INTRODUCTION

On 10 November 2000, the European Communities requested consultations with the United States under Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”), Article XXII of the General Agreement on Tariffs and Trade 1994 (the “GATT 1994”) and Article 30 of the Agreement on Subsidies and Countervailing Measures (the “SCM Agreement”). The European Communities’ request was related to the continued application by the US Department of Commerce of countervailing duties based on its “change in ownership” methodology which consisted of a presumption that non-recurring subsidies granted to a former producer of goods, prior to a change in ownership, “pass through” to the current producer of the goods following the change in ownership.

Consultations took place in Geneva on 7-8 December 2000, but the parties failed to reach a mutually satisfactory solution. On 1 February 2001, the European Communities requested further consultations with the United States. Further consultations took place in Geneva on 3 April 2001, but the parties did not reach a mutually satisfactory solution.

On 8 August 2001, the European Communities requested the Dispute Settlement Body (the “DSB”) to establish a panel, pursuant to Articles 4 and 6 of the DSU, Article 30 of the SCM Agreement and Article XXII of the GATT 1994 with respect to the practice by the United States of imposing countervailing duties on certain products exported from the European Communities “without establishing the existence of a financial contribution or a benefit to the producers under investigation and hence the existence of a countervailable subsidy as defined in the SCM Agreement.” These duties had been imposed or maintained notwithstanding privatizations or changes of ownership in reliance, inter alia, on Section 771(5)(F) of the Tariff Act 1930, as amended, (19 USC Section 1677(5)(F)) and according to the European Communities were not based on an analysis of the existence of a countervailable subsidy benefiting the producer concerned during the period of investigation or review.