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.