Finally, the United States also welcomes the findings that six provisions of Mexico’s Foreign Trade Act are inconsistent “as such” with the Anti-Dumping Agreement and the Subsidies Agreement.  Several of those provisions codified the WTO-inconsistent methodologies that Mexico used in the rice investigation.  Another required Mexico to fine companies if they import products that are the subject of antidumping investigations.  The Anti-Dumping Agreement and the Subsidies Agreement do not permit such actions.

Mr. Chairman, there was one aspect of the Appellate Body’s report that causes us some concern and that we wanted to bring to Members’ attention.  The finding that new legal claims in a panel request must “evolve from” the legal claims in the consultation request is troubling.  This test is inherently subjective.  The result of the additional exchange of views in consultations may be to bring to the complaining party’s attention a claim that was not previously apparent.  Why should the complaining party be constrained from following up on this claim in any panel proceedings?  Any other result would appear to undercut the reason for and value of consultations.

Nevertheless, overall, we consider this to be a strongly reasoned report.  We look forward to Mexico bringing its antidumping measure and law into conformity with its WTO obligations. 

Thank you, Mr. Chairman.

Item 3.  UNITED STATES – FINAL COUNTERVAILING DUTY DETERMINATION WITH RESPECT TO CERTAIN SOFTWOOD LUMBER FROM CANADA: RECOURSE TO ARTICLE 21.5 OF THE DSU

A.  REPORT OF THE APPELLATE BODY (WT/DS257/AB/RW) AND REPORT OF THE PANEL (WT/DS257/RW)

We would like to thank the panel, the Appellate Body, and the Secretariat for their efforts in this dispute. 

By way of background, we recall that on February 17, 2004, the DSB adopted recommendations and rulings in this dispute that rejected, in all major respects, Canada’s claims that the United States acted inconsistently with the WTO Subsidies Agreement and the GATT 1994 in finding that Canada had provided countervailable subsidies to its softwood lumber industry.

Referring to one minor aspect of the subsidy calculation, however, the DSB ruled that the United States should have investigated whether there had been a “pass-through” of subsidies between unrelated companies through the arm’s length sale of logs.  The United States implemented this ruling on December 10, 2004, with a new countervailing duty determination. 

It is this implementation that is the subject of today’s reports.  We have two comments.

First, in implementing the DSB’s recommendations and rulings, the United States followed the words of the Appellate Body findings exactly, conducting a pass-through analysis for log sales between unrelated parties that it found to be at arm’s length.  Nevertheless, the Article 21.5 compliance panel found that, despite the fact that the DSB had adopted the panel report as modified by the Appellate Body report, the United States should have followed the panel’s wording and conducted a “pass-through” analysis for all unrelated party sales, and not just for those found to be at “arm’s length”.  The Article 21.5 compliance panel acknowledged what it called a “significant ambiguity” in the recommendations and rulings, and said that it understood that the United States was simply giving meaning to the Appellate Body’s use of the term “arm’s length.”  However, the panel found that a different reading – one that ignored the explicit reference to “arm’s length” in the recommendations and ruling – was the appropriate one.

The United States did not appeal this finding.  However, the United States notes that this dispute illustrates the value of clarity in recommendations and rulings.  This is one of the reasons that the United States has proposed that there be an opportunity to seek clarification of proposed findings and recommendations.

Second, we are disappointed that the Appellate Body found that a separate assessment review was properly within the compliance panel’s jurisdiction under Article 21.5 of the DSU.  We will not repeat all of our arguments here, but we fail to follow the Appellate Body’s reasoning. 

The Appellate Body first notes that the question of existence or consistency of measures taken to comply may be affected by measures other than the one declared to be the one taken to comply.  This seems unremarkable.  However, from this the Appellate Body then progressed to say that therefore measures that are sufficiently linked to those taken to comply are within the scope of Article 21.5.  Yet the Appellate Body does not explain how this follows – it does not clearly articulate how the “linkage” it found has an effect on the consistency or existence of a measure taken to comply.  The Appellate Body’s reasoning therefore risks being interpreted as a re-write of Article 21.5 to read “measures taken to comply or measures linked to measures taken to comply.”  There would be no textual basis for this conclusion.

We would also like to note the importance of two aspects of this finding.  The first is that both the compliance panel and the Appellate Body found only that a specific, discrete component of the first assessment review, and not the review in its entirety, fell within the scope of the Article 21.5 proceeding.  The second is the Appellate Body’s emphasis that its reasoning applies only to the first assessment review and that it was not finding that any other measure should be within the jurisdiction of an Article 21.5 compliance panel.

Article 21.5 proceedings are expedited proceedings that are limited to the existence and consistency of measures taken to comply, and great care must to be taken to ensure that panels do not exceed this jurisdictional limitation.

Thank you, Mr. Chairman.