INTRODUCTION: FACTUAL BACKGROUND AND STATEMENT OF THE APPEAL

This is an appeal by Costa Rica from certain issues of law and legal interpretations set out in the Panel Report, United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear (the “Panel Report”). That Panel (the “Panel”) had been established to consider a complaint by Costa Rica relating to a transitional safeguard measure imposed by the United States on imports of cotton and man-made fibre underwear from Costa Rica under Article 6 of the Agreement on Textiles and Clothing (“ATC”).

The factual background essential to understanding this appeal, may be sketched quickly.

On 27 March 1995, the United States requested consultations with Costa Rica on trade in cotton and man-made underwear under Article 6.7 of the ATC. At the same time, the United States provided Costa Rica with a “Statement of Serious Damage”, dated March 1995 (the “March Statement”), on the basis of which the United States proposed the introduction of a restraint on imports of underwear from Costa Rica. Notice of the request for consultations, the proposed restraint and the proposed restraint level was published in the United States Federal Register on 21 April 1995. The consultations were held but the United States and Costa Rica failed to negotiate a mutually acceptable settlement during these consultations. The United States then invoked Article 6.10 of the ATC, and intro-duced a transitional safeguard measure in respect of cotton and man-made fibre underwear imports from Costa Rica on 23 June 1995. The measure was, by its terms, to be valid for a period of 12 months, effective as of 27 March 1995 (i.e., the date of the request for consultations).

At the same time, the United States referred the matter to the Textiles Monitoring Body (the “TMB”). The TMB found that the United States had failed to demonstrate serious damage to the United States domestic industry. However, the TMB did not reach a consensus on the existence of an actual threat of serious damage. The TMB similarly failed to make any findings on the effective date of application of the United States restraint. Accordingly, the TMB recommended that the United States and Costa Rica hold further consultations with a view to resolving the matter.