81. The concepts of "circumstances" and the degree of "seriousness" that are relevant for the analysis of this condition remain undefined in subparagraph (c). The provision specifies no threshold as to which circumstances are deemed "serious" enough so as to justify suspension under another agreement. We find useful guidance in the ordinary meaning of the term "serious" which connotes "important, grave, having (potentially) important, especially undesired, consequences; giving cause for concern; of significant degree or amount worthy of consideration".³⁰ Arguably, the factors listed in subparagraph (d) provide at least part of the context for further defining these meanings.

82. More specifically, subparagraphs (i) of Article 22.3(d) provide that, in applying the principles set forth in subparagraph (a-c), the complaining party seeking authorization shall take into account, inter alia, the trade in the sector or under the agreement under which WTO-inconsistencies were found, as well as the "importance of � trade" to that party.

83. The European Communities argues that this criterion concerns the trade in the sector(s) and/or the agreement(s) in question in their entirety, i.e. all trade in goods under the GATT, all trade in distribution services and/or all trade in services under the GATS . In contrast, Ecuador implies that in this case the "importance of such trade" refers to trade in goods and services in the bananas sector because the findings of the reconvened panel concern the revised EC regime for the importation, sale and distribution of bananas.

84. We do not exclude the possibility that trade in the relevant sector(s) and/or agreement(s) in their entirety may be relevant under subparagraph (d)(i). In particular, we deem it appropriate to consider the proportion of the trade area(s) affected by WTO-inconsistent measure(s) covered by the terms of reference of the reconvened panel in relation to the entire trade under the sector(s) and/or agreement(s) in question. However, we believe that the criteria of "such trade" and the "importance of such trade" to the complaining party relate primarily to trade nullified or impaired by the WTO-inconsistent measure at issue. In the light of this interpretation, we attribute particular significance to the factors listed in subparagraph (i) in the case before us, where the party seeking suspension is a developing country Member, where trade in bananas and wholesale service supply with respect to bananas are much more important for that developing country Member than for the Member with respect to which the requested suspension would apply.³¹

85. In contrast, subparagraph (ii) of Article 22.3(d) requires the complaining party to take into account in addition "broader economic elements" related to the nullification or impairment as well as "broader economic consequences" of the suspension of concessions or other obligations. The fact that the former criterion relates to "nullification or impairment" indicates in our view that this factor primarily concerns "broader economic elements" relating to the Member suffering such nullification or impairment, i.e. in this case Ecuador.

86. We believe, however, that the fact that the latter criterion relates to the suspension of concessions or other obligations is not necessarily an indication that "broader economic consequences" relate exclusively to the party which was found not to be in compliance with WTO law, i.e. in this case the European Communities. As noted above, the suspension of concessions may not only affect the party retaliated against, it may also entail, at least to some extent, adverse effects for the complaining party seeking suspension, especially where a great imbalance in terms of trade volumes and economic power exists between the two parties such as in this case where the differences between Ecuador and the European Communities in regard to the size of their economies and the level of socio-economic development are substantial.

2. Review of Ecuador's Request for Suspension Pursuant to Subparagraph (c) in the Light of the Principles and Procedures Set Forth in Article 22.3

87. In the light of the arguments presented by both parties, we review in the following subsections (a)-(f) the issues arising under subparagraphs (b)-(d) of Article 22.3 as laid out in the introductory enumeration in paragraph 69 above.

(a) Whether suspension of concessions under the GATT is "not practicable or effective"

88. First, we discuss Ecuador's consideration that suspension of concessions under the GATT is not practicable or effective for Ecuador in this case. We note that Ecuador's argumentation distinguishes between "primary" and "investment" goods, on the one hand, and "consumer" goods, on the other. While emphasising that these product categories do not correspond to any internationally agreed product classification system, the EC's rebuttal arguments nonetheless differentiate between the same product categories as introduced by Ecuador. In these circumstances, we consider it appropriate for purposes of our review of Ecuador's and EC's argumentation to follow the same pattern in this case.

89. Ecuador submits that it imports mostly primary goods and investment goods from the European Communities. According to data submitted by Ecuador, imports of goods other than consumer goods amount to approximately 85 per cent of total imports from the European Communities in recent years. Ecuador argues that suspension of concessions with respect to these goods is not practicable and effective because they are used as inputs in the domestic manufacturing process and imposing prohibitive tariffs on EC imports of such goods would harm Ecuador more than the European Communities.

90. The European Communities notes that the notions of investment or capital goods, inputs or consumer goods are not internationally defined and that the Harmonised System or the UN System of International Trade Classification make only a basic distinction between primary goods and manufactured goods. According to EC statistics, Ecuador's imports of goods from the European Communities that are used in Ecuador's manufacturing and processing industry amount to US$260.5 million or less than 30 per cent of total imports by Ecuador from the European Communities.

91. We first discuss the parties' arguments concerning primary goods and investment goods. As a starting-point of our analysis, we presume that the suspension of concessions on imports by Ecuador from the European Communities of those types of goods and the imposition of additional tariffs would increase the cost of domestic production in the absence of alternative sources of supply at similar prices.

92. The European Communities contends that alternative sources of supply exist in respect of the primary goods and investment goods that are being imported by Ecuador from the European Communities. In this respect, the European Communities submits information concerning world exports for five product groups³² and argues that alternative sources of supply in respect of these products are either located closer to Ecuador or available at lower prices than those of EC origin.

93. We believe that statistics on world exports in five selected product groups are insufficient proof for the EC's proposition that alternative sources exist for virtually hundreds of different product groups which are being imported by Ecuador from the European Communities. More importantly, we have not been provided with information about whether the price levels of alternative sources of supply for these products, if any, are similar to those of imports from the European Communities. In our view, if supplies at lower prices than EC supplies were available, presumably Ecuadorian importers would have already chosen to procure from these sources.

94. In any event, even if supplies from other than EC sources at similar prices were to exist, the European Communities has not succeeded in rebutting Ecuador's arguments that switching to other than EC sources of supply would involve transitional costs of adjusting to those sources of supply, costs which Ecuador claims are relatively significant in view of its developing country status.

95. Moreover, given the fact that Ecuador, as a small developing country, only accounts for a negligible proportion of the EC's exports of these products, the suspension of concessions by Ecuador vis-�-vis the European Communities is unlikely to have any significant effect on demand for these EC exports.³³

96. In the light of these considerations, we therefore conclude that the European Communities has not shown that suspension of concessions under the GATT with respect to primary goods and investment goods is both practicable and effective for Ecuador.

97. We next turn to the parties' arguments concerning consumer goods. Ecuador submits that approximately 10 per cent of total imports are non-durable consumer goods and, in addition, approximately 5 per cent are durable consumer goods. In absolute figures, Ecuador's imports from the European Communities of non-durable consumer goods amount to approximately US$43.9 million and imports of durable consumer goods are approximately US$16.9 in 1999, totalling US$60.8 million for consumer goods.

98. In contrast, the European Communities submits different data on Ecuador's imports of consumer goods from the European Communities in 1998, indicating that these imports amount to US$194 million. The European Communities argues that these consumer goods are not essential for Ecuador's manufacturing and processing industries and that alternative sources of supply are readily available at similar price levels. As a result, suspension of such trade is feasible and practicable for Ecuador in the EC's view.

99. We believe that the discrepancy between the statistics submitted by the parties concerning Ecuadorian imports of consumer goods of EC origin results, at least in part, from the different ways in which the parties categorise products into, e.g. consumer goods, primary goods or investment goods. We note that, according to Ecuador's own statistics, imports of consumer goods from the European Communities amount to at least US$60.8 million.

100. Suspension of concessions with respect to consumer goods cannot cause any direct adverse effects on Ecuador's domestic manufacturing and processing industries. Thus Ecuador's main argument with respect to investment goods and primary goods referred to above cannot apply with respect to consumer goods. It is also true that resulting price increases from the suspension of concessions on consumer goods could cause welfare losses to end-consumers in the country suspending concessions. However, lacking further argumentation by Ecuador on this point, we conclude that, on the basis of the facts and considerations presented, Ecuador could not plausibly arrive at the conclusion that suspension of concessions on consumer goods is not practicable and effective for Ecuador in this case.

101. In the light of the foregoing considerations, it is our view that the degree of practicability and effectiveness of suspension of concessions under the GATT may vary between different categories of products imported from the European Communities to Ecuador. We conclude that the European Communities has not established that suspension of concessions with respect to primary goods and investment goods is both practicable and effective for Ecuador in this case. However, with respect to consumer goods, we conclude that Ecuador has not followed the principles and procedures of Article 22.3 in considering that suspension of concessions on consumer goods is not practicable or effective for it in this case.

102. In this context, we recall that our mandate under Article 22.6 is to review whether Ecuador has followed the principles and procedures set forth in Article 22.3 with respect to "sectors" and/or "agreements" as defined in subparagraphs (f) and (g) of that Article. If we were to make detailed, product-specific determinations as to whether suspension of concessions should have been deemed not practicable or effective by Ecuador, we would run the risk of contravening the requirement that Arbitrators "shall not examine the nature of concessions or other obligations to be suspended" explicitly set out in Article 22.7.

(b) Whether suspension of commitments under the GATS in subsectors other than wholesale trade services within the sector of distribution services is "not practicable or effective"

103. We next review Ecuador's consideration that suspension of commitments or other obligations under the GATS in respect of service subsectors other than "wholesale trade services" within the principal sector of distribution services is not practicable or effective for Ecuador in this case. We note that, according to the Services Sectoral Classification List³⁴ cited in Article 22.3(f)(ii), the principal sector of distribution services comprises the sub-sectors of "commission agents' services", "wholesale trade services", "retailing services", "franchising" and "others". Ecuador has not entered into specific commitments on market access or national treatment in any of those sub-sectors with the exception of "wholesale trade services".³⁵ It is, therefore, evident for us that Ecuador cannot suspend commitments or other obligations in sub-sectors of the distribution service sector in respect of which it has not entered into specific commitments in the first place.³⁶

104. Therefore, we conclude that Ecuador has followed the principles and procedures of Article 22.3 in considering that it is not practicable or effective for it to suspend commitments or other obligations under the GATS with respect to subsectors other than "wholesale trade services" within the principal sector of "distribution services".

(c) Whether suspension of commitments under the GATS in another sector than distribution services is "not practicable or effective"

105. We now turn to examining Ecuador's considerations that suspension of commitments or other obligations under the GATS in principal service sectors other than distribution services is not practicable or effective for Ecuador in this case.

106. We recall that such suspension of commitments is possible only with respect to those service sectors and those modes of supply which Ecuador has bound in its country-specific Schedule of specific commitments. Ecuador has made commitments on market access and/or national treatment, e.g. in business services, communications, construction and engineering, financial services, health and social services, different types of transport services, tourism, travel, recreational and cultural services.³⁷ However, in most of the service sectors or sub-sectors covered by its commitments, Ecuador did not bind all four modes of service supply within the meaning of Article I:2 of GATS. In fact, many of Ecuador's specific commitments exclude supply mode one (cross-border supply) and are limited to delivery modes two and/or three (consumption abroad and commercial presence).

107. We note that Ecuador's argumentation varies between different modes of service supply. It distinguishes in particular between service supply across borders (mode one) and supply through commercial presence (mode three).

108. Given this particular structure of its Schedule of specific commitments, Ecuador submits that suspension of its specific commitments under the GATS could largely not concern cross-border service supply from the European Communities to Ecuador. We agree that for the predominant part, such suspension of commitments would invariably concern the third mode of service supply through commercial presence of EC service suppliers in Ecuador, or in other words, foreign direct investment.

109. As regards the suspension of commitments concerning commercial presence, Ecuador argued that the suspension of such commitments would distort the investment climate in Ecuador for actual and potential investors from the European Communities. Therefore, Ecuador considered that such suspension would be ineffective because it would harm Ecuador more than the European Communities.

110. We believe that the effects of the suspension of commitments concerning commercial presence could be particularly detrimental to a developing country Member such as Ecuador because it is highly dependent on foreign direct investment. We arrive at this conclusion for the following reasons.

111. EC service suppliers which are currently commercially present in Ecuador (i.e. in the post-establishment stage) would be adversely affected by the impact of such suspension until they transfer their investment to another country which would entail additional cost to them. The withdrawal of commitments on commercial presence would of course not require the immediate closure of a commercial presence owned or controlled by EC nationals, but EC service suppliers would immediately lose the legal protection, predictability and certainty which the GATS standards provide. If such suspension of commitments causes EC service suppliers who are currently commercially present in Ecuador to transfer investments, significant harm would be caused to Ecuador's economy.

112. EC service suppliers who are potential investors in Ecuador (i.e. in the pre-establishment stage) could easily turn to other host countries than Ecuador with a view to avoiding the impact of the suspension of commitments on commercial presence. Again, significant harm would be caused to Ecuador's economy.

113. Furthermore, Ecuador submitted that suspension of commitments on commercial presence would not be practicable. It argued that a party could, if authorized by the DSB, e.g. order a commercially present service supplier to stop its activities or impose a supplementary tax on each unit of its service output. Such actions against service suppliers of a particular foreign origin could lead in many jurisdictions to conflicts with rights to, e.g. equal treatment embodied in national legislation or international treaties and would entail substantial administrative difficulties.

114. In our view, it does not seem difficult to prevent EC service suppliers (in the pre-establishment stage) from establishing themselves in Ecuador. However, it may be possible in theory, but difficult to implement in practice, to prevent already locally established service suppliers of EC origin (in the post-establishment stage) from supplying services within Ecuador's territory. For example, it may cause administrative difficulties to close or limit the service output of a commercial presence in the form of a branch or representative office.³⁸ Additional legal and administrative difficulties may arise when closing or limiting the output of a commercial presence in the form of an establishment enjoying legal personality in its own right due to the legal protection granted to juridical persons by national or international law.

115. Next, we address Ecuador's considerations concerning cross-border service supply. Ecuador submitted that the suspension of such commitments would create practical difficulties and remain ineffective in certain service sectors. For example, it would be technically difficult to cut certain service trade across borders such as telecommunications flows.

116. With respect to a limited range of service sectors or sub-sectors, Ecuador has entered not only into commitments on cross-border supply (first mode of service supply), but also into commitments on other modes of supply such as consumption abroad (second mode) and/or commercial presence (third mode). This is the case, e.g. for construction and engineering; environmental services; health-related and social services; tourism and travel; recreational, cultural and sporting services.

117. We believe that for many of these service transactions commitments on different modes of supply provide alternative channels for supplying services. This means that it is technically feasible in practice to provide such services either through cross-border supply or consumption abroad or commercial presence. To the extent that this is the case, it becomes difficult for Ecuador to implement the suspension of such commitments with respect to one of those bound supply modes only. Moreover, if Ecuador were to suspend commitments concerning cross-border supply in service sectors where it has also bound supply through commercial presence and where these supply modes may serve as alternative channels of service supply, our considerations above concerning the ineffectiveness and practical difficulties Ecuador would face when suspending commitments on commercial presence would again apply.

118. We emphasize that our considerations concerning commitments on several supply modes which provide alternative channels for supplying certain service transactions are essentially based on the particular, country-specific structure in terms of service sectors and modes of supply bound in Ecuador's Schedule on specific commitments. It is evident that no country-specific GATS schedule of any other Member is entirely identical to the particular configuration and structure of the bindings contained in Ecuador's GATS schedule.

119. We also consider the EC's submission that in 1998 trade in services between the European Communities and Ecuador is estimated to be equivalent to US$197.54 million. However, the parties have not provided us with information on which proportion of this trade in services is covered by Ecuador's commitments under the GATS. We therefore cannot ascertain to what extent such trade concerns modes of supply which Ecuador has bound in service sectors covered in its GATS Schedule. Accordingly, we believe that these statistics do not undermine our analysis of the effectiveness and practicability of suspending Ecuador's commitments on services with respect to different modes of supply.

120. Therefore, we conclude that Ecuador has followed the principles and procedures of Article 22.3 in considering that it is not practicable or effective for it in this case to suspend commitments or other obligations under the GATS with respect to principal sectors other than "distribution services".

(d) Whether "circumstances are serious enough" to seek suspension under another agreement

121. Having concluded that suspension is not practicable or effective under the same sectors (i.e. under the GATT and the distribution service sector under the GATS), nor in other sectors under the same agreement (i.e. under the GATS in bound sectors other than distribution services), as those where violations were found, we next review Ecuador's consideration that "circumstances are serious enough" within the meaning of Article 22.3(c) to request suspension of concessions or other obligations under another agreement than those where violations were found (i.e. under the TRIPS Agreement). We find contextual guidance for defining the "seriousness" of circumstances in the factors which subparagraph (d) requires the complaining party to take into account when considering in which sector(s) or under which agreement(s) to seek the DSB's authorization for suspension.

122. We thus review Ecuador's consideration of whether circumstances are serious enough within the meaning of subparagraph (c) for Ecuador to seek suspension under the TRIPS Agreement in the context of the factors set forth in subparagraphs (i) and (ii) of Article 22.3(d). According to subparagraph (i) of Article 22.3(d), we need to examine whether the trade in the sector(s) or under the agreement(s) where violations were found and the "importance of such trade to the party" suffering nullification or impairment was taken into account by Ecuador. Furthermore, we need to analyze whether "broader economic elements" related to nullification or impairment and "broader economic consequences" of the requested suspension within the meaning of subparagraph (ii) of Article 22.3(d) were taken into account by Ecuador.

123. In this context, we note Ecuador's argument that if it were to request suspension of concessions under the GATT with respect to goods, e.g. sound recordings which obviously incorporate intellectual property rights, such a request would fall within subparagraph (a) of Article 22.3. The limited scope of review in an arbitration proceeding under Article 22.6 of such requests for suspension within one of the same sectors as those where violations were found should, in Ecuador's view, be taken into account by the Arbitrators in interpreting their scope of review of requests for suspension under another agreement than those where violations were found.

124. We agree with Ecuador that the extent of scrutiny under Article 22.3(a) is limited. But we also believe that the case of suspension of obligations under the TRIPS Agreement is different from the situation described above by Ecuador because such suspension does not only affect cross-border trade in goods involving intellectual property rights. It also involves the use of such rights in local production within a country as well as, to the extent feasible, use of such rights detached from goods or services.

125. Ecuador submitted the statistics³⁹ that display the inequality between Ecuador and the European Communities in support of its argumentation that circumstances are serious enough to justify suspension across agreements: Ecuador's population is 12 million, while the EC's population is 375 million. Ecuador's share of world merchandise trade is below 0.1 per cent, whereas the EC's world merchandise trade share is in the area of 20 per cent. In terms of world trade in services, the EC's share is 25 per cent, while no data are available for Ecuador because its share would be so small. The GDP at market prices in 1998 was US$20 billion for Ecuador and US$7,996 billion for the 15 EC member States. In 1998, the EC's GDP per capita is US$22,500, whereas per capita income is US$1,600 in the case of Ecuador.

30 Oxford English Dictionary, p. 2785.

31 Moreover, the proportion of trade in bananas and related services in relation to trade in goods and services overall is comparably high for Ecuador, and certainly higher than the proportion of banana imports relative to total imports to the European Communities.

32 In response to a question by the Arbitrators, the European Communities submitted statistics on world exports concerning five product groups, i.e. machinery � for the industrial preparation or manufacture of food or drink; fishing vessels; dish-washing machines etc.; parts suitable for use solely or principally with electric motors and generators, electric generating sets and rotary converters; antibiotics.

33 The EC's exports to Ecuador are less than 0.1 per cent of the EC's total merchandise exports (excluding intra EC exports).

34 Document MTN.GNS/W/120.

35 Ecuador's Schedule of Specific Commitments under the GATS (Document GATS/SC/98 of 24 April 1996).

36 The same conclusion would apply if Ecuador had scheduled exemptions from MFN treatment under the GATS with respect to a particular service sector or sub-sector.

37 Ecuador has listed MFN exemptions in the audio-visual sector.

38 See Article XXVIII(d) of GATS.

39 These data derive from WTO Statistics, Eurostat's "The European Union Figures for the Seattle Conference" (Memo 9/99) and the "Economist Intelligence Unit Country Report" (4th Quarter 1999).