Dispute Settlement Body 20 June 2005

The DSB adopts panel ruling on EC shipbuilding measures

The Dispute Settlement Body, on 20 June 2005 adopted the report of the panel that had examined Korea's complaint against “European Communities — Measures affecting trade in commercial vessels”.

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This summary has been prepared by the WTO Secretariat’s Information and Media Relations Division to help public understanding about developments in WTO disputes. It is not a legal interpretation of the issues, and it is not intended as a complete account of the issues. These can be found in the reports themselves and in the minutes of the Dispute Settlement Body’s meetings.

DS301: European Communities — Measures Affecting Trade in Commercial Vessels

At its meeting on 20 June 2005, the DSB adopted the panel report in the above case.

The panel report was circulated on 22 April 2005 and was on the agenda for adoption at the request of Korea. Korea said that this case was very important as it reaffirmed that Members could not impose unilateral measures to respond to alleged breaches of the WTO Agreement. Korea welcomed the finding of the Panel that its measures relating to the restructuring of Korean shipyards were not subsidies within the meaning of the SCM Agreement. According to Korea, this finding demonstrated that there was no legal basis for the adoption by the EC of the Temporary Defense Mechanism (TDM), under which payments of six per cent ad valorem were granted to EC shipbuilders whenever they competed against Korean shipbuilders.

Korea expressed disappointment with the Panel's ruling on Article 32.1 of the SCM Agreement, but was satisfied overall with the conclusions of the Panel, particularly those relating to Article 23 of the DSU, and had decided not to appeal the Report. Korea said that it was committed to working with the EC to strengthen the global shipbuilding industry for their mutual benefit, and requested the EC to halt the illegal transfer of funds to EC shipbuilders, as EC member states were permitted to do for up to three years after the authorization of funding. Korea stated that, although the TDM had expired, payments were still being made by the EC member states, and stressed that unless such payments stopped, Korea would have recourse to its rights under the DSU.

The EC welcomed the dismissal by the panel of many of the claims by Korea, particularly the finding that the TDM did not violate any of the obligations under the GATT 1994 and the SCM Agreement. The EC questioned the Panel's finding on Article 23 of the DSU and said that the TDM had been introduced to respond mainly to the non-implementation by Korea of a bilateral agreement on injurious pricing, and not to an alleged breach of WTO obligations. The EC added that, notwithstanding the flawed reasoning of the Panel on this issue, the EC had decided not to appeal the Panel Report, especially considering that the TDM had expired on 31 March 2005. The EC noted that despite repeated requests from Korea, the Panel did not make any recommendations on the issue of payments.

Korea disputed the assertion by the EC that the Panel's recommendations did not address the issue of payments. According to Korea, the issue of payments was covered in the recommendations and Korea expected to hear from the EC how it intended to end the illegal disbursements to EC shipbuilders.

The US said that with respect to Korea's claim under Article 32.1 of the SCM Agreement, Korea had relied on the reasoning of the Appellate Body in the “Byrd Amendment” case. The US added that the current panel rejected Korea's claim but it did so by relying upon an analysis that was difficult to reconcile with the outcome in the “Byrd Amendment” case. The US said that the panel's analysis of DSU Article 23.1 generated inconsistencies with its analysis of Article 32.1 of the SCM Agreement. According to the US, the Panel had created a new category of prohibited subsidies under Article 23.1 of the DSU. The US also criticized the ruling by the Panel that a Member could not take steps outside of formal WTO dispute settlement to seek to have another Member remove a WTO-inconsistent measure. According to the US, this ruling would have profound implications for the system, as a Member would be in breach of Article 23.1 if it merely asked another Member to remove a WTO-inconsistent measure, such as the adverse effects of a subsidy.

DS327: Egypt — Anti-Dumping duties on matches from Pakistan

The request by Pakistan for the establishment of a panel (WT/DS327/2) was deferred by the DSB following the objection by Egypt. In making the request, Pakistan said that the anti-dumping duties on matches in boxes by Egypt was unjustified and breached Article 6 of the GATT 1994 and several provisions of the Anti-Dumping Agreement. Pakistan said that it had held consultations with Egypt, but they were unable to reach agreement.

Egypt expressed disappointment over the decision by Pakistan to request a panel and said that the panel request by Pakistan was too broad, did not conform to the requirements of Article 6.2 of the DSU, and included issues which had been resolved during consultations. Egypt said that the request was premature, as the Egyptian Administrative Court was expected to deliver its judgment very soon on the consistency of the measures imposed by Egypt.


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Surveillance of implementation  

The United States presented the following status reports:

(i)   DS176: US — Section 211 Omnibus Appropriations Act of 1998

The US said that several legislative proposals relating to Section 211 had been introduced both in the Senate and the House of Representatives. The US stated that the US Administration was committed to working with Congress to implement the DSB's rulings.

The EC said that the implementation deadline was about to expire and that it was seriously concerned that the US would again fail to comply with the DSB's rulings by the deadline. The EC said that the adoption of the two bills currently pending in the Senate and House of Representatives would satisfactorily resolve the dispute between the parties.

Cuba said that the status report of the US was identical to the previous one and showed no progress in this dispute. Cuba further stated that the continued failure by the US to abide by its WTO obligations was seriously undermining the credibility of the dispute settlement system, and urged the US to take prompt action to implement the DSB's rulings.

(ii)  DS184: US — Anti-Dumping Measures on Certain Hot-Rolled Steel

Products from Japan: The US said that the US Administration was supporting specific legislative amendments that would implement the DSB's rulings with respect to the US antidumping statute. The US recalled that the DSB's rulings relating to antidumping margins had already been addressed by the US in November 2002. The US reiterated its commitment to implement the DSB's rulings and said that a bill that would amend the 1916 Anti-Dumping Act and bring the US into conformity with its WTO obligations had been introduced in the House of Representatives on 19 May 2005. The US said that the US Administration would continue to work with Congress to enact this legislation.

Japan welcomed the introduction of a repealing bill in the House of Representatives, but noted that the reasonable period of time would expire in about six weeks. Japan urged the US to redouble its efforts to secure the passage of the bill which would repeal the 1916 Act before 31 July. Japan stated that it would have recourse to its rights under the DSU, should the US fail to implement the DSB's rulings by the deadline.

(iii)  DS217 & DS234: US — Continued Dumping and Subsidy Offset Act of 2000

The US said that it was committed to implementing the DSB's rulings and had already proposed the repeal of the CDSOA in its budget proposal for the fiscal year 2006. The US said that it was also supporting legislation introduced in the House of Representatives which would effectively repeal the CDSOA and that the US Administration would continue to confer with the complaining parties and work with the new Congress to enact legislation that would satisfactorily resolve this dispute.

Canada and the EC said that pursuant to the authorization given by the DSB, they had been applying, since 1 May 2005, additional duties on certain items originating in the US. They had taken this course of action following the failure by the US to demonstrate its commitment to bring its measures into conformity with the DSB's rulings. They urged the US to stop making new payments under the CDSOA and to repeal it in order to bring this dispute to a close.

Brazil, Chile, India, Japan and Korea expressed concern about the failure by the US to repeal the CDSOA and said that this inaction was impairing their rights under the WTO Agreement. They warned that unless the US took urgent steps to bring its measures into conformity with the DSB's rulings, they would exercise their rights under the DSU.

(iv)  DS160: US — Section 110(5) of the US Copyright Act

The US said that the US Administration would continue to consult with Congress and confer with the EC with a view to reaching a mutually satisfactory solution to this dispute.

The EC expressed concern at the lack of progress and urged the US to take credible steps to bring its Copyright Act into conformity with the TRIPS Agreement. According to the EC, the credibility of the US as a strong promoter of intellectual property rights around the world would be seriously compromised if it did not implement the DSB's rulings in this case, which were delivered almost five years ago. The EC said that if progress were not made towards the resolution of this dispute, the EC would reactivate arbitration proceedings in order to suspend equivalent concessions towards the US.

Mexico presented the following status report:

(v)  DS204: Mexico — Measures Affecting Telecommunications Services

Mexico stated that it had complied with the first phase of the agreement on implementation reached with the US last year by eliminating from its international long-distance rules those aspects that had been declared incompatible with its WTO obligations. Mexico also stated that the process of drafting regulations for the marketing of telecommunication services had now been completed and the draft regulations had been published for public comment. Mexico explained that under the proposed regulations, firms established in Mexico would be able to market their international long-distance services without having to own public telecommunications network. According to Mexico, the proposed changes would make the Mexican telecoms market very competitive, since, among other things, there would be free negotiation of settlement rates between Mexican operators and operators from other Members.

The US welcomed the status report and said that the reasonable period of time for the implementation of the DSB's rulings was about to expire. The US said that it expected Mexico to successfully implement its proposed regulations for the resale of its telecommunication services, the last element of the implementation agreement concluded between them.

The EC presented the following status report:

(vi)  DS246: EC — Conditions for the Granting of Tariff Preferences to Developing Countries

The EC reiterated its commitment to comply with the DSB's rulings before the expiry of the reasonable period of time on 1 July 2005. The EC said that the Council of the European Union was currently considering a new draft regulation proposed by the European Commission, which would repeal the “Drug Arrangements” under Council Regulation (EC) No. 2501/2001 and thereby bring the EC into full compliance with the DSB's rulings.

India said that the status report of the EC showed that no substantive progress had been made since the earlier status report. India added that, given the fact that the reasonable period of time for implementation would expire on 1 July 2005, it expected the EC would take the necessary steps to ensure compliance by that date.

Canada presented the following status report:

(vii)  DS276: Canada — Measures Relating to Exports of Wheat and Treatment of Imported Grain

Canada said that legislation to implement the DSB's rulings had been passed by Parliament on 19 May 2005, and that this legislation and associated regulatory changes would come into force on 1 August 2005, which was the date agreed for the implementation of the DSB's rulings.

The US welcomed the status report and sought further details on the new regime Canada intended to implement. The US asked whether the new regulation, which would require elevator operators to notify the Canadian Grain Commission of the origin of all grain, would be the only one enacted by Canada to replace the old measures relating to mixing foreign grain with Canadian grain and entry of foreign grain into Canadian grain elevators. The US also asked whether Canada intended to introduce any new regulations related to the extension of rail revenue cap to cover foreign grain shipments.

Canada said that it was committed to implementing faithfully the DSB's rulings and did not intend to introduce any more new regulations.

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Appointment / Re-appointment of Appellate Body members  

The Chairman of the DSB recalled that the term of office for three Appellate Body members — Messrs Luiz Olavo Baptista, John Lockhart and Giorgio Sacerdoti — would expire on 11 December 2005. He said that pursuant to Article 17.2 of the DSU, the DSB could decide to re-appoint them for a further 4-year term or appoint new persons to replace them. He said that he would consult with interested delegations on this issue and report back to the DSB at its meeting on 20 July. If there was significant support for their reappointment, the three Members could be reappointed in the fall. Alternatively, a new selection process would have to be started to appoint new Appellate Body Members.


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Other business  

Chile informed the DSB that it had withdrawn its consultations request in the case on European Communities — Definitive Safeguard Measure on Salmon (DS326) following the decision by the EC to withdraw its safeguard measure on salmon originating in Chile. Chile reserved its right to have recourse to the DSU, should the dispute not be satisfactorily resolved between the parties.


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Next meeting  

The next regular meeting of the DSB is scheduled to take place on 20 July 2005.

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