RESTRICTED
WORLD TRADE WT/DSB/M/36
17September 1997
ORGANIZATION(97-3705)
Dispute Settlement Body
30July1997
MINUTES OFMEETING
Held intheCentre William Rappard
on30July1997
Chairman: Mr.Wade Armstrong (New Zealand)
Subjects discussed: Page
1. Surveillance ofimplementation ofrecommendations adopted bytheDSB ........1
- United States -Standards forreformulated andconventional gasoline: Status
report bytheUnited States ................................1
2. European Communities -Measures affecting importation ofcertain poultry
products .................................................3
- Request fortheestablishment ofapanel byBrazil .................3
3. Indonesia -Certain measures affecting theautomobile industry ..............4
- Request fortheestablishment ofapanel bytheUnited States ..........4
4. Canada -Certain measures concerning periodicals ......................6
- Report oftheAppellate Body andReport ofthePanel ...............6
5. Hungary -Export subsidies inrespect ofagricultural products ...............10
- Statement byAustralia ...................................10
6. United States -Measures affecting textiles andapparel products ..............11
- Statement byHong Kong, China ............................11
1. Surveillance ofimplementation ofrecommendations adopted bytheDSB
- United States -Standards forreformulated andconventional gasoline: Status report
bytheUnited States (WT/DS2/10/Add.6)
TheChairman recalled thatthisitemwasontheagenda pursuant toArticle 21.6oftheDSU
which required that: "Unless theDSB decides otherwise, theissue ofimplementation ofthe
recommendations orrulings shallbeplaced ontheagenda oftheDSBmeeting aftersixmonths following
thedateofestablishment ofthereasonable period oftimepursuant toparagraph 3andshallremain
ontheDSB'sagenda untiltheissueisresolved." Hedrewattention todocument WT/DS2/10/Add.6,
which contained afurther status report bytheUnited States withregard toitsprogress inthe
implementation oftheDSB'srecommendations onthismatter.WT/DSB/M/36
Page2
Therepresentative oftheUnited States saidthatasprovided forinArticle 21.6oftheDSU,
hisdelegation hadsubmitted itsseventh status report ontheimplementation oftheDSB's
recommendations. Herecalled thaton29April 1997, theAdministrator oftheEnvironmental Protection
Agency (EPA) hadissued theproposed ruleforcomments. Consistent withnormal USregulatory
procedures, theEPAhadinvited allinterested parties tocomment onthespecifics ofitsproposal by
19June1997. TheEPA hadreceived comments from abroad range ofinterested parties. These
comments wereavailable forpublic inspection attheEPA. TheUnited States hadalsotaken avery
careful noteofthepoints made andthequestions raised intheDSBonthismatter. However, since
theEPAwasintheprocess ofitsregulatory review andhadnotyetissued afinalruleitwould not
beappropriate forhisdelegation tocomment atthisstage. Hereiterated thatallcomments submitted
totheEPAwould beconsidered priortothefinalization oftheregulation. Hestressed thattheUnited
States tookitscommitments veryseriously withregard tothetimely implementation ofitsobligations
andwasontrack toward meeting itscommitments.
Therepresentative ofBrazil recalled thatthe15-month period forimplementation oftheDSB's
recommendations would expire on20August 1997. Since thesummer holiday would givetheUnited
States a"providential" break anditwould notbepossible torevert tothismatter before September,
hewished toreiterate some points ofspecial relevance toBrazil. Herecalled thatonseveral occasions,
hisdelegation hadexpressed Brazil 'sconcerns thattheUnited States would notbeabletomeetthe
deadline of20August 1997. However, theUnited States hadreassured hisdelegation thatitwould
meetthisdeadline.
HisGovernment andtheBrazilian enterprise Petrobrás hadfullyparticipated intheprocess
carried outbytheEPAbysubmitting written comments prior totheissuance ofamendments tothe
gasoline rulewhich would enable theUnited States tocomply withtheDSB'srecommendations.
Petrobrás hadalsobeenpresent atthescheduled hearings andmeetings. Asstated attheDSBmeeting
on25June1997, Brazil hadputforward technical questions andraised matters closely related toareas
under theWTO 'scompetence. With regard totechnical questions, Brazil hadsubmitted comments
ontheuseofindependent laboratories, testing methodology andmixtures. HisGovernment hoped
thattheEPAwould takeintoaccount theproposals submitted byPetrobrás soastoavoid burdensome
andunnecessary procedures orrequirements.
Brazil hadalsofocused ontwoelements oftheproposal directly linked totherights and
obligations under theGATT 1994 andtheWTO Agreement, which were ofserious concern tohis
country. Thefirstwasthebonding requirement forgasoline exporters toguarantee aneventual payment
offines. Thiscould result inviolation ofArticles IIandIIIoftheGATT 1994. Thesecond wasthe
requirement withregard toawaiver ofsovereign immunity which could havefar-reaching negative
implications onBrazil 'srights under international law. These points hadbeenmade totheEPAby
theBrazilian exporter andhadalsobeendirectly conveyed totheUSauthorities byhisGovernment.
Itwashoped thatthese issues werenowbeing seriously considered andwould betaken intoaccount
intheforthcoming amendments tothegasoline rule.
Hestressed thatBrazil attached importance tothiscaseand,likeother Members, hadbeen
fullyaware thatthisfirstcase, which hadreached theimplementation stage, could setanexample.
HisGovernment believed thatfullcompliance withtheDSB'srecommendations wasfundamental for
thecredibility ofthedispute settlement mechanism. Therefore, itwasBrazil 'sexpectation thatatthe
nextDSBmeeting inSeptember, theUnited States would provide Members withdetailed information
withregard totheregulation which would already beineffect. Brazil alsoexpected thatthisregulation
would fullycomply withtheDSB'srecommendations.
Therepresentative ofVenezuela thanked theUnited States foritsstatus report andrecalled
thatthiswasthelastmeeting before theexpiry oftheagreed deadline of20August 1997 forWT/DSB/M/36
Page3
implementation oftheDSB'srecommendations. AttheDSBmeeting on25June1997, hisdelegation
hadexpressed concern withregard toaseries ofprovisions intheproposed amendments which had,
once again, established discriminatory treatment against imported gasoline. These included: (i)
provisions containing complex requirements forimported gasoline, which would bestricter thanthose
fordomestic gasoline; and(ii)provisions establishing certain requirements which, inpractical terms,
implied thatVenezuela would havetogiveupitssovereign immunity rights. Hiscountry wasseriously
concerned that,withonlyafewdaysbefore expiry ofthedeadline, itwasstillnotknown whether
theEPAhadincorporated thecomments andsuggestions made bytrading partners. Inorder topreserve
thecredibility ofthemultilateral trading system, theUnited States --astheMember thathadmost
frequently resorted tothedispute settlement mechanism --hadtheresponsibility tocomply faithfully
andpromptly withtheDSB'srecommendations. Anything tothecontrary would cause serious trade
problems forVenezuela andwould beagainst theinterests andimage oftheUnited States.
Therepresentative oftheEuropean Communities noted theimportance ofthetimely
implementation oftheDSB'srecommendations asemphasized bytheprevious speakers, andsupported
theirstatements. Itwasclear thatthiscasewasimportant andwasbeing closely followed. While
itwasnotappropriate tocomment onrepresentations made totheEPA, herecalled thatthequestions
raised byhisdelegation attheDSBmeeting on25June1997, hadbeenaddressed totheUSGovernment.
These questions concerned thepossibility thatthenewsystem could besodesigned astorevert tothe
situation ofdiscriminatory measures being applied onimported products asopposed todomestic ones.
TheCommunities hadexpected toreceive some answers tothese questions which hadbeenaddressed
totheUSauthorities rather thantotheEPA.
TheDSB tooknoteofthestatements andagreed torevert tothismatter atitsnextregular
meeting.
2. European Communities -Measures affecting importation ofcertain poultry products
- Request fortheestablishment ofapanel byBrazil (WT/DS69/2)
TheChairman recalled thattheDSBhadconsidered thismatter atitsmeeting on25June1997,
andhadagreed torevert toit.Hethendrew attention todocument WT/DS69/2.
Therepresentative ofBrazil saidthathiscountry 'srequest fortheestablishment ofapanel
wasbefore theDSB forthesecond time. Herecalled thatBrazil 'scomplaint contained twomain
elements. Thefirstrelated toafullimplementation ofacompensatory agreement negotiated under
Article XXVIII:4 ofGATT 1994. Brazil contended thattheimplementation ofthetariff-rate quota
forpoultry meatcontained inthebilateral agreement hadnotproperly maintained, "...ageneral level
ofreciprocal andmutually advantageous concessions notlessfavourable totrade thanthatprovided
...prior tosuchnegotiations."1Thecompensatory adjustment hadnotmaterialized asaresult ofthe
allocation andadministration ofthequota.
Thesecond element concerned thepossibility ofanullification orimpairment ofBrazil 'srights
withregard totrade outside thequota. Thelackoftransparency intheCommunities 'administration
concerning thereduced share ofthetariff-rate quota allocated toBrazil hadaffected trade outside the
quota. Hiscountry wasnotinaposition todetermine whether itsdutiable exports, subject tospecial
safeguard provisions under Articles 4and5oftheAgreement onAgriculture, benefited frommarket
access opportunities agreed intheUruguay Round. Brazil wanted fullcompensation withrespect to
chicken meatasagreed intheArticle XXVIII:4 negotiations. Hiscountry alsobelieved thatthetariff-rate
1Article XXVIII:2 ofGATT 1994.WT/DSB/M/36
Page4
quota should beadministered inatransparent manner soastoenable identification ofsalesmade inside
andoutside thequota aswellastodetermine whether Brazil 'srights under theWTO Agreement were
being respected.
Unfortunately, sincetheDSBmeeting on25June1997, Brazil hadnotreceived anyadditional
information fromtheCommunities withregard totheadministration ofthetariff-rate quota onpoultry
meatwhich could clarify certain doubts raised during theconsultations. Todate,ithadalsonotreceived
anyindication thatabilateral solution, inaccordance withthespirit ofArticle 3.7oftheDSU, could
befound. Therefore, Brazil requested thatpursuant toArticle 6.1oftheDSUapanel beimmediately
established toexamine thismatter, andthatthispanel consider andfindthattheCommunities 'poultry
import regime wasinconsistent with, interalia:(i)Articles II,III,X,XIIIandXXVIII ofGATT
1994; (ii)Articles 1and3oftheAgreement onImport Licensing Procedures; (iii)Articles 4and
5oftheAgreement onAgriculture. ThePanel should alsofindthattheCommunities 'measures had
distorted tradeandthereby nullified orimpaired benefits accruing directly, orindirectly, toBrazil under
theabove-mentioned Agreements, andimpeded theobjectives oftheWTO. Brazil further requested
thatapanel beestablished withstandard terms ofreference assetoutinArticle 7oftheDSU.
TherepresentativeoftheEuropeanCommunitiessaidthathisdelegationacceptedBrazil'srequest
fortheestablishment ofapanel atthepresent meeting. Inaneffort toresolve some oftheissues,
theCommunities hadhoped tohavefurther contacts aftertheDSBmeeting on25June1997. This,
however,hadnotbeenpossibleandtheCommunitiesthereforeacceptedthatapanelexaminethismatter.
TheDSBtooknoteofthestatement andagreed toestablish apanel inaccordance withthe
provisions ofArticle 6oftheDSU withstandard terms ofreference.
Therepresentatives ofThailand andtheUnited States reserved theirthird-partly rights to
participate inthePanel proceedings.
3. Indonesia -Certain measures affecting theautomobile industry
- Request fortheestablishment ofapanel bytheUnited States (WT/DS59/6)
TheChairman recalled thattheDSBhadconsidered thismatter atitsmeeting on25June1997,
andhadagreed torevert toit.Hesaidthatthisitemwasontheagenda ofthepresent meeting atthe
request oftheUnited States anddrew attention tothecommunication contained inWT/DS59/6.
Therepresentative oftheUnited States saidthat,fornearly oneyear, hisGovernment had
consulted withIndonesia withregard tothelatter'smeasures affecting theautomobile industry. The
United States wasseriously concerned about thismatter andhoped thatallMembers would adhere
toWTO rules intheformulation oftheirmeasures inthissector. Hiscountry hadheldintensive
discussions withIndonesia inJune1997, andhadmade some exchanges inJuly1997 onthismatter.
While these discussions hadbeenpositive, ithadnotbeenpossible toreach amutually satisfactory
solution tothismatter. Asaresult, theUnited States again requested theestablishment ofapanel to
consider itsclaim concerning Indonesia 'smeasures. Italsorequested that,pursuant toArticle 9.1
oftheDSU, thepanel previously established attherequest oftheEuropean Communities andJapan2
alsoexamine theUScomplaint. TheUnited States hadborne inmind theprovisions ofArticle 3of
theDSU, inparticular thosewithregard tosecuring apositive solution todisputes, andhoped tocontinue
constructive discussions withIndonesia withtheaimofreaching amutually satisfactory solution to
thismatter inthenearfuture.
2DSB meeting on12June 1997 (WT/DSB/M/34).WT/DSB/M/36
Page5
Therepresentative ofIndonesia saidthatthiswasthesecond meeting oftheDSBatwhich the
United States hadrequested theestablishment ofapanel onthismatter andherecognized thatsuch
apanel would beestablished atthepresent meeting. Itwasnothisintention tocomment onthis
automatic procedure, butrather toexpress hisGovernment 'sappreciation forthesincere efforts of
theUnited States toexplore thebasis forabilateral resolution. Unfortunately, despite efforts bythe
United States andhisGovernment, thishadnotbeenpossible. Hisdelegation, liketheUnited States,
alsopreferred thatasingle panel beestablished toexamine these complaints provided thatseparate
panel reports would becirculated inaccordance withArticle 9.2oftheDSU.
Therepresentative oftheEuropean Communities saidthathisdelegation hadnoted therequest
bytheUnited States thatitspanel beconsolidated withtheexisting panel which wasalready inthe
process ofexamining twocomplaints bytheEuropean Communities andJapan. Inprinciple, his
delegation hadnoproblem withthisrequest. Itbelieved thatonesingle panel toexamine these
complaints would permit these matters tobedealtwithinamore efficient way. TheCommunities
hadonlyonereservation, namely, thattheydidnotwishanydelays resulting from theaddition ofa
third complaint. Todate, progress hadbeenmade withregard totheselection ofmembers ofthe
panelandtheinformation-gatheringprocessundertheAnnexVprocedureoftheAgreementonSubsidies
andCountervailing Measures (SCM). Hisdelegation wished these procedures tobecompleted
expeditiously andnotdelayed asaresult oftheUSrequest. Hereiterated thattheCommunities had
noproblem ofprinciple andthat,intheirview, thiswasthemostefficient waytoconduct business.
Therepresentative ofJapan saidthathisdelegation hadnoproblem withasingle panel provided
thatthedateofestablishment ofthatpanel would be12June1997, i.e.,thedateofthepanel established
attherequest oftheEuropean Communities andJapan.
TheChairman saidthathisunderstanding wasthat,inresponse tothestatements made bythe
European Communities andJapan, thereshould benoproblem withregard totiming orconcerns raised
withregard topossible delays intheprocess.
TheDSB tooknoteofthestatements, agreed toaccept theUnited States 'request forthe
establishment ofapanel withstandard terms ofreference, andagreed thatasprovided forinArticle
9oftheDSUwithrespect tomultiple complainants, thepanel established on12June1997toexamine
thecomplaintsbytheEuropeanCommunities(WT/DS54/6)andJapan(WT/DS55/6-WT/DS64/4)would
alsoexamine theUnited States 'complaint ascontained inWT/DS59/6.
TheChairman recalled thatinitsrequest, theUnited States hadalsorequested theDSBtoinitiate
theinformation-gathering procedure provided forinAnnex VoftheSCM Agreement. Inview of
thefactthattheparties hadsought asingle panel toexamine alltheclaims raised bythecomplainants
under theSCM Agreement, itwould bedesirable topursue thisinformation-gathering process asquickly
aspossible inorder toavoid delays inthepanel procedure. There would beaneedtoestablish deadlines
withrespect totheUnited States 'involvement intheAnnex Vprocedure. Thetimeavailable forthis
would beshortbecause thepanel hadalready beenestablished. Heasked theUnited States andIndonesia
toprovide Mr.S.Harbinson --therepresentative designated bytheDSBunder theAnnex Vprocedures
--assoonaspossible inwriting, withanyquestions theywished tobeasked ofanyparty. Thiswould
allow Mr.Harbinson toprepare andtransmit requests forinformation totheUnited States ortoIndonesia
withaminimum ofdelay. Healsoasked Mr.Harbinson towork withtheparties todetermine such
deadlines andother working procedures necessary forcompletion ofthistask. Herecalled that
Mr.Harbinson hadalready beenengaged intheAnnex Vprocedure inrelation totherequest bythe
European Communities. Itwould, therefore, onlybenatural thatheshould nowtakethistaskonin
relation totheUnited States 'request.WT/DSB/M/36
Page6
Therepresentative ofIndonesia saidthathisdelegation wasready toaccept theUnited States '
request concerning theinformation-gathering process provided thattheAnnex Vprocedure, inparticular
provision 5thereof, wasfulfilled. Inother words, thattheinformation-gathering process becompleted
within 60days.
TheDSBtooknote ofthestatements.
4. Canada -Certain measures concerning periodicals
- Report oftheAppellate Body (WT/DS31/AB/R) andReport ofthePanel (WT/DS31/R
andCorr.1)
TheChairman saidthatthisitemwasontheagenda attherequest oftheUnited States. He
drew attention tothecommunication from theAppellate Body contained indocument WT/DS31/6
transmitting theAppellate Body Report in"Canada -Certain Measures Concerning Periodicals" which
hadbeencirculated indocument WT/DS31/AB/R inaccordance withArticle 17.5oftheDSU. He
recalled thatinaccordance withtheDecision onProcedures fortheCirculation andDerestriction of
WTO Documents contained indocument WT/L/160/Rev.1, theAppellate Body Report andthePanel
Report hadbeencirculated asunrestricted documents. Hethendrew attention toArticle 17.14 ofthe
DSUwhich required that:"AnAppellate Body report shallbeadopted bytheDSBandunconditionally
accepted bytheparties tothedispute unless theDSBdecides byconsensus nottoadopt theAppellate
Body report within 30daysfollowing itscirculation totheMembers. Theadoption procedure iswithout
prejudice totherightofMembers toexpress theirviews onanAppellate Body report".
Therepresentative ofCanada saidthathiscountry acknowledged that,inaccordance with
Articles 16.4and17.14 oftheDSU, thePanel andtheAppellate Body Reports would beadopted and
unconditionally accepted bytheparties tothedispute, unless theDSBdecided byconsensus notto
adopt theReports. Nonetheless, Canada noted thattheadoption procedure waswithout prejudice to
therightofMembers toexpress theirviews. Consequently, itwished toexpress itsviews onthePanel
andtheAppellate Body Reports, andtounderline anumber ofissues ofimportance toCanada which
hadbeenraised inthiscase. Itwaswithrespect tothefundamental importance ofthedispute settlement
system thatCanada expressed itsgreatdisappointment withtheAppellate Body Report andwithcertain
aspects oftheAppellate Body'sdeliberations. These observations might bereflected inthefuture
discussions inthecontext ofthereview oftheDSU.
Canada noted itsvested interest inanopen, respected andstable international trading system.
However, since international trade would leadtoanincreasingly globalized andhomogeneous world,
itwould beculture thatwould preserve thedistinctiveness ofMembers andensure their ongoing
sovereignty.Hiscountrywasthereforecommittedtomaintainingeffectivepoliciesandpolicyinstruments
insupport ofitscultural development. Print-based media werestillaprimary means ofcommunication
inCanada andaround theworld. Ofallthedifferent types ofprint-based media, periodicals inparticular
weretimely andtopical publications. Periodicals created forandinresponse totheneeds oftheCanadian
market werenotlikeperiodicals created toreflect theneeds, interests andperceptions ofother markets.
Canada, oranyMember,should notrelyuponorexpect media products fromother countries toattempt
toreflect itsownreality. Foritisinthisreality, thatitssovereign distinctiveness asacountry was
determined. Itwastherefore critically important thatawaybefound, within therule-based trading
system, which would allow Members todevelop andmaintain policies thatpromote theirownunique
culture andidentity.
Thedispute settlement provisions contained intheWTO Agreement ensured greater
expeditiousness andfairness intheapplication oftrade rules. Canada hadbeenattheforefront of
thereform ofthedispute settlement process during theUruguay Round negotiations andcontinuedWT/DSB/M/36
Page7
tosupport these goals. TheDSU procedures ensured anexpeditious dispute settlement system by
providing strict time-limits fortheDSB'sdecisions. However, thisshould notresult inneglect ofthe
fundamental principles offairness. Canada wasdisappointed withthehandling ofbasic fairness
requirements bytheAppellate Body. Basic fairness required opportunity topresent arguments and
tobeheard.Thedeterminationofsubstitutability,competitivenessandprotectionismunderArticleIII:2,
second sentence, ofGATT 1994 wasofcritical importance totheinterpretation ofGATT 1994 and
totheoutcome ofthiscase. There hadbeennoargument submitted onthese points totheAppellate
Body norsolicited byit.Hadanopportunity beenprovided tosubmit afullwritten andoralargument,
there would havebeennobasis toclaim theabsence ofprocedural fairness. TheAppellate Body had
found thatitcould complete theanalysis ofArticle III:2ofGATT 1994 inthiscase, provided that
therehadbeenasufficient basisinthePanel Report toallow theAppellate Body todoso.TheAppellate
Body hadrelied onthesummary ofarguments contained inthePanel Report withrespect toArticle III:2,
second sentence, ofGATT 1994. However, thiswasnotasubstitute forafullwritten andoralargument
onappeal.
TheAppellate Body hadbased itsdecision onatestthathadnotbeendealtwithinthePanel
Report, hadnotbeenraised onappeal andhadnotbeenaddressed inthewritten ororalarguments
oftheparties. Nonotice hadbeengiven totheparties oftheAppellate Body'sintention tobaseits
decision onatestthathadnotconstituted thebasisoftheappeal under Article 17.6oftheDSU. The
Appellate Body, therefore, hadrendered itsdecision without thebenefit ofwritten ororalargument
bytheparties, andwithout providing aproper opportunity totheparties tosubmit suchargument.
Thisprocedure amounted toadenial oftheright tobegiven notice andtobeheard onallrelevant
issues. TheAppellate Body hadrelied ontheUnited States -Standards forReformulated and
Conventional Gasoline3case,where ithadconsidered thechapeau toArticle XXofGATT 1994, after
deciding thatoneofthesubparagraphs ofArticle XXhadbeenapplicable. Thishadsimply beena
two-step analysis ofasingle legalprovision. Anyruling onwhether anexception under Article XX
ofGATT 1994 applied automatically involved aconsideration ofthechapeau. Thetwosentences of
Article III:2oftheGATT 1994, incontrast, weredistinct obligations withdifferent coverage andrules,
andhadbeenclearly treated assuchinprior decisions, including theJapan -Taxes onAlcoholic
Beverages4case.
Inreviewing Canada 'sappeal ofthePanel'sdecision ontheexcise taxasaservices measure,
theAppellate Body hadinferred thatbecause Canada hadnotappealed thePanel'sruling onTariff
Code 9958, theexcise taxshould beconsidered ataxongoods. Itwasinappropriate, asmatter of
fairness, todraw prejudicial inferences from Canada 'sdecision nottoappeal distinct issues.
Canada wasmostdisappointed withtheAppellate Body'sruling withregard toitsarguments
ontheapplication ofGATT disciplines toservices measures. Acoherent interpretation ofGATT 1994
andGeneralAgreementonTradeinServices(GATS),givingmeaningtoalltheprovisions,wasessential
forfuture compliance byMembers withalltheirobligations andcommitments withregard totrade
ingoods andservices. When theAppellate Body wasasked toruleontherelative scope ofthetwo
Agreements,itwasimportantthatitprovidedcarefulanddeliberatereasoningforMemberstounderstand
howithadarrived atitsdecision. Inthiscase, theAppellate Body hadbeenasked toruleonthe
applicability ofGATT andGATS provisions totheexcise tax. Canada wasdisappointed thatthe
Appellate Body hadnotprovided considered reasoning onthequestion oftheexcise taxasameasure
affecting advertising services. Instead, theAppellate Body'sdecision onthiscritical point appeared
tohaverested largely onitsinterpretation ofpolicy linkages between thetaxonadvertising andthe
3Appellate Body Report (WT/DS2/AB/R).
4Panel Report (WT/DS8/R, WT/DS10/R, WT/DS11/R) andAppellate Body Report (WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R).WT/DSB/M/36
Page8
border measure targeting magazines perse.ItwasclearfromtheAppellate Body Report thatMembers
hadtoreflect upon therelationship between obligations under theGATT 1994 andtheGATS
commitments. Intheabsence ofagreement onthescope ofthetwoAgreements, anincreasing number
ofdisputes could beleftfortheAppellate Body tomake suchadetermination. Hedrew attention to
therecent caseonEuropean Communities -Import Regime fortheImportation, SaleandDistribution
ofBananas5andunderlined theneedforfurther attention tothisissue, ifwork intheservices area
wastomake meaningful progress.
Withregard toArticle IIIofGATT 1994, theAppellate Body hadconsidered thatnodecision
ontheissueof"likeproducts" could properly bemade because oftheabsence ofanyadequate analysis
inthePanel Report. Ifitwasnotpossible tomake adetermination of"likeness" forthepurpose of
Article III:2, firstsentence, inviewoftheabsence ofanadequate analysis inthePanel Report, then
afortiori ,itwould alsobeimpossible todetermine whether theproducts were"directly competitive
orsubstitutable" forthepurpose ofthesecond sentence. ThePanel Report contained noanalysis of
thesecond sentence atall,which according toJapan -Taxes onAlcoholic Beverages should bemade
onacase-by-case basis. Canada questioned theAppellate Body'srefusal toruleonanissue because
thePanel'sanalysis wasinadequate, butthentoruleonaseparate issue thatthePanel hadfailed to
analyze atall.TheAppellate Body'sfinding onthequestion of"likeproducts" had,inpart,beenbased
onitsanalysis oftheexamples ofSports Illustrated andHarrowsmith Country Life,neither ofwhich
hadbeenrelevant tothecase. Thisindicated afundamental misunderstanding ofthefacts. TheSports
Illustrated split-run wasadomestic notanimported product. Thishadbeencommon ground between
theparties. TheAppellate Body hadalsobased itsconclusion onthefactthattheUSedition of
Harrowsmith Country Life,aCanadian-owned periodical formerly published intheUnited States, had
ceased production. Since thisproduct hadnever beenexported toCanada andhadnotbeendestined
foraCanadian readership, itcould notbeclaimed thattheclosure oftheUSedition amounted toa
protective application ofthetax.Themeasure hadaneffect onlyonadomestic operation.
Onpage19ofitsReport, theAppellate Body hadassumed thatthewords "directly orindirectly"
inArticle III:2, firstsentence, alsoapplied toArticle III:2, second sentence given thebroader application
ofthelatter. While thesecond sentence wasbroader initsproduct coverage, itwasclearly notbroader
inrespect ofthetaxation measures towhich itapplied.
Thestatement onpages 26and27oftheAppellate Body Report, quoted fromthePanel Report,
demonstrated thatmagazines needed bothcirculation andadvertising revenue, andthatashortfall of
advertising would affect editorial quality. Itdidnotshow thatmagazines weredirectly competitive
orsubstitutable asconsumer products. Canada contended thatthequotation onpage27oftheAppellate
Body Report from theReport oftheTaskForce ontheCanadian Magazine Industry didnotprovide
sufficientevidenceonwhichtobasesuchaconclusionwhenweightedagainstthecountervailingevidence
thattherelevant magazines hadbeenvery"poor substitutes" asconsumer products. InCanada 'sview,
allthatwasleftoftheanalysis onthisissuewasapolitical statement having aminimal probative value,
either asamatter ofeconomics orlaw.
TheAppellate Body hadstated thattheirtextual interpretation hadbeensupported bythecontext
ofArticle III:8(b) examined inrelation toArticle III:2andIII:4ofGATT 1994. ButtheAppellate
Body hadnotmade anyexamination ofthecontext oftheproducers 'subsidy exemption inrelation
tonational treatment disciplines. Further, theAppellate Body hadrelied ontheobject andpurpose
ofArticle III:8(b) todraw itsconclusions withregard to"funded" postal rates. Unfortunately, the
Appellate Body hadnotthenexplained what theobject andpurpose hadbeennorhaditconducted
5Panel Reports (WT/DS27/R/ECU, WT/DS27/R/GTM-WT/DS27/R/HND, WT/DS27/R/MEX,
WT/DS27/R/USA).WT/DSB/M/36
Page9
anyanalysis thereof. Asaresult, thisdecision hadfailed toprovide sufficient reasoning toenable
Canada tounderstand whythe"funded" postal ratescould notbenefit from theexemption permitted
under Article III:8(b) ofGATT 1994.
Inconclusion, hesaidthatCanada 'scommitment tothedispute settlement system remained
firm. Itwasitsintention tocontinue toabide bytherules andprocedures governing thesettlement
ofdisputes. Canada would inform theDSB by29August 1997, ofitsintentions inrespect of
implementation oftheDSB'srecommendations. However, instead ofmaking itsstatement atameeting
asrequired under Article 21.3oftheDSU, Canada would inform theDSBbyletter transmitted to
theChairman forcirculation toDSBmembers.6After discussion withtheUnited States, bothparties
hadagreed thattheirrespective rights andobligations would bepreserved through thisapproach, as
ifameeting under Article 21.3oftheDSU hadbeenheld.
Thepanelists, intheirconcluding remarks, hadstressed "...thattheability ofanyMember
totakemeasures toprotect itscultural identity wasnotatissueinthepresent case".7Thisability was
nottobetaken forgranted. IntheCanadian context, where hiscountry shared acommon language
andtheworld 'slongest undefended border withaneighbour having apopulation tentimes itssize,
itwasCanada 'sunique challenge toprotect itscultural identity withnopossibility ofachieving the
economies ofscaleavailable toproducers ofcultural products andservices thatreinforced theAmerican
identity. While many aspects oftheCanadian problem were unique, hiscountry believed thatall
Members hadaninterest inaddressing theissue squarely. Canada wascommitted topolicies and
measures tostrengthen theviability ofitscultural industries, bearing inmind theneedtoensure that
itsrights andobligations asaWTO Member were respected.
Therepresentative oftheUnited States saidthathiscountry fullysupported adoption ofthe
Appellate Body Report andthePanel Report. Overtheyears, Canada hadadopted aseries ofmeasures
thathadprevented orhindered theability offoreign magazines toparticipate fullyintheCanadian
market. Specifically, Canada had:(i)banned importation ofallmagazines thatcontained evensmall
amounts ofadvertising directed specifically atCanadian readers; (ii)charged many domestic magazines
lower postal rates, insome cases 80percentbelow theratesitcharged tolikeimported magazines;
and(iii)imposed aprohibitive 80percentexcise taxonso-called split-run magazines --themagazines
published indifferent editions fordifferent markets. ThePanel andAppellate Body hadfound that
these measures were inconsistent withCanada 'sobligations under Articles IIIandXI--twoofthe
keyprovisions ofGATT 1994.
Incombination, thePanel andAppellate Body Reports upheld certain important principles
thatapplied wellbeyond thefactsofthiscaseorthemagazine sector. First, aMember could not
circumvent itsobligations toprovide non-discriminatory taxtreatment toimported products bydrafting
itstaxmeasures toappear tobenon-discriminatory while, infact,theyserved toinsulate domestic
products fromimport competition. Inthiscase,theAppellate Body hadconfirmed thatCanada 'sexcise
taxonsplit-run periodicals hadbeen applied soastoafford protection toitsdomestic magazine
production. Second, aMember could notdisavow responsibility under theGATT foraction ofan
entity itestablished, owned, andcontrolled, merely onthebasisthattheMember hadgiven theentity
a"legal personality" thatwastechnically separate from thegovernment. Inthiscase, thePanel had
found thatCanada Post'sdiscriminatory postal rateswere regulations orrequirements ofCanada 's
Government. Third, aMember could notprovide government services atbelow-cost ratesexclusively
todomestic products andthenjustify these lower ratesonthegrounds thattheyamounted tosubsidies
paidtodomestic producers andthuswere exempted from national treatment forimported products.
6Subsequently circulated inWT/DS31/8.
7Panel Report (WT/DS31/R, p.78).WT/DSB/M/36
Page10
Inthiscase, theAppellate Body hadfound thatCanada 'sdiscriminatory below-cost postal rateswere
inviolationofArticleIII:4ofGATT1994andwerenotasubsidyjustifiedunderArticleIII:8(b).Finally,
asthePanel hadnoted inparagraph 5.45ofitsReport, thiscasedidnotconcern culture. Likemany
countries, theUnited States supported efforts topromote national identity through cultural development.
However, theWTO didnotpermit aMember touse"culture" asanexcuse toprovide commercial
advantages todomestic products nor,ashadoccurred inthiscase, toevictforeign products from its
market.
These important findings would create amore secure environment forinternational trade in
goods, andinparticular, would guard against disguised restrictions ontrade. Accordingly, theUnited
States supported adoption ofthese Reports. Iturged Canada toimplement promptly thePanel's
recommendations, asmodified bytheAppellate Body andwasready toconsult withCanadian officials
regarding implementation. Hisdelegation hadnoted thatCanada would inform theDSB, by29August
1997, ofitsintentions withrespect toimplementation oftheDSB'srecommendations. TheUnited
States agreed thatinstead ofholding ameeting asrequired under Article 21.3oftheDSU, Canada
would dosobyletter transmitted totheChairman forcirculation totheDSBmembers. Italsoagreed
withCanada thattheirrespective rights andobligations would bepreserved asifameeting under
Article 21.3oftheDSU hadbeenheld.
TherepresentativeofSwitzerlandsaidthathiscountryhadnotedwithgreatinteresttheAppellate
Body Report. Hisdelegation supported theconclusions ofthisReport. However, hequeried theway
inwhich theAppellate Body hadinterpreted theterms ofreference ithadbeengiven under Article 17.6
oftheDSU. Herecalled thatthisprovision limited anappeal to"...issues oflawcovered inthepanel
report andlegalinterpretations developed bythepanel". TheAppellate Body hadrefused tore-open
examination ofwhether imported split-run periodicals anddomestic non-split-run periodicals werelike
products because thiswould require afactual analysis.8Ontheother hand, ithadestablished thatthese
twoproducts were directly competitive ordirectly substitutable products, even though such a
determination wasalsobased onananalysis ofthefacts. Inhisdelegation 'sview, thistypeofproceeding
hadraised anumber ofquestions concerning thelimited terms ofreference given totheAppellate Body.
Hisdelegation wasinterested inhaving theviews ofother Members onthismatter, inaddition tothose
expressed byCanada.
TheDSBtooknoteofthestatements andadopted theAppellate Body Report inWT/DS31/AB/R
andthePanel Report inWT/DS31/R andCorr.1, asmodified bytheAppellate Body Report.
TheChairman noted thatCanada hadstated thatitwould inform theDSBofitsintentions with
regard toimplementation oftheDSB'srecommendations onthismatter by29August 1997intheform
ofaletter transmitted totheChairman. Heproposed theDSBtotakenoteofthisinformation and
agree torevert totheissue ofimplementation atafuture meeting.
TheDSBsoagreed.
5. Hungary -Export subsidies inrespect ofagricultural products
- Statement byAustralia
Therepresentative ofAustralia, speaking under "Other Business", onbehalf ofthecomplainants
onHungary 'sexport subsidies withregard toagricultural products9,informed theDSBthatArgentina,
8Appellate Body Report(WT/DS31/AB/R, p.22).
9WT/DS35/4, 5,6and7.WT/DSB/M/36
Page11
Australia, NewZealand andtheUnited States hadreached agreement withHungary onamutually
agreed solution. Inaccordance withthisagreement, Hungary would submit arequest forawaiver
under Article IXoftheWTO Agreement totheCouncil forTrade inGoods atitsmeeting on
6October 1997, andsubsequently totheGeneral Council. Pending consideration ofthewaiver request,
thecomplainants hadasked theSecretariat nottoproceed withthecomposition ofthepanel established
onthismatter. Thecomplainants expected towithdraw theircomplaints oncetheGeneral Council
agree togrant suchawaiver ontheterms discussed between Hungary andthecomplainants.
TheDSBtooknoteofthestatement.
6. United States -Measures affecting textiles andapparel products
- Statement byHong Kong, China
Therepresentative ofHong Kong, China, speaking under "Other Business", drew attention
totheEuropean Communities 'request forconsultations withtheUnited States concerning thechanges
made in1996 withregard totheUSrules oforigin fortextiles andapparel products. Thisrequest
hadbeencirculated inWT/DS85/1 on3June1997. Together withanumber ofother Members, his
authorities hadrequested tobejoined inconsultations inaccordance withArticle 4.11oftheDSU.
TheUnited States hadaccepted thisrequest andhadadvised Hong Kong, China thattheconsultations
hadbeenscheduled forthemorning of16July1997. However, ontheevening ofthe15July1997,
hisauthorities hadreceived ajointcommunication from theUnited States andtheCommunities that
theconsultations would notbehelduntilfurther notice. Todate,nofurther communication fromthe
parties tothedispute hadbeenreceived. However, inthemeantime, certain media reports suggested
thattheUnited States andtheCommunities hadreached amutually agreed solution onthismatter.
Against thisbackground, hewished tomake some observations. First, theUnited States had
heldbilateral discussions withanumber ofitstrading partners, including Hong Kong, China, onthe
changes intheareaofrulesoforigin affecting textiles andapparel products. Three rounds ofdiscussions
heldwithhisauthorities hadbeeninconclusive. Irrespective ofwhether ornotHong Kong, China
would invoke dispute settlement proceedings inthiscase,itnevertheless hadaninterest inanydispute
settlement proceedings initiated onthismatter.
Second, Hong Kong, China accepted thattheaimofthedispute settlement mechanism was
tosecure apositive solution thatwasmutually acceptable totheparties toadispute andconsistent with
covered agreements. Notwithstanding thepreference foramutually acceptable solution, themultilateral
implications ofanysuchsolutions wereamatter ofinterest toallMembers. Thiswasrecognized in
Article 3.6oftheDSU which required mutually agreed solutions tobenotified totheDSBandthe
relevant Councils andCommittees where anyMember might raiseanypoint relating thereto.
Inthiscase, theconsultations hadbeencancelled lessthat24hours before thescheduled date.
Hisauthorities didnotconsider thatthiscancellation hadbeendeliberately leftuntilthelastminute,
although 42dayshadelapsed fromthetimetherequest hadbeenmade. Inanyevent, theother parties
which hadexpected tobejoined under Article 4.11oftheDSU could have beenapprised ofthe
circumstances which hadledtothesudden cancellation ofthescheduled consultations. Thisraised
thequestion ofwhether, orhow,theinterests ofthirdparties against theinterests oftheparties directly
involved inthedispute should bebalanced --anissue, which inhisauthorities 'viewmerited careful
consideration during thereview oftheDSUtobeundertaken in1998. Inthemeantime, hisdelegation
wished toknow whether amutually agreed solution hadbeenreached between theUnited States and
theCommunities onthismatter and,ifso,when suchasolution would benotified.WT/DSB/M/36
Page12
Therepresentative ofIndia wished hisdelegation tobeassociated withthestatement made
byHong Kong, China. India hadalsorequested tobejoined inthese consultations inaccordance with
Article 4.11oftheDSU andtheUnited States hadaccepted thisrequest. On15Julyanexpert from
thecapital hadarrived inGeneva andhadbeentoldthattheconsultations scheduled for16Julyhad
beencancelled. Hisdelegation could understand thatsuchspecial circumstances might occur. However,
India'sbasic interest wastoknow whether amutually agreed solution hadbeenfound onthismatter.
Ifso,itwould wishtoreceive details concerning suchasolution. Itwould bebetter tohavesuchdetails
from theparties tothedispute thanbeinformed bytheinternational press.
Therepresentative ofPakistan saidthathisdelegations wished tobeassociated withtheviews
expressed bytheprevious speakers. Pakistan hadalsorequested tobejoined inthese consultations
andthisrequest hadbeenaccepted bytheUnited States. Atthepresent meeting, hedidnotwishto
enter intodetail, butonlytodraw attention totwoimportant points Onerelated tothequestion of
balancing therights ofthirdparties vis-à-vis theparties directly involved inadispute. Pakistan hoped
thatthismatter would beconsidered inthecontext ofthereview oftheDSU in1998. Theother
concerned details ofapossible mutually agreed solution onthismatter. Hisdelegation wished toreceive
information onthissubject since sofaritsonlyinformation wasfrom press reports.
TherepresentativeofSwitzerlandsaidthathiscountryhadrequestedtobejoinedinconsultations
inaccordance withArticle 4.11oftheDSU. Incaseamutually agreed solution hadbeenfound, his
delegations wishtobeinformed ofthedetails concerning thismatter.
Therepresentative oftheDominican Republic saidthathisdelegation wished tobeassociated
withthestatement made byHong Kong, China. Hiscountry hadalsorequested tobejoined in
consultations andtheUnited States hadaccepted thisrequest. Italsowished toknow whether asolution
hadbeenfound onthismatter.
Therepresentative ofJapan saidthatsince hisdelegation hadalsorequested tobejoined in
these consultations, itshared theviews expressed bytheprevious speakers.
Therepresentative ofHonduras indicated hisGovernment 'ssupport oftheviews expressed
bytheprevious speakers. Hiscountry hadalsorequested tobejoined inconsultations andtherefore
wished tobeinformed astowhether anagreement between theparties tothedispute hadbeenreached
onthismatter.
Therepresentative ofArgentina saidthatalthough hisdelegation hadnotrequested tobejoined
inconsultations, itsinterest wastransparency withregard tothetechnical andcontractual agreement
between theUnited States andtheCommunities regarding therules oforigin.
TheDSBtooknoteofthestatements.