report of the panel - world trade organization · 2001. 6. 1. · world trade organization...

WORLD TRADE

ORGANIZATIONWT/DS161/RWT/DS169/R31 July 2000

(00-3025)

Original: English

KOREA - MEASURES AFFECTING IMPORTS OF FRESH,CHILLED AND FROZEN BEEF

Report of the Panel

The report of the Panel on Korea - Measures Affecting Imports of Fresh, Chilled and Frozen Beef isbeing circulated to all Members, pursuant to the DSU. The report is being circulated as anunrestricted document from 31 July 2000 pursuant to the Procedures for the Circulation andDerestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance withthe DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues oflaw covered in the Panel report and legal interpretations developed by the Panel. There shall be no exparte communications with the Panel or Appellate Body concerning matters under consideration bythe Panel or Appellate Body.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides byconsensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not beconsidered for adoption by the DSB until after the completion of the appeal. Information on the current statusof the Panel Report is available from the WTO Secretariat.

WT/DS161/RWT/DS169/R

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Table of Contents

LIST OF ABBREVIATIONS OF PANEL AND APPELLATE BODY REPORTS REFERRED TO INTHE TEXT OF THE REPORT......................................................................................................................................... V

I. INTRODUCTION........................................................................................................................................................1

1. Terms of reference ................................................................................................................................................12. Panel composition................................................................................................................................................1

II. FACTUAL ASPECTS .................................................................................................................................................3

1. Product coverage of the dispute.........................................................................................................................32. Korea's Schedule of Concessions.......................................................................................................................33. Records of Understanding ..................................................................................................................................34. The Korean regulatory regime for beef.............................................................................................................45. Measures affecting the importation, distribution and sale of beef...............................................................4

(i) Measures applied to beef imported by the LPMO......................................................................................... 4(ii) The National Livestock Cooperatives Federation (NLCF)............................................................................ 5(iii) Measures applied to beef imported under the SBS system............................................................................ 5

6. Mark-ups................................................................................................................................................................67. Measures applied to the retail sale of imported beef .....................................................................................68. Domestic support measures to the Korean beef industry ..............................................................................79. Previous dispute settlement ................................................................................................................................710. Import liberalization programme.......................................................................................................................7

III. PRELIMINARY REQ UEST FOR RULINGS ON TERMS OF REFERENCE....................................8

IV. MAIN ARGUMENTS...........................................................................................................................................12

A. GENERAL ................................................................................................................................................................... 12B. CLAIMS TO A "TRANSITIONAL PERIOD" ................................................................................................................. 13

1. Remaining restrictions.......................................................................................................................................13(i) Transitional period ....................................................................................................................................... 14(ii) BOP Committee report ................................................................................................................................. 16(iii) The Records of Understanding..................................................................................................................... 20(iv) Quarterly bilateral consultations .................................................................................................................. 24(v) Prior panel reports ........................................................................................................................................ 24(vi) Article 26 of the Vienna Convention (good faith)........................................................................................ 26

C. CLAIMS UNDER ARTICLE XI:1 OF GATT.................................................................................................................. 271. No prohibitions or restrictions…on the importation of any product.........................................................272. Measures imposed on retail sale of imported beef........................................................................................283. LPMO tendering opportunities ........................................................................................................................294. Measures with respect to the discharge of imported beef in the wholesale market................................305. Measures applied through the SBS regime ....................................................................................................356. Burden and standard of proof...........................................................................................................................36

D. CLAIMS UNDER ARTICLE III:4 OF GATT.................................................................................................................. 411. "Like product".....................................................................................................................................................412. Measures with respect to retail sale of imported beef..................................................................................413. LPMO tendering opportunities ........................................................................................................................504. Measures with respect to the discharge of imported beef in the wholesale market................................505. Other measures applying to imported beef ....................................................................................................526. Measures applied through the SBS regime ....................................................................................................527. Burden and standard of proof...........................................................................................................................55

E. CLAIMS UNDER ARTICLE XX(D) OF GATT .............................................................................................................. 57F. CLAIMS UNDER ARTICLE II OF GATT....................................................................................................................... 68

1. LPMO tendering opportunities ........................................................................................................................682. Application of a mark-up on SBS imports ......................................................................................................70

G. CLAIMS UNDER ARTICLE III:2 OF GATT.................................................................................................................. 73H. CLAIMS UNDER ARTICLE XVII OF GATT ................................................................................................................. 74

1. LPMO tendering opportunities ........................................................................................................................742. Measures with respect to the allocation of imported beef in the wholesale market ...............................74

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I. CLAIMS UNDER THE AGREEMENT ON LICENSING PROCEDURES.......................................................................... 77J. CLAIMS UNDER THE AGREEMENT ON AGRICULTURE ........................................................................................... 84

1. Article 4.2 of the Agreement on Agriculture..................................................................................................842. Article 6 of the Agreement on Agriculture .....................................................................................................85

(i) De Minimis................................................................................................................................................... 85(ii) 1997.............................................................................................................................................................. 85(iii) Eligible production....................................................................................................................................... 86(iv) Applied administered price and fixed external reference price.................................................................... 91(v) 1998.............................................................................................................................................................. 93(vi) Annex 3 of the Agreement on Agriculture................................................................................................... 97(vii) Total AMS-Current Total AMS................................................................................................................. 100

V. SUMMARY OF THE ARGUMENTS PRESENTED BY THIRD PARTIES ........................................ 104

A. ARGUMENTS SUBMITTED BY CANADA.................................................................................................................1041. Article III of GATT........................................................................................................................................... 1042. Article II of GATT ............................................................................................................................................ 1053. Article XI of GATT and Article 4.2 of the Agreement on Agriculture.................................................... 106

B. ARGUMENTS SUBMITTED BY NEW ZEALAND ......................................................................................................1071. Article III of GATT........................................................................................................................................... 1082. Article XX of GATT.......................................................................................................................................... 1103. Article II of GATT ............................................................................................................................................ 1114. Article XVII of GATT....................................................................................................................................... 1115. Agreement on Agriculture - domestic support............................................................................................ 112

(i) The fixed external reference price for beef................................................................................................. 112(ii) The eligible production of beef .................................................................................................................. 114(iii) The AMS calculation for beef .................................................................................................................... 116

6. Conclusion........................................................................................................................................................ 118

VI. INTERIM REVIEW .......................................................................................................................................... 119

VII. FINDINGS ............................................................................................................................................................ 124

A. GENERAL CONSIDERATIONS.................................................................................................................................1241. Brief description of the beef import regime in Korea................................................................................ 1242. Brief description of the claims....................................................................................................................... 1243. Methodology followed by the Panel ............................................................................................................. 125

B. KOREA'S DEFENCE THAT "THE REMAINING RESTRICTIONS" SHOULD BENEFIT FROM A TRANSITION PERIODAS ESTABLISHED IN ITS SCHEDULE LX..........................................................................................................................125

1. Legal Status of Note 6(e) to Korea's Schedule LX.................................................................................... 126(a) Arguments of the Parties ................................................................................................................................. 126(b) Relevant jurisprudence on the WTO Schedules .............................................................................................. 127(c) The Panel's assessment.................................................................................................................................... 127

2. Scope and interpretation of the term "the remaining restrictions"......................................................... 128(a) Negotiating history and circumstances that led to the inclusion of the words "According to the results of the1989 consultation with BOP Committee and the Uruguay Round multilateral trade negotiation, the remainingrestrictions" in Note 6(e) of Korea's Schedule. ......................................................................................................... 131

(i) The 1989 GATT Committee on Balance-of-Payments Restrictions Consultations .................................. 131(ii) The 1989 Panel Reports............................................................................................................................. 132(iii) The Records of Understanding................................................................................................................... 134

The 1990 Records of Understanding Between Korea and Australia; and Korea and the United States ........ 134The July 1993 Records of Understanding Between Korea and Australia; and Korea and the United States 134The December 1993 Record of Understanding Between Korea and the United States .................................. 135

(b) Material to be consulted in order to interpret Note 6(e) of Korea's Schedule................................................. 136(c) Determination of the measures which qualify as "remaining restrictions"..................................................... 136

(i) Measures challenged................................................................................................................................... 136(ii) Disputed measures that were in place in 1989 or originate in the ROUs and which therefore constitute"remaining restrictions" within the meaning of Note 6(e)................................................................................... 138(iii) Disputed Measures not associated with the administration of the beef quota as of 1989 and not envisagedin the ROUs ......................................................................................................................................................... 142(iv) Summary of the Panel's Conclusions with Respect to the Measures in Dispute and Note 6(e) of Korea'sSchedule ............................................................................................................................................................... 145

C. CLAIMS AGAINST THE DUAL RETAIL SYSTEM AND RELATED MEASURES........................................................1471. General claims and defence of the parties.................................................................................................. 1472. Article III:4 of GATT and the dual retail system........................................................................................ 147


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(a) Like product determination ............................................................................................................................. 148(b) Law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation,distribution, or use.................................................................................................................................................... 148(c) Less favourable treatment................................................................................................................................ 148

(i) Arguments of the parties ............................................................................................................................ 148(ii) The relevant GATT/WTO jurisprudence ................................................................................................... 149(iii) The Panel's assessment............................................................................................................................... 151

(d) Conclusion....................................................................................................................................................... 1533. Article III:4 and the requirement to display a special sign...................................................................... 153

(a) The arguments of the parties ........................................................................................................................... 153(b) The Panel's assessment.................................................................................................................................... 153

4. Korea's defence based on Article XX(d) of GATT...................................................................................... 153(a) Arguments of the parties ................................................................................................................................. 153(b) Article XX(d) of GATT and the GATT/WTO jurisprudence......................................................................... 155(c) The Panel's assessment.................................................................................................................................... 156

(i) "… secure compliance with GATT consistent regulation" ........................................................................ 156(ii) "necessary to prevent misrepresentation as to the origin of beef".............................................................. 158(iii) Conclusion on Korea's Article XX defence................................................................................................ 161

5. Conclusion on the WTO compatibility of the dual retail system for beef............................................... 161D. CLAIMS AGAINST THE (LPMO) DISTRIBUTION SYSTEM AT THE WHOLESALE LEVEL...................................161

1. General Arguments of the Parties................................................................................................................. 1612. The Panel's Assessment................................................................................................................................... 162

(a) Restrictions on supply of beef from the wholesale market to specialized imported-beef stores – the dual retailsystem ....................................................................................................................................................................... 162(b) Sales of imported beef through the wholesale market can allegedly only be on a cash basis......................... 162(c) Record-keeping requirements.......................................................................................................................... 163

E. CLAIMS AGAINST THE SBS SYSTEM....................................................................................................................1631. General description of the claims of the Parties........................................................................................ 1632. The Panel's assessment in the light of Note 6(e) ........................................................................................ 1643. Examination of two specific measures of the SBS system......................................................................... 164

(a) Prohibition on cross-trading between end-users.............................................................................................. 164(i) Arguments of the Parties ............................................................................................................................ 164(ii) The Panel's assessment............................................................................................................................... 164

(b) Additional labelling requirements................................................................................................................... 165(i) Arguments of the Parties ............................................................................................................................ 165(ii) The Panel's assessment............................................................................................................................... 166

F. CLAIMS AGAINST THE LPMO'S MINIMUM WHOLESALE PRICE, THE REFUSAL OR DELAYS IN CALLING FORTENDERS AND THE DISCHARGE PRACTICES IN 1997-1998..........................................................................................166

1. General Arguments of the Parties................................................................................................................. 1662. Minimum wholesale price.............................................................................................................................. 167

(a) Arguments of the Parties ................................................................................................................................. 167(b) Panel's assessment in light of Note 6(e).......................................................................................................... 167

3. The LPMO's daily and monthly discharge practices; the withholding of imported stocks; and therefusal or delays in calling for import tenders..................................................................................................... 168

(a) Arguments of the parties and factual determination made by the Panel......................................................... 168(i) Were the beef import quotas filled in 1997 and 1998?............................................................................... 168(ii) The LPMO's role in the non-filling of the import quota............................................................................ 170(iii) The issue of the economic justifications for Korea to do so...................................................................... 170(iv) Conclusion.................................................................................................................................................. 173

(b) The WTO provisions and jurisprudence on restrictions imposed by state-trading enterprises....................... 174(i) Articles XI, the Ad Note to Articles XI, XII, XIII, XIV and XVIII and Article XVI of GATT............... 174(ii) Article 4.2 of the Agreement on Agriculture.............................................................................................. 177

(c) The Panel's assessment.................................................................................................................................... 178G. CLAIM WITH REGARD TO THE GRASS/GRAIN FED BEEF DISTINCTION..............................................................179

1. Arguments of the parties................................................................................................................................. 1792. Factual determination by the Panel ............................................................................................................. 1793. The WTO provisions and jurisprudence...................................................................................................... 1804. The Panel's assessment................................................................................................................................... 181

H. CLAIM THAT KOREA'S IMPORT LICENSING SYSTEM PER SE VIOLATES VARIOUS PROVISIONS OF THE WTOAGREEMENT ......................................................................................................................................................................181I. CLAIMS AGAINST THE ALLEGED EXCESSIVE DOMESTIC SUPPORT TO KOREA'S CATTLE INDUSTRY ...........182

1. Korea's request for a preliminary ruling on the Panel's terms of reference and lack of specificity asconcerns claims relating to domestic support of the US and Australian claims ............................................ 182

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(a) Arguments of the Parties ................................................................................................................................. 182(b) WTO provisions and jurisprudence on terms of reference.............................................................................. 183(c) The Panel's Assessment .................................................................................................................................. 185

(i) The Measures at Issue................................................................................................................................ 186(ii) The claims under Articles 3, 6 and 7 of the Agreement on Agriculture..................................................... 186(iii) Korea's prejudice ........................................................................................................................................ 191(iv) Conclusion.................................................................................................................................................. 191

2. Claims that Korea's domestic support for beef exceeded the 10 per cent de minimis and led to a TotalCurrent AMS for 1997 and 1998 which exceeded Korea's scheduled annual commitment levels .............. 191

(a) Arguments of the Parties ................................................................................................................................. 191(b) The Panel's assessment.................................................................................................................................... 192

(i) Korea's scheduled commitment levels of domestic support ...................................................................... 192(ii) Domestic support for the beef industry in 1997 and 1998......................................................................... 193

Market-price support....................................................................................................................................... 194"Fixed External Reference Price (FERP)"....................................................................................................... 195"Eligible/actual production"............................................................................................................................ 196"Total value of production"............................................................................................................................. 196Product specific programmes .......................................................................................................................... 197

(iii) Recalculation of the aggregate measurement of support for beef in 1997 and 1998 and of the Current TotalAMS .................................................................................................................................................................... 197

(c) Conclusion....................................................................................................................................................... 199

VIII. CONCLUSIONS AND RECOMMENDATIONS...................................................................................... 200

ANNEX 1 ............................................................................................................................................................................. 202

1990 RECORDS OF UNDERSTANDING*.................................................................................................. 202

ANNEX 2 ............................................................................................................................................................................. 206

JULY 1993 RECORDS OF UNDERSTANDING*....................................................................................... 206

ANNEX 3 ............................................................................................................................................................................. 216

DECEMBER 1993 RECORD OF UNDERSTANDING ............................................................................... 216

ANNEX 4.............................................................................................................................................................................. 220

(Korea's Exhibit 45)......................................................................................................................................... 220

ANNEX 5 ............................................................................................................................................................................. 225

(Korea Exhibit 27)........................................................................................................................................... 225

ANNEX 6 ............................................................................................................................................................................. 226

(Australia, 1st Submission, paragraph 3.6) ...................................................................................................... 226

ANNEX 7 ............................................................................................................................................................................. 227

(Korea Exhibit 19)........................................................................................................................................... 227

ANNEX 8 ............................................................................................................................................................................. 228

(Korea Exhibit 39)........................................................................................................................................... 228

ANNEX 9 ............................................................................................................................................................................. 229

(US Exhibit 60)................................................................................................................................................ 229

ANNEX 10........................................................................................................................................................................... 230

(New Zealand, Annex 7, Table 13) ................................................................................................................. 230

ANNEX 11........................................................................................................................................................................... 231

(Korea Exhibit 35)........................................................................................................................................... 231

ANNEX 12........................................................................................................................................................................... 232

Australia Attachment 17.................................................................................................................................. 232


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LIST OF ABBREVIATIONS OF PANEL AND APPELLATE BODY REPORTS REFERREDTO IN THE TEXT OF THE REPORT

Argentina – Textiles(AB) - Appellate Body report on Argentina - Measures Affecting Importsof Footwear, Textiles, Apparel and Other Items, adopted 22 April 1998, WT/DS56/AB/R;

Canada - FIRA - Panel report on Canada - Administration of the Foreign Investment ReviewAct, BISD 30S/140, adopted 7 February 1984;Canada- Marketing Agencies (1988) - Panel report on Canada - Import, Distribution andSale of Certain Alcoholic Drinks by Provincial Marketing Agencies, BISD 35S/137, adopted22 March 1988;Canada - Marketing Agencies (1992) - Panel report on Canada - Import, Distribution andSale of Certain Alcoholic Drinks by Provincial Marketing Agencies, BISD 39S/27, adopted18 February 1992;Canada - Periodicals - Panel report on Canada - Certain Measures Concerning Periodicals,WT/DS31/R, adopted 30 July 1997;Canada - Dairy - Panel report on Canada - Measures Affecting the Importation of Milk andExportation of Dairy Products, WT/DS103/R (US), WT/DS113/R (New Zealand), adopted22 October 1999;Canada - Dairy(AB) - Appellate Body report on Canada - Measures Affecting theImportation of Milk and Exportation of Dairy Products, WT/DS103/AB/R, adopted 22October 1999;

EEC - Processed Fruits and Vegetables - Panel report on EEC – Programme of MinimumImport Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables,BISD 25S/68, adopted 18 October 1978;EEC - Beef - Panel report on EEC - Imports of Beef from Canada, BISD 28S/92, adopted 10March 1981;EEC- Imports from Hong Kong, - Panel report on EEC – Quantitative Restrictions againstImports of Certain Products from Hong Kong, BISD 30S/129, adopted 12 July 1983;EEC - Oilseeds - Panel report on EEC - Payments and Subsidies Paid to Processors andProducers of Oilseeds and Related Animal-Feed Proteins, BISD 37S/86 (US), adopted 25January 1990;EEC - Parts and Components - Panel report on EEC - Regulation on Imports of Parts andComponents, BISD 37S/132, adopted 16 May 1990;EC - Bananas III – Panel report on European Communities - Regime for the Importation,Sale and Distribution of Bananas, WT/DS27/R(Ecuador, Guatemala, Honduras, Mexico, andUnited States), adopted 25 September 1997;EC - Bananas III (AB) - Appellate Body Report on European Communities - Regime for theImportation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September1997;EC – Hormones (AB) – Appellate Body report on European Communities – MeasuresAffecting Meat and Meat Products, WT/DS26/AB/R- WT/DS48/AB/R, adopted 13 February1998;EC - Computer Equipment (AB) - Appellate Body report on European Communities/UnitedKingdom/Ireland - Customs Classification of Certain Computer Equipment (AB),WT/DS62/AB/R (US), WT/DS67/AB/R (US), WT/DS68/AB/R (US), adopted 22 June 1998;

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EC - Poultry - Panel report on European Communities - Importation of Certain PoultryProducts, WT/DS69/R (Brazil), adopted 23 July 1998;EC – Poultry(AB) – Appellate Body report on European Communities - Importation ofCertain Poultry Products, WT/DS69/AB/R, adopted 23 July 1998;

India - Quantitative Restrictions - Panel report on India - Quantitative Restrictions onImports of Agricultural, Textile and Industrial Products, WT/DS90/R (US), adopted 22September 1999;

Indonesia – Automobiles – Panel report on Certain Measures Affecting the AutomobileIndustry, WT/DS54 (EC); WT/DS55 (Japan), WT/DS59 (US), WT/DS64 (Japan), adopted 23July 1998;

Italian Agricultural Machinery - Panel report on Italy - Discrimination against ImportedAgricultural Machinery, BISD 7S/60, adopted 23 October 1958;

Japan - Agricultural Products - Panel report on Japan - Restrictions on Imports of CertainAgricultural Products, BISD 35S/163, adopted 2 February 1988;Japan –Semi-conductors, Panel report on Japan - Trade in Semi-conductors, BISD 35S/116,adopted 4 May 1988;Japan - Leather – Panel report on Japanese Measures on Imports of Leather, BISD 31S/94,adopted 15 May 1994;Japan - Alcoholic Beverages - Panel report on Japan - Taxes on Alcoholic Beverages.WT/DS8/R (EC); WT/DS10/R (Canada); WT/DS11/R (US), adopted 1 November 1996;Japan - Alcoholic Beverages (AB) - Appellate Body report on Japan – Taxes on AlcoholicBeverages, WT/DS8,10,11/AB/R, adopted on 1 November 1996;Japan - Film – Panel report on Japan - Measures Affecting Consumer Photographic Filmand Paper, WT/DS/44/R (US), adopted 22 June 1998;Japan - Varietal Testing(AB) - Appellate Body report on Japan - Measures AffectingAgricultural Products, WT/DS76/AB/R, adopted 19 March 1999;

Korea - Beef - Panel report on Republic of Korea - Restrictions on Imports of Beef, BISD36S/202 (Australia) 36S/268 (US), adopted on 7 November 1989;Korea - Alcoholic Beverages (EC) - Panel report on Korea - Taxes on Alcoholic Beverages,WT/DS75/R (EC), adopted on 17 February 1999;Korea - Alcoholic Beverages(US) - Panel report on Korea - Taxes on Alcoholic Beverages,WT/DS84/R (US), adopted on 17 February 1999;Korea - Safeguards - Appellate Body report on Korea - Definitive Safeguard Measure onImports of Certain Dairy Products, WT/DS/98/AB/R, adopted 12 January 2000;

Spain - Sale of Soybean Oil - Panel report on Spain – Measures concerning the DomesticSale of Soybean Oil, L/5142, not adopted;

US - Hawaiian Regulations - Consultations on United States - Hawaiian RegulationsAffecting Imported Eggs; L/411, 28 September 1955, no report;US - Superfund - Panel report on US – Taxes on Petroleum and Certain Imported Substances(Canada, EEC, Mexico), BISD 34S/136, adopted 17 June 1987;


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US - Sugar Head Note - Panel report on United States - Restrictions on Imports of Sugar,BISD 36S/331, adopted 22 June 1989;US - Section 337 – Panel report on United States - Section 337 of the Tariff Act of 1930,BISD 36S/345, adopted 7 November 1989;US - Malt Beverages - Panel report on United States - Measures Affecting Alcoholic andMalt Beverages, BISD 39S/206, adopted 19 June 1992;US - Gasoline - Panel report on United States - Standards for Reformulated andConventional Gasoline, WT/DS2/R (Venezuela); WT/DS4/R (Brazil), adopted 20 May 1996;US – Gasoline (AB) – Appellate Body report on United States - Standards for Reformulatedand Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996;US- Shirts and Blouses (AB) – Appellate Body report on United States - Measure AffectingImports of Woven Wool Shirts and Blouses, WT/DS33/AB/R, adopted 23 March 1997;US - Shrimp (AB) – Appellate Body report on United States - Import Prohibition of Shrimpand Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998;US-Section 301 - Panel report on United States –Sections 301-310 of the Trade Act of 1974,WT/DS152/R (EC), adopted 27 January 2000;US-FISC (AB) – Appellate Body report on United States – Tax Treatment for Foreign SalesCorporations, WT/DS108/AB/R, adopted on 20 March 2000.


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I. INTRODUCTION

1. On 1 February 1999, the United States requested consultations with the Republic of Korea("Korea") pursuant to Article 4 of the Understanding on Rules and Procedures governing theSettlement of Disputes ("DSU"), Article XXII of the General Agreement on Tariffs and Trade 1994(GATT 1994), Article 19 of the Agreement on Agriculture and Article 6 of the Agreement on ImportLicensing Procedures, with respect inter alia to Korea's import measures on fresh, chilled, and frozenbeef as well as its internal sale on the Korean market. Australia requested consultations with Koreaon the same matter on 13 April 1999.

2. Consultations between the United States and Korea were held on 11 and 12 March 1999 andjoined by Australia, Canada and New Zealand. Consultations between Australia and Korea were held28 May 1999 and were joined by Canada, New Zealand and the United States. As the above-mentioned consultations did not result in a mutually satisfactory solution of the matter, the UnitedStates, in a communication dated 15 April 1999, requested the establishment of a panel with standardterms of reference as set out in Article 7 of the DSU (WT/DS161/5). Australia, in a communicationdated 12 July 1999, requested the establishment of a panel with standard terms of reference as set outin Article 7.1 of the DSU (WT/DS169/5).

3. At its meeting on 25 May 1999 the Dispute Settlement Body (DSB) established a panel inaccordance with the request made by the United States in document WT/DS161/5. At its meeting of26 July 1999, the DSB agreed to Australia's request for the establishment of a panel (WT/DS/169/5)in the same matter. It also agreed, as provided for in Article 9 of the DSU in respect of multipleComplainants, that the Panel established on 26 May 1999 to examine the complaint by the UnitedStates will also examine Australia's complaint. Australia 1, Canada, New Zealand and the UnitedStates2 reserved their third party rights to make a submission and to be heard by the Panel inaccordance with Article 10 of the DSU

1. Terms of reference

4. The following terms of reference applied to the work of the Panel:

"To examine, in the light of the relevant provisions of the covered agreements cited by theUnited States in document WT/DS161/5 and by Australia in document WT/DS/169/5, thematter referred to the DSB by the United States and Australia in those documents and to makesuch findings as will assist the DSB in making the recommendations or in giving the rulingsprovided for in those agreements".

2. Panel composition

5. The parties to the dispute agreed on 4 August 19993 to the following composition of thePanel:

Chairperson: Lars AnellMembers: Paul Demaret

Alan Matthews

6. The Panel met with the parties on 13 and 14 December 1999 and on 16 February 2000 andwith third parties on 14 December 1999.

1 In the case requested by the United States.2 In the case requested by Australia.3 Date of the formal agreement by the panellists to serve.

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7. The Panel submitted its interim report to the parties of the dispute on 10 May 2000 and thefinal report on 15 June 2000.


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II. FACTUAL ASPECTS

1. Product coverage of the dispute

8. The case before the Panel concerned measures maintained by Korea on imports of beef of thefollowing tariff description4: 02.01-10: meat of bovine animals (fresh or chilled/carcasses and half-carcasses); 02.01-20: meat of bovine animals (fresh or chilled/cuts with bone in); 02.01-30: meat ofbovine animals (fresh or chilled/boneless); 02.02-10: meat of bovine animals (frozen/carcasses andhalf-carcasses): 02.02-20: meat of bovine animals (frozen/cuts with bone in); 02.02-30: meat ofbovine animals (frozen/boneless);

2. Korea's Schedule of Concessions

9. Korea's Schedule of tariff concessions (LX) provides for the entry of fresh, chilled and frozenbeef with market access opportunities rising from 123,000 tonnes in 1995 to 225.000 tonnes in 2000.The bound tariff will be reduced from 44.5 per cent to 40 per cent in 2004. Korea's Schedule alsoprovides that it shall "eliminate or bring into conformity with GATT provisions all remainingrestrictions" on a range of specific products, including fresh, chilled and frozen bovine meat imports,from 1 January 2001.

3. Records of Understanding5

10. Korea held consultations on beef with the United States, Australia and New Zealand, whichresulted in the conclusion of separate bilateral "Records of Understanding" in 1990 and 1993. TheseRecords were intended to implement the findings of the 1989 Korea - Beef panel (see paragraph 28).The Record of Understanding signed in March 1990 (L/6697) established base quota levels, whichincreased progressively over the period 1990-1992 to 66,000 metric tons. It also provided for theestablishment of a "Simultaneous Buy/Sell" ("SBS") system to allow for an initial seven per cent ofthe quota to be entered by entities other than the Livestock Products Marketing Organization(LPMO)6. The Record of Understanding also provides that the SBS portion shall increase to 70 percent by 2000. The three bilateral Records of Understanding signed in July 1993 (L/7270) betweenKorea on the one side, and Australia, New Zealand and the United States, respectively, on the other,specified quota amounts to be imported on a customs cleared basis for 1993-1995. These Records ofUnderstanding also contained provisions intended to expand the scope of the SBS system. In the July1993 Record of Understanding, Korea and the exporting countries agreed on the base amount of thebeef quota covering the period '93-'95, the framework for the SBS system and the SBS mark-up. Inthat document, Korea also reaffirmed its commitment to eliminate its remaining restrictions orotherwise bring them into conformity with GATT provisions.

11. The Korea/United States 1 July 1993 Record of Understanding was modified in December ofthat year to the effect of extending the timetable for elimination of the quota to 31 December 2000.This timetable was ultimately made a part of Korea's WTO Schedule of Concessions. In theDecember 1993 Record of Understanding between Korea and the United States quota amounts, mark-up, and the SBS quota share were agreed upon for the period 1993 - 2000, as well as the annual tarifffor the period 1995 to 2004. The December 1993 Record of Understanding also provides that all

4 Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade NegotiationsDone at Marrakesh on 15 April 1994 - Schedule LX, Republic of Korea, pages 12147, 12150, 12215.

5 The Records of Understanding are annexed.6 The SBS System is defined in Section II of the July 1993 Record of Understanding between Korea

and Australia as "the system through which suppliers of beef imported into the Republic of Korea conductbusiness directly with super-groups, end-users or customers." See also, Records of Understanding with theUnited States and with New Zealand. The Management Guideline for Imported Beef contains the samedefinition.


balance of payments restrictions on beef shall expire no later than December 2000, and that there shallbe no quota, no mark-up, and no LPMO involvement in 2001.

4. The Korean regulatory regime for beef

12. The Government of Korea operates a stabilization system for domestic beef producerspursuant to the Act on Distribution and Price Stabilization of Agricultural and Fishery Productswhich authorises measures to ensure the "smooth distribution of and maintenance of appropriateprices for agricultural and fishery products"7 and the Livestock Act, under which the Minister ofAgriculture and Forestry is required to establish and implement comprehensive livestock industrydevelopment plans and policies regarding: (i) the improvement and production of livestock breeds(ii) structural improvement of the livestock industry; (iii) balancing demand and supply of livestockand livestock products; (iv) stabilization of livestock and livestock product prices and enhancementof the livestock and livestock product distribution system; (v) stable supply of livestock feeds,treatment and utilisation of livestock excrement; livestock sanitation, etc.8

13. The import, distribution and sale of imported beef is regulated to give effect to theGovernment's stabilization policies. Article 25 of the Livestock Act provides that, in circumstanceswhere it is deemed particularly necessary for consumer protection, the prevention of illegaldistribution and the control of imported livestock products, the Minister of Agriculture and Forestry(MAF) retains certain powers in relation to the regulation and restriction of the quantity, timing, price,usage and sales methods for imported beef.9 Until 1 October 1999, these requirements wereelaborated through the Regulations Concerning Sales of Imported Beef, Operational Guidelines forBeef Imported under the SBS System, Guidelines Concerning Registration and Operation ofSpecialized Imported Beef Stores and Imported Beef Dealer Designation and Product SupplyGuidelines. On 1 October 1999 they were replaced by the Management Guideline for Imported Beef,which contain the same essential measures as the former regulations.

5. Measures affecting the importation, distribution and sale of beef

14. Import authority within the annual quota is divided between the Livestock ProductsMarketing Organization (LPMO) on the one hand, and the Simultaneous Buy and Sell (SBS) systemon the other.

(i) Measures applied to beef imported by the LPMO

15. The LPMO is a notified state trading agency for beef. The LPMO was established in 1988,and has, since its creation, been exclusively authorized by Korea to administer beef imports. In thisrole, it performs a variety of functions. The LPMO is the importer of a substantial share of the beefquota. The share imported by the LPMO has been progressively reduced and the LPMO currentlyimports 30 per cent of the beef quota. It also invites tenders and sells the imported beef at auction. Inaddition, LPMO exercises authority delegated from MAF to license imports made through the SBSsystem and to allocate quota share among the SBS quota holders. It imports its share of the annualquota through a tendering system.10 The import, distribution and sale of beef imported by LPMO areregulated by the Government through the Management Guideline for Imported Beef mentioned above.Prior to this, the LPMO system was regulated through the Regulations on Imported Beef and theImported Beef Dealer Designation and Product Supply Guidelines.

7 Act on Distribution and Price Stabilization of Agricultural and Fishery Products Article 1.8 Livestock Act (revised 1999), Article 3(1).9 Ibid, Article 25.10 G/STR/N/4/KOR.


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16. Article 3 of the Management Guideline for Imported Beef notes that beef is imported by theLPMO to stabilize demand and supply in the market. The objective of the LPMO is "to protect bothproducers and consumers through the stabilization of demand-supply and price of livestockproducts".11

17. The LPMO derives its authority to import from Article 53 of the Foreign Trade Act12 andArticle 24 of the Livestock Act. It imports beef at world market prices through a tender system anddistributes it either by auction to wholesalers or directly to processors or the military. From 1988 to1991, the LPMO was purchasing 100 per cent of the Korean beef import quota. Its share of the quotahas been reduced over time. Currently the LPMO imports 30 per cent of the total beef import quota.

18. The LPMO determines an annual purchase and distribution plan for the coming year takinginto account current and forecast levels of domestic beef demand, production and pricing. The LPMOsets a minimum acceptable auction price13 for each cut and brand of imported beef on a daily basis,

(ii) The National Livestock Cooperatives Federation (NLCF)

19. The NLCF handles the storage and domestic auctions at the wholesale market on behalf of theLPMO. Under government regulations, the NLCF also been controls the discharge of beef on behalfof LPMO, including establishment and implementation of regional and purchaser-based sales plansand discretion to decide daily discharging volumes in consideration of price movements of domesticbeef/cattle.14

20. Most beef imported by the LPMO, other than that consigned inter alia for processing andpackaging, is in principle required to be traded on a livestock wholesale market or at an auction officein areas without a wholesale market.15 Sales participants at an imported beef wholesale market mayonly supply imported beef to specialized imported beef stores.16 Imported beef is required, inprinciple, to be supplied on a cash payment basis.17

(iii) Measures applied to beef imported under the SBS system

21. Since 1 October 1999, chapter 3 of the Management Guideline for Imported Beef, whichregulates imports of beef under the SBS system, replaces those in the Operational Guidelines forImported Beef. According to the 1993 Record of Understanding between the United States andKorea, the SBS system, is a system through which suppliers of beef imported into Korea carry outbusiness directly with entities called "super-groups", end users, or customers. A super-group isdefined as an organization or association of end users which has the right to import beef under theSBS system and, as appropriate, allocate SBS sub-shares among its affiliated end users. Twelve"super-groups" are currently entitled to import beef.18 With the gradual increase of quota share, thenumber of super-groups has been increasing to meet the various usage of imported beef and market

11 L.P.M.O, Foreword, page 1.12 Foreign Trade Act.13 Ibid, Article 11.1.14 Regulations Concerning Imported Beef, Articles 4, 6(1), 6(2), 9(2).15 Ibid, Article 5.16 Ibid, Article 15.2.17 See also Annex 4.18 The super-groups are as follows: National Livestock Cooperatives Federation (NLCF); Korea Cold

Storage Company (KCSC); Korea Tourist Supply Centre (KTSC); Korea Restaurant Supply Centre (KRSC);Korea Meat Industries Association (KMIA); Korea Super Chain stores Association (KOSCA); KoreanFederation of Meat Purveyors (KFMP); Livestock Cooperative Trading and Marketing (LCTM): Korea MeatPackers Association (KMPA); Woo Joo Industrial Company Ltd; Korea Imported Meat DistributorsAssociation (KIMDA); Korea Meat Processing Industry Cooperatives (KMPIC).


demand. Each super-group has a defined set of end users. To import beef through the SBS system anend user must be a member of a super-group.19 An end-user can only belong to one super-group.Restrictions are imposed on cross-trading.20

22. Before the beginning of each fiscal year, the LPMO allocates to each super-group the annualquota that each may import under the SBS system.21 Each super-group sets up quarterly purchase andsales plans for each end user or customer and report these to the LPMO by 15 January of each year.22

End users and customers negotiate and contract with the exporter on cut, price, delivery, conditions ofsale, etc, within the quarterly allocated amount;23 Super-groups seek import approval on behalf of endusers under a licensing system pursuant to Article 24 of the Livestock Act and administered by theLPMO.24 Where the allocated amount is not purchased during the quarter, the super-group mustwithdraw the shortfall and reallocate this to its end users or customers in the following quarter.25

Quota allocation amongst end users of a super-group is done on forecast demand. When an end userdoes not meet its demand forecast, the resulting quota shortfall remains unused for the current period.Any reallocation of the shortfall takes effect the following period.

23. Each super-group must obtain information on the amount of any expected shortfall in itsimports and report it to the LPMO President by 5 October of each year.26 The LPMO must thenreallocate this shortfall to other super-groups in the same proportion as the initial allocation. Theregulations also impose record-keeping, reporting and labelling requirements on super-groups andtheir end-users which are administered by the LPMO.27

6. Mark-ups

24. The Korean government requires that a mark-up be applied to all SBS imports. The mark-upis imposed pursuant to Article 25 of the Management Guideline for Imported Beef. The mark-upcalculation is based on the difference between the duty-paid CIF price of beef and the weightedaverage wholesale price for all imported boneless grain-fed beef cuts purchased and distributed by theLPMO. It is calculated on both a weekly and monthly basis.

25. The mark-up was phased out on 31 December 1999 in accordance with the terms of theDecember 1993 Record of Understanding between Korea and the United States. The maximum ratewas 100 per cent in 1993, 60 per cent in 1996, 40 per cent in 1997, 20 per cent in 1998 and 10 percent in 1999. The mark-up was paid into a fund, the stated purpose of which is to provide support tothe domestic livestock industry pursuant to Article 34 of the Livestock Act.

7. Measures applied to the retail sale of imported beef

26. The Government of Korea regulates retail outlets through the Management Guidelines forImported Beef which came into effect on 1 October 1999 and prior to that date through the GuidelinesConcerning Registration and Operation of Specialized Imported Beef Stores. The ManagementGuideline for Imported Beef specifies that imported beef (except for pre-packed imported beef) mayonly be sold in specialized imported-beef shops.28 It also specifies that large-scale distributors

19 Management Guideline for Imported Beef, Article 26.4.20 Idem.21 Ibid, Article 22.1.22 Ibid, Article 22.2.23 Ibid, Article 23.1.24 Ibid, Article 23.3.25 Ibid, Article 22.4.26 Ibid, Article 22.5.27 Articles 27.3, 27.4, and 28.1 of the Management Guideline for Imported Beef.28 Management Guideline for Imported Beef, Article 15.


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(department stores, supermarkets, etc) must provide a separate sales area for imported beef.29 Storesselling imported beef must display a "Specialized Imported Beef Store" sign to distinguish them fromdomestic meat sellers.

8. Domestic support measures to the Korean beef industry

27. Korea notified its domestic support arrangements to the WTO Committee on Agriculture in1995, 1996, 1997 and 1998.30 In each year, the reported level of total domestic support (Current TotalAMS) has been below its total AMS commitment level.31 The bulk of the support has been directedto rice production. Over the four years notified by Korea, the reported domestic support level for beefhas increased from 1.12 billion won in 1995, to 23.59 billion won in 1996, and 195.27 billion won in1997.

9. Previous dispute settlement

28. In 1988, Australia, New Zealand and the United States requested GATT panel proceedingsrelating to Korea's import measures for beef which they claimed were inconsistent with Articles XI,II, and subsidiary, with X and XIII. Korea justified its import restrictions under Article XVIII:B. Thepanel found that inter alia that Korea's "import measures and restrictions, introduced in 1984/85 andamended in 1988, were not consistent with the provisions of Article XI and were not taken forbalance-of-payments reasons. The panel did not find it necessary to examine the Korean measuresunder Articles II, X or XIII since any inconsistency with these Articles would normally disappearonce the Article XI inconsistency had been eliminated. In the reports32 of the panel circulated on24 May 1989 the panel recommended that:

Korea eliminate or otherwise bring into conformity with the provisions of the GeneralAgreement the import measures on beef introduced in 1984/85 and amended in 1988; and,

Korea hold consultations with Australia, New Zealand and the United States and otherinterested contracting parties to work out a timetable for the removal of import restrictions onbeef justified since 1967 by Korea for balance-of-payments reasons.

10. Import liberalization programme

29. On 26 April 1994, in compliance with the results of the 1989 consultations with the BOPCommittee and the Uruguay Round negotiations, Korea submitted an import liberalizationprogramme concerning 150 products, including beef, in which Korea notified that all the remainingrestrictions on beef will be eliminated or brought into conformity with the provisions of the GATTfrom 1 January 2001.

29 Ibid, Article 9.5.30 G/AG/N/KOR/7; G/AG/N/KOR/14; G/AG/N/KOR/18; G/AG/N/KOR/24.31 Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations

Done at Marrakesh on 15 April 1994 - Schedule LX, Republic of Korea: Part IV - Agricultural Products:Commitments Limiting Subsidization, page 13049 and supporting tables provided in G/AG/AGST/KOR.

32 L/6504, 36S/202; L/6505, 36S/234; and L/6503, 36S/268.


III. PRELIMINARY REQUEST FOR RULINGS ON TERMS OF REFERENCE

30. Korea submitted that the Complainants' arguments that Korea has not fulfilled itscommitments under the Agreement on Agriculture should be rejected. Korea noted that the requestfor the establishment of the Panel by the United States identifies the disputed measure as follows: "Atthe same time, Korea has increased the level of its domestic support for its cattle industry to the pointthat the total domestic support provided by Korea exceeds its Aggregate Measurement of Support(AMS) under the Agreement on Agriculture."33 In the opinion of Korea, the disputed measures beforethe Panel are accordingly limited to the Korean measures of domestic support for its cattle industry.The data and calculation methods used in Korea's Schedule LX Part IV, or in broad terms Korea'sSchedule LX by itself, are not mentioned as disputed measures. Accordingly, the arguments nowraised in respect thereof are outside the terms of reference of the Panel.

31. The legal basis identified by both the United States and Australia in their requests for theestablishment of the Panel is limited to Articles 3, 4, 6 and 7 of the Agreement on Agriculture34.Korea requests that the Panel limit its examination to these articles. The Panel, therefore, should notallow the Complainants to now bring arguments which are based mainly on Annex 3 of theAgreement on Agriculture, because Annex 3 was not identified as a legal basis on which theComplainants wished this dispute to be examined.

32. With regard to claims under Articles 3, 4, 6 and 7, the lack of specification on what preciseclaims would be raised under these Articles, leads, according to Korea, to the conclusion that none ofthese claims are properly before the Panel. At most, by reference to the measure identified, one couldexpect that the Complainants would raise claims that Korea may not have included all its domesticsupport measures to its cattle industry in its AMS calculations. Korea has been prejudiced in its rightof defense due to the lack of proper identification and failure to present the problem clearly withregard to the claims relating to the Agreement on Agriculture in the request for the establishment ofthe Panel, because Korea was not in a position to understand what claims the Complainants actuallyintended to bring and actually brought before the Panel. Therefore, Korea could not adequatelyprepare its defense in this case from the moment the decision was taken to establish a panel.Furthermore, Korea argued that the Complainants, following the third party submission ofNew Zealand, started to borrow heavily from the claims of New Zealand and introduced new claims,which are clearly outside the terms of reference of the Panel.

33. Australia considered that the Panel is required by its terms of reference to consider whetherKorea has met its obligations under Articles 3, 6 and 7 of the Agreement on Agriculture. In order todo so, the Panel must consider both Annex 3 of the Agreement on Agriculture, including Korea'scalculation of its AMS on beef and its Total AMS, as well as Part IV of Korea's Schedule. Australiawas, therefore, of the opinion that the Panel should reject outright the claims in paragraphs 30-32because they have been raised without justification in Korea's second written submission, contrary tothe rules of procedure proposed by the Panel and agreed to by all of the parties, including Korea.Specifically, in raising its claim at this time Korea is acting contrary to paragraph (e) of the rules ofprocedure for this Panel, which states that "any requests for preliminary rulings shall be included in aparty's first written submission to the Panel. If the respondent requests any such ruling, thecomplaining parties shall submit their responses to such request prior to the first substantive meeting

33 Request for the establishment of a panel by the United States, WT/DS161/5(16 April 1999); the

request for the establishment of a panel by Australia (WT/DS169/5, 15 July 1999) contains nearly identicallanguage and states : "Korea has also increased the level of domestic support for its cattle industry in amountswhich result in the total domestic support provided by Korea exceeding its Aggregate Measurement of Support(AMS) under the Agreement on Agriculture."

34 Request for the establishment of a panel by the United States, WT/DS161/5 (16 April 1999); requestfor the establishment of a panel by Australia, WT/DS169/5, (15 July 1999).


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of the Panel at a time to be determined in light of the request. Exceptions to this procedure will begranted upon a showing of good cause."

34. Australia argued that Korea has advanced no reasons at all to justify raising these issues now,rather than at the beginning of these proceedings. The claims relating to the Agreement onAgriculture were included in Australia's request for establishment of a panel and were developed inAustralia's first written submission. Korea had the opportunity in its first written submission to raisethe issue of adequacy of the panel request, but it did not do so. Australia submitted that the Panelcannot act contrary to its own rules of procedure and contends that in the absence of any Korean claimor argument as to good cause, the Panel is not permitted to examine Korea's claims.

35. If the Panel decides to permit Korea to make its claim, Australia submitted that Korea has notmet its burden of proof in showing a deficiency in Australia's request for a panel. Australia hasidentified the measure at issue and has listed the specific provisions of the Agreement on Agriculturealleged to have been violated. It does not have to do any more than that. As the Appellate Bodynoted in EC-Bananas III, there is a significant difference between the claims identified in the requestfor establishment of a panel, and the arguments supporting those claims which are set out in thesubmissions of the parties.35

36. Korea has advanced no legal argument in support of its claim, Australia continued, that inexamining Korea's obligations under Article 6, the Panel is prevented from considering eitherAnnex 3 or Part IV of Korea's Schedule. Korea has not mentioned or argued an inconsistency withArticle 6.2 of the DSU. Korea has neither claimed prejudice, nor provided proof of it. Korea did notraise the Korea - Safeguards case or any other legal argument to support its claims in either of itswritten submissions. Australia, therefore, submitted that Korea has failed to meet its burden of proofand that its claims of a deficiency in Australia's panel request must, therefore, be rejected. It would bean abuse of due process to permit Korea to use the opening statement of the final meeting with thePanel to make good its failure to raise or argue this preliminary issue in its written submissions.Furthermore, as the Appellate Body in Japan - Varietal Testing(AB) made clear, the Panel is notentitled to make determinations or provide legal arguments on behalf of a party who has failed itselfto make a prima facie claim. 36

37. Australia argued that the key principle to emerge from Korea – Safeguards (AB) was that arequest for establishment of a panel must be sufficiently specific so as not to prejudice the ability of aresponding party to defend itself. However, the Appellate Body also made it clear that it is Korea thatbears the burden of proof in claiming prejudice. Korea did not claim prejudice at the time the requestfor a panel was made, or in its first or second written submissions, or at the first Panel meeting, or inits responses to factual questions from the Panel relating to its calculations of domestic support.

38. There is no basis for Korea to claim that it did not understand the claims being made or that itwas not accorded an opportunity to respond to these claims. Quite the contrary, Korea responded toAustralia's claims regarding Article 6, and through Article 6, to Annex 3 and Part IV of its Schedule,in its first written submission. In that submission, Korea stated 'the AMS for cattle in 1997 did notexceed 10 per cent of the total value of cattle production and Korea's 1997 Current Total AMS did notexceed its reduction commitment level specified in Schedule LX. Korea cannot now be claiming thatit did not understand the claims being made against it when it responded to these very same claims inits first written submission, and it did so without any apparent confusion as to the claims being madeor the arguments being put.

35 At paragraph 141.36 Paragraphs 118-131.


39. In response to Korea's claim that Australia introduced new claims borrowed from the thirdparty submission of New Zealand, Australia said that Korea was confusing claims with arguments.The Appellate Body had been very clear that Australia is not required to set out detailed arguments inits panel request. Australia raised no new claims in either its first or second written submissionswhich were not contained in its request for establishment of a panel. Furthermore, Australia includeda range of arguments relating to Annex 3 in its first written submission. Nor did Australia "borrow"any new claims from New Zealand. New Zealand used arguments relating to Annex 3 in support ofthe claims already made by Australia and the United States that Korea's increased domestic supportfor beef had resulted in Korea's Total Aggregate Measure of Support for 1997 being over its permittedamount for that year. The most that could be said was that Australia supported the arguments ofNew Zealand in relation to Annex 3, but there is not prohibition in the DSU against that.

40. In case the Panel determines that it should consider the substance of Korea's claims, Australiasubmitted that a textual analysis of Article 6 makes it clear that if Article 6 is to have any meaning,the Panel must consider Annex 3 and Part IV of Korea's Schedule. Australia submitted that Annex 3and Part IV of Korea's Schedule are so intrinsic to a panel's interpretation of Korea's obligations underArticle 6 as to obviate any need to mention them specifically in a panel request. The fact that Koreahas already responded to the substance of Australia's claims supports this view. It is not possible tomake a determination about a Member's consistency with these obligations without reference to theformulations contained in Annex 3, because Annex 3 contains the methodology required to determinethe AMS for specific products as well as the Total AMS. It is also not possible to decide whetherKorea has met its obligations under these Articles without reference to the reduction commitmentscontained in its Schedule.

41. The Panel is required by its terms of reference to consider whether Korea has met itsobligations under Articles 3, 6 and 7 of the Agreement on Agriculture. In order to do so, the Panelmust consider both Annex 3 of the Agreement on Agriculture, including Korea's calculation of itsAMS on beef and its Total AMS, as well as Part IV of Korea's Schedule.

42. The United States contended that Korea's arguments in paragraphs 30-32 are misguided. Thescope of a panel's terms of reference has been considered in a number of Appellate Body reports. Thebeginning point is Article 7 of the Understanding on Rules and Procedures Governing the Settlementof Disputes (the DSU), which describes the standard terms of reference and directs that "[p]anels shalladdress the relevant provisions in any covered agreement or agreements cited by the parties to thedispute".

43. This issue has arisen most frequently in the context of arguments that the complaining partyhas not satisfactorily explained its claims as required by Article 6.2 of the DSU. The Appellate Bodyrecently rejected an argument made by Korea in Korea – Safeguards (AB) that is similar to the onenow made by Korea. There, the Appellate Body re-emphasized that "claims, not detailed arguments,are what need to be set out with sufficient clarity…" Indeed, in EC – Bananas III (AB), the AppellateBody agreed with the panel's conclusion that "the listing of the articles to the agreements claimed tohave been violated satisfied the minimum requirements of Article 6.2 of the DSU" in view of thecircumstances of that case and, in particular, the lack of any demonstrated prejudice to the defendingparty.

44. The approach described above was adopted by the Appellate Body in at least three separatedisputes: those relating to EC – Bananas III(AB), Korea – Safeguards (AB), and EC - ComputerEquipment(AB). In each instance, the Appellate Body examined the written panel request todetermine whether the requirement contained in Article 6.2 for explication of the claim was satisfiedand whether there was any indication that a defending Member had been prejudiced by lack of noticeregarding the nature of the claim. In the cited cases, the Appellate Body found that no prejudice had


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been shown and the descriptions of the claims, thus, were adequate to satisfy the purpose ofArticle 6.2 of the DSU.

45. The US description of its claim regarding Korea's domestic support obligations under theAgreement on Agriculture is plainly set forth in its request for the establishment of a panel. Inpertinent part, the US request states: " … Korea has increased the level of domestic support for itscattle industry to the point that the total domestic support provided by Korea exceeds its AggregateMeasurement of Support (AMS) under the Agreement on Agriculture. The United States thenconcluded that it considered Korea's support measures to be inconsistent with Articles 3, 6 and 7 ofthe Agreement. The US claim, thus, plainly included a contention that Korea was not in compliancewith its domestic support commitments as set forth in Articles 3, 6, and 7 of the Agreement onAgriculture and that this situation resulted from increases in the level of support provided to Korea'scattle industry. Korea has never claimed, and does not now allege, that it ever has been uncertainabout or without adequate notice of the nature of the US claims regarding Korea's AMS obligations.

46. Apparently, Korea's argument is based on the fact that the United States did not expresslyidentify Annex 3 as one of the legal bases for its claims. However, even a cursory reading of Articles6 and 7 of the Agreement on Agriculture reveals that the commitments there incorporated include arequirement that the applicable AMS be computed in conformity with the provisions of Annex 3.Korea could not possibly have been misled by the US panel request because the references inArticle 6.1, for example, to "Total Aggregate Measurement of Support" and "Annual and Final BoundCommitment Levels" require consideration of the definitions set forth in Article 1 as well as thecomputation methodology contained in Annex 3. In fact, the definition of AMS set forth in Article 1directs that AMS shall be "calculated in accordance with the provisions of Annex 3 of this Agreement…."

47. Moreover, the United States continued, Annex 3 itself is entitled "Domestic Support:Calculation of Aggregate Measurement of Support" and contains provisions essential to the AMScomputation. As a result, there is no question but that the Panel is compelled to consider Annex 3 inresolving the US claims under Article 6 of the Agreement. The United States specifically stated thatits claim involved the calculation of the AMS under the Agreement on Agriculture. Annex 3 is sointrinsic to the calculation of the AMS that any analysis that ignores that provision could not possiblyresult in a construction of Article 6 which would be consistent with customary rules of interpretationunder Article 3.2 of the DSU.


IV. MAIN ARGUMENTS37

A. GENERAL

48. The complaint examined by the Panel is related to Korea's measures governing theimportation and marketing of fresh, chilled and frozen beef in Korea, falling within HS codes 0201-10, 0201-20, 0201-30, 0202-10, 0202-20 and 0202-30.

49. Australia requested the Panel to find that:

(a) the requirements imposed on the retail sale of imported beef operate as a quantitativerestriction and discriminate against imported product contrary to Articles III and XI;

(b) the tendering process adopted by LPMO for the import of beef results in quantitativerestrictions being applied to grass-fed beef, contrary to Articles II:1, III:4, XI:1 andXVII;

(c) the discharge procedures for LPMO beef restrict the distribution of imported beef intothe market in a manner which constitutes a quantitative restriction, imposes non-tariffmeasures made effective through state trading enterprises and discriminates againstimported beef in a manner contrary to Articles III, XI and XVII of GATT andArticle 4.2 of the Agreement on Agriculture;

(d) restrictions on sales of beef imported by the LPMO, including cash payment andrecord-keeping requirements, discriminate against imported beef contrary toArticle III:4;

(e) Korea applies a mark-up on beef imported under the SBS system which is not appliedto domestic beef and is inconsistent with Korea's obligations under Article II or III;

(f) the SBS system applies limitations on the import and distribution of imported beef,and imposes labelling, reporting and record-keeping requirements, that discriminateagainst imported product contrary to Articles XI and III; and

(g) in 1997, Korea provided domestic support to its beef industry at levels whichexceeded de minimis and which, therefore, were required to be included in itscalculations of its Current Total Aggregate Measurement of Support (AMS). Thisresulted in Korea's Current Total AMS for 1997 being in excess of its reductioncommitments for that year, contrary to Articles 3.6 and 7 of the Agreement onAgriculture.

50. Australia further requested the Panel to recommend to the DSB that Korea bring its measuresaffecting the import of fresh, chilled and frozen beef into conformity with its obligations under theGATT 1994 and the Agreement on Agriculture.

51. The United States requested the Panel to find that:

(a) Korea's requirement that imported beef be sold only in specialized imported beefstores and its laws and regulations restricting the resale and distribution of imported

37 This section contains the main arguments by the parties as summarized and understood by the Panel.

If not otherwise stated, the footnotes in this section are those of the parties. Note that Article numbers refer tothe General Agreement on Tariffs and Trade 1994 if not otherwise stated.


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beef by SBS super-groups, as well as by retailers, customers, and end-users isinconsistent with its obligations under Article III:4;

(b) Korea's discretionary import regime, including, but not limited to, laws andregulations prohibiting the import of beef by any entity other than the super-groupsand the LPMO, as well as the LPMO's establishment of minimum import prices anddelay of both invitations to tender as well as quota allocations is inconsistent with itsobligations under Article XI:1of GATT, Article 4.2 of the Agreement on Agriculture,and Articles 1 and 3 of the Agreement on Import Licensing Procedures;

(c) Korea's imposition of other duties or charges in the form of a mark-up not providedfor in Schedule LX is inconsistent with its obligations under Article II:1; and

(d) Korea has failed to fulfill its reduction commitment for domestic support and thelevel of domestic support provided and is thus inconsistent with Korea's obligationsunder Articles 3, 6, and 7 of the Agreement on Agriculture.

52. The United States further requested the Panel to recommend that Korea bring its measuresinto conformity with its obligations under the GATT 1994, the Agreement on Agriculture and theAgreement on Import Licensing Procedures.

B. CLAIMS TO A "TRANSITIONAL PERIOD"

1. Remaining restrictions

53. Korea stated that its Schedule of Concessions provides for a transition period until 1January 2001 to eliminate or bring into conformity with the provisions of the GATT all remainingrestrictions on beef. The claims raised by Australia and the United States are, therefore, inadmissibleand contrary to Article II:1 of GATT 1994, Article 3:2 of the Understanding on Rules and Proceduresgoverning the Settlement of Disputes (DSU) and Article 26 of the Vienna Convention. Korea,therefore, requested that the Panel rejects all arguments and claims made by Australia and the UnitedStates.

54. Korea submitted that the restrictions alleged by the Complainants were already in existence atthe time of the conclusion of the Uruguay Round and hence constitute "remaining restrictions" withinthe meaning of Note 6 of Korea's Schedule LX. The term "remaining restrictions" should beinterpreted in accordance with its ordinary meaning pursuant to Article 31 of the Vienna Convention.The ordinary meaning of the words suggests that the "remaining restrictions" are otherwise not inconformity with the provisions of the GATT. There would be no need to provide that they should beeliminated or be brought into conformity with the provisions of the GATT by 1 January 2001 if theywere. Indeed, if the remaining restrictions were in conformity, it would make no sense to provide thatthey should be eliminated or brought into conformity with GATT provisions. The only qualificationis that they are "remaining" at the time of the conclusion of the Uruguay Round agreement.

55. Should the Panel, nevertheless, consider that the ordinary meaning and scope of the term"remaining restrictions" is not clear, then Korea submitted that the Panel, in accordance with therecent Appellate Body ruling in Canada – Dairy (AB), should refer to the preparatory work of thetreaty in accordance with Article 32 of the Vienna Convention [supplementary means ofinterpretation]. In the view of Korea, the December 1993 Record of Understanding concluded withthe United States constitutes the preparatory work of the Uruguay Round agreements, and makes itclear that the remaining restrictions cover all restrictions which were in existence for balance-of-payments reasons at the time of conclusion of the Uruguay Round. No specific measures wereenumerated as constituting remaining restrictions in Note 6 of Korea's Schedule LX, but Korea


considered that the language of Note 6 should be interpreted as Korea's commitment, in broad terms,to full liberalization of its beef import regime by the end of the year 2000. Therefore, even if any ofthe remaining restrictions are inconsistent with the provisions of the GATT, which Korea disputes,they would nevertheless be covered by the transitional period until 1 January, 2001.

56. Korea argued that the interpretation by Australia of the term "remaining restrictions" (seeparagraph 83) in Note 6 of Korea's Schedule of Concessions contravenes the foregoing principles setforth by the Appellate Body (see paragraph 54). In the opinion of Korea, the interpretation advocatedby Australia first of all contravenes Article 31 of the Vienna Convention which requires interpretationin accordance with the ordinary meaning to be given to the terms. Since Note 6 of Korea's Schedulerefers to remaining restrictions, it is evident that more than one restriction was meant. Furthermore,Australia's interpretation of Note 6 as referring only to GATT inconsistent restrictions contained inthe Schedule itself, in particular the quota, would deprive Note 6 of any effet utile. Indeed, Korea'sSchedule LX Section I-B: Tariff Quota already explicitly provides for the quota to be eliminated bythe end of the year 2000.

57. An interpretation in accordance with the ordinary meaning of the terms used in Note 6, Koreasubmitted, leads to the conclusion that all restrictions (limitations placed on actions) which existed atthe end of the Uruguay Round and which were GATT inconsistent should be eliminated or broughtinto conformity with GATT by 1 January 2001. Indeed, if a cut-off date other than the conclusion ofthe Uruguay Round had been intended, it would have been so specified in Note 6. No other cut-offdate is mentioned or implied by Note 6 and the Complainants have provided no evidence from thenegotiating history showing that another cut-off date was meant. Therefore, in accordance with theordinary meaning of the term "remaining," the restrictions at issue are those remaining at the time ofconclusion of the Uruguay Round contained in Note 6. The phrase preceding the words "remainingrestrictions," that reads "According to the results of the 1989 consultation with GATT/BOPCommittee and the Uruguay Round multilateral trade negotiation" cannot be construed as implyingthat a 1989 cut-off date was meant. This phrase clarifies the negotiating background of thetransitional period and grammatically does not qualify the term "remaining restrictions". To interpretthis phrase as implying a 1989 cut-off date would be inconsistent with the ordinary meaning of thephrase "and the Uruguay Round multilateral trade negotiation" and deprive it of any effet utile .

(i) Transitional period

58. In Korea's view, the operative consequence of Note 6 is that even if the Panel finds thatcertain "remaining restrictions" a