161. More specifically, we note that in its response to questions by the Arbitrators, Ecuador submits that it never had the intention to simply abolish all rules on "related rights" and to put all EC produced phonograms in the public domain which it could arguably do only if it had requested suspension of Article 9 of the TRIPS Agreement, too. If Ecuador were authorized by the DSB to suspend the application of "related rights" under Article 14 vis-�-vis the European Communities, it would consider installing a system whereby companies or individuals established in Ecuador could obtain an authorization from the Ecuadorian government to apply the suspension of concessions derived from Article 14 of the TRIPS Agreement within the Ecuadorian territory. This authorization would be granted through a licensing system which limits the suspension of concessions in terms of quantity, value and time. The Ecuadorian government would reserve its right to revoke these licences at any time. Each reproduction of a sound recording under this licensing scheme would correspond to a "suspension value" equivalent to the "related right value" of a new, commercially most interesting sound recording. For that purpose, Ecuador would use the average "related right value" of sound recordings in Europe as estimated by the International Federation of the Phonographic Industry (IFPI). A certain proportion of this value would represent the performer's share and another, larger part would represent the producer's share. If the level of suspension thus calculated were to risk reaching (together with authorized suspension in other sectors and/or under other agreements, if any) the level of nullification and impairment suffered by Ecuador, the authorization scheme would be stopped. Ecuador believes that the chances that this would happen are very close to nil.

162. Regarding geographical indications, Ecuador notes that the analysis should be different from the analysis with regard to Article 14 of the TRIPS Agreement. The non-respect of "related rights" on a sound recording results in a product that is identical in all respects to the product that is put on the market with the authorization of the "related rights" holder. The CD that would be produced under Ecuador's licensing scheme would be cheaper than a CD produced with the authorization and remuneration of the "related rights" holder, and the former would become a substitute for the latter. For products identified by a geographical indication that would be clearly different. For these products it is only possible to make use of the geographical indication, which is different from reproducing the original product. However, the use of geographical indications could be licensed in similar terms as explained for sound recordings above. Licences could be granted for a determined product and a determined value, quantity and time. The licences would be granted for the exclusive use of the holder of the licence and the Ecuadorian government would reserve its rights to revoke these licences at any time. The test for determining the level of suspension would be the extent to which protected EC products would be replaced by non-protected products from other sources.

163. With respect to industrial designs, Ecuador envisages a similar licensing system as described above even though it considers that the economic effect of suspending the protection of industrial designs would be limited.

164. In our view, the mechanisms envisaged by Ecuador for implementing the suspension of certain sections of the TRIPS Agreement, if authorized by the DSB, would take account of many of our remarks made in the preceding sections.

165. Finally, we recall that, according to Article 22.8 of the DSU,⁵³ an authorization by the DSB of a request for the suspension of concessions or other obligations is in principle a temporary action, pending the removal of the WTO-inconsistent measure at issue, a solution remedying the nullification or impairment of benefits, or a mutually satisfactory solution. Given this temporary nature of the suspension of concessions or other obligations, economic actors in Ecuador should be fully aware of the temporary nature of the suspension of certain TRIPS obligations so as to minimise the risk of them entering into investments and activities which might not prove viable in the longer term.

VI. THE CALCULATION OF THE LEVEL OF NULLIFICATION AND IMPAIRMENT

166. There are various counterfactual regimes that would be WTO-consistent. We have evaluated the various counterfactuals and we have decided to choose the same counterfactual as in the US/EC Bananas III arbitration⁵⁴ to ensure that there is consistency and in particular no double-counting with respect to the nullification and impairment borne by the United States.

167. The counterfactual we have chosen is a global tariff quota equal to 2.553 million tonnes (subject to a 75 Euro per tonne tariff) and unlimited access for ACP bananas at a zero tariff (assuming the ACP tariff preference would be covered by a waiver⁵⁵). Since the current quota on tariff-free imports of traditional ACP bananas is in practice non-restraining, this counterfactual regime would have a similar impact on prices and quantities as the current EC regime. However, import licences would be allocated differently in order to remedy the GATS violations.

168. We calculated the effect on relevant Ecuadorian imports of the revised EC banana regime, compared with the counterfactual described in the previous paragraph, based on the assumption that the aggregate volume of EC banana imports is the same in the two scenarios. This implies that EC banana production and consumption, and the f.o.b., c.i.f., wholesale and retail prices of bananas, also are the same in the two scenarios. This in turn implies that the aggregate value of wholesale banana trade services after the f.o.b. point, and the aggregate value of banana import quota rents, are the same in the two scenarios. Both of those values are readily calculated from the price and quantity data made available to us. The only difference between the scenarios is in the shares of those aggregates that are enjoyed by Ecuador and other goods and service suppliers.

169. We assume the volume of Ecuador's banana exports to the EC would increase (at the expense of other suppliers) to the level of its best-ever exports⁵⁶ during the past decade, that the share of those bananas distributed in the EC by Ecuadorian service suppliers would rise to 60 per cent, and that the proportion of those distributed bananas for which Ecuadorian service suppliers are given import licences would rise to 92 per cent (assuming that the remaining 8 per cent of the available import licences are those reserved for newcomers, consistent with the assumption used in the US/EC Bananas III arbitration).

170. Using the various data provided and our knowledge of the current quota allocation and what it would be under the WTO-consistent counterfactual chosen by us, we determine that the level of Ecuador's nullification and impairment is US$201.6 million per year.

VII. CONCLUSIONS AND SUGGESTIONS

171. For the reasons explained in detail in the preceding sections, we have concluded above that Ecuador's request under Article 22.2, dated 9 November 1999,⁵⁷ has not followed, albeit to a limited extent, the principles and procedures set forth in Article 22.3, especially regarding the suspension of concessions under the GATT with respect to goods destined for final consumption. Moreover, our calculations have led us to conclude that the level of suspension requested by Ecuador exceeds the level of nullification and impairment suffered by it as a result of the EC's failure to bring the EC banana import regime into compliance with WTO law within the reasonable period of time foreseen for that purpose.

172. In this context, we recall that the relevant part of Article 22.7 provides:

"� The parties shall accept the arbitrator's decision as final and the parties concerned shall not seek a second arbitration. The DSB shall be informed promptly of the decision of the arbitrator and shall upon request, grant authorization to suspend concessions or other obligations where the request is consistent with the decision of the arbitrator, unless the DSB decides by consensus to reject the request."

173. Consequently, and consistent with past practice in arbitration proceedings under Article 22,⁵⁸ we suggest to Ecuador to submit another request to the DSB for authorization of suspension of concessions or other obligations consistent with our conclusions set out in the following paragraphs:

(a) Ecuador may request, pursuant to paragraph 7 of Article 22, and obtain authorization by the DSB to suspend concessions or other obligations of a level not exceeding US$201.6 million per year which we have estimated to be equivalent within the meaning of Article 22.4 to the level of nullification and impairment suffered by Ecuador as a result of the WTO-inconsistent aspects of the EC import regime for bananas.

(b) Ecuador may request, pursuant to subparagraph (a) of Article 22.3, and obtain authorization by the DSB to suspend concessions or other obligations under the GATT concerning certain categories of goods in respect of which we have been persuaded that suspension of concessions is effective and practicable. Notwithstanding the requirement set forth in Article 22.7 that arbitrators "shall not examine the nature of the concessions or other obligations to be suspended", we note that in our view these categories of goods do not include investment goods or primary goods used as inputs in Ecuadorian manufacturing and processing industries, whereas these categories of goods do include goods destined for final consumption by end-consumers in Ecuador.⁵⁹ In making its request for suspension of concessions with respect to certain product categories, we note that, consistent with past practice in arbitration proceedings under Article 22,⁶⁰ Ecuador should submit to the DSB a list identifying the products with respect to which it intends to implement such suspension once it is authorized.

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

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

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

(ii) Section 3: Geographical indications;

(iii) Section 4: Industrial designs.

174. We recall the general principle set forth in subparagraph (a) of Article 22.3 that the complaining party should first seek to suspend concessions or other obligations with respect to the same sectors as those in which the panel or Appellate Body has found a violation or other nullification or impairment. In this respect, we recall that, according to the report in the proceeding between Ecuador and the European Communities under Article 21.5, the GATT and the sector of distribution services under the GATS are those sectors within the meaning of subparagraph (f) of Article 22.3 in which violations were found by the reconvened panel.

175. More specifically, we recall that the reconvened panel in the above-mentioned proceeding under Article 21.5 found the revised EC banana regime, inter alia, to be inconsistent with Articles I and XIII of GATT. Therefore, our reasoning and conclusions in respect of "wholesale trade services" in the above section entitled "Ecuador's request for suspension of concessions or other obligations in the same sector where violations were found" would apply mutatis mutandis to a request, pursuant to subparagraph (a) of Article 22.3, for suspension of concessions or other obligations under the GATT.

176. We emphasize that it is obviously impossible to suspend concessions or other obligations for a particular amount of nullification or impairment under one sector or agreement and simultaneously for that same amount under another sector or a different agreement. However, once a certain level of nullification or impairment has been determined by the Arbitrators, suspension may be practicable and effective under the same sector(s) and/or agreement(s) where violations have been found only for part of that amount. In such a situation, suspension for the residual amount of nullification or impairment may be practicable or effective in another sector under the same agreement or possible only under another agreement as is the case in this dispute.

177. We have made extensive remarks above on the suspension of obligations under the TRIPS Agreement and in particular concerning the legal and practical difficulties arising in this context. Given the difficulties and the specific circumstances of this case which involves a developing country Member, it could be that Ecuador may find itself in a situation where it is not realistic or possible for it to implement the suspension authorized by the DSB for the full amount of the level of nullification and impairment estimated by us in all of the sectors and/or under all agreements mentioned above combined. The present text of the DSU does not offer a solution for such an eventuality. Article 22.8 of the DSU merely provides that the suspension of concession or other obligations is temporary and shall only be applied until the WTO-inconsistent measure in question has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. We trust that in this eventuality the parties to this dispute will find a mutually satisfactory solution.

53 Article 22.8 of the DSU: "The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. �"

54 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 (WT/DS27/ARB), dated 9 April 1999; suspension of concessions by the United States in an amount of US$191.4 million authorized by the DSB at its meeting on 19 April 1999.

55 We note the Request for a WTO Waiver from the European Commission on behalf of the European Communities and from Tanzania on behalf of the African, Caribbean and Pacific States concluding negotiations on a New ACP-EC Partnership Agreement, dated 29 February 2000 (WTO document G/C/W/187 of 2 March 2000).

56 Ecuador's exports to the European Communities peaked at 745,058 tonnes in 1992.

57 WT/DS27/52.

58 Recourse by the United States to Article 22.7 of the DSU in reaction to the Arbitrators' Decision in the US/EC Bananas III arbitration proceeding, dated 9 April 1999 (WT/DS27/49). Recourse by the United States to Article 22.7 of the DSU in reaction to the Arbitrators' Decision in the US/EC Hormones arbitration proceeding, dated 15 July 1999 (WT/DS26/21). Recourse by Canada to Article 22.7 of the DSU in reaction to the Arbitrators' Decision in the Canada/EC Hormones arbitration proceeding, dated 15 July 1999 (WT/DS48/19).

59 We would expect that a request by Ecuador under subparagraph (a) of Article 22.3 for suspension of concessions under the GATT with respect to the product categories just mentioned would be at least of the amount identified in paragraph 99 above.

60 Decision by the Arbitrators in European Communities - Measures Concerning Meat and Meat Products (Hormones) - Original Complaint by the United States - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU (WT/DS26/ARB, dated 12 July 1999), paras. 18-23. Decision by the Arbitrators in European Communities - Measures Concerning Meat and Meat Products (Hormones) - Original Complaint by Canada - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU (WT/DS48/ARB, dated 12 July 1999), paras. 18-21.

Return to Index