation of the conditions prevailing in the United States' market for yarn.  It defined thedomestic industry to be investigated and concluded that increased imports had caused serious damage,and actual threat thereof, to the domestic industry, and that this damage and threat were attributable toPakistan.
3. The United States held bilateral consultations with Pakistan in February 1999, which did not
result in a mutually agreed solution.  Consequently, the United States imposed the transitional safeguard
measure at issue in this dispute in the form of  a quantitative restriction on Category 301 imports of
yarn from Pakistan.  The safeguard measure was made effective for one year as of 17 March 1999 andwas extended twice, each time for one further year, effective 17 March 2000 and 17 March 2001,respectively.
                                                     
1WT/DS192/R, 31 May 2001.WT/DS192/AB/R
Page 2
4. The Textiles Monitoring Body (the "TMB") re viewed the matter, pursuant to Articles 6.10
and 8.10 of the  ATC,  in April and in June 1999.  The TMB concluded on both occasions that the
United States had not demonstrated successfully that yarn was being imported into its territory in such
increased quantities as to cause serious damage, or actual threat thereof, to its domestic industryproducing like and/or directly competitive products.  Accordingly, the TMB recommended that thesafeguard measure introduced by the United States on imports of yarn from Pakistan be rescinded.
 2
On 6 August 1999, the United States informed the TMB that it believed its action was justified underthe provisions of Article 6 of the  ATC  and that it would maintain the safeguard measure.
 3  T h e
United States and Pakistan held a further round of consultations in November 1999 but failed to reacha mutually agreed solution.
5. On 3 April 2000, Pakistan requested the establishment of a panel, pursuant to Article 8.10 of
the  ATC,  Article XXIII:2 of the  General Agreement on Tariffs and Trade 1994  (the "GATT 1994")
and Article 6 of the  Understanding on Rules and Proce dures Governing the Settlement of
Disputes  (the "DSU").  The factual aspects of this dispute are set out in greater detail in the Panel
Report.
 4  The Panel considered Pakistan's claims that, in imposing the transitional safeguard measure,
the United States acted inconsistently with Articles 6.2 and 6.4 of the  ATC.  Pakistan also requested
that the Panel suggest, in accordance with the second sentence of Article 19.1 of the DSU, that themost appropriate way to implement the Panel's ruling would be to rescind the safeguard measure.
 5
6. In its Report, circulated to Members of the World Trade Organization (the "WTO") on
31 May 2001, the Panel concluded that the transitional safeguard measure imposed by the United
States on imports of yarn from Pakistan was inconsistent with the provisions of
Article 6 of the  ATC.  Specifically, the Panel found that:
(a) Inconsistently with its obligations under [Article] 6.2, the
United States excluded the production of combed cotton yarn
by vertically integrated producers for their own use from the
scope of the "domestic industry producing like and/or directly
competitive products" with imported combed cotton yarn.
(b) Inconsistently with its obligations under Article 6.4, the
United States did not examine the effect of imports from
Mexico (and possibly other appropriate Members)individually.
                                                     
2G/TMB/18, 29 April 1999, para. 32;  G/TMB/19, 29 June 1999, para. 36.
3G/TMB/R/57, 28 October 1999, para. 5;  G/TMB/N/346, 24 September 1999.
4Panel Report, paras. 2.1-2.10.
5Ibid., para. 3.1.WT/DS192/AB/R
Page 3
(c) Inconsistently with its obligations under Articles 6.2 and 6.4,
the United States did not demonstrate that the subject imports
caused an "actual threat" of serious damage to the domestic
industry. 6  (footnote omitted)
7. The Panel further concluded that:
(a) Pakistan did not establish that the US determination of serious
damage was not justified based on the data used by the US
investigating authority.
(b) Pakistan did not establish that the US determination of serious
damage was not justified regarding the evaluation by the US
investigating authority of establishments that ceased
producing combed cotton yarn.
(c) Pakistan did not establish that the US determinations of
serious damage and causation thereof were not justified basedupon an inappropriately chosen period of investigation and
period of incidence of serious damage and causation thereof.
 7
8. The Panel concluded that the United States' safeguard measure had nullified and impaired the
benefits accruing to Pakistan under the  Marrakesh Agreement Establishing the World Trade
Organization  (the " WTO Agreement  "), and in particular, under the  ATC. 8  Finally, the Panel
recommended that the Dispute Settlement Body (the "DSB") request the United States to bring its
safeguard measure into conformity with its obligations under the  ATC,  and suggested this could best
be achieved by the prompt removal of the safeguard measure. 9
9. On 9 July 2001, the United States notified the DSB of its intention to appeal certain issues
of law covered in the Panel Report and certain legal interpretations developed by the Panel,pursuant to paragraph 4 of Article 16 of the DSU, and filed a Notice of Appeal, pursuant to Rule 20of the  Working Procedures for Appellate Review  (the " Working Procedures ").  On 19 July 2001,
the United States filed its appellant's submission.
 10  On 3 August 2001, Pakistan filed its appellee's
submission. 11   On the same day, the European Communities and India each filed a third participant's
submission. 12
                                                     
6Panel Report, para. 8.1.
7Ibid., para. 8.2(a), (b) and (c).
8Ibid., para. 8.3.
9Ibid., para. 8.5.
10Pursuant to Rule 21 of the  Working Procedures .
11Pursuant to Rule 22 of the  Working Procedures .
12Pursuant to Rule 24 of the  Working Procedures .WT/DS192/AB/R
Page 4
10. The oral hearing in the appeal was held on 16 August 2001.  The participants and third
participants presented oral arguments and responded to questions put to them by the Members of the
Division hearing the appeal.
II. Arguments of the Participants and Third Participants
A. Claims of Error by the United States – Appellant
1. Standard of Review
11. The United States claims that the Panel erred and exceeded the mandate of WTO dispute
settlement panels set forth in Article 11 of the DSU by finding that, in assessing the conformity of a
transitional safeguard measure with Article 6 of the  ATC,  it could consider evidence that was not in
existence at the time of the competent authority's determination.
12. In the United States' view, the Panel misinterpreted the standard of review applicable to its
assessment of the conformity of the transitional safeguard measure at issue with Article 6 of the  ATC.
In challenges to a transitional safeguard measure, the question before a panel is whether thedetermination, at the time it was made, was consistent with the requirements of Article 6 of the   ATC .
Such an assessment can be made only on the basis of facts in existence at that time.  Examining aMember's determination on the basis of evidence that did not exist at that time would permit panels tostrike down the determination of the competent authority for failing to anticipate facts that could
emerge in the future.  The United States argues that such a review would not be an "objective
assessment" of the matter at issue, but would instead constitute a  de novo   review.
13. The United States submits that WTO jurisprudence strongly supports limiting a panel's
consideration of evidence to that in existen ce at the time the competent authority made its
determination.  For instance, the panel in  United States – Measure Affecting Imports of Woven Wool
Shirts and Blouses from India  ("United States – Shirts and Blouses
 "), an   ATC  dispute, found that an
objective assessment must be based on facts in existence   at the time of the determination . 13  T h e
panels that reviewed the consistency of safeguard measures under the  Agreement on Safeguards  in
Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products   ("Korea – Dairy
                                                     
13Panel Report, WT/DS33/R, adopted 23 May 1997, as upheld by the Appellate Body Report,
WT/DS33/AB/R and Corr.1, DSR 1997:I, 343, para. 7.21.WT/DS192/AB/R
Page 5
Safeguard ") and  United States – Definitive Safeguard Measur es on Imports of Wheat Gluten from the
European Communities   ("United States – Wheat Gluten Safeguard ") 14 reached a similar conclusion.
14. The United States argues that, contrary to the Panel's reasoning, the finding of the panel in
Argentina – Safeguard Measur es on Imports of Footwear   ("Argentina – Footwear Safeguard ") that a
panel may have to consider the raw information fro m which the data to be scrutinized were compiled,
does not support the Panel's conclusion. 15  The Panel sought to distinguish between relying on post-
determination evidence to (i) reinvestigate the market situation and (ii) evaluate the "thoroughness
and sufficiency" of the "investigation" of the competent authority.  Such a distinction might at most,
and in limited circumstances, justify consideration of the underlying data used to support adetermination.
 16
15. The United States also submits that the Pane l implied that "subsequent developments" could
be treated differently from post-determination evidence and, unlike post-determination evidence,"subsequent developments" could not be taken into account by a panel.  There is, however, nomeaningful distinction between those two categories, as information concerning neither would havebeen available to the competent authority at the time it made its determination.
16. The United States claims that the Panel further erred in relying on what it perceived to be
certain deficiencies in the   ATC ,  notably the absence of a right of exporting Members to participate in
the national investigation prior to the determination, to justify its consideration of post-determinationevidence.  Under Article 11 of the DSU, the extent of a panel's review is circumscribed by the text ofthe agreement it is reviewing.  Articles 6.7 and 6.10 of the   ATC  provide exporting Members ample
opportunity to contest the fact-finding and determination of the importing Member on a bilateral andmultilateral basis.
17. The United States further argues that under the   ATC ,  evidence that came into existence after
the competent authority's determination may be considered by the TMB pursuant to Article 6.10 ofthe  ATC .  WTO dispute settlement panels have a more limited mandate than the TMB, as confirmed
by the panel in  United States – Shirts and Blouses.
 17
                                                     
14Panel Report,  Korea – Dairy Safeguard , WT/DS98/R and Corr.1, adopted 12 January 2000, as
modified by the Appellate Body Report, WT/DS98/AB/R, para. 7.30;  Panel Report,  United States – Wheat
Gluten Safeguard , WT/DS166/R, adopted 19 January 2001, as modified by the Appellate Body Report,
WT/DS166/AB/R, para. 8.6.
15Panel Report, WT/DS121/R, adopted 12 January 2000, as modified by the Appellate Body Report,
WT/DS121/AB/R, para. 8.126.
16United States' appellant's submission, para. 18.
17Panel Report, supra , footnote 13, para. 7.21.WT/DS192/AB/R
Page 6
18. In conclusion, the United States claims that if WTO dispute settlement panels were allowed to
review a competent authority's determination on the basis of newly available evidence, competent
authorities would be held responsible for fa cts unknown or unknowable at the time of their
determinations.  Under such circumstances, the United States submits, it would be impossible for aMember to make a determination that would withstand a panel review and respond in a timely mannerto the damaging effects of an import surge, thus seriously impairing the transitional safeguardmechanism guaranteed by Article 6 of the   ATC .
2. Definition of the Domestic Industry
19. The United States claims that the Panel erred in concluding that the United States breached
Article 6.2 of the  ATC  by not including in its definition of the domestic industry yarn manufactured
and consumed by vertically integrated fabric producers of the United States.  According to the UnitedStates, the  ATC  permits the importing Member to define the domestic industry as the industry
producing a product that was both like  and  directly competitive with the imported product.
Vertically integrated fabric producers manufactured yarn that was like, but that was not directlycompetitive with the imported yarn, because th e yarn produced by them was for their own
consumption and was not destined "for sale" in the merchant market.  Therefore, the United States'identification of the domestic industry, in this case, as the producers of yarn "for sale" in the merchant
market, was consistent with the  ATC.
20. The United States submits that the Panel, in rejecting its domestic industry definition,
disregarded the ordinary meaning of the connector "and/or" expressly used in Article 6.2 of the  ATC
and, contrary to customary rules of treaty interp retation, reduced the meaning of the term "and" to
inutility.  The Panel found that the phrase "like and/or directly competitive products" means:  (i) everylike product;  (ii) every directly competitive product;  and (iii) any overlap between the two.  ThePanel interpreted Article 6.2 as if it read "like or directly competitive", completely writing out theword "and" from the Article.  The United States contends that the combination of the connectors"and/or" generally means "either together or as an alternative", and allows a range of industry
identifications, including the one that it chose in this case.
21. The United States also submits that the Panel ignored customary rules of treaty interpretation
by referring first to other WTO agreements rather than to the  ATC  itself in analyzing the context of
Article 6.2 of the  ATC.  In accordance with Appellate Body jurisprudence, the Panel should have
focused on the particular provision to be interpreted
 18 and should have begun its interpretation within
                                                     
18Appellate Body Report,  United States – Import Prohibition of Certain Shrimp and Shrimp Products
("United States – Shrimp "), WT/DS58/AB/R, adopted 6 November 1998, para. 114.WT/DS192/AB/R
Page 7
the "four corners" of the  ATC. 19  Specifically, the Panel erroneously relied on jurisprudence
pertaining to Article III of the GATT 1994, namely, the panel and Appellate Body reports in  Korea –
Taxes on Alcoholic Beverages   ("Korea – Alcoholic Beverages "). 20  That dispute involved the
interpretation of a different phrase ("directly competitive or substitutable") of a different provision ofa different agreement (Article III:2 of the GATT 1994).  Therefore, the Panel erred in relying on theAppellate Body statement in  Korea – Alcoholic Beverages  that "
 'like products' are, by definition,
directly competitive and a subset of 'directly competitive or substitutable products' ".  Unlike the
present case,  Korea – Alcoholic Beverages   dealt exclusively with products competing in the
marketplace, and not with products consumed within a vertically integrated company.  When actually
in the marketplace, all like products may also be directly competitive.  Products consumed captivelywithin vertically integrated companies never reach the marketplace and, therefore, they cannot beregarded as "directly competitive" with like products that are actually in the marketplace.
22. In the United States' view, the Panel failed to properly account for the context provided by
Article 6 of the  ATC.  The United States believes that its identification of the domestic industry was
consistent with the Preamble and Article 6.1 of the  ATC.  Moreover, the United States does not
consider that its definition creates an overly broad authority for an importing Member to take
transitional safeguard measures.  In this context, the United States points out that the definition of the
domestic industry was only a starting-point and that a WTO Member could take safeguard measuresonly after fulfilling all the additional conditions set forth in Articles 6.2, 6.3 and 6.4 of the  ATC.
23. The United States asserts that its identification of the domestic industry is also consistent with
the object and purpose of the  ATC,  which carefully balances the interests of exporting and importing
Members.  In the United States' view, the  ATC  definition of the domestic industry affords Members a
certain degree of flexibility to use the transitional safeguard mechanism to address the issue ofdamaging surges in imports, thereby facilitating any necessary adjustment pending full integration of
the textiles and clothing sector into the framework of the GATT 1994.
24. Finally, the United States contends that the Panel's finding that yarn manufactured and
consumed by vertically integrated fabric producers is directly competitive with imported yarn, isfactually incorrect.  The Panel "presumed" that imported yarn was  actually competing   with yarn
produced by vertically integrated fabric producers for their internal consumption.  However, this isnot the case.  According to the United States, the consistent  de minimis   nature of yarn purchases and
                                                     
19Appellate Body Report,  United States – Restrictions on Imports of Cotton and Man-made Fibre
Underwear  ("United States – Underwear "), WT/DS24/AB/R, adopted 25 February 1997, DSR 1997:I, 11, at 20.
20Panel Report, WT/DS75/R, WT/DS84/R, adopted 17 February 1999, as modified by the Appellate Body
Report, WT/DS75/AB/R, WT/DS84/AB/R;  Appellate Body Report, WT/DS75/AB/R, WT/DS84/AB/R, adopted
17 February 1999.WT/DS192/AB/R
Page 8
sales of vertically integrated fabric producers over the years is further evidence of the fact that there is
no direct competitive relationship between the yarn produced by them and the imported yarn.
3. Attribution of Serious Damage
25. The United States requests that the Appellate Body reverse the Panel's findings concerning
the attribution of serious damage under Article 6.4 of the  ATC .  The Panel incorrectly interpreted
Article 6.4 to require attribution to  all  Members causing serious damage or actual threat thereof.
The Panel, therefore, erred in concluding that the United States' attribution of serious damage andactual threat thereof to Pakistan was inconsistent with Article 6.4 of the  ATC  because it did not
examine the effect of imports from Mexico and possibly other Members  individually .  Article 6 does
not require identification of, and attribution to, the individual Members from whom imports causeserious damage or actual threat thereof.  Causation is determined under Article 6.2 of the  ATC  on the
basis of  total  imports and not on the basis of  individual   imports.  Article 6.4 does not deal with
"causation", but establishes the methodology for determining to which Member(s) to assign theserious damage and actual threat thereof and, in turn, to apply the transitional safeguard measure tosuch Member(s).  The United States claims the Panel misunderstood the two distinct concepts ofcausation and attribution.
26. The United States points out that the transitional safeguard mechanism envisaged under
Article 6 is a  non-most-favoured-nation safeguard mechanism and that the plain language of
Article 6.4 requires the application of a transitional safeguard measure on a Member-by-Memberbasis.  This precludes the requirement that (i) an importing Member attribute serious damageindividually to  all  exporting Members that individually cause or contribute to the serious damage, or
(ii) an importing Member attribute serious damage individually to  all  exporting Members that meet
the criteria of Article 6.4.  The United States adds that the negotiating history indicates that thedrafters of the  ATC  rejected such an approach.  Article 6.4 of the draft agreement in the  Chairman's
Text of the Negotiating Group on Textiles and Clothing ,  which had provided that the Member
invoking a safeguard measure "shall determine the party or parties contributing to the serious damage
… through a sharp and substantial increase in imports"
 21, was not retained.
27. The United States further submits that its interp retation of Article 6.4 is consistent with the
context of that provision.  For example, Article 6.6 requires the importing Member to account for andprovide special treatment to certain Members in applying a transitional safeguard measure.Article 6.1 exhorts importing Members to apply transitional safeguard measures "as sparingly aspossible".  The United States argues that under the Panel's interpretation, Members would be bound to
                                                     
21MTN.GNG/NG4/W/68, 19 November 1990.WT/DS192/AB/R
Page 9
contravene these requirements by applying the transitional safeguard to  all  those Members meeting
the criteria of Article 6.4.
28. According to the United States, the Panel's interpretation of Article 6.4 is inconsistent with
the object and purpose of the  ATC ,  which is to provide for a safeguard mechanism during the
transition period for the integration of the textiles and clothing sector into the GATT 1994.  Therequirement to attribute serious damage and actual threat thereof to all Members whose imports causeserious damage would increase the burden impos ed on importing Members and would undermine the
responsiveness and value of the transitional safeguard mechanism.  The United States adds that the
Panel overlooked how Article 6.4 relates to the carefully negotiated balance of rights and obligationsset out in the  ATC .
29. The United States also argues that the Panel erred in relying primarily on non-transitional
WTO agreements in making its findings under Article 6.4 of the  ATC .  Under customary rules of
treaty interpretation, the Panel should have first and foremost interpreted the ordinary meaning of theterms of Article 6.4 in the light of their context and the object and purpose of the  ATC.  Appellate
Body jurisprudence underscores this requirement
 22 as well as the need to remain within the "four
corners" of the  ATC. 23  In contrast, the Panel attempted to impute to the  ATC  words and concepts
from the  Agreement on Safeguards   in the guise of "context" and thereby disregarded the unique,
non-most-favoured-nation transitional safeguard mechanism under Article 6 of the  ATC .  The Panel
conducted its analysis as if the textiles and clothing sector was  already  integrated into the
GATT 1994 and as if the GATT 1994 rules  already   applied to it.  The  ATC  intentionally created a
mechanism  different  from Article XIX of the GATT 1994 and the  Agreement on Safeguards  for
products not yet integrated into the GATT 1994.  In addition, the  Agreement on Safeguards ,  pursuant
to its Article 11.1(c), does not apply to transitional safeguard measures taken under Article 6 of theATC.
30. In conclusion, the United States claims that Article 6.4 of the  ATC  requires only a
consideration of the factors enumerated therein as it relates to the Member or Members to whom the
importing Member attributes serious damage and actual threat thereof.  In the present case, the UnitedStates attributed serious damage and actual threat thereof to Pakistan based on each of the relevant
requirements of Article 6.4.  To require more ⎯ such as an individual assessment of each exporting
Member meeting the criteria of Article 6.4 ⎯ would, in the United States' view, impute words and
concepts into the  ATC  that are not there.
                                                     
22Appellate Body Report,  United States – Shrimp , supra , footnote 18, para. 114.
23Appellate Body Report,  United States – Underwear , supra , footnote 19, at 20.WT/DS192/AB/R
Page 10
B. Arguments by Pakistan – Appellee
1. Standard of Review
31. Pakistan submits that the United States' claims and arguments are largely based on a
mischaracterization of the Panel's rulings.  There is nothing in the Panel's findings to suggest that a
panel may conduct a  de novo  review of the determination of the competent authority.  On the
contrary, the Panel specifically stated that the competent authority's determination under
Article 6.2 may  not  be reviewed in the light of subsequent events or developments.
32. According to Pakistan, the Panel ruled that it may, consistently with Article 11 of the DSU,
examine evidence not available or submitted to the competent authority at the time of theinvestigation for the sole purpose of determining whether the substantive conditions for safeguardaction were satisfied at that time.  Pakistan points out that, in its ruling, the Panel further consideredsuch evidence to be relevant under Article 6 of the  ATC  only if it related to  crucial or decisive facts
that were in existence at the time of the investigation.
33. In Pakistan's view, is not entirely clear whether the United States uses the term "evidence" in
a general sense (any fact capable of furnishing a proof) or in a legal sense (statement or document
submitted as a means of ascertaining the truth).  The United States also does not distinguish clearly
between facts that did not exist at the time of the investigation (subsequent developments) and factsthat could not be demonstrated at the time of the investigation (for which evidence subsequentlyemerged).  Therefore, when the United States requests the Appellate Body to rule that panels shouldnot consider  evidence that was not in existence at the time of the determination of the competent
authority ,  one does not know to which category of facts the United States refers.  According to
Pakistan, the United States' argument implies that a safeguard measure imposed in error need not bebrought into conformity with the  ATC,  and may be maintained.
34. Pakistan contends that the United States confuses the question of which evidence a panel
must consider pursuant to Article 11 of the DSU with the question of whether the evidence submitted
by the complainant supports a finding of inconsistency of a transitional safeguard measure withArticle 6 of the  ATC.  The United States also confuses the question of a panel's  de novo   review of
the competent authority's appreciation of the facts with the question of a panel's assessment ofwhether the facts invoked to justify a safeguard measure ever existed.  According to Article 3.2 of theDSU, the dispute settlement system of the WTO "serves to preserve the rights and obligations underthe covered agreements".  Pakistan, therefore, points out that the ruling the United States is seekingfrom the Appellate Body would diminish the rights of Members under Article 6 of the  ATC  by
curtailing the competence of panels under Article 11 of the DSU.WT/DS192/AB/R
Page 11
35. To illustrate its argument, Pakistan submits the following hypothetical example:   the United
States determined, on the basis of data provided by the American Yarn Spinners Association("AYSA") (the complainant before the competent authority), that the domestic production of yarn has declined  by 50 percent.  The United States Bureau of Census data, published subsequent to the
determination of the competent authority, show that AYSA had provided incorrect data and that thedomestic production had in fact  increased  by 50 percent.  These newly available data leave no doubt
that imports of yarn did not cause serious damage to the domestic yarn industry.  Pakistan submits
that, according to the contention of the United States , if the United States nevertheless maintains the
safeguard measure and Pakistan brings a complaint under the DSU, the panel examining thiscomplaint would be barred from considering the new Census data.
36. In Pakistan's view, the United States' arguments imply that a Member may impose a
safeguard measure whenever a competent authority could legitimately conclude, on the basis of thefacts before it, that the conditions for taking a safeguard action under Article 6 are met.  However,Article 6.2 states that such an action may be taken "when, on the basis of a determination by aMember,  it is demonstrated
 " (emphasis added) that increased imports cause serious damage or actual
threat thereof.  A determination that was based on completely false data does not provide the required
demonstration.  The role of a panel is not merely to make an objective assessment of the competent
authority's investigation.  The basic issue is whether the Member invoking Article 6 had the right totake the safeguard action.  Therefore, in Pakistan's view, the challenge to an Article 6 safeguardmeasure does not necessarily call into question the integrity of the original investigation conducted bythe competent authority.
37. Finally, Pakistan points out that, in contrast to other WTO agreements providing for
safeguards or contingency protection, the  ATC  does not establish any specific requirements for
public notice and comment during the investigation.  In the case of many safeguard measures underArticle 6, there will be evidence that only the exporting Member can furnish (for instance, its own
statistics on recent exports) and that is, therefore, not "available" to the competent authority, under the
procedures it is permitted to follow under the  ATC.  There will also be evidence that only the
exporting Member has an interest in generating (such as precise data on plant closures) and whichwas, therefore, not "in existence" at the time of the investigation.  If the United States' contentionswere accepted, such evidence could be submitted, neither before the competent authority, nor before apanel, even though such evidence may be crucial or  decisive in determining the conformity of a
safeguard measure with the substantive requirements of Article 6.WT/DS192/AB/R
Page 12
2. Definition of the Domestic Industry
38. Pakistan submits that the Panel correctly interpreted the phrase "like and/or directly
competitive products".  According to the ordinary meaning of these words, the domestic industry tobe examined includes all domestic manufacturers that produce:  (i)  a product "like" the importedproduct;  (ii)  a product directly competitive with the imported product;  or  (iii)  both  a product that
is "like",  and  a product that is directly competitive, with the imported product.  Pakistan contends
that with such an interpretation, the term "and" is given meaning and effect and is, contrary to theassertions of the United States, not reduced to inutility.
39. Pakistan also submits that vertically integrated producers manufacturing yarn for internal
consumption, rather than for sale on the merchant market, cannot be excluded from the domesticindustry.  The interpretation of the term "to produce", suggested by the United States, implying that
vertically integrated fabric producers are part of the fabric ⎯ not yarn ⎯ industry, cannot be
reconciled with the purpose of Article 6.2 of the  ATC.  An establishment producing yarn for
processing into fabric can suffer damage  both  as a result of rising yarn imports  and  as a result of
rising fabric imports.  Article 6.2 is meant to permit safeguard action in both situations.  However, no
safeguard measure could be imposed to protect vertically integrated establishments if the yarn theymanufacture for internal consumption were not "produced" in the sense of Article 6.2 as contended bythe United States.  Pakistan adds that the United States' interpretation of the term "producing" would,in effect, as the Panel correctly found, equate "producing" with "selling".
 24
40. In support of its argument that the Panel correctly interpreted Article 6 of the  ATC   in the
context of the  WTO Agreement   in its entirety, notably Article III of the GATT 1994, Pakistan
submits that the Panel noted the differences in the terms and facts at issue in  Korea – Alcoholic
Beverages   and the present case, and based its conclusions only on the common features.  The
examination of the  ATC ,  in the light of other WTO agreements, is called for under customary rules
of treaty interpretation and is also required by the terms of the  ATC   itself.  In the view of Pakistan,
the Panel correctly concluded that captively produced yarn and imported yarn are "directlycompetitive", even if they are not actually comp eting with each other for any given sale.  In  Korea –
Alcoholic Beverages ,  the Appellate Body noted that the dictionary meaning of the term "competitive"
is "characterised by competition", and concluded therefrom that products are competitive if they areinterchangeable on the market.  In examining whether a product is competitive,  both latent and extant
demand   must, therefore, be considered.
 25
                                                     
24Panel Report, footnote 203 to para. 7.40.
25Appellate Body Report, supra , footnote 20, paras. 114-116.WT/DS192/AB/R
Page 13
41. Pakistan further submits that the Panel correctly rejected the contention of the United States
that fabric producers which manufacture the yarn they consume are hermetically segregated from themerchant market for yarn.  Fabric processed from captively produced yarn is sold on the same marketas fabric processed from yarn purchased on the merchant market.  A company that owns both a yarnplant and a fabric plant, therefore, cannot ignore the opportunity costs of manufacturing yarn.According to Pakistan, the yarn produced internally and the yarn available on the merchant market are
thus, actually, in a competitive relationship.
42. In Pakistan's view, the United States' interpretation of the term "and/or" fails to give meaning
and effect to all the terms of the  ATC .  The United States' interpretation would give Members the
right to define the domestic industry , inter alia,  as the producers of "like but not directly competitive
products".  Pakistan submits that the drafters of the  ATC  would not have provided for such a
meaningless alternative under which the requirement of causation could never be met, given the lackof competitive relationship to the surging "like" imports.
 26
43. Pakistan also argues that if Members were permitted to exclude captive yarn producers from
the domestic industry within the definition of the domestic industry under Article 6.2 of the  ATC,  the
result would be a domestic industry whose size and output would vary according to changes in the
ownership and commercial practices of yarn plants.  Specifically, the integration of yarn
manufacturers, which formerly sold their production on the merchant market, would reduce output ofthe identified domestic industry and facilitate a finding of serious damage.  Pakistan submits that suchchanges, unrelated to the definition of the domestic industry, should not support a finding of seriousdamage and permit a Member to impose a transitional safeguard measure on imports.
 27
44. Pakistan argues that the very purpose of the obligation to demonstrate the causation of serious
damage to the domestic industry in its entirety is to ensure that the domestic industry is  not  divided
into segments supplying different markets.  If  such segmentation were permitted, Members could
focus exclusively on the segment supplying the mark et in which imports are sold and thereby exclude
the producers less exposed to import competition and less likely to suffer serious damage.  Pakistan
submits that this would create a bias in favour of affirmative determinations of serious damage.
45. Finally, Pakistan points out that vertical integration is one way to adjust to import
competition.  As the integration of the textiles and clothing sector into the framework of theGATT 1994 proceeds, the discrepancy between the number of producers examined, and the numberof producers benefiting from the safeguard measure, would increase, in contradiction to the object and
                                                     
26Panel Report, para. 7.87.
27Ibid., para. 7.65.WT/DS192/AB/R
Page 14
purpose of the  ATC .  Pakistan also argues that if the United States were permitted to define the
domestic industry as the manufacturers of yarn  for sale ,  it would have been required to impose its
restraint  only  on imports of yarn  for sale  and not, as it has done, on  all imports.
3. Attribution of Serious Damage
46. Pakistan requests the Appellate Body to uphold the Panel's finding that Article 6.4 of the
ATC  obliges Members to examine the effect of imports from different Members individually.  The
terms "Member-by-Member" and "attribute" in Article 6.4 do not give the importing Member theright to arbitrarily "pick and choose" the Members included in the attribution analysis.  According to
its dictionary definition, the term "by" appearing between two nouns indicates a succession of groups,
quantities or individuals of the same class, such as in  two-by-two  or  man-by-man .
 28  T h e
requirement that the safeguard "shall be applied on a Member-by-Member basis" means, therefore,that the restrictions shall be imposed on a Member-specific basis.  "Member-by-Member" does notmean "any Member", and hence does not suggest that certain exporting Members may be arbitrarilyexcluded from the attribution of the serious damage.  Pakistan adds that the requirement to applyrestrictions on a Member-by-Member basis is intended to permit exporting Members to administer therestrictions in accordance with Article 4.2 of the  ATC  and to capture the quota rents.  It also permits
the importing Member to determine the level of the restrictions individually, in accordance with the
criteria set out in the second sentence of Article 6.4.
47. Pakistan points out that "to attribute" means to as cribe an effect to its cause.  In the context of
Article 6.4, it means to ascribe the effect of the  overall  increase in imports to the imports from
particular Members.  The attribution thus requires a causation analysis limited to imports fromindividual Members.  The difference in meaning of "cause" and of "attribute" does not, therefore,support the United States' interpretation of Article 6.4 of the  ATC.  This provision requires that the
attribution of serious damage to individual Me mbers be made, among other things, on the basis of
"the level of imports  compared   with imports from other sources, market share and import and
domestic prices". (emphasis added)  As the panel in  United States – Underwear   concluded,
Article 6.4 requires Members to assess  comparatively  the imports from different sources and their
respective effects.
 29  In Pakistan's view, the terms "individually" and "compared" found in Article 6.4,
leave no doubt that the importing Member must asses all potential sources of serious damage andcannot limit its attribution analysis arbitrarily to one Member.
                                                     
28The New Shorter Oxford English Dictionary , L. Brown (ed.), (Clarendon Press, 1993), Vol. I, p. 310.
29Panel Report, WT/DS24/R, adopted 25 February 1997, as modified by the Appellate Body Report,
supra , footnote 19, DSR 1997:I, 31, para. 7.49.WT/DS192/AB/R
Page 15
48. Pakistan further argues that Articles 6.1 and 6.6 of the  ATC  do not support the "pick-and-
choose" approach advocated by the United States.  Article 6.1 exhorts importing Members to applysafeguards as sparingly as possible, not to attribute the damage to as few importing Members aspossible.  Pakistan stresses that Article 6.6 does not deal with the attribution of damage to Members,but with "the  application   of the transitional safeguard". (emphasis added)  It is intended to create
benefits for certain Members, not to shift burdens from some Members to others.
49. Pakistan also submits that the Panel correctly analyzed Article 6 of the  ATC  in the context
of the entire  WTO Agreement .  Even if one were to regard the GATT 1994 and the  Agreement on
Safeguards   as treaties separate from the  ATC,  rather than as elements of a single treaty, they would
nevertheless form part of the context of the  ATC  pursuant to Article 31.2(a) of the  Vienna
Convention on the Law of Treaties.
 30  In addition, the preamble of the  ATC  specifically states as its
purpose the integration of the textiles and clothing sector into the framework of the GATT 1994.Pakistan submits that in the light of this purpose, a panel must consider the basic principles of theGATT 1994, including those reflected in the  Agreement on Safeguards ,  when interpreting the terms
of the  ATC .
50. Pakistan further points out that, according to Article 1.6 of the  ATC,  the rights and
obligations of Members under the other multilateral trade agreements are not affected " unless
otherwise provided in this Agreement
 ". (emphasis added)  The rules of the GATT 1994 and the
Agreement on Safeguards ,  therefore, apply, unless the  ATC  contains a different rule.  This does not
mean that the  ATC  provisions should be interpreted narrowly as an exception, or that the principles
of the GATT 1994 should be imputed to the  ATC.  However, the  ATC  provisions must be
understood as temporary departures from the principles of the GATT 1994.  If the provisions of theATC  are silent on a particular point, the drafters of the  ATC  intended the principles of the
GATT 1994 to apply.  Given that under the GATT 1994 the most-favoured-nation principle applies,
Pakistan asserts that the Panel had to determine to what extent Article 6.4 provides otherwise.
51. In conclusion, Pakistan submits that Article 6.4 of the  ATC  does not allow importing
Members to attribute damage to one Member only, because that Member would then suffer adisproportionate share of the effect of the safeguard measure.  An appropriate attribution analysismust result in a restraint that is distributed appropriately to all Members whose exports have causedthe serious damage.  According to Pakistan, the Pa nel correctly found that an ability to "pick and
choose" would be the least consistent with a most-favoured-nation approach and thus the leastconducive to the progressive integration of the textiles and clothing sector into the GATT 1994.
                                                     
30Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331;  8 International Legal Materials 679.WT/DS192/AB/R
Page 16
C. Arguments of the Third Participants
1. European Communities
52. In its third participant's submission, the European Communities confines itself to the question
of permissible evidence and submits that a panel's review concerns the work of the competentauthority at the time of its determination.
53. The European Communities argues that panels are not empowered to evaluate the work of the
competent authority on the basis of evidence that was  objectively  not available, for example, not in
existence, at the time of the determination.  This would go beyond the "independent duty ofinvestigation" of the competent authority, which clearly cannot be asked to take into account what isnot reasonably available to it while conducting a proper and thorough investigation.  However, theEuropean Communities considers that there may be cases where a panel needs to consider evidencethat comes into existence after the competent au thority's determination, in order to examine the
sufficiency and thoroughness of the investigation.  As an example, the European Communities refers
to a statement from a statistical agency, dated after the investigation, to the effect that it could have
produced reliable import statistics if asked, but that it was not.
54. The European Communities emphasizes that, despite the irrelevance of information
objectively not available  at the time of the determination to assess the WTO-consistency of that
determination, panels should strictly scrutinize the accuracy of the competent authority'sinvestigation.  This scrutiny is all the more necessary for safeguard measures taken under the  ATC,
since that Agreement does not provide for any right to seek removal of a measure that has beenadopted without the necessary conditions being fulfilled.  In the European Communities' view, this
means, for example, that panels should review whether the competent authority seriously tried to
verify data which did not come from official sources.
2. India
(a) Standard of Review
55. India submits that the Panel correctly concluded that it could "examine any evidence … for
the purpose of evaluating the thoroughness and sufficiency of the … [determination by the competent]authority." 
31  Article 6.2 of the  ATC  states that a safeguard action may be taken "when, on the basis
of a determination by a Member, it is demonstrated " (emphasis added) that increased imports cause
serious damage or actual threat thereof.  A determination based on completely incorrect data does not
                                                     
31Panel Report, para. 7.33.WT/DS192/AB/R
Page 17
provide this required demonstration.  Moreover, under Article 6.3 of the  ATC,  the determination
must be based on an examination of changes in specified economic variables.  A determination basedon an examination in which completely false data on those variables were used, does not meet thatrequirement.  The role of a panel is, therefore, not merely to make an objective assessment of thecompetent authority's investigation.  In India's view, a panel must also assess whether the results ofthat investigation are capable of demonstrating that the conditions for imposing the safeguard measure
were met at the time the determination was made.
56. India submits, therefore, that panels, pursuant to Article 11 of the DSU, may examine
evidence not available or submitted to the competent authority at the time of the investigation for thepurpose of determining whether the conditions for a safeguard action were satisfied at that time.  ThePanel further made it clear, in its ruling, that such evidence would be relevant under Article 6 of theATC  only if it related to crucial or decisive facts in existence at the time of the investigation.
Accordingly, India requests the Appellate Body to find that the Panel's conclusions were consistent
with the DSU and the  ATC.
(b) Definition of the Domestic Industry
57. India requests the Appellate Body to uphold the Panel's finding that the United States'
exclusion of captively produced yarn from the definition of the domestic industry is inconsistent withArticle 6.2 of the  ATC.  This provision refers to the "domestic industry producing like and/or directly
competitive products", not to the domestic industry  selling  those products.  In India's view, the  ATC 
defines the domestic industry as the  entire  domestic industry producing like and/or directly
competitive products.
58. India, therefore, disagrees with the United States' interpretation of the domestic industry
definition as allowing a range of different industry definitions.  India submits that such flexibilitywould undermine the objective of the  ATC  of orderly transition and integration of the textiles and
clothing sector into the framework of the GATT 1994.  India stresses that vertical integration is one
form of autonomous industrial adjustment in respon se to the liberalization of trade in textiles and
clothing.  The United States' interpretation of Article 6.2 of the  ATC  is prejudicial to meaningful
liberalization of trade in textiles a nd to autonomous industrial adjustment.
(c) Attribution of Serious Damage
59. India also requests the Appellate Body to upho ld the Panel's finding that the United States
acted inconsistently with Article 6.4 of the  ATC  by not examining the effect of imports from Mexico
and other sources, while attributing serious damage of its industry to imports from Pakistan.  TheWT/DS192/AB/R
Page 18
Panel correctly pointed out that the text of Article 6.4 of the  ATC  does not support the United States'
interpretation that an importing Member may pick and choose the Member(s) for which it carries out
an attribution analysis.
60. India submits that the Panel correctly concluded that the application of safeguards on a
"Member-by-Member" basis and the individual attribution of the damage in Article 6.4 of the  ATC
do not enable an importing Member to arbitrarily limit its attribution analysis to the imports of oneMember only.  India asserts that this Member would then suffer a disproportionate share of the effectof the safeguard measure.  That result would also be the least consistent with the most-favoured-nation principle and hinder the progressive integration of the textiles and clothing sector into theframework of the GATT 1994.  India submits that the Panel's conclusions are firmly based on the textof Article 6.4, its context and the object and purpose of the  ATC.
III. Issues Raised in this Appeal
61. This appeal raises the following issues:
(a) Whether the Panel erred and exceeded the mandate of WTO dispute settlement panels
set forth in Article 11 of the DSU by finding that, in examining the conformity of a
transitional safeguard measure with Article 6 of the  ATC,  it could consider evidence
that was not in existence at the time of the Member's determination;
(b) Whether the Panel erred in finding that the United States acted inconsistently with
Article 6.2 of the  ATC  by excluding from the scope of the domestic industry the
production of combed cotton yarn by vertically integrated producers for their owninternal use;  and
(c) Whether the Panel erred in (i) stating that Article 6.4 of the  ATC  requires attribution
to all Members whose exports cause serious damage or actual threat thereof, and (ii)
finding that the United States acted inconsistently with Article 6.4 by failing to
consider the effect of imports from Mexico.WT/DS192/AB/R
Page 19
IV. Standard of Review
62. The investigation by the competent authority of the United States leading to the imposition of
the transitional safeguard measure on Category 301 imports of combed cotton yarn ("yarn") fromPakistan covered the period from January 1996 until the end of August 1998.  The United Statesrelied on data supplied by the American Yarn Spinners Association ("AYSA") and on official data
collected by the United States' Bureau of Census for the period up to the end of 1997.  For the eight-
month period from January to August 1998, the competent authority relied exclusively on AYSA databecause official Census data for the calendar year 1998 ("1998 Census data") were published only inthe course of 1999, after the United States had made its determination within the meaning of Article6.2 of the  ATC.
 32  We note that the participants agree that the date of determination was 24
December 1998, when the United States published its Report of Investigation and Statement ofSerious Damage or Actual Threat Thereof:  Combed Cotton Yarn for Sale:  Category 301 (December1998)  (the "Market Statement") and requested bilateral consultations with Pakistan pursuant toArticle 6.7.
 33
63. Pakistan argued before the Panel that the determination made by the United States was based
on "unverified, incorrect and incomplete data" 34, and submitted the 1998 Census data in support of its
contention.  The United States objected to the use of such data by the Panel because that data did notexist when it made its determination.  The Panel concluded:
[W]e shall not examine any evidence for the purpose of
reinvestigating  the market situation, but we  should examine any
evidence, without regard to whether it was available or considered at
the time of investigation ,  for the purpose of evaluating the
thoroughness and sufficiency of the investigation underpinning thedecision of the US authority. (footnote omitted, emphasis added)
…
Accordingly, in our view, the 1998 calendar year US Census data
should be examined by the Panel, even though they were not
available to the US government at the time of investigation, in order
to confirm whether the reliance by the US investigation authority on
the AYSA data is justifiable.
 35
                                                     
32Official United States' Census data are published on an annual basis only.
33Participants' responses to questioning at the oral hearing.
34Panel Report, para. 7.25.
35Ibid., paras. 7.33 and 7.94, in relevant part.  The Panel made a similar statement at paragraph 7.35:
[W]e will examine whether the US fact-finding is justifiable in light of all the
facts submitted by the parties, including those which were not considered by,or not available to the US authority at the time of investigation. (footnoteomitted)WT/DS192/AB/R
Page 20
64. The Panel, therefore, took into account the 1998 Census data, but concluded that the new data
did not vitiate the determination of serious damage by the United States. 36
65. The United States argues on appeal that the Panel erred and exceeded the mandate of WTO
dispute settlement panels set forth in Article 11 of the DSU by finding that, in assessing theconformity of the transitional safeguard measure with Article 6 of the  ATC,  it could examine
evidence  that was not in existence at the time the United States made its determination of serious
damage or threat thereof to the domestic industry.
66. The United States' appeal does not concern the question whether a panel may consider
evidence  relating to  facts   that occurred  subsequent  to the determination.
 37  Nor does this appeal
relate to the question whether a panel may consider  evidence   which existed  before   the date of
determination, but which was  not submitted   to the importing Member, or, although  submitted ,  was
not considered   by that Member. 38  This appeal also does not concern the question whether the
Member, before making its determination,  could have   and  should have taken additional
investigative steps   to gather more evidence in order to verify data on all relevant economic variables
pertaining to the state of the domestic industry.
67. The issue raised in this appeal is thus limited to whether a panel exceeds its mandate under
Article 11 of the DSU by considering, in the context of reviewing a determination under Article 6.2 ofthe  ATC,  evidence relating to facts which predate the determination, but which was not in existence
at the time the determination was made.
 39  In other words, the question before us is whether a panel is
entitled, in assessing the due diligence of an importing Member in making a determination under
Article 6.2 of the  ATC,  to take into account evidence that could not possibly have been examined by
that Member when it made that determination.
                                                     
36Panel Report, paras. 7.98 and 7.101.
37We note that the participants agree with the Pa nel that panels cannot consider "developments"
subsequent to the determination.  (Ibid., footnote 190 to para. 7.33)
38The United States stresses that the question "whether a panel may consider evidence that might have
been available to the national authority at the time of the determination but was not considered", is not before
the Appellate Body. (United States' appellant's submission, para. 9)
39In this dispute, we are dealing with evidence in the form of  data  that had not been compiled at the
time of the determination and, hence, could not have been known.  We do not rule on other kinds of evidence.WT/DS192/AB/R
Page 21
68. Article 11 of the DSU lays down the standard of review for panels in disputes under the
covered agreements 40 in the following terms:
[A] panel should make an objective assessment of the matter before
it, including  an objective assessment of the facts of the case  and the
applicability of and conformity with the relevant covered agreements,and make such other findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered
agreements.  … (emphasis added)
69. We have considered this standard of review on several occasions.
 41  I n   EC Measures
Concerning Meat and Meat Products (Hormones) , we stated:
So far as  fact-finding   by panels is concerned, their activities are
always constrained by the mandate of Article 11 of the DSU:  the
applicable standard is  neither  de novo  review   as such, nor "total
deference ", but rather the "objective assessment of the facts".42
(emphasis added)
70. This is the first time we are required to consider a panel's standard of review under
Article 11 in a dispute under the  ATC.   We note that the panels in  United States – Underwear  and
United States – Shirts and Blouses  considered this standard of review when examining the
consistency of transitional safeguard measures with Article 6 of the  ATC.  The panel in  United States
– Underwear   stated:
                                                     
40Article 1.1, first sentence, of the DSU.  For disputes under the  Anti-Dumping Agreement ,  Article
17.6 of that Agreement "prevails" over Article 11 of the DSU "[t]o the extent that there is a difference" betweenthese provisions.  (Article 1.2, second sentence, of the DSU)  See,  Appellate Body Report,  United States –
Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan  ("United States – Hot-Rolled
Steel "), WT/DS184/AB/R, adopted 23 August 2001, paras. 50-62;   and, Appellate Body Report,  Thailand – Anti-
Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from
Poland ,  WT/DS122/AB/R, adopted 5 April 2001, paras. 131-138.
41Appellate Body Report,  Argentina – Footwear Safeguard, WT/DS121/AB/R, adopted 12 January
2000, para. 118;  Appellate Body Report,  United States – Wheat Gluten Safeguard , WT/DS166/AB/R, adopted
19 January 2001, paras. 147-151;  Appellate Body Report,  United States – Safeguard Measures on Imports of
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia  ("United States – Lamb Safeguard "),
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, paras. 101-116.
42Appellate Body Report, WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I,
135, para. 117.  We wish to emphasize that, although panels are not entitled to conduct a  de novo   review of the
evidence, nor to  substitute   their own conclusions for those of the competent authorities, this does  not  mean
that panels must simply  accept   the conclusions of the competent authorities. (Appellate Body Report ,  United
States – Lamb Safeguard, supra , footnote 41, para. 106)WT/DS192/AB/R
Page 22
[A]n objective assessment would entail an examination of whether
the CITA had examined all relevant facts before it …, whetheradequate explanation had been provided of how the facts as a whole
supported the determination made, and, consequently, whether the
determination made was consistent with the international obligations
of the United States.
 43
71. We have, however, examined a panel's standard of review in several cases under the
Agreement on Safeguards .  In  Argentina – Footwear Safeguard ,  we reiterated that a panel must not
conduct a  de novo  review of the evidence nor  substitute  its analysis and judgment for that of the
competent authority. 44  Yet, we emphasized:
[T]he Panel was obliged, by the very terms of Article 4 [of the
Agreement on Safeguards ], to assess whether the Argentine
authorities had examined all the relevant facts and had provided a
reasoned explanation of how the facts supported their
determination. 45
72. In  United States – Lamb Safeguard,  we held that, in considering a claim under the
Agreement on Safeguards , a "panel's objective assessment involves a  formal   aspect and a
substantive   aspect.  The formal aspect is whether the competent authorities have evaluated 'all
relevant factors'." 46  We stated further that, in reviewing determinations of competent authorities,
panels should not simply  accept   the conclusions of that authority:
Panels must … review whether the competent authorities'
explanation fully addresses the nature, and, especially, the
complexities, of the data, and responds to  other plausible
interpretations   of that data.  A panel must find, in particular, that
an  explanation is not reasoned, or is not adequate ,  if some
alternative  explanation  of the facts is  plausible , and if   the
competent authorities' explanation does  not seem adequate  in the
light of that  alternative   explanation. 47 (emphasis added)
73. In  United States – Wheat Gluten Safeguard ,  concerning a claim under the  Agreement on
Safeguards ,  we considered the duties of competent authorities  and stated that an investigation by a
competent authority requires a proper degree of activity.  Their "duties of investigation and evaluationpreclude them from remaining passive in the face of possible short-comings in the evidence
                                                     
43Panel Report,  supra, footnote 29, para. 7.13.  See also ,  Panel Report,  United States – Shirts and
Blouses, supra, footnote 13, paras. 7.16 and 7.21.
44Appellate Body Report,  supra, footnote 41, para. 121.
45Ibid.
46Appellate Body Report,  supra,  footnote 41, para. 103.
47Ibid., para. 106.WT/DS192/AB/R
Page 23
submitted". 48  They "must undertake additional investigative steps, when the circumstances so
require, in order to fulfil their obligation to evaluate all relevant factors." 49  In describing the duties of
competent authorities, we simultaneously define th e duties of panels in reviewing the investigations
and determinations carried out by competent authorities.
74. Our Reports in these disputes under the  Agreement on Safeguards  spell out key elements of
a panel's standard of review under Article 11 of the DSU in assessing whether the competentauthorities complied with their obligations in making their determinations.  This standard may be
summarized as follows:  panels must examine whether the competent authority has evaluated all
relevant factors;  they must assess whether the competent authority has examined all the pertinentfacts and assessed whether an adequate explanation has been provided as to how those facts supportthe determination;  and they must also consider whether the competent authority's explanationaddresses fully the nature and complexities of the data and responds to other plausible interpretationsof the data.  However, panels must not conduct a  de novo  review of the evidence nor substitute their
judgement for that of the competent authority.
75. Turning to the application of Article 11 of the DSU in the context of the  ATC,  we recall that
Article 6.2 of that Agreement provides as follows:
Safeguard action may be taken under this Article when, on the basis
of a determination by a Member, it is demonstrated   that a particular
product is being imported into its territory in such increased
quantities as to cause serious damage, or actual threat thereof, to thedomestic industry producing like and/or directly competitive
products. (footnote omitted, emphasis added)
76. Unlike Article 3 of the  Agreement on Safeguards ,  which provides explicitly for an
investigation by competent authorities of a Member, Article 6 of the  ATC  does not specify either the
organ or the procedure through which a Member makes its "determination".  Nevertheless, the aboveprinciples concerning the standard of review under Article 11 of the DSU with respect to the
Agreement on Safeguards   apply equally, in our view, to a panel’s review of a Member's
determination under Article 6 of the  ATC.   We note that Article 6 does not require the participation of
all interested parties in the process leading to the determination.  We consider, therefore, that theexercise of due diligence by a Member is all the more important in reaching a determination underArticle 6 of the  ATC.
                                                     
48Appellate Body Report,  supra , footnote 41, para. 55.
49Ibid.WT/DS192/AB/R
Page 24
77. The exercise of due diligence by a Member cannot imply, however, the examination of
evidence that did not exist and that, therefore, could not possibly have been taken into account when
the Member made its determination.  The demonstration by a Member that a particular product is
being imported into its territory in such increased  quantities as to cause serious damage (or actual
threat thereof) to the domestic industry can be based only on facts and evidence which existed at thetime the determination was made.  The urgent nature of such an investigation may not permit theMember to delay its determination in order to take into account evidence that might be available only
at a future date.  Even a determination on the existence of threat of serious injury must be based onprojections extrapolating from  existing  data.
 50
78. In our view, a  panel   reviewing the due diligence exercised by a Member in making its
determination under Article 6 of the  ATC  has to put itself in the place of that Member at the time it
makes its determination.  Consequently, a panel must not consider evidence which did not exist  at
that point in time . 51  A Member cannot, of course, be faulted for not having taken into account what it
could not have known when making its determination.  If a panel were to examine such evidence, thepanel would, in effect, be conducting a  de novo  review and it would be doing so without having had
the benefit of the views of the interested parties.  The panel would be assessing the due diligence of a
Member in reaching its conclusions and making its projections with the benefit of hindsight andwould, in effect, be reinvestigating the market situ ation and substituting its own judgement for that of
the Member.  In our view, this would be inconsistent with the standard of a panel’s review underArticle 11 of the DSU.
79. Moreover, if a Member that has exercised due diligence in complying with its obligations of
investigation, evaluation and explanation, were held responsible before a panel for what it  could not
have known   at the time it made its determination, this would undermine the right afforded to
importing Members under Article 6 to take transitional safeguard action when the determinationdemonstrates the fulfilment of the specific conditions provided for in this Article.
                                                     
50See,  United States – Lamb Safeguard ,  where we said as follows:
As facts, by their very nature, pertain to the present and the past, the
occurrence of future events can never be definitively proven by facts.   There
is, therefore, a tension between a future-oriented "threat" analysis, which,ultimately, calls for a degree of "conjecture" about the likelihood of a futureevent, and the need for a fact-based determination.  Unavoidably, this tension
must be resolved through the use of facts from the present and the past to
justify the conclusion about the future, namely that serious injury is "clearly
imminent" .  (emphasis added)
(Appellate Body Report, supra , footnote 41, para. 136)
51We do not rule upon other forms of evidence, such as an expert opinion submitted to a panel that is
based on data which existed when the Member made its determination. (Appellate Body Report,  United States –
Lamb Safeguard, supra , footnote 41, paras. 114-116)  See further , supra , footnote 39.WT/DS192/AB/R
Page 25
80. For these reasons, we find that the Panel exceeded its mandate under Article 11 of the DSU
by considering United States Census data for the calendar year 1998.
81. There is no need for the purpose of this appeal to express a view on the question whether an
importing Member would be under an  obligation ,  flowing from the "pervasive" 52 general principle
of  good faith  that underlies all treaties 53, to  withdraw   a safeguard measure if post-determination
evidence relating to pre-determination facts were to  emerge revealing that a determination was based
on such a critical factual error that one of the conditions required by Article 6 turns out never to have
been met.
V. Definition of the Domestic Industry
82. The United States defined the domestic industry as the producers of yarn who produced it for
sale on the merchant market, thereby excluding from the scope of its definition the vertically
integrated fabric producers who produce yarn for their own internal use. 54  Pakistan claimed before
the Panel that the United States violated Article 6.2 of the  ATC  because it did not investigate the
entire domestic industry producing yarn.
83. The Panel found that:
Inconsistently with its obligations under [Article] 6.2, the United
States  excluded   the production of combed cotton yarn by vertically
integrated producers  for their own use   from the scope of the
"domestic industry producing like and/or directly competitive
products" with imported combed cotton yarn. 55 (emphasis added)
                                                     
52Appellate Body Report,  United States – Tax Treatment for "Foreign Sales Corporations" ,
WT/DS108/AB/R, adopted 20 March 2000, para. 166.  See also , Appellate Body Report,  United States – Hot-
Rolled Steel , supra , footnote 40, para. 101, where we noted that this principle "informs the provisions of the
Anti-Dumping Agreement ,  as well as the other covered agreements."
53We recall that in  United States – Shrimp ,  we stated:
This principle, at once a general prin ciple of law and a general principle of
international law, controls the exercise of rights by states.  One application of
this general principle, the application widely known as the doctrine of  abus
de droit ,  prohibits the abusive exercise of a state's rights and enjoins that
whenever the assertion of a right "impinges on the field covered by [a] treatyobligation, it must be exercised bona fide, that is to say, reasonably." Anabusive exercise by a Member of its own treaty right thus results in a breachof the treaty rights of the other Members and, as well, a violation of the treatyobligation of the Member so acting. (footnote omitted)
(Appellate Body Report,  supra , footnote 18, para. 158)
54United States' Market Statement, paras. 1.2-1.3.
55Panel Report, para. 8.1(a).  See also , Panel Report, para. 7.90.WT/DS192/AB/R
Page 26
84. The United States appeals this finding of the Panel.  The United States submits that
Article 6.2 permits a definition of the domestic industry on the basis of products that are not only like
but also directly competitive with the imported product.  According to the United States, yarn sold on
the merchant market and yarn produced by vertically integrated fabric producers for their own internalconsumption are like, but they are not directly competitive with each other.  The United States arguesthat, by rejecting its definition of the domestic indu stry, the Panel failed to give full meaning and
effect to the term " and/or " in Article 6.2 and reduced the word " and
 " to inutility.  The United States
also argues that the Panel should have interpreted the definition of the domestic industry within thefour corners of the  ATC  without having recourse to the wider context of other agreements of the
WTO containing a definition of the domestic industry.
85. We begin our analysis of this issue with the definition of the domestic industry as stated in the
relevant part of Article 6.2 of the  ATC,  which provides:
Safeguard action may be taken under this Article when, on the basis
of a determination by a Member, it is demonstrated that a particular
product is being imported into its territory in such increased
quantities as to cause serious damage, or actual threat thereof, to the
domestic industry producing like and/or directly competitive
products . (footnote omitted, emphasis added)
86. A plain reading of the phrase "domestic industry producing like and/or directly competitive
products" shows clearly that the terms "like" and "directly competitive" are characteristics attached tothe domestic products that are to be compared with the imported product.  We are, therefore, of the
view that the definition of the  domestic industry   must be product-oriented and not producer-oriented,
and that the definition must be based on the products
 56 produced by the  domestic industry   which are
to be compared with the imported product in term s of their being like or directly competitive. 57
87. We also consider that the term "producing" in Article 6.2 means producing for commercial
purposes and that it cannot be interpreted, in itself, to be limited to or qualified as producing for saleon the merchant or any other segment of the market.  The definition of the domestic industry, in termsof Article 6.2, is determined by what the industry  produces ,  that is, like and/or directly competitive
products.  In our view, the term " producing ", in itself, cannot be given a different or a qualified
meaning on the basis of what a domestic producer chooses to do with its product.
                                                     
56In  United States – Lamb Safeguard,  we also found that the  product  defines the scope of the
definition of the domestic industry under the  Agreement on Safeguards .  In that case, the "like" product at issue
was lamb  meat. (Appellate Body Report, supra,  footnote 41, paras. 84, 86-88 and 95)
57At this stage, we analyze the terms "like" and "directly competitive" in isolation.  For the
interpretation of the connectors "and/or" in Article 6.2, see, infra , paragraph 104.WT/DS192/AB/R
Page 27
88. We now turn to the next two components of the definition of the domestic industry under
Article 6.2 of the  ATC,  namely, like products and directly competitive products.
89. We note that there is no disagreement between the participants 58 that yarn imported from
Pakistan and yarn produced by the producers of the United States, regardless of whether they arevertically integrated fabric producers or independent yarn producers, are like products.  The UnitedStates has made it clear in its arguments
 59 that its exclusion of yarn produced by vertically integrated
fabric producers from the definition of the domestic industry was not because they are not producing a
like product, but because they are not producing a directly competitive product.  It is, therefore, not
necessary for us to address the meaning of the term " like products " for the purposes of this appeal.
90. Before we examine the term "directly competitive" in the specific context of Article 6.2 and
the facts of this particular case, we consider it useful to recall our interpretation of this term onprevious occasions.
91. We have interpreted the term "directly competitive " in  Korea – Alcoholic Beverages
 60 and
Japan – Taxes on Alcoholic Beverages . 61  We are cognizant of the fact that these two reports
interpreted this term in the context of the Interpretative Note  Ad  Article III:2 of the GATT 1994.  We
will refer to this aspect later.  The key elements of  the interpretation of the term "directly competitive"
in our Report in  Korea – Alcoholic Beverages  are:
(a) The word " competitive " means "characterised by competition".  The context of the
competitive relationship is necessarily the marketplace, since that is the forum where
consumers choose different products that offer alternative ways of satisfying aparticular need or taste.  As competition in the marketplace is a dynamic and evolvingprocess, the competitive relationship between products is not to be analyzedexclusively by current consumer preferences
 62;  the competitive relationship extends
as well to potential competition. 63
                                                     
58Panel Report, para. 7.41.
59United States' appellant's submission, paras. 33 ff.
60Appellate Body Report, supra , footnote 20, paras. 108-124.
61Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,
DSR 1996:I, 97, at 117-118.
62Supra , footnote 20, paras. 114-115.
63Ibid., paras. 115 and 117.WT/DS192/AB/R
Page 28
(b) According to the ordinary meaning of the term "directly competitive", products are
competitive or substitutable when they are interchangeable or if they offer alternative
ways of satisfying a particular need or taste. 64
(c) In the context of Article III:2, second sentence, the qualifying word "directly" in the
Ad  Article suggests a degree of proximity in the competitive relationship between the
domestic and imported products.  The word "directly" does not, however, prevent aconsideration of both latent and extant demand.
 65
(d) "Like" products are a subset of directly competitive or substitutable products:  all like
products are, by definition, directly competitive or substitutable products, whereas notall "directly competitive or substitutable" products are "like".
66
92. The United States argues that the Panel's over-reliance on our Report in  Korea – Alcoholic
Beverages  is mistaken for two reasons.  First, that dispute involved interpretation of a different
phrase ("directly competitive or substitutable"), of a different provision and agreement (Article III:2of the GATT 1994), and in a different factual setting.  In particular, the word "substitutable" is notused in juxtaposition with "directly competitive" in Article 6.2 of the  ATC.  Second, the Appellate
Body emphasized, in that case, the importance of the marketplace in judging the competitiverelationship between products because that is the forum where consumers choose between differentproducts.  According to the United States, a proper reading of the Appellate Body's reasoning reveals
that if a domestic product does not enter the marketplace at all, it cannot be regarded as being"directly competitive" with the imported product, even though the two products may admittedly be
"like products".
93. We are not persuaded by these arguments of the United States with respect to the relevance
and interpretation of our Report in  Korea – Alcoholic Beverages .
94. With respect to the first argument of the United States, a careful reading of our Report in that
case would show that we used the terms "directly competitive" and "directly substitutable" withoutimplying any distinction between them in assessing the competitive relationship between products.
 67
We do not consider that the mere absence of the word "substitutable" in Article 6.2 of the  ATC
renders our interpretation of the term "directly competitive" under Article III:2 of the GATT 1994
                                                     
64Supra , footnote 20, para. 115.
65Ibid., para. 116.
66Ibid., para. 118.
67See, ibid., paras. 114-116.WT/DS192/AB/R
Page 29
irrelevant in terms of its contextual significance for the interpretation of that term under Article 6.2 of
the  ATC.
95. We now turn to an examination of the term "dir ectly competitive" in the specific context of
Article 6.2 of the  ATC  and the dispute before us.  We must bear in mind that Article 6.2 permits a
safeguard action to be taken in order to protect a domestic industry from serious damage (or actualthreat thereof) caused by a surge in imports, provid ed the domestic industry is identified as the
industry producing "like and/or directly competitive products" in comparison with the imported
product.  The criteria of "like" and "directly competitive" are characteristics attached to the domestic
product in order to ensure that the domestic industry is the appropriate industry in relation to theimported product.  The degree of proximity between the imported and domestic products in theircompetitive relationship is thus critical to underpin the reasonableness of a safeguard action against animported product.
96. According to the ordinary meaning of the term "competitive", two products are in a
competitive relationship if they are commercially interchangeable, or if they offer alternative ways ofsatisfying the same consumer demand in the marketplace.  "Competitive" is a characteristic attachedto a product and denotes the  capacity   of a product to compete both in a current or a future situation.
The word "competitive" must be distinguished from the words "competing" or "being in actual
competition".  It has a wider connotation than "actually competing" and includes also the notion of apotential to compete.  It is not necessary that tw o products be competing, or that they be in actual
competition with each other, in the marketplace at a given moment in order for those products to beregarded as competitive.  Indeed, products which are competitive may not be actually competing witheach other in the marketplace at a given moment for a variety of reasons, such as regulatoryrestrictions or producers' decisions.  Thus, a static view is incorrect, for it leads to the same productsbeing regarded as competitive at one moment in time, and not so the next, depending upon whether ornot they are in the marketplace.
97. It is significant that the word "competitive" is qualified by the word "directly", which
emphasizes the degree of proximity that must obtain in the competitive relationship between theproducts under comparison.  As noted earlier, a safeguard action under the  ATC  is permitted in order
to protect the domestic industry against competition from an imported product.  To ensure that suchprotection is reasonable, it is expressly provided that the domestic industry must be producing "like"and/or "directly competitive products".  Like products are, necessarily, in the highest degree ofWT/DS192/AB/R
Page 30
competitive relationship in the marketplace. 68  In permitting a safeguard action, the first consideration
is, therefore, whether the domestic industry is produc ing a like product as compared with the imported
product in question.  If this is so, there can be no doubt as to the reasonableness of the safeguard
action against the imported product.
98. When, however, the product produced by the domestic industry is not a "like product" as
compared with the imported product, the question arises how close should be the competitiverelationship between the imported product and the "unlike" domestic product.  It is commonknowledge that unlike or dissimilar products compete or can compete in the marketplace to varyingdegrees, ranging from direct or close competition to remote or indirect competition.  The more unlikeor dissimilar two products are, the more remote or indirect their competitive relationship will be in themarketplace.  The term "competitive" has, therefore, purposely been qualified and limited by the word
"directly" to signify the degree of proximity that must obtain in the competitive relationship when the
products in question are unlike.  Under this definition of "directly", a safeguard action will not extendto protecting a domestic industry that produces unlike products which have only a remote or tenuouscompetitive relationship with the imported product.
99. We will now examine whether, in this case, yarn produced by the vertically integrated fabric
producers of the United States for their own captiv e consumption is directly competitive with the
imported yarn for the purposes of Article 6.2 of the  ATC.  The United States argues that such yarn is
not directly competitive because it is not offered for sale on the market except when the captiveproduction is "out of balance"
 69, and even then only in  de minimis   quantities.  In addition, vertically
integrated fabric producers are not dependent on the merchant market for meeting any of their
requirements of yarn except to a  de minimis   extent.  In the United States' view, these factors are
clearly reflected in the very low and stable rate of yarn sold or purchased by vertically integratedfabric producers to or from the merchant market over the last several years.
 70
100. We are unable to subscribe to this static view which makes the competitive relationship
between yarn sold on the merchant market and yarn used for internal consumption by verticallyintegrated producers dependent on what they choose to do at a particular point in time.
                                                     
68Appellate Body Report,  Korea – Alcoholic Beverages, supra, footnote 20, para. 118;  Appellate Body
Report, Canada – Certain Measures Concerning Periodicals , WT/DS31/AB/R, adopted 30 July 1997,
DSR 1997:I, 449,  at 473.  In these cases, we stated that "like" products are perfectly substitutable and that
"directly competitive" products are characterized by a high, but imperfect, degree of substitutability.
69United States' response to questioning at the oral hearing.
70According to the United States, approximately two percent of captive consumption is purchased from
the merchant market and approximately one percent of captive production is sold on the merchant market.(United States' appellant's submission, para. 80)WT/DS192/AB/R
Page 31
101. If the competitive relationship between the tw o products is properly considered, it will be
clear that they are "directly competitive" within th e meaning of that term in Article 6.2.  Our view is
illustrated by the following considerations:
(a) The vertically integrated   fabric   producers compete with the independent fabric
producers who purchase their requirements of yarn in the merchant market.  It is,therefore, unlikely that vertically integrated fabric producers would make their"make-or-buy" decisions with respect to their input of yarn without considering the
opportunity cost of doing so.
 71  The low and stable rate of their relationship with the
merchant market for yarn observed in the past does not imply that the opportunitycost does not enter into their calculations.
(b) Individual vertically integrated fabric producers may enter the merchant market to
different degrees for selling their production or buying their requirements of yarn.
 72
One may do it for two percent, another for five percent and yet another for 10 or morepercent depending on their own individual commercial decisions at a particular pointin time.  A  force majeure ,  or any other serious difficulty, may suddenly compel a
vertically integrated fabric producer to rely heavily on the merchant market for its
requirement of yarn.  Likewise, the competitive conditions in the fabric market may
compel a producer to offload a greater part of its yarn production in the merchantmarket.  The low and stable rate of sales and purchases of yarn by verticallyintegrated fabric producers, observed in the past, is, therefore, not a sufficient reasonto conclude that such yarn is not directly  competitive with imported yarn sold on the
merchant market.
(c) The approach of the United States would lead to constant variations in the size of the
domestic industry.  In addition to the variations resulting from the  ad-hoc   sale and
purchase decisions mentioned above, the size of the domestic industry would depend
on ownership or control of yarn plants.  The yarn produced by an independent
domestic producer would cease to be directly competitive the moment that producer istaken over by a fabric producer, to the extent the latter transforms this yarn intofabric.
 73  Likewise, if a vertically integrated fabric producer were to sell its plant
producing yarn and that plant were to become an independent producer, the yarn that
                                                     
71Panel Report, para. 7.58.
72See also , ibid., para. 7.64(b).
73See, ibid., para. 7.64(a).WT/DS192/AB/R
Page 32
was previously regarded as non-directly competitive would suddenly become directly
competitive.
(d) The approach of the United States would lead to another result which, in our view,
cannot be justified.  The domestic captive production of yarn by vertically integratedfabric producers would be excluded from the determination of serious damage (oractual threat thereof).  However, a safeguard action taken against imported yarnwould benefit the vertically integrated fabric producers with respect to the totality oftheir yarn production, not only with respec t to the yarn they sell in the merchant
market, but also with respect to yarn they produce for their own consumption.
(e) Finally, the approach of the United States would have major consequences for the
justification and scope of the safeguard action.  The exclusion of domestic captive
production of yarn from the definition of the domestic industry would imply that if a
fabric producer imports such yarn from a foreign plant that it owns, such importwould also have to be excluded from the calculation of the surge in imports and fromthe application of the safeguard action.  In the case before us, the safeguard actionapplies to  all  imports.  The United States points out that, in this case, this issue does
not arise as there are no imports of captively produced yarn from Pakistan;  all theimports from Pakistan are destined for the merchant market.  This may have been sountil now, but the situation may well change in the future.  Captively producedimports which had been exempt from the safeguard action could be sold on the
merchant market if their prices were lower than those on the merchant market.  This
would undermine the effectiveness of the safeguard measure.
102. The United States also argues that our ruling in  United States – Hot-Rolled Steel   supports its
contention that the captive segment of the market can be separated from the merchant market segmentbecause we observed that captive production was "shielded from direct competition".
74  We did not
hold, however, that captive production can be excluded from either the definition of the domesticindustry or from the injury analysis.  We said that, while an injury analysis can be carried outsegment-by-segment before assessing damage to the domestic industry as a whole, an analysis of thecaptive segment of the market cannot be excluded.  Our observation that captive steel production was
"shielded from direct competition" did not mean that steel produced in the captive market segment is
not directly competitive with imported steel destined for the merchant market.  Our ruling in  United
States – Hot-Rolled Steel ,  therefore, does not support the argument of the United States.
                                                     
74United States' statement at the oral hearing;  Appellate Body Report, supra, footnote 40, paras. 198
and 207.WT/DS192/AB/R
Page 33
103. For all these reasons, we do not accept the contention of the United States that yarn produced
by the vertically integrated fabric producers of the United States is not "directly competitive" withyarn imported from Pakistan.
104. We now turn to the interpretation of the connectors "and/or"  in Article 6.2, on which the
participants disagree.
 75  We note that the definition of the domestic industry adopted by the United
States in this case would be consistent with Article 6.2 only if we were to find:  (i) that captivelyproduced yarn is not directly competitive with impor ted yarn;  and (ii) that the connectors "and/or " in
Article 6.2 permit defining the domestic industry on the basis of a product which is not only like but
also directly competitive with the imported product.  We have reached the conclusion that captivelyproduced yarn  is  directly competitive with imported yarn sold on the merchant market.  We,
therefore, do not need to address the interpretation of the connectors "and/or" in Article 6.2.
105. For all these reasons, we find that combed cotton yarn produced by vertically integrated fabric
producers for their internal consumption is "directly competitive" with combed cotton yarn importedfrom Pakistan.  Accordingly, we uphold the Panel's finding, in paragraph 8.1(a) of its Report, that theUnited States acted inconsistently with Article 6.2 of the  ATC,  by excluding from the scope of the
domestic industry the production of combed cotton yarn by vertically integrated producers for their
own internal use.
VI. Attribution of Serious Damage
106. Pakistan claimed before the Panel that the United States acted inconsistently with the
requirements of Article 6.4 of the  ATC  because it "attributed serious damage to imports from
Pakistan without making a comparative assessment of the imports from Pakistan and Mexico and theirrespective effects."
 76
                                                     
75See, supra , paras. 19, 20, 38 and 84.
76Panel Report, paras. 3.1 and 7.2(a).WT/DS192/AB/R
Page 34
107. The Panel stated:
This does not mean, however, that a Member imposing a safeguard
restraint can then pick and choose for which Member(s) it will make
an attribution analysis.  The attribution cannot be made only to some
of the Members causing damage, it must be made to  all  such
Members. (emphasis added)
…
This explicit linking back to the serious damage determination, in our
view, requires that  all  the Members causing the serious damage
must have it so attributed. 77 (emphasis in the original)
In consequence, the Panel found that:
Inconsistently with its obligations under Article 6.4, the United States
did not examine the effect of imports from Mexico (and possiblyother appropriate Members) individually.
 78 (footnote omitted)
108. On appeal, the United States requests the Appellate Body to reverse (i) the Panel's finding that
the United States acted inconsistently with Article 6.4 by failing to consider the effect of imports from
Mexico and possibly other Members, and (ii) the Panel's interpretation that Article 6.4 requiresattribution to all Members whose exports cause serious damage or actual threat thereof.
 79
109. Before addressing these issues, we have to distinguish three different, but interrelated,
elements under Article 6: first, causation of serious damage or actual threat thereof by increased
imports 80; second, attribution   of that serious damage to the Member(s) the imports from whom
contributed to that damage;  and third,  application  of transitional safeguard measures to such
Member(s). 81
                                                     
77Panel Report, paras. 7.126-7.127, in relevant part.
78Ibid., para. 8.1(b).
79See, United States' appellant's submission, paras. 4 and 85, and executive summary, para. 2.
80The element of  causation   of serious damage is referred to in paragraph 2 of Article 6 of the  ATC.
The second sentence of paragraph 2 provides that serious damage "must demonstrably be caused by suchincreased quantities in total imports of that product" and not by " other factors " such as technological changes or
changes in consumer preferences.
81The element of  application  of transitional safeguard measures to exporting Member(s) is dealt with
in the first and the last sentences of paragraph 4 of Article 6 of the  ATC.  It is also dealt with in various places
in paragraphs 6 through 16 of that Article.  The first sentence of Article 6.4 provides that transitional safeguardmeasures "shall be applied on a Member-by-Member basis".WT/DS192/AB/R
Page 35
110. We note that the claims made by Pakistan before the Panel 82 related to the question of
attribution  of serious damage or actual threat thereof to the Members the imports from whom
contributed to that damage or threat.  However, these claims did not relate to the question ofapplication   of safeguard measures.  The Panel did not make a ruling on application  per se,   although,
in the course of its reasoning on the question of attribution of serious damage, it interpreted the phrase"shall be applied on a Member-by-Member basis" in the first sentence of Article 6.4
 83, an
interpretation that has not  been appealed.  The Panel also found that "Pakistan did not establish that
the US determinations of serious damage and causation thereof were not justified based upon an
inappropriately chosen period of investigation and period of incidence of serious damage andcausation thereof
 " 84, and this finding has not been appealed either.  Hence, the issues raised by the
United States in this appeal concern only the  attribution  of serious damage or actual threat thereof to
Member(s) imports from whom contributed to that damage.
111. The question of attribution is addressed in the following sentence of Article 6.4:
The Member or Members to whom serious damage, or actual threat
thereof, referred to in paragraphs 2 and 3, is attributed, shall be
determined on the basis of a sharp and substantial increase in
imports, actual or imminent, from such a Member or Members
individually, and on the basis of the level of imports as compared
with imports from other sources,  market share, and import and
domestic prices at a comparable stage of commercial transaction;none of these factors, either alone or combined with other factors,
can necessarily give decisive guidance. (footnote omitted)
112. Attribution is preceded by three analytical steps which are set forth in Article 6.2:  (i) an
assessment of whether the domestic industry is suffering serious damage (or actual threat thereof)according to Articles 6.2 and 6.3;  (ii) an examination of whether there is a surge in imports asenvisaged by Article 6.2;  and, (iii) an establishment of a causal link between the surge in imports and
the serious damage (or actual threat thereof); acco rding to the last sentence of Article 6.2, "[s]erious
damage … must demonstrably be caused by such increased quantities in  total  imports of that product
and not by … other factors".  (emphasis added)
113. Article 6.4 governs the attribution of serious damage to individual Members.  This attribution
must conform to the two requirements stipulated in Article 6.4, second sentence.
                                                     
82In its request for the establishment of a panel, Pakistan claimed,  inter alia ,  that the United States
failed to comply with Article 6.4 because it attribut ed the alleged damage, or actual threat thereof, solely to
imports from Pakistan to the exclus ion of imports from other sources , including unrestrained sources.
(WT/DS192/1, para. 6, in relevant part)
83Panel Report, paras. 7.124, 7.129 and 7.131.
84Ibid., para. 8.2(c).WT/DS192/AB/R
Page 36
114. The first requirement is that the attribution be confined to only those Members from whom
imports have shown a sharp and substantial increase.  Such Members will be identified on an
individual basis by virtue of the wording in Artic le 6.4, second sentence, "on the basis of a sharp and
substantial increase in imports, actual or imminent, from such a Member or Members individually".(footnote omitted).  The Panel interpreted the term "s harp" to refer to the rate of the import increase,
and the term "substantial" to the amount of that increase.
 85  These interpretations of the Panel have
not been appealed and are, therefore, not before us.
115. The second requirement of Article 6.4, second sentence, is a comparative analysis, in the
event that there is more than one Member from whom imports have shown a sharp and substantial
increase in its imports. 86  The conduct of the comparative analysis is governed by the latter part of the
second sentence of Article 6.4, which requires the analysis to address certain specific factors ,
namely:  (i) the level of imports as compared with imports from other sources;  (ii) market
share;  and (iii) import and domestic prices at a comparable stage of commercial transaction.  Article6.4 further specifies that none of these factors, either alone or combined with other factors, cannecessarily give decisive guidance.
116. The United States argues that Article 6.4, second sentence, permits a comparative analysis of
the effect of imports from a particular Member, without conducting a similar kind of analysis for theother Members from whom imports have also increased sharply and substantially.
 87  P a k i s t a n
contends that such a comparative analysis requires an assessment of the effect of imports from othersuch Members taken individually.
117. We note that the wording of Article 6.4, second sentence, does not state expressly how to
conduct a comparative analysis of the effects of imports from a particular Member.  However, inorder to be able to answer this question we have first to address the question  why  a comparative
analysis is required.
                                                     
85Panel Report, para. 7.130.
86We note that the panel in  United States – Underwear   stressed that such a comparative analysis of the
effects of imports is indispensable in attributing serious damage to a Member.   The panel noted that, while there
had been a significant increase in imports of underwear from Costa Rica, the position of Costa Rica was not
significantly different from that of the other five exporting Members considered in the United States'determination.  Nonetheless, the determination failed to undertake a  comparative assessment   of the effects of
imports from Costa Rica with those five exporting Members.  The panel further reasoned that the United Statescould not enter into agreements permitting an overall increase of imports of 478 percent over the current importlevels from those five Members and, at the same time, claim that an import increase of 22 percent from Costa
Rica contributed to serious damage. (Panel Report , supra , footnote 29, paras 7.49 and 7.51)  The issue of
attribution was not appealed in that case.
87We note that the United States compared imports from Pakistan only with "total world imports",
which included those from Pakistan.  See, United States' Market Statement, para. 8.9.WT/DS192/AB/R
Page 37
118. Article 6.4 provides, in relevant part, that "[t]he Member or Members to whom serious
damage … is attributed, shall be  determined on the basis  of a sharp and substantial  increase in
imports …  from such a Member or Members ". (emphasis added)  The clear inference from this
phrase is that the sharp and substantial increase of imports from  such a  Member determines not only
the basis, but also the  scope   of attribution of serious damage to that Member.
119. In consequence, where imports from more than one Member contribute to serious damage, it
is only that  part  of the total damage which is actually caused by imports from such a Member that
can be attributed to that Member under Article 6.4, second sentence.  Damage that is actually caused
to the domestic industry by imports from one Member cannot, in our view, be attributed to a differentMember imports from whom were not the cause of that part of the damage.  This would amount to a"mis-attribution" of damage and would be inconsis tent with the interpretation in good faith of the
terms of Article 6.4.
 88  Therefore, the part of the total serious damage attributed to an exporting
Member must be proportionate to the damage caused by the imports from that Member.  Contrary tothe view of the United States, we believe that Article 6.4, second sentence, does not permit theattribution of the totality of serious damage to one Member
 89, unless the imports from that Member
alone have caused all the serious damage.
120. Our view is supported further by the rules of general international law on state responsibility,
which require that countermeasures in response to breaches by states of their international obligationsbe commensurate with the injury suffered.
 90  In the same vein, we note that Article 22.4 of the DSU 91
stipulates that the suspension of concessions shall be equivalent to the level of nullification orimpairment.  This provision of the DSU has been interpreted consistently as not justifying punitive
                                                     
88See, supra ,  footnote 53.
89This position was clearly stated by the United States  in its response to questioning at the oral hearing.
90Article 51 of the International Law Commission's draft articles on Responsibility of States reads:
Proportionality
Countermeasures must be commensurate with the injury suffered,
taking into account the gravity of the internationally wrongful act and therights in question.
(International Law Commission, State Responsibility: Titles and t exts of the draft articles on
Responsibility of States for interna tionally wrongful acts adopted by th e Drafting Committee on second reading ,
A/CN.4/L.602/Rev.1, 26 July 2001)
91Article 22.4 of the DSU reads:
The level of the suspension of concessions or other obligations authorized by
the DSB shall be equivalent to the level of the nullification or impairment.WT/DS192/AB/R
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damages. 92  These two examples illustrate the consequences of breaches by states of their
international obligations, whereas a safeguard action is merely a remedy to WTO-consistent "fair
trade" activity. 93  It would be absurd if the breach of an international obligation were sanctioned by
proportionate countermeasures, while, in the ab sence of such breach, a WTO Member would be
subject to a disproportionate and, hence, "punitive", attribution of serious damage not wholly causedby its exports.  In our view, such an exorbitant derogation from the principle of proportionality inrespect of the attribution of serious damage could be justified only if the drafters of the  ATC  had
expressly provided for it, which is not the case.
121. Finally, and most significantly, if the totality of serious damage could be attributed to only
one of those Members the imports from whom have contributed to it, there would be no need toundertake a comparative analysis of the effects of imports from that one Member, once the importsfrom that Member have been found to have increased sharply and substantially;  such an interpretation
would reduce a whole segment of Article 6.4 to inutility.
122. We now turn to the question of how to conduct th e comparative analysis required by Article
6.4.  This analysis is to be seen in the light of the principle of proportionality as the means ofdetermining the scope or assessing the part of the total serious damage that can be attributed to anexporting Member.  We recall that Article 6.4 enjoins the importing Member to conduct this
comparative analysis on a multi-factor basis including "levels of imports", "market share" and
"prices", while specifying that none of these factors alone or in combination with other factors cannecessarily give decisive guidance.  The comparison is to take place between the effects of importsfrom the Member in question, on the one hand, and those of imports from other sources, on the other.The comparison must thus be based on a variety of factors, each of which has a different significance
and weight, and is to be measured on a different scale.
123. It is of course possible to compare the level of imports of one Member with the level of
imports from other sources taken together.  Likewise, it is possible to establish the market share ofone Member in comparison with all other imports and the output of the domestic industry.  However,the full effects of the level of imports from, and the market share of, one Member can only beassessed if this level and this share are compared  individually   with the level of imports from, and the
                                                     
92The Arbitrators in  European Communities – Regime for the Importation, Sale and Distribution of
Bananas – Recourse to Arbitration by the European Communities under Article 22.6 of the DSU  stated that "there
is nothing in Article 22.1 of the DSU, let alone in paragraphs 4 and 7 of Article 22, that could be read as ajustification for counter-measures of a  punitive   nature."  (Decision by the Arbitrators, WT/DS27/ARB,
9 April 1999, para. 6.3)  See also ,  Decision by the Arbitrators,  Brazil – Export Financing Programme for
Aircraft – Recourse to Arbitration by Brazil under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement ,
WT/DS46/ARB, 20 August 2000, para. 3.55.
93Appellate Body Report,  Argentina – Footwear Safeguard , supra , footnote 41, para. 94.WT/DS192/AB/R
Page 39
market share of, the other Members from whom imports have also increased sharply and substantially.
This conclusion is even more obvious for the comparison of import and domestic prices.  The price ofimports from one Member can be compared with th e average price of imports from other sources and
with domestic prices.  However, prices of imports from the other Members may vary widely from oneanother.  A fair assessment of the effects of the price of imports from one Member will thereforerequire a comparison with the price of imports from other Members taken individually.  Moreover,these different factors interact in different ways, producing different effects, under different
circumstances, not to mention the possible existence of other relevant factors (and their effects) that
must be taken into account in the comparison according to the proviso at the end of Article 6.4,
second sentence.
124. An assessment of the share of total serious damage, which is proportionate to the damage
actually caused by imports from a particular Member, requires, therefore, a comparison according tothe factors envisaged in Article 6.4 with all other Members (from whom imports have also increasedsharply and substantially) taken individually.
125. In the appeal before us, Pakistan is not the only Member from whom imports have increased
sharply and substantially.  It is not in dispute that Mexico also falls into this category.
 94  We,
therefore, consider that the share of the serious damage attributable to imports from Pakistan can beproperly assessed only in the light of the effects of the imports from Mexico.
126. Accordingly, albeit for reasons partly different from those given by the Panel, we  uphold   the
finding in paragraph 8.1(b) of the Panel Report that the United States acted inconsistently with
Article 6.4 by not examining the effect of impor ts from Mexico (and possibly other appropriate
Members) individually when attributing serious damage to Pakistan.
127. We finally turn to the United States' appeal against the Panel's interpretation that Article 6.4
requires attribution to all Members the imports from whom cause serious damage or actual threatthereof.  In this respect, we note that the scope of this dispute is defined by Pakistan's claims beforethe Panel.  Pakistan claimed that the United States acted inconsistently with Article 6.4 because it"attributed serious damage to imports from Pakistan without making a comparative assessment of theimports from Pakistan and Mexico and their respective effects".
 95  The Panel considered it necessary,
in its reasoning, to rule on the broader interpretative question of whether Article 6.4 requires
attribution to all Members the imports from whom cause serious damage or actual threat thereof. 96
                                                     
94See, Panel Report, para. 7.132.
95Ibid., paras. 3.1 and 7.2(a).
96Ibid., paras. 7.126-7.127.WT/DS192/AB/R
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The United States also appeals the Panel's interpretation on this broader question.  However, our
findings 97 resolve the dispute as defined by Pakistan's claims before the Panel.  We, therefore, do not
rule on the issue of whether Article 6.4 requires attribution to all Members the imports from whom
cause serious damage or actual threat thereof.  In these circumstances, the Panel's interpretation on
this question is of no legal effect.
VII. Findings and Conclusions
128. For the reasons set out in this Report, the Appellate Body:
(a) concludes that the Panel exceeded its mandate under Article 11 of the DSU by
considering United States Census data for the calendar year 1998;
(b) upholds the Panel's finding, in paragraph 8.1(a) of its Report, that the United States
acted inconsistently with Article 6.2 of the  ATC,  by excluding from the scope of the
domestic industry the production of combed cotton yarn by vertically integratedproducers for their own internal use;
(c) upholds the Panel's finding, in paragraph 8.1(b) of its Report, that the United States
acted inconsistently with Article 6.4 of the  ATC,  by not examining the effect of
imports from Mexico (and possibly other appropriate Members) individually whenattributing serious damage to Pakistan;  and
(d) declines to rule on the issue of whether Article 6.4 of the  ATC  requires attribution to
all Members the imports from whom cause serious damage or actual threat thereofand concludes that the Panel's interpretation on this issue is of no legal effect.
129. The Appellate Body  recommends   that the DSB request the United States to bring its
measure, found in this Report and in the Panel Report as modified by this Report to be inconsistentwith the  Agreement on Textiles and Clothing ,  into conformity with its obligations under that
Agreement.
                                                     
97See, supra ,  paras. 119 and 125-126.WT/DS192/AB/R
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Signed in the original at Geneva this 27th day of September 2001 by:
_________________________
Georges Michel Abi-Saab
Presiding Member
_________________________ _________________________
Claus-Dieter Ehlermann A. V. Ganesan
Member Member