A. SUMMARY OF PROVISIONS

1. Overview

The Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU or Understanding) builds on and improves upon the dispute settlement procedures currently in place under the GATT. In general, the rules and procedures set out in the DSU will govern disputes arising under each of the various Uruguay Round agreements.

The new Understanding responds to long-held U.S. concerns regarding international trade disputes. As the country that has used the GATT dispute settlement mechanism more often than any other country, the United States has a strong interest in having an effective process to enforce U.S. rights under the Uruguay Round Agreements. Under the prior system, U.S. efforts to enforce its rights were often frustrated when other GATT parties delayed the dispute settlement process and blocked adoption of GATT panel reports. To address this problem, Congress made the negotiation of a more effective GATT dispute settlement system a principal U.S. negotiating objective in the Uruguay Round.

Among the most important changes effected by the DSU are

imposition of stringent time limits for each stage of the dispute settlement process, including the time for implementation of panel recommendations;

creation of an Appellate Body to review panel interpretations of Uruguay Round agreements and legal issues;

automatic adoption of panel or Appellate Body reports and of requests for retaliation in the absence of a consensus to reject the report or request; and

automatic authority for complaining parties to retaliate, including in sectors outside the subject of the dispute, on request if panel recommendations are not implemented or there is no mutually satisfactory solution to the matter.

It is important to note that the new WTO dispute settlement system does not give panels any power to order the United States or other countries to change their laws. If a panel finds that a country has not lived up to its commitments, all a panel may do is recommend that the country begin observing its obligations. It is then up to the disputing countries to decide how they will settle their differences.

The defending country may choose to make a change in its law. Or it may decide instead to offer trade "compensation" -- such as lower tariffs. The countries concerned could agree on compensation or on some other mutually satisfactory solution. Alternatively, the defending country may decide to do nothing. In that case, the country that lodged the complaint may retaliate by suspending trade concessions equivalent to the trade benefits it has lost.

2. Scope of Application

The DSU creates a framework for dispute settlement procedures applicable to each Uruguay Round Agreement, including the WTO Agreement and the DSU itself. However, the precise manner in which the Understanding will apply to the four "plurilateral" agreements (listed in Annex 4 of the WTO Agreement), such as the Agreement on Government Procurement and the Agreement on Civil Aircraft, will be decided by the parties to those agreements.

Furthermore, paragraph two of Article 1 notes that certain of the "multilateral" trade agreements (listed in Annexes 1 through 3 of the WTO Agreement) contain special or additional rules that supersede those of the DSU for matters arising under those agreements. If dispute settlement proceedings involve two or more Uruguay Round Agreements with conflicting special rules and the parties cannot agree on which rules will apply, the chairman of the Dispute Settlement Body (DSB) will decide the issue.

3. Dispute Settlement Body

Article 2 establishes the DSB, which will oversee the application of the Understanding. Although all WTO members will be represented on the DSB, only those governments that are members of a particular "plurilateral" agreement may participate in DSB decisions concerning that agreement.

The DSB is empowered to:

establish panels;

adopt panel and Appellate Body reports;

oversee the implementation of panel recommendations adopted by the DSB; and

authorize retaliation.

The DSB must reach all decisions by "consensus," meaning that no member formally objects to the proposal under consideration. For example, the DSB may reject a panel report only if no member objects to the proposal to reject the report.

4. General Principles

The first seven paragraphs of Article 3 spell out the general principles underlying the dispute settlement system. Many of these principles are drawn from those agreed at the Uruguay Round ministerial conference held in Montreal in 1989 (the Montreal rules).

Paragraph two emphasizes that while the dispute settlement system is meant to clarify the various Uruguay Round Agreements, the DSB cannot add to or diminish the rights and obligations provided in those Uruguay Round Agreements. Moreover, paragraph nine provides that the Understanding does not prejudice a government's right to seek an authoritative interpretation of any Uruguay Round Agreement from the Ministerial Conference or General Council of the WTO.

Article 3 also recognizes the importance of maintaining the balance of rights and obligations between WTO members countries. To this end, members that agree to settle a dispute that has been subject to consultations under the DSU rules must inform the DSB of the agreement so that other members can raise any concerns they may have regarding the settlement.

Paragraph seven notes that the preferred resolution of any dispute is one mutually acceptable to the disputing parties. In the absence of an agreed solution, the Understanding provides that the withdrawal of any measure found to be inconsistent with the relevant agreement is "usually" the first objective. The provision of trade compensation is a less favored alternative and should be a temporary measure. The Understanding views the suspension of trade concessions or other obligations -- that is, retaliation -- as a last resort.

Paragraph eight restates the long-agreed rule that the showing of adverse trade effects ("nullification or impairment of benefits") required under GATT Article XXIII for one government to complain about another's conduct will be presumed in cases where the defending government has infringed its obligations under the relevant Uruguay Round Agreement. The defending government may rebut the presumption, however, and prove that the measure has not had an adverse effect on other members.

Paragraph eleven is a transition rule. It provides that current GATT dispute settlement procedures will apply to any dispute in which a request for consultations under the GATT is made before the WTO goes into effect. Moreover, those rules will apply to any panel report that has not been adopted or fully implemented by that date. This means, for example, that a single government could continue to "block" the adoption of such reports.

Finally, paragraph twelve provides that where the complaining party is a developing country it may request the application of certain, more expeditious procedures adopted by the GATT Contracting Parties in 1966. A panel operating under these special procedures may, with the consent of the developing country, extend the time frame for a decision if the panel believes that it has insufficient time to provide its report.

5. Consultations and Voluntary Dispute Resolution Procedures

DSU consultation procedures, including time limits and notification requirements, are based in large part on the Montreal rules and prior practice. A complaining government must seek consultations with the government whose measure is in dispute before requesting the DSB to form a panel to hear the matter. Article 3 generally requires a member to wait 60 days after it makes a request for consultations before requesting establishment of a panel. Special shorter timetables are provided for disputes concerning perishable goods. Other members may join in consultations if the member to which the request for consultations was addressed agrees that the requesting member has a substantial interest in the dispute. If not, that member may request separate consultations.

The provisions of Article 5, regarding "good offices," conciliation, and mediation are also based on existing GATT practice. Recourse to such procedures is by mutual consent of the parties and either party may terminate them at any time.

6. Panel Procedures

a. Convening a Panel

Article 6 provides that a request for the establishment of a panel must be presented to the DSB in writing and provide specified information on the dispute. If the member requesting a panel seeks special terms of reference for the panel, the proposed text must be included.

A dispute settlement panel will be established no later than at the second DSB meeting at which the request for a panel is placed on the agenda unless there is a consensus to reject the request. If the complaining party requests, the DSB must convene within 15 days after that member presents its request for a panel, although the DSB must provide at least 10 day's advance notice of the meeting.

b. Terms of Reference

Article 7 spells out the standard "terms of reference" that panels will use to conduct their work in the absence of other terms agreed by the disputing parties. The standard terms of reference are based on those currently in use under the GATT. The Article also provides that panels must address the relevant provisions of any agreement cited by the parties to the dispute.

c. Panel Composition

The rules set out in Article 8 regarding panel composition are also based largely on current GATT practice. One new element is the guidance provided by that article regarding who should be selected as a panelist. Article 8 makes it clear that panelists may be drawn from either the public or private sector and must be "well-qualified," such as persons who have served on or presented a case to a panel, represented a government in the WTO or the GATT, served with the Secretariat, taught or published in the international trade field, or served as a senior trade policy official.

The Secretariat will maintain its current list of individuals possessing these qualifications and governments may periodically add to that list. Panelists need not be drawn from the list.

Panels normally will consist of three persons and those persons may not be citizens of any of the parties to the dispute unless those governments agree. If the parties do not agree on the panelists within 20 days after the establishment of the panel, the WTO's Director-General (in consultation with the parties to the dispute, the chairman of the DSB, and the chairman of the relevant committee or council) will select the panelists.

d. Multiple Complaints and Third Parties

DSU procedures for dealing with multiple complainants are set out in Article 9. Article 9 reflects a strong preference for convening a single panel to hear complaints by several countries concerning the same measure. When that is not possible, the DSB will ensure as much uniformity as possible in panelists, timetables, and procedures.

Article 10 governs third-party rights in panel proceedings. To qualify as a third-party participant, a government must have a substantial interest in the matter before the panel and must notify the DSB of this interest. Once qualified as a third party, a government has the right to make written and oral submissions to the panel and the panel must reflect those submissions in its report. Third parties must also be provided copies of the first written submissions filed by the parties to the dispute. To encourage uniformity of decision making, a dispute will be referred to the same panel, wherever possible, if a government seeks redress of a dispute in which it previously participated as a third party.

e. Panel Functions and Procedures

Article 11 provides that the general function of a panel is to assist the DSB in discharging its functions. That requires a panel to make an objective assessment of the matter before it, including the relevant facts, the applicability of the Uruguay Round agreements, and the measure's conformity with those agreements.

The United States has expressed the view in the GATT, and will maintain the view in the WTO, that in making its assessment of the case a panel should refrain from opining on complex, unsettled issues of domestic law. Panels that base their reports on opinions purporting to resolve such issues risk raising questions about the immediate and continued validity of their reports and may undermine confidence in the dispute settlement process.

Article 12 contains detailed guidance on procedures that panels are to follow. Although panelists fix the timetable for the panel proceedings in each case, panelists are instructed normally to follow the Working Procedures set out in Appendix 3 of the DSU. These include strict time limits for submissions to the panel and provisions for scheduling panel meetings.

Paragraph seven of that Article requires panels to submit written reports. If a matter is settled, the report will consist of a description of the case and a statement that the parties have reached a solution. If there is no settlement, the panel's report is to include findings of fact, a statement regarding how the pertinent Uruguay Round Agreements apply to the disputed measure, and the reasons for any findings and recommendations that the panel makes.

Paragraph eight provides that, in general, the time between establishment of the panel and issuance of its final report may not exceed six months. In disputes concerning perishable goods or other urgent matters, panels must try to issue their reports within three months. If the panel cannot meet these deadlines, it must inform the DSB and provide an estimate of when it will submit the final report. The maximum period for panel proceedings is nine months.

Paragraph ten encourages flexibility in the application of DSU timetables for consultations and panel proceedings involving complaints against developing countries. In addition, paragraph eleven provides that in such cases the panel's report must indicate how any special treatment for such countries called for in a relevant agreement has been taken into account.

Finally, paragraph twelve provides that a panel may suspend its proceedings for up to 12 months on the request of a complaining party. If the panel proceedings are not restarted within 12 months, the authority for the panel lapses. In such a case, the complaining party would be required to request the establishment of a new panel to pursue the matter.

Article 13 authorizes a panel to solicit information and technical advice from any person or entity located in a member's territory, after informing that member of the request. WTO governments are required to respond promptly and fully to any panel request for information. Panels are prohibited from revealing any confidential information provided to them without a formal authorization from the provider.

Article 13 also makes clear that a panel may seek advice from relevant experts and may establish an "expert review group" to provide an advisory report on any scientific or factual issue arising in the dispute. Rules for the establishment of such a group, and the procedures for its operation, are set out in Appendix 4 to the DSU.

Article 14 reflects the long-standing GATT practice that panel deliberations are to be confidential and that individual opinions expressed in panel reports must be kept anonymous. Once a report is adopted it will be released to the public.

Article 15 creates a new procedure based in part on a provision of the United States - Canada Free-Trade Agreement. It provides that the panel must furnish the parties with a complete draft of the panel's report -- including the panel's findings and conclusions -- before it is made final. The parties may provide written comments on the draft and the panel must hold a meeting at any party's request to consider those comments. Adoption of this new procedure should help improve the quality of panel reports by permitting the parties to point out, and the panel to correct, errors in its proposed findings or conclusions.

7. Adoption of Panel Reports

DSU rules regarding the adoption of panel reports represent a substantial improvement over those currently in place under the GATT. Article 16 provides that the DSB must adopt all panel reports within 60 days after they are issued unless one of the parties to the dispute notifies the DSB that it will appeal the decision or the DSB decides by consensus to reject the report. This means that a single country or group of countries will no longer be able to "block" the adoption of panel reports. If a panel report is appealed, the DSB will consider the report for adoption after the appeal process is completed.

8. Appeals

Article 17 creates another new procedure, appellate review of panel decisions, which should help ensure uniform interpretation of Uruguay Round Agreements. Three-person appellate panels, drawn from an "Appellate Body" of seven independent experts, will review the legal issues presented in any panel report appealed by one of the disputing parties. The Appellate Body will have the authority to uphold, modify, or reverse the legal findings and conclusions of the panel.

Although only parties to a dispute may appeal a panel report, third parties may make written submissions to the Appellate Body and may be given an opportunity to be heard. Normally, the Appellate Body will render its findings within 60 days after a disputing party files an appeal, although the Appellate Body may take up to 30 more days where necessary.

The DSB is required to adopt an Appellate Body report within 30 days after it is issued unless there is a consensus not to do so.

9. Communications with Panels and the Appellate Body

Article 18 prohibits ex parte communications with a panel or the Appellate Body. The Article also requires a panel or the Appellate Body to treat as confidential all written submissions it receives. In addition, each party participating in a dispute must keep confidential all submissions by other parties that it receives during the course of a dispute. A party may disclose its own positions to the public, however, and may request the other parties to provide non-confidential summaries of their written submissions for public disclosure.

10. Panel and Appellate Body Recommendations

When it finds that a government's measure is inconsistent with a Uruguay Round Agreement, a panel or the Appellate Body must issue a recommendation to that government to bring the offending measure into conformity with the agreement. While the panel or Appellate Body may also suggest ways to implement such a recommendation, Article 19 makes it clear that any such suggestion is non-binding. Any decision on whether or how to implement such a recommendation is entirely a matter for the country concerned.

11. Implementation of Recommendations

a. Timetables for Adoption and Implementation

Generally, if a dispute is not considered by the Appellate Body, Article 20 provides that the period from the establishment of the panel to the date the DSB considers adoption of the panel's report must not exceed nine months. If the Appellate Body reviews the panel report, the period will normally not exceed 12 months. The parties to the dispute may agree to extend these time periods, however.

One of the deficiencies in the current GATT dispute settlement procedures is the absence of any concrete deadline for the defending country to eliminate or amend a measure that a panel has found to be inconsistent with the GATT. Although GATT Article XXIII:2 provides that such changes are to be carried out within a "reasonable period," this phrase had never been precisely defined.

DSU Article 21 establishes three alternative methods for fixing this period. First, the DSB may approve a time period proposed by the government in question. Alternatively, the parties to the dispute may agree on an implementation period within 45 days after the DSU adopts the panel report. If the implementation period cannot be set by either of the preceding methods, it will be determined through binding arbitration that is to be completed within 90 days after the panel report is adopted. Article 21 suggests that the implementation period normally should not be longer than 15 months.

The time that may elapse from the date a panel is established until the date the implementation period is set may not exceed 15 months unless the period is extended by the parties, the panel, or the Appellate Body. No extension may increase the time to more than 18 months unless the parties to the dispute agree that there are exceptional circumstances.

b. Implementation

Current GATT procedures do not provide a method for resolving disagreements over implementation of the report's recommendations. Paragraph 5 of Article 21 addresses this problem by providing that such disputes will be decided under DSU procedures. Wherever possible, the panel convened to consider the disagreement will be the one that reviewed the original complaint. Panels normally must issue decisions in these cases within 90 days of referral.

The DSB will periodically review the progress that member governments have made in implementing panel decisions. To this end, Article 21 requires governments to make periodic written submissions to the DSB detailing their efforts to put panel reports into effect.

12. Compensation and Retaliation

a. Compensation

If a government fails to implement a panel or Appellate Body recommendation to bring a measure into conformity with a Uruguay Round Agreement, the government must enter into negotiations, on request, with the complaining party or parties to reach agreement on mutually acceptable compensation. The negotiations must begin no later than the end of the implementation period provided for under Article 21.

Article 22 makes clear that compensation is intended to be temporary and that full implementation of a panel or Appellate Body recommendation is the preferred result. While a government may offer compensation for failure to implement a recommendation, compensation is not required and, if granted, must be consistent with all Uruguay Round Agreements.

b. Retaliation

If agreement on compensation is not reached within 20 days after the expiration of the period allotted for implementing the panel or Appellate Body decision, a complaining party may request the DSB to authorize it to suspend concessions (retaliate). Paragraph three establishes certain procedures for the complaining government to observe in considering what concessions to suspend:

As a general principle, the complaining country must first consider taking action in the general sector (such as goods, major services sectors, or particular types of intellectual property) affected by the measure in question.

However, if it believes that such retaliation would not be "practicable or effective," the complaining government may consider retaliation directed at another sector. In such a case, the member must consider taking action through suspending concessions it has granted under a Uruguay Round Agreement in the same general subject area as the agreement that was the subject of the dispute (e.g., if the dispute involved an agreement related to trade in goods -- that is, an agreement included in Annex 1A of the WTO Agreement -- the member must consider retaliation through the suspension of benefits under another Annex 1A agreement).

If the complaining party considers that even this type of retaliation would be impracticable or ineffective, and if it further believes that circumstances are serious enough, it may consider suspending concessions under an unrelated Uruguay Round Agreement. For example, it may consider increasing tariffs on goods in response to a violation of the intellectual property agreement.

Paragraph 3 sets out detailed definitions of what constitute "sectors" and related "agreements" for this purpose.

In assessing what type of retaliation to select, the complaining government is directed to consider trade in the relevant sector or agreement as well as broader economic considerations. It is the complaining government itself, however, not the DSB or a panel, that makes the judgment whether a particular form of retaliation is "practicable or effective."

The DSB must grant a complaining country's request to suspend benefits within 30 days after the "reasonable period" allotted for implementation of the panel or Appellate Body report has elapsed. However, paragraph 4 limits the retaliation a complaining government can impose to that equivalent to the benefits the defending country is impairing by its WTO-inconsistent actions. This standard is equivalent to that in section 301(a)(3) of the Trade Act of 1974 (19 U.S.C. 2411 (a)(3)), which permits the Trade Representative to apply retaliation equivalent in value to the burden or restriction being imposed on U.S. commerce.

The government facing retaliation may request arbitration if it considers that the retaliation is not equivalent to the actual loss of benefits. In such an arbitration, the panel is not permitted to examine the nature of the concessions to be suspended -- for example, which tariffs are to be increased. Rather, the panel must confine its inquiry to whether the levels of the proposed retaliation and the loss of benefits are equivalent.

Second, the government requesting the arbitration may ask the arbitration panel to rule that the government proposing retaliation did not adhere to DSU procedures, described above.

Retaliation must be deferred during the arbitration, which is to be completed no later than 60 days after the period for implementation of the panel report has elapsed. The arbitration will be held before the original panel, if the panelists are available, or before arbitrators appointed by the WTO's Director-General.

The arbitration panel's decision is final and second arbitrations are not permitted. Following the arbitration, the DSB will grant a request to retaliate where it is consistent with the panel's decision.

Paragraph eight emphasizes that retaliation is to remain in place only until there is a satisfactory resolution of the dispute. Such a resolution may be achieved through removal of the offending measure, elimination of the nullification or impairment, or through reaching a mutually satisfactory solution with the other party to the dispute. The DSB will monitor any retaliation applied pursuant to the Understanding.

c. Application to Local and Regional Measures

Paragraph nine confirms that dispute settlement provisions may be invoked with respect to measures taken by regional or local governments. In particular, DSU provisions relating to compensation and retaliation apply in cases involving such measures.

13. Recourse to DSU Procedures

Article 23 provides that WTO members must use DSU procedures when they seek to remedy a violation of a Uruguay Round Agreement. Furthermore, no member may issue a "determination" that another government has violated a Uruguay Round Agreement unless a panel or Appellate Body has first reached that conclusion.

Article 23 is consistent with law and practice under section 301 of the Trade Act of 1974. When the Trade Representative initiates a section 301 investigation in a case that involves a trade agreement, the Trade Representative is required by section 303(a)(2) to initiate the formal dispute settlement procedures provided under that trade agreement. Moreover, under section 301, the Trade Representative makes a determination whether U.S. rights have been violated under a trade agreement only following U.S. participation in those proceedings. Finally, neither Article 23 nor section 301 requires the United States to use DSU procedures when the Trade Representative considers that an investigation does not involve a Uruguay Round Agreement.

14. Provisions for Least Developed Countries

Article 24 requires WTO governments to give special consideration to least developed country members in deciding whether to invoke and pursue dispute settlement procedures. Those members may request the WTO Director-General or Chairman of the DSB to provide good offices, conciliation, or mediation to help resolve disputes.

15. Arbitration

Article 25 offers arbitration as an alternative means of dispute settlement. The procedures are the same as those applied under the Montreal Rules with the addition that DSU rules on determining the deadlines for implementation of panel reports, for the provision of compensation, and for retaliation will apply to arbitration proceedings.

16. "Non-Violation" Cases

Article 26 provides special rules for cases where a WTO member seeks redress of another government's action that, while not inconsistent with any Uruguay Round Agreement, nevertheless results in benefits that should have accrued to it being "nullified or impaired" (so-called "non-violation" disputes.) In initiating such a case, the complaining government must provide a detailed justification of its grievance.

Furthermore, the remedy in a "non-violation" case differs from that of the usual "violation" case. Although there is no obligation for the defending government to withdraw the measure in question, that government must make a "mutually satisfactory adjustment," and compensation may be part of any final settlement.

In addition, any party to such a dispute may invoke the arbitration procedure provided in Article 21 (normally reserved for fixing the "reasonable period" for implementation of panel reports) for determining the level of benefits that have been nullified or impaired. The arbitration panel may also issue non-binding suggestions on how to settle the matter.

17. Secretariat Functions

Article 27 provides that the WTO Secretariat will provide technical and secretarial support in connection with dispute settlement procedures and may provide legal and technical advice to developing country members.

18. Appendices

Appendix 1 of the DSU lists the agreements covered by the Understanding.

Appendix 2 sets out the special or additional dispute settlement rules contained in certain Uruguay Round Agreements. By virtue of Article 1:2, these rules supersede those of the DSU for matters arising under those agreements.

Appendix 3 spells out working procedures for panels, including a proposed timetable for panel work.

Appendix 4 provides rules governing the establishment and operation of any "expert review groups" convened under Article 13.

B. ACTION REQUIRED OR APPROPRIATE TO IMPLEMENT THE AGREEMENT

1. Implementing Bill

a. WTO Dispute Settlement Panels and Procedures

In order to ensure that the United States enjoyed the full benefits it bargained for in the Uruguay Round, U.S. negotiators insisted on the inclusion of a fair and effective WTO dispute settlement system. Section 123 of the implementing bill is designed to help enhance the level of fairness and transparency already built into the system, and to ensure public confidence in WTO dispute settlement.

(1) Selection and Report on the Roster of Panelists

One key to maintaining such confidence is the appointment of dispute settlement panelists of the highest quality. The WTO Secretariat will maintain an indicative roster of potential panelists. The DSU provides that this roster is to include well-qualified governmental and non-governmental individuals, with emphasis on trade policy experience. Subsections (a) and (b) of section 123 call for continuing attention to this roster at the highest level of the Executive Branch, in order to assure that persons appointed to the roster are well-qualified.

(2) Rules on Conflicts of Interest

A second key to maintaining confidence in the panel process is assurance that there will be protection against conflicts of interest on the part of all those involved in determining the outcome of disputes. Subsection 123(c) calls for the Trade Representative to seek establishment of conflict-of-interest rules for panelists and Appellate Body members and to report to the Congress annually on any progress made in establishing such rules.

(3) Consultations on Dispute Settlement Proceedings

Subsections 123(d) through (f) ensure that there will be an effective coordinated response by the U.S. government in the event that another WTO member country challenges a federal or state law under the WTO dispute settlement process. In such a case, the Trade Representative will promptly notify the relevant Congressional committees of jurisdiction at each critical stage throughout the course of the proceedings. The Trade Representative will consult with those committees concerning the panel report and regarding any decision to appeal it. In the event of an adverse panel or Appellate Body report, the Trade Representative will consult with the appropriate Congressional committees concerning how best to respond.

(4) Regulatory Changes Following Panel Reports

Subsection 123(g) ensures that the Administration will consult with relevant Congressional committees, and consider public and private sector views, concerning any change in regulation, or in administrative practice consisting of written policy guidance of general application, that the Administration may propose in response to a WTO panel or Appellate Body report that finds the regulation or practice to be inconsistent with a Uruguay Round agreement. Among the provisions in subsection 123(g) is a 60-day consultation period and a procedure for the Ways and Means and Finance Committees to express their views through a non-binding resolution on the Administration's proposal. The subsection does not apply to administrative changes contemplated by the ITC.

A final rule may not go into effect before the end of the 60-day consultation period unless the President determines that an earlier date is in the national interest. One basis for such a determination would be a clear consensus in the Congress and the private sector on the proposed change.

(5) Consultations on WTO Dispute Settlement Rules and Procedures

Within four years of entry into force of the WTO Agreement, the Ministerial Conference will complete a full review of dispute settlement rules and procedures, and will take a decision at its first meeting thereafter on whether to continue, modify or terminate these procedures. The Trade Representative will take into account advice from the Ways and Means and Finance Committees in formulating the U.S. position for this review, through the consultations required by subsection 123(h).

b. Access to WTO Dispute Settlement

Subsections 127(a) and (b) of the bill establish procedures for ensuring that Congress, the public, and the private sector are kept informed of any dispute settlement proceedings under the WTO in which the United States is a party, and that their views are solicited and taken into account in the formulation of U.S. positions in such proceedings. These provisions supplement other requirements in U.S. law concerning notification and consultations in respect of trade agreement dispute settlement proceedings in which the United States is a party.

Under subsection 127(a), the Trade Representative will consult with all Congressional committees of jurisdiction, the relevant advisory committees established under section 135 of the Trade Act of 1974, and the petitioner, if any, under section 302 of the Trade Act of 1974, at each stage of any panel or Appellate Body proceeding in which the United States is a party. In addition, the Trade Representative will consider the views of appropriate interested private sector and nongovernmental organizations concerning the matter.

Promptly after the establishment of the panel, the Trade Representative will publish a notice in the Federal Register providing the public with important basic information on the dispute and seeking written comments on the matter. The Trade Representative will take those comments, and any advice provided by the Congressional and advisory committees and any section 302 petitioner, into account in developing U.S. submissions to the panel or Appellate Body. Although the Trade Representative is responsible for representing the United States in those proceedings, Congress, the public, and others can provide useful information, expertise, and perspective.

Subsection 127(c) requires the Trade Representative to make U.S. written submissions available to the public promptly after they are submitted to the panel or Appellate Body. This subsection also authorizes the Trade Representative to withhold from disclosure any information that its provider identifies as proprietary or which is treated as confidential by a foreign government. The Trade Representative will also make each panel and Appellate Body report in a proceeding to which the United States is a party available promptly after it is circulated to WTO members.

Subsection 127(c) also requires the Trade Representative to request other WTO member countries in a dispute with the United States to permit the release of their written submissions to the public. If the other country in a DSU panel or Appellate Body proceeding fails to make its submissions available to the public, the Trade Representative will request that country to provide non-confidential summaries of its written submissions, pursuant to subsection 127(d). That subsection requires the Trade Representative to request non-confidential summaries of submissions to all WTO dispute settlement panels, even if the United States is not a party to the dispute. The Trade Representative will make those summaries available to the public promptly after they are received.

Subsection 127(e) requires the Trade Representative to maintain a file accessible to the public on disputes to which the United States is a party. This file will provide a centralized location providing public access to information on such disputes.

c. Response to Panel Reports under Safeguards, Antidumping, and Subsidies Agreements

Section 129 of the implementing bill establishes a procedure by which the Administration may obtain advice it requires to determine its response to an adverse WTO panel or Appellate Body report concerning U.S. obligations under the Agreement on Safeguards, Antidumping, or Subsidies and Countervailing Measures. Section 129 also establishes a mechanism that permits the agencies concerned (the Department of Commerce (Commerce) and the U.S. International Trade Commission (ITC)) to issue a second determination, where such action is appropriate, to respond to the recommendations in a WTO panel or Appellate Body report.

Although the procedures differ somewhat for each agency, section 129 requires the Trade Representative to obtain the views of Commerce and the ITC before deciding on an appropriate response to an adverse report. In addition, section 129 provides for frequent consultations between the Trade Representative and the Ways and Means and the Finance Committees (the Committees). After considering the views of the Committees and the agencies, the Trade Representative may require the agencies to make a new determination that is "not inconsistent" with the panel or Appellate Body recommendations and to implement this second determination.

Under the authority provided by section 129, the Trade Representative may request the ITC or Commerce to take action "not inconsistent" with a panel report only if such action is in accord with U.S. safeguards, antidumping, or countervailing duty law, as the case may be. In the event that U.S. law precludes such action, the Administration would need to request the Congress to enact legislation to address the conflict between U.S. law and the Uruguay Round agreement in question.

(1) Actions By the ITC

Subsection (a)(1) provides authority for the Trade Representative, following issuance of an interim report from a panel or report from the Appellate Body that has found an action of the ITC to be inconsistent with U.S. obligations under the relevant agreement, to request advice as to whether U.S. law provides the ITC with discretion to render its action in the particular matter "not inconsistent with" an adverse report. At the time the Trade Representative requests an advisory opinion, the Committees will be notified, either in writing or orally, of the request.

The purpose of the Trade Representative's request will be to determine whether the ITC can take action "not inconsistent with" the panel's recommendation under existing U.S. law. Accordingly, the ITC will examine the full range of its discretion under U.S. law and based on that examination will advise the Trade Representative whether the law is reasonably susceptible of an interpretation that would allow the agency to take action "not inconsistent with" the report's recommendations. Because the ITC's report under this subsection is solely advisory, it is not made subject to appellate review.

Subsection (a)(2) ensures that the Trade Representative will receive such advice in time for the Trade Representative to decide whether to appeal a panel's interim report, or whether to implement an adverse report, and to estimate how long an implementation period may be required. Under Article 16.4 of the DSU, a panel report comes before the DSB for adoption within 60 days of its issuance, unless a party to the dispute notifies the DSB that it has decided to appeal the panel's report. Under Article 21.3 of the DSU, within 30 days after the adoption of a panel or Appellate Body report a member must advise the DSB of its intentions concerning implementation of the report's recommendations, including proposing a reasonable time for implementation. To ensure that the Trade Representative receives the ITC's report in sufficient time, subsection (a)(2) provides that the ITC must provide its advisory opinion concerning an interim panel report within 30 calendar days of the Trade Representative's request and within 21 calendar days of the request in the case of an Appellate Body report.

Section 129 does not require the Administration to request the ITC to make a second determination, even if a majority of the ITC advises that the ITC can take action consistent with existing law. Subsection (a)(3) provides for the Trade Representative to consult with the Committees concerning the appropriate response to the report.

Subsection (a)(4) provides the mechanism by which, if a majority of the ITC has advised that it may take action consistent with U.S. law to render its actions not inconsistent with an adverse report, the Trade Representative may require the ITC to take such action. Many of the ITC's proceedings are time-limited by statute, and the ITC cannot revisit its actions in those proceedings in the absence of the authority provided by subsection (a)(4) or a remand. A written request by the Trade Representative under subsection (a)(4) will provide authority for the ITC to take action with respect to such matters. A Commissioner who was not part of the majority issuing an affirmative report under subsection (a)(4) and who considers that Title VII of the Tariff Act of 1930 or section 201 of the Trade Act of 1974, as the case may be, does not permit action "not inconsistent with" the findings of the WTO panel or Appellate Body report would be expected not to participate in the determination required under (a)(4). Any such Commissioner could, however, append views on the matter to the ITC determination.

Under subsection (a)(4), the Trade Representative will not refer a matter to the ITC unless a majority of Commissioners provided affirmative advise in response to a request under subsection (a)(1). Although subsection (a)(4) requires it to make a determination following the receipt of a request, the ITC will decide independently on the steps it will take to render its actions "not inconsistent with" the panel or Appellate Body findings. To permit the Trade Representative to propose to the DSB a reasonable period for implementation, subsection (a)(4) sets a 120-day time limitation for the ITC to take such action. This 120-day limit will provide the ITC sufficient time to gather additional information if necessary for it to decide on appropriate implementing action.

Subsection (a)(5) provides for the Trade Representative to consult with the Committees on the ITC's determination under subsection (a)(4) prior to the implementation of the

determination.

Subsection (a)(6) provides authority for Commerce to revoke an order under Title VII in whole or in part to implement an ITC determination under subsection (a)(4).

Subsection (a)(7) provides the President authority to reduce, modify, or terminate action under section 203 of the Trade Act of 1974 after receiving the ITC determination under subsection (a)(4) and consulting with the Committees.

(2) Actions by Commerce

Under subsection 129(b), following the issuance of an adverse WTO panel or Appellate Body report concerning a Commerce antidumping or countervailing duty determination and consultations with Commerce and the Committees, the Trade Representative may direct Commerce to make a determination that is "not inconsistent with" the WTO report's recommendations, and may direct Commerce to implement this determination.

Subsections (b)(1) and (b)(3) require the Trade Representative to consult with Commerce both promptly after a panel report is issued and again prior to directing Commerce to take any action to implement the second determination. The requirement for the Trade Representative to consult with Commerce is intended to ensure that the Trade Representative benefits from Commerce's administrative and substantive expertise in the evaluation of a panel's findings and the development of implementing action, if any. The Administration expects that Commerce would provide the Trade Representative advice on: (1) whether implementation of the findings is permissible under the antidumping or countervailing duty law; (2) the implications for the administration of the antidumping and countervailing duty laws of implementing the findings; and (3) the most desirable method of implementing the findings and the time required to do so.

Implementation of an adverse WTO report under subsection 129(b) is a two-step process. First, the Trade Representative would direct Commerce to make a new determination. Second, the Trade Representative may direct Commerce to implement that determination. If the Trade Representative directs Commerce to implement the second determination, Commerce may do so even if litigation is pending with respect to the initial agency determination.

The Trade Representative may decline to request implementation of the second determination. This might be the case, for example, if Commerce issued a final affirmative subsidy determination and a WTO panel subsequently finds that Commerce's analysis was not consistent with the Subsidies Agreement. On making a new determination at the Trade Representative's direction, Commerce could correct the analytical flaw found by the panel without changing the original outcome. In such a case, there would be no need to implement the new determination as a matter of domestic law.

Furthermore, while subsection 129(b) creates a mechanism for making new determinations in response to a WTO report, new determinations may not be necessary in all situations. In many instances, such as those in which a WTO report merely implicates the size of a dumping margin or countervailable subsidy rate (as opposed to whether a determination is affirmative or negative), it may be possible to implement the WTO report recommendations in a future administrative review under section 751 of the Tariff Act. In such instances, however, the requirements of subsection (b)(1) regarding consultations with Commerce and the Committees would still apply.

(3) Effect of Determinations

Consistent with the principle that GATT panel recommendations apply only prospectively, subsection 129(c)(1) provides that where determinations by the ITC or Commerce are implemented under subsections (a) or (b), such determinations have prospective effect only. That is, they apply to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption on or after the date on which the Trade Representative directs implementation. Thus, relief available under subsection 129(c)(1) is distinguishable from relief available in an action brought before a court or a NAFTA binational panel, where, depending on the circumstances of the case, retroactive relief may be available. Under 129(c)(1), if implementation of a WTO report should result in the revocation of an antidumping or countervailing duty order, entries made prior to the date of Trade Representative's direction would remain subject to potential duty liability.

To ensure that private parties are aware of the effective date of an implemented determination, subsection (c)(2) requires Commerce or the Trade Representative to publish notice in the Federal Register of the implementation of determinations under section 129.

(4) Opportunity for Comments

Under subsection 129(d), prior to issuing a second determination, Commerce or the ITC, as the case may be, will provide interested parties with an opportunity to submit written comments. At their discretion, the agencies also may hold a hearing on the matter.

(5) Judicial Review

Subsection 129(e) amends section 516A of the Tariff Act of 1930 to provide for review by the courts and NAFTA binational panels of new Title VII determinations made by Commerce or the ITC under section 129 that are implemented. The subsection also establishes the time available for filing an appeal with the court or with a binational panel. Section 129 determinations that are not implemented will not be subject to judicial or binational panel review, because such determinations will not have any effect under domestic law.

In some cases, implementation of section 129 determinations may render moot all or some issues in pending litigation in connection with the agency's initial determination. For example, should the Trade Representative direct Commerce to implement a section 129 determination that changes the cash deposit rate, such action could render moot any pending domestic litigation solely involving the amount of the cash deposit rate, as opposed to the validity of the underlying antidumping or countervailing duty order. If, by contrast, the litigation also involved the validity of the original determination, the court or binational panel would still have to render an opinion on that subject.

Since implemented determinations under section 129 may be appealed, it is possible that Commerce or the ITC may be in the position of simultaneously defending determinations in which the agency reached different conclusions. In such situations, the Administration expects that courts and binational panels will be sensitive to the fact that under the applicable standard of review, as set forth in statute and case law, multiple permissible interpretations of the law and the facts may be legally permissible in any particular case, and the issuance of a different determination under section 129 does not signify that the initial determination was unlawful.

d. Amendments to Section 301 and Trade Agreements Act

Section 314 of the bill amends various provisions of section 301 of the Trade Act of 1974 dealing with the conduct of section 301 investigations and the authority of the Trade Representative to respond to unfair trade practices by foreign governments.

(1) Authority under Section 301

Section 314(a)(1) clarifies that the Trade Representative's authority, subject to the direction of the President, encompasses any power of the President, with respect to trade in goods and services or to relations with the foreign country in question. This clarification reflects the Administration's intent to expand the focus of possible action under section 301 to areas that are not within the scope of U.S. obligations under the Uruguay Round Agreements.

Section 314(a)(2) amends section 301 to eliminate the requirement to give priority to imposition of duties in all instances. Pursuant to the amendment, such priority is to be accorded only if the Trade Representative determines that action under section 301 is to be in the form of import restrictions.

Subsection (b) grants the Trade Representative authority under section 301 to limit, withdraw, or suspend benefits granted under the GSP program, CBI, or the Andean Trade Preference Act if the foreign government act, policy, or practice at issue also fails to meet the eligibility criteria for these programs. Under existing law, the Trade Representative can take such action only at the direction of the President.

(2) Unreasonable Practices Related to Intellectual Property or Anticompetitive Activities

Subsection (c)(1) amends the definition of an "unreasonable act, policy or practice" for the purposes of section 301. The subsection clarifies that the Trade Representative may determine that a country is denying adequate and effective protection of intellectual property rights even if the country is in compliance with the TRIPs Agreement. The subsection also adds denial of nondiscriminatory market access opportunities for U.S. persons that rely on intellectual property protection to the definition. Under existing law, denial of such market access opportunities is expressly covered only under section 182 of the Trade Act of 1974.

In addition, the subsection clarifies that the definition of "unreasonable act, policy or practice" under section 301 regarding foreign government toleration of systematic anticompetitive activities applies to: (1) state-owned enterprises as well as private firms; (2) denial of fair and equitable market access opportunities for U.S. services as well as goods; and (3) anticompetitive practices that restrict the sale of U.S. goods or services to a foreign market, not just to foreign firms that engage in such practices. The purpose of this amendment is to ensure that section 301 can be used to address the full range of anticompetitive practices that may be burdening or restricting U.S. commerce.

In light of the importance the Administration and the Congress attach to ensuring that foreign governments do not tolerate anticompetitive practices, section 311 of the implementing bill amends section 181 of the Trade Act of 1974 to require the Trade Representative to include in the annual National Trade Estimates Report on Foreign Trade Barriers (NTE report) a separate section on foreign anticompetitive practices the toleration of which by foreign governments is adversely affecting U.S. goods or services exports. In preparing the NTE report, the Trade Representative will consult in particular with the Department of Justice.

(3) Protection of Intellectual Property

Section 314(c)(2) amplifies the definition of "adequate and effective protection of intellectual property" in section 301 to encompass a broader range of intellectual property rights. Subsection (c)(2) also provides a definition of "denial of fair and equitable nondiscriminatory market access opportunities." Under the definition, access may be denied through restrictions related to the use, exploitation, or enjoyment of commercial benefits derived from exercising intellectual property rights. The amendment will permit the Trade Representative to scrutinize foreign government restrictions on commercial activities related to products protected by intellectual property rights to determine if the restrictions discriminate or are otherwise unfair or inequitable.

(4) Time Limits for Investigations

Sections 314(d) and 341(a) of the bill amends section 304 of the Trade Act of 1974 and section 305 of the Trade Agreements Act of 1979, respectively, to ensure that the timetables for investigations and determinations under the enforcement provisions of U.S. trade laws allow DSU dispute settlement proceedings to be completed before trade sanctions may be imposed. For the most part, time periods established under U.S. law for dispute settlement proceedings are already consistent with relevant DSU provisions.

Section 314(d) amends section 304(a)(2). The amendment makes the 18-month deadline for determinations in section 301 investigations -- which currently applies to determinations in all section 301 investigations involving trade agreements other than those involving the GATT Subsidies Code -- apply to investigations involving the Code as well. Section 314(d) also extends the reporting requirement of section 302(a)(4) to disputes arising under the Code.

In addition, section 314(d) amends section 304(a)(3) of the 1974 Act to ensure that the standard 18-month time limit for making determinations in section 301 investigations will apply to matters involving the TRIPs Agreement where the investigation is initiated as the result of a "priority foreign country" identification under the "special 301" provisions of U.S. trade law (19 U.S.C. 2242). The six-month time limit in section 304(a)(3) will continue to apply to investigations involving intellectual property and market access matters initiated as a result of a "priority foreign country" identification where the TRIPs Agreement or another trade agreement is not involved.

Sections 341(a) of the bill amends section 305 of the Trade Agreements Act of 1979, which establishes procedures for monitoring and enforcing the Agreement on Government Procurement. The amendment extends to 18 months the time permitted under section 305(f) for the conclusion of proceedings brought by the United States alleging a violation of that Agreement. The amendment also provides sufficient time for the country in question to implement an adverse panel or Appellate Body report and for the DSB to approve a U.S. request to retaliate before the United States removes procurement benefits for such country.

No similar amendment is required for section 301 proceedings since, unlike section 305(f) of the Trade Agreements Act of 1979, section 301 does not automatically require the imposition of sanctions where the United States wins a dispute settlement case under a trade agreement. For example, in a section 301 investigation, the USTR is not required to apply sanctions if the foreign country agrees to eliminate or phase out the measure in question or to settle the matter in a mutually satisfactory manner. In such a case, the USTR monitors compliance by the foreign country with any such undertaking, as required by section 306 of the Trade Act of 1974, and is authorized to take action if the foreign country fails to take the requisite steps.

e. Monitoring of Agreements to Resolve Section 301 Investigations

Section 314(e) of the bill amends section 306 of the Trade Act of 1974, to require the Trade Representative to monitor the implementation of any agreement or measure undertaken by a foreign government to resolve a matter subject to a section 301 investigation, whether or not the Trade Representative has made a determination under section 304 that the foreign government's act, policy, or practice is unreasonable. Under existing law, section 306 applies only when the Trade Representative has made such a determination.

In addition, section 314(e) amends section 306 to impose a deadline under that section for making a determination in trade disputes submitted to WTO dispute settlement procedures. If the Trade Representative considers that another country has failed to implement a WTO panel recommendation satisfactorily in a case involving the United States, the amendment requires the Trade Representative to determine, within 30 days after the expiration of the "reasonable period of time" for implementation of panel recommendations provided for in Article 21 of the DSU, what action to take under section 301(a).

f. Identification of Trade Expansion Priorities

Section 314(f) of the bill amends section 310 of the Trade Act of 1974 (Super 301) to require the Trade Representative to review U.S. trade expansion priorities and identify and report to the Finance and Ways and Means Committees within 180 days of the submission of the National Trade Estimate report for calendar year 1995 on the priority foreign country practices that are likely to have the most significant potential to increase U.S. exports. The Trade Representative may also cite in the report practices that may warrant identification in the future or that were not identified because they are already being addresssed and progress is being made toward their elimination. Within 21 days after the report is submitted, the Trade Representative must initiate section 301 investigations of any priority practices identified in the report.

g. Consultations after NTE Report

Section 181 of the Trade Act of 1974 currently requires the Trade Representative to keep the Finance Committee and appropriate House committees informed regarding trade policy priorities for the purposes of expanding markets. In order to provide for effective policy coordination regarding foreign trade barriers identified in the NTE report, section 312 of the implementing bill requires the Trade Representative to consult periodically with those committees during the year following the issuance of the report, and to take their views into account, regarding how best to address the foreign trade barriers (including barriers to the provision of financial or other services) identified in the report.

The consultations will include consideration of whether section 302 investigations (either self-initiated or initiated by petition) or other trade actions may be appropriate to address barriers identified in the report. With respect to consultations regarding any barriers to financial services identified in the report, the Trade Representative will consider the Ways and Means, Banking, and Energy and Commerce Committees to be the "appropriate" House committees for purposes of section 312.

h. Annual Report on Intellectual Property Protection

Section 313 of the bill amends section 182 of the Trade Act of 1974, which requires the Trade Representative to identify priority foreign countries that deny adequate and effective protection of intellectual property rights, or fair and equitable market access for U.S. persons that rely on intellectual property protection. New elements that the Trade Representative will consider in making such identification include the history of intellectual property laws and practices in the foreign country, whether the country has been identified as a priority foreign country previously, and U.S. efforts to obtain adequate and effective intellectual property protection in that country.

Section 313 also clarifies that a country may be identified as a priority foreign country even if it is in compliance with the TRIPs Agreement. The TRIPs Agreement does not cover all aspects of intellectual property protection that may affect U.S. persons seeking to protect or enforce rights abroad. Moreover, the long transition periods in that Agreement may permit a country to continue to deny adequate and effective protection of intellectual property during that transition. As noted with regard to section 315 of the bill, a key U.S. objective in the area of intellectual property is to seek accelerated implementation of the TRIPs Agreement.

Identification of countries as priority foreign countries under section 182 of the Trade Act of 1974 or placement of a country on one of the "special 301 watch lists" has been an important part of the Administration's efforts to achieve improved intellectual property protection and market access. Section 313 of the bill amends section 182 to require the Trade Representative to submit a report to the Ways and Means and Finance Committees each year on actions taken under the "special 301" provision of section 182. The report will describe actions taken during the preceding 12 months, the reasons for such actions, and any progress made in achieving improved protection of intellectual property rights and market access for persons relying on intellectual property protection.

As a result of other amendments in Title III of the implementing bill, the Special 301 annual report will encompass the subjects of copyright and related rights (including textile design protection), patents, semiconductor mask works, trade secrets, plant breeders's rights and trademarks, as well as market access issues for persons that rely on intellectual property protection. The report will focus on actions taken in connection with those trading partners that are identified as priority foreign countries under section 182, as well as those countries placed on the special 301 "priority watch list" and "watch list." The Trade Representative will give particular attention in the report to those countries and practices that have been the subject of public submissions over the prior year raising specific intellectual property issues.

2. Administrative Action

a. Panel Reports and U.S. Sovereignty

Over the past several decades, the United States has invoked GATT dispute settlement procedures to challenge actions by other governments more frequently than any other country. U.S. laws and practices have also been the subject of GATT challenges. Although the United States has prevailed in the vast majority of disputes in which it has been involved, there have been instances in which panels have found U.S. practices to be inconsistent with the GATT.

Reports issued by panels or the Appellate Body under the DSU have no binding effect under the law of the United States and do not represent an expression of U.S. foreign or trade policy. They are no different in this respect than those issued by GATT panels since 1947. If a report recommends that the United States change federal law to bring it into conformity with a Uruguay Round agreement, it is for the Congress to decide whether any such change will be made.

Furthermore, neither federal agencies nor state governments are bound by any finding or recommendation included in such reports. In particular, panel reports do not provide legal authority for federal agencies to change their regulations or procedures or refuse to enforce particular laws or regulations, such as those related to human, animal or plant health, or the environment. In addition, as noted elsewhere in this Statement, the United States will not seek to introduce a panel report into evidence in any civil suit brought by the United States challenging a state law or regulation on the ground that it is inconsistent with a Uruguay Round agreement.

In normal circumstances where a panel report finds a U.S. law or practice to be inconsistent with a Uruguay Round agreement, the United States will agree with the other parties to the dispute on a resolution of the dispute that is in conformity with the panel or Appellate Body recommendations. Where the matter involves a law or regulation of a state of the United States, any resolution would be reached in consultation and coordination with the state concerned, as described in this Statement in connection with the WTO Agreement.

The DSU recognizes that it may not be possible for a government to agree to the removal of a measure that a panel has found to be inconsistent with a Uruguay Round agreement. Accordingly, it provides for alternative resolutions, including the provision of trade compensation and other negotiated settlements, or the suspension of benefits equivalent to the "nullification or impairment" of benefits caused by the offending measure. In all cases following a panel report, the DSU leaves to the discretion of the United States any change in federal or state law and the manner in which any such change may be implemented -- whether through the adoption of legislation, a change in regulation, judicial action, or otherwise.

b. Enforcement of U.S. Rights

During the Uruguay Round negotiations, U.S. negotiators took pains to ensure that U.S. laws dealing with foreign unfair trade practices, including section 301 of the Trade Act of 1974, would remain fully effective. Since it was enacted, section 301 has been the principal U.S. statute for addressing foreign unfair practices that adversely affect U.S. exports of goods and services. Section 301 authorizes the Trade Representative to take action, subject to the direction of the President, against acts, policies, or practices that are inconsistent with, or deny benefits under, trade agreements or that are unreasonable, unjustifiable, or discriminatory and burden or restrict U.S. commerce.

Since 1974, the Congress has amended section 301 several times to strengthen it and ensure that it covers the full range of foreign barriers affecting U.S. exports. In 1979, following the negotiation of a number of new GATT codes in the Tokyo Round, Congress amended section 301 to ensure that it would be used to enforce U.S. rights under trade agreements and to respond to practices that deny U.S. benefits under such agreements.

In 1984, Congress made clear that section 301 can be used to address foreign unfair practices affecting U.S. services trade, foreign investments, and intellectual property rights, and that the Administration can respond to such practices by applying sanctions against services from the country in question. In 1988, the Congress enacted a number of amendments to section 301 to strengthen its procedures still further, including the addition of provisions covering worker rights and toleration of anticompetitive practices. These changes have helped to make section 301 an increasingly effective tool in opening foreign markets.

The Administration intends to use section 301 to pursue vigorously foreign unfair trade barriers that violate U.S. rights or deny benefits to the United States under the Uruguay Round agreements. The Administration equally intends to use section 301 to pursue foreign unfair trade barriers that are not covered by those agreements. This is what Congress intended in the Omnibus Trade and Competition Act of 1988 when, on the one hand, it made a more effective and expeditious dispute settlement mechanism the first principal U.S. negotiating objective and, on the other hand, the Congress made major modifications to strengthen section 301 for use against both those practices falling within and outside trade agreements to which the United States is a party.

The Administration expects that as a result of the Uruguay Round agreements in general, and the Dispute Settlement Understanding in particular, section 301 will be even more effective than it has been in the past in addressing foreign unfair trade barriers.

Currently, when a GATT panel finds that a government's complaint concerning an alleged GATT violation is justified, the defending country can indefinitely "block" adoption of the panel's report, leaving the matter unresolved. Moreover, even when such a panel report is adopted, the GATT Council typically is unwilling to authorize retaliation -- even if the violation persists over an extended period. For example, when the United States obtained adverse GATT panel reports against the European Community in section 301 investigations involving oilseeds, citrus, and pasta, the cases remained unresolved for a number of years, prompting the United States to impose or threaten retaliation as a last resort in the absence of GATT authorization to do so.

That situation will change once the Uruguay Round agreements enter into force. First, defending countries will no longer be able to block adoption of adverse panel reports. Second, countries that bring successful challenges will be authorized to withdraw Uruguay Round trade benefits from the offending country if, after a reasonable period following adoption of the panel or Appellate Body report, the matter cannot be settled in a mutually satisfactory manner. These changes mean that when the United States brings a successful challenge against another government under the DSU, the United States will have improved leverage to insist that the defending government remedy its violation. If the violation persists, the United States will be automatically entitled to take action under section 301.

Furthermore, the Uruguay Round agreements will substantially enhance the ability of the United States to use section 301 successfully to pursue unfair foreign practices in the areas of trade in services and the protection of intellectual property rights. That is not simply because the Uruguay Round agreements subject those areas to the disciplines of a multilateral trade agreement for the first time. It is also because the DSU permits "cross-retaliation." For example, when the United States successfully challenges a violation of the TRIPs Agreement, the defending government will know that unless the matter is resolved the United States can take equivalent counter-action under section 301 against that country's exports of goods to the United States. In the past, most retaliation against imports from GATT countries would have run afoul of U.S. obligations under the GATT and could have engendered counter-retaliation.

Although it will enhance the effectiveness of section 301, the DSU does not require any significant change in section 301 for investigations that involve an alleged violation of a Uruguay Round agreement or the impairment of U.S. benefits under such an agreement. In such cases, the Trade Representative will:

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

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

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

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

Neither section 301 nor the DSU will require the Trade Representative to invoke DSU dispute settlement procedures if the Trade Representative does not consider that a matter involves a Uruguay Round agreement. Section 301 will remain fully available to address unfair practices that do not violate U.S. rights or deny U.S. benefits under the Uruguay Round agreements and, as in the past, such investigations will not involve recourse to multilateral dispute settlement procedures.

For example, with minor exceptions, the Uruguay Round agreements do not address government measures that encourage or tolerate private, anticompetitive practices. Should the Trade Representative elect to investigate the failure by a foreign government to take action against systematic, anticompetitive distribution practices, including reciprocal dealing, exclusivity or tying arrangements, that deny access to U.S. firms, section 301 would remain fully available to challenge such a failure. Section 301 will also remain available to address persistent patterns of conduct by foreign governments that deny basic worker rights and burden or restrict U.S. commerce.

Moreover, the mere fact that the Uruguay Round agreements treat a particular subject matter -- such as intellectual property rights -- does not mean that the Trade Representative must initiate DSU proceedings in every section 301 investigation involving that subject matter. In the event that the actions of the foreign government in question fall outside the disciplines of those agreements, the section 301 investigation would proceed without recourse to DSU procedures.

Some foreign government practices may involve a number of actions, some of which are covered under the rules imposed by the Uruguay Round agreements and some of which are not. In section 301 investigations involving mixed actions of this kind, the Administration intends to continue the current practice of initiating dispute settlement proceedings against actions falling under a trade agreement and addressing other actions through bilateral negotiations.

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

infrequently. In certain cases, the United States has taken such action because a foreign government has blocked adoption of a GATT panel report against it.

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

Finally, nothing in the DSU will affect application of section 301 against practices by governments that either are not WTO members or by WTO members to which the United States does not apply the Uruguay Round agreements. The Trade Representative will address section 301 investigations of unfair trade practices by such countries on a bilateral basis.

c. Anticompetitive Practices

Among the foreign government practices that section 301(d)(3)(B) of the Trade Act of 1974 defines as "unreasonable" are those that deny fair and equitable market opportunities, including the toleration by a foreign government of systematic anticompetitive activities. The Administration will enforce vigorously the "toleration of . . . anticompetitive activities" provision in section 301 when appropriate to address foreign anticompetitive behavior. The practices covered by the provision include, but are not limited to, toleration of cartel-type behavior or toleration of closed purchasing behavior (including collusive coercion of distributors or customers) that precludes or limits U.S. access in a concerted and systematic way.

The Trade Representative, in consultation with the Attorney General, will look to a variety of information sources in evaluating a foreign government's toleration of anticompetitive practices. Issues to be addressed include the existence of the anticompetitive practices and whether there was an unreasonable failure to take timely action against them. In making an assessment, the Trade Representative will consider whether the pertinent foreign government, and especially its competition authorities, have been made aware of the alleged practices and, if so, how they were informed, the relevant evidence that has been provided to, or is known to be available to, the foreign authorities, and the nature of response those authorities have made.

The evidence provided to, or known to be available to, a foreign authority normally should include, among other things, the identity of the enterprises allegedly involved and the relevant markets affected, a description of the specific practices, and an indication of their duration and pervasiveness. In keeping with the Congressional intent in adopting this provision, the Trade Representative will also take into account whether the anticompetitive activities are inconsistent with the foreign country's own laws, how systematic and pernicious those activities have been, and their degree of effect on U.S. domestic or foreign commerce.