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World Trade
Organization

WT/DS27/RW/EEC
12 April 1999
(99-1433)
Original: English

European Communities - Regime for the Importation, Sale and Distribution of Bananas

- Recourse to Article 21.5 by the European Communities -

Report of the Panel

(Continued)


    III. Arguments by Third Parties

    A. India

  1. India submitted that although India had only a limited trade interest in the matter before the Panel, the systemic issues involved were of great importance to India. The matter before the Panel went far beyond the dispute at hand; in fact, it touched on the very core of the principles and the functioning of the dispute settlement mechanism, the central principle of which was its multilateral character and which was expected to provide security and predictability to the multilateral trading system.
  2. In the view of India the crux of the systemic issue was the meaning, the operation and the interpretation of Article 21.5 of the DSU, especially in relation to Article 22 of the DSU and in the light of Article 23.2 of the DSU.
  3. India noted that Article 21.5 described a situation where there was disagreement between the parties to a dispute as to the existence or the consistency of measures taken by a party to comply with the recommendations of the DSB. The provisions of this Article made it clear that such a dispute should be decided through the DSU procedures, including wherever possible by resort to the original panel. Article 22 of the DSU set out conditions under which a Member could suspend concessions against another Member when that Member had either failed to bring the measure found to be inconsistent with a covered agreement into compliance or had failed to comply with the recommendations of the DSB. Therefore, the right to suspend concessions under Article 22 was a conditional right granted under the DSU.
  4. Furthermore, India argued that a Member could not invoke Article 22 directly without traversing the route of Article 21.5, except in situations where the losing party itself acknowledged that it had not complied with the recommendations and rulings of the DSB. Article 21.5 preceded Article 22 and was critical in deciding whether or not a Member had complied with the recommendations of the DSB. Such a determination had to be done under Article 21.5 and indeed would seem to be the very purpose of the provisions of that Article. If the determination was not made under Article 21.5, the right under Article 22 became an unfettered right for every winning party to seek suspension of concessions against the losing party. Such unilateral determination of non-compliance ran counter to the basic tenets of the multilateral trading system as well as the central objectives of the dispute settlement system. Indeed, Article 23.2(a) explicitly forbade a party from making a unilateral determination that a violation had occurred or that benefits had been nullified or impaired or that the attainment of any objective of the covered agreements had been impeded, except through recourse to the DSU rules and procedures.
  5. India submitted further that after the DSB had made its recommendations, the parties were expected to agree on a reasonable period of time for implementation. Once that period had been agreed upon, the party expected to comply with the DSB's recommendations had to be given the entire time agreed upon to make a good faith effort to comply with its obligations under the WTO. At the end of the reasonable period of time for implementation there were two possible scenarios. One, the party expected to comply made no change whatsoever and maintained its inconsistent measure. In this case, Article 21.5 procedures would be confined to confirming the non-existence of the measure taken to comply and thereafter the winning party could proceed to Article 22 and exercise its rights to suspend concessions against the erring party. The second scenario was more complicated where the losing party believed it had taken steps to comply with the DSB's recommendations but the winning party did not agree. In India's view, there was only one way to find out whether or not the losing party had taken steps to comply in good faith, i.e. recourse to Article 21.5. India believed this could be done either by the winning party or even by the losing party. Indeed, the latter must be welcomed as a show of good faith by the losing party which could be eager to prove that it had complied.
  6. In India's view, it was crucial that the determination of compliance or non-compliance must be made multilaterally under the aegis of the DSB and in accordance with the procedures of the DSU, i.e. Article 21.5. It was true that Article 21.5 was silent on whether there was a possibility of appeal against the panel verdict. It was India's view that there must be a possibility of appeal as well. The reason for this was that the move to suspend concessions was a measure of last resort in the DSU and therefore could not be taken lightly. If the right to suspend concessions was granted without due process, it would spell the end of the security and predictability of the dispute settlement mechanism and indeed of the multilateral trading system as a whole.
  7. In India's view there was yet another systemic issue at stake. If Article 22 was interpreted as being totally de-linked from Article 21.5, there was a danger that the winning party could allege non-compliance by referring to any matter which was not properly before the Panel or which the Panel had explicitly refused to consider and suspend concessions on the basis of such alleged non-compliance. This would be untenable from both a legal and systemic point of view.
  8. In conclusion, it was India's view that there was an intrinsic and inevitable link between Article 21.5 and Article 22 of the DSU. India believed that Article 22 should be resorted to only after traversing the entire route from Article 4 consultations onwards. In this process, Article 21.5 was critical and indispensable as a step before rights under Article 22 were exercized. Indeed, recourse to Article 21.5, as the European Communities had done in this case, was a fundamental right available to all Members of the WTO in the dispute settlement system. Denial of Article 21.5 procedures to any Member would therefore be both a procedural and substantive injustice under the DSU.
  9. B. Jamaica

  10. Jamaica agreed with the EC's analysis of Article 23 of the DSU leading to the conclusion that the new EC regime must be deemed to be in conformity with the WTO covered agreements. 10 With regard to the relationship between Article 21.5 and Article 22, Jamaica submitted that this issue was outside the Panel's terms of reference and that these Articles should only be interpreted by the appropriate WTO bodies. Jamaica concluded that the European Communities had complied with the relevant requirements of the DSU and that there was therefore no reason to cast any doubt on the EC's panel request pursuant to Article 21.5.
  11. C. Japan

  12. Japan submitted that there were a number of systemic issues in this dispute that were of critical importance to the dispute settlement mechanism of the WTO. In the view of Japan, some of these issues might be beyond the purview of any panel and were the prerogative of collective decision-making by Members. As a country greatly benefiting from the multilateral trading system under the WTO, Japan was very interested in ensuring that these attributes of the WTO dispute settlement mechanism were not in any way compromised. Japan considered that when there was a disagreement as to whether a party had complied with a panel or AB recommendations and rulings, the parties must resort to Article 21.5 procedures before invoking their rights under Article 22. Retaliatory actions must not be taken based on a unilateral determination by the complaining party of non-conformity of the measures in question without recommendations and rulings of an Article 21.5 panel.
  13. Implementation of measures in good faith in accordance with the recommendations and rulings of a panel and the AB, Japan continued, was of prime importance, not only for the settlement of disputes but also to enhance the credibility of the dispute settlement mechanism. In order to address the issues raised in this dispute, Japan believed that it was necessary to review them in the context of Article 21 as a whole, including the roles and functions of a panel established under Article 21.5.
  14. In the view of Japan, this Panel proceeding had a number of anomalies. First, the European Communities was the sole party to this Panel while the original complaining parties had remained non-parties. Article 21.5 provided that the role and function of a panel established thereunder was to assist in deciding the dispute over the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings. Article 11 provided that "a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements". Since there was only one party to this Panel, the question arose how this Panel could fulfil the function given to it by the above DSU provisions. If the original parties questioned the conformity of the measures taken by the losing party and subsequently disregarded the panel process under Article 21.5, this was tantamount to a sabotage of the dispute settlement mechanism.
  15. Japan considered that, if the European Communities requested the Panel to find that the implementation measures taken by it "must be presumed to conform to WTO rules unless their conformity has been duly challenged" under Article 21.5 and did not request the Panel to find that such measures were consistent with the WTO Agreement based on an objective assessment of the facts of the case and the conformity with the relevant WTO agreements, responding to the request for such a simple presumption of "innocence" was not the function of a panel under Article 21.5.
  16. In a normal panel proceeding, the party asserting a fact or making a legal claim was required to establish a prima facie case, and once that prima facie case was made, the burden of proof shifted to the other party which was then required to rebut the fact or claim. Without such procedures, Japan was not certain how the present Panel could effectively carry out the tasks assigned to it. In the view of Japan, it was not a responsible attitude of a WTO Member not to participate in panel proceedings under Article 21.5 while at the same time asserting the failure of the other party to bring the measures into conformity with the WTO Agreement. Such behaviour by certain original parties would seriously undermine the credibility of the WTO dispute settlement mechanism. Japan considered that as a matter of general principle for the dispute settlement procedures in the WTO, all the original parties to a dispute, whether or not they had participated in a panel or the AB proceedings under Article 21.5 must, in accordance with Article 23 of the DSU, be bound by the findings and ruling of that panel or the AB.
  17. IV. Findings

    A. Terms of Reference

  18. As noted above, we have the following terms of reference:
  19. "To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS27/40, the matter referred to the DSB by the European Communities in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

  20. Document WT/DS27/40 reads in the most relevant parts as follows:
  21. "The EC submits that Article 23 of the DSU confirms that there is a general principle in the WTO agreements that measures taken by WTO Members are in conformity with their rules unless they have been challenged under the appropriate dispute settlement procedures and proven not to conform. Since none of the original complainants has continued to pursue the procedures under Article 21.5, they must presently be deemed to be satisfied with the way in which the European Communities has brought its measures into conformity with the recommendations and rulings of the DSB in this case.

    Within this legal context, the EC requests the establishment of a panel under Article 21.5 of the DSU with the mandate to find that the above-mentioned implementing measures of the EC must be presumed to conform to WTO rules unless their conformity has been duly challenged under the appropriate DSU procedures." (emphasis added).

  22. In our findings, we deal consecutively with the identity of the parties to this dispute, the relief sought by the European Communities and the relationship of Articles 21, 22 and 23 of the DSU.
  23. B. The Parties to this Dispute

  24. Following the establishment of this Panel, the Secretary on behalf of the Panel informed Ecuador, Guatemala, Honduras, Mexico and the United States that the European Communities had requested the Panel to invite those Members in their capacity as original complaining parties in the Banana III panel proceedings, to an organizational meeting for this Panel. The Panel then sought an indication from them as to their response should such an invitation be forthcoming.
  25. Ecuador responded that:
  26. "the initiative, taken by the EC without any legal justification, to find a party with which to dispute this issue should not, in Ecuador's view, be allowed to succeed in that it could seriously undermine the dispute settlement system."

  27. Ecuador emphasized that it considered the panel established by the DSB under Article 21.5 of the DSU on 12 January 1999, in response to its request (WT/DS27/41), as entirely independent from this Panel proceeding, initiated by the European Communities.
  28. Guatemala, Honduras and the United States expressed their position that the panel finding sought by the European Communities in its panel request:
  29. "does not constitute recourse to Article 21.5 but rather constitutes an entirely different matter, for which the appropriate procedural requirements under Articles 4 and 6 of the DSU have not been satisfied. Contrary to the EC's oral representations to the DSB, the EC's request does not constitute a request for an objective review of the EC measures. Moreover, there is no provision in the DSU for a member to compel other countries to come forward to serve as complaining parties against its measures at a time determined by that Member. Furthermore, any conclusion regarding the conformity of the EC measures cannot bind a non-party to the process, despite the EC's attempts to achieve this purpose. �"

  30. Mexico made a similar response.
  31. Thereafter, the European Communities raised certain concerns with the decisions taken by this Panel regarding its timetable and working procedures. In particular, it suggested to amend the timetable under the heading "receipt of written submissions" with an additional item "(a) original complainants � 2 February 1999". In the event the Panel did not agree with that suggestion, the European Communities requested that a ruling in limine litis be issued in writing on this issue.
  32. We responded as follows:
  33. "The Panel acknowledges receipt of your letter � in which you refer to the timetable and working procedures of the above-mentioned Panel. It has taken note of your various points. However, the Panel would like to stress, firstly, that, according to Article 12.1 of the DSU, it has the right to decide on its own working procedures, including the timetable, after consultations with the parties. Such consultations with the EC took place on 20 January 1999.

    The Panel notes that, in response to a suggestion by the EC, it had sought, in a letter dated 15 January 1999, a reaction from all the original complaining parties in the original Bananas III dispute to an invitation to an informal meeting of the Panel, reconvened under Article 21.5 of the DSU, should such an invitation be forthcoming. As you know, Ecuador in a letter, dated 18 January 1999, indicated that it was not interested in participating in this Panel, reconvened at the initiative of the EC. As concerns Guatemala, Honduras and the United States they indicated at the special DSB meeting on 12 January 1999 and in a letter, dated 19 January 1999, that they did not intend to take part in the present Panel proceedings. Mexico responded in a similar way by telephone and has made a statement in the DSB reserving its right to initiate a separate procedure under Article 21.5 of the DSU. Therefore, the timetable for the Panel's work at this point refers to the EC and third parties only, since as a matter of fact only this party and third parties appear to have the intention to file submissions on the due dates.

    The Panel does not believe that the current wording of the timetable is in any way contrary to the provisions of Article 12 of the DSU, nor that this Article would empower the reconvened Panel to compel original complaining parties in the Bananas III dispute to participate in this proceeding.

    The Panel notes that of course it has the right, pursuant to Article 13 of the DSU, to seek information, at any point of time during this proceeding, from any individual or body from which its deems appropriate, including the original complainants in the Bananas III case. �"

  34. In response to questions by the Panel, the European Communities took the following positions concerning this Panel proceeding:
  35. - the European Communities considers Guatemala, Honduras, Mexico and the United States to be parties to this proceeding under Article 21.5 of the DSU;

    - a party that refuses to appear has to bear the consequences of such refusal and must be presumed to have failed to appear;

    - this Panel should rule that Guatemala, Honduras, Mexico and the United States have not brought their disagreement to the correct forum and thus they cannot rely on their unsupported allegations in any other legal procedure, since with regard to them the present EC banana import regime must be presumed to be WTO-consistent;

    - such rulings by this Panel would become binding upon Guatemala, Honduras, Mexico and the United States after their adoption by the DSB.

  36. In our view, there is no provision in the DSU that would authorize a panel to compel a Member to participate as a party in a panel proceeding. Accordingly, we do not have the authority to compel the original complainants to participate in this Article 21.5 proceeding. We note that the original complainants have declined to participate in this proceeding, and we therefore find that they are not parties to this proceeding. As a consequence, we do not find it necessary to address the procedural issues mentioned in their letters, e.g. whether the European Communities has failed to comply with Articles 4 and 6 of the DSU in respect of this Panel proceeding.
  37. C. The Relief Sought by the European Communities

  38. The European Communities requests us to find that its implementing measures "must be presumed to conform to WTO rules unless their conformity has been duly challenged under the appropriate DSU procedures". We agree with the European Communities that there is normally no presumption of inconsistency attached to a Member's measures in the WTO dispute settlement system. At the same time, we also are of the view that the failure, as of a given point in time, of one Member to challenge another Member's measures cannot be interpreted to create a presumption that the first Member accepts the measures of the other Member as consistent with the WTO Agreement. In this regard, we note the statement by a GATT panel that "it would be erroneous to interpret the fact that a measure has not been subject to Article XXIII over a number of years, as tantamount to its tacit acceptance by contracting parties". 11
  39. As noted in our Concluding Remarks, it is not clear from the provisions of Article 21.5 whether the original respondent in a panel proceeding is, or should be, permitted under the DSU to initiate an Article 21.5 proceeding for the purpose of establishing the WTO consistency of measures taken to implement DSB rulings and recommendations. Assuming such an action is permitted, we note that in this proceeding, the European Communities presents in its written submission only one summary paragraph (paragraph 2.15) listing aspects of its prior banana import regime that it has changed in order to comply with the DSB's recommendations and rulings. We do not believe that a finding of WTO consistency could be made on the basis of the submission made by the European Communities in this case, as there is an insufficient discussion of how the previously found WTO inconsistencies have been eliminated in a WTO-consistent manner.
  40. Finally, we note that immediately prior (on the same date) to the establishment of this Panel, a panel was established by the DSB at the request of Ecuador to consider Ecuador's claim in an Article 21.5 proceeding that the EC's implementing measures are not consistent with its WTO obligations. The same three individuals are the panelists in these two Article 21.5 proceedings. Since we have found in the proceeding initiated by Ecuador that the EC's implementing measures are not consistent with its WTO obligations, it is clear that they cannot be presumed to be consistent in this proceeding.
  41. D. The Relationship of Articles 21, 22 and 23 of the DSU

  42. A main argument of the European Communities in this proceeding concerns the relationship of Articles 21, 22 and 23 of the DSU. As noted above, the three individuals serving on this Panel have been charged by the DSB in Ecuador's recourse to Article 21.5 of the DSU to consider the WTO consistency of the EC's measures. The three of us have also been charged by the DSB, pursuant to Article 22 of the DSU, to consider as Arbitrators the level of the suspension of concessions proposed by the United States under that Article. At the time of our appointment as Arbitrators, we were entrusted with the following task by the Chairman of the DSB:
  43. "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."

    In these circumstances, we do not believe it would be appropriate for us to rule in this proceeding, as requested by the European Communities, that there is only one type of proceeding (i.e. pursuant to Article 21.5) in which the consistency of its measures may be considered. Rather, the issue of whether a claim may be made in a particular procedure is best left for determination in that procedure.

  44. Moreover, in respect of the EC arguments concerning Articles 21, 22 and 23 of the DSU, we are well aware of the controversy in the DSB over the interpretation of these Articles and their relationship, but we view that question as one best resolved by Members in the context of the ongoing DSU review and not in a panel proceeding where there is only one party present and only a few active third parties.
  45. E. Concluding Remarks

  46. In fulfilling our terms of reference, we have not considered whether the original respondent in a panel proceeding, such as the European Communities, is authorized to initiate an Article 21.5 proceeding. In this regard, we would note that allowing such a procedure presents certain practical problems or anomalies, as cited by Japan in its arguments as a third party (paragraphs 3.12-3.14). However, we are also sympathetic to the concerns of India, also expressed as a third party, that in an appropriate case a respondent-initiated Article 21.5 proceeding should be allowed (paragraph 3.5). In our view, we would not rule out the possibility of using Article 21.5 in such a manner, particularly when the purpose of such initiation was clearly the examination of the WTO-consistency of implementing measures.
  47. V. Conclusion

  48. In light of the foregoing, we do not make findings as requested by the European Communities.

10 Paragraphs 34 and 42 of the EC's submission.

11 Panel report on EEC � Quantitative Restrictions Against Imports of Certain Products from Hong Kong, adopted on 12 July 1983, BISD 30S/129, 138, paragraph 28.