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WORLD TRADE
ORGANIZATION

WT/DS27/ARB/ECU
24 March 2000
(00-1207)
 
  Original: English

EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
- RECOURSE TO ARBITRATION BY THE EUROPEAN COMMUNITIES
 UNDER ARTICLE 22.6 OF THE DSU -


DECISION BY THE ARBITRATORS



26. We determine that these requests by Ecuador under the GATS and the TRIPS Agreement fulfil the minimum requirement to specify the agreement(s) and sector(s) with respect to which it requests authorization to suspend concessions or other obligations.

27. In its request under Article 22.2, Ecuador notes in addition that it "reserves the right to suspend tariff concession 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."

28. Regarding this last statement we would like to make the following remarks. We recall our considerations that the specificity requirements of Article 6.2 are relevant for requests under Article 22.2. According to well-established dispute settlement practice under Article 6.2 of the DSU,13 panels and the Appellate Body have consistently ruled that a measure challenged by a complaining party cannot be regarded to be within the terms of reference of a panel unless it is clearly identified in the request for the establishment of a panel. In past disputes concerning Article 6.2, where a complaining party intended to leave the possibility open to supplement at a later point in time the initial list of measures contained in its panel request (e.g. with the words "including, but not limited to measures listed" specifically in the panel request), the terms of reference of the panel were found to be limited to the measures specifically identified.

29. Based on an application of these specificity standards to requests under Article 22.2, we consider that the 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.

30. 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.

31. In other words, 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 sector14 - 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.

32. However, we do not exclude the possibility that the circumstances which are relevant for purposes of considering the principles and procedures set forth in Article 22.3 may change over time, especially if the WTO-inconsistencies of the revised EC banana regime are not removed and the suspension of concessions or other obligations should, as a result, remain in force for a longer period. But we do not believe that changes with respect to trade sectors or agreements affected by such suspension could be implemented consistently with Article 22 of the DSU in the absence of a specific authorization by the DSB and, if challenged, a further review by arbitrators acting pursuant to Article 22.6.

33. In this context, we 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. At any rate, if we were to find in our review of Ecuador's considerations that it did not (entirely) follow the principles and procedures of Article 22.3 in making its request under Article 22.2, or that the requested level of suspension exceeds the level of nullification or impairment suffered, Ecuador would be required to make another request for authorization by the DSB for suspension of concessions or other obligations under Article 22.7. This new request could include, inter alia, suspension of concessions under the GATT for all or part of the nullification and impairment actually found, if this should turn out to be necessary to ensure that such a request be consistent with the Arbitrators' decision within the meaning of Article 22.7.

34. We further recall that in our letter, dated 19 January 2000, responding to the EC objections to Ecuador's methodology document and the additional information contained in its first submission, we also stated that Article 22.7 of the DSU foresees that the Arbitrator(s) decision is final, that there is no appeal, and that the entire proceeding normally has to be completed within a certain time-frame.15 We also confirm that, similarly to the approach chosen by us in the US/EC Bananas III arbitration and by the Arbitrators in the Hormones arbitration proceedings, we requested the parties to provide additional information until we felt we were in a position to render our final decision.

35. We now turn specifically to the EC's request that the Arbitrators disregard certain information concerning the methodology used by Ecuador for calculating nullification or impairment because it was submitted only in Ecuador's first submission, but not in the methodology document submitted by Ecuador on 6 January 2000. We recall that we 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.

36. 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.

B. BURDEN OF PROOF IN ARBITRATION PROCEEDINGS PURSUANT TO ARTICLE 22.6 OF THE DSU

37. On the point of who bears the burden of proof in an arbitration proceeding under Article 22 of the DSU, we find the considerations of the Arbitrators in the Hormones arbitration proceedings persuasive:

"9. 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.

10. The same rules apply where the existence of a specific fact is alleged; � it is for the party alleging the fact to prove its existence.

11. 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. This explains why we requested the US to submit a so-called methodology paper."16

38. We agree with the Arbitrators in the EC - Hormones arbitration proceedings that the ultimate burden of proof in an arbitration proceeding is on the party challenging the conformity of the request for retaliation with Article 22. However, we also share the view that some evidence may be in the sole possession of the party suffering nullification or impairment. This explains why we requested Ecuador to submit a methodology document in this case.

39. The methodology documents submitted by the United States and Canada in the EC - Bananas III and EC - Hormones arbitration proceedings are not available to Ecuador and hence cannot be seen as setting a standard as to the minimum content of such documents. Ecuador's methodology document explained counterfactuals and the basic approach to measuring nullification and impairment. Even though it did not contain all the data necessary to reconstruct Ecuador's calculations,17 it stated that "an accurate application of the conceptual methodology here presented based on empirical data" would be provided in Ecuador's first submission.

40. In this respect, we wish to remark that the concept of an "arbitration" has an important adversarial component in the sense that Arbitrators weigh and decide the matter on the basis of the evidence and arguments presented by each party and rebutted by the other party. We note that the later in a proceeding one party submits relevant evidence, the more difficult it becomes for the other party to address and rebut this evidence. In this sense, the submission of an informative methodology document is not only in the EC's interest, but also in Ecuador's own interest because it enables Ecuador to rebut the EC's response to that document already in its second submission, while the EC's response to information contained in Ecuador's first submission cannot be rebutted by Ecuador before the oral statement at the meeting of the Arbitrators with the parties.

41. We note that Ecuador could have submitted more of its evidence at earlier stages of this arbitration proceeding. Nonetheless, we are satisfied that Ecuador has ultimately provided us with all the evidence which is in its sole possession and that in this proceeding the European Communities was given sufficient opportunity and time to address and rebut this evidence in its written submissions, oral statements, answers to questions by the Arbitrators and responses to the other party's answers.18

IV. PRINCIPLES AND PROCEDURES SET FORTH IN ARTICLE 22.3 OF THE DSU

42. The European Communities claims that Ecuador has not followed the principles and procedures set forth in Article 22.3 of the DSU. In particular, it alleges that Ecuador has not shown why it is not practicable or effective for it to suspend, to the extent it has suffered any nullification or impairment, concessions or other obligations in the same sector(s) as those in which the revised EC banana regime was found to be WTO-inconsistent. The European Communities, therefore, requests that Ecuador should not be given authorization to suspend concessions or other obligations across sectors and agreements.

43. Ecuador contends that it has followed the principles and procedures set forth in Article 22.3 and that it has demonstrated why it is not practicable or effective for Ecuador to suspend concessions or other obligations under the same sector(s) or agreement(s) as those in which WTO-inconsistencies were found. Ecuador argues, given the wording of subparagraphs (b) and (c) of Article 22.3 of the DSU, that it is essentially 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 purposes of suspending concessions or other obligations.

44. Before we address these arguments, we recall the relevant parts of Article 22.3 of the DSU:

"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 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 the concessions or other obligations; �" (emphasis added).

(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 therefore 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.

(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. (emphasis added, footnotes omitted).

A. THE SCOPE OF REVIEW BY ARBITRATORS UNDER ARTICLE 22.3

45. In view of Ecuador's interpretation of the discretion of Members in selecting the sectors and/or agreements in which to suspend concessions or other obligations, we recall the considerations from the US/EC Bananas III arbitration proceeding19 regarding the scope of review of Arbitrators with respect to Article 22.3 of the DSU:

"3.5. 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.

3.6 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.

3.7 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 sub-paragraphs (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."

46. Having established the authority of Arbitrators to review whether a request for authorization of suspension made under subparagraph (a) of Article 22.3 should have been made - in full or in part - under subparagraphs (b) and/or (c) of that Article, we next address the question of the scope of review by the Arbitrators in cases where authorization to suspend concessions or other obligations across sectors and/or across agreements is sought.

47. We recall Ecuador's argument that the wording of Article 22.3(b)-(d) suggests that it is essentially 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 purposes of suspending concessions or other obligations. Ecuador bases its interpretation especially on the terms "if that party considers that it is not practicable or effective to suspend �" (emphasis added) (� "with respect to the same sector(s)" in subparagraph (b); � "in other sectors under the same agreement" in subparagraph (c), respectively)" and on the terms "shall take into account" in subparagraph (d) of Article 22.3. In Ecuador's view, these words connote no substantive conditions and thus it remains at the discretion of the Member seeking authorization to request suspension across sectors and/or agreements to do so or not. Arbitrators, acting pursuant to Article 22.6, may verify only whether the procedural requirements of Article 22.3 have been followed.

48. The European Communities advocates a different interpretation. First, Ecuador would have to show, based on objective and reviewable evidence, that it is not practicable or effective for it to suspend concessions or other obligations in the same sector(s) as that where a violation was found by the panel or Appellate Body. In this case that would mean under the GATT or in the distribution service sector under the GATS. Second, Ecuador would have to show why it is not practicable or effective to suspend commitments under the same agreement in the ten service sectors other than distribution services covered by the GATS. Third, Ecuador would have to demonstrate that circumstances are serious enough to seek suspension under another agreement. Fourth, Ecuador would have to establish that it has taken into account trade in sectors or under agreements where violations have been found and the importance of such trade to it. Fifth, it would have to show that it took account of broader economic elements related to the nullification or impairment and the broader economic consequences of the suspension of the concessions or other obligations. In the EC's view, Ecuador has not done so with respect to any of those steps.

49. We note that the relevant parts of paragraphs 6 and 7 of Article 22 of the DSU provide:

"� if the Member concerned � 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. �"

"� 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. �"


13 Appellate Body Report on European Communities - Customs Classification on Certain Computer Equipment, adopted on 26 June 1998 (WT/DS62/AB/R), paras. 64-73. Appellate Body Report on EC - Bananas III, adopted on 25 September 1997 (WT/DS27/AB/R), paras. 141-143. Appellate Body Report on Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products, adopted on 11 February 2000 (WT/DS98/AB/R), paras. 114-131, citing previous reports concerning the interpretation of Article 6.2. Panel Report on Japan- Measures Affecting Consumer Photographic Film and Paper, adopted on 22 April 1998 (WT/DS44/R), paras. 10.8-10.10, 10.15-10.19. Appellate Body Report on Australia - Measures Affecting Importation of Salmon, adopted on 6 November 1998 (WT/DS18/AB/R), paras. 90-105.

14 We note that within a sector, suspension may be possible with respect to certain types of products, while it is not practicable or effective with respect to other categories of products.

15 We note that in this arbitration proceeding the parties agreed to postpone the beginning of the proceeding and to extend the time-frame foreseen in Article 22.6 of the DSU. The Arbitrators agreed to these arrangements.

16 Decision by the Arbitrators in EC - Hormones (Original Complaint by the United States) Recourse to Arbitration by the EC under Article 22.6 of the DSU (WT/DS26/ARB) of 12 July 1999, paras. 9-11.

17 We recall that the US methodology document in the US/EC Bananas III arbitration did set out the counterfactuals and contained a formula for calculating nullification and impairment. But that document did not provide statistics and data necessary to reconstruct the calculation.

18 Ecuador submitted a methodology document on 6 January 2000; both parties filed their first submissions on 13 January 2000; the rebuttal submissions were filed on 25 January 2000; the parties made oral statements at the meeting of the Arbitrators with the parties on 7 February 2000; the parties replied to the Arbitrators' first set of questions on 11 February; the European Communities reacted to Ecuador's answers to the Arbitrators' first set of questions on 16 February 2000; Ecuador reacted to the EC's reaction on 17 February 2000; both parties replied to the Arbitrators' second set of questions on 22 February 2000; the European Communities reacted to Ecuador's answers to the second set of questions on 24 February 2000.

19 Decision of the Arbitrators in the US/EC Bananas III arbitration, paras. 3.4.-3.7.


Continuation: Section 50.