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XXI. Article 21     back to top

A. Text of Article 21

Article 21: Surveillance of Implementation of Recommendations and Rulings

1.     Prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members.

2.     Particular attention should be paid to matters affecting the interests of developing country Members with respect to measures which have been subject to dispute settlement.

3.     At a DSB meeting held within 30 days(11) after the date of adoption of the panel or Appellate Body report, the Member concerned shall inform the DSB of its intentions in respect of implementation of the recommendations and rulings of the DSB. If it is impracticable to comply immediately with the recommendations and rulings, the Member concerned shall have a reasonable period of time in which to do so. The reasonable period of time shall be:

(footnote original) 11 If a meeting of the DSB is not scheduled during this period, such a meeting of the DSB shall be held for this purpose.

(a)     the period of time proposed by the Member concerned, provided that such period is approved by the DSB; or, in the absence of such approval,

(b)     a period of time mutually agreed by the parties to the dispute within 45 days after the date of adoption of the recommendations and rulings; or, in the absence of such agreement,

(c)     a period of time determined through binding arbitration within 90 days after the date of adoption of the recommendations and rulings.(12) In such arbitration, a guideline for the arbitrator(13) should be that the reasonable period of time to implement panel or Appellate Body recommendations should not exceed 15 months from the date of adoption of a panel or Appellate Body report. However, that time may be shorter or longer, depending upon the particular circumstances.

(footnote original) 12 If the parties cannot agree on an arbitrator within ten days after referring the matter to arbitration, the arbitrator shall be appointed by the Director-General within ten days, after consulting the parties.

(footnote original) 13 The expression “arbitrator” shall be interpreted as referring either to an individual or a group.

4.     Except where the panel or the Appellate Body has extended, pursuant to paragraph 9 of Article 12 or paragraph 5 of Article 17, the time of providing its report, the period from the date of establishment of the panel by the DSB until the date of determination of the reasonable period of time shall not exceed 15 months unless the parties to the dispute agree otherwise. Where either the panel or the Appellate Body has acted to extend the time of providing its report, the additional time taken shall be added to the 15-month period; provided that unless the parties to the dispute agree that there are exceptional circumstances, the total time shall not exceed 18 months.

5.     Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it. When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report.

6.     The DSB shall keep under surveillance the implementation of adopted recommendations or rulings. The issue of implementation of the recommendations or rulings may be raised at the DSB by any Member at any time following their adoption. Unless the DSB decides otherwise, the issue of implementation of the recommendations or rulings shall be placed on the agenda of the DSB meeting after six months following the date of establishment of the reasonable period of time pursuant to paragraph 3 and shall remain on the DSB’s agenda until the issue is resolved. At least 10 days prior to each such DSB meeting, the Member concerned shall provide the DSB with a status report in writing of its progress in the implementation of the recommendations or rulings.

7.     If the matter is one which has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances.

8.     If the case is one brought by a developing country Member, in considering what appropriate action might be taken, the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Members concerned.

B. Interpretation and Application of Article 21

1. Article 21.1

(a) “prompt compliance”

(i) Concept of compliance

537.     The Arbitrator in Argentina — Hides and Leather (Article 21.3) defined the concept of “compliance” or “implementation” as a technical concept with a specific content: “the withdrawal or modification of a measure, or part of a measure, the establishment or application of which by a Member of the WTO constituted the violation of a provision of a covered agreement”:

“[T]he non-conforming measure is to be brought into a state of conformity with specified treaty provisions either by withdrawing such measure completely, or by modifying it by excising or correcting the offending portion of the measure involved. Where the non-conforming measure is a statute, a repealing or amendatory statute is commonly needed. Where the measure involved is an administrative regulation, a new statute may or may not be necessary, but a repealing or amendatory regulation is commonly required.(780)*

It thus appears that the concept of compliance or implementation prescribed in the DSU is a technical concept with a specific content: The withdrawal or modification of a measure, or part of a measure, the establishment or application of which by a Member of the WTO constituted the violation of a provision of a covered agreement …”(781)

538.     In Argentina — Hides and Leather (Article 21.3), the Arbitrator differentiated the concept of “compliance” within the meaning of the DSU from the removal or modification of the underlying economic/social/other conditions which may have caused the enactment or application of the WTO-inconsistent governmental measure:

“Compliance within the meaning of the DSU is distinguishable from the removal or modification of the underlying economic or social or other conditions the existence of which might well have caused or contributed to the enactment or application of the WTO-inconsistent governmental measure in the first place. Those economic or other conditions might, in certain situations, survive the removal or modification of the non-conforming measure; nevertheless, the WTO Member concerned will have complied with the DSB recommendations and rulings and with its obligations under the relevant covered agreement. To my mind, it is inter alia for the above reason that the need for structural adjustment of the industry or industries in respect of which the WTO-inconsistent measure was promulgated and applied, has generally been regarded, in prior arbitrations under Article 21.3(c) of the DSU, as not bearing upon the determination of a ‘reasonable period of time’ for implementation of DSB recommendations and rulings.(782)”(783)

(ii) Promptness of compliance

539.     In Chile — Alcoholic Beverages (Article 21.3), the Arbitrator considered that the existence of a certain element of flexibility in respect of time in complying with the recommendations and rulings of the DSB “would appear to be essential if ‘prompt’ compliance, in a world of sovereign states, is to be a balanced conception and objective”:

“The DSU clearly stressed the systemic interest of all WTO Members in the Member concerned complying ‘immediately’ with the recommendations and rulings of the DSB. Reading Articles 21.1 and 21.3 together, ‘prompt’ compliance is, in principle, ‘immediate’ compliance. At the same time, however, should ‘immediate’ compliance be ‘impracticable’— it may be noted that the DSU does not use the far more rigorous term ‘impossible’ — the Member concerned becomes entitled to a ‘reasonable period of time’ to bring itself into a state of conformity with its WTO obligations. Clearly, a certain element of flexibility in respect of time is built into the notion of compliance with the recommendations and rulings of the DSB. That element would appear to be essential if ‘prompt’ compliance, in a world of sovereign states, is to be a balanced conception and objective.”(784)

540.     In US — 1916 Act (Article 21.3), the Arbitrator further indicated that an implementing Member “may reasonably be expected to use all the flexibility available within its normal legislative procedures to enact the required legislation as speedily as possible”.(785)

541.     In US — Section 110(5) Copyright Act (Article 21.3), the Arbitrator further indicated that, in order to effect “prompt compliance”, an implementing Member must use the time after adoption of a panel and/or Appellate Body report to begin to implement the recommendations and rulings of the DSB:

“[A]n implementing Member must use the time after adoption of a panel and/or Appellate Body report to begin to implement the recommendations and rulings of the DSB. Arbitrators will scrutinize very carefully the actions an implementing Member takes in respect of implementation during the period after adoption of a panel and/or Appellate Body report and prior to any arbitration proceeding. If it is perceived by an arbitrator that an implementing Member has not adequately begun implementation after adoption so as to effect ‘prompt compliance’, it is to be expected that the arbitrator will take this into account in determining the ‘reasonable period of time’.”(786)

542.     In the same vein, the Arbitrator on Chile — Price Band System (Article 21.3) considered that a Member’s obligation to implement the recommendations and rulings of the DSB is triggered by the adoption of the report(s) at issue and thus a Member “must at the very least promptly commence and continue concrete steps towards implementation”:

“A Member’s obligation to implement the recommendations and rulings of the DSB is triggered by the DSB’s adoption of the relevant panel and/or Appellate Body reports. Although Article 21.3 acknowledges circumstances where immediate implementation is ‘impracticable’, in my view the implementation process should not be prolonged through a Member’s inaction (or insufficient action) in the first months following adoption. In other words, whether or not a Member is able to complete implementation promptly, it must at the very least promptly commence and continue concrete steps towards implementation. Otherwise, inaction or dilatory conduct by the implementing Member would exacerbate the nullification or impairment of the rights of other Members caused by the inconsistent measure. It is for this reason that arbitral awards under Article 21.3(c) calculate ‘reasonable period[s] of time’ as from the date of adoption of panel and/or Appellate Body reports.”(787)

543.     As regards the interpretation of Article 21.3(c) in the context of the obligation of “prompt compliance” under Article 21.1, see paragraph 557 below.

2. Article 21.2

(a) “interests of developing country Members”

544.     In Indonesia — Autos (Article 21.3), the Arbitrator, in determining the “reasonable period of time” pursuant to Article 21.3(c) of the DSU, took into account not only Indonesia’s status as a developing country in determining the “reasonable period of time”, but also the fact that “it is a developing country that is currently in a dire economic and financial situation”:

“Although the language of this provision is rather general and does not provide a great deal of guidance, it is a provision that forms part of the context for Article 21.3(c) of the DSU and which I believe is important to take into account here. Indonesia has indicated that in a ‘normal situation’, a measure such as the one required to implement the recommendations and rulings of the DSB in this case would become effective on the date of issuance. However, this is not a ‘normal situation’. Indonesia is not only a developing country; it is a developing country that is currently in a dire economic and financial situation. Indonesia itself states that its economy is ‘near collapse’. In these very particular circumstances, I consider it appropriate to give full weight to matters affecting the interests of Indonesia as a developing country pursuant to the provisions of Article 21.2 of the DSU. I, therefore, conclude that an additional period of six months over and above the six-month period required for the completion of Indonesia’s domestic rule-making process constitutes a reasonable period of time for implementation of the recommendations and rulings of the DSB in this case.”(788)

545.     In Chile — Alcoholic Beverages (Article 21.3), the Arbitrator held that taking into account the interests of developing countries in determining the “reasonable period of time” pursuant to Article 21.3(c), should not result in different “kinds of considerations that may be taken into account”. However, the arbitrator stressed that “because Article 21.2 is in the DSU, it is not simply to be disregarded” and that it “usefully enjoins, inter alia, an arbitrator functioning under Article 21.3(c) to be generally mindful of the great difficulties that a developing country Member may, in a particular case, face as it proceeds to implement the recommendations and rulings of the DSB”:

“It is not necessary to assume that the operation of Article 21.2 will essentially result in the application of ‘criteria’ for the determination of ‘the reasonable period of time’ — understood as the kinds of considerations that may be taken into account — that would be ‘qualitatively’ different for developed and for developing country Members. I do not believe Chile is making such an assumption. Nevertheless, although cast in quite general terms, because Article 21.2 is in the DSU, it is not simply to be disregarded. As I read it, Article 21.2, whatever else it may signify, usefully enjoins, inter alia, an arbitrator functioning under Article 21.3(c) to be generally mindful of the great difficulties that a developing country Member may, in a particular case, face as it proceeds to implement the recommendations and rulings of the DSB.”(789)

546.     In Chile — Price Band System (Article 21.3), the Arbitrator, while agreeing with the Arbitrator in Chile — Alcoholic Beverages (Article 21.3) on the importance of being generally mindful of the difficulties that a developing country may face upon implementation of rulings and recommendations of the DSB (see paragraph 545 above), noted that the current case differed from the latter since this was the first arbitration where both the complainant and the defendant were developing country Members. The Arbitrator concluded that given the unusual circumstances of this case, he was “not swayed towards either a longer or shorter period of time by the ‘[p]articular attention’ [to be paid] to the interests of developing countries”:

“I agree with the following statement by the arbitrator in Chile — Alcoholic Beverages that ‘an arbitrator functioning under Article 21.3(c) [must] be generally mindful of the great difficulties that a developing country Member may, in a particular case, face as it proceeds to implement the recommendations and rulings of the DSB.’(790) This arbitration is, however, the first arbitration under Article 21.3(c) to include developing countries as both complainant and respondent. The period of time for implementation of the recommendations and rulings of the DSB in this case is thus a ‘matter[] affecting the interests’ of both Members: the general difficulties facing Chile as a developing country in revising its longstanding PBS, and the burden imposed on Argentina as a developing country whose access to the Chilean agricultural market is impeded by the PBS, contrary to WTO rules.

Furthermore, Chile has not pointed to additional specific obstacles that it faces as a developing country under present circumstances. This is a matter which I should take into account in evaluating whether a longer period of time may be needed for implementation. The absence of presently-existing, concrete difficulties in Chile’s position as a developing country stands in contrast to previous arbitrations, wherein Members have identified, not simply their positions as developing countries, but also ‘severe’(791) or ‘dire’(792) economic and financial situations existing at the time of the proposed period of implementation. In contrast, the acuteness of Argentina’s burden as a developing country complainant that has been successful in establishing the WTO-inconsistency of a challenged measure, is amplified by Argentina’s daunting financial woes at present. Accordingly, I recognize that Chile may indeed face obstacles as a developing country in its implementation of the recommendations and rulings of the DSB, and that Argentina, likewise, faces continuing hardship as a developing country so long as the WTO-inconsistent PBS is maintained. In the unusual circumstances of this case, therefore, I am not swayed towards either a longer or shorter period of time by the ‘[p]articular attention’(793) I pay to the interests of developing countries.”(794)

547.     In US — Offset Act (Byrd Amendment) (Article 21.3), the Arbitrator had difficulty in comprehending how the fact that various complainants were developing country Members could affect the determination of the reasonable period of time for the developed country Member to implement the DSB recommendations:

“I am, furthermore, mindful of my obligation, pursuant to Article 21.2, to pay ‘[p]articular attention … to matters affecting the interests of developing country Members’. I note that, by its wording, Article 21.2 does not distinguish between situations where the developing country Member concerned is an implementing or a complaining party. However, I also note that the Complaining Parties have not explained specifically how developing country Members’ interests should affect my determination of the reasonable period of time for implementation. It is useful to recall, once again, that the term ‘reasonable period of time’ has been consistently interpreted to signify the ‘shortest period possible within the legal system of the Member’. Therefore, I have some difficulty in seeing how the fact that several Complaining Parties are developing country Members should have an effect on the determination of the shortest period possible within the legal system of the United States to implement the recommendations and rulings of the DSB in this case.”(795)

548.     In EC — Tariff Preferences (Article 21.3), the European Communities requested the Arbitrator to take into account the interests of the developing countries which were at the time beneficiaries of measures found to be inconsistent with WTO law (the Drug Arrangements). The Arbitrator recalled that some arbitrators had taken Article 21.2 of the DSU into account in assessing the difficulties faced by an implementing Member that was a developing country,(796) or where both parties were developing countries.(797) The Arbitrator pointed out that until then no arbitrator had determined whether the reference to “developing country Members” in Article 21.2 should be interpreted to include, in the context of an Article 21.3(c) arbitration, Members not party to the arbitration. The Arbitrator, however, decided that it was unnecessary for him to decide this issue.(798)

3. Article 21.3(c)

(a) Mandate of the arbitrator

549.    The Arbitrator defined his mandate in EC — Hormones (Article 21.3) as follows:

“It is not within my mandate under Article 21.3(c) of the DSU, to suggest ways or means to the European Communities to implement the recommendations and rulings of the Appellate Body Report and Panel Reports. My task is to determine the reasonable period of time within which implementation must be completed. Article 3.7 of the DSU provides, in relevant part, that ‘the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements’ (emphasis added). Although withdrawal of an inconsistent measure is the preferred means of complying with the recommendations and rulings of the DSB in a violation case,(799) it is not necessarily the only means of implementation consistent with the covered agreements. An implementing Member, therefore, has a measure of discretion in choosing the means of implementation, as long as the means chosen are consistent with the recommendations and rulings of the DSB and with the covered agreements.”(800)

550.     In US — Hot-Rolled Steel (Article 21.3), the Arbitrator confirmed that it is for the implementing WTO Member to determine the proper scope and content of anticipated legislation. However, he also indicated that “the degree of complexity of the contemplated implementing legislation may be relevant for the arbitrator, to the extent that such complexity bears upon the length of time that may reasonably be allocated to the enactment of such legislation”:

“I do not believe that an arbitrator acting under Article 21.3(c) of the DSU is vested with jurisdiction to make any determination of the proper scope and content of implementing legislation, and hence do not propose to deal with it. The degree of complexity of the contemplated implementing legislation may be relevant for the arbitrator, to the extent that such complexity bears upon the length of time that may reasonably be allocated to the enactment of such legislation. But the proper scope and content of anticipated legislation are, in principle, left to the implementing WTO Member to determine.”(801)

551.     In Chile — Price Band System (Article 21.3), the Arbitrator further explained that, although the manner of implementation is up to the Member concerned, the more information provided on the details of the implementing measure, the greater the guidance to an Arbitrator in selecting a reasonable period of time:

“The fact that an Article 21.3(c) arbitration focuses on the period of time for implementation, however, does not render the substance of the implementation, that is, the precise means or manner of implementation, immaterial from the perspective of the arbitrator. In fact, the more information that is known about the details of the implementing measure, the greater the guidance to an arbitrator in selecting a reasonable period of time, and the more likely that such period of time will fairly balance the legitimate needs of the implementing Member against those of the complaining Member. Nevertheless, the arbitrator should still avoid deciding what a Member must do for proper implementation(802)….”(803)

(b) “reasonable period of time”

(i) Availability of the reasonable period of time

552.     In US — Offset Act (Byrd Amendment) (Article 21.3), the Arbitrator indicated that Article 21.3 “makes clear that ‘prompt compliance’, in principle, implies ‘immediate[ ]’ compliance” and, accordingly deduced that a “‘reasonable period of time’ for implementation is not available unconditionally to an implementing Member. Rather, an implementing Member is entitled to a reasonable period of time for implementation only where, pursuant to Article 21.3, ‘it is impracticable to comply immediately with the recommendations and rulings’ of the DSB.”(804)

(ii) Concept of “reasonableness”

553.     In US — Hot-Rolled Steel (Article 21.3), the Arbitrator considered that the essence of “reasonableness”, as articulated by the Appellate Body in US — Hot-Rolled Steel in the context of the Anti-Dumping Agreement, was equally pertinent in the context of Article 21.3(c) of the DSU:

“In US — Hot-Rolled Steel, the implementation of which is involved here, the Appellate Body had occasion to interpret the phrase ‘reasonable period’ found in Article 6.8 of the Anti-Dumping Agreement and ‘reasonable time’ used in paragraph 1 of Annex II of that Agreement. ‘The word “reasonable”’, the Appellate Body stated:

… implies a degree of flexibility that involves consideration of all of the circumstances of a particular case. What is ‘reasonable’ in one set of circumstances may prove to be less than ‘reasonable’ in different circumstances. This suggests that what constitutes a reasonable period or a reasonable time under Article 6.8 and Annex II of the Anti-Dumping Agreement, should be defined on a case-by-case basis, in the light of the specific circumstances of each investigation.

In sum, a ‘reasonable period’ must be interpreted consistently with the notions of flexibility and balance that are inherent in the concept of ‘reasonableness’, and in a manner that allows for account to be taken of the particular circumstances of each case.(805)

Although, in the above excerpt, the Appellate Body dealt with the Anti-Dumping Agreement, and not the DSU, the essence of ‘reasonableness’ so articulated is, in my view, equally pertinent for an arbitrator faced with the task of determining what constitutes ‘a reasonable period of time’ in the context of the DSU.”(806)

(iii) Length of the reasonable period of time

554.     The Arbitrator on EC — Hormones (Article 21.3) considered that “the ordinary meaning of the terms of Article 21.3(c) indicates that 15 months is a ‘guideline for the arbitrator’, and not a rule”.(807)

555.     In Canada — Pharmaceutical Patents (Article 21.3), the Arbitrator noted that “the 15-month period is a ‘guideline’, and not an average, or usual, period. It is expressed also as a maximum period, subject only to any ‘particular circumstances’ mentioned in the second sentence.”(808)

556.     In EC — Bananas III (Article 21.3), the European Communities requested a period of 15 months and one week based on the alleged complexity and difficulty of amending the then existing import regime for bananas. The Arbitrator confirmed that the 15 month period provided for in Article 21.3(c) is a guideline and that the “reasonable period of time” may be shorter or longer than 15 months, depending upon the “particular circumstances” (see paragraph 593 below):

“When the ‘reasonable period of time’ is determined through binding arbitration, as provided for under Article 21.3(c) of the DSU, this provision states that a ‘guideline’ for the arbitrator should be that the ‘reasonable period of time’ should not exceed 15 months from the date of the adoption of a panel or Appellate Body report. Article 21.3(c) of the DSU also provides, however, that the ‘reasonable period of time’ may be shorter or longer than 15 months, depending upon the ‘particular circumstances.’”(809)

557.     The Arbitrator on EC — Hormones (Article 21.3) considered that, when read in the context of the requirement of “prompt compliance” of Article 21.1, the “reasonable period of time” should be the “shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB”. The Arbitrator held, inter alia, that “when implementation can be effected by administrative means, the reasonable period of time should be considerably shorter than 15 months”:

“The ordinary meaning of the terms of Article 21.3(c) indicates that 15 months is a ‘guideline for the arbitrator’, and not a rule. This guideline is stated expressly to be that ‘the reasonable period of time … should not exceed 15 months from the date of adoption of a panel or Appellate Body report’ (emphasis added). In other words, the 15-month guideline is an outer limit or a maximum in the usual case. For example, when implementation can be effected by administrative means, the reasonable period of time should be considerably shorter than 15 months. However, the reasonable period of time could be shorter or longer, depending upon the particular circumstances, as specified in Article 21.3(c).

Article 21.3(c) also should be interpreted in its context and in light of the object and purpose of the DSU. Relevant considerations in this respect include other provisions of the DSU, including, in particular, Articles 21.1 and 3.3. Article 21.1 stipulates that: ‘Prompt compliance with recommendations and rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members’ (emphasis added). Article 3.3 states: ‘The prompt settlement of situations in which a Member considers that any benefits accruing to it directly or indirectly under the covered agreements are being impaired by measures taken by another Member is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members’ (emphasis added). The Concise Oxford Dictionary defines the word, ‘prompt’, as meaning ‘a. acting with alacrity; ready. b. made, done, etc. readily or at once’. Read in context, it is clear that the reasonable period of time, as determined under Article 21.3(c), should be the shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB. In the usual case, this should not be greater than 15 months, but could also be less.”(810)

558.     In Korea — Alcoholic Beverages (Article 21.3), the Arbitrator stated that while the reasonable period of time should be the shortest period possible within the legal system of the Member concerned, the Member in question should not be required to utilize extraordinary legislative procedures to comply with the recommendations and rulings of the DSB:

“Although the reasonable period of time should be the shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB, this does not require a Member, in my view, to utilize an extraordinary legislative procedure, rather than the normal legislative procedure, in every case. Taking into account all of the circumstances of the present case, I believe that it is reasonable to allow Korea to follow its normal legislative procedure for the consideration and adoption of a tax bill with budgetary implications, that is, to submit the proposed amendments to the next regular session of the National Assembly. For the same reasons, I consider it reasonable that the new tax legislation should be enacted by the National Assembly in the course of the next regular session, and promulgated by the President before the end of this year.”(811)

559.     In US — Hot-Rolled Steel (Article 21.3), the United States referred to the extensions of the reasonable period of time agreed by the DSB in two previous disputes to take into account the adjournment of the United States Congress’ legislative session,(812) in order to support its position that the reasonable period of time should be longer than ten months. The Arbitrator noted that, on both occasions, the complaining parties had agreed to the extension and therefore did not consider that the actions of the DSB in those cases could have “any precedential value”:

“It appears to me that whether the actions of the DSB in those two instances have any precedential value in respect of the present arbitration proceedings, is open to substantial debate. The present proceedings have been precipitated precisely by the failure of the parties to the dispute to reach an agreement on a reasonable period of time to comply under Article 21.3(b) of the DSU.”(813)

560.     The Arbitrator on Canada — Pharmaceutical Patents (Article 21.3) held that it was for the implementing Member to bear the burden of proof in showing that the duration of any proposed period of implementation is a “reasonable period of time”:

“Based on the wording of Articles 21.3, and on the context provided in Articles 3.3, 21.1 and 21.4 of the DSU, I agree with the arbitrator in European Communities — Hormones that ‘the reasonable period of time, as determined under Article 21.3(c), should be the shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB.’(814) Moreover, as immediate compliance is clearly the preferred option under Article 21.3, it is, in my view, for the implementing Member to bear the burden of proof in showing — ‘[i]f it is impracticable to comply immediately’ — that the duration of any proposed period of implementation, including its supposed component steps, constitutes a ‘reasonable period of time’. And the longer the proposed period of implementation, the greater this burden will be.”(815)

561.     In EC — Tariff Preferences (Article 21.3), India argued that the implementing Member — in this case, the European Communities — bears the burden of demonstrating that the period it proposes is reasonable and that “the already great burden becomes even greater” if this period is more than 15 months. The Arbitrator disagreed and held that, in his view, the European Communities must demonstrate that the period it proposes is reasonable; “but I do not find it necessary in this arbitration to determine whether the burden of proof becomes greater if the period proposed is more than 15 months”.(816)

562.     As regards the burden of proof concerning the existence or not of “particular circumstances” under Article 21.3(c), see paragraphs 593–594 below.

563.     In the dispute Canada — Dairy, on 23 December 1999, Canada informed the Chairman of the DSB that it had reached an agreement with New Zealand and the United States on the reasonable period of time for the implementation of the DSB’s rulings.(817)

564.     Concerning the US — FSC dispute, at its meeting of 12 October 2000, the DSB accepted the United States’ request to modify the time-period for compliance.(818)

565.     In respect of the dispute US — Hot-Rolled Steel, at its meeting on 5 December 2002, the DSB accepted the request of the United States to modify the time period for compliance.(819)

566.     The following table lists the disputes where the determination of the length of the reasonable period of time was subject to arbitration under Article 21.3(c) and the time awarded by the Arbitrator:

(iv) The application of WTO-inconsistent measures during the reasonable period of time

567.     In US — Section 129(c)(1) URAA, the Panel considered that nothing suggests that Members are obliged, during the course of the reasonable period of time, to suspend application of the offending measure or to provide relief for the past effects of such measure:

“Nothing in Article 21.3 suggests that Members are obliged, during the course of the reasonable period of time, to suspend application of the offending measure, much less to provide relief for past effects. Rather, in the case of antidumping and countervailing duty measures, entries that take place during the reasonable period of time may continue to be liable for the payment of duties.

…

When panels and the Appellate Body have been asked to make recommendations for retroactive relief, they have rejected those requests, recognizing that a Member’s obligation under the DSU is to provide prospective relief in the form of withdrawing a measure inconsistent with a WTO agreement, or bringing that measure into conformity with the agreement by the end of the reasonable period of time. In the six years of dispute settlement under the WTO agreements, no panel or the Appellate Body has ever suggested that bringing a WTO-inconsistent antidumping or countervailing duty measure into conformity with a Member’s WTO obligations requires the refund of antidumping or countervailing duties collected on merchandise that entered prior to the date of implementation.”(820)

568.     The Panel on US — Section 129(c)(1) URAA also added that Articles 22.1 and 22.2 of the DSU confirm not only that a Member may maintain the WTO-inconsistent measure until the end of the reasonable period of time for implementation, but also that neither compensation nor the suspension of concessions or other obligations are available to the complaining Member until the conclusion of that reasonable period of time.(821)

(v) Exception: prohibited subsidies

569.     In Brazil — Aircraft, the Appellate Body noted that the provisions of Article 21.3 of the DSU are not relevant in determining the period of time for implementation of a finding of inconsistency with the prohibited subsidies provisions of the SCM Agreement:

“With respect to implementation of the recommendations or rulings of the DSB in a dispute brought under Article 4 of the SCM Agreement, there is a significant difference between the relevant rules and procedures of the DSU and the special or additional rules and procedures set forth in Article 4.7 of the SCM Agreement. Therefore, the provisions of Article 21.3 of the DSU are not relevant in determining the period of time for implementation of a finding of inconsistency with the prohibited subsidies provisions of Part II of the SCM Agreement. Furthermore, we do not agree with Brazil that Article 4.12 of the SCM Agreement is applicable in this situation. In our view, the Panel was correct in its reasoning and conclusion on this issue. Article 4.7 of the SCM Agreement, which is applicable to this case, stipulates a time-period. It states that a subsidy must be withdrawn ‘without delay’. That is the recommendation the Panel made.”(822)

570.     With respect to the period of implementation under Article 4.7 of the SCM Agreement, see Section IV.B.6(b) of the Chapter on the SCM Agreement.

(c) “particular circumstances”

(i) Concept of “particular circumstances”

571.     In Canada — Pharmaceutical Patents (Article 21.3), the Arbitrator defined the term “particular circumstances” in Article 21.3 as “those that can influence what the shortest period possible for implementation may be within the legal system of the implementing Member”.(823)

(ii) Relevance of “particular circumstances”

572.     In Chile — Alcoholic Beverages (Article 21.3), the Arbitrator pointed out that the shortest period of time theoretically possible for the completion of the legislative process is not the sole criterion that should be taken into account in determining the reasonable period of time. The Arbitrator further considered that Article 21.3(c) “contemplates a case-specific approach and authorizes the consideration of the ‘particular circumstances’ of a given case, which may warrant a longer or shorter period”:

“The concept of reasonableness, which is, of course, built into the notion of ‘a reasonable period of time’ for implementation, inherently involves taking into account the relevant circumstances. In some cases these circumstances may be singular or few in number but in other cases they may be multiple. Determination of a ‘reasonable period of time’ is not, in principle, appropriately carried out by ascribing decisive or exclusive relevance to one single or even a few a priori factors and eschewing consideration of everything else as non-pertinent. Thus, the shortest period of time theoretically possible for the completion of the legislative process, even assuming the bill enjoys the necessary parliamentary majority from the beginning and is never the subject of serious debate, is not the sole criterion that I should take into account in determining the reasonable period. What Article 21.3(c) of the DSU provides arbitrators with is a ‘guideline’, not a fixed command, that the reasonable period should be not more than 15 months from the date of adoption by the DSB of the pertinent Panel and Appellate Body Reports. Article 21.3(c) evidently contemplates a case-specific approach and authorizes the consideration of the ‘particular circumstances’ of a given case, which may warrant a longer or shorter period.”(824)

(iii) Factors amounting to “particular circumstances”

573.      In Chile — Alcoholic Beverages (Article 21.3), the Arbitrator considered that, “[s]ince compliance here means adoption of a law appropriately amending” the Chilean law at issue, the reference to particular circumstances in this case is to “circumstances which rationally bear upon the time necessary for enactment of such a law”.(825)

574.     In Canada — Pharmaceutical Patents (Article 21.3), the Arbitrator mentioned the implementation by administrative or legislative means, the complexity of the proposed implementation and the legally binding force of the component steps leading to implementation as relevant criteria for determining the existence of “particular circumstances”:

“[I]f implementation is by administrative means, such as through a regulation, then the ‘reasonable period of time’ will normally be shorter than for implementation through legislative means.

Likewise, the complexity of the proposed implementation can be a relevant factor. If implementation is accomplished through extensive new regulations affecting many sectors of activity, then adequate time will be required to draft the changes, consult affected parties, and make any consequent modifications as needed. On the other hand, if the proposed implementation is the simple repeal of a single provision of perhaps a sentence or two, then, obviously, less time will be needed for drafting, consulting, and finalizing the procedure. To be sure, complexity is not merely a matter of the number of pages in a proposed regulation; yet it seems reasonable to assume that, in most cases, the shorter a proposed regulation, the less its likely complexity.

In addition, the legally binding, as opposed to the discretionary, nature of the component steps leading to implementation should be taken into account. If the law of a Member dictates a mandatory period of time for a mandatory part of the process needed to make a regulatory change, then that portion of a proposed period will, unless proven otherwise due to unusual circumstances in a given case, be reasonable. On the other hand, if there is no such mandate, then a Member asserting the need for a certain period of time must bear a much more imposing burden of proof. Something required by law must be done; something not required by law need not necessarily be done, depending on the facts and the circumstances in a particular case.”(826)

575.     In US — Offset Act (Byrd Amendment) (Article 21.3), the Arbitrator refused to take into account in his determination of the “reasonable period of time” both the existence of several legislative options (paragraph 587 below) and the need of the implementing Member to take into account international treaty obligations (paragraph 589 below). The Arbitrator considered that “‘complexity’ of implementing legislation as a particular circumstance, within the meaning of Article 21.3(c), is a legal criterion, to be examined without regard for political contentiousness or other non-legal factors that may surround a measure at issue. I am precluded, by my mandate under Article 21.3(c), from giving consideration to these non-legal factors.”(827)

576.     In Chile — Price Band System (Article 21.3), the Arbitrator considered that the unique role of the price band system in Chilean society was a relevant factor to take into account in his determination of the reasonable period of time:

“I am of the view that the PBS is so fundamentally integrated into the policies of Chile, that domestic opposition to repeal or modification of those measures reflects, not simply opposition by interest groups to the loss of protection, but also reflects serious debate, within and outside the legislature of Chile, over the means of devising an implementation measure when confronted with a DSB ruling against the original law. In the light of the longstanding nature of the PBS, its fundamental integration into the central agricultural policies of Chile, its price-determinative regulatory position in Chile’s agricultural policy, and its intricacy, I find its unique role and impact on Chilean society is a relevant factor in my determination of the ‘reasonable period of time’ for implementation.”(828)

577.     In EC — Tariff Preferences (Article 21.3), the Arbitrator took into account, as a relevant matter, the flexibility in the European Communities’ legislative system when determining the reasonable period of time. The Arbitrator, however, stressed that this flexibility does not, of itself, determine the question of the reasonable period of time for implementation.(829)

578.     The Arbitrator on Korea — Alcoholic Beverages determined that it was reasonable to include in the reasonable period of time the “thirty-day grace period for enforcement of certain … instruments” provided in a Korean statute.(830)

579.     The Arbitrator on EC — Bananas III appeared to take into account the European Communities’ statement that “any change in legislation which directly affects the customs treatment of products in connection with importation or exportation, enters into force either on 1 January or 1 July of the relevant year”(831) in determining the reasonable period of time in that dispute.(832)

580.     In EC — Tariff Preferences (Article 21.3), the European Communities argued that the reasonable period of time should be extended because of the enlargement of the European Union, the election of a new European Parliament and the designation of a new Commission. The Arbitrator agreed to consider as circumstances that might prolong the reasonable period of time: the time needed to translate certain instruments into 20 official languages as well as the time needed to respond to potential requests for verification by member States that the necessary qualified majority has been reached when adopting the implementing regulation. The Arbitrator, however, did not take into account the fact that a new Parliament was to be elected and a new Commission designated.(833)

(iv) Factors not qualifying as “particular circumstances”

581.     In Canada — Pharmaceutical Patents (Article 21.3), the Arbitrator indicated that “the ‘particular circumstances’ … do not include factors unrelated to an assessment of the shortest period possible for implementation within the legal system of a Member”:

[T]he ‘particular circumstances’ mentioned in Article 21.3 do not include factors unrelated to an assessment of the shortest period possible for implementation within the legal system of a Member. Any such unrelated factors are irrelevant to determining the ‘reasonable period of time’ for implementation. The determination of a ‘reasonable period of time’ must be a legal judgement based on an examination of relevant legal requirements.”(834)

582.     The Arbitrator on Argentina — Hides and Leather (Article 21.3) warned about the negative implications for the multilateral trading system of an interpretation of “reasonable period” of time that took into account “time or opportunity to control and manage economic or social conditions which antedate or are contemporaneous with the adoption of the WTO-inconsistent governmental measure”:

“[T]o build into the concept of a ‘reasonable period of time’ to comply with DSB recommendations and rulings, time or opportunity to control and manage economic or social conditions which antedate or are contemporaneous with the adoption of the WTO-inconsistent governmental measure, may, in the generality of instances, be to defer to an indefinitely receding future the duty of compliance. The implications for the multilateral trading system as we know it today, of such an interpretation of ‘reasonable period of time’ for compliance are clear and far-reaching and ominous. Such an interpretation would tend to reduce the fundamental duty of ‘immediate’ or ‘prompt’ compliance to a figure of speech.”(835)

Structural adjustments of the implementing Member’s affected industries

583.     In Indonesia — Autos (Article 21.3), the Arbitrator considered that “the structural adjustments of” a Member’s “affected industries” was not a “particular circumstance” to be taken into account under Article 21.3(c):

“I do not view structural adjustments of Indonesia’s affected industries as a ‘particular circumstance’ which may be taken into account under Article 21.3(c) of the DSU.(836) In virtually every case in which a measure has been found to be inconsistent with a Member’s obligations under the GATT 1994 or any other covered agreement, and therefore, must be brought into conformity with that agreement, some degree of adjustment by the domestic industry of the Member concerned will be necessary. This will be the case regardless of whether the Member concerned is a developed or a developing country. Structural adjustment to the withdrawal or the modification of an inconsistent measure, therefore, is not a ‘particular circumstance’ that can be taken into account in determining the reasonable period of time under Article 21.3(c).”(837)

Limited powers of the executive branch

584.     In Japan — Alcoholic Beverages II (Article 21.3), Japan argued that a period of 23 months was a “reasonable period of time” on the basis that there were “particular circumstances” justifying such an extension of the 15-month period. Japan claimed that the limited powers of the executive branch over tax matters and the need for a formal adoption of legislation by the parliament, the adverse effects of the tax increases on Japanese consumers of shochu, and the administrative constraints on the execution of taxation were “particular circumstances” justifying a 23-month period needed to implement the recommendations and rulings of the DSB. The Arbitrator was not persuaded that these circumstances were “particular circumstances” within the meaning of Article 21.3(c) and determined 15 months as the reasonable period of time.(838)

Economic and financial consequences of implementation

585.     In Argentina — Hides and Leather (Article 21.3), Argentina had argued that it needed 46 months as the reasonable period of time for implementation in order to control and counter certain economic and financial consequences that would follow from the enactment of legislation implementing the recommendations of the DSB. See paragraph 582 above.

Choice of legislative implementation

586.     The Arbitrator on US — Section 110(5) Copyright Act (Article 21.3) stated that, although it is an “important issue” whether a Member decides to “simply repeal” a measure or whether “some other approach will be utilized”, he failed to see how this issue would “add any additional time to the legislative process as the content of the legislation effecting implementation is precisely the issue that Congress will decide through its normal procedures” (original emphasis).(839)

587.     In US — Offset Act (Byrd Amendment) (Article 21.3), the Arbitrator did not consider that the existence of numerous options to implement was relevant to the determination of the “reasonable period of time”:

“I do not consider the existence of numerous options to implement the recommendations and rulings of the DSB, as invoked by the United States, to be relevant to my determination of the ‘reasonable period of time’ for implementation of the recommendations and rulings of the DSB.(840) The weighing and balancing of the respective merits of various legislative alternatives is one of the key functions and aspects of any legislative process. The mere fact that implementation of the recommendations and rulings of the DSB necessitates the choice between several, or even a large number of, alternative options is generally not, in my view, in and of itself, a particular circumstance that would inform my determination of the shortest period possible to implement the recommendations and rulings of the DSB in this case.”(841)

Scientific studies or consultations

588.     The Arbitrator on EC — Hormones (Article 21.3) indicated that, while scientific studies or consultations with experts may form part of the domestic implementation process, the time required to conduct such studies or consultations could not be included in the reasonable period of time:

“An implementing Member … has a measure of discretion in choosing the means of implementation, as long as the means chosen are consistent with the recommendations and rulings of the DSB and with the covered agreements.

It would not be in keeping with the requirement of prompt compliance to include in the reasonable period of time, time to conduct studies or to consult experts to demonstrate the consistency of a measure already judged to be inconsistent. That cannot be considered as ‘particular circumstances’ justifying a longer period than the guideline suggested in Article 21.3(c). This is not to say that the commissioning of scientific studies or consultations with experts cannot form part of a domestic implementation process in a particular case. However, such considerations are not pertinent to the determination of the reasonable period of time.”(842)

International treaty obligations

589.     In US — Offset Act (Byrd Amendment) (Article 21.3), the Arbitrator did not consider that the need to take into account international treaty obligations in the process of drafting implementing legislation was relevant to the determination of the “reasonable period of time”:

“[T]he need to distinguish, in the light of Panel and Appellate Body findings in this dispute, between WTO-consistent and WTO-inconsistent implementation options would appear to be the typical content, and concomitant aspect, of every legislative process aiming at implementing recommendations and rulings of the DSB. I do agree with previous arbitrators that, in principle, the complex nature of implementing measures can be a relevant factor for the determination of the reasonable period of time.(843) Nevertheless, I do not believe that the need to take into account international treaty obligations in the process of drafting implementing legislation, in and of itself, gives rise to the kind of complexity that would warrant additional time for implementation. Each and every piece of legislation enacted with a view to implementing recommendations and rulings of the DSB must be designed and drafted in the light of the implementing Member’s rights and obligations under the covered agreements. If the need to distinguish between WTO-consistent and WTO-inconsistent implementation options were to qualify, per se, as ‘complexity’, and, therefore, were to give rise to ‘particular circumstances’ relevant for the determination of the reasonable period of time, then every implementation measure under consideration in proceedings pursuant to Article 21.3(c) would have to be considered complex. In other words, ‘complexity’ would not be a ‘particular circumstance’; rather, it would be a standard aspect of every implementation.”(844)

Economic harm to the complainant’s economic operators

590.     In US — Offset Act (Byrd Amendment) (Article 21.3), the complaining parties urged the Arbitrator to consider the economic harm that might be inflicted on their economic operators by another disbursement of collected anti-dumping and countervailing duties to United States’ producers. The Arbitrator considered that the economic harm suffered by foreign exporters should not have an impact on the determination of the reasonable period of time:

“In my view, economic harm suffered by foreign exporters does not, and cannot, by definition, impact on what is the ‘shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB’.(845) The particular circumstances, within the meaning of Article 21.3(c), can only be of such nature as will influence the evolution and unfolding of the implementation process itself. Factors external to the legislative process itself are of no relevance for the determination of the reasonable period of time for implementation.

I do not wish to imply that economic harm, caused by the WTO-inconsistent measure, to economic agents of the Complaining Parties, or any other WTO Members, is irrelevant in the context of the implementation of the recommendations and rulings of the DSB. Many WTO-inconsistent measures will cause some form of economic harm to exporters of WTO Members.(846) However, the need, and urgency, to remove WTO-inconsistent measures, and to remove the harm to economic agents caused by such measures, is, in my view, already reflected in the principle of ‘prompt compliance’ under Article 21.1. The same concern, in my view, underlies the well-established principle, under Article 21.3(c), that the reasonable period of time for implementation be the shortest time possible within the legal system of the Member. Thus, it would be supererogatory, and incongruous, to accord renewed consideration to the issue of economic harm when determining the shortest period possible for implementation within the legal system of the implementing Member.”(847)

Changes other than those necessary to implement the DSB recommendations

591.     The Arbitrator on Canada — Autos (Article 21.3) declined to take into account the fact that “it might be more convenient for Canada to implement the DSB’s recommendations in this case on the same timeline as it has planned for the reform of its customs administration regime”.(848)

592.     In EC — Tariff Preferences (Article 21.3), the Arbitrator confirmed that his determination on the reasonable period of time for implementation must have regard only to the shortest period possible within the legal system of the European Communities to bring its measures (the Drug Arrangements) into conformity with its WTO obligations. In the Arbitrator’s view, “the mere fact that the European Communities has decided to incorporate the task of implementation within the larger objective of reforming its overall GSP scheme cannot lead to a determination of a shorter, or longer, period of time”.(849)

(v) Burden of proof

593.     In EC — Bananas III (Article 21.3), the Arbitrator implicitly found that it was up to the complaining parties to persuade him “that there are ‘particular circumstances’ in this case to justify a shorter period of time than stipulated by the guideline in Article 21.3(c) of the DSU [15 months]”. In the case at issue, the Arbitrator found that he had not been so persuaded by the complaining parties:

“When the ‘reasonable period of time’ is determined through binding arbitration, as provided for under Article 21.3(c) of the DSU, this provision states that a ‘guideline’ for the arbitrator should be that the ‘reasonable period of time’ should not exceed 15 months from the date of the adoption of a panel or Appellate Body report. Article 21.3(c) of the DSU also provides, however, that the ‘reasonable period of time’ may be shorter or longer than 15 months, depending upon the ‘particular circumstances’.

The Complaining Parties have not persuaded me that there are ‘particular circumstances’ in this case to justify a shorter period of time than stipulated by the guideline in Article 21.3(c) of the DSU. At the same time, the complexity of the implementation process, demonstrated by the European Communities, would suggest adherence to the guideline, with a slight modification, so that the ‘reasonable period’ of time for implementation would expire by 1 January 1999.”(850)

594.     In EC — Hormones (Article 21.3), the Arbitrator held that the burden of proof concerning the existence of particular circumstances falls on any party arguing for a period longer or shorter than 15 months:

“In my view, the party seeking to prove that there are ‘particular circumstances’ justifying a shorter or a longer time has the burden of proof under Article 21.3(c). In this arbitration, therefore, the onus is on the European Communities to demonstrate that there are particular circumstances which call for a reasonable period of time of 39 months, and it is likewise up to the United States and Canada to demonstrate that there are particular circumstances which lead to the conclusion that 10 months is reasonable.”(851)

(d) Relationship with Article 22

595.     In Chile — Alcoholic Beverages (Article 21.3), the Arbitrator considered that when fixing the reasonable period of time one should take into account that, pursuant to Article 22.1, “full and effective implementation is ‘preferred’”:

“In assessing the duration of the reasonable period, the provisions of Article 22 of the DSU are also noteworthy. Under Article 22.1, although ‘a reasonable period of time’ may have elapsed without compliance with the recommendations and rulings of the DSB, neither compensation nor suspension of concessions or other obligations is to be ‘preferred to full implementation’, by bringing the measure concerned into conformity with WTO obligations. Thus, in fixing the reasonable period, I should take account of the fact that full and effective implementation is ‘preferred’.”(852)

(e) Participation by all the original parties

596.     In Japan — Alcoholic Beverages II (Article 21.3), it was agreed that all the original parties to the dispute could participate in the arbitration process even though only the United States had requested binding arbitration pursuant to Article 21.3.(853)

(f) Relationship with other WTO Agreements

(i) SCM Agreement

597.     As regards the relationship with Article 4.7 of the SCM Agreement, see paragraphs 569–570 above.

4. Article 21.5

(a) Function and scope of Article 21.5 proceedings

598.     The Appellate Body on Canada — Aircraft (Article 21.5 — Brazil) disagreed with the Panel’s reasoning that the scope of Article 21.5 dispute settlement proceedings was limited to the issue of whether or not the defendant had implemented the DSB recommendations. In the Appellate Body’s view, under Article 21.5, a panel is obliged to examine the consistency of the “measures taken to comply” with WTO law:

“We have already noted that these proceedings, under Article 21.5 of the DSU, concern the ‘consistency’ of the revised TPC programme with Article 3.1(a) of the SCM Agreement. Therefore, we disagree with the Article 21.5 Panel that the scope of these Article 21.5 dispute settlement proceedings is limited to ‘the issue of whether or not Canada has implemented the DSB recommendation’. The recommendation of the DSB was that the measure found to be a prohibited export subsidy must be withdrawn within 90 days of the adoption of the Appellate Body Report and the original panel report, as modified — that is, by 18 November 1999. That recommendation to ‘withdraw’ the prohibited export subsidy did not, of course, cover the new measure — because the new measure did not exist when the DSB made its recommendation. It follows then that the task of the Article 21.5 Panel in this case is, in fact, to determine whether the new measure — the revised TPC programme — is consistent with Article 3.1(a) of the SCM Agreement.

Accordingly, in carrying out its review under Article 21.5 of the DSU, a panel is not confined to examining the ‘measures taken to comply’ from the perspective of the claims, arguments and factual circumstances that related to the measure that was the subject of the original proceedings. Although these may have some relevance in proceedings under Article 21.5 of the DSU, Article 21.5 proceedings involve, in principle, not the original measure, but rather a new and different measure which was not before the original panel. In addition, the relevant facts bearing upon the ‘measure taken to comply’ may be different from the relevant facts relating to the measure at issue in the original proceedings. It is natural, therefore, that the claims, arguments and factual circumstances which are pertinent to the ‘measure taken to comply’ will not, necessarily, be the same as those which were pertinent in the original dispute. Indeed, the utility of the review envisaged under Article 21.5 of the DSU would be seriously undermined if a panel were restricted to examining the new measure from the perspective of the claims, arguments and factual circumstances that related to the original measure, because an Article 21.5 panel would then be unable to examine fully the ‘consistency with a covered agreement of the measures taken to comply’, as required by Article 21.5 of the DSU.”(854)

599.     In US — Shrimp (Article 21.5 — Malaysia), the Appellate Body further explained that, when the issue concerns the consistency of a new measure “taken to comply”, the task of a 21.5 panel is to consider that new measure in its totality, meaning the measure itself and its application, but only in respect of the claims included in the request for establishment of that 21.5 panel:

“As we ruled in our Report in Canada — Aircraft (21.5), panel proceedings pursuant to Article 21.5 of the DSU involve, in principle, not the original measure, but a new and different measure that was not before the original panel. Therefore, ‘in carrying out its review under Article 21.5 of the DSU, a panel is not confined to examining the “measure […] taken to comply” from the perspective of the claims, arguments and factual circumstances that related to the measure that was the subject of the original proceedings.’

When the issue concerns the consistency of a new measure ‘taken to comply’, the task of a panel in a matter referred to it by the DSB for an Article 21.5 proceeding is to consider that new measure in its totality. The fulfilment of this task requires that a panel consider both the measure itself and the measure’s application. As the title of Article 21 makes clear, the task of panels under Article 21.5 forms part of the process of the ‘Surveillance of Implementation of the Recommendations and Rulings’ of the DSB. Toward that end, the task of a panel under Article 21.5 is to examine the ‘consistency with a covered agreement of measures taken to comply with the recommendations and rulings’ of the DSB. That task is circumscribed by the specific claims made by the complainant when the matter is referred by the DSB for an Article 21.5 proceeding. It is not part of the task of a panel under Article 21.5 to address a claim that has not been made.

Malaysia relies in this appeal on our ruling in Canada — Aircraft (21.5). We understand Malaysia to argue, based in part on our ruling in Canada — Aircraft (21.5), that the Panel in this case had a duty to review the totality of the United States measure, and to assess it for its consistency with the relevant provisions of the GATT 1994. That is indeed a panel’s task under Article 21.5 of the DSU. Yet, as we have said, it is not part of a panel’s task to go beyond the particular claims that have been made with respect to the consistency of a new measure with a covered agreement when a matter is referred to it by the DSB for an Article 21.5 proceeding. Thus, it would not have been appropriate in this case for the Panel to address a claim that was not made by Malaysia when requesting that this matter be referred by the DSB for an Article 21.5 proceeding.”(855)

600.     In EC — Bed Linen (Article 21.5 — India), the Appellate Body concisely summarized prior case law on the function and scope of Article 21.5 proceedings:

“We addressed the function and scope of Article 21.5 proceedings for the first time in Canada — Aircraft (Article 21.5 — Brazil). There, we found that Article 21.5 panels are not merely called upon to assess whether ‘measures taken to comply’ implement specific ‘recommendations and rulings’ adopted by the DSB in the original dispute.(856) We explained there that the mandate of Article 21.5 panels is to examine either the ‘existence’ of ‘measures taken to comply’ or, more frequently, the ‘consistency with a covered agreement’ of implementing measures.(857) This implies that an Article 21.5 panel is not confined to examining the ‘measures taken to comply’ from the perspective of the claims, arguments, and factual circumstances relating to the measure that was the subject of the original proceedings.(858) Moreover, the relevant facts bearing upon the ‘measure taken to comply’ may be different from the facts relevant to the measure at issue in the original proceedings. It is to be expected, therefore, that the claims, arguments, and factual circumstances relating to the ‘measure taken to comply’ will not, necessarily, be the same as those relating to the measure in the original dispute.(859) Indeed, a complainant in Article 21.5 proceedings may well raise new claims, arguments, and factual circumstances different from those raised in the original proceedings, because a ‘measure taken to comply’ may be inconsistent with WTO obligations in ways different from the original measure. In our view, therefore, an Article 21.5 panel could not properly carry out its mandate to assess whether a ‘measure taken to comply’ is fully consistent with WTO obligations if it were precluded from examining claims additional to, and different from, the claims raised in the original proceedings.(860)”(861)

601.     With respect to the relationship between “measures taken to comply” and a panel’s terms of reference, see paragraph 254 above. See also the excerpts from the reports of the panels and Appellate Body referenced in the Chapter on the SCM Agreement, Section IV.B.6.

(b) The “matter” in Article 21.5 proceedings

(i) General

In EC — Bed Linen (Article 21.5 — India), the Appellate Body emphasized that Article 21.5 proceedings are similar to the original proceedings and thus, the “matter” at issue consists of the same elements: (i) the specific measures at issue (in this case, the measures taken to comply) and (ii) the legal basis of the complaint, i.e. the claims.(862)

(ii) Measures concerned by Article 21.5 panel proceedings: measures taken to comply

602.     In Canada — Aircraft (Article 21.5 — Brazil), the Appellate Body held that proceedings under Article 21.5 concern only measures “taken to comply” with the recommendations and rulings of the DSB and interpreted this concept as referring to “measures which have been, or which should be, adopted by a Member to bring about compliance with the recommendations and rulings of the DSB”:

“Proceedings under Article 21.5 do not concern just any measure of a Member of the WTO; rather, Article 21.5 proceedings are limited to those ‘measures taken to comply with the recommendations and rulings’ of the DSB. In our view, the phrase ‘measures taken to comply’ refers to measures which have been, or which should be, adopted by a Member to bring about compliance with the recommendations and rulings of the DSB. In principle, a measure which has been ‘taken to comply with the recommendations and rulings’ of the DSB will not be the same measure as the measure which was the subject of the original dispute, so that, in principle, there would be two separate and distinct measures:(863) the original measure which gave rise to the recommendations and rulings of the DSB, and the ‘measures taken to comply’ which are — or should be — adopted to implement those recommendations and rulings. In these Article 21.5 proceedings, the measure at issue is a new measure, the revised TPC programme, which became effective on 18-November 1999 and which Canada presents as a ‘measure taken to comply with the recommendations and rulings’ of the DSB.”(864)

603.     The Appellate Body on EC — Bed Linen (Article 21.5 — India) reiterated that the “measures” at issue in an Article 21.5 proceeding can only be those “measures taken to comply”. It further stated that “[i]f a claim challenges a measure which is not a ‘measure taken to comply’, that claim cannot properly be raised in Article 21.5 proceedings”.(865)

604.     In EC — Bed Linen (Article 21.5 — India), the Panel declined to consider India’s claim on the “other factors” analysis after finding that the original panel had dismissed the claim and India had not appealed.(866) The Appellate Body concurred, explaining that there is no reason to conclude that a “part of the redetermination that merely incorporates elements of the original determination … would constitute an inseparable element of a measure taken to comply with the DSB rulings in the original dispute”. In its view, the “other factors” analysis was such an element — an unrevised element of the original measure — that “the investigating authorities of the European Communities were able to treat … separately” when conducting the redetermination:

“We agree with India that the investigating authorities of the European Communities were required to revise the original determination of dumping and injury in order to comply with the DSB recommendations and rulings. Towards this end, the European Communities recalculated the dumping margins without applying the practice of ‘zeroing’ that had been found to be inconsistent with WTO obligations in the original dispute. According to the recalculation, two of the individually examined Indian producers were not dumping. The investigating authorities deducted the imports attributable to those two producers from the volume of dumped imports, and, accordingly, the volume of dumped imports in the redetermination was lower than in the original determination. According to EC Regulation 1644/2001, the investigating authorities of the European Communities also ‘re-examined’ whether a causal link between the two revised elements — dumped imports and the injury to the domestic industry — still existed, and the Panel reviewed that re-examination.

The amount of dumped imports will, of course, have an impact on the assessment of the effects of the ‘dumped imports’ for the purposes of determining injury. It is clear, therefore, that the revised findings on dumping and injury could have a bearing on whether a causal link exists between dumping and injury. But whilst a revised finding of dumping will, in all likelihood, have an impact on the ‘effect of dumped imports’, we see no reason to conclude as well that this revised finding would have any impact on the ‘effects … of known factors other than the dumped imports’ in this dispute. Accordingly, we are of the view that the investigating authorities of the European Communities were not required to change the determination as it related to the ‘effects of other factors’ in this particular dispute. Moreover, we do not see why that part of the redetermination that merely incorporates elements of the original determination on ‘other factors’ would constitute an inseparable element of a measure taken to comply with the DSB rulings in the original dispute. Indeed, the investigating authorities of the European Communities were able to treat this element separately. Therefore, we do not agree with India that the redetermination can only be considered ‘as a whole new measure’.”(867)

605.     The Panel in Australia — Salmon (Article 21.5 — Canada) ruled that an Article 21.5 panel could not leave to the discretion of the parties the decision on whether a measure is a “measure taken to comply”:

“We note that an Article 21.5 panel cannot leave it to the full discretion of the implementing Member to decide whether a measure is one ‘taken to comply’. If one were to allow that, an implementing Member could simply avoid any scrutiny of certain measures by a compliance panel, even where such measures would be so clearly connected to the panel and Appellate Body reports concerned, both in time and in respect of the subject-matter, that any impartial observer would consider them to be measures ‘taken to comply’.”(868)

606.     In EC — Bed Linen (Article 21.5 — India), the Panel, in a finding upheld by the Appellate Body,(869) also concluded that it is for the panel to decide whether certain measures have been “taken to comply” with a DSB ruling:

“Thus, it is clear that it is the Panel, and not the EC, which decides whether the measures cited by India in the request for establishment are to be considered ‘measures taken to comply’ and therefore fall within the purview of this dispute. That said, however, it is also not India’s right to determine which measures taken by the EC are measures taken to comply. Rather, this is an issue which must be considered and decided by an Article 21.5 panel.”(870)

(iii) Claims in Article 21.5 proceedings

607.     The Appellate Body on EC — Bed Linen (Article 21.5 — India), stressed that “[i]f a claim challenges a measure which is not a ‘measure taken to comply’, that claim cannot properly be raised in Article 21.5 proceedings”.(871)

608.     In US — Shrimp (Article 21.5 — Malaysia), Malaysia raised a claim against an aspect of the implementation measure that was the same as the original measure, and that, at the appeal stage, the Appellate Body had found to be not inconsistent with WTO obligations in the original dispute. The Appellate Body upheld the panel’s dismissal of Malaysia’s claim on the grounds that an adopted Appellate Body Report must be treated as a final resolution to a dispute between the parties to that dispute:

“We wish to recall that panel proceedings under Article 21.5 of the DSU are, as the title of Article 21 states, part of the process of the ‘Surveillance of Implementation of Recommendations and Rulings’ of the DSB. This includes Appellate Body Reports. To be sure, the right of WTO Members to have recourse to the DSU, including under Article 21.5, must be respected. Even so, it must also be kept in mind that Article 17.14 of the DSU provides not only that Reports of the Appellate Body ‘shall be’ adopted by the DSB, by consensus, but also that such Reports ‘shall be … unconditionally accepted by the parties to the dispute….’ Thus, Appellate Body Reports that are adopted by the DSB are, as Article 17.14 provides, ‘… unconditionally accepted by the parties to the dispute’, and, therefore, must be treated by the parties to a particular dispute as a final resolution to that dispute. In this regard, we recall, too, that Article 3.3 of the DSU states that the ‘prompt settlement’ of disputes ‘is essential to the effective functioning of the WTO’.”(872)

609.     In EC — Bed Linen (Article 21.5 — India), the Panel declined to consider India’s claim on the “other factors” analysis after finding that the original panel had dismissed the claim and that India had not appealed it.(873) The Appellate Body explained that, based on other provisions of the DSU, namely Articles 16.4, 19.1, 21.1, 21.3 and 22.1, an unappealed finding in an adopted panel report must be treated as the “final resolution to a dispute between the parties in respect of the particular claim and the specific component of a measure that is the subject of that claim”. The Appellate Body thus gave the same value to a panel finding in an adopted Report as to a finding included in an adopted Appellate Body Report”:

“[A]n unappealed finding included in a panel report that is adopted by the DSB must be treated as a final resolution to a dispute between the parties in respect of the particular claim and the specific component of a measure that is the subject of that claim. This conclusion is supported by Articles 16.4 and 19.1, paragraphs 1 and 3 of Article 21, and Article 22.1 of the DSU. Where a panel concludes that a measure is inconsistent with a covered agreement, that panel shall recommend, according to Article 19.1, that the Member concerned bring that measure into conformity with that agreement. A panel report, including the recommendations contained therein, shall be adopted by the DSB within the time period specified in Article 16.4 — unless appealed. Members are to comply with recommendations and rulings adopted by the DSB promptly, or within a reasonable period of time, in accordance with paragraphs 1 and 3 of Article 21 of the DSU. A Member that does not comply with the recommendations and rulings adopted by the DSB within these time periods must face the consequences set out in Article 22.1, relating to compensation and suspension of concessions. Thus, a reading of Articles 16.4 and 19.1, paragraphs 1 and 3 of Article 21, and Article 22.1, taken together, makes it abundantly clear that a panel finding which is not appealed, and which is included in a panel report adopted by the DSB, must be accepted by the parties as a final resolution to the dispute between them, in the same way and with the same finality as a finding included in an Appellate Body Report adopted by the DSB — with respect to the particular claim and the specific component of the measure that is the subject of the claim.

…

The Panel’s ruling that India’s claim under Article 3.5 relating to ‘other factors’ was not properly before it is also consistent with the object and purpose of the DSU. Article 3.3 provides that the prompt settlement of disputes is ‘essential to the effective functioning of the WTO’. Article 21.5 advances the purpose of achieving a prompt settlement of disputes by providing an expeditious procedure to establish whether a Member has fully complied with the recommendations and rulings of the DSB.(874) For that purpose, an Article 21.5 panel is to complete its work within 90 days, whereas a panel in an original dispute is to complete its work within 9 months of its establishment, or within 6 months of its composition. It would be incompatible with the function and purpose of the WTO dispute settlement system if a claim could be reasserted in Article 21.5 proceedings after the original panel or the Appellate Body has made a finding that the challenged aspect of the original measure is not inconsistent with WTO obligations, and that report has been adopted by the DSB. At some point, disputes must be viewed as definitely settled by the WTO dispute settlement system.”(875)

610.    In Canada — Aircraft (Article 21.5 — Brazil), the Appellate Body examined whether an Article 21.5 panel could consider a new claim that challenged an aspect of the measure taken to comply that was not part of the original measure and had not been, and could not have been, previously raised before the panel in the original proceedings. The Appellate Body explained that an Article 21.5 panel is not limited solely to examining whether the Member had complied with the DSB recommendations and rulings, but rather must examine the consistency of the new measure with the relevant provisions of, in casu, the SCM Agreement. The Appellate Body considered that the utility of Article 21.5 proceedings would be hampered if the panel could only considered the new measure from the perspective of the claims raised during the original proceedings:

“We have already noted that these proceedings, under Article 21.5 of the DSU, concern the ‘consistency’ of the revised TPC programme with Article 3.1(a) of the SCM Agreement.(876) Therefore, we disagree with the Article 21.5 Panel that the scope of these Article 21.5 dispute settlement proceedings is limited to ‘the issue of whether or not Canada has implemented the DSB recommendation’. The recommendation of the DSB was that the measure found to be a prohibited export subsidy must be withdrawn within 90 days of the adoption of the Appellate Body Report and the original panel report, as modified — that is, by 18 November 1999. That recommendation to ‘withdraw’ the prohibited export subsidy did not, of course, cover the new measure — because the new measure did not exist when the DSB made its recommendation. It follows then that the task of the Article 21.5 Panel in this case is, in fact, to determine whether the new measure — the revised TPC programme — is consistent with Article 3.1(a) of the SCM Agreement.

Accordingly, in carrying out its review under Article 21.5 of the DSU, a panel is not confined to examining the ‘measures taken to comply’ from the perspective of the claims, arguments and factual circumstances that related to the measure that was the subject of the original proceedings. Although these may have some relevance in proceedings under Article 21.5 of the DSU, Article 21.5 proceedings involve, in principle, not the original measure, but rather a new and different measure which was not before the original panel. In addition, the relevant facts bearing upon the ‘measure taken to comply’ may be different from the relevant facts relating to the measure at issue in the original proceedings. It is natural, therefore, that the claims, arguments and factual circumstances which are pertinent to the ‘measure taken to comply’ will not, necessarily, be the same as those which were pertinent in the original dispute. Indeed, the utility of the review envisaged under Article 21.5 of the DSU would be seriously undermined if a panel were restricted to examining the new measure from the perspective of the claims, arguments and factual circumstances that related to the original measure, because an Article 21.5 panel would then be unable to examine fully the ‘consistency with a covered agreement of the measures taken to comply’, as required by Article 21.5 of the DSU.”(877)

611.     In US — FSC (Article 21.5 — EC), the Appellate Body upheld a ruling on a new claim challenging an aspect of the measure taken to comply that was a revision of the original measure.(878)

612.     The Panel on EC — Bed Linen (Article 21.5 — India) voiced due process concerns about a situation where a complainant raises in the Article 21.5 proceeding new claims regarding unchanged aspects of the measures concerned that could have been raised during the original proceedings but were not for one reason or another:

“As an extreme example, assume a complaining Member challenges an anti-dumping duty in dispute settlement, and alleges violations only in connection with the investigating authorities’ determination of injury. Assume the Panel concludes that the anti-dumping duty is inconsistent with the AD Agreement because of a violation of Article 3.4 in the determination of injury, and the DSB recommends that the defending Member ‘bring the measure into conformity’. Assume the defending Member re-evaluates only the injury aspect of its original decision, makes a new determination of injury, and continues the imposition of the anti-dumping duty on the basis of the new finding of injury and the pre-existing finding of dumping and causal link. If that anti-dumping duty, and all aspects of the determinations underlying that duty, are considered the ‘measure taken to comply’, then the complaining Member could, in a subsequent Article 21.5 proceeding, allege a violation in connection with the dumping determination which had not been challenged in the original dispute. If the Article 21.5 panel found a violation of the AD Agreement in the determination of dumping, it would presumably conclude that the measure taken to comply is inconsistent with the AD Agreement. In this circumstance, the defending Member would have no opportunity to bring its measure into conformity with the AD Agreement with respect to the dumping calculation. Moreover, the defending Member would be subject to potential suspension of concessions as a result of a finding of violation with respect to the dumping aspect of the original determination which, because it was not the subject of any finding of violation in the original report, the Member was entitled to assume was consistent with its obligations under the relevant agreement. Such an outcome would not seem to be consistent with the overall object and purpose of the DSU to achieve satisfactory resolution of disputes, effective functioning of the WTO, to maintain a proper balance between the rights and obligations of Members, and to ensure that benefits accruing to any Member under covered agreements are not nullified or impaired.(879)”(880)

613.     In EC — Bed Linen (Article 21.5 — India), the Appellate Body further stressed that a complainant in Article 21.5 proceedings could raise new claims, meaning claims that it did not raise in the original proceedings:

“[T]he relevant facts bearing upon the ‘measure taken to comply’ may be different from the facts relevant to the measure at issue in the original proceedings. It is to be expected, therefore, that the claims, arguments, and factual circumstances relating to the ‘measure taken to comply’ will not, necessarily, be the same as those relating to the measure in the original dispute.(881) Indeed, a complainant in Article 21.5 proceedings may well raise new claims, arguments, and factual circumstances different from those raised in the original proceedings, because a ‘measure taken to comply’ may be inconsistent with WTO obligations in ways different from the original measure. In our view, therefore, an Article 21.5 panel could not properly carry out its mandate to assess whether a ‘measure taken to comply’ is fully consistent with WTO obligations if it were precluded from examining claims additional to, and different from, the claims raised in the original proceedings.(882)”(883)

(c) “through recourse to these dispute settlement procedures”

(i) General

614.     The parties to a dispute have often concluded ad hoc procedural agreements to solve the sequencing problem between compliance review procedures under Article 21.5 and the suspension of concessions and other obligations procedures under Article 22. These procedural agreements also tend to include procedural arrangements concerning the various stages of Article 21.5 compliance review procedures. In this regard, see Section XXI.B.4(e) below.

(ii) Timing of the establishment of Article 21.5 panels

615.     Until 31 December 2004, Article 21.5 panels have been established at the first DSB meeting at which the request for establishment was submitted; with the sole exception of the Panel on Brazil — Aircraft (Article 21.5 — Canada II), which was established at the second DSB meeting.(884) In most of the cases, the establishment at the first DSB meeting was a procedural requirement agreed by the parties in an ad hoc agreement regarding procedures under Articles 21 and 22 of the DSU applicable to the given dispute. For information relating to these procedural arrangements, see Section XXI.B.4(e) below.

(iii) Parties’ submissions

616.     In US — FSC (Article 21.5 — EC), the respondent, the United States, requested on 12 February 2001 that the Article 21.5 compliance panel deviate from the provision in Article 12.6 DSU which provides that the sequential first written submissions are to be followed by simultaneous written rebuttals. The United States argued that the European Communities had had new material from the submission of the United States to rebut in its rebuttal submission while the United States had not. The Panel denied the request on the following grounds:

“We recall that we adopted our working procedures after having heard the views of the parties, including their views on the issue of the timing of the filing of their rebuttal submissions. We do not believe that any development or consideration has since arisen that would require us to reconsider this aspect of our working procedures, particularly given the current advanced stage of the proceedings and the difficulties inherent in adjusting other aspects of the Panel’s schedule that such a change would necessitate.

We therefore deny this request by the United States to change the Panel’s schedule with respect to the timing for filing the parties’ second written submissions. We note that the United States, as well as the European Communities, if they wish, would be able to respond to, or comment on, the other party’s rebuttals in their oral statements at the substantive meeting.”(885)

(iv) Third-party rights: access to second written submissions by third parties

617.     In Australia — Automotive Leather II (Article 21.5 — US), the working procedures adopted by the Panel provided, inter alia, for only one meeting with the parties, to be held in conjunction with the third party session. The procedures also provided for third parties to receive only the first submissions, and not the rebuttal submissions, of the parties. The European Communities objected and argued that since in this case there was to be only one meeting of the Panel, at which the Panel would be considering both submissions of each party, the third parties, in accordance with Article 10.3 of the DSU, should receive all of the parties’ submissions. The Panel, in a preliminary ruling,(886) rejected the European Communities’ request as follows:

“[T]he Panel indicated that it had decided not to change the existing working procedures which provide for third parties to receive the first written submissions of the parties, but not the rebuttals. The Panel stated that if it had decided to hold two meetings with the parties, as is the normal situation envisioned in Appendix 3 of the DSU, third parties would have received only the written submissions made prior to the first meeting, but not rebuttals or other submissions made subsequently. Thus, in the more usual case, third parties would be in the same position as they were in this case with respect to their ability to present views to the panel. In the view of the Panel, the procedure it had established conformed more closely with the usual practice than would be the case if third parties received the rebuttals, and was in keeping with Article 10.3 of the DSU in a case where the Panel holds only one meeting.”(887)

618.     In Australia — Salmon (Article 21.5 — Canada), the Panel also followed the approach above and denied the European Communities’ request to allow the third parties access to second written submissions.(888)

619.     In Canada — Dairy (Article 21.5 — New Zealand and US), however, the Panel decided, in a preliminary ruling,(889) to allow third parties access to the second written submissions of the parties on the following grounds:

“In the Panel’s view, the object and purpose of Article 10.3 of the DSU is to allow third parties to participate in an informed and, hence, meaningful, manner in a session of the meeting with the parties specifically set aside for that purpose. Third parties can only do so if they have received all the information exchanged between the parties before that session. Otherwise, third parties might find themselves in a situation where their oral statements at the meeting become partially or totally irrelevant or moot in the light of second submissions by the parties to which third parties did not have access. Without access to all the submissions by the parties to the dispute to the first meeting of the panel, uninformed third party submissions could unduly delay panel proceedings and, as rightly emphasised by the EC and supported by Mexico, could prevent the Panel from receiving ‘the benefit of a useful contribution by third parties which could help the Panel to make the objective assessment that it is required to make under Article 11 of the DSU’.”(890)

620.     In US — FSC (Article 21.5 — EC), the Panel, in a preliminary ruling,(891) did not follow the position of the Panel in Canada — Dairy (Article 21.5 — New Zealand and US) and denied access to second written submissions to third parties on the grounds that it was not permitted by Article 10.3 of the DSU. However, the Appellate Body disagreed with the Panel on the grounds that Article 10.3 requires that third parties be provided with all of the submissions made by the parties up to the time of the first panel meeting “whether that meeting is the first of two panel meetings, or the first and only panel meeting”:

“Article 10.3 of the DSU is couched in mandatory language. By its terms, third parties ‘shall’ receive ‘the submissions of the parties to the first meeting of the panels’. (emphasis added) Article 10.3 does not say that third parties shall receive ‘the first submissions’ of the parties, but rather that they shall receive ‘the submissions’ of the parties. (emphasis added) The number of submissions that third parties are entitled to receive is not stated. Rather, Article 10.3 defines the submissions that third parties are entitled to receive by reference to a specific step in the proceedings — the first meeting of the panel.(892) It follows, in our view, that, under this provision, third parties must be given all of the submissions that have been made by the parties to the panel up to the first meeting of the panel, irrespective of the number of such submissions which are made, including any rebuttal submissions filed in advance of the first meeting.(893)”(894)

621.     As regards third-party rights in general, see Section X.B above.

(d) Burden of proof

622.     The Appellate Body on Canada — Aircraft (Article 21.5 — Brazil) ruled that the examination of “measures taken to comply” is based on the relevant facts proved, by the complainant, to the Article 21.5 panel, during the panel proceedings:

“We add also that the examination of ‘measures taken to comply’ is based on the relevant facts proved, by the complainant, to the Article 21.5 panel, during the panel proceedings. Therefore, the ‘minimum implementation standard’ that the Article 21.5 Panel expressed and which, it said, was ‘effectively’ agreed between the parties, should be viewed with caution. The Article 21.5 Panel said that Canada’s implementation should ‘“ensure” that future TPC assistance to the Canadian regional aircraft industry will not be de facto contingent on export performance.’ (emphasis added) The use in this standard of the words ‘ensure’ and ‘future’, if taken too literally, might be read to mean that the Panel was seeking a strict guarantee or absolute assurance as to the future application of the revised TPC programme. A standard which, if so read, would, however, be very difficult, if not impossible, to satisfy since no one can predict how unknown administrators would apply, in the unknowable future, even the most conscientiously crafted compliance measure.”(895)

623.     In Brazil — Aircraft (Article 21.5 — Canada), Brazil argued that the Article 21.5 Panel erred in placing upon Brazil the burden of proving that its implementation measure complied with the recommendations and rulings of the DSB. Brazil claimed that Canada must bear the burden of proving that Brazil’s measure does not implement the DSB recommendations and rulings. The Appellate Body stated that the fact that the measure at issue was “taken to comply” with the “recommendations and rulings” of the DSB does not alter the allocation of the burden of proving a defence:

“[T]he fact that the measure at issue was ‘taken to comply’ with the ‘recommendations and rulings’ of the DSB does not alter the allocation of the burden of proving Brazil’s ‘defence’ under item (k). In this respect, we note that Brazil concedes that the revised PROEX measure is, in principle, prohibited under Article 3.1(a) of the SCM Agreement; yet Brazil asserts nonetheless that the PROEX measure is justified, under the first paragraph of item (k). Thus, in our view, Brazil is, clearly, using item (k) to make an affirmative claim in its defence. In United States — Measure Affecting Imports of Woven Wool Shirts and Blouses from India, we said: ‘It is only reasonable that the burden of establishing [an affirmative] defence should rest on the party asserting it.’ As it is Brazil that is asserting this ‘defence’ using item (k) in these proceedings, we agree with the Article 21.5 Panel that Brazil has the burden of proving that the revised PROEX is justified under the first paragraph of item (k), including the burden of proving that payments under the revised PROEX are not ‘used to secure a material advantage in the field of export credit terms.’”(896)

(e) List of disputes under Article 21.5

624.     The following table lists the disputes where an Article 21.5 panel and/or Appellate Body report has been circulated as of 31 December 2004:

5. Ad hoc agreements on procedures under Articles 21 and 22 concluded by parties

(a) The sequencing issue

625.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators indicated that they were “aware of the question of ‘sequencing’ recourses to Article 21.5 and Article 22.6 of the DSU”. The Arbitrators noted that one of the effects of the bilateral agreement concluded by the parties (see paragraph 637 below) “was to establish such a ‘sequencing’”. The Arbitrators thus considered that by issuing their report after the Appellate Body Article 21.5 report, they had respected the intention of the parties. The Arbitrators concluded that “the question of whether such a sequencing is actually required under the DSU is not part of the mandate of the Arbitrators”.(897)

(b) Sequencing solutions in ad hoc procedural agreements

(i) Recourse to Article 21.5 before initiating Article 22 proceedings

626.     In Australia — Automotive Leather II, the United States and Australia agreed on a procedural understanding on 4 October 1999, whereby the complainant, the United States, would not initiate Article 22 proceedings until the circulation of the compliance panel’s report pursuant to Article 21.5. The relevant part of the procedural agreement provides that “the United States will not request authorization to suspend concessions until after the review panel has circulated its report”.(898)

627.     In US — Shrimp, the disputing parties, Malaysia and the United States, agreed on a procedural agreement on 22 December 1999, which included a similar provision to that in Australia — Automotive Leather II (see paragraph 626 above). However, in this case Malaysia undertook not to initiate Article 22 proceedings until the adoption of the 21.5 panel report. The relevant part of the procedural agreement reads as follows:

“If Malaysia at some future date decides that it may wish to initiate proceedings under Articles 21.5 and Article 22 of the DSU, Malaysia will initiate proceedings under Article 21.5 prior to any proceedings under Article 22. Malaysia will provide the United States advance notice of any proposal to initiate proceedings under Article 21.5 and will consult with the United States before requesting the establishment of a panel under Article 21.5. Malaysia will not request authorization to suspend concessions or other obligations under Article 22 until the adoption of the Article 21.5 panel report.”(899)

628.     Similarly, in Argentina — Hides and Leather, the disputing parties, the European Communities and Argentina, agreed on a procedural agreement on 26-February 2002. According to this agreement, the complainant, the European Communities, would only have recourse to Article 22 proceedings after the completion of the Article 21.5 proceedings. The relevant part of the procedural agreement provides that:

“However, the EC’s resort to the DSU for the purposes of suspension of concessions or other obligations may take place only after completion of proceedings under Article 21.5 of the DSU.”(900)

(ii) Simultaneous Articles 21.5 and 22 proceedings

629.     In Canada — Dairy, the disputing parties, New Zealand and Canada, agreed on 23 November 1999 on a procedural agreement whereby the complainant, New Zealand, could request authorization to suspend concessions under Article 22 either simultaneously or after an Article 21.5 proceeding. In the event that the Articles 21.5 and 22 proceedings were simultaneously initiated, and the matter referred to arbitration pursuant to Article 22.6, the parties would request the arbitrator to suspend its work until the adoption of the compliance panel [and Appellate Body] report[s]. The relevant part of the procedural agreement reads as follows:

“After the end of the period available to Canada to implement the DSB recommendations and rulings …, should New Zealand consider that the situation described in Article 21.5 of the DSU exists, New Zealand will request consultations which the parties agree to hold within 10 days from the date of the request. Canada and New Zealand agree that at the end of such consultations, should either party so state, the parties will jointly consider that the consultations have failed to settle the dispute. Thenceforward New Zealand will be entitled to request the establishment of a panel pursuant to Article 21.5 of the DSU (the ‘Article 21.5 compliance panel’).

…

New Zealand may request authorization to suspend concessions or other obligations pursuant to Article 22.2 of the DSU simultaneously with or after any New Zealand request for the establishment of a panel pursuant to paragraph 1.

…

Where the matter has been referred to arbitration, the parties agree to request the Article 22.6 arbitrator, at the earliest possible moment, to suspend its work until either (a) the adoption of the Article 21.5 compliance panel report; or (b) if there is an appeal, the adoption of the Appellate Body report.”(901)

(iii) Agreement not to appeal the compliance report

630.     In Australia — Automotive Leather II (see paragraph 626 above), the disputing parties agreed to refrain from appealing the panel report under Article 21.5 in the event the compliance panel found that the measures taken by Australia were inconsistent with the recommendations and rulings of the DSB. The relevant part of the procedural agreement reads as follows:

“Both Australia and the United States will unconditionally accept the review panel report and there will be no appeal of that report.”(902)

(iv) Withdrawal of Article 22 arbitration request

631.     In US — FSC, the disputing parties, the European Communities and the United States, concluded a procedural agreement on 29 September 2000. Pursuant to this agreement, in the event that the DSB found that the measures taken to comply by the United States were not inconsistent with WTO law, the European Communities undertook to withdraw its request for authorization to suspend concessions under Article 22. The relevant part of the procedural agreement provides that:

“In the event that the DSB finds that measures taken by the US to comply with the recommendations and rulings of the DSB are inconsistent with the covered agreements referred to in the Article 21.5 compliance panel request, the arbitrator will automatically resume its work. In the event that the DSB finds that the measures taken by the US to comply with the recommendations and rulings of the DSB are not inconsistent with the covered agreements referred to in the Article 21.5 compliance panel request, the EC will withdraw its request under Article 22.2 of the DSU, thereby terminating the arbitration procedure.”(903)

(v) Direct recourse to Article 22

632.     In US — FSC, the disputing parties agreed that in the absence of measures taken to comply by the United States, the European Communities could proceed directly to request authorization to suspend concessions under Article 22.2, without having recourse to Article 21.5 proceedings. The relevant part of the procedural agreement reads as follows:

“Where there exist no measures taken to comply with the DSB recommendations and rulings by the end of the implementation period, the EC may request authorization to suspend concessions or other obligations pursuant to Article 22.2 of the DSU and to adopt countermeasures pursuant to Article 4.10 of the SCM Agreement, without having recourse to Article 21.5 of the DSU.”(904)

(vi) Agreement not to object to arbitration under Article 22.6

633.     In Japan — Apples, the disputing parties, Japan and the United States, agreed, in a procedural agreement concluded on 30 June 2004, that in the event the complainant, the United States, requested the authorization to suspend concessions, the respondent, Japan, would object to the proposed level of suspension and request arbitration under Article 22.6. In that case, the United States undertook not to object to the referral of the dispute to arbitration under Article 22.6. The relevant part of the procedural agreement provides that:

“Under DSU Article 22.6, Japan will object to the level of suspension of concessions or other obligations and/or make a claim under DSU Article 22.3 before the date of the DSB meeting considering the United States’ request and the matter will be referred to arbitration pursuant to DSU Article 22.6. The United States will not pose any objection to the referral of the matter to such arbitration.”(905)

(vii) Non-application of the 30-day deadline in first sentence in Article 22.6

634.     In EC — Bed Linen, the disputing parties, the European Communities and India, agreed in a procedural agreement concluded on 13 September 2001, that the European Communities would not invoke the 30-day deadline in the first sentence in Article 22.6 in order to block India’s request for arbitration under Article 22.6. The relevant part of the procedural agreement reads as follows:

“If on the basis of the results of proceedings under Article 21.5 of the DSU that might be initiated by India no later than 31 March 2002, India decides to initiate proceedings under Article 22 of the DSU, the EC will not assert that India is precluded from obtaining DSB authorization because India’s request was made outside the 30 day time-period specified in the first sentence of Article 22.6 of the DSU.”(906)

635.     In Australia — Automotive Leather II (see paragraph 626 above), the disputing parties, the United States and Australia, agreed to extend the 30-day time period in the first sentence of Article 22.6 to 60 days. In addition, the 60-day deadline would start from the date of circulation of the compliance panel report. By common consent, the 60-day period for completing the arbitration under Article 22.6 was reduced by agreement to 45 days. The relevant part of the procedural agreement provides:

“Pursuant to footnote 6 to Article 4 of the SCM Agreement, Australia and the United States agree that the deadline for DSB action under the first sentence of Article 22.6 of the DSU shall be 60 days after the circulation of the review panel report under Article 21.5 of the DSU, and that the deadline specified in the third sentence of Article 22.6 of the DSU for completion of arbitration shall be 45 days after the matter is referred to arbitration.”(907)

(c) Consultations

636.     In US — Steel Plate, the disputing parties, the United States and India, agreed in a procedural agreement concluded on 14 February 2003, that should the complainant consider that the situation described in Article 21.5 exists, it would request consultations with the respondent prior to requesting the establishment of a compliance panel. The relevant part of the procedural agreement reads:

“Should India consider that the situation described in Article 21.5 of the DSU exists, India will request consultations which the parties agree to hold within 12 days from the date of circulation of the request. India and the United States agree that at the end of such consultations, should either party so state, the parties will jointly consider that the consultations have failed to settle the dispute.”(908)

(d) Establishment of the panel

637.     In Brazil — Aircraft and Canada — Aircraft, and the two proceedings under Article 21.5 brought by Canada and Brazil against each other, the disputing parties agreed, in two identical procedural agreements concluded on 23 November 1999, to include a provision whereby the parties would agree to establish the 21.5 panels at the first DSB meeting. The relevant part of the procedural agreement reads as follows:

“On 23 November 1999, Canada will request that this matter be referred to the original panel pursuant to Article 21.5 of the DSU. Canada will also request the convening of a DSB meeting on 3 December 1999 and Brazil will not object to the holding of such a meeting.

At the DSB meeting convened in response to the request by Canada, Brazil will accept the establishment of a review panel under Article 21.5 of the DSU and will not pose any procedural objection to the establishment of such a panel.”(909)

(e) Appointment of panellists

638.     In Japan — Apples, the disputing parties agreed that if the original panellists were not available for the compliance panel or the Article 22.6 arbitration (or both) proceedings, they would request the Director-General of the WTO to appoint a replacement for the proceeding or proceedings in which this was required. The relevant part of the procedural agreement provides:

“If any of the original panellists are not available for either the Article 21.5 compliance panel or the Article 22.6 arbitration, or both, the parties will request the Director-General of the WTO to appoint, as soon as possible, a replacement for the proceeding or proceedings in which such a replacement is required. If an original panellist is unavailable to serve in either proceeding, the parties will further request that in making this appointment, the Director-General seek a person who will also be available to act in both proceedings.”(910)

(f) Participation of experts

639.     In Japan — Apples, the disputing parties agreed that if the participation of experts was deemed necessary, the parties would not object to the participation of the original experts. The relevant part of the procedural agreement provides:

“Should the Article 21.5 compliance panel determine that the participation of experts is necessary, and should the panel consider the participation of the original experts appropriate, the parties will not object to the participation of the original experts.”(911)

(g) Cooperation to ensure time-limits for the work of the compliance panel and Appellate Body are respected

640.     In Canada — Dairy, the disputing parties agreed to include a provision in the procedural agreement whereby they would agree to cooperate to ensure that the 90-day deadlines for both the compliance panel and the Appellate Body work were respected. The relevant part of the procedural agreement reads as follows:

“New Zealand and Canada will cooperate to enable the Article 21.5 panel to circulate its report within 90 days of the panel’s composition, excluding such time as the panel’s work may be suspended pursuant to Article 12.12 of the DSU.

…

In case of an appeal of the Article 21.5 compliance panel report, the parties will cooperate to enable the Appellate Body to circulate its report within no more than 90 days from the date of notification of the appeal to the DSB.”(912)

(h) Non-prejudice of the parties’ other rights

641.     In US — Steel Plate, the disputing parties included a clause whereby they agreed that the provisions in the procedural agreement did not prejudice their rights or interests. The relevant part of the agreement provides that:

“These agreed procedures do not prejudice the rights of India or the United States to take any action or procedural step to protect their rights or interests, including the activation of any aspect of the provisions of the DSU.”(913)

(i) List of ad hoc agreements

642.     The following table shows in which proceedings these procedural agreements were concluded up to 31-December 2004:

(j) Panel’s scope of review of procedural agreements

643.     In Brazil — Aircraft and Canada — Aircraft, with regard to the two proceedings under Article 21.5 brought by Canada and Brazil against each other in relation to their respective aircraft export subsidies, Canada and Brazil reached two identical agreements (though the names of the parties were swapped) on the conduct of proceedings (see paragraph 637 above). Brazil, however, stated at a hearing during the Article 22.6 Arbitration proceedings that the recourse by Canada to Article 22.2 of the DSU before the completion of the Article 21.5 proceedings was a material breach of the bilateral agreement. Referring to Article 60 of the Vienna Convention, Brazil declared that it was terminating the bilateral agreement. Brazil thus stated that, pursuant to Article 22.7 of the DSU, the Arbitrators should determine that the proposed countermeasures are not allowed under the SCM Agreement on the grounds that the time within which they may be authorized has expired. Canada considered that the Arbitrators did not have authority to interpret the bilateral agreement.(914) The Arbitrators considered that they did not need to discuss the question of whether they could interpret the bilateral agreement or whether it ceased to apply to the Arbitrators’ tasks after Brazil’s alleged application of Article 60 of the Vienna Convention.(915)

6. Relationship with other Articles

(a) Article 6.2

644.     The Appellate Body on Mexico — Corn Syrup assumed that “the same procedures apply in Article 21.5 proceedings as in original panel proceedings”(916) when considering the alleged failure of the United States to comply with Article 6.2 of the DSU because the United States’ communication seeking recourse to Article 21.5 of the DSU did not indicate whether consultations had been held. The Appellate Body considered that the requirement under Article 6.2 of the DSU “to indicate whether consultations were held” is satisfied by the inclusion in the Panel request of a statement as to whether or not consultations occurred:

“In assessing the importance of the obligation ‘to indicate whether consultations were held’, we observe that the requirement will be satisfied by the inclusion, in the request for establishment of a panel, of a statement as to whether consultations occurred or not. The purpose of the requirement seems to be primarily informational — to inform the DSB and Members as to whether consultations took place. We also recall that the DSU expressly contemplates that, in certain circumstances, a panel can deal with and dispose of the matter referred to it even if no consultations took place. Similarly, the authority of the panel cannot be invalidated by the absence, in the request for establishment of the panel, of an indication ‘whether consultations were held’. Indeed, it would be curious if the requirement in Article 6.2 to inform the DSB whether consultations were held was accorded more importance in the dispute settlement process than the requirement actually to hold those consultations.”(917)

(b) Article 12.7

645.     As regards the panels’ duty to provide a basic rationale behind their findings and conclusions in Article 21.5 proceedings, see Section XII.B.4(a) above.

XXII. Article 22     back to top

A. Text of Article 22

Article 22: Compensation and the Suspension of Concessions

1.     Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within a reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements.

2.     If the Member concerned fails to bring the measure found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter into negotiations with any party having invoked the dispute settlement procedures, with a view to developing mutually acceptable compensation. If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.

3.     In considering what concessions or other obligations to suspend, the complaining party shall apply the following principles and procedures:

(a)     the general principle is that the complaining party should first seek to suspend concessions or other obligations with respect to the same sector(s) as that in which the panel or Appellate Body has found a violation or other nullification or impairment;

(b)     if that party considers that it is not practicable or effective to suspend concessions or other obligations with respect to the same sector(s), it may seek to suspend concessions or other obligations in other sectors under the same agreement;

(c)     if that party considers that it is not practicable or effective to suspend concessions or other obligations with respect to other sectors under the same agreement, and that the circumstances are serious enough, it may seek to suspend concessions or other obligations under another covered agreement;

(d)     in applying the above principles, that party shall take into account:

(i)     the trade in the sector or under the agreement under which the panel or Appellate Body has found a violation or other nullification or impairment, and the importance of such trade to that party;

(ii)     the broader economic elements related to the nullification or impairment and the broader economic consequences of the suspension of concessions or other obligations;

(e)     if that party decides to request authorization to suspend concessions or other obligations pursuant to subparagraphs (b) or (c), it shall state the reasons therefor in its request. At the same time as the request is forwarded to the DSB, it also shall be forwarded to the relevant Councils and also, in the case of a request pursuant to subparagraph (b), the relevant sectoral bodies;

(f)     for purposes of this paragraph, “sector” means:

(i)     with respect to goods, all goods;

(ii)     with respect to services, a principal sector as identified in the current “Services Sectoral Classification List” which identifies such sectors;(14)

(footnote original) 14 The list in document MTN.GNS/W/120 identifies eleven sectors.

(iii)     with respect to trade-related intellectual property rights, each of the categories of intellectual property rights covered in Section 1, or Section 2, or Section 3, or Section 4, or Section 5, or Section 6, or Section 7 of Part II, or the obligations under Part III, or Part IV of the Agreement on TRIPS;

(g)     for purposes of this paragraph, “agreement” means:

(i)     with respect to goods, the agreements listed in Annex 1A of the WTO Agreement, taken as a whole as well as the Plurilateral Trade Agreements in so far as the relevant parties to the dispute are parties to these agreements;

(ii)     with respect to services, the GATS;

(iii)     with respect to intellectual property rights, the Agreement on TRIPS.

4.     The level of the suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of the nullification or impairment.

5.     The DSB shall not authorize suspension of concessions or other obligations if a covered agreement prohibits such suspension.

6.     When the situation described in paragraph 2 occurs, the DSB, upon request, shall grant authorization to suspend concessions or other obligations within 30 days of the expiry of the reasonable period of time unless the DSB decides by consensus to reject the request. However, if the Member concerned objects to the level of suspension proposed, or claims that the principles and procedures set forth in paragraph 3 have not been followed where a complaining party has requested authorization to suspend concessions or other obligations pursuant to paragraph 3(b) or (c), the matter shall be referred to arbitration. Such arbitration shall be carried out by the original panel, if members are available, or by an arbitrator(15) appointed by the Director-General and shall be completed within 60 days after the date of expiry of the reasonable period of time. Concessions or other obligations shall not be suspended during the course of the arbitration.

(footnote original) 15 The expression “arbitrator” shall be interpreted as referring either to an individual or a group.

7.     The arbitrator(16) acting pursuant to paragraph 6 shall not examine the nature of the concessions or other obligations to be suspended but shall determine whether the level of such suspension is equivalent to the level of nullification or impairment. The arbitrator may also determine if the proposed suspension of concessions or other obligations is allowed under the covered agreement. However, if the matter referred to arbitration includes a claim that the principles and procedures set forth in paragraph 3 have not been followed, the arbitrator shall examine that claim. In the event the arbitrator determines that those principles and procedures have not been followed, the complaining party shall apply them consistent with paragraph 3. The parties shall accept the arbitrator’s decision as final and the parties concerned shall not seek a second arbitration. The DSB shall be informed promptly of the decision of the arbitrator and shall, upon request, grant authorization to suspend concessions or other obligations where the request is consistent with the decision of the arbitrator, unless the DSB decides by consensus to reject the request.

(footnote original) 16 The expression “arbitrator” shall be interpreted as referring either to an individual or a group or to the members of the original panel when serving in the capacity of arbitrator.

8.     The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. In accordance with paragraph 6 of Article 21, the DSB shall continue to keep under surveillance the implementation of adopted recommendations or rulings, including those cases where compensation has been provided or concessions or other obligations have been suspended but the recommendations to bring a measure into conformity with the covered agreements have not been implemented.

9.     The dispute settlement provisions of the covered agreements may be invoked in respect of measures affecting their observance taken by regional or local governments or authorities within the territory of a Member. When the DSB has ruled that a provision of a covered agreement has not been observed, the responsible Member shall take such reasonable measures as may be available to it to ensure its observance. The provisions of the covered agreements and this Understanding relating to compensation and suspension of concessions or other obligations apply in cases where it has not been possible to secure such observance.(17)

(footnote original) 17 Where the provisions of any covered agreement concerning measures taken by regional or local governments or authorities within the territory of a Member contain provisions different from the provisions of this paragraph, the provisions of such covered agreement shall prevail.

B. Interpretation and Application of Article 22

1. General

(i) Nature and purpose of countermeasures

646.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators confirmed that the authorization to suspend concessions or other obligations is a temporary measure pending full implementation by the Member concerned. They further agreed with the United States “that this temporary nature indicates that it is the purpose of countermeasures to induce compliance”. However, the Arbitrators considered that “this purpose does not mean that the DSB should grant authorization to suspend concessions beyond what is equivalent to the level of nullification or impairment. In our view, there is nothing in Article 22.1 of the DSU, let alone in paragraphs 4 and 7 of Article 22, that could be read as a justification for countermeasures of a punitive nature.”(918)

647.     Similarly, the Arbitrators in EC — Bananas III (Ecuador) (Article 22.6 — EC) observed that “the object and purpose of Article 22 … is to induce compliance”.(919)

648.     In Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada) the Arbitrator considered that “Article 22.1 of the DSU is particularly clear as to the temporary nature of suspensions of concessions or other obligations, pending compliance.” The Arbitrator further stated that “[u]nder Article 22.1 of the DSU and Article 4.10 of the SCM Agreement, noncompliance is the very event justifying the adoption of countermeasures.” Moreover, the Arbitrator noted that “…the EC — Bananas Arbitrators, referring to [DSU Article 22.1], expressed the view that suspension of concessions or other obligations was intended to induce compliance because it was temporary”.(920)

649.     In US — 1916 Act (Article 22.6 — US), the Arbitrators clarified that they were “not called upon to ‘provide a comprehensive list of the purposes’ of the suspension of concessions or other obligations, or to ‘rank these purposes in some sort of order of priority’”.(921) Further to quoting the above awards, the Arbitrators agreed that “a fundamental objective of the suspension of obligations is to induce compliance”. It emphasized that “[t]he fact that such suspension is meant to be temporary — as indicated in Article 22.1 — is further evidence of this purpose”.(922) The Arbitrators further indicated that:

“We also agree with the critically important point that the concept of ‘equivalence’, as embodied in Article 22.4, means that obligations cannot be suspended in a punitive manner. This means that in suspending certain obligations owed to the United States under the GATT and the Anti-Dumping Agreement, the European Communities cannot exceed the level of nullification or impairment sustained by the European Communities as a result of the 1916 Act. We consider this further below.”(923)

650.     In US — Offset Act (Byrd Amendment) (Article 22.6), the Arbitrator questioned the nature of the countermeasures, in particular whether “inducing compliance”, as set out in EC — Bananas III (US) (Article 22.6 — EC), was the only objective pursued by the DSU when allowing a WTO Member to suspend concessions or other obligations. In that regard, the Arbitrator noted that:

“The concept of ‘inducing compliance’ was first raised in the EC — Bananas III (US) (Article 22.6 — EC)(924) arbitration and has been referred to since in other arbitrations. However, it is not expressly referred to in any part of the DSU and we are not persuaded that the object and purpose of the DSU — or of the WTO Agreement — would support an approach where the purpose of suspension of concessions or other obligations pursuant to Article 22 would be exclusively to induce compliance. Having regard to Articles 3.7 and 22.1 and 22.2 of the DSU as part of the context of Articles 22.4 and 22.7, we cannot exclude that inducing compliance is part of the objectives behind suspension of concessions or other obligations, but at most it can be only one of a number of purposes in authorizing the suspension of concessions or other obligations. By relying on ‘inducing compliance’ as the benchmark for the selection of the most appropriate approach we also run the risk of losing sight of the requirement of Article 22.4 that the level of suspension be equivalent to the level of nullification or impairment.”(925)

651.     In US — Offset Act (Byrd Amendment) (Article 22.6), the Arbitrator further remarked that the reason for suspending concessions is not explicit in the DSU, and that the means for “inducing compliance” are likely to vary in each case:

“[T]he DSU does not expressly explain the purpose behind the authorization of the suspension of concessions or other obligations. On the one hand, the general obligation to comply with DSB recommendations and rulings seems to imply that suspension of concessions or other obligations is intended to induce compliance, as has been acknowledged by previous arbitrators.(926) However, exactly what may induce compliance is likely to vary in each case, in the light of a number of factors including, but not limited to, the level of suspension of obligations authorized.(927)”(928)

652.     As regards the standard of “equivalence” and its assessment by the arbitrators, see Section XXII. B.9(b)(iii) below.

653.     As regards the concept of “appropriate countermeasures” in arbitrations initiated pursuant to Article 4.10 of the SCM Agreement, see Section XXII.B.10(a) below.

(ii) Bilateral procedural agreements

654.     In respect of the ad hoc bilateral agreements concluded by parties to a dispute in order to establish the order and timing of Articles 21 and 22 proceedings, see Section XXI.B.4(e) above.

(iii) Confidential information

655.     Concerning the special procedures adopted to safeguard confidential information in Article 22.6 arbitrations, see paragraphs 488–489 above.

2. Article 22.1

656.     Regarding compensation and suspension of concessions or other obligations, in the event that the DSB recommendations and rulings are not implemented within a reasonable period of time, see also paragraphs 568–646 above.

657.     With respect to the temporary nature of the suspension of concessions, see Section XXII.B.1(i) above.

658.     With respect to the relationship of Article 22.1 with Article 21.3, see paragraph 595 above.

3. Article 22.2

(a) Specificity in the request for suspension of concessions or other obligations

(i) Application of Article 6.2 specificity requirement

659.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators held that the requests for suspension of concessions under Article 22.2, as well as the requests for a referral to arbitration under Article 22.6, serve similar due process objectives to requests under Article 6.2 and thus concluded that the specificity standards are relevant for Article 22 requests:

“The DSU does not explicitly provide that the specificity requirements, which are stipulated in Article 6.2 for panel requests, apply mutatis mutandis to arbitration proceedings under Article 22. However, we believe that requests for suspension under Article 22.2, as well as requests for a referral to arbitration under Article 22.6, serve similar due process objectives as requests under Article 6.2. First, they give notice to the other party and enable it to respond to the request for suspension or the request for arbitration, respectively. Second, a request under Article 22.2 by a complaining party defines the jurisdiction of the DSB in authorizing suspension by the complaining party. Likewise, a request for arbitration under Article 22.6 defines the terms of reference of the Arbitrators. Accordingly, we consider that the specificity standards, which are well-established in WTO jurisprudence under Article 6.2, are relevant for requests for authorization of suspension under Article 22.2, and for requests for referral of such matter to arbitration under Article 22.6, as the case may be. They do, however, not apply to the document submitted during an arbitration proceeding, setting out the methodology used for the calculation of the level of nullification or impairment.”(929)

(ii) Minimum specificity requirements

660.     In EC — Hormones (US) (Article 22.6 — EC), the Arbitrators stated that the minimum requirements attached to a request to suspend concessions or other obligations are:

“(1) the request must set out a specific level of suspension, i.e. a level equivalent to the nullification and impairment caused by the WTO inconsistent measure, pursuant to Article 22.4; and (2) the request must specify the agreement and sector(s) under which concessions or other obligations would be suspended, pursuant to Article 22.3.(930)”(931)

661.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), in connection with the first minimum requirement for making a request for the suspension of concessions or other obligations, Ecuador requested suspension under Article 22.2 of the DSU in the amount of US$ 450 million. Ecuador’s methodology paper and submissions indicated that the direct and indirect harm and macro-economic repercussions of its entire economy amount to US$ 1 billion. Ecuador argued that, pursuant to Article 21.8 of the DSU, the total economic impact of the European Communities banana regime should be considered by the Arbitrators by applying a multiplier when calculating the level of nullification and impairment suffered by Ecuador. The Arbitrators stated:

“[T]he level of suspension specified in Ecuador’s request under Article 22.2 is the relevant one and defines the amount of requested suspension for purposes of this arbitration proceeding. Additional estimates advanced by Ecuador in its methodology document and submissions were not addressed to the DSB and thus cannot form part of the DSB’s referral of the matter to arbitration. Belated supplementary requests and arguments concerning additional amounts of alleged nullification or impairment are, in our view, not compatible with the minimum specificity requirements for such a request because they were not included in Ecuador’s request for suspension under Article 22.2 of the DSB.”(932)

662.     With respect to the second minimum requirement for making a request for the suspension of concessions or other obligations, the Arbitrators in EC — Bananas III (Ecuador) (Article 22.6 — EC) noted that Ecuador listed the service subsector of “wholesale trade services (CPC 622)” under the GATS; “Protection of performers, producers of phonograms (sound recordings) and broadcasting organizations” in Section 1 (Copyright and related rights), Section 3 (Geographical indications) and Section 4 (Industrial designs) under the TRIPS Agreement. The Arbitrators determined that these requests by Ecuador under the GATS and TRIPS Agreement fulfilled the minimum requirement to specify the agreements and sectors with respect to which it requests authorization to suspend concessions or other obligations. However, the Arbitrators held with respect to Ecuador’s statement that it “reserve[d] the right” to suspend concessions under the GATT:

“[T]he terms of reference of arbitrators, acting pursuant to Article 22.6, are limited to those sector(s) and/or agreement(s) with respect to which suspension is specifically being requested from the DSB. We thus consider Ecuador’s statement that it ‘reserves the right’ to suspend concessions under the GATT as not compatible with the minimum requirements for requests under Article 22.2. Therefore, we conclude that our terms of reference in this arbitration proceeding include only Ecuador’s requests for authorization of suspension of concessions or other obligations with respect to those specific sectors under the GATS and the TRIPS Agreement that were unconditionally listed in its request under Article 22.2.”(933)

(b) “concessions or other obligations under the covered agreements”

(i) Tariff “concessions”

663.     In EC — Hormones (US) (Article 22.6 — EC) and in EC — Hormones (Canada) (Article 22.6 — EC), the United States and Canada had not attached a list of products to their request for suspension of concessions (as the United States had done in EC — Bananas III (US) (Article 22.6 — EC)). The European Communities had requested the Arbitrators to first decide on the amount of trade impairment, to then request a specific product list from the United States and Canada and to finally determine whether both were “equivalent”. The Arbitrators in both cases declared themselves “unable to follow the EC request” since “[n]o support for this request can be found in the DSU”(934) and thus they “d[id] not have jurisdiction to set a definite list of products that can be subject to suspension”.(935) The Panel considered that the “qualitative aspects of the … suspension touching upon the ‘nature’ of concessions … fall outside the arbitrators’ jurisdiction”:

“The authorization given by the DSB under Article 22.6 of the DSU is an authorization ‘to suspend [the application to the Member concerned of] concessions or other obligations [under the covered agreements]’.(936) In our view, the limitations linked to this DSB authorisation are those set out in the proposal made by the requesting Member on the basis of which the authorisation is granted. In the event tariff concessions are to be suspended, only products that appear on the product list attached to the request for suspension can be subject to suspension. This follows from the minimum requirements attached to a request to suspend concessions or other obligations. They are, in our view: (1) the request must set out a specific level of suspension, i.e. a level equivalent to the nullification and impairment caused by the WTO inconsistent measure, pursuant to Article 22.4;(937) and (2) the request must specify the agreement and sector(s) under which concessions or other obligations would be suspended, pursuant to Article 22.3.(938)

Neither can support for the EC request be found in other provisions of Article 22 …

In our view, the determination of other aspects related to the suspension remain the prerogative of the Member requesting the suspension. We note, in particular, that the Member in respect of whom concessions or other obligations would be suspended, can object to ‘the level of suspension proposed’(939) and that an arbitrator has to ‘determine whether the level of such suspension is equivalent to the level of nullification or impairment’.(940) Arbitrators are explicitly prohibited from ‘examin[ing] the nature of the concessions or other obligations to be suspended’(941) (other than under Articles 22.3 and 22.5).

On these grounds, we cannot require that the US further specify the nature of the proposed suspension. As agreed by all parties involved in this dispute, in case a proposal for suspension were to target, for example, only biscuits with a 100 per cent tariff ad valorem, it would not be for the arbitrators to decide that, for example, cheese and not biscuits should be targeted; that a 150 per cent tariff should be imposed instead of a 100 per cent tariff; or that tariff increases should be levied on a product weight basis, not ad valorem. All of these are qualitative aspects of the proposed suspension touching upon the ‘nature’ of concessions to be withdrawn. They fall outside the arbitrators’ jurisdiction.”(942)

664.     In US — Offset Act (Byrd Amendment) (Article 22.6), the requesting parties (all but Mexico, i.e. Brazil, Canada, Chile, European Communities, India, Japan and Korea) requested authorization to suspend tariff concessions and to be allowed to impose additional import duties on a list of products originating in the United States. Since, in the case of the European Communities’ request, the list of products was not “final”, the Arbitrator noted that the European Communities “will notify the DSB every year, prior to the entry into force of a new level of suspension of concessions or other obligations […] the list of products that will be subject to this measure.”(943), (944)

665.     In EC — Hormones (US) (Article 22.6 — EC), the European Communities referred to statements made by the United States Trade Representative and submitted that the United States claimed to be free to resort to a “carousel” type of suspension whereby the concessions and other obligations subject to suspension would change every now and then, in particular in terms of product coverage. The European Communities claimed that in so doing the United States would decide not only which concessions or other obligations would be suspended, but also unilaterally would decide whether the level of such suspension of concessions or other obligations was equivalent to the level of nullification and impairment determined by arbitration. Replying to the questions by the Arbitrators, the United States submitted that although nothing in the DSU prevented future changes to the list of products subject to suspension, the United States had no intention of making such changes. The Arbitrators decided to “assume that the US — in good faith and based upon this unilateral promise — will not implement the suspension of concessions in a ‘carousel’ manner” and that “therefore [they] d[id] not need to consider whether such an approach would require an adjustment in the way in which the effect of an authorized suspension is calculated”.(945) The Arbitrators further considered:

“As explained above,(946) we do not have jurisdiction to set a definite list of products that can be subject to suspension. It is for the US to draw up that list. In our view, it has to do so within the bounds of the product list put before the DSB. We also agree with the EC that once this list is made or once the US has defined a method of suspension, that list or method necessarily needs to cover trade in an amount not exceeding (i.e. equivalent to or less than) the nullification and impairment we find. This matter of equivalence is not one to be determined exclusively by the US.(947) The US has an obligation to ensure equivalence pursuant to Article 22.4 of the DSU.(948) In its reply to our questions, the US submitted that it ‘will scrupulously comply with the requirement that the level of suspension of concessions not exceed the level of nullification or impairment to be found by the Arbitrator’.(949)”(950)

(ii) “Obligations”

666.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators indicated that the complainant could obtain authorization from the DSB to suspend unspecified obligations “under the TRIPS Agreement” with respect to certain sectors.(951)

667.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators authorized both the suspension of tariff concessions and the suspension of “obligations” — including obligations under the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures.(952)

668.     In Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada), the Arbitrator accepted the suspension by Brazil, inter alia, of the application of obligations under the Agreement on Import Licensing Procedures relative to licensing requirements on imports from Canada.(953)

669.     In US — 1916 Act (Article 22.6 — US), the Arbitrators accepted the suspension by the European Communities of “obligations” under the GATT 1994 and the Anti-Dumping Agreement in order to adopt an equivalent regulation to the 1916 Act against imports from the United States.

670.     In US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), Canada requested, and was granted, the authorization to: (i) impose additional import duties above bound custom duties on products originating in the United States, and (ii) suspend the application of the obligations under Article VI of GATT 1994, Articles 3, 5, 7, 8, 9, 10, 11 and 12 of the Anti-Dumping Agreement and Articles 11, 12, 15, 17, 18, 19, 20, 21 and 22 of the SCM Agreement to determine that the effect of dumping or subsidization of products from the United States is to cause or threaten material injury to an established domestic injury, or is to retard materially the establishment of a domestic industry.(954)

671.     In US — Offset Act (Byrd Amendment) (Article 22.6 — Mexico), Mexico requested authorization to suspend the application to the United States “of obligations in the goods sector”.(955) The Arbitrator granted Mexico the possibility to suspend “concessions or other obligation on products originating in the United States”.(956)

672.     In US — 1916 Act (EC) (Article 22.6 — US), the European Communities had requested to suspend “obligations” under the GATT 1994 and the Anti-Dumping Agreement in order to adopt an equivalent regulation to the 1916 Act against imports from the United States, instead of tariff concessions. The Arbitrators confirmed that the decision by the European Communities to seek the suspension of “obligations” rather than tariff “concessions” was not subject to their review.(957) The Arbitrators however examined the question whether the European Communities was nevertheless obligated under Article 22 of the DSU to specify precisely which “obligations” in those two Agreements it sought to suspend. In doing so, the Arbitrator reviewed previous arbitrations and concluded that a party seeking to suspend obligations is not required, under Article 22 of the DSU, to indicate precisely which “obligations” it seeks authorization to suspend:

“In our view, a party seeking to suspend obligations is not required, under Article 22 of the DSU, to indicate precisely which ‘obligations’ it seeks authorization to suspend. Article 22.2 of the DSU states simply that a party may request authorization from the DSB ‘to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.’ There is no requirement that the requesting party identify exactly which obligations it wishes to suspend.

Moreover, we note that in previous cases, neither the arbitrators nor the DSB have required requesting parties to enumerate which concessions or other obligations such Members were seeking to suspend. For example, in Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada), the arbitrator accepted, and the DSB authorized, the suspension by Brazil, inter alia, of ‘the application of obligations under the Agreement on Import Licensing Procedures relative to licensing requirements on imports from Canada.’ The Brazilian request did not indicate which ‘obligations’ under the Agreement on Import Licensing it wished to suspend, nor did the arbitrators require such specificity.(958) In Brazil — Aircraft (Article 22.6 — Brazil), the arbitrators similarly did not object to the suspension by Canada of obligations under ‘the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures.’(959) In EC — Bananas III (Ecuador) (Article 22.6 — EC), the arbitrators indicated that the complainant could obtain authorization from the DSB to suspend unspecified obligations ‘under the TRIPS Agreement’ with respect to certain sectors.(960)

Moreover, even for requests seeking the suspension of tariff concessions ‘and related obligations under the GATT 1994’ the arbitrators did not require specificity as to what these ‘related obligations’ were.(961)

Thus, past practice indicates that arbitrators have accepted requests to suspend unspecified ‘obligations’. The DSB has granted authorization to suspend obligations, while allowing the requesting Member to decide which particular obligations it would select to implement the authorization. We would emphasize, however, that whatever discretion is granted to such a Member is subject to the requirement that the level of suspension of obligations cannot exceed the level of nullification or impairment. We return to this point below.

Therefore, we do not consider that the European Communities’ request to ‘suspend the application of the obligations under GATT 1994 and the Anti-Dumping Agreement in order to adopt an equivalent regulation to the 1916 Act against imports from the United States’ can be considered as deficient under Article 22 of the DSU for failing to specify which ‘obligations’ it seeks to suspend.”(962)

673.     In US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), the Arbitrator found that Canada’s request for suspension of obligations under a number of articles of the GATT 1994, the Anti-Dumping Agreement, and the SCM Agreement, “to determine that the effect of dumping or subsidization of products from the United states is to cause or threaten material injury to an established domestic industry or is to retard the establishment of a domestic industry”,(963) “while it could have certainly been more informative, is acceptable in terms of the minimum specificity requirement applicable to Article 22.2 requests”. In that respect, the Arbitrator “consider[ed] that the United States did not demonstrate that either its ability to reach an informed decision to request arbitration, or its ability to defend itself in these proceedings had been prejudiced as a result of the way Canada’s request was formulated”.(964)

4. Article 22.3

(a) Scope of review by arbitrators under Article 22.3

674.     In EC — Bananas III (US) (Article 22.6 — EC), the United States argued that the Arbitrators could not examine the principles and procedures set forth in Article 22.3 in that particular arbitration proceeding because the United States had requested authorization to suspend concessions only pursuant to subparagraph (a) of Article 22.3 of the DSU. In the view of the United States, the Arbitrators could only do so if the United States had requested authorization to suspend concessions pursuant to subparagraphs (b) or (c) of Article 22.3 of the DSU. The Arbitrators disagreed:

“We believe that the basic rationale of these disciplines is to ensure that the suspension of concessions or other obligations across sectors or across agreements (beyond those sectors or agreements under which a panel or the Appellate Body has found violations) remains the exception and does not become the rule. In our view, if Article 22.3 of the DSU is to be given full effect, the authority of Arbitrators to review upon request whether the principles and procedures of subparagraphs (b) or (c) of that Article have been followed must imply the Arbitrators’ competence to examine whether a request made under subparagraph (a) should have been made — in full or in part — under subparagraphs (b) or (c). If the Arbitrators were deprived of such an implied authority, the principles and procedures of Article 22.3 of the DSU could easily be circumvented. If there were no review whatsoever with respect to requests for authorization to suspend concessions made under subparagraph (a), Members might be tempted to always invoke that subparagraph in order to escape multilateral surveillance of cross-sectoral suspension of concessions or other obligations, and the disciplines of the other subparagraphs of Article 22.3 of the DSU might fall into disuse altogether.”(965)

(b) “the complaining party shall apply the following principles and procedures”

675.     With respect to the principles and procedures to be applied under Article 22.3, see paragraphs 679–680 below.

5. Article 22.3(a)

(a) “general principle … complaining party should first seek to suspend concessions or other obligations with respect to the same sector(s)”

(i) General

676.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators examined Ecuador’s request for suspension of concessions or other obligations in the area of the GATS and the TRIPS Agreement. The Arbitrators stated:

“[W]e further recall the general principle set forth in Article 22.3(a) that suspension of concessions or other obligations should be sought first with respect to the same sector(s) as that in which the panel or Appellate Body has found a violation or other nullification or impairment. Given this principle, it remains the preferred option under Article 22.3 for Ecuador to request suspension of concessions under the GATT as one of the same agreements where a violation was found, if it considers that such suspension could be applied in a practicable and effective manner.”(966)

(ii) Parallelism between violations and requests for suspension of concessions

677.     In EC — Bananas III (US) (Article 22.6 — EC), the European Communities alleged that in cases where findings of violation or nullification have been made in more than one sector, or under more than one Agreement, requests for the suspension of concessions had to be made commensurate with the number or the degree of violation. The Arbitrators disagreed:

“We recall that subparagraph (a) of Article 22.3 of the DSU refers to the suspension of ‘concessions or other obligations with respect to the same sector(s) as that in which the panel or Appellate Body has found a violation or other nullification or impairment.’ We note that the words ‘same sector(s)’ include both the singular and the plural. The concept of ‘sector(s)’ is defined in subparagraph (f)(i) with respect to goods as all goods, and in subparagraph (f)(ii) with respect to services as a principal sector identified in the ‘Services Sectoral Classification List’. We, therefore, conclude that the United States has the right to request the suspension of concessions in either of these two sectors, or in both, up to the overall level of nullification or impairment suffered, if the inconsistencies with the EC’s obligations under the GATT and the GATS found in the original dispute have not been removed fully in the EC’s revision of its regime. In this case the ‘same sector(s)’ would be ‘all goods’ and the sector of ‘distribution services’, respectively. Our conclusion, based on the ordinary meaning of Article 22.3(a), is also consistent with the fact that the findings of violations under the GATT and the GATS in the original dispute were closely related and all concerned a single import regime in respect of one product, i.e. bananas.”(967)

(b) Scope of review of arbitrators under Article 22.5(a)

678.     As regards the scope of review of the arbitrators when the party has requested authorization to suspend concessions only pursuant to paragraph (a) of Article 22.3, see paragraph 674 above.

6. Article 22.3(b) and (c)

(a) “if that party considers that it is not practical or effective”

679.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the European Communities argued that Ecuador had not demonstrated why it was not practicable or effective for it to suspend concessions under the GATT or commitments under the GATS in service sectors other than distribution services. Ecuador claimed that “it did not request suspension entirely under the GATT and/or in service sectors under the GATS other than distribution services because it considered that it would not be practicable or effective in the meaning of Article 22.3(b) and (c) of the DSU, that circumstances in Ecuador’s bananas trade sector and the economy on the whole are serious enough to justify suspension under another agreement, and that the parameters in Article 22.3(d)(i)–(ii) corroborate this conclusion”.(968) The Arbitrators held that the term “practicable” connoted “availability” and “suitability”; with respect to the term “effective”, the Arbitrators held that “the thrust of this criterion empowers the party seeking suspension to ensure that the impact of that suspension is strong and has the desired result, namely to induce compliance by the Member which fails to bring WTO-inconsistent measures into compliance with DSB rulings within a reasonable period of time”.

“[A]n examination of the ‘practicability’ of an alternative suspension concerns the question whether such an alternative is available for application in practice as well as suited for being used in a particular case.

To give an obvious example, suspension of commitments in service sub-sectors or in respect of modes of service supply which a particular complaining party has not bound in its GATS Schedule is not available for application in practice and thus cannot be considered as practicable. But also other case-specific and country-specific situations may exist where suspension of concessions or other obligations in a particular trade sector or area of WTO law may not be ‘practicable’.

In contrast, the term ‘effective’ connotes ‘powerful in effect’, ‘making a strong impression’, ‘having an effect or result’. Therefore, the thrust of this criterion empowers the party seeking suspension to ensure that the impact of that suspension is strong and has the desired result, namely to induce compliance by the Member which fails to bring WTO-inconsistent measures into compliance with DSB rulings within a reasonable period of time.

One may ask whether this objective may ever be achieved in a situation where a great imbalance in terms of trade volume and economic power exists between the complaining party seeking suspension and the other party which has failed to bring WTO-inconsistent measures into compliance with WTO law. In such a case, and in situations where the complaining party is highly dependent on imports from the other party, it may happen that the suspension of certain concessions or certain other obligations entails more harmful effects for the party seeking suspension than for the other party. In these circumstances, a consideration by the complaining party in which sector or under which agreement suspension may be expected to be least harmful to itself would seem sufficient for us to find a consideration by the complaining party of the effectiveness criterion to be consistent with the requirement to follow the principles and procedures set forth in Article 22.3.

…

Our interpretation of the ‘practicability’ and ‘effectiveness’ criteria is consistent with the object and purpose of Article 22 which is to induce compliance. If a complaining party seeking the DSB’s authorization to suspend certain concessions or certain other obligations were required to select the concessions or other obligations to be suspended in sectors or under agreements where such suspension would be either not available in practice or would not be powerful in effect, the objective of inducing compliance could not be accomplished and the enforcement mechanism of the WTO dispute settlement system could not function properly.”(969)

680.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), Ecuador argued that it was the prerogative of the Member suffering nullification or impairment to decide whether it is “practicable or effective” to choose the same sector, another sector or another agreement for the purposes of suspending concessions or other obligations. The Arbitrators held that the term “consider” in subparagraphs (b) and (c) granted a certain margin of appreciation, but that a decision by a Member was nevertheless subject to review by the Arbitrators regarding whether the Member had considered “the necessary facts objectively”:

“It follows from the choice of the words ‘if that party considers’ in subparagraphs (b) and (c) that these subparagraphs leave a certain margin of appreciation to the complaining party concerned in arriving at its conclusions in respect of an evaluation of certain factual elements, i.e. of the practicability and effectiveness of suspension within the same sector or under the same agreement and of the seriousness of circumstances. However, it equally follows from the choice of the words ‘in considering what concessions or other obligations to suspend, the complaining party shall apply the following principles and procedures’ in the chapeau of Article 22.3 that such margin of appreciation by the complaining party concerned is subject to review by the Arbitrators. In our view, the margin of review by the Arbitrators implies the authority to broadly judge whether the complaining party in question has considered the necessary facts objectively and whether, on the basis of these facts, it could plausibly arrive at the conclusion that it was not practicable or effective to seek suspension within the same sector under the same agreements, or only under another agreement provided that the circumstances were serious enough.”(970)

(b) Relationship between Article 22.3(a) and 22.3(c)

681.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators noted that Ecuador argued that, in addition to suspending concessions or other obligations under the GATS and TRIPS Agreement, it “reserves the right to suspend tariff concessions or other tariff obligations granted in the framework of the GATT 1994 in the event that these may be applied in a practicable and effective manner”.(971) With respect to the criterion of specificity relating to this request, see paragraph 662 above. The Arbitrators noted an “inconsistency” between making simultaneously a request under Articles 22.3(a) and Article 22.3(c):

“Even if Ecuador’s ‘reservation’ of a request for suspension under the GATT were permissible, there would be a certain degree of inconsistency between making a request under Article 22.3(c) — implying that suspension is not practicable or effective within the same sector under the same agreement or under another agreement — and simultaneously making a request under Article 22.3(a) — which implies that suspension is practicable and effective under the same sector. In this respect, we note that, although Ecuador did not in fact make both requests at the very same point in time, if it were likely that the suspension of concessions under the GATT could be applied in a practicable and effective manner, doubt would be cast on Ecuador’s assertion that at present only suspension of obligations under other sectors and/or other agreements within the meaning of Article 22.3(b-c) is practicable or effective in the case before us.

… we fail to see how it could be possible to suspend concessions or other obligations for a particular amount of nullification or impairment under the same sector as that where a violation was found (which implies that this is practicable and effective) and simultaneously for the same amount in another sector or under a different agreement (which implies that suspension under the same sector(972) — or under a different sector under the same agreement — is not practicable or effective). But we do not exclude the possibility that, once a certain amount of nullification or impairment has been determined by the Arbitrators, suspension may be practicable and effective under the same sector(s) where a violation has been found only for part of that amount and that for the rest of this amount of suspension is practicable or effective only in (an)other sector(s) under the same agreement or even only under another agreement.”(973)

7. Article 22.4

(a) “The level of the suspension of concessions or other obligations … shall be equivalent to the level of the nullification or impairment”

682.     In US — Offset Act (Byrd Amendment) (Article 22.6), the Arbitrator examined the possibility of setting for the “level of suspension”, rather than setting a fixed value, an economic formula that, when completed with the values of annual disbursements made by the respondent under the WTO-inconsistent measure, would give the parties the level of suspension authorized for that year. The Arbitrator concluded that nothing in Article 22 of the DSU prevented the adoption of a variable level of suspension if the circumstances of the case required it. In particular, the Arbitrator considered:

“While we note that Article 22.4 refers to ‘the level’ (singular) of nullification or impairment and to ‘the level’ (singular) of suspension of concessions or other obligations, we are not persuaded that these terms impose an obligation to identify a single and enduring level of nullification or impairment. The requirement of Article 22.4 is simply that the two levels be equivalent. As long as the two levels are equivalent, we do not see any reason why these levels may not be adjusted from time to time, provided such adjustments are justified and unpredictability is not increased as a result. In fact, we see no limitation in the DSU to the possibility of providing for a variable level of suspension if the level of nullification or impairment also varies.

Most previous arbitrators have established one single level of nullification or impairment at the level that existed at the end of the reasonable period of time granted to the responding party to bring its legislation into conformity.(974) We do not disagree that this approach is, in the large majority of cases, the most appropriate. However, we do not read anything in Article 22 of the DSU that would preclude us from following a different path if the circumstances of this case clearly required it.”(975)

683.     In adopting such a decision, the Arbitrator in US — Offset Act (Byrd Amendment) (Article 22.6) gave particular relevance to the circumstances of that case, by considering that, under a variable level of suspension system, the respondent party “would control the levers to make the actual level of suspension of concessions or other obligations go down”. The Arbitrator remarked that while “in other arbitrations where the level of nullification or impairment was set once and for all, the responding party could not influence the level of countermeasures applied to its trade, unless the requesting party agreed to modify it, [i]n this case, the level of suspension of concessions will automatically depend on the amount of disbursements made under the [WTO-inconsistent measure] in a given year. If this amount decreases, so will the level of suspension of concessions or other obligations that the Requesting Parties will be entitled to impose. If no disbursements are made, the level of suspension will have to be ‘zero’.”(976)

684.     As regards the standard of “equivalence” and its assessment by the Arbitrators, see Section XXII.B.9(b)(iii) below.

685.     With respect to the relationship between the “equivalence” standard and the “appropriate countermeasures” standard in arbitrations pursuant to Article 4.10 of the SCM Agreement, see Section XXII.B.9(c) below.

8. Article 22.6

(a) Specificity in the request for a referral to arbitration under Article 22.6

686.     In EC — Hormones (US) (Article 22.6 — EC), the Arbitrators considered that it was better to be as precise as possible in the request for suspension of concessions:

“The more precise a request for suspension is in terms of product coverage, type and degree of suspension, etc…., the better. Such precision can only be encouraged in pursuit of the DSU objectives of ‘providing security and predictability to the multilateral trading system’ (Article 3.2) and seeking prompt and positive solutions to disputes (Articles 3.3 and 3.7). It would also be welcome in light of the statement in Article 3.10 that ‘all Members will engage in [DSU] procedures in good faith in an effort to resolve the dispute’.”(977)

687.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators held that the requests for a referral to arbitration under Article 22.6 serve similar due process objectives to requests under Article 6.2 and thus concluded that the specificity standards are relevant for Article 22 requests. See paragraph 659 above.

(b) “by the original panel, if members are available, or by an arbitrator appointed by the Director-General”

688.     As of 31 December 2004, all arbitrations under Article 22.6 of the DSU have been referred to the original panel with the exception of US — 1916 Act (EC) (Article 22.6 — US). In this case, the Chairman of the original panel was no longer available. However, the other two arbitrators were members of the original Panel.(978)

(c) Burden of proof

(i) General

689.     In EC — Hormones (US) (Article 22.6 — EC) and in EC — Hormones (Canada) (Article 22.6 — EC), the Arbitrators addressed the issue of the burden of proof and concluded that, as the European Communities was challenging the conformity of the United States’ proposal with Article 22.4, it was for the European Communities to prove that the United States’ proposal was inconsistent with Article 22.4:

“WTO Members, as sovereign entities, can be presumed to act in conformity with their WTO obligations. A party claiming that a Member has acted inconsistently with WTO rules bears the burden of proving that inconsistency. The act at issue here is the US proposal to suspend concessions. The WTO rule in question is Article 22.4 prescribing that the level of suspension be equivalent to the level of nullification and impairment. The EC challenges the conformity of the US proposal with the said WTO rule. It is thus for the EC to prove that the US proposal is inconsistent with Article 22.4. Following well-established WTO jurisprudence, this means that it is for the EC to submit arguments and evidence sufficient to establish a prima facie case or presumption that the level of suspension proposed by the US is not equivalent to the level of nullification and impairment caused by the EC hormone ban. Once the EC has done so, however, it is for the US to submit arguments and evidence sufficient to rebut that presumption. Should all arguments and evidence remain in equipoise, the EC, as the party bearing the original burden of proof, would lose.

The same rules apply where the existence of a specific fact is alleged; in this case, for example, where a party relies on a decrease of beef consumption in the EC or the use of edible beef offal as pet food. It is for the party alleging the fact to prove its existence.

The duty that rests on all parties to produce evidence and to collaborate in presenting evidence to the arbitrators — an issue to be distinguished from the question of who bears the burden of proof — is crucial in Article 22 arbitration proceedings. The EC is required to submit evidence showing that the proposal is not equivalent. However, at the same time and as soon as it can, the US is required to come forward with evidence explaining how it arrived at its proposal and showing why its proposal is equivalent to the trade impairment it has suffered. Some of the evidence — such as data on trade with third countries, export capabilities and affected exporters — may, indeed, be in the sole possession of the US, being the party that suffered the trade impairment.”(979)

690.     In US — 1916 Act (Article 22.6 — US), the Arbitrators, after referring to the above quote from EC — Hormones (US) (Article 22.6 — EC) and EC — Hormones (Canada) (Article 22.6 — EC), confirmed their agreement that that quote was an accurate presentation of the burden of proof applicable in Article 22.6 proceedings. The Arbitrators clarified that “the fact that this case relates to the suspension of ‘obligations’, as opposed to the suspension of tariff concessions, in no way alters the applicable burden of proof”.(980)

(ii) Burden of proof in subsidy arbitrations under Article 4.11 of the SCM Agreement

691.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators considered that the general principles of the burden of proof also apply to arbitrations under Article 4.11 of the SCM Agreement:

“In application of the well-established WTO practice on the burden of proof in dispute resolution, it is for the Member claiming that another has acted inconsistently with the WTO rules to prove that inconsistency.(981)…. Brazil challenges the conformity of this proposal [from Canada] with Article 22 of the DSU and Article 4.10 of the SCM Agreement. It is therefore up to Brazil to submit evidence sufficient to establish a prima facie case or ‘presumption’ that the countermeasures that Canada proposes to take are not ‘appropriate’. Once Brazil has done so, it is for Canada to submit evidence sufficient to rebut that ‘presumption’. Should the evidence remain in equipoise on a particular claim, the Arbitrators would conclude that the claim has not been established. Should all evidence remain in equipoise, Brazil, as the party bearing the original burden of proof, would lose the case.”(982)

692.     In Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada), the Arbitrator summarized the burden of proof rules applicable in the case of arbitration proceedings under Article 4.11 of the SCM Agreement as follows:

“We recall that the general principles applicable to burden of proof, as stated by the Appellate Body, require that a party claiming a violation of a provision of the WTO Agreement by another Member must assert and prove its claim.(983) We find these principles to be also of relevance to arbitration proceedings under Article 4.11 of the SCM Agreement.(984) In this procedure, we thus agree that it is for Canada, which has challenged the consistency of Brazil’s proposed level of countermeasures under Articles 4.10 of the SCM Agreement, to bear the burden of proving that the proposed amount is not consistent with that provision. It is therefore up to Canada to submit evidence sufficient to establish a prima facie case or ‘presumption’ that the countermeasures that Brazil proposes taking are not ‘appropriate’. Once Canada has done so, it is for Brazil to submit evidence sufficient to rebut that ‘presumption’. Should the evidence remain in equipoise on a particular claim, the Arbitrator would conclude that the claim has not been established.

We note, however, that it is generally for each party asserting a fact, whether complainant or respondent, to provide proof thereof.(985) In this respect, therefore, it is also for Brazil to provide evidence for the facts which it asserts.

Finally, both parties have claimed that, in respect of certain issues, the other party is in sole possession of the information necessary to establish the appropriateness of the proposed level of suspension of concessions or other obligations. In this regard, we recall that both parties generally have a duty to cooperate in these arbitral proceedings in order to assist us in fulfilling our mandate, through the provision of relevant information.(986) This is why, even though Canada bears the original burden of proof, we also requested Brazil to submit a ‘methodology paper’ describing how it arrived at the level of countermeasures it proposes.(987) Later, we asked it to come forward with evidence supporting various factual assertions made in its ‘methodology paper’.”(988)

(d) Preliminary rulings

693.     In US — Offset Act (Byrd Amendment) (Article 22.6), the respondent party filed a request for a preliminary ruling. The Arbitrators decided not to issue a preliminary ruling because some of the issues they were asked to rule upon were intimately linked to questions central to the substance of the arbitration. The Arbitrators also considered that nothing in Article 22 of the DSU foresaw the possibility of issuing preliminary rulings in arbitration proceedings. The Arbitrators remarked, however, that this fact did not preclude them from ruling on procedural issues in their Decision. In particular, the Arbitrators stated that:

“[W]e note that neither paragraph 6 nor paragraph 7 of Article 22 of the DSU provide for the possibility of a preliminary ruling and there is, strictly speaking, no practice of a preliminary ruling at the request of a party in past arbitrations.”(989)

694.     As regards preliminary rulings in Panel and Appellate Body proceedings, see Section XXXVI.C below.

(e) Third-party rights

695.     In EC — Bananas III (US) (Article 22.6 — EC), Ecuador requested the Arbitrators to accord it third-party status in light of its special interest in the proceedings. The Arbitrators, however, in light of the absence of provisions for third-party status under Article 22 of the DSU and given that they did not believe that Ecuador’s rights would be affected by this proceeding, declined Ecuador’s request.(990)

696.     In EC — Hormones (US) (Article 22.6 — EC) and in EC — Hormones (Canada) (Article 22.6 — EC), the United States and Canada respectively had requested the Arbitrators to accord them third-party rights in each other’s arbitration procedures. On this occasion, the Arbitrators, recalling their discretion to decide on procedural matters under Article 12.1 of the DSU and the absence of a reference to third-party participation in Article 22, did grant the authorization on the grounds that the rights of the United States and Canada might be affected in both arbitration proceedings:

“The US and Canada are allowed to attend both arbitration hearings, to make a statement at the end of each hearing and to receive a copy of the written submissions made in both proceedings.

The above ruling was made on the following grounds.

• DSU provisions on panel proceedings, referred to by analogy in the arbitrators’ working procedures, give the arbitrators discretion to decide on procedural matters not regulated in the DSU (Article 12.1 of the DSU) in accordance with due process.(991) The DSU does not address the issue of third-party participation in Article 22 arbitration proceedings.
   
• US and Canadian rights may be affected in both arbitration proceedings:

First, the estimates for high quality beef (‘HQB’) exports, foregone because of the hormone ban, are to be based on a tariff quota that allegedly needs to be shared between Canada and the US. A determination in one proceeding may thus be decisive for the determination in the other.

Second, several methodologies are proposed to calculate lost export opportunities. Given the fact that the product scope (HQB and edible bovine offal (‘EBO’)) and relevant trade barriers (hormone ban and HQB tariff quota) are the same in both proceedings, both arbitration panels (composed of the same three individuals) may consider it necessary to adopt the same or very similar methodologies. This is all the more necessary because the arbitrators are called upon to arrive at a specific determination on the amount of nullification and impairment caused by the ban.(992) They are therefore not limited, as in most panel proceedings, to ruling only on the consistency of the amounts proposed by the US and Canada with DSU provisions. Due process thus requires that all three parties receive the opportunity to comment on the methodologies proposed by each of the parties.

• In contrast, the EC has not shown how third-party participation would prejudice its rights. No specific arguments were made demonstrating that third party participation would substantially impair the EC’s interests or due process rights.”(993)

697.     In Brazil — Aircraft (Article 22.6 — Brazil), Australia requested that it be granted the authorization to participate as a third party in the Article 22.6 arbitration in light of its participation in that capacity in the Article 21.5 Panel. The Arbitrator declined this request and noted the absence of a specific provision, in Article 22, on third-party rights:

“[W]e informed Australia that we declined its request. Our decision took into account the views expressed by the parties, the fact that there is no provision in the DSU as regards third party status under Article 22, and the fact that we do not believe that Australia’s rights would be affected by this proceeding.

We note in this respect that third party rights were granted in the Article 22.6 arbitrations concerning European Communities — Measures Concerning Meat and Meat Products (Hormones) and rejected in the EC — Bananas (1999) Article 22.6 arbitration. We do not consider that Australia in this case is in the same situation as Canada and the United States in the EC — Hormones arbitrations, nor even in the same situation as Ecuador in the EC — Bananas (1999) arbitration. Indeed, Australia never initiated dispute settlement proceedings against Brazil with respect to the export financing programme at issue. Moreover, Australia (g) List of Article 22.6 arbitration proceedings did not draw the attention of the Arbitrators to any benefits accruing to it or any rights under the WTO Agreement which might be affected by their decision.(994)”(995)

(f) Working procedures in Article 22.6 arbitrations

699.     In this respect, see Section XXXIII below.

(g) List of Article 22.6 arbitration proceedings

9. Article 22.7

(a) The mandate of the Arbitrators

701.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators examined the extent of the arbitrators’ mandate to review the choice made by a complaining Member pursuant to Article 22.3 (see paragraph 674 above). In order to do so, they looked at the mandate of arbitrators in paragraphs 6 and 7 of Article 22 and found that there was no contradiction:

“Article 22.7 of the DSU empowers the Arbitrators to examine claims concerning the principles and procedures set forth in Article 22.3 of the DSU in its entirety, whereas Article 22.6 of the DSU seems to limit the competence of Arbitrators to such examination to cases where a request for authorization to suspend concessions is made under subparagraphs (b) or (c) of Article 22.3 of the DSU. However, we believe that there is no contradiction between paragraphs 6 and 7 of Article 22 of the DSU, and that these provisions can be read together in a harmonious way.

If a panel or Appellate Body report contains findings of WTO-inconsistencies only with respect to one and the same sector in the meaning of Article 22.3(f) of the DSU, there is little need for a multilateral review of the choice with respect to goods or services or intellectual property rights, as the case may be, which a Member has selected for the suspension of concessions subject to the DSB’s authorization. However, if a Member decides to seek authorization to suspend concessions under another sector, or under another agreement, outside of the scope of the sectors or agreements to which a Panel’s findings relate, paragraphs (b)–(d) of Article 22.3 of the DSU provide for a certain degree of discipline such as the requirement to state reasons why that Member considered the suspension of concessions within the same sector(s) as that where violations of WTO law were found as not practicable or effective.”(996)

702.     The Arbitrators in EC — Bananas III (Ecuador) (Article 22.6 — EC) held with respect to their authority under Article 22.7:

“[T]he jurisdiction of the Arbitrators includes the power to determine (i) whether the level of suspension of concessions or other obligations requested is equivalent to the level of nullification or impairment; and (ii) whether the principles or procedures concerning the suspension of concessions or other obligations across sectors and/or agreements pursuant to Article 22.3 of the DSU have been followed.”(997)

703.     In Brazil — Aircraft (Article 22.6 — Brazil), Brazil had claimed that, as a result of the termination of the bilateral agreement (see paragraph 643 above), the Arbitrators should, pursuant to Article 22.7 of the DSU, determine that the proposed countermeasures are not allowed under the SCM Agreement on the grounds that the time within which they may be authorized has expired. The Arbitrators disregarded Brazil’s claim as follows:

“We note that Article 60 of the Vienna Convention provides for the ‘termination’ of a treaty by one party in response to a ‘material breach’ by the other party. Article 70 of the Vienna Convention nevertheless provides that the termination of a treaty does not affect any right, obligation or legal situation of the parties created-through the execution of the treaty prior to its termination. We conclude that, even assuming that the Bilateral Agreement has been terminated by Brazil on 14-July 2000, the request by Canada under Article 4.10 of the SCM Agreement, to the extent it was made in accordance with the terms of the Bilateral Agreement, remains unaffected by the termination.(998) We therefore do not find it necessary to address further this question.”(999)

704.     In US — 1916 Act (Article 22.6 — US), the European Communities had requested to suspend obligations instead of tariff concessions. On that occasion, the Arbitrators considered that “the decision by the European Communities to seek the suspension of ‘obligations’ rather than tariff ‘concessions’ is not subject to review by the Arbitrators”.(1000)

705.     In US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), the Arbitrator stated that it did not “fall within [his] mandate to recommend the suspension of specific obligations or the adoption of specific measures by ‘the requesting party’”.(1001)

706.     Also in US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), the Arbitrator examined Canada’s request for suspension of obligations under a number of provisions of the GATT 1994, the Anti-Dumping Agreement, and the SCM Agreement. The Arbitrator found that he did not “have authority under our mandate to require Canada to be more specific as to the measures it intends to apply to suspend its obligations” under those provisions.(1002) In that regard, the Arbitrator stated that:

“[I]t is necessary to differentiate between the WTO obligation to be suspended and the specific measures taken to implement such suspensions. We note that our mandate is to determine whether the level of suspension of WTO obligations is equivalent with the level of nullification or impairment. Article 22.7 of the DSU does not imply a review of the actual measures, which will implement a suspension, to determine if they will exceed the level of nullification or impairment, and in our view, the Arbitrator’s mandate does not extend to addressing or approving the proposed implementation of the suspension of the obligations.”(1003)

707.     In US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), the Arbitrator left the final decision regarding the legitimacy of the request to the DSB, by noting that:

“[I]f the DSB considers that Canada’s request is not acceptable in this respect, it may reject Canada’s request, pursuant to the last sentence of Article 22.7 of the DSU. Similarly, if the United States were to consider that the actual suspension of obligations by Canada exceeded the level of nullification or impairment determined pursuant to this decision, it may have recourse to the dispute settlement mechanism.(1004)”(1005)

708.     As regards the task of the arbitrators under Article 4.11 of the SCM Agreement, see paragraph 746 below.

(b) “The arbitrator … shall determine whether the level of such suspension is equivalent to the level of nullification or impairment.”

(i) Assessment of the level of nullification or impairment

709.     The Arbitrators in EC — Bananas III (US) (Article 22.6 — EC) established that the presumption of nullification or impairment of Article 3.8 of the DSU cannot be taken as evidence proving a particular level of nullification or impairment allegedly suffered by a Member

“The presumption of nullification or impairment in the case of an infringement of a GATT provision as set forth by Article 3.8 of the DSU cannot in and of itself be taken simultaneously as evidence proving a particular level of nullification or impairment allegedly suffered by a Member requesting authorization to suspend concessions under Article 22 of the DSU at a much later stage of the WTO dispute settlement system. The review of the level of nullification or impairment by Arbitrators from the objective benchmark foreseen by Article 22 of the DSU is a separate process that is independent from the finding of infringements of WTO rules by a panel or the Appellate Body….However, a Member’s legal interest in compliance by other Members does not, in our view, automatically imply that it is entitled to obtain authorization to suspend concessions under Article 22 of the DSU.”(1006)

710.     In US — 1916 Act (Article 22.6 — US), the European Communities had not quantified the level of nullification or impairment but rather had requested a qualitative suspension of concessions (see paragraphs 736–738 below). The United States had claimed that the level of nullification or impairment in this case should then be “zero”. The Arbitrators disagreed and indicated that although the level of nullification or impairment had not been specified in quantitative terms by the European Communities, “it clearly is not, and cannot be, ‘zero’”:

“We do not accept the position of the United States that the level of nullification or impairment in this case is ‘zero’. As noted by the European Communities, the original Panel in this dispute found, and the Appellate Body confirmed, that ‘the 1916 Act nullifies and impairs benefits accruing to the European Communities.’ Therefore, while the level of nullification or impairment has not been specified in quantitative terms in the EC request under Article 22.2, it clearly is not, and cannot be, ‘zero’. In our view, this US position cannot be sustained in light of the adopted Panel and Appellate Body findings.

…

We agree with the arbitrators in EC — Bananas III (US) (Article 22.6 — EC) that the presumption of nullification or impairment, as provided in Article 3.8 of the DSU, by no means provides evidence of the level of nullification or impairment sustained by the Member requesting authorization to suspend obligations. However, the fact that the presumption does not automatically translate to a given level does not mean that the level is ‘zero’. The original Panel determined that the 1916 Act ‘nullifies and impairs benefits accruing to the European Communities.’ In light of this conclusion, the level must be something greater than ‘zero’, and it is a contradiction in terms to suggest otherwise.”(1007)

711.     In US — Offset Act (Byrd Amendment) (Article 22.6), the requesting parties (Brazil, Canada, Chile, European Communities, India, Japan, Korea and Mexico) partially based their request to suspend concessions on the premise that a violation is a form of nullification or impairment. The Arbitrator distinguished the concept of violation from that of nullification or impairment by noting that, pursuant to Article 3.8 of the DSU, a violation generates a presumption of nullification or impairment, not that a violation is a form of nullification or impairment. The Arbitrator stated:

“If violation was conceptually equated […] to nullification or impairment, there would be no reason to provide for a possibility to rebut the presumption. The theoretical possibility to rebut the presumption established by Article 3.8 can only exist because violation and nullification or impairment are two different concepts.”(1008)

Trade effect

712.     In US — Offset Act (Byrd Amendment) (Article 22.6) the Arbitrator noted that “trade effect” as a parameter to determine the level of nullification and impairment pursuant to Article 22 of the DSU “is found neither in Article XXIII of GATT 1994, nor in Article 22 of the DSU. […]” However, the Arbitrator decided to follow an approach based on determining the trade effect of the inconsistent measure since “the ‘trade effect’ approach has been regularly applied in other Article 22.6 arbitrations and seems to be generally accepted by Members as a correct application of Article 22 of the DSU”. The Arbitrator noted in that regard that “[p]revious arbitrators’ decisions based on direct trade impact are not binding precedents”.(1009)

Using reasoned estimates and avoiding speculation

713.     The Arbitrators in EC — Hormones (US) (Article 22.6 — EC) stated that they were to use reasoned estimates when assessing the level of nullification or impairment. Applying this approach, the Arbitrators rejected United States claims for certain lost exports as “too remote” and “too speculative”.(1010) The Arbitrators considered:

“The question we thus have to answer here is: what would annual prospective US exports of hormone-treated beef and beef products to the EC be if the EC had withdrawn the ban on 13 May 1999? An answer to this question, like any question about future events, can only be a reasoned estimate. It is necessarily based on certain assumptions. In making those estimates and assumptions, we need to guard against claims of lost opportunities where the causal link with the inconsistent hormone ban is less than apparent, i.e. where exports are allegedly foregone not because of the ban but due to other circumstances.”(1011)

714.     A similar approach was taken by the Arbitrator in Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada). In that case, Canada argued that a certain airline had a “revealed margin of preference” for a Canadian regional aircraft manufacturer. The Arbitrator dismissed this argument in part because “[w]hile such a preference may have existed, Canada has not meaningfully quantified it ….”(1012)

715.     In US — 1916 Act (Article 22.6 — US), the Arbitrators referred to the above statements as support to their view that [“i]n determining the level of nullification or impairment sustained by the European Communities as a result of the 1916 Act, we need to rely, as much as possible, on credible, factual, and verifiable information”.(1013) The Arbitrators further considered that “this prudent approach taken by earlier arbitrators is appropriate”.(1014)

716.     In US — Offset Act (Byrd Amendment) (Article 22.6), the Arbitrator analysed the economic models suggested by the parties, in order to choose the appropriate model to apply in the calculation of the level of nullification or impairment. The Arbitrator “considered the approach of the Requesting Parties to be too aggregated, hence not specific enough to th[e] case. While the model specification proposed by the United States is disaggregated and well specified, [the Arbitrator] concluded that there is insufficient data to run that model with any degree of accuracy.” In light of “the lack of available data to implement the United States’ model”, the Arbitrator decided “to reject the United States’ model in favour of a modified version of the model proposed by the Requesting Parties”.(1015)

Indirect benefits

717.     The Arbitrators in EC — Bananas III (US) (Article 22.6 — EC) considered the notion of “direct or indirect benefits” accruing under the WTO agreements whose nullification or impairment may give rise to an entitlement to obtain compensation or the authorization to suspend concessions or other obligations. In this case, the United States had argued that its exports to Latin America (e.g. fertilizers) used in the production of bananas that would be exported to the European Communities under a WTO-consistent regime should be counted in setting the level of suspension. The Arbitrators concluded that, “to the extent the US assessment of nullification or impairment includes lost US exports defined as US content incorporated in Latin American bananas (e.g. US fertilizer, pesticides and machinery shipped to Latin America and US capital or management services used in banana cultivation), we do not consider such lost US exports for calculating nullification or impairment in the present arbitration proceeding between the European Communities and the United States”:

“The presumption of nullification or impairment in the case of an infringement of a GATT provision as set forth by Article 3.8 of the DSU cannot in and of itself be taken simultaneously as evidence proving a particular level of nullification or impairment allegedly suffered by a Member requesting authorization to suspend concessions under Article 22 of the DSU at a much later stage of the WTO dispute settlement system. The review of the level of nullification or impairment by Arbitrators from the objective benchmark foreseen by Article 22 of the DSU is a separate process that is independent from the finding of infringements of WTO rules by a panel or the Appellate Body. As a result, a Member’s potential interests in trade in goods or services and its interest in a determination of rights and obligations under the WTO Agreements are each sufficient to establish a right to pursue a WTO dispute settlement proceeding. However, a Member’s legal interest in compliance by other Members does not, in our view, automatically imply that it is entitled to obtain authorization to suspend concessions under Article 22 of the DSU.

Over the last decades of GATT dispute settlement practice, it has become a truism of GATT law that lack of actual trade cannot be determinative for a finding that no violation of a provision occurred because it cannot be excluded that the absence of trade is the result of an illegal measure. As discussed by the original panel reports,(1016) in past dispute settlement practice the non-discrimination provisions have been interpreted to protect ‘competitive opportunities’(1017) or the ‘effective equality of opportunities’(1018) for foreign products which may be undermined by ‘any laws or regulations which might adversely modify the conditions of competition between domestic and imported products’.(1019) All these past panel reports concerned the alleged nullification or impairment of potential trade opportunities under the national treatment clause. Also the US — Superfund case,(1020) from which the wording of Article 3.8 of the DSU establishing the presumption of nullification or impairment in case of an infringement of GATT is drawn, concerned the alleged violation of Article III of GATT. Therefore, the notion underlying the protection of potential trade opportunities is potential trade between the complaining and the respondent party. Likewise, in the case of an alleged violation of the MFN treatment clause, a dispute would involve trade between the complaining party or a third country, on the one hand, and the respondent party, on the other.

We are of the view that the benchmark for the calculation of nullification or impairment of US trade flows should be losses in US exports of goods to the European Communities and losses by US service suppliers in services supply in or to the European Communities. However, we are of the opinion that losses of US exports in goods or services between the US and third countries do not constitute nullification or impairment of even indirect benefits accruing to the United States under the GATT or the GATS for which the European Communities could face suspension of concessions. To the extent the US assessment of nullification or impairment includes lost US exports defined as US content incorporated in Latin American bananas (e.g. US fertilizer, pesticides and machinery shipped to Latin America and US capital or management services used in banana cultivation), we do not consider such lost US exports for calculating nullification or impairment in the present arbitration proceeding between the European Communities and the United States.”(1021)

Company-specific effects versus overall effect on the Member

718.     In EC — Bananas III (US) (Article 22.6 — EC), the initial United States’ request for the authorization to suspend concessions or other obligations involved only losses incurred by one of its companies. The Arbitrators considered that “[i]n order to calculate the level of nullification and impairment for the United States, it is our view that it is necessary to calculate the aggregate net effects on all US suppliers of wholesale services to bananas wholesaled in the European Communities”.(1022)

Court judgments

719.     In US — 1916 Act (Article 22.6 — US), the Arbitrators considered that any final judgments under the 1916 Act against European Communities companies “would constitute nullification or impairment of benefits accruing to the European Communities, up to the cumulative dollar or monetary value of the final judgments”:

“In our view, any final judgments entered against EC companies or their subsidiaries under the 1916 Act would constitute nullification or impairment of benefits accruing to the European Communities, up to the cumulative dollar or monetary value of the final judgements. In our view, it would be appropriate to include only ‘final’ judgements, i.e. the amounts payable either after the appeals have been completed, or the appeal periods have expired. Moreover, all such decisions are made public, and therefore the amounts of the judgments are readily verifiable.

In a case involving multiple claims — i.e., a judgment award that includes both 1916 Act claims and non-1916 Act claims — the amount included by the European Communities in calculating its level of nullification or impairment would need to be limited to the 1916 Act claims alone.

Judgments under the 1916 Act are awarded pursuant to WTO-inconsistent legislation, and clearly nullify or impair benefits accruing to the European Communities under the GATT 1994 and the Anti-Dumping Agreement. The cumulative dollar or monetary value of judgments under the Act therefore could, in principle, be included in any cumulative calculation by the European Communities of the overall level of the nullification or impairment that it has sustained.”(1023)

Settlements

720.     In US — 1916 Act (Article 22.6 — US), the Arbitrators considered that any settlement awards entered into by the European Communities companies would “constitute nullification or impairment of benefits accruing to the European Communities, up to the cumulative dollar or monetary value of the settlements”:

“In our view, any settlement awards entered into by EC companies or their subsidiaries under the 1916 Act would equally constitute nullification or impairment of benefits accruing to the European Communities, up to the cumulative dollar or monetary value of the settlements. Once again, such settlements result from WTO-inconsistent legislation, and therefore nullify or impair benefits accruing to the European Communities. In our view, whether the amounts are payable by EC entities pursuant to court orders under the 1916 Act, or settlements under the Act, the legal effect is the same in terms of the nullification or impairment of benefits accruing to the European Communities.

In a settlement involving multiple claims — i.e., a settlement of a lawsuit that includes both 1916 Act claims and non-1916 Act claims — the amount included by the European Communities in calculating its level of nullification or impairment would need to be limited to the 1916 Act claims alone.

As noted above, in calculating the level of nullification or impairment, it is necessary to rely only on credible, verifiable information, and not on speculation. In the context of settlements under the 1916 Act, this would almost certainly necessitate the disclosure of such settlements, such that the amounts of the settlements — and the portions attributable to the 1916 Act — can be confirmed…”(1024)

Deterrent or “chilling” effect

721.     In US — 1916 Act (Article 22.6 — US), the European Communities had argued that the most damaging effect of the 1916 Act was its chilling effect on the commercial behaviour of European companies and its potential use as a means of intimidation of European companies that were either already active on the United States’ market or which had considered entering the market.(1025) The Arbitrators were “of the view that any claim for a deterrent or ‘chilling effect’ by the European Communities in the present case would be too speculative, and too remote”. They warned that they did not need to decide, for the purposes of this arbitration, whether a “chilling effect” could be considered to exist for the purposes of WTO dispute settlement. They only needed to determine whether such a chilling effect could be meaningfully quantified for the purposes of determining the level of nullification or impairment sustained by the European Communities as a result of the 1916 Act.(1026) The Arbitrators concluded that, “[o]n the basis of the information provided to the arbitrators, we agree with the parties that a quantification of the chilling effect is not possible. Accordingly, the chilling effect allegedly caused by the 1916 Act could not be included in any calculation by the European Communities of its overall level of the nullification or impairment.”(1027)

Litigation costs

722.     In US — 1916 Act (Article 22.6 — US), the European Communities argued that legal expenses related to the pending US court cases were one of the immediate costs of the 1916 Act.(1028) The Arbitrators disagreed and considered that the litigation costs could not be included in the calculation of the level of the nullification or impairment:

“The Arbitrators recall their position, stated above, that it is appropriate to follow the prudent approach taken by earlier arbitrators in determining the level of nullification or impairment. We are not aware of any basis in the WTO Agreements to support the view advanced by the European Communities that legal fees can be claimed as a loss of a benefit accruing to a WTO Member. Moreover, we are not aware of any prior case in which such a claim has been permitted. It is also not clear which fees, and under what circumstances, could be included in such a claim.

In the circumstances of this case, it is uncontested that the European Communities has not ‘meaningfully quantified’ the amount of legal fees paid by EC entities as a result of the 1916 Act. Indeed, the European Communities acknowledges that it has provided only examples of such costs, not an overall, verifiable tabulation. In addition, as indicated above, these examples of legal fees have been contested by the United States.

Accordingly, in our view, the litigation costs incurred by EC entities under the 1916 Act could not be included in any calculation by the European Communities of the overall level of the nullification or impairment.”(1029)

Double-counting of nullification or impairment

723.     In EC — Bananas III (US) (Article 22.6 — EC), the United States had argued that its lost exports, including those of goods and services used in the production of Latin-American bananas for the European market, should be counted in setting the level of suspension. After rejecting the United States’ argument on “indirect benefits” (see paragraph 717 above), the Arbitrators warned that if overlapping claims by different WTO Members were permissible under the DSU in respect of nullification or impairment suffered because of lost trade in goods, this would result in double counting of nullification and impairment:

“[I]f overlapping claims by different WTO Members as to nullification or impairment suffered because of the same lost trade in goods (and goods and service inputs used in their production or incorporated therein) or the same lost trade in services were permissible under the DSU, the problem of ‘double-counting’ of nullification or impairment would arise. Due to the difference in origin of goods or services used as inputs in the banana production, on the one hand, and the origin of the bananas as end-products, on the other, cumulative requests for compensation or suspension of concessions could be made for the same amount of nullification or impairment caused by a Member.

If we were to allow for such ‘double-counting’ of the same nullification or impairment in arbitration proceedings under Article 22.6 of the DSU with different WTO Members, incompatibilities with the standard of ‘equivalence’ as embodied in paragraphs 4 and 7 of Article 22 of the DSU could arise. Given that the same amount of nullification or impairment inflicted on one Member cannot simultaneously be inflicted on another, the authorizations to suspend concessions granted by the DSB to different WTO Members could exceed the overall amount of nullification or impairment caused by the Member that has failed to bring a WTO-inconsistent measure into compliance with WTO law. Moreover, such cumulative compensation or cumulative suspension of concessions by different WTO Members for the same amount of nullification or impairment would run counter to the general international law principle of proportionality of countermeasures.(1030)”(1031)

Disbursements operating as subsidies

724.     In US — Offset Act (Byrd Amendment) (Article 22.6) the Arbitrator utilized a formula to determine the effect that a subsidy had on the trade of the Members concerned. The Arbitrator judged that the trade effect of the subsidy could be found by multiplying the value of the subsidy by a “trade effect coefficient” composed of the values of pass-through, import penetration and elasticity of substitution. In this regard, the Arbitrator considered that:

“A basic economic model to derive a coefficient for the trade effects of disbursements operating as subsidies can be described as the product of four variables: the value of the subsidy, a measure of the ad valorem price reduction caused by the CDSOA disbursements (i.e., ‘pass-through’), a substitution elasticity of imports, and import penetration. The basic relationship of the trade effect can be expressed as follows:

Trade effect = (value of disbursements) × [(pass-through) ×(import penetration) ×(elasticity of substitution)]”(1032)

725.     In US — 1916 Act (Article 22.6 — US), the Arbitrators decided that the European Communities could suspend concessions qualitatively provided always that the level of nullification or impairment was quantified on a monetary basis. To facilitate this, the Arbitrators allowed the European Communities to take into account the cumulative monetary value of any amounts payable by EC entities pursuant to final court judgements for claims under the 1916 Act and the settlement of claims under the 1916 Act. In this context, the Arbitrators referred to the possibility that the quantified amount of nullification or impairment suffered by the European Communities could vary over time as a result of new judgements or settlement agreements under the 1916 Act:

“[T]he quantified amount of nullification or impairment sustained by the European Communities as a result of the 1916 Act may vary over time, if there are new judgments or settlement agreements under the 1916 Act involving EC entities. This may necessitate access by the parties to all relevant information, including settlement awards. The Arbitrators are confident that each party will abide fully by its obligation under Article 3.10 of the DSU to ‘engage in dispute settlement procedures in good faith in an effort to resolve the dispute.’ In our view, this obligation applies to all stages of the dispute, including during the implementation of the suspension of obligations.

We also recall that the United States may have recourse to the appropriate dispute settlement procedures in the event that it considers that the application of the suspension by the European Communities exceeds the level of nullification or impairment that the European Communities has sustained as a result of the 1916 Act …”(1033)

726.     Concerning the possibility of setting a variable level of suspension of concessions or other obligations in order to reflect possible variations in the level of nullification or impairment, see paragraphs 682–683 above.

727.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators considered the provisions of Article 4.11 of the SCM Agreement as special or additional rules and recalled that the concept of nullification or impairment is absent from Articles 3 and 4 of the SCM Agreement. In the Arbitrators’ view, there is no legal obligation in that context that countermeasures in the form of suspension of concessions or other obligations be equivalent to the level of nullification or impairment. The Arbitrators thus concluded that, when dealing with a prohibited export subsidy, an amount of countermeasures that corresponds to the total amount of the subsidy is “appropriate”. See paragraph 766 below.

728.     In US — FSC (Article 22.6 — US), the Arbitrators recalled that “Articles 4.10 and 4.11 of the SCM Agreement are ‘special or additional rules’ under Appendix 2 of the DSU, and that in accordance with Article 1.2 of the DSU, it is possible for such rules or procedures to prevail over those of the DSU. There can be no presumption, therefore, that the drafters intended the standard under Article 4.10 to be necessarily coextensive with that under Article 22.4 so that the notion of ‘appropriate countermeasures’ under Article 4.10 would limit such countermeasures to an amount ‘equivalent to the level of nullification or impairment’ suffered by the complaining Member. Rather, Articles 4.10 and 4.11 of the SCM Agreement use distinct language and that difference must be given meaning.”(1034)

(ii) Assessment of the level of suspension of concessions

729.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators considered that “to estimate the level of nullification or impairment, the same basis needs to be used for measuring the level of suspension of concessions. Since the latter is the gross value of US imports from the European Communities, the comparable basis for estimating nullification and impairment in our view is the impact on the value of relevant EC imports from the United States (rather than US firms’ costs and profits, as used in the US submission). More specifically, we compare the value of relevant EC imports from the United States under the present banana import regime (the actual situation) with their value under a WTO-consistent regime (a “counterfactual” situation).”(1035)

730.     In EC — Hormones (US) (Article 22.6 — EC),(1036) EC — Hormones (Canada) (Article 22.6 — EC)(1037) and Brazil — Aircraft (Article 22.6 — Brazil),(1038) the Arbitrators asked the requesting party to provide them with a methodology paper explaining the methodology they applied in calculating the proposed level of suspension.

731.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the European Communities requested that the Arbitrators disregard certain information contained in Ecuador’s methodology document on the basis that such information was included in Ecuador’s first submission only and not in the methodology document. The Arbitrators held that while a procedural step of submitting a methodology document had been stipulated in another arbitration proceeding for reasons of practicality, such a “methodology document” was not expressly mentioned in the DSU. Furthermore, the Arbitrators rejected “the idea that the specificity requirements of Article 6.2 apply mutatis mutandis to the methodology document”:

“[W]e introduced the procedural step of submitting a methodology document in the US/EC Bananas III arbitration proceeding because we reckoned that certain information about the methodology used by the party for calculating the level of nullification or impairment would logically only be in the possession of that Member and that it would not be possible for the Member requesting arbitration pursuant to Article 22 of the DSU to challenge this information unless it was disclosed. Obviously, if such information were to be disclosed by the Member suffering impairment only in its first submission, the Member requesting arbitration could only rebut that information in its rebuttal submission, while its first submission would become necessarily less meaningful and due process concerns could arise. It was out of these concerns that the United States was requested to submit a document explaining the methodology used for calculating impairment before the filing of the first submission by both parties. Unlike in panel proceedings, where parties do not file their first submissions simultaneously, it has been the practice in past arbitration proceedings under Article 22 that both rounds of submissions take place before a single oral hearing of the parties by the Arbitrators and that in both these rounds parties file their submissions simultaneously.

However, we agree with Ecuador that such a methodology document is nowhere mentioned in the DSU. Nor do we believe, as explained in detail above, that the specificity requirements of Article 6.2 relate to that methodology document rather than to requests for suspension pursuant to Article 22.2, and to requests for the referral of such matters to arbitration pursuant to Article 22.6. For these reasons, we reject the idea that the specificity requirements of Article 6.2 apply mutatis mutandis to the methodology document. In our view, questions concerning the amount, usefulness and relevance of information contained in a methodology document are more closely related to the questions of who is required at what point in time to present evidence and in which form, or in other words, the issue of the burden of proof in an arbitration proceeding under Article 22.6.”(1039)

(iii) Standard of equivalence

732.    In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators considered the meaning of “equivalence” and noted “that the ordinary meaning of the word ‘equivalence’ is ‘equal in value, significance or meaning’, ‘having the same effect’, ‘having the same relative position or function’, ‘corresponding to’, ‘something equal in value or worth’, also ‘something tantamount or virtually identical’”.(1040) The Arbitrators considered that “this meaning connotes a correspondence, identity or balance between two related levels, i.e. between the level of the concessions to be suspended, on the one hand, and the level of the nullification or impairment, on the other”.(1041)

733.     The Arbitrators in EC — Hormones (US) (Article 22.6 — EC) and EC — Hormones (Canada) (Article 22.6 — EC) specifically found that “equivalent” had to be determined in “quantitative” terms:

“What we do have to determine…is whether the overall proposed level of suspension is equivalent to the level of nullification and impairment. This involves a quantitative — not a qualitative — assessment of the proposed suspension. As noted by the arbitrators in the Bananas case, ‘[i]t is impossible to ensure correspondence or identity between two levels if one of the two is not clearly defined’. Therefore, as a prerequisite for ensuring equivalence between the two levels, we have to be able to determine, not only the ‘level of the nullification and impairment’, but also the ‘level of the suspension of concessions or other obligations’. To give effect to the obligation of equivalence in Article 22.4, the Member requesting suspension thus has to identify the level of suspension of concessions it proposes in a way that allows us to determine equivalence.”(1042)

734.     Also in EC — Hormones (Canada) (Article 22.6 — EC) the Arbitrators stated that the “total trade value” could not “exceed the amount of trade impairment we find”.(1043)

735.     Similarly, the Arbitrators in US — FSC (Article 22.6 — US) noted that drafters of Article 22.4 had explicitly set a “quantitative” benchmark to the level of suspension of concessions or other obligations that can be authorized:

“The drafters [of Article 22.4] have explicitly set a quantitative benchmark to the level of suspension of concessions or other obligations that might be authorized. This is similarly reflected in Article 22.7, which defines the arbitrators’ mandate in such proceedings ….

As we have already noted in our analysis of the text of Article 4.10 of the SCM Agreement above, there is, by contrast, no such indication of an explicit quantitative benchmark in that provision ….”(1044)

736.     In US — 1916 Act (Article 22.6 — US), the Arbitrators acknowledged that this was the first time that a complainant had requested authorization to suspend “qualitatively” equivalent (rather than “quantitatively” equivalent) obligations. The Arbitrators compared the case before them with previous cases and concluded that the fact that the requested suspension had not been stated in quantitative terms “[did] not in and of itself render the EC request inconsistent with Article 22”:

“[T]his is the first case in which a WTO Member has sought to suspend ‘qualitatively equivalent’ obligations. In all previous cases, parties seeking to suspend concessions or other obligations have provided a quantitative, monetary figure indicating the amount of suspension sought. Indeed, the European Communities indicated that it was ‘aware that its request for suspension of “qualitatively equivalent” obligations constitutes a novelty in WTO practice.’

…

In cases such as EC — Hormones (US) (Article 22.6 — EC), EC — Hormones (Canada) (Article 22.6 — EC) and US — FSC (Article 22.6 — US), where the requested suspension was expressed in quantitative terms, the arbitrators necessarily had to assess whether there was ‘quantitative equivalence’ between the level of the nullification or impairment and the level of the suspension of concessions or other obligations.

In the present case, by contrast, the requested suspension has not been stated in quantitative terms. However, this does not in and of itself render the EC request inconsistent with Article 22 …”(1045)

737.     The Arbitrators on US — 1916 Act (Article 22.6 — US) further indicated that the question of whether it is possible to determine the WTO-consistency of a “qualitatively equivalent” Article 22.2 request cannot be considered in the abstract but has to be looked at from the point of view of its application:

“Indeed, it is not possible to determine the WTO-consistency of a ‘qualitatively equivalent’ Article 22.2 request in the abstract. Instead, it is necessary to determine how the actual suspension resulting from such ‘qualitative equivalence’ would be applied. More specifically:

• If the suspension of obligations were applied in such a manner that it were equal to or below the level of nullification or impairment sustained by the European Communities, then the suspension would, in principle, be consistent with DSU Article 22.4.(1046)
   
• If the suspension of obligations were applied in such a manner that it exceeded the level of nullification or impairment sustained by the European Communities, then the suspension would be punitive, and would not be consistent with DSU Article 22.4.

….

In the present case, in order to determine whether the qualitative suspension could be applied in such a manner that the level of suspension could exceed the level of nullification or impairment, it is necessary to determine the trade or economic effects on the European Communities of the 1916 Act. Once this has been determined, the European Communities could implement its suspension up to, but not beyond, this amount. This necessitates a determination of the trade or economic effects of the 1916 Act on the European Communities in numerical or monetary terms, which is the only way in which the arbitrators can determine ‘equivalence’ in the present context.”(1047)

738.     In US — 1916 Act (Article 22.6 — US), the European Communities had requested the right to suspend obligations by enacting a regulation replicating the US 1916 Act which had been found inconsistent with WTO law. The Arbitrators noted that the European Communities’ request had placed no quantifiable or monetary limits on how the suspension could be applied in practice. The Arbitrators were concerned that the suspension could thus apply to an unlimited amount of US exports to the European Communities. The Arbitrators then rejected the EC argument that the suspension of obligations is somehow “equivalent” because its proposed measure would replicate, or partially replicate, the 1916 Act. The Arbitrators concluded that:

“Leaving aside for the moment the issue of whether we can examine the EC measure, we would reiterate that similar or even identical measures can have dissimilar trade effects. Stated another way, similar or identical measures may not result in the required equivalence between the level of suspension and the level of nullification or impairment.

…

Given the potentially unlimited application of the EC suspension, as described in its request, it is possible that the EC suspension could exceed the level of nullification or impairment when it is applied, and thereby become punitive. The EC request does not ensure that the suspension will be limited to the level of nullification it has sustained, as expressed in quantifiable economic or trade terms.”(1048)

General

739.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators considered that they could not fulfil their task of assessing the equivalence between the two levels (i.e. level of nullification or impairment and level of suspension) before they had reached a view on whether the revised EC regime was, in the light of the Panel and the Appellate Body’s findings in the original dispute, fully WTO-consistent:

“[I]t is our opinion that the concept of equivalence between the two levels (i.e. of the proposed suspension and the nullification or impairment) remains a concept devoid of any meaning if either of the two variables in our comparison between the proposed suspension and the nullification or impairment would remain unknown. In essence, we would be left with the option to declare the level of nullification or impairment to be tantamount to the proposed level of suspension, i.e. to equate one variable in the equation with the other. To do that would mean that any proposed level of suspension would necessarily be deemed equivalent to the level of nullification or impairment so equated. Or, we could resort to the option of measuring the level of nullification or impairment on the basis of our findings in the original dispute, as modified by the Appellate Body and adopted by the DSB. To do that would mean to ignore altogether the undisputed fact that the European Communities has taken measures to revise its banana import regime. That is certainly not the mandate that the DSB has entrusted to us.

Consequently, we cannot fulfil our task to assess the equivalence between the two levels before we have reached a view on whether the revised EC regime is, in light of our and the Appellate Body’s findings in the original dispute, fully WTO-consistent. It would be the WTO-inconsistency of the revised EC regime that would be the root cause of any nullification or impairment suffered by the United States. Since the level of the proposed suspension of concessions is to be equivalent to the level of nullification or impairment, logic dictates that our examination as Arbitrators focuses on that latter level before we will be in a position to ascertain its equivalence to the level of the suspension of concessions proposed by the United States.(1049)

In arriving at this conclusion, we are mindful of the DSB Chairman’s statement at the meeting of 29 January 1999 when the DSB decided to refer this matter to us in our capacity as Arbitrators:

‘There remains the problem of how the Panel and the Arbitrators would coordinate their work, but as they will be the same individuals, the reality is that they will find a logical way forward, in consultation with the parties. In this way, the dispute settlement mechanisms of the DSU can be employed to resolve all of the remaining issues in this dispute, while recognizing the right of both parties and respecting the integrity of the DSU.’

We are convinced that our chosen ‘way forward’ in tackling the tasks before us is the most ‘logical way forward’. It is the one that gives full weight and meaning to all of the dispute settlement mechanisms provided for under the DSU that parties to the original Bananas III dispute have chosen to invoke.”(1050)

740.     In EC — Bananas III (US) (Article 22.6 — EC), the European Communities contested the Arbitrators’ competence to review the WTO-consistency or otherwise of the revised European Communities’ regime (see paragraph 739 above) on the grounds that such a review would deprive Article 21.5 of its raison d’être. The Arbitrators disagreed:

“[T]he European Communities argues that if we consider the WTO consistency of its banana regime in an arbitration proceeding under Article 22, we will deprive Article 21.5 of its raison d’être. We disagree. For those Members that for whatever reasons do not wish to suspend concessions, Article 21.5 will remain the prime vehicle for challenging implementation measures. However, if we accepted the EC’s argument, we would in fact read the time-limit foreseen in Article 22.6 out of the DSU since an Article 21.5 proceeding, which in the EC view includes consultations and an appeal, would seldom, if ever, be completed before the end of the time-limit specified within Article (i.e. thirty days of the expiry of the reasonable period of time).(1051) In this regard it is useful to recall the arbitration award in the Hormones case, in which it is stated ‘Read in context, it is clear that the reasonable period of time, as determined under Article 21.3(c), should be the shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB.’(1052) We note that in the US view, if it cannot make a request for authorization to suspend concessions within the Article 22.6 time-period, it loses its right to do so, at least under circumstances where the negative-consensus rule of Article 22.6 applies.”(1053)

741.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators considered that the benchmark of equivalence reflects a stricter standard of review for Arbitrators acting pursuant to Article 22.7 of the DSU than the degree of scrutiny that the standard of appropriateness, as applied under the GATT 1947, would have suggested. In arriving at this conclusion, the Arbitrators examined the working party on Netherlands Action under Article XXIII:2 to Suspend Obligations to the United States:

“We are mindful of the fact that the working party on Netherlands Action under Article XXIII:2 to Suspend Obligations to the United States(1054) considered whether the proposed action was ‘appropriate’ and that the Working Party only had ‘regard’ to the equivalence of the impairment suffered:

‘2.     The Working Party was instructed by the CONTRACTING PARTIES to investigate the appropriateness of the measure which the Netherlands Government proposed to take, having regard to the equivalence to the impairment suffered by the Netherlands as a result of the United States restrictions.

3.     The Working Party felt that the appropriateness of the measure envisaged by the Netherlands Government should be considered from two points of view: in the first place, whether in the circumstances, the measure proposed was appropriate in character, and secondly, whether the extent of the quantitative restriction proposed by the Netherlands Government was reasonable, having regard to the impairment suffered.’ (emphasis added).

In our view, in light of the explicit reference in paragraphs 4 and 7 of Article 22 of the DSU to the need to ensure the equivalence between the level of proposed suspension and the level of the nullification or impairment suffered, the standard of appropriateness applied by the 1952 working party has lost its significance as a benchmark for the authorization of the suspension of concessions under the DSU.

However, we note that the ordinary meaning of ‘appropriate’, connoting ‘specially suitable, proper, fitting, attached or belonging to’,(1055) suggests a certain degree of relation between the level of the proposed suspension and the level of nullification or impairment, where as we stated above, the ordinary meaning of ‘equivalent’ implies a higher degree of correspondence, identity or stricter balance between the level of the proposed suspension and the level of nullification or impairment. Therefore, we conclude that the benchmark of equivalence reflects a stricter standard of review for Arbitrators acting pursuant to Article 22.7 of the WTO’s DSU than the degree of scrutiny that the standard of appropriateness, as applied under the GATT of 1947 would have suggested.”(1056)

742.     In EC — Hormones (US) (Article 22.6 — EC) and in EC — Hormones (Canada) (Article 22.6 — EC), the Arbitrators considered that “an arbitrator has to ‘determine whether the level of such suspension is equivalent to the level of nullification or impairment’” but that “[a]rbitrators are explicitly prohibited from ‘examin[ing] the nature of the concessions or other obligations to be suspended’ (other than under Articles 22.3 and 22.5)”.(1057) The Arbitrators further indicated that the determination of whether the overall proposed level of suspension is equivalent to the level of nullification and impairment involves a quantitative — not a qualitative — assessment of the proposed suspension:

“What we do have to determine, however, is whether the overall proposed level of suspension is equivalent to the level of nullification and impairment. This involves a quantitative — not a qualitative — assessment of the proposed suspension. As noted by the arbitrators in the Bananas case, ‘[i]t is impossible to ensure correspondence or identity between two levels if one of the two is not clearly defined’.(1058) Therefore, as a prerequisite for ensuring equivalence between the two levels, we have to be able to determine, not only the ‘level of the nullification and impairment’, but also the ‘level of the suspension of concessions or other obligations’. To give effect to the obligation of equivalence in Article 22.4, the Member requesting suspension thus has to identify the level of suspension of concessions it proposes in a way that allows us to determine equivalence.”(1059)

Extent of the Arbitrators’ mandate when they reject the proposed level of suspension

743.     The Arbitrators on EC — Hormones (US) (Article 22.6 — EC) considered that when the Arbitrators determine that the level of suspension of concessions or other obligations sought by the complaining party is not equivalent to the actual level of nullification or impairment suffered, they are obliged to determine what level of suspension would be equivalent:

“There is … a difference between our task here and the task given to a panel. In the event we decide that the US proposal is not WTO consistent, i.e. that the suggested amount is too high, we should not end our examination the way panels do, namely by requesting the DSB to recommend that the measure be brought into conformity with WTO obligations. Following the approach of the arbitrators in the Bananas case — where the proposed amount of US$ 520 million was reduced to US$ 191.4 million — we would be called upon to go further. In pursuit of the basic DSU objectives of prompt and positive settlement of disputes, we would have to estimate the level of suspension we consider to be equivalent to the impairment suffered. This is the essential task and responsibility conferred on the arbitrators in order to settle the dispute. In our view, such approach is implicitly called for in Article 22.7… “(1060)

744.     Similarly, in EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators stated:

“[W]e note that, if we were to find the proposed amount … not to be equivalent, we would have to estimate the level of suspension we consider to be equivalent to the nullification or impairment suffered by Ecuador. This approach is consistent with Article 22.7 of the DSU which emphasizes the finality of the arbitrators’ decision….

We recall that this approach was followed in the US/EC arbitration proceeding in EC — Bananas III and the arbitration proceedings in EC — Hormones, where the arbitrators did not consider the proposed amount of suspension as equivalent to the nullification or impairment suffered and recalculated that amount in order to be able to render a final decision.”(1061)

745.     In Canada — Aircraft Credits and Guarantees (Article 22.6 — Canada), the Arbitrators confirmed that “prior Arbitrators that have rejected proposed levels of countermeasures (or suspensions of concessions) have always proceeded to set levels consistent with the relevant agreements”.(1062)

(c) Exception: standard of appropriateness in subsidy arbitrations

746.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators, although indicating that they were following the approach adopted by previous arbitrators, used the standard of appropriateness, that had been rejected in EC — Bananas III (US) (Article 22.6 — EC) (see paragraph 741 above). This was because Article 4.11 of the SCM Agreement calls for the Arbitrators to determine the “appropriate countermeasures”. The Arbitrators indicated that “[a]s to our task, we follow the approach adopted by previous arbitrators under Article 22.6 of the DSU.(1063) We will have not only to determine whether Canada’s proposal constitutes ‘appropriate countermeasures’, but also to determine the level of countermeasures we consider to be appropriate in case we find that Canada’s level of countermeasures is not appropriate, if necessary by applying our own methodology.” (emphasis added)(1064)

747.     With respect to the relationship between the “equivalence” and “appropriateness” standards, see paragraphs 727–728 above. As regards the particularities of arbitrations pursuant to Article 4.11 of the SCM Agreement, see paragraphs 763–777 below and Section IV.B.8 of the Chapter on the SCM Agreement.

(d) Separate opinions

748.     In US — FSC (Article 22.6 — EC), the Arbitrators expressed separate opinions in two footnotes regarding the extent of the possible interpretations of the Arbitrators’ conclusions.(1065)

749.    As regards dissenting/separate opinions in panel reports, see Section XI.B.7 above. For concurrent statements in Appellate Body reports, see Section XVII.B.7 above.

(e) Suspension of concessions awarded under arbitration

750.     In EC — Bananas III (US) (Article 22.6 — EC), the Arbitrators decided that the suspension by the United States of the application to the European Communities and its member States of tariff concessions and related obligations under GATT 1994 covering trade in a maximum amount of US$191.4 million per year would be consistent with Article 22.4 of the DSU.(1066) Further to the request by the United States,(1067) the DSB, at its meeting on 19 April 1999, authorized the suspension of concessions.(1068)

751.     In EC — Hormones (US) (Article 22.6 — EC), the Arbitrators decided that the suspension by the United States of the application to the European Communities and its member States of tariff concessions and related obligations under GATT 1994 covering trade in a maximum amount of US$116.8 million per year would be consistent with Article 22.4 of the DSU.(1069) Further to the request by the United States,(1070) the DSB, at its meeting on 26 July 1999, authorized the suspension of concessions.(1071)

752.     In EC — Hormones (Canada) (Article 22.6 — EC), the Arbitrators decided that the suspension by Canada of the application to the European Communities and its member States of tariff concessions and related obligations under GATT 1994 covering trade in a maximum amount of Can$11.3 million per year would be consistent with Article 22.4 of the DSU.(1072) Further to the request by Canada,(1073) the DSB, at its meeting on 26-July-1999, authorized the suspension of concessions.(1074)

753.     In EC — Bananas III (Ecuador) (Article 22.6 — EC), the Arbitrators decided that the suspension by Ecuador to the European Communities of concessions or other obligations at a level not exceeding US$201.6 million per year would be consistent within the meaning of Article 22.4. The Arbitrators further decided that

“(b)     Ecuador may request, pursuant to subparagraph (a) of Article 22.3, and obtain authorization by the DSB to suspend concessions or other obligations under the GATT concerning certain categories of goods in respect of which we have been persuaded that suspension of concessions is effective and practicable. Notwithstanding the requirement set forth in Article 22.7 that arbitrators ‘shall not examine the nature of the concessions or other obligations to be suspended’, we note that in our view these categories of goods do not include investment goods or primary goods used as inputs in Ecuadorian manufacturing and processing industries, whereas these categories of goods do include goods destined for final consumption by end-consumers in Ecuador.(1075) In making its request for suspension of concessions with respect to certain product categories, we note that, consistent with past practice in arbitration proceedings under Article 22,(1076) Ecuador should submit to the DSB a list identifying the products with respect to which it intends to implement such suspension once it is authorized.

(c)     Ecuador may request, pursuant to subparagraph (a) of Article 22.3, and obtain authorization by the DSB to suspend commitments under the GATS with respect to ‘wholesale trade services’(CPC 622) in the principal sector of distribution services.

(d)     To the extent that suspension requested under the GATT and the GATS, in accordance with subparagraphs (b) and (c) above, is insufficient to reach the level of nullification and impairment indicated in subparagraph (a) of this paragraph, Ecuador may request, pursuant to subparagraph (c) of Article 22.3, and obtain authorization by the DSB to suspend its obligations under the TRIPS Agreement with respect to the following sectors of that Agreement:

Section 1:      Copyright and related rights, Article 14 on “Protection of performers, producers of phonograms (sound recordings) and broadcasting organisations”;

Section 3:      Geographical indications;

Section 4:       Industrial designs.”(1077)

754.     Further to the request by Ecuador,(1078) the DSB, at its meeting on 28 May 2000, authorized the suspension of concessions.(1079)

755.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators decided that the suspension by Canada of the application to Brazil of tariff concessions or other obligations under GATT 1994, the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures covering trade in a maximum amount of Can$344.2 million per year would constitute appropriate countermeasures within the meaning of Article 4.10 of the SCM Agreement.(1080) Further to the request by Canada,(1081) the DSB, meeting on 12 December 2000, authorized the suspension of concessions.(1082)

756.     In US — FSC (Article 22.6 — US), the Arbitrators decided that the suspension by the European Communities of concessions under the GATT 1994 in the form of the imposition of a 100 per cent ad valorem charge on imports of certain goods from the United States in a maximum amount of US$4,043 million per year would constitute appropriate countermeasures within the meaning of Article 4.10 of the SCM Agreement.(1083) Further to the request by the European Communities,(1084) the DSB, at its meeting on 7 May 2003, authorized the suspension of concessions.(1085)

757.     In US — 1916 Act (Article 22.6 — US), the Arbitrators awarded the European Communities the possibility of suspending concessions “qualitatively” (see paragraphs 736–738 above) instead of quantitatively as in all the previous cases above, provided that it ensured that “the application of such a suspension is quantified, and does not exceed the quantified level of nullification or impairment it has sustained as a result of the 1916 Act”. As parameters for quantifying the monetary level of its nullification or impairment, the Arbitrators allowed the European Communities to include (i) “the cumulative monetary value of any amounts payable by EC entities pursuant to final court judgments for claims under the 1916 Act”; and (ii) “the cumulative monetary value of any amounts payable by EC entities pursuant to the settlement of claims under the 1916 Act”.(1086) As of 31-December 2004, the European Communities had not requested the DSB for authorization to suspend concessions after the issuance of the Decision by the Arbitrator, pursuant to Article 22.7 of the DSU, last sentence.

758.     In Canada — Aircraft Credits and Guarantees (Article 22.6 Canada) the Arbitrator decided that the suspension by Brazil: (a) of the application of the obligation under paragraph 6(a) of Article VI of the GATT 1994 to determine that the effect of subsidization under EDC Canada Account and EDC Corporate Account programmes was to cause or threaten material injury to an established domestic industry, or was to retard materially the establishment of a domestic industry; (b) of the application of obligations under the Agreement on Import Licensing Procedures relative to licensing requirements on imports from Canada; and (c) of tariff concessions and related obligations under the GATT 1994 concerning a list of products to be drawn from the list attached to its request, covering trade in a total amount of US$247,797,000, would constitute appropriate countermeasures within the meaning of Article 4.10 of the SCM Agreement.(1087) Further to the request by Brazil,(1088) the DSB, at its meeting on 18 March 2003, authorized the suspension of concessions.(1089)

759.     In US — Offset Act (Byrd Amendment) (Article 22.6), the Arbitrator awarded the requesting parties (Brazil, Chile, European Communities, India, Japan, Korea and Mexico) the possibility of suspending concessions or other obligations in the form of the imposition of an additional import duty above bound custom duties on a final list of products originating in the United States covering, on a yearly basis, a total value of trade not exceeding, in US dollars, the amount resulting from the following equation:

“Amount of disbursements under CDSOA for the most recent year for which data are available relating to antidumping or countervailing duties paid on imports from [the requesting party] at that time, as published by the United States’ authorities.

multiplied by:

0.72”(1090)

760.     Following Canada’s request to suspend concessions and other obligations, the Arbitrator in US — Offset Act (Byrd Amendment) (Article 22.6 — Canada), allowed Canada, in addition to imposing additional import duties, to suspend “the application of the obligations under Article VI of GATT 1994, Articles 3, 5, 7, 8, 9, 10, 11 and 12 of the Anti-Dumping Agreement, and Articles 11, 12, 15, 17, 18, 19, 20, 21 and 22 of the SCM Agreement to determine that the effect of dumping or subsidization of products from the United States is to cause or threaten material injury to an established domestic injury, or is to retard materially the establishment of a domestic industry”, converting a value of same formula.(1091)

761.     In US — Offset Act (Byrd Amendment) (Article 22.6), further to the request by all the requesting parties except Chile,(1092) the DSB, at its meeting on 24 and 26 November 2004, authorized the suspension of concessions.(1093) Pursuant to a request by Chile,(1094) authorization to suspend concessions was granted at the DSB meeting on 17 December 2004.(1095)

762.     The table below illustrates the authorizations granted by the DSB to suspend concessions as of 31-December 2004:

10. Relationship with other Agreements

(a) Arbitrations pursuant to Articles 4.10 and 4.11 of the SCM Agreement

(i) Special or additional rules

763.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators indicated that they read the provisions of Article 4.11 of the SCM Agreement as special or additional rules:

“We read the provisions of Article 4.11 of the SCM Agreement as special or additional rules. In accordance with the reasoning of the Appellate Body in Guatemala — Cement,(1096) we must read the provisions of the DSU and the special or additional rules in the SCM Agreement so as to give meaning to all of them, except if there is a conflict or a difference…”(1097)

764.     In US — FSC (Article 22.6 — US), the Arbitrators recalled Article 30 of the SCM Agreement and concluded that Article 22.6 of the DSU applies to arbitrations pursuant to Article 4.11 of the SCM Agreement although this latter provision would prevail in case of conflict:

“We also recall the terms of Article 30 of the SCM Agreement, which clarifies that the provisions of the DSU are applicable to proceedings concerning measures covered by the SCM Agreement. Article 22.6 of the DSU therefore remains relevant to arbitral proceedings under Article 4.11 of the SCM Agreement, as illustrated by the textual reference made to Article 22.6 of the DSU in that provision. However, the special or additional rules and procedures of the SCM Agreement, including Articles 4.10 and 4.11, would prevail to the extent of any difference between them.(1098)”(1099)

(ii) Exception to the requirement of equivalence to the level of nullification or impairment

765.     The Arbitrators in Brazil — Aircraft (Article 22.6 — Brazil) rejected Brazil’s argument that the countermeasures must be equivalent to the level of nullification or impairment pursuant to Article 22.4 of the DSU, noting that the concept of nullification or impairment is not found in Articles 3 and 4 of the SCM Agreement. The Arbitrators explained:

“A first approach would be to consider that the concept of nullification or impairment does not apply to Article 4 of the SCM Agreement. We note in this respect that, in relation to actionable subsidies, Article 5 refers to nullification or impairment as only one of the three categories of adverse effects. This could mean that another test than nullification or impairment could also apply in the context of Article 4 of the SCM Agreement.

That said, we note that the Original Panel concluded that, since a violation had been found, a prima facie case of nullification or impairment had been made within the meaning of Article 3.8 of the DSU, which Brazil had not rebutted. In that context, we are more inclined to consider that no reference was expressly made to nullification or impairment in Article 4 of the SCM Agreement for the following reasons:

(a)     a violation of Article 3 of the SCM Agreement entails an irrebuttable presumption of nullification or impairment. It is therefore not necessary to refer to it;

(b)     the purpose of Article 4 is to achieve the withdrawal of the prohibited subsidy. In this respect, we consider that the requirement to withdraw a prohibited subsidy is of a different nature than removal of the specific nullification or impairment caused to a Member by the measure.(1100) The former aims at removing a measure which is presumed under the WTO Agreement to cause negative trade effects, irrespective of who suffers those trade effects and to what extent. The latter aims at eliminating the effects of a measure on the trade of a given Member;

(c)     the fact that nullification or impairment is established with respect to a measure does not necessarily mean that, in the presence of an obligation to withdraw that measure, the level of appropriate countermeasures should be based only on the level of nullification or impairment suffered by the Member requesting the authorisation to take countermeasures.”(1101)

766.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators further indicated that they read the provisions of Article 4.11 of the SCM Agreement as special or additional rules and recalled that the concept of nullification or impairment is absent from Articles 3 and 4 of the SCM Agreement. The Arbitrators considered that, accordingly, in that context there was no legal obligation that countermeasures in the form of suspension of concessions or other obligations be equivalent to the level of nullification or impairment. The Arbitrators thus concluded that, when dealing with a prohibited export subsidy, an amount of countermeasures that corresponds to the total amount of the subsidy is “appropriate”:

“We read the provisions of Article 4.11 of the SCM Agreement as special or additional rules. In accordance with the reasoning of the Appellate Body in Guatemala — Cement,(1102) we must read the provisions of the DSU and the special or additional rules in the SCM Agreement so as to give meaning to all of them, except if there is a conflict or a difference. While we agree that in practice there may be situations where countermeasures equivalent to the level of nullification of impairment will be appropriate, we recall that the concept of nullification or impairment is absent from Articles 3 and 4 of the SCM Agreement. In that framework, there is no legal obligation that countermeasures in the form of suspension of concessions or other obligations be equivalent to the level of nullification or impairment.

On the contrary, requiring that countermeasures in the form of suspension of concessions or other obligations be equivalent to the level of nullification or impairment would be contrary to the principle of effectiveness by significantly limiting the efficacy of countermeasures in the case of prohibited subsidies. Indeed, as shown in the present case,(1103) other countermeasures than suspension of concessions or obligations may not always be feasible because of their potential effects on other Members. This would be the case of a counter-subsidy granted in a sector where other Members than the parties compete with the products of the parties. In such a case, the Member taking the countermeasure may not be in a position to induce compliance.

We are mindful that our interpretation may, at a first glance, seem to cause some risk of disproportionality in case of multiple complainants. However, in such a case, the arbitrator could allocate the amount of appropriate countermeasures among the complainants in proportion to their trade in the product concerned. The “inducing” effect would most probably be very similar.

For the reasons set out above, we conclude that, when dealing with a prohibited export subsidy, an amount of countermeasures which corresponds to the total amount of the subsidy is ‘appropriate’.(1104)”(1105)

767.     In US — FSC (Article 22.6 — US), the Arbitrator considered that, since Articles 4.10 and 4.11 of the SCM Agreement may prevail over those of the DSU, there can be no presumption that the drafters intended the standard under Article 4.10 of the SCM Agreement to be “necessarily coextensive” with that under Article 22.4 of the DSU:

“It should be recalled here that Articles 4.10 and 4.11 of the SCM Agreement are ‘special or additional rules’ under Appendix 2 of the DSU, and that in accordance with Article 1.2 of the DSU, it is possible for such rules or procedures to prevail over those of the DSU. There can be no presumption, therefore, that the drafters intended the standard under Article 4.10 to be necessarily coextensive with that under Article 22.4 so that the notion of ‘appropriate countermeasures’ under Article 4.10 would limit such countermeasures to an amount ‘equivalent to the level of nullification or impairment’ suffered by the complaining Member. Rather, Articles 4.10 and 4.11 of the SCM Agreement use distinct language and that difference must be given meaning.

Indeed, reading the text of Article 4.10 in its context, one might reasonably observe that if the drafters had intended the provision to be construed in this way, they could certainly have made it clear. Indeed, relevant provisions both elsewhere in the SCM Agreement and in the DSU use distinct terms to convey precisely such a standard as described by the United States, in so many words. Yet the drafters chose terms for this provision in the SCM Agreement different from those found in Article 22.4 of the DSU. It would not be consistent with effective treaty interpretation to simply read away such differences in terminology.

We therefore find no basis in the language itself or in the context of Article 4.10 of the SCM Agreement to conclude that it can or should be read as amounting to a ‘trade effect-oriented’ provision where explicitly alternative language is to be read away in order to conform it to a different wording to be found in Article 22.4 of the DSU.

We would simply add that, while we consider that the precise difference in language must be given proper meaning, this goes no further than that. Our interpretation of Article 4.10 of the SCM Agreement as embodying a different rule from Article 22.4 of the DSU does not make the DSU otherwise inapplicable or redundant.”(1106)

768.     As regards the subsidy-specific aspects of the determination of “appropriate countermeasures”, see Section IV.B.7(a) of the Chapter on the SCM Agreement.

769.     With respect to the standard of “appropriateness” as opposed to the standard of “equivalence”, see paragraphs 741–746 above.

(iii) Concept of “appropriate countermeasures”

770.     In Brazil — Aircraft (Article 22.6 — Brazil), the Arbitrators looked at the word ‘countermeasure’ as context for finding a meaning to the word “appropriate”. The Arbitrators disregarded the dictionary meaning of the word and preferred to refer to its general meaning in international law and to the work of the International Law Commission on state responsibility:

“While the parties have referred to dictionary definitions for the term ‘countermeasures’, we find it more appropriate to refer to its meaning in general international law(1107) and to the work of the International Law Commission (ILC) on state responsibility, which addresses the notion of countermeasures.(1108) We note that the ILC work is based on relevant state practice as well as on judicial decisions and doctrinal writings, which constitute recognized sources of international law.(1109) When considering the definition of ‘countermeasures’ in Article 47 of the Draft Articles,(1110) we note that countermeasures are meant to ‘induce [the State which has committed an internationally wrongful act] to comply with its obligations under articles 41 to 46’. We note in this respect that the Article 22.6 arbitrators in the EC — Bananas (1999) arbitration made a similar statement.(1111) We conclude that a countermeasure is ‘appropriate’ inter alia if it effectively induces compliance.”(1112)

771.     In US — FSC (Article 22.6 — US), the Arbitrator looked into the ordinary meaning of the word “countermeasure”:

“Dictionary definitions of ‘countermeasure’ suggest that a countermeasure is essentially defined by reference to the wrongful action to which it is intended to respond. The New Oxford Dictionary defines ‘countermeasure’ as ‘an action taken to counteract a danger, threat, etc’.(1113) The meaning of ‘counteract’ is to ‘hinder or defeat by contrary action; neutralize the action or effect of’.(1114) Likewise, the term ‘counter’ used as a prefix is defined inter alia as: ‘opposing, retaliatory’.(1115) The ordinary meaning of the term thus suggests that a countermeasure bears a relationship with the action to be counteracted, or with its effects (cf. ‘hinder or defeat by contrary action; neutralize the action or effect of’).(1116)

In the context of Article 4 of the SCM Agreement, the term ‘countermeasures’ is used to define temporary measures which a prevailing Member may be authorized to take in response to a persisting violation of Article 3 of the SCM Agreement, pending full compliance with the DSB’s recommendations. This use of the term is in line with its ordinary dictionary meaning as described above: these measures are authorized to counteract, in this context, a wrongful action in the form of an export subsidy that is prohibited per se, or the effects thereof.

It would be consistent with a reading of the plain meaning of the concept of countermeasure to say that it can be directed either at countering the measure at issue (in this case, at effectively neutralizing the export subsidy) or at counteracting its effects on the affected party, or both.

We need, however, to broaden our textual analysis in order to see whether we can find more precision in how countermeasures are to be construed in this context. We thus turn to an examination of the expression ‘appropriate’ countermeasures with a view to clarifying what level of countermeasures may be legitimately authorized.”(1117)

772.     In Brazil — Aircraft (Article 22.6 — Brazil), Canada had proposed adopting countermeasures based on the amount of subsidy per aircraft granted by Brazil instead of basing them on the level of nullification or impairment. The Arbitrators examined the meaning of the term appropriate and concluded that “a countermeasure is ‘appropriate’ inter alia if it effectively induces compliance”:

“In accordance with Article 3.2 of the DSU, we proceed with an analysis of the meaning of the term ‘appropriate’ based on Article 31 of the Vienna Convention.

Examining only the ordinary meaning of the term ‘appropriate’ does not allow us to reply to the question before us, since dictionary definitions are insufficiently specific. Indeed, the relevant dictionary definitions of the word ‘appropriate’ are ‘specially suitable; proper’.(1118) However, they point in the direction of meeting a particular objective.

The first context of the term ‘appropriate’ is the word ‘countermeasures’, of which it is an adjective. While the parties have referred to dictionary definitions for the term ‘countermeasures’, we find it more appropriate to refer to its meaning in general international law(1119) and to the work of the International Law Commission (ILC) on state responsibility, which addresses the notion of countermeasures.(1120) We note that the ILC work is based on relevant state practice as well as on judicial decisions and doctrinal writings, which constitute recognized sources of international law.(1121) When considering the definition of ‘countermeasures’ in Article 47 of the Draft Articles,(1122) we note that countermeasures are meant to ‘induce [the State which has committed an internationally wrongful act] to comply with its obligations under articles 41 to 46’. We note in this respect that the Article 22.6 arbitrators in the EC — Bananas (1999) arbitration made a similar statement.(1123) We conclude that a countermeasure is ‘appropriate’ inter alia if it effectively induces compliance.”(1124)

773.     The Arbitrators, in US — FSC (Article 22.6 — US), considered the dictionary meaning of the word “appropriate” and concluded that, as far as the amount or level of countermeasures is concerned, the expression “appropriate” does not in and of itself predefine the precise and exhaustive conditions for the application of countermeasures.(1125) According to them, Articles 4.10 and 4.11 are not designed to lay down a precise formula or otherwise quantified benchmark or amount of countermeasures which might be legitimately authorized in each and every instance.(1126) The Arbitrators indicated:

“Based on the plain meaning of the word, this means that countermeasures should be adapted to the particular case at hand. The term is consistent with an intent not to prejudge what the circumstances might be in the specific context of dispute settlement in a given case. To that extent, there is an element of flexibility, in the sense that there is thereby an eschewal of any rigid a priori quantitative formula. But it is also clear that there is, nevertheless, an objective relationship which must be absolutely respected: the countermeasures must be suitable or fitting by way of response to the case at hand.”(1127)

774.     In US — FSC (Article 22.6 — US), the Arbitrators considered that the term “appropriate” countermeasures in Article 4.10 is informed by footnote 9, which provides guidance as to what the expression “appropriate” should be understood to mean. In the Arbitrators’ view, “these two elements are part of a single assessment and that the meaning of the expression ‘appropriate countermeasures’ should result from a combined examination of these terms of the text in light of its footnote”.(1128) The Arbitrators thus concluded that “[t]his footnote effectively clarifies further how the term ‘appropriate’ is to be interpreted. We understand it to mean that countermeasures that would be ‘disproportionate in light of the fact that the subsidies dealt with under these provisions are prohibited’ could not be considered ‘appropriate’ within the meaning of Article 4.10 of the SCM Agreement”.(1129) Further to analysing the dictionary meaning of the word “disproportionate” in footnote 9, the Arbitrators considered that footnote 9 “confirms that, while the notion of ‘appropriate countermeasures’ is intended to ensure sufficient flexibility of response to a particular case, it is a flexibility that is distinctly bounded” and that “[t]hose bounds are set by the relationship of appropriateness”. In his view, “[t]hat appropriateness, in turn, entails an avoidance of disproportion between the proposed countermeasures and, as our analysis to this point has brought us, either the actual violating measure itself, the effects thereof on the affected Member, or both”.(1130)

775.     In US — FSC (Article 22.6 — US), the Arbitrators further looked at the text of the final part of footnote 9 and considered that this text directed him “to consider the ‘appropriateness’ of countermeasures under Article 4.10 from this perspective of countering a wrongful act and taking into account its essential nature as an upsetting of the rights and obligations as between Members”.(1131) The Arbitrators further noted that “the negative formulation of the requirement under footnote 9 is consistent with a greater degree of latitude than a positive requirement may have entailed: footnote 9 clarifies that Article 4.10 is not intended to allow countermeasures that would be ‘disproportionate’. It does not require strict proportionality.(1132)”(1133)

(iv) Arbitrators’ mandate pursuant to Article 4.11

776.     In Brazil — Aircraft (Article 22.6 — Brazil), a case that dealt with Canada’s request for authorization to take “appropriate countermeasures” under Article 4.10 of the SCM Agreement, the Arbitrators described their task under Article 4.11 of the SCM Agreement. See paragraph 746 above.

777.     In US — FSC (Article 22.6 — US), the Arbitrators considered that their mandate required them to review whether the prevailing Member, in proposing certain measures to take in application of Article 4 of the SCM Agreement, had respected the parameters of what is permissible under that provision:

“[Articles 4.10 and 4.11 of the SCM Agreement] complement each other: the arbitrator’s mandate in relation to countermeasures concerning prohibited subsidies under Article 4 of the SCM Agreement is defined, quite logically, with reference to the notion embodied in the underlying provision in Article 4.10. The expression ‘appropriate countermeasures’ defines what measures can be authorized in case of non-compliance, and our mandate requires us to review whether, in proposing certain measures to take in application of that provision, the prevailing Member has respected the parameters of what is permissible under that provision.

In doing this, we must aim at determining whether, in this particular case, the countermeasures proposed by the European Communities are ‘appropriate’.”(1134)

Footnotes:

780. (footnote original) The non-conforming measure might also assume other forms: e.g., an executive or administrative practice actually carried out but not specifically mandated or authorized by statute or administrative regulation; or a “quasi-judicial” determination by an administrative body. Since the Argentine measures involved in this arbitration are not of these kinds, it is not necessary to examine the requirements of compliance where those other kinds of measures are concerned. back to text
781. Award of the Arbitrator on Argentina — Hides and Leather (Article 21.3), paras. 40–41. See also the Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 49. back to text
782. (footnote original) Award of the Arbitrator under Article 21.3(c) of the DSU, Indonesia — Automobile Industry, WT/DS54/15, supra, footnote 10 para. 23; and Award of the Arbitrator under Article 21.3(c) of the DSU, Canada — Pharmaceutical Patents, supra, footnote 9 para. 52. back to text
783. Award of the Arbitrator on Argentina — Hides and Leather (Article 21.3), para. 41. back to text
784. Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 38. As regards the concept of “flexibility” when considering the reasonable period of time, see also Awards of the Arbitrator, Canada — Patent Term, para. 64; US — 1916 Act, para. 39; US — Section 110(5) Copyright Act, paras. 38–39 and Chile — Price Band System (Article 21.3), para. 39. back to text
785. Award of the Arbitrator, US — 1916 Act (Article 21.3), para. 39. See also Awards of the Arbitrator on US — Section 110(5) Copyright Act (Article 21.3), paras. 38–39; Canada — Patent Term (Article 21.3), para. 64; and Chile — Price Band System (Article 21.3), para. 49. back to text
786. Award of the Arbitrator on US — Section 110(5) Copyright Act (Article 21.3), para. 46. back to text
787. Award of the Arbitrator on Chile — Price Band System (Article 21.3), para. 43. back to text
788. Award of the Arbitrator on Indonesia — Autos (Article 21.3), para. 24. See also Award of the Arbitrator on Argentina — Hides and Leather (Article 21.3), para. 51. back to text
789. Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 45. back to text
790. (footnote original) Award of the Arbitrator, Chile — Alcoholic Beverages, para. 45 (emphasis added). back to text
791. (footnote original) Award of the Arbitrator, Argentina — Hides and Leather, para. 51. back to text
792. (footnote original) Award of the Arbitrator, Indonesia — Autos, para. 24. back to text
793. (footnote original) Article 21.2 of the DSU. back to text
794. Award of the Arbitrator on Chile — Price Band System (Article 21.3), paras. 55–56. back to text
795. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 81. back to text
796. See, for example, Award of the Arbitrator, Indonesia — Autos, para. 24; Award of the Arbitrator, Chile — Alcoholic Beverages, para. 45; and Award of the Arbitrator, Argentina — Hides and Leather, para. 51. back to text
797. Award of the Arbitrator, Chile — Price Band System, paras. 55 and 56. See also Award of the Arbitrator, US — Offset Act (Byrd Amendment), para. 81. back to text
798. Award of the Arbitrator in EC — Tariff Preferences (Article 21.3), para. 59. back to text
799. (footnote original) By contrast, in a non-violation case, brought under Article XXIII:1(b) of the GATT 1994, Article 26.1(b) of the DSU states explicitly that “there is no obligation to withdraw”. back to text
800. Award of the Arbitrator on EC — Hormones (Article 21.3), para. 38. See also the Awards of the Arbitrator on Australia — Salmon (Article 21.3), para. 35; Korea — Alcoholic Beverages (Article 21.3), para. 45, where the Arbitrator indicated that “choosing the means of implementation is, and should be, the prerogative of the implementing Member”; Canada — Pharmaceutical Patents (Article 21.3), paras. 40;; Chile — Alcoholic Beverages (Article 21.3), para. 42, where the Arbitrator confirmed that “[t]he choice and the timing of the detailed operating steps in enacting a new law are properly left to the Member concerned”; Chile — Price Band System (Article 21.3), para. 32; US — Offset Act (Byrd Amendment) (Article 21.3), para. 48; EC — Tariff Preferences (Article 21.3), para. 30. back to text
801. Award of the Arbitrator on US — Hot-Rolled Steel (Article 21.3), para. 30. back to text
802. (footnote original) Award of the Arbitrator, US — Hot-Rolled Steel, para. 30. back to text
803. Award of the Arbitrator on Chile — Price Band System (Article 21.3), para. 37. back to text
804. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 40. back to text
805. (original footnote) Appellate Body Report [on US — Hot-Rolled Steel], paras. 84–85. back to text
806. Award of the Arbitrator on US — Hot-Rolled Steel (Article 21.3), paras. 25–26. See also the Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 42. back to text
807. Award of the Arbitrator on EC — Hormones (Article 21.3), para. 25. back to text
808. Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), para. 45. See also Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 39. In US — Hot-Rolled Steel (Article 21.3), the Arbitrator further indicated that he “… d[id] not see any basis for reading the 15 month guideline as establishing a fixed maximum or ‘outer limit’ for ‘a reasonable period of time’. Neither, of course, does the 15 month guideline constitute a floor or ‘inner limit’ of ‘a reasonable period of time’.” Award of the Arbitrator on US — Hot-Rolled Steel (Article 21.3), para. 25. See also the Awards of the Arbitrator on Chile — Price Band System (Article 21.3), para. 33; and US — Offset Act (Byrd Amendment) (Article 21.3), para. 41. back to text
809. Award of the Arbitrator on EC — Bananas III (Article 21.3), para. 18. See also the Awards of the Arbitrator on Australia — Salmon (Article 21.3), para. 30; and Canada — Autos (Article 21.3), para. 39. back to text
810. Award of the Arbitrator on EC — Hormones (Article 21.3), paras. 25–26. See also the Awards of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 38; Canada — Pharmaceutical Patents (Article 21.3), para. 47; US — 1916 Act (Article 21.3), para. 32; Chile — Price Band System (Article 21.3), para. 34; and US — Offset Act (Byrd Amendment) (Article 21.3), para. 42; EC — Tariff Preferences (Article 21.3), para. 26. back to text
811. Award of the Arbitrator on Korea — Alcoholic Beverages (Article 21.3), paras. 42–43. In Chile — Alcoholic Beverages, the European Communities had argued that the reasonable period of time should be 5 months because Chile could resort to urgency procedures to enact the emendatory bill needed for the implementation. The Arbitrator, however, considered that “the Member concerned has the sovereign prerogative and responsibility of determining for itself the most appropriate, and probably effective, method of implementing the recommendations and rulings of the DSB by securing the passage of the emendatory law. The choice and the timing of the detailed operating steps in enacting a new law are properly left to the Member concerned.” Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 42. See also the Award of the Arbitrator on US — Section 110(5) Copyright Act, para. 32. In Chile — Price Band System (Article 21.3), Argentina also argued that Chile should be expected to resort to “urgency procedures” in order to effect the “flexibility” that its Constitution allowed and thus more promptly achieve implementation. The Arbitrator, after having established that “an implementing Member ‘may reasonably be expected to use all the flexibility available within its normal legislative procedures to enact the required legislation as speedily as possible’” (see para. 540 of this Chapter), indicated that he found “it unreasonable for me to expect or assume that Chile will necessarily make use of the ‘flexibility’ arguably provided by the extraordinary ‘urgency procedure’ when implementing legislation that modifies the PBS. Indeed, there is sufficient flexibility within the ordinary legislative procedure of Chile to enable it to implement the recommendations and rulings of the DSB in this case within a time frame of less than the 18 months which it seeks.” See Award of the Arbitrator on Chile — Price Band System (Article 21.3), paras. 49–54. See also Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 43. back to text
812. The United States referred to US — 1916 Act and US — Section 110(5) Copyright Act where the arbitrators set the reasonable period at 10 months and 12 months, respectively. The United States on 12 July 2001 asked the DSB to modify the reasonable period of time determined by the arbitrators in both cases, that were due to expire, respectively, on 26 July 2001 and 27 July 2001, so that the modified periods would instead end on 31 December 2001, or on the date on which the then current 2001 session of the United States Congress adjourned, whichever was earlier. At its meeting of 24 July 2001, the DSB noted and agreed to the United States’ request. In both instances, the complaining parties — the European Communities and Japan in US — 1916 Act;. and the European Communities in US — Section 110(5) of the US Copyright Act — having previously reached some understanding with the United States on the matter, did not oppose the requests of the United States. Award of the Arbitrator on US — Hot-Rolled Steel (Article 21.3), para. 39. back to text
813. Award of the Arbitrator on US — Hot-Rolled Steel (Article 21.3), para. 39. back to text
814. (footnote original) Supra, footnote 11, para. 26. (Award of the Arbitrator on EC — Hormones (Article 21.3), para. 26.) back to text
815. Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), para. 47. See also the Awards of the Arbitrator on US — 1916 Act (Article 21.3), para. 32; and US — Offset Act (Byrd Amendment) (Article 21.3), para. 44. back to text
816. Award of the Arbitrator on EC — Tariff Preferences (Article 21.3), para. 27. back to text
817. WT/DS103/10–WT/DS113/10. back to text
818. WT/DSB/M/90, subsection 1(a). back to text
819. WT/DSB/M/138. back to text
820. Panel Report on US — Section 129(c)(1) URAA, paras. 3.90 and 3.93. back to text
821. Panel Report on US — Section 129(c)(1) URAA, para. 3.91. back to text
822. Appellate Body Report on Brazil — Aircraft, para. 192. back to text
823. Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), para. 48. back to text
824. Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 39. back to text
825. Award of the Arbitrator on Chile — Alcoholic Beverages (Article 21.3), para. 41. back to text
826. Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), paras. 49–51. See also the Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 57. back to text
827. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 61. back to text
828. Award of the Arbitrator on Chile — Price Band System (Article 21.3), para. 48. On most occasions, however, arbitrators have typically refused to treat mere contentiousness or political sensitivity as a factor warranting a longer period of time for implementation. See, for example, the Awards of the Arbitrator on Canada — Pharmaceutical Patents, para. 60; Canada — Patent Term, para. 58; US — Offset Act (Byrd Amendment), para. 61; EC — Tariff Preferences (Article 21.3), para. 56. back to text
829. Award of the Arbitrator on EC — Tariff Preferences (Article 21.3), para. 36. The Arbitrator considered that the EC legislative system was flexible “in the sense that no mandatory minimum time periods are imposed for any particular step in the implementation process”. back to text
830. Award of the Arbitrator on Korea — Alcoholic Beverages (Article 21.3), para. 47. back to text
831. Award of the Arbitrator on EC — Bananas III (Article 21.3), para. 9. back to text
832. Award of the Arbitrator on EC — Bananas III (Article 21.3), para. 19. The Arbitrator concluded, in paragraph 20, that the reasonable period of time should be “from 25 September 1997 to 1 January 1999”. In EC — Tariff Preferences (Article 21.3), the Arbitrator, in reference to EC — Bananas III (Article 21.3), regarded the administrative practice of the European Communities pertaining to advance publication of tariff changes and the date on which such changes take effect as a relevant factor in determining the reasonable period of time for implementation. Award of the Arbitrator on EC — Tariff Preferences (Article 21.3), para. 51. back to text
833. Award of the Arbitrator on EC — Tariff Preferences (Article 21.3), paras. 52–54. back to text
834. Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), para. 52. back to text
835. Award of the Arbitrator on Argentina — Hides and Leather, para. 49. back to text
836. (footnote original) I note that the Award of the Arbitrator in Japan — Taxes on Alcoholic Beverages WT/DS8/15, WT/DS10/15, WT/DS11/13, 14 February 1997 rejected the argument that adverse effects on producers (and consumers) of the products involved constitute “particular circumstances” that should be taken into account in determining the reasonable period of time under Article 21.3(c) of the DSU. back to text
837. Award of the Arbitrator on Indonesia — Autos (Article 21.3), para. 23. See also Award of the Arbitrator on Canada — Pharmaceutical Patents (Article 21.3), para. 52; and Award of the Arbitrator on Argentina — Hides and Leather (Article 21.3), para. 41. back to text
838. Award of the Arbitrator on Japan — Alcoholic Beverages II (Article 21.3), para. 27. See also the Award of the Arbitrator on EC — Bananas III (Article 21.3), paras. 6–10. back to text
839. Award of the Arbitrator on US — Section 110(5) Copyright Act, para. 42. back to text
840. (footnote original) I recall that the Arbitrator in US — Section 110(5) Copyright Act stated that, although it is an “important issue” whether a Member decides to “simply repeal” a measure or whether “some other approach will be utilized”, he failed to see how this issue would … add any additional time to the legislative process, as the content of the legislation effecting implementation is precisely the issue that Congress will decide through its normal procedures. (original emphasis) (Award of the Arbitrator, US — Section 110(5) Copyright Act, para. 42.) back to text
841. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 59. back to text
842. Award of the Arbitrator on EC — Hormones (Article 21.3), paras. 38–39. See also the Award of the Arbitrator on Australia — Salmon, para. 36. back to text
843. (footnote original) Award of the Arbitrator, Canada — Pharmaceutical Patents, para. 50. I also agree with the example for “complexity” given by the Arbitrator in those proceedings, namely where “implementation is accomplished through extensive new regulations affecting many sectors of activity”. back to text
844. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), para. 60. back to text
845. (footnote original) See also Award of the Arbitrator, Canada — Patent Term, para. 48. back to text
846. (footnote original) See also Award of the Arbitrator, Canada — Patent Term, para. 48. back to text
847. Award of the Arbitrator on US — Offset Act (Byrd Amendment) (Article 21.3), paras. 79–80. back to text
848. Award of the Arbitrator on Canada — Autos (Article 21.3), para. 55. back to text
849. Award of the Arbitrator on EC — Tariff Preferences (Article 21.3), para. 31. back to text
850. Award of the Arbitrator on EC — Bananas III (Article 21.3), paras. 18–19. See also the Awards of the Arbitrator on Australia — Salmon (Article 21.3), para. 30; Canada — Autos (Article 21.3), para. 39; US — 1916 Act (Article 21.3), paras. 38–39; and Chile — Price Band System (Article 21.3), para. 38. back to text
851.