WORLD TRADE  
ORGANIZATION  WT/DS136/ARB 
24 February 2004 
 (04-0743) 
 Original:   English 
   
 
     
 
 
 
UNITED STATES – ANTI -DUMPING ACT OF 1916 
 
(ORIGINAL COMPLAINT 
BY THE EUROPEAN COMMUNITIES) 
 
 
Recourse to Arbitratio n by the United States 
under Article 22.6 of the DSU 
 
DECISION BY THE ARBITRATORS  
 
  
 
 
 
  
 
The Decision by the Arbitrators on United States – Anti-Dumping Act of 1916 (Original Complaint by 
the European Communities)  is being circulated to all Members, pursuant to the DSU.  The decision is 
being circulated as an unrestricted document from 24  February 2004 pursuant to the Procedures for 
the Circulation and Derestriction of WTO Documents (WT/L/452). 
    WT/DS136/ARB 
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TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
A. REQUEST FOR ARBITRATION AND SELECTION OF THE ARBITRATORS ..........................................1  
B. PRESENTATION OF THIS REPORT ..................................................................................................1  
II. FACTUAL BACKGROUND – THE US ANTI-DUMPING ACT OF 1916 AND 
THE EC REQUEST TO SU SPEND OBLIGATIONS ..........................................................2  
A. INTRODUCTION ............................................................................................................................2  
B. THE US ANTI -DUMPING ACT OF 1916 .........................................................................................2  
C. FINDINGS OF THE ORIGINAL PANEL .............................................................................................3  
D. THE EC REQUEST TO SU SPEND OBLIGATIONS .............................................................................3  
III. PRELIMINARY ISSUES.........................................................................................................5  
A. BURDEN OF PROOF .......................................................................................................................5  
B. WAS THE EUROPEAN COMMUNITIES REQUIRED TO SPECIFY WHICH OBLIGATIONS IT 
SEEKS AUTHORIZATION TO SUSPEND ?.........................................................................................6  
1. Introduction................................................................................................................... ............6  
2. Arguments of the parties....................................................................................................... ...7 
3. Evaluation by the Arbitrators.................................................................................................. 7 
C. THE "BLOCKING " REGULATION ...................................................................................................9  
IV. ROLE AND JURISDICTION OF THE ARBITRATORS UNDER ARTICLE 22 
OF THE DSU ..................................................................................................................... .....10  
V. PARAMETERS FOR THE DETERMINATION OF THE LEVEL OF 
NULLIFICATION OR IMPAIRMENT...............................................................................12  
A. GENERAL CONSIDERATIONS ......................................................................................................12  
B. QUALITATIVE OR QUANTITATIVE "EQUIVALENCE "...................................................................13  
1. Arguments of the parties....................................................................................................... .13 
2. Evaluation by the Arbitrators................................................................................................15  
C. THE EUROPEAN COMMUNITIES REQUEST AND THE "NATURE " OF THE OBLIGATIONS TO 
BE SUSPENDED ...........................................................................................................................19  
1. Arguments of the parties....................................................................................................... .19 
2. Evaluation by the Arbitrators................................................................................................19  
D. THE LEVEL OF NULLIFICATION OR IMPA IRMENT SUSTAINED BY THE EUROPEAN 
COMMUNITIES ...........................................................................................................................20  
1. Arguments of the parties....................................................................................................... .20 
2. Evaluation by the Arbitrators................................................................................................21  
(a) The presumption of nullification ..............................................................................................2 1 
(b) EC position on existence of 1916 Act cons tituting the nullification and impairment ..............22  
(c) Calculating nullification or impairment:  using "reasoned estimates" and avoiding 
speculation .................................................................................................................... ............22  WT/DS136/ARB 
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(d)
 Final judgements under the 1916 Act .......................................................................................23  
(e) Settlements under the 1916 Act ................................................................................................2 3 
(f) Deterrent or "chilling" effect................................................................................................. ....24  
(g) Litigation costs............................................................................................................... ...........25  
(h) Conclusion on parameters for calcula ting nullification or impairment ....................................27  
VI. DETERMINATION OF THE LEVEL OF NULLIFICATION OR 
IMPAIRMENT IN THE PRESENT CASE..........................................................................27  
1. Introduction................................................................................................................... ..........27  
2. Final judgments under the 1916 Act .....................................................................................27  
3. Settlements under the 1916 Act .............................................................................................27  
4. Ongoing nullification or impairment ....................................................................................29  
VII. SUMMARY OF FINDINGS AND CONCLUSIONS ..........................................................30  
VIII.  AWARD AND DECISION OF THE ARBITRATORS ......................................................31  
IX. CONCLUDING OBSERVATIONS ......................................................................................31  
  WT/DS136/ARB 
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TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Brazil – Aircraft  
(Article 22.6 – Brazil)  Decision by the Arbitrators, Brazil – Export Financing Programme for Aircraft – 
Recourse to Arbitration by Brazil under Article 22.6 of the DSU and Article 411 of 
the  SCM Agreement , WT/DS46/ARB, 28 August 2000 
Canada – Aircraft Credits and 
Guarantees  
(Article 22.6 – Canada)  Decision by the Arbitrator, Canada – Export Credits and Loan Guarantees for 
Regional Aircraft – Recourse to Arbitrati on by Canada under Article 22.6 of the 
DSU and Article 411 of the SCM Agreement , WT/DS222/ARB, 17 February 2003 
EC – Bananas III (Ecuador) 
(Article 22.6 – EC)  Decision by the Arbitrators, 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 , WT/DS27/ARB/ECU, 24 March 2000, 
DSR 2000:V, 2243 
EC – Bananas III (US) 
(Article 22.6 – EC)  Decision by the Arbitrators, 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 , WT/DS27/ARB, 9 April 1999, DSR 
1999:II, 725 
EC – Hormones (US) 
(Article 22.6 – EC)  Decision by the Arbitrators, European Communities – Measures Concerning Meat 
and Meat Products (Hormones) – Origi nal Complaint by the United States – 
Recourse to Arbitration by the Eur opean Communities under Article 22.6 of the 
DSU , WT/DS26/ARB, 12 July 1999, DSR 1999:III, 1105 
EC – Hormones (Canada) 
(Article 22.6 – EC)  Decision by the Arbitrators, European Communities – Measures Concerning Meat 
and Meat Products (Hormones) – Origi nal Complaint by Canada – Recourse to 
Arbitration by the European Communities under Article 22.6 of the DSU , 
WT/DS48/ARB, 12 July 1999, DSR 1999:III, 1135 
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X, 
4793 
US – 1916 Act (EC)  Panel Report, United States – Anti-Dumping Act of 1916 – Complaint by the 
European Communities , WT/DS136/R and Corr.1, adopted 26 September 2000, as 
upheld by the Appellate Body Report, WT/DS136/AB/R, WT/DS162/AB/R, 
DSR 2000:X, 4593 
US – 1916 Act (Japan)  Panel Report, United States – Anti-Dumping Act of 1916 – Complaint by Japan , 
WT/DS162/R and Add.1, adopted 26 September 2000, as upheld by the Appellate Body Report, WT/DS136/AB/R, WT/DS162/AB/R, DSR 2000:X, 4831 
US – FSC  
(Article 22.6 – US)  Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Arbitration by the United States under Article 22.6 of 
the DSU and Article 411 of the SCM Agreement , WT/DS108/ARB, 30 August 2002 
US – Section 110(5) Copyright 
Act (Article 25.3)  Award of the Arbitrators, United States – Section 110(5) of the US Copyright Act – 
Recourse to Arbitration under Article 25 of the DSU , WT/DS160/ARB25/1, 
9 November 2001, DSR 2001:II, 667 
US – Section 301 Trade Act  Panel Report, United States – Sections 301-310 of the Trade Act of 1974 , 
WT/DS152/R, adopted 27 January 2000, DSR 2000:II, 815 
 
  WT/DS136/ARB 
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I. INTRODUCTION 
A. REQUEST FOR ARBITRATION AND SELECTION OF THE ARBITRATORS  
1.1 On 26 September 2000, the Dispute Settlement Body (DSB) adopted the report of the 
Appellate Body and the report of the Panel as uphe ld by the Appellate Body in this dispute.1 The 
reasonable period of time for the United States to bring the Anti-Dumping Act of 1916 into 
conformity with the DSB recommendations and ruli ngs was originally decided through arbitration 
pursuant to Article 21.3(c) of the Dispute Settleme nt Understanding (DSU), an d was due to expire on 
26 July 2001.  It was subsequently extended so as to expire on 31 December 2001, or the date on 
which the then session of the US Congress adjourned, whichever would be earlier.2 
1.2 On 7 January 2002, the European Communiti es requested that the DSB authorize it to 
suspend the application of obligations under GA TT 1994 and the Agreement on Implementation of 
Article VI of the General Agreement on Tariffs  and Trade 1994 (the "Anti-Dumping Agreement").3 
1.3 On 17 January 2002, the United States objected to the level of suspension proposed by the 
European Communities, pursuant to Article 22.6 of the DSU.4  The matter was referred to arbitration.  
On 19 February 2002, Members were informed of the constitution of the Arbitrator.  Its composition 
was as follows: 
 Chairman: Mr Dimitrij Gr čar 
  Members: Mr Brendan McGivern    Mr Eugeniusz Piontek  
1.4 On 27 February 2002, however, the European  Communities and the United States jointly 
informed the Arbitrators that a proposal to repeal  the 1916 Anti-Dumping Act and to terminate cases 
pending under the Act was being examined by the US  Congress.  In the light of this, the European 
Communities and the United States requested the Ar bitrators to suspend the arbitration proceeding. 
The communication to the Arbitrators also stated  that the European Communities and the United 
States agreed that the arbitration could be reactivat ed at the request of either party after 30 June 2002.
5  
1.5 On 19 September 2003, the European Communities requested the reactivation of the 
arbitration proceedings.6 
B. PRESENTATION OF THIS REPORT   
1.6 This report is structured as follows:   
• In Part II, we set out the relevant factual background to these proceedings.  We 
describe briefly both the Anti-Dumping Act of 1916, and the request by the European 
Communities to suspend obligations.  
 
                                                      
1 US – 1916 Act , hereafter the "Appellate Body Report" and US – 1916 Act (EC) , hereafter the "Panel 
Report", the panel in this dispute being referred to as the "original Panel".  The Appellate Body Report also 
upheld the report of the panel in the complaint brought by Japan, US – 1916 Act (Japan) . 
2 Minutes of the DSB meeting of 11 September 2001, WT/DSB/M/107, paragraph 66. 
3 WT/DS136/15, 11 January 2002. 
4 WT/DS136/16, 18 January 2002. 
5 WT/DS136/18, 4 March 2002. 
6 We note the parties thus agreed both 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. WT/DS136/ARB 
Page 2  
 
• In Part III, we examine three preliminary issues:  (i) the burden of proof; (ii) whether 
the European Communities was required to specify which obligations it seeks authorization to suspend; and (iii) the "b locking regulation" recently adopted by the 
Council of the European Union.
7 
 
• In Part IV, we describe the role and jurisdiction of the Arbitrators under Article 22 of 
the DSU. 
 
• In Part V, we set out the parameters for th e determination of the level of nullification 
or impairment.  
 
• In Part VI, we apply these parameters to the specific facts of this case. 
 
• In Part VII, we summarize our principal findings and conclusions. 
 
• In Part VIII, we provide the award and decision of the Arbitrators. 
 
• In Part IX, we offer some concluding observations. 
 
II. FACTUAL BACKGROUND – THE US ANTI-DUMPING ACT OF 1916 AND THE EC 
REQUEST TO SUSPEND OBLIGATIONS 
A. INTRODUCTION  
2.1 The European Communities seeks authorization to adopt a so-called "mirror" regulation.8  It 
requests authorization to suspend the applicati on of obligations owing to the United States under 
GATT 1994 and the Agreement on Anti-Dumping in orde r to adopt an "an equivalent regulation to 
the 1916 Act against imports from the United States."   
2.2 At this point, it would be useful to describe briefly the Anti-Dumping Act of 1916 
("1916 Act"), the findings of the original Pane l with respect to the Act, and the European 
Communities request to suspend obligations.  
B. THE US ANTI -DUMPING ACT OF 1916 
2.3 The 1916 Act was enacted by the US Congress unde r the heading of "Unfair Competition" in 
Title VIII of the Revenue Act of 1916.9  It provides in part as follows: 
"It shall be unlawful for any person impor ting or assisting in importing any articles 
from any foreign country into the United States, commonly and systematically to import, sell or cause to be imported or sold such articles within the United States at a 
price substantially less than the actual market value or wholesale price of such articles, at the time of exportation to the Un ited States, in the principal markets of the 
country of their production, or of other foreign countries to which they are commonly 
exported after adding to such market value or  wholesale price, freight, duty, and other 
charges and expenses necessarily incident to  the importation and sale thereof in the 
United States: Provided , That such act or acts be done with the intent of destroying or 
injuring an industry in the United States, or of preventing the establishment of an 
                                                     
 
7 Council Regulation (EC) No. 2238/2003, described below. 
8 The submissions of the European Communities refe rred to its proposed measure alternately as a 
"mirror regulation" or "mirror legislation." 
9 Panel Report, paragraph 2.1.  WT/DS136/ARB 
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industry in the United States, or of restraining or monopolizing any part of trade and commerce in such articles in the United States. 
Any person who violates or combines or conspires with any other person to violate 
this section is guilty of a misdemeanour, and,  on conviction thereof, shall be punished 
by a fine not exceeding $5,000, or imprisonment not exceeding one year, or both, in 
the discretion of the court. 
Any person injured in his business or prope rty by reason of any violation of, or 
combination or conspiracy to violate, this  section, may sue therefor in the district 
court of the United States for the district in which the defendant resides or is found or has an agent, without respect to the am ount in controversy, and shall recover 
threefold the damages sustained, and the cost of the suit, including a reasonable 
attorney's fee."
10  
C. FINDINGS OF THE ORIGINAL PANEL  
2.4 The original Panel found in part that: 
"(d)  by not providing exclusively for the injury test provided for in Article VI, the 
1916 Act violates Article VI:1 of the GATT 1994; 
(e)  by providing for the imposition of tr eble damages, fines or imprisonment, 
instead of anti-dumping duties, the 1916 Act violates Article VI:2 of the GATT 1994; 
(f)  by not providing for a number of procedural requirements found in the Anti-
Dumping Agreement, the 1916 Act violates Articles 1, 4, and 5.5 of the Anti-Dumping Agreement; 
(g)  by violating Articles VI:1 and VI:2 of the GATT 1994, the 1916 Act violates 
Article XVI:4 of the Agreement Establishing the WTO; 
(h)  since violations have been establis hed that have not been rebutted by the 
United States, the United States nullifies or impairs benefits accruing to the European 
Communities under the WTO Agreement."
11 
2.5 The Appellate Body upheld the findings of the Panel, including "the Pa nel's findings in the 
EC Panel Report that the 1916 Act is inconsistent  with Articles VI:1 and VI:2 of the GATT 1994, 
Articles 1, 4 and 5.5 of the Anti-Dumping Agreement and Article XVI:4 of the WTO Agreement ."12 
D. THE EC REQUEST TO SU SPEND OBLIGATIONS  
2.6 The request made on 7 January 2002 to the DSB by the European Communities stated in part 
that: 
"As a result of the United States' failure to bring its 1916 Act into conformity with the 
WTO Agreements, or otherwise to comply with the recommendations and rulings of the Dispute Settlement Body in this matter, a number of companies are currently facing judicial proceedings brought in the United States on the basis of the 1916 Act. 
                                                     
 
10 Ibid. 
11 Panel Report, paragraph 6.228. 
12 Appellate Body Report, paragraph 155. WT/DS136/ARB 
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Moreover, all companies which export to th e United States are f acing the threat of 
legal action on the basis of this WTO-incompatible legislation."
13 
2.7 The European Communities request also indicated that: 
"[T]he European Communities will request authorization from the Dispute Settlement 
Body to suspend the application of the obligations under GATT 1994 and the 
Anti-Dumping Agreement   in order to adopt an equivale nt regulation to the 1916 Act 
against imports from the United States. Th is regulation would allow the European 
Communities to impose on United States companies found to dump their products in the European Communities additional duti es corresponding, over the five year 
projected life of the measures, to three times the amount of the damage suffered by 
companies in the European Communities when certain sp ecific intents analogous to 
those required under the 1916 Act are establis hed. This regulation would also mirror 
other procedural aspects of the United States ' measure which have been found to be 
inconsistent with the WTO obligations of  the United States in cases where sufficient 
evidence of specific intent is present. Th e investigation would be conducted by the 
authorities of the European Communities res ponsible for the application of its anti-
dumping legislation as part of the anti-dumping investigation rather than by the courts 
and the additional duties would not be paid to the complainants."
 14  
2.8 The United States informed the DSB that it "o bject[ed] to the level of suspension of 
obligations proposed by the European Communities."15  Therefore, as noted above, the matter was  
referred to arbitration. 
2.9 The Arbitrators requested the European  Communities to provide a communication 
"describing the measure subject to arbitration" and "the methodology for calculating the proposed 
level of suspension of concessions or other obliga tions."  In its 6 Octobe r 2003 Methodology Paper, 
the European Communities provided additi onal detail about its proposed measure: 
"The EC legislation would be based on the equivalent requirements as under the 1916 
Act. In particular, the application of special duties would be contingent upon 
¾ the finding of dumping by a US company; 
¾ damage to the complaining EC company or companies; 
¾ the intention to destroy or injure an i ndustry in the European Communities, or 
to prevent the establishment of an indu stry in the European Communities, or 
to restrain or monopolise any part of trade and commerce in such products in 
the European Communities; 
However, the EC legislation would differ from the 1916 Act in various regards, in 
particular, it would  
¾ not provide for the imposition of fines or for imprisonment; 
¾ not provide that the special duties are imposed by the courts but by the EC 
authorities responsible for the application of the anti-dumping legislation; 
                                                      
13 WT/DS136/15, 11 January 2002. 
14 Ibid.  The request also stated that "[i]n consid ering what obligations to suspend, the European 
Communities has applied the principles and procedures  set forth in Articles 22.3 and 22.4 of the DSU ." 
15 WT/DS136/16, 18 January 2002.  WT/DS136/ARB 
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¾ not provide that the monies collected are paid to the complainants; 
¾ not violate procedural requirements of the Anti-Dumping Agreement such as 
the presentation of eviden ce by the complainant."16 
2.10 The European Communities concluded its Methodolog y Paper by stating that its request "does 
not exceed the level of nullification and impairment suffered by the EC".17 
III. PRELIMINARY ISSUES 
A. BURDEN OF PROOF  
3.1 Each party to this dispute made arguments on what the other party was required to prove for 
the purpose of these proceedings.  The United States  argued that the European Communities failed to 
provide any evidence on the level of nullification or impairment arising from the 1916 Act, or to 
propose any specific level of suspen sion.  The European Communities argued that the United States 
had to prove that the requested level of suspension of obligations was not equivalent to the level of 
nullification or impairment.  Moreover, according to the European Commun ities, the United States 
had not provided any evidence th at the envisaged European Comm unities measure would effectively 
exceed the level of nullification and impairment caused by the 1916 Act.  
3.2 The burden of proof in Article 22.6 arbitrations , as in regular WTO dispute settlement, is by 
now well established.  As stated by the arbitrators in EC – Hormones (US) (Article 22.6 – EC) : 
"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 in consistency.  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 e quivalent to the leve l of nullification and 
impairment.  The EC challenges the confor mity 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 ju risprudence, this means that it is for 
the EC to submit arguments and ev idence sufficient to establish a prima facie  case or 
presumption that the level of susp ension 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 argumen ts and evidence remain in equipoise, the 
EC, as the party bearing the original burden of proof, would lose.   
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.    
The duty that rests on all parties to produce evidence a nd 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 Ar ticle 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 
                                                     
 
16 Methodology Paper of the European Communities , 6 October 2003, paragraphs 8-9. 
17 Ibid., paragraph 10. WT/DS136/ARB 
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explaining how it arrived at its pr oposal and showing why its proposal is equivalent 
to the trade impairment it has suffered…"
18 
3.3 We agree that this is an accurate presentation of the burden of proof applicable in Article 22.6 
proceedings. 19  Moreover, the fact that this case relat es to the suspension of "obligations", as opposed 
to the suspension of tariff concessions, in no way alters the applicable burden of proof. 
3.4 Applying this standard to the facts of the present case, we note that the burden is on the 
United States to prove that the European Co mmunities proposal, as set out in the European 
Communities' request to suspend obligations, is inc onsistent with Article 22.4 of the DSU.  This 
means that the United States must submit arguments and evidence sufficient to establish a prima facie 
case or presumption that the level of suspensi on proposed by the European Communities is not  
equivalent to the level of nullification or impa irment sustained by the European Communities as a 
result of the 1916 Act.  If the United States do es so, it will be incumbent on the European 
Communities to submit arguments and evidence sufficient to rebut that presumption.   
3.5 We also agree with the statement of the arbitrators in EC – Hormones  (US) (Article 22.6 – 
EC)regarding the burden of proof that app lies "where the existence of a specific fact is alleged." The 
burden is on the party alleging a fact – either the United States or the European Communities, as the 
case may be – to prove its existence.    
3.6 We also agree that a duty rests on both par ties to produce evidence and to collaborate in 
presenting evidence to the Arbitrators.  The United States is required to submit evidence showing that 
the European Communities' proposal is not equiva lent.  The European Communities, as the Member 
seeking to suspend obligations, 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."   
B. WAS THE EUROPEAN COMMUNITIES REQUIRED TO SPECIFY WHICH OBLIGATIONS IT SEEKS 
AUTHORIZATION TO SUSPEND ? 
1. Introduction 
3.7 We agree with the view advanced by both parties that the decision by the European 
Communities to seek the suspension of "obligations" rather than tariff "concessions" is not subject to 
review by the Arbitrators.20  However, was the European Communities nevertheless obligated under  
Article 22 of the DSU to specify precisely which "obligations" it seeks to suspend?  
                                                      
18 Decision by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC) , paragraphs 9-11.  Original 
emphasis. 
19 Other arbitrators have similarly referred to the burden of proof enunciated by the arbitrators in the 
EC – Hormones  decisions.  See, for example:   Decision by the Arbitrators, EC – Bananas III (Ecuador) 
(Article 22.6 – EC) , paragraphs 37-38;  Decision by the Arbitrators, Brazil – Aircraft (Article 22.6 – Brazil) , 
paragraph 2.8 and footnote 12;  Decision by the Arbitrator, US – FSC (Article 22.6 – US) , paragraph 2.10 and 
footnote 18. 
20 The European Communities argues that: 
 
"Article 22.2 of the DSU (and Article XXIII:2 GATT ) offers to the Member which is suffering from 
nullification and impairment the possibility to request the suspension of concessions or other 
obligations or both. This choice falls within the Member's  discretion which escapes a review by the 
arbitrators by virtue of Article 22.7 of the DSU."  
 
Written Submission of the European Communities , 3 November 2003, paragraph 8.  Original emphasis.  
 
Although the United States objected to the EC request on other grounds, it did not challenge the EC 
choice to seek the suspension of "obligations":  WT/DS136/ARB 
 Page 7 
 
 
2. Arguments of the parties 
3.8 The United States argues that the European Communities has not provided any information 
regarding the "level" on "either side of the equation. "  On the one side, according to the United States, 
the European Communities "has failed to provide even  a rough estimate of the level of nullification or 
impairment."  On the other side of the equati on, according to the United States, the European 
Communities "has similarly failed to propose suspensi on covering a certain 'level' of trade."  The 
United States argues that "Articles 22.4 and 22.7 of  the DSU do not permit the arbitrator or the DSB 
to make a determination in the absence of  such information".  It asserts that: 
"The EC has asked the DSB to issue it a bl ank check.  It asks for the authority to 
suspend concessions or other obligations, but it fails to identify the particular 
concessions or other obligations it intends to suspend.  In previous cases, the 
complaining party has identified the obligati ons it wishes to suspend with specificity–
and for good reason: it is difficult for the DSB to authorize the suspension of concessions or other obligations without  knowing what concessions or other 
obligations would be suspended.  In a ddition, a description of the particular 
obligations the complaining party seeks to su spend facilitates the arbitrator's work in 
determining, in accordance with Article 22.7 of the DSU, whether the level of suspension is equivalent to the le vel of nullification or impairment."
21   
3.9 The European Communities replies that it: 
"… does not consider that, because it requested  to suspend 'other obligations' it would 
be required to provide information on wh ich specific obligations under the GATT 
1994 and the Anti-Dumping Agreement  it proposes to suspend.  By specifying in 
detail the features of its proposed mirror le gislation, the European Communities has 
in fact [provided] a more precise indication of the retaliatory measure than would a detailed listing of paragraph numbers. 
Moreover, the European Communities did cl early limit its suspension request to the 
'relevant' provisions under GATT and the Anti-Dumping Agreement  in order to adopt 
the envisaged mirror legislation. Thus, th e European Communities never intended to 
request authorisation to suspend any obligations under the GATT 1994 and the 
Anti-Dumping Agreement ."
22 
3. Evaluation by the Arbitrators 
3.10 In our view, a party seeking to suspend obligat ions is not required, under Article 22 of the 
DSU, to indicate precisely which "obligations" it seeks  authorization to suspend.  Article 22.2 of the 
DSU states simply that a party may request author ization from the DSB "to suspend the application to 
                                                                                                                                                                     
 
"[T]he choice of whether to suspend "concessions" or "other obligations" would appear to be the choice of the complaining party, and there is nothing in the DSU that would indi cate a basis for an arbitrator to 
find that the choice had been exercised inappropriately, other than the procedures under Article 22.3.  
At the same time, the distinction would appear to make little difference since the two terms are used 
interchangeably in Article 22.  The United States is not raising a claim in this proceedin g that requires 
distinguishing between a 'concession' and an 'other obligation'."    
Answers of the United States to the Arbitrator's Questions to the Parties , 20 November 2003, 
paragraph 2. 
21 Written Submission of the United States , 20 October 2003, paragraph 35. 
22 Answers of the European Communities to the Questions of the Arbitrator , 20 November 2003, 
paragraphs 40-41. WT/DS136/ARB 
Page 8  
 
the Member concerned of concessions or other obliga tions under the covered agreements."  There is 
no requirement that the requesting party identify ex actly which obligations it wishes to suspend.   
3.11 Moreover, we note that in previous cases, neither the arbitrators nor the DSB have required 
requesting parties to enumerate which concessions or other obligations such Members were seeking to 
suspend.  For example, in Canada – Aircraft Credits and Guar antees (Article 22.6 – Canada) , the 
arbitrator accepted, and the DSB au thorized, the suspension by Brazil, inter alia , of "the application 
of obligations under the Agreement on Import Licens ing Procedures relative to licensing requirements 
on imports from Canada."  The Brazilian request did not indicate which "obligations" under the 
Agreement on Import Licensing it wished to suspend,  nor did the arbitrators require such specificity.
23  
In Brazil – Aircraft  (Article 22.6 – Brazil) , the arbitrators similarly did not object to the suspension by 
Canada of obligations under "the Agreement on Textiles and Clothing and the Agreement on Import 
Licensing Procedures."24  In EC – Bananas III (Ecuador) (Article 22.6 – EC) , the arbitrators indicated 
that the complainant could obtain authorization from the DSB to suspend unspecified obligations 
"under the TRIPS Agreement" with respect to certain sectors.25  
3.12 Moreover, even for requests seeking the susp ension of tariff concessions "and related 
obligations under the GATT 1994" th e arbitrators did not require specificity as to what these "related 
obligations" were.26   
3.13 Thus, past practice indicates that arbitrators have accepted requests to suspend unspecified 
"obligations".  The DSB has granted authoriza tion to suspend obligations, while allowing the 
requesting Member to decide which particular obligations it would select to implement the 
authorization.  We would emphasize, however, that whatever discretion is granted to such a Member 
is subject to the requirement that the level of suspension of obligations cannot exceed the level of 
nullification or impairment.  We return to this point below. 
3.14 Therefore, we do not consider that the Eu ropean Communities' request to "suspend the 
application of the obligations under GA TT 1994 and the Anti-Dumping Agreement   in order to adopt 
an equivalent regulation to the 191 6 Act against imports from the United States"  can be considered as 
deficient under Article 22 of the DSU for failing to specify which "obligations" it seeks to suspend.  
3.15 As a general concluding obser vation on this issue, we agree with the arbitrators in EC –
Hormones  (US) (Article 22.6 – EC) that:   
"The more precise a request for suspension is  in terms of product coverage, type and 
degree of suspension, etc. …, the better.  Such precision can only be encouraged in pursuit of the DSU objectives of 'providing security and predictability to the 
multilateral trading system' (Article 3.2) and seeking prompt and positive solutions to 
disputes (Artic les 3.3 and 3.7).  It would also be welcome in light of the statement in 
Article 3.10 that 'all Members will engage  in [DSU] procedures in good faith in an 
effort to resolve the dispute'."
27   
                                                      
23 Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , paragraph 4.1. 
24 Brazil – Aircraft (Article 22.6 – Brazil) , paragraph 4.1.  Although both Canada – Aircraft Credits 
and Guarantees  and Brazil – Aircraft  primarily involved requests for "appropriate countermeasures" under the 
SCM Agreement, in both disputes the requests fo r countermeasures also cited DSU Article 22.2. 
25 EC – Bananas III (Ecuador) (Article 22.6 – EC) , paragraph 173. 
26 EC – Bananas III (US) (Article 22.6 – EC) , paragraph 8.1; EC – Hormones (US ) (Article 22.6 – EC) , 
paragraph 84; EC – Hormones (Canada) (Article 22.6 – EC) , paragraph 73. 
27 EC – Hormones (US) (Article 22.6 – EC),  footnote 16.  We note that the arbitrators in EC – Bananas 
III (Ecuador)  (Article 22.6 – EC) also quoted this statement.  EC – Bananas III (Ecuador) (Article 22.6 – EC) , 
footnote 12.  WT/DS136/ARB 
 Page 9 
 
 
C. THE "BLOCKING " REGULATION  
3.16 The United States raised certain arguments with respect to Council Regulation (EC) 
No. 2238/2003 of 15 December 2003, the so-called "blocking regulation".28  The Regulation provides 
in part that no judgment of a court in the United St ates "giving effect, directly or indirectly, to the 
Anti-Dumping Act of 1916 or to actions based there on or resulting therefrom, shall be recognised or 
be enforceable in any manner."  It states that natural or legal persons within the Community " shall be 
entitled to recover any outlays, costs, damages and miscellaneous expenses incurred by him or her as 
a result of the application of the Anti-Dumping Act of 1916 or by actions based thereon or resulting 
therefrom."  It also allows recovery from "the natu ral or legal person or any other entity that brought a 
claim under the Anti-Dumping Act of 1916 or from an y person or entity related to that person or 
entity."  Recovery may include "seizure and sale of assets held by the defendant." 
3.17 The United States argues that by adopting this Re gulation, "the EC appears to concede that 
litigation costs are not subject to concessions or obligations under the WTO" because "[o]therwise, 
the EC would have been required to receive author ization from the DSB before adopting the 'blocking 
legislation' since, under the European Communities' prior theory, the EC 'blocking legislation' would 
have required suspending EC conces sions or other obligations under the WTO."  The United States 
also argues that the Regulation "further confirms that  the level of nullification or impairment is zero", 
since "[i]f the level of nullification or impairment [w ere to be] greater than zero, then any authorized 
level of suspension would have…to be reduced by  the amount that the blocking legislation would 
reduce the nullification or impairment."29 
3.18 The European Communities argues that the Regulat ion is "irrelevant" for the purposes of the 
arbitration.  It states that "[t]he subject matter of  this arbitration proceeding is the EC request to 
receive authorization from the DSB to adopt a 'mirro r legislation' equivalent to the 1916 Act but not 
the 'blocking regulation'." 30  The European Communities asserts that "this regulation merely aims to 
'block' the effects of a WTO incompatible US legislation within  the European Community but it does 
not affect any WTO rights of the United States."31  Moreover, according to the European 
Communities, "the 'blocking regulation' does not re move the 1916 Act, which constitutes by its very 
existence the nullification and impairment and to  which the retaliation s hould be equivalent. The 
objective of this regulation is merely 'to block' enforcement of the 1916 Act within the European 
Community but it does not (and cannot) remove th e 1916 Act or prevent it from being applied or 
enforced within the US. Thus, the cause for the 'nullification and impairment' the European 
Communities is suffering because of the exis tence of the 1916 Act is still present." 32  
3.19 We agree with the European Communities that  Council Regulation (EC) No. 2238/2003 is not 
within our terms of reference.  As discussed below,  our terms of reference are defined by Article 22.7 
of the DSU, which requires us to determine whethe r the level of suspension of obligations sought by 
the European Communities, as define d in its request of 7 January 2002, is equivalent to the level of 
nullification or impairment sustained by the Europe an Communities as a result of the 1916 Act.  The 
Regulation is not referred to in the European  Communities' request, and we see no basis in 
Article 22.7 on which the arbitrators could assume jurisdiction to consider it.   
3.20 Similarly, we do not need to make a ruling on the United States' argument that "any 
authorized level of suspension would have to be reduced by the amount that the blocking legislation 
would reduce the nullification or impairment."  The European Communities must ensure that any 
                                                      
28 Council Regulation (EC) No. 2238 /2203 of 15 December 2003 (OJ L 333 of 20.12.2003, p. 1). 
29 Letter from the United States to th e Arbitrators, 5 January 2004, and Answers of the United States to 
the Arbitrator's Questions to the Parties , 20 November 2003, paragraph 29. 
30 Letter from the European Communities to the Arbitrators, 7 January 2004. 
31 Ibid.  Original emphasis. 
32 Ibid.  Original emphasis. WT/DS136/ARB 
Page 10  
 
suspension of obligations does not exceed the level of nullification.  If, in the future, the United States 
is of the view that the actual application of the blocking regulation results in a situation where the 
suspension of obligations exceeds the level of nullif ication or impairment, the United States may have 
recourse to the appropriate dispute settlement  procedures to address this issue.   
IV. ROLE AND JURISDICTION OF THE ARBITRATORS UNDER ARTICLE 22 OF 
THE DSU 
4.1 As indicated above, Article 22.2 enables comp laining parties to seek the suspension of 
concessions or other obligations where the resp onding party has failed to comply with the 
recommendations or rulings of the DSB by the end of the reasonable period of time.  This provision states that: 
"If the Member concerned fails to bring the measure found to be inconsistent with a 
covered agreement into compliance ther ewith or otherwise comply with the 
recommendations and rulings within the reasonable period of time determined 
pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable peri od of time, enter into negotiations with any 
party having invoked the dispute settlement procedures, with a view to developing 
mutually acceptable compensation.  If no sa tisfactory compensation has been agreed 
within 20 days after the date of expiry of the reasonable period of time, any party 
having invoked the dispute settlement proce dures may request authorization from the 
DSB to suspend the application to the Me mber concerned of concessions or other 
obligations under the covered agreements." 
4.2 The responding party, in turn, may assert its right to have the complainant's request referred to 
arbitration.  According to Article 22.6 of the DSU: 
"When the situation described in paragraph 2 occurs, the DSB, upon request, shall 
grant authorization to suspend concessions or other obligations within 30 days of the 
expiry of the reasonable period of time unl ess the DSB decides by consensus to reject 
the request.  However, if the Member con cerned objects to the level of suspension 
proposed…the matter shall be referred to arbitr ation. Such arbitration shall be carried 
out by the original panel, if members are available, or by an arbitrator appointed by the Director-General and shall be completed within 60 days after the date of expiry of the reasonable period of time.  Concessions  or other obligations shall not be 
suspended during the course of the arbitration."  [footnote omitted] 
4.3 Article 22.7 of the DSU sets out the jurisdiction of arbitrators appointed under DSU 
Article 22.6: 
"The arbitrator acting pursuant to paragraph 6 shall not examine the nature of the 
concessions or other obligations to be su spended but shall determine whether the 
level of such suspension is equivalent to th e level of nullification or impairment.  The 
arbitrator may also determine if the pr oposed suspension of concessions or other 
obligations is allowed under the covered agreement….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 prom ptly of the decision of the arbitrator and 
shall upon request, grant authorization to suspend concessions or other obligations 
where the request is consistent with th e decision of the arbitrator, unless the DSB 
decides by consensus to reject the request."  [footnote omitted]  WT/DS136/ARB 
 Page 11 
 
 
4.4 This notion of "equivalence" is also provi ded for in Article 22.4, which states that: 
"The level of the suspension of concessions or other obligations authorized by the 
DSB shall be equivalent to the level of the nullification or impairment." 
4.5 Thus, the mandate of the arbitrators is to determine whether the level of suspension of 
concessions or other obligations sought by the co mplaining party is equivalent to the level of 
nullification or impairment sustained by the comp laining party as a result of the failure of the 
responding party to bring its WTO-inconsistent measur es into compliance.  In doing so, the arbitrators 
are specifically enjoined from examining "the natu re of the concessions or other obligations to be 
suspended." 
4.6 If the Arbitrators determine that the level of suspension of concessions or other obligations 
sought by the complaining party is not equivalent to  the level of nullification or impairment, they are 
obligated to determine what level of suspension would be equivalent.  As stated by the arbitrators in 
EC – Hormones (US) (Article 22.6 – EC) : 
"There is … a difference between our task here  and the task given to a panel.  In the 
event we decide that the US proposal is not WTO consistent, i.e. that the suggested 
amount is too high, we should not end our ex amination the way panels do, namely by 
requesting the DSB to recommend that the measure be brought into conformity with WTO obligations.  Following the appr oach of the arbitrators in the Bananas case – 
where the proposed amount of US$ 520 million was reduced to US$ 191.4 million -- we would be called upon to go further.  In pursuit of the basic DSU objectives of prompt and positive settlement of disputes, we would have to estimate the level of 
suspension we consider to be equivalent to  the impairment suffered.  This is the 
essential task and responsibility conferred on the arbitrators in order to settle the dispute.  In our view, such approach is implicitly called for in Article 22.7… "
33 
4.7 Similarly, in EC – Bananas III (Ecuador)  (Article 22.6 – EC) , the arbitrators stated: 
"[W]e note that, if we were to find the proposed amount…not to be equivalent, we 
would have to estimate the level of suspensi on we consider to be equivalent to the 
nullification or impairment suffered by Ecua dor.  This approach is consistent with 
Article 22.7 of the DSU which emphasizes th e finality of the arbitrators' decision…. 
We recall that this approach was followe d in the US/EC arbitration proceeding in EC 
– Bananas III and the arbitration proceedings in EC – Hormones , where the 
arbitrators did not consider the proposed amount of suspension as equivalent to the 
nullification or impairment suffered and recal culated that amount in order to be able 
to render a final decision."34 
4.8 The law was summarized in a concise manner in Canada – Aircraft Credits and Guarantees 
(Article 22.6 – Canada) : 
"[W]e note that prior Arbitrators that have rejected proposed levels of 
countermeasures (or suspensions of concessions ) have always proceeded to set levels 
consistent with the relevant agreements."35 
                                                      
33 EC – Hormones (US) (Article 22.6 – EC) , paragraph 12.  Footnotes omitted. 
34 EC – Bananas (Ecuador)  (Article 22.6 – EC) , paragraphs 12-13. 
35 Decision by the Arbitrator, Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , 
paragraph 3.51, footnote omitted. WT/DS136/ARB 
Page 12  
 
4.9 Accordingly, if we determine that the leve l of suspension of obligations sought by the 
European Communities is not equivalent to the leve l of nullification or impairment sustained by the 
European Communities as a result of  the 1916 Act, we would be require d to determine what level of 
suspension would be equivalent.   
V. PARAMETERS FOR THE DETERMINATION OF THE LEVEL OF 
NULLIFICATION OR IMPAIRMENT  
A. 
GENERAL CONSIDERATIONS  
5.1 As indicated above, our mandate under Article 22.7 is to determine whether the level of 
suspension of obligations sought by the European  Communities is equivalent to the level of 
nullification or impairment sustained by the Europe an Communities as a result of the 1916 Act.  In 
this section, therefore, the Arbitrators will examine: 
• certain general considerations applicable  to the determination of the level of 
nullification or impairment; 
 
• the concept of "equivalence" under DSU Article 22; 
 
• the "level" of suspension of obligations re quested by the European Communities;  and 
 
• the "level" of nullification or impairment sustained by the European Communities as 
a result of the 1916 Act. 
 5.2 We begin by noting that Article 22.1 of the DSU provides in part that: 
"Compensation and the suspension of concessi ons or other obligations are temporary 
measures available in the event that the recommendations and rulings are not 
implemented within a reasonable period of time.  However, neither compensation nor 
the suspension of concessions or other obliga tions is preferred to full implementation 
of a recommendation to bring a measure into conformity with the covered agreements."   
5.3 The European Communities stressed that "the basic purpose of the suspension of concessions 
or other obligations is to induce compliance of  the other Member with its WTO obligations".
36  The 
United States suggested other possible purposes, such  as "to restore the balance of benefits under the 
covered agreements between the parties to the dispute."37  It added that:  "[t]he United States does not 
believe it would be appropriate for it (or the Arbitrat or) to attempt to provide a comprehensive list of 
the purposes behind the suspension of concessions, or to rank these purposes in some sort of order of 
priority."38 
                                                      
36 Written Submission of the European Communities , 3 November 2003, paragraph 6. 
37 According to the United States, "[s]uch a purpose would confirm that there should be no suspension 
authorized if the complaining party is not suffering nullification or impairment.  Otherwise the complaining 
party would enjoy a greater level of benefits than it had negotiated under the covered agreements."  The United 
States is also of the view that "[w]hatever the purposes for the suspension of concessions or other obligations, 
the standard under Article 22.7 is equivalence."  Answers of the United States to the Arbitrator's Questions to 
the Parties , 20 November 2003, paragraph 33 and footnote 15. 
38 Answers of the United States to the Arbitrator's Questions to the Parties , 20 November 2003, 
paragraph 68.  WT/DS136/ARB 
 Page 13 
 
 
5.4 The Arbitrators are not called upon to "provide a comprehensive list of the purposes" of the 
suspension of concessions or other obligations, or to "rank these purposes in some sort of order of 
priority".  Moreover, we agree that it w ould not be appropriate for us to do so. 
5.5 However, in our view, a key objective of th e suspension of concessi ons or obligations – 
whatever other purposes may exist – is to seek to induce compliance by the other WTO Member with 
its WTO obligations.  As noted by the arbitrators in EC – Bananas III (US) (Article 22.6 – EC) : 
"[T]he authorization to suspend concessions  or other obligations is a temporary 
measure pending full implementation by the Member concerned.  We agree with the 
United States that this temporary nature indicates that it is the purpose of 
countermeasures to induce compliance .  But this purpose does not mean that the DSB 
should grant authorization to suspend concessions beyond what is equivalent to the 
level of nullification or impairment.  In our  view, there is nothing in Article 22.1 of 
the DSU, let alone in paragraphs 4 and 7 of Article 22, that could be read as a 
justification for counter-measures of a punitive  nature."39 
5.6 Similarly, the arbitrators in EC – Bananas (Ecuador) (Article 22.6 – EC)  observed that "the 
object and purpose of Article 22 … is to induce compliance".40 
5.7 We agree that a fundamental objective of th e suspension of obligations is to induce 
compliance.  The fact that such su spension is meant to be temporary – as indicated in Article 22.1 – is 
further evidence of this purpose.  As stated by the arbitrator in Canada – Aircraft Credits and 
Guarantees (Article 22.6 – Canada) :  "Article 22.1 of the DSU is particularly clear as to the 
temporary nature of suspensions of concessions  or other obligations, pending compliance."41 
5.8 We also agree with the critically important point that the concept of "equivalence", as 
embodied in Article 22.4, means that obligations cannot be suspended in a punitive manner.  This 
means that in suspending certain obligations owed to the United States under the GATT and the 
Anti-Dumping Agreement, the European Communiti es cannot exceed the level of nullification or 
impairment sustained by the European Communities as a result of the 1916 Act.  We consider this 
further below. 
B. QUALITATIVE OR QUANTITATIVE "EQUIVALENCE " 
1. Arguments of the parties 
5.9 The United States and the European Commun ities differ over the interpretation of the 
concepts of "equivalence" and "level" in Articles 22.4 and 22.7 of the DSU. 
5.10 In the view of the European Communities, Article 22.4 of the DSU does not impose any 
obligation to specify a quantitative level of nullifi cation and impairment.  The notion of "level" has 
not only a quantitative, but also a qualitative, mean ing.  The European Commu nities argues that it is 
not necessary to define a certain quantitative level: 
                                                      
39 EC – Bananas III (US) (Article 22.6 – EC) , paragraph 6.3. 
40 EC – Bananas III (Ecuador) (Article 22.6 – EC) , paragraph 76. 
41 Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , paragraph 3.105.  The arbitrator 
in that case also stated that:  "[u]nder Article 22.1 of the DSU and Article 4.10 of the SCM Agreement, non-
compliance is the very event justifying the adoption of c ountermeasures."   Moreover, they noted that:  "…the 
EC – Bananas  Arbitrators, referring to [DSU Article 22.1], expressed the view that suspension of concessions or 
other obligations was intended to induce compliance because it was temporary."  Ibid . WT/DS136/ARB 
Page 14  
 
"Article 22.4 of the DSU merely prescribes that the level on one side should not exceed the level of the other side. Thus, if both "levels" are defined in the same vein, i.e. in qualitative terms, Article 22.4 of the DSU is, in principle, fully respected."
 42 
5.11 Moreover, according to the European Commun ities, "[a]lthough it may be possible to add a 
quantitative limit to the effects of a qualitative m easure…in this case, there is no quantitative limit to 
the application of the 1916 Act and so it is not necessary to apply a quantitative limit to the 
application of the mirror legislation."43  
5.12 According to the European Communities, if Arti cle 22.4 of the DSU had been restricted to a 
quantitative level, the drafters of the DSU would have used the word 'amount'.  The European 
Communities also stresses that "a qualitative interpreta tion of the notion of "level" is fully consistent 
with the objective and purpose of retaliatory measu res, namely to induce compliance with the WTO 
obligations by the other Member." 
5.13 According to the United States, the "fundame ntal flaw" in the European Communities' 
proposal is that it "assumes that some rough simila rity between measures creates a presumption that 
the level of suspension of concessions or other obligati ons is equivalent to the level of nullification or 
impairment of benefits".  In the view of the Un ited States, there is no basis for such a presumption, 
and there is no such equivalence.   
5.14 The United States objects that "the EC's proposal sets no limit on the EC's ability to affect US 
trade" because "[i]f the DSB were to authorize th e EC to adopt the measure it describes as resembling 
the 1916 Act, the EC would be free to apply that me asure in any number of cases involving an almost 
unlimited amount of US exports to the EC.  Any num ber of US companies could be forced to pay 
treble damages–even though no company has ever been  asked to pay a treble damage award under the 
1916 Act in its entire 87-year history."44   
5.15 Thus, in the view of the United States, the European Communities' argument on qualitative 
equivalence "misses the point."  The United States argues that: 
"What matters under Articles 22.4 and 22.7 is  the overall trade effect of the 1916 Act 
and the EC's proposed measure.  The EC h as not identified its suspension in a way 
that sets a 'level' and in a way that allows the Arbitrator to determine whether the EC's 
proposal will have an equivalent trade eff ect to the 1916 Act.  This determination 
necessarily involves a quantitative analysis, as the terms 'level' and 'equivalent' make 
clear."45 
5.16 With respect to the level of nullification or  impairment, the United States argues that 
arbitrators in prior Article 22.6 proceedings have estimated the "trade impairment" or economic harm 
to the complaining party due to the failure to bring a WTO-inconsistent measure into compliance 
during the "reasonable period of time."  It adds that  arbitrators in past proceedings "have uniformly 
recognized that this economic harm is "quantifiable" (as the term "level" makes clear)."  Moreover, 
according to the United States, previous arbitrat ors have based their determinations on "hard 
evidence" and have "refused to engage in unfou nded speculation about "what might have been," had 
the inconsistent measure been brought into c onformity within a reasonable period of time." 
                                                      
42 Written Submission of the European Communities , 3 November 2003, paragraphs 3, 17-18. 
43 Ibid., paragraph 18. 
44 On 3 December 2003, subsequent to this US subm ission, the United States District Court for the 
Northern District of Iowa issued a damage award agains t a Japanese company under the 1916 Act.  This was the 
first such award under the 1916 Act.  This is discussed below.   
45 Oral Statement of the United States , 13 November 2003, paragraph 6.  WT/DS136/ARB 
 Page 15 
 
 
2. Evaluation by the Arbitrators 
5.17 We recall that this the first case in wh ich a WTO Member has sought to suspend 
"qualitatively equivalent" ob ligations.  In all previous cases, pa rties seeking to suspend concessions or 
other obligations have provided a quantitative, m onetary figure indicating the amount of suspension 
sought.  Indeed, the European Communities indicated  that it was "aware that its request for 
suspension of 'qualitatively equivalent' obliga tions constitutes a novelty in WTO practice." 
5.18 We note that prior arbitrations have found th at "equivalent" had to be determined in 
quantitative terms.  Thus, for example, the arbitrators in EC – Hormones (US) (Article 22.6 – EC)  and 
EC – Hormones (Canada) (Article 22.6 – EC)  stated that: 
"What we do have to determine…is whethe r the overall proposed level of suspension 
is equivalent  to the level of nullification a nd impairment.  This involves a  
quantitative  - not a qualitative - assessment of the proposed suspension.  As noted by 
the arbitrators in the Bananas case, '[i]t is impossible to ensure correspondence or 
identity between two levels if one of the tw o is not clearly defined'.  Therefore, as a 
prerequisite for ensuring equivalence between the two levels, we have to be able to 
determine, not only the "level of the nullification and impairment", but also the 'level 
of the suspension of concessions or other obliga tions'.  To give effect to the obligation 
of equivalence in Article 22.4, the Member  requesting suspension thus has to identify 
the level of suspension of concessions it proposes in a way that allows us to 
determine equivalence."46 
5.19 Similarly, the arbitrators in US – FSC (Article 22.6 – US)  noted that: 
"The drafters [of Article 22.4] have e xplicitly set a quantitative benchmark to the 
level of suspension of concessions or other ob ligations that might be authorized.  This 
is similarly reflected in Article 22.7, whic h defines the arbitrators' mandate in such 
proceedings … . 
As we have already noted in our analysis of the text of Article 4.10 of the SCM 
Agreement  above, there is, by contrast, no such  indication of an explicit quantitative 
benchmark in that provision … ."47 
5.20 In cases such as EC – Hormones (US) (Article 22.6 – EC) , EC – Hormones (Canada) 
(Article 22.6 – EC)  and US – FSC (Article 22.6 – US) , where the requested suspension was expressed 
in quantitative terms, the arbitrators necessarily  had to assess whether there was "quantitative 
equivalence" between the level of the nullification or impairment and the level of the suspension of 
concessions or other obligations.   
5.21 In the present case, by contrast, the requested suspension has not been stated in quantitative 
terms.  However, this does not in and of itself rend er the EC request inconsistent with Article 22.  
Indeed, it is not possible to determine the WT O-consistency of a "qualitatively equivalent" 
Article 22.2 request in the abstract .  Instead, it is necessary to determine how the actual suspension 
resulting from such "qualitative equivalence" would be applied .  More specifically: 
• If the suspension of obligations were applied in  such a manner that it were equal to or 
below the level of nullification or impairment sustained by the European 
                                                      
46 EC – Hormones (US) (Article 22.6 – EC) , paragraph 20, original emphasis; and  EC – Hormones 
(Canada) (Article 22.6 – EC) , paragraph 20, original emphasis. 
47 Decision by the Arbitrator, US – FSC (Article 22.6 – US), paragraphs 5.46-5.47.  WT/DS136/ARB 
Page 16  
 
Communities, then the suspension would, in  principle, be consistent with DSU 
Article 22.4.
48 
 
• If the suspension of obligations were applie d in such a manner that it exceeded the 
level of nullification or impairment sustai ned by the European Communities, then the 
suspension would be punitive, and would not be consistent with DSU Article 22.4. 
 5.22 As indicated above, any suspension of obligations in excess of the level of nullification or 
impairment would be punitive.  We recall that both parties to this dispute accept the proposition, with 
which we fully agree, that punitive sanctions are prohibited by Article 22.4.
49   
5.23 In the present case, in order to determine whet her the qualitative suspension could be applied 
in such a manner that the level of suspension coul d exceed the level of nullification or impairment, it 
is necessary to determine the trade or economic  effects on the European Communities of the 1916 
Act.  Once this has been determined, the Eur opean Communities could implement its suspension up 
to, but not beyond, this amount.  This necessitates a determination of the trade or economic effects of 
the 1916 Act on the European Communities in numerical or monetary terms, which is the only way in 
which the arbitrators can determine "e quivalence" in the present context. 
5.24 This is consistent with the approach of previous arbitrations.  For example, in EC – Hormones 
(Canada) (Article 22.6 – EC) , the arbitrators stated that: 
"[O]ur task of estimating nullification and impairment is very different from that of a 
panel examining the WTO conformity of certain measures.  Once a panel has found a WTO inconsistency, it can presume  – pursuant to Article 3.8 of the DSU – that the 
inconsistency has caused nullification and im pairment.  On that ground the panel can 
give redress to the winning party under Article XXIII of GATT 1994 or 
corresponding provisions in other WTO agreements.  What normally counts for a panel is competitive opportunities and breaches of WTO rules,  not actual trade flows.  A panel does not normally need to furthe r assess the nullification and impairment 
caused;  it can presume its existence.  We, in contrast, have to go one step 
further….What we have to do is to estim ate the nullification and impairment caused 
by it (and presumed to exist pursuant to Article 3.8 of the DSU).  To do so in the present case, we have to focus on trade flow s.  We must estimate trade foregone due 
to the ban's continuing existence beyond [t he expiration of the reasonable period of 
time on] 13 May 1999."
50 
                                                      
48 We recall that we asked the United States if "reci procal or 'mirror' retaliation – suspension of the 
same obligations which have been breached by the Member which is the object of the retaliation – is in principle permissible under the DSU provided that the level of suspension is equivalent to the level of nullification or 
impairment."  The United States indicated in its reply that it "agrees that the suspension of the same obligations 
is, in principle, permissible under the DSU provided that the level
 of suspension is equivalent to the level of 
nullification or impairment."  Answers of the United States to the Arbitrator's Questions to the Parties , 
20 November 2003, paragraph 38.  Original emphasis. 
49 The European Communities agrees that obligations cannot be suspended in a punitive manner: 
 
"[O]ne could very well imagine that the best means to induce compliance would be to provide for punitive sanctions. However, the DSU does not allow for such a possibility. Instead, it explicitly limits 
the level of suspension of concessions or other obligations to the level of nullification, Article 22.4 of 
the DSU."  
Oral Statement of the European Communities , 13 November 2003, paragraph 14. 
50 EC – Hormones (Canada) (Article 22.6 – EC) , paragraph 41.  Footnotes omitted.  WT/DS136/ARB 
 Page 17 
 
 
5.25 The arbitrators in EC – Hormones (Canada) (Article 22.6 – EC) also stated that the "total 
trade value" could not "exceed the amount of trade impairment we find."51   
5.26 A similar approach was adopted by the arbitrators in US – Section 110(5) of the US Copyright 
Act (Article 25.3) .52  This was an arbitration established unde r Article 25 of the DSU to determine the 
level of nullification or impairment of benefits  to the European Communities as a result of the 
operation of certain US legislation on copyright.  Th e arbitrators stated they agreed with the parties 
that: 
"[F]or purposes of these arbitration proceedings , the relevant benefits are those which 
are economic in nature.  This  is consistent with previous decisions of arbitrators 
acting under Article 22.6 of the DSU."53  
5.27 The US – Section 110(5) of the US Copyright Act (Article 25.3) arbitrators also observed that 
the object of the proceeding was to "quantify the economic harm suffered by the European 
Communities" as a consequence of the continued application of the US legislation.54      
5.28 In the Brazil – Aircraft (Article 22.6 – Brazil)  case, as noted above, the arbitrators authorized 
both the suspension of tariff concessions and the su spension of  "obligations" – including obligations 
under the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures.  
The arbitrators, after determining an overall qua ntitative limit for the countermeasures, added that: 
"[T]he Arbitrators urge Canada to make su re that, if it decides to proceed with the 
suspension of certain of its obligations vis-à-vis  Brazil…other than the 100 per cent 
surtax, this will be done in such a way that the maximum amount of countermeasures…will be respected."
55  
5.29 In this regard, we note that the EC request pl aces no quantifiable or monetary limits on how 
its suspension could be applied in practice.  It c ould apply to an unlimited amount of US exports to 
the European Communities.   
                                                      
51 Ibid., paragraph 21. 
52 Award of the Arbitrators, US – Section 110(5) Copyright Act (Article 25.3) . 
53 Ibid., paragraph 3.18. 
54 Ibid ., footnote 38.  The arbitrators also provided examples of prior decisions in which the 
determination of benefits was calculated in economic terms: 
 
"See, e.g., the Decisions of the Arbitrators on EC – Bananas III (22.6) (US) , supra , para. 6.12 (benefits 
nullified or impaired: losses in US exports of goods and losses by US service suppliers in services supply); 
European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to 
Arbitration by the European Commun ities under Article 22.6 of the DSU , WT/DS27/ARB/ECU, 
24 March 2000, footnote 52 (benefits nullified or impair ed: losses by Ecuador of actual trade and of potential 
trade opportunities in bananas and the loss of actual and potential distribution service supply); 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 (hereafter " EC - 
Hormones (22.6) (US) "), WT/DS26/ARB, 12 July 1999, para. 41 (b enefits nullified or impaired: foregone US 
exports of hormone-treated beef and beef products); 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 (hereafter " EC - Hormones (22.6) (Canada) "), WT/DS48/ARB, 
12 July 1999, para. 40 (benefits nullified or impaired: foregone Canadian exports of hormone-treated beef and 
beef products)." 
 Ibid., footnote 39.   
 
55 Brazil – Aircraft (Article 22.6 – Brazil) , paragraph 4.2. WT/DS136/ARB 
Page 18  
 
5.30 We agree with the United States that even wh en identical measures are applied in similar 
ways, the effects on trade can be dramatically  different.  The following hypothetical example 
illustrates this point: 
• Member X exports $10 billion dollars wort h of goods to Member Y.  Member Y 
decides to impose a 10% ad valorem  tax on all imported goods from Member X.  The 
total economic or trade impact of such a me asure (assuming that exports continued as 
before, and the tax was pa id) would be $1 billion. 
 
• Member Y's 10% ad  valorem  tax is found to be WTO-inconsistent.  Following the 
expiration of the reasonable period of time, Member X seeks to adopt a "qualitatively equivalent" measure by imposing a 10% ad valorem  tax on all imports from 
Member Y. 
 
• Member Y exports $100 billion dollars wort h of goods to Member X.  The total 
economic or trade impact of this " qualitatively equivalent" measure, the 10% 
ad valorem  tax on all imported goods from Me mber Y, would be $10 billion. 
 5.31 Other examples, drawn from other WTO agreemen ts, could illustrate the same conclusion.  
More to the point, however, is to consider how the proposed EC suspension in the present case could 
apply to US exports to the European Communities.  Whatever the level of nullification or impairment 
– an issue we return to below – th e EC suspension, once applied, must remain capped at or below that 
level.    
5.32 We also do not accept the EC argument that the suspension of obligations is somehow 
"equivalent" because its proposed measure would replicate, or partially replicate, the 1916 Act.  
Leaving aside for the moment the issue of whethe r we can examine the EC measure, we would re-
iterate that similar or even identical measures can ha ve dissimilar trade effects.  Stated another way, 
similar or identical measures may not result in the required equivalence between the level of 
suspension and the level of nullification or impairment. 
5.33 The European Communities argues that "the potentia l impact of the EC legislation would, in 
any case, be more limited than the 1916 Act", in part  because, historically, th ere have been few cases 
of anti-dumping measures imposed on US products.
56   However, the Arbitrators cannot simply 
assume , on the basis of historical patterns of trade or other factors, that the EC suspension will always 
have "similar, or in fact less burdens ome economic effects than the 1916 Act."57 
5.34 Given the potentially unlimited application of th e EC suspension, as described in its request, 
it is possible that the EC suspension could exceed th e level of nullification or impairment when it is 
applied, and thereby become punitive.  The EC re quest does not ensure that the suspension will be 
limited to the level of nullification it has sustai ned, as expressed in quantifiable economic or trade 
terms.   
5.35 We therefore find that the United States has met its initial burden of establishing a prima facie 
case or presumption that the level of suspensi on proposed by the European Communities is not  
equivalent to the level of nu llification and impairment.    
5.36 We now turn to the two other components of Article 22.7 and 22.4, namely the "level of 
suspension of obligations" proposed by the European  Communities, and the "level of nullification or 
impairment" sustained by the European Communities.  
                                                      
56 Written Submission of the European Communities , 3 November 2003, paragraph 59. 
57 Ibid., paragraph 60.  WT/DS136/ARB 
 Page 19 
 
 
C. THE EUROPEAN COMMUNITIES REQUEST AND THE "NATURE " OF THE OBLIGATIONS TO BE 
SUSPENDED  
1. Arguments of the parties 
5.37 As noted above, Article 22.7 of the DSU provides in part that the arbitrators "shall not 
examine the nature of the concessions or other obligations to be suspended."   
5.38 The United States argues that the European Comm unities is asking the Arbitrators to examine 
the nature of the obligations to be suspended.  In  the view of the United States, "Article 22.7 mandates 
arbitrators to determine equivalence between the le vel of suspension and the level of nullification or 
impairment, not equivalence between the measure th at will implement the suspension and the measure 
that resulted in the nullification or impairment.  I ndeed, the first sentence of Article 22.7 appears to 
prohibit even the examination of the measure for implementing the proposed suspension of 
concessions or other obligations." 58 
5.39 The European Communities does not agree that it is asking the Arbitrators to examine the 
"nature" of the obligations to be suspended.  Ac cording to the European Communities, the Arbitrators 
not only can examine the proposed "mirror" regul ation, they can even "attach conditions" to it. 59 
2. Evaluation by the Arbitrators 
5.40 In our view, we are not permitted by Article 22.7 to examine the European Communities' 
proposed "mirror" regulation, let alone "attach conditi ons" to it.  This would involve the arbitrators in 
an examination of the "nature" of the obligations to  be suspended.  As noted by the arbitrators in EC – 
Hormones (US) (Article 22.6 – EC)  and EC – Hormones (Canada) (Article 22.6 – EC) : 
"Arbitrators are explicitly prohibited from 'examin[ing] the nature  of the concessions 
or other obligations to be suspended' (oth er than under Articles 22.3 and 22.5).   
On these grounds, we cannot require that th e US further specify the nature of the 
proposed suspension.  As agreed by all pa rties involved in this dispute, in case a 
proposal for suspension were to target, for example, only biscuits with a 100 per cent 
tariff ad valorem , it would not be for the arbitrators to decide that, for example, 
cheese and not biscuits should be targeted; that a 150 per cent tariff should be 
imposed instead of a 100 per cent tariff; or that tariff increases should be levied on a product weight basis, not  ad valorem .  All of these are qualitative  aspects of the 
                                                     
 
58 Answers of the United States to the Arbitrator's Questions to the Parties , 20 November 2003, 
paragraph 62. 
59 In a reply to a question by the Arbitrators, the European Communities stated that: 
 "[the] arbitrators may att ach conditions that th ey consider necessary in order to ensure the equivalence 
between the two relevant levels. For instance, if th e European Communities had the intention to adopt a 
mirror legislation whereby treble special duties coul d be imposed without showing a specific intent of 
destroying the EC industry etc. the arbitrators could ask the European Communities to insert this 
condition in order to ensure equivalence. Similarl y, if the European Communities would provide for 
the imposition [of] special duties of ten times the da mage suffered by the EC company or companies 
the arbitrators could decide that the equivalent level permits only the imposition of special duties of 
three times the damage suffered (analogous to the treble damages awar d of the 1916 Act)." 
 
Answers of the European Communities to the Questions of the Arbitrator,  20 November 2003, 
paragraph 25. WT/DS136/ARB 
Page 20  
 
proposed suspension touching upon the "nature" of concessions to be withdrawn.  They fall outside the arbitrators' jurisdiction."
60    
5.41 Thus, the arbitrators in EC – Hormones (US) (Article 22.6 – EC)  and EC – Hormones 
(Canada) (Article 22.6 – EC)  determined that tariff concessions that targeted "cheese and not 
biscuits", the extent of the proposed tariff increase, or the modalities of the suspension all related to 
the "nature" of the concessions to be withdrawn,  and could not be examined.  In our view, an 
examination of the European Communities' proposed "mirror" regulation would require a significantly 
more activist role than the one  refused by the arbitrators in EC – Hormones (US) (Article 22.6 – EC)  
and EC – Hormones (Canada) (Article 22.6 – EC) .   
5.42 Thus, we are of the view that the European  Communities' proposal to adopt a "mirror" 
regulation relates to the nature of the obligations to  be suspended.  We agree with the United States 
that we do not have the jurisdiction to determine equivalence between the measure  proposed to 
implement the suspension and the measure  that resulted in the nullification or impairment.  DSU 
Article 22.6 and 22.7 authorize the suspension of concessions or other obligations .  The arbitrators do 
not have the jurisdiction to approve the adoption of measures  by the complaining party.  
5.43 At this stage, therefore, we simply take  note, as a factual matter, of the European 
Communities' statements that it intends to impl ement any authorized suspension of obligations 
through a proposed "mirror" regulation.  However,  in accordance with the clear limitations on our 
mandate under Article 22.7, we decline to examine such a regulation. 
5.44 Although we are not able to examine the measu res proposed to implement any authorized 
suspension of obligations, we must, of course, make  a determination as to whether the suspension of 
obligations proposed by the by the European Communiti es is equivalent to the level of nullification or 
impairment.  We therefore now turn to the other si de of the ledger:  the nullification or impairment 
sustained by the European Communities as a result of the 1916 Act. 
D. THE LEVEL OF NULLIFICATION OR IMPAIRMENT  SUSTAINED BY THE EUROPEAN COMMUNITIES  
1. Arguments of the parties 
5.45 The United States argues that the level of nullification or impairment sustained by the 
European Communities as a result of the 1916 Act is  "zero."  In the view of the United States: 
"The failure to bring the 1916 Act into conf ormity at the end of the reasonable period 
of time has not nullified or impaired any benefits to the EC under the GATT or AD 
Agreement.  The starting point is the situation as it existed at the end of the reasonable period of time, when this ar bitration was initiated and its terms of 
reference fixed.  No order was in place ag ainst EC products and no EC trade was 
being affected.  Had the 1916 Act been brought  into compliance as of that date, it 
would not have resulted in any increased trad e for the EC.  Accordingly, the level of 
nullification or impairment being suffered by the EC was zero."
 61   
5.46 The European Communities "rej ect[s] the unsupported US' claim that th e nullification and 
impairment is zero": 
"The European Communities would recall the Panel findings in US – 1916 Act (EC)  
whereby  
                                                      
60 EC – Hormones (US) (Article 22.6 – EC) , paragraphs 18-19, original emphasis;  EC – Hormones 
(Canada) (Article 22.6 – EC), paragraphs 18-19, original emphasis. 
61 Written Submission of the United States , 20 October 2003, paragraph 27.  WT/DS136/ARB 
 Page 21 
 
 
(…) as the United States has adduced no evidence to the contrary, we 
conclude that the 1916 Act nullifies and impairs benefits accruing to the European Communities under the WTO Agreement.  
The US allegations that the European Communities has suffered no nullification or 
impairment are thus squarely  in contradiction to the Panel's conclusions as confirmed 
by the Appellate Body. Instead of reargui ng the 1916 Act Panel and Appellate Body 
proceedings, the European Communities would recommend the United States to respect Article 17.14 of the DSU, whereb y "an Appellate Body report shall be 
adopted by the DSB and unconditionally accepted  by the parties to the dispute (…)" 
(emphasis added).
 62   
5.47 The European Communities argues that the level of nullification or impairment has to be 
determined in relation to the direct or indirect be nefits of a Member under the relevant Agreement.  
Consequently, the European Communities submits th at the nullification or impairment is to be 
understood "in a broad sense, and it is by no means limited to lost trade or exports to the United 
States."  In the present case, th e European Communities considers that "the existence of 1916 Act 
itself constitutes the relevant nullification and im pairment. As a result of the 1916 Act, European 
companies have suffered and are suffering financ ial losses and they have to face its broader 
implications, i.e. the deterrent effect of the 1916 Act." 
2. Evaluation by the Arbitrators 
(a) The presumption of nullification 
5.48 We do not accept the position of the United States that the level of nullification or impairment 
in this case is "zero."  As noted by the European  Communities, the original Panel in this dispute 
found, and the Appellate Body confirmed, that "t he 1916 Act nullifies and impairs benefits accruing 
to the European Communities."  Therefore, while the level of nullification or impairment has not been 
specified in quantitative terms in the EC request un der Article 22.2, it clearly is not, and cannot be, 
"zero."  In our view, this US position cannot be sust ained in light of the adopted Panel and Appellate 
Body findings. 
5.49 In support of its argument, the United States quotes the decision of the arbitrators in EC – 
Bananas III (US) (Article 22.6 – EC) : 
"The presumption  of nullification or impairment in the case of an infringement of a 
GATT provision as set forth by Article 3.8 of the DSU cannot in and of itself be taken simultaneously as evidence  proving a particular level of nullification or 
impairment allegedly suffered by a Memb er requesting authorization to suspend 
concessions under Article 22 of the DSU at a much later stage of the WTO dispute settlement system.  The review of the le vel of nullification or impairment by 
Arbitrators from the objective benchmark foreseen by Article 22 of the DSU is a separate process that is independent from the finding of infringements of WTO rules 
by a panel or the Appellate Body….Howe ver, a Member's legal interest in 
compliance by other Members does not, in our view, automatically imply that it is entitled to obtain authorization to su spend concessions under Article 22 of the 
DSU."
63 
                                                      
62 Written Submission of the European Communities , 3 November 2003, paragraphs 14-15. 
63 EC – Bananas III (US) (Article 22.6 – EC) , paragraph 6.10, quoted in the Written Submission of the 
United States , 20 October 2003, paragraph 27. WT/DS136/ARB 
Page 22  
 
5.50 We agree with the arbitrators in EC – Bananas III (US) (Article 22.6 – EC)  that the 
presumption  of nullification or impairment, as provide d in Article 3.8 of the DSU, by no means 
provides evidence of the level  of nullification or impairment sustained by the Member requesting 
authorization to suspend obligations.  However, th e fact that the presumption does not automatically 
translate to a given level does not mean that the level is "zero."  The original Panel determined that the 
1916 Act "nullifies and impairs benefits accruing to the European Communities."  In light of this 
conclusion, the level must be something greater th an "zero", and it is a contradiction in terms to 
suggest otherwise. 
5.51 We now proceed to examine the parameters for de termining the actual level of nullification or 
impairment sustained by the Europ ean Communities in the present case.   
(b) EC position on existence of 1916 Act constitu ting the nullification and impairment   
5.52 The European Communities emphasized in its subm issions that "the existence of the 1916 Act 
as such constitutes the relevant nullification and impairment".  Therefore, in the European 
Communities' view, the "concrete financial damage of the affected companies as well as the deterrent 
effect of the 1916 Act are merely the economic consequences of the 1916 Act".
64   
5.53 Nevertheless, as noted above, any suspension proposed by the European Communities cannot 
be applied in a manner that would exceed the leve l of nullification or impairment.  In order to 
ascertain under what circumstances this might occur – or, to put it differently, in order to determine a 
level of suspension that would not be punitive – the arbitrators consider it n ecessary to consider what 
could legitimately be considered to  constitute nullification or impairment of benefits to the European 
Communities in the present case. 
(c) Calculating nullification or im pairment:  using "reasoned estim ates" and avoiding speculation 
5.54 In determining the level of nullification or  impairment sustained by the European 
Communities as a result of the 1916 Act, we need to rely, as much as possible, on credible, factual, 
and verifiable information.  We cannot base any such estimates on speculation.  As noted by the 
arbitrators in EC – Hormones (US) (Article 22.6 – EC) :   
"The question we thus have to answer he re is:  what would annual prospective US 
exports of hormone-treated beef and beef products to the EC be if the EC had withdrawn the ban on 13 May 1999?  An answer to this question, like any question about future events, can only be a reasoned estimate.  It is necessarily based on certain assumptions.  In making those estimates and assumptions, we need to guard 
against claims of lost opportunities where the causal link with the inconsistent 
hormone ban is less than apparent, i.e. where exports are allegedly foregone not 
because of the ban but due to other circumstances ."
65 
                                                      
64 Answers of the European Communities to the Questions of the Arbitrator , 20 November 2003, 
paragraph 16. 
65 EC – Hormones (US) (Article 22.6 – EC) , paragraph 41.  Emphasis added.  In support of this 
position, the EC – Hormones (US) (Article 22.6 – EC) arbitrators quoted from EC – Bananas III (US) 
(Article 22.6 – EC) :    
 "We are of the view that the benchmark for the calcu lation of nullification or impairment of US trade 
flows should be losses in US exports of goods to the European Communities and losses by US service suppliers 
in services supply in or to the European Communities .  However, we are of the opinion that losses of US exports 
in goods or services between the US and third countries do not constitute nullification or impairment of even 
indirect  benefits accruing to the US under the GATT or the GATS for which the European Communities could 
face suspension of concessions."  WT/DS136/ARB 
 Page 23 
 
 
5.55 Applying this approach, the EC – Hormones (US) (Article 22.6 – EC)  arbitrators rejected US 
claims for certain lost exports as "too remote" and "too speculative".66 
5.56 A similar approach was taken by the arbitrator in Canada – Aircraft Credits and Guarantees 
(Article 22.6 – Canada) .  In that case, Canada argued that a cer tain airline had a "revealed margin of 
preference" for a Canadian regional aircraft manufacturer.  The arbitrator dismissed this argument in 
part because "[w]hile such a preference may have existed, Canada has not meaningfully quantified 
it … ."67 
5.57 We are of the view that this prudent approach taken by earlier arbitrators is appropriate.  We 
therefore proceed to consider the level of nullif ication or impairment in the present case, while 
avoiding claims that are "too remote", "too speculative", or "not meaningfully quantified." 
(d) Final judgements under the 1916 Act   
5.58 In our view, any final judgments entered agains t EC companies or their subsidiaries under the 
1916 Act would constitute nullification or impair ment of benefits accruing to the European 
Communities, up to the cumulative dollar or monetary value of the final judgements.  In our view, it 
would be appropriate to include only "final" judgements, i.e. the amounts payable either after the 
appeals have been completed, or the appeal periods have expired.   Moreover, all such decisions are 
made public, and therefore the amounts of the judgments are readily verifiable. 
5.59 In a case involving multiple claims – i.e., a judgment award that includes both 1916 Act 
claims and non-1916 Act claims – the amount incl uded by the European Communities in calculating 
its level of nullification or impa irment would need to be limited  to the 1916 Act claims alone. 
5.60 Judgments under the 1916 Act are awarded pursuan t to WTO-inconsistent legislation, and 
clearly nullify or impair benefits accruing to  the European Communities under the GATT 1994 and 
the Anti-Dumping Agreement.  The cumulative dolla r or monetary value of judgments under the Act 
therefore could, in principle, be included in an y cumulative calculation by the European Communities 
of the overall level of the nullification or impairment that it has sustained.   
(e) Settlements under the 1916 Act   
5.61 In our view, any settlement awards entered into  by EC companies or their subsidiaries under 
the 1916 Act would equally constitute nullification or impairment of benefits accruing to the 
European Communities, up to the cumulative dollar or monetary value of the settlements.  Once 
again, such settlements result from WTO-inconsistent legislation, and therefore nullify or impair 
benefits accruing to the European Communities.  In  our view, whether the amounts are payable by EC 
entities pursuant to court orders under the 1916 Act, or settlements under the Act, the legal effect is 
the same in terms of the nullification or impa irment of benefits accruing to the European 
Communities.   
5.62 In a settlement involving multiple claims – i.e ., a settlement of a lawsuit that includes both 
1916 Act claims and non-1916 Act claims – the amount included by the European Communities in calculating its level of nullification or impairment would need to be limited to the 1916 Act claims 
alone. 
5.63 As noted above, in calculating the level of nullif ication or impairment, it is necessary to rely 
only on credible, verifiable information, and not on speculation.  In the context of settlements under 
                                                                                                                                                                    
 
EC – Bananas III (US) (Article 22.6 – EC) , paragraph 6.12, italics in original.  
66 EC – Hormones (US) (Article 22.6 – EC) , paragraph 77. 
67 Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , paragraph 3.22. WT/DS136/ARB 
Page 24  
 
the 1916 Act, this would almost certainly necessitate the disclosure of such settlements, such that the 
amounts of the settlements – and the portions attributab le to the 1916 Act – can be confirmed.  This is 
discussed further below. 
(f) Deterrent or "chilling" effect   
5.64 The parties took sharply divergent positions over the alleged deterrent or "chilling effect" of 
the 1916 Act.  The European Communities stated that: 
"Arguably the most damaging effect of the 1916 Act is its 'chilling effect' on the 
commercial behaviour of European compan ies and its potential use as a means of 
intimidation of European companies that ar e either already active on the US market 
or which consider entering the market."
 68   
5.65 The European Communities characterized the 1916 Act as "as an instrument of intimidation".  
It argued that "[e]xporters have always been forced  to settle" while "[o]ther [s] have no doubt changed 
their commercial behaviour as a result of thr eats without any legal action being started".69  In support 
of its position, the European Communiti es quoted the decision of the Panel in US – Section 301 Trade 
Act: 
"[I]n a treaty the benefits of which depe nd in part on the activity of individual 
operators the legislation itself may be cons trued as a breach, since the mere existence 
of legislation could have an appreciable "chilling effect" on the economic activities of 
individuals."70 
5.66 Thus, in the European Communities' view, "Pan els have already recognized that legislation 
may have a deterrent or 'chilling effect' on the ec onomic activities of operators.  It goes without saying 
that this effect is all the more present in case of criminal or civil punitive legislation."71 
5.67 The European Communities added that:  
"Any attempt to quantify the 'chilling eff ect' must necessarily fail. However, the 
deterrent effect is an important qualitative element for the determination of the level 
of the nullification and impairment the EC  is suffering by the existence of the 1916 
Act. Concerned companies have confirme d that the existence of the 1916 Act has 
impaired their equal opportunities on the US market."72     
5.68 The United States argued that: 
"With respect to this particular dispute, the 1916 Act does not have a 'deterrent' or 
'chilling effect' on imports from the EC, nor has the EC provided any evidence to establish that it has. 
No previous arbitration has included any calculation of a 'deterrent or chilling effect' 
from WTO-inconsistent measures.  Th e European Communities is asking the 
Arbitrator in this proceeding to take the unprecedented step of introducing the 
concept of a chilling effect and making a finding of a level of nullification or 
                                                     
 
68 Written Submission of the European Communities , 3 November 2003, paragraph 31. 
69 Ibid., paragraph 32. 
70 US – Section 301 Trade Act , paragraph 7.81. 
71 Written Submission of the European Communities , 3 November 2003, paragraph 33. 
72 Ibid., paragraph 34.  WT/DS136/ARB 
 Page 25 
 
 
impairment based on this speculative con cept.  The European Communities has not 
pointed to any basis in the text of the DSU for such an approach."73  
5.69 We are of the view that any claim for a deterrent or 'chilling effect' by the 
European Communities in the present case would be too speculative, and too remote.  We need not 
decide, for the purposes of this arbitration, the br oader issue of whether a 'chilling effect' can be 
considered to exist for the purposes of WTO dispute settlement.74  We need only determine whether 
such a chilling effect can be meaningfully quantif ied for the purposes of determining the level of 
nullification or impairment sustained by the Eur opean Communities as a result of the 1916 Act.   
5.70 Both parties agree that the chilling effect cannot  be quantified in the present case.  The United 
States, referring to certain econometric studies subm itted by the European Co mmunities, argues that 
"[e]ven if these studies could be considered to establis h the existence of a 'chilling effect' with regard 
to anti-dumping duties, they do not with respect to the 1916 Act."75  The European Communities 
acknowledged that it was "not aware of any econo metric model that would measure the 'chilling 
effect' produced by the mere existence of anti-dumpi ng legislation or, even more specifically, of the 
1916 Act."76   
5.71 The European Communities emphasizes that "the  question of the 'chilling effect' and its 
quantification is not essential for the purpose of these proceedings and it has never based its request 
on this concept.  Indeed, in the European Comm unities' view, it is not even necessary (and may not 
even be possible) to enter into the [ quantitative] details of this concept."77  We acknowledge that the 
European Communities has never "based" its request on the concept of "chilling effect."  At the same 
time, we need to assess whether quantification of the "chilling effect" is possible as part of the 
determination of the overall quantif ied level of nullification or impair ment sustained by the European 
Communities.   
5.72 On the basis of the information provided to the arbitrators, we agree with the parties that a 
quantification of the chilling effect is not possible.   Accordingly, the chilling effect allegedly caused 
by the 1916 Act could not be included in any calculation by the European Communities of its overall 
level of the nullification or impairment. 
(g) Litigation costs 
5.73 The European Communities considers "legal e xpenses related to the pending US court cases" 
one of the "immediate costs of the 1916 Act".78  The United States takes a contrary position, 
emphasizing that it "fails to see how legal expen ses in cases pending under the 1916 Act relate to any 
'benefit' accruing to WTO Members under any WTO agre ement.  The EC has pointed to no obligation 
                                                      
73 Answers of the United States to the Arbitrator's Additional Questions to the Parties , 
16 December 2003, paragraphs 2-3. 
74 We note that if the 1916 Act has a "chilling" effect – an issue on which we take no position – the 
EC's proposed suspension of obligations would presumably have the same effect.  Concomitantly, if the 1916 
Act has no "chilling" effect, then the EC's proposed suspension of obligations presumably would have no "chilling effect" either.  
75 Comments of the United States on the Answers of the European Communities to the Additional 
Questions of the Arbitrator , 22 December 2003, paragraph 3. 
76 Answers by the European Communities to the Additional Questions of the Arbitrator , 
16 December 2003, paragraph 1. 
77 Comments of the European Communities on the US Replies to the Additional Questions of the 
Arbitrator , 22 December 2003, paragraph 8. 
78 Methodology Paper of the European Communities , 6 October 2003, paragraph 4.  The European 
Communities also referred to related costs, including "t he hidden business costs for those companies that are 
obliged to defend themselves."  Answers of the European Communities to the Questions of the Arbitrator .  
20 November 2003, paragraph 48. WT/DS136/ARB 
Page 26  
 
in the WTO to prevent lawsuits against persons in  a Member."  It argues that "[n]either the GATT 
1994 nor the AD Agreement grants any person of a WTO Member the right to import products into the territory of another WTO Member – much less i mmunity from suit or the benefit of any sort of 
'cap' on legal expenses incurred as a result of importati on.  As a result, 'legal expenses' incurred by 
importers as a result of the 1916 Act do not appear to  constitute the nullification or impairment of any 
'benefit' accruing to any Member under any WTO agreement."
 79 
5.74 In response, the European Communities rejects th e view that "legal expenses in cases pending 
under the 1916 Act [do not] relate to any 'benefit' accruing to WTO Members." In the view of the European Communities, "[t]he WTO Agreements, a nd in this particular case the GATT and the Anti-
Dumping Agreement, constitute a predictable and secure legal framewo rk for the commercial 
behaviour of companies on the US market. Thus , any company that complies with the rules 
thereunder enjoys the reasonable expectation that  it can act in a normal commercial way without 
undue (legal) interference."  As a result of the 1916 Act, according to th e European Communities, 
"one of the main benefits under the WTO Agreements , notably the legal security and predictability, is 
thus nullified and impaired."
 80   
5.75 The European Communities also states that it is  not possible to make an exact calculation of 
the litigation costs, in part because "[f]or compani es that are actively engaged in a process under the 
1916 Act every day brings new costs in defending their case.  Thus, to indicate the precise amount of costs would be a moving target exercise."
81  The information submitted by the European Communities 
to the arbitrators on some of the litigation costs incurred by EC entities was "only for illustrative 
purposes." 82  The United States takes the position that "the EC has exaggerated those fees in several 
important respects and has failed to provid e any evidentiary support for these claims." 83  The United 
States argues that the European Communities provide d "unsworn and unsubstantiated assertions by 
private parties involved in those cases.  To the best  of our knowledge, no Arbitrator has ever based an 
award under Article 22.6 on such vague and unsubstantiated claims." 84 
5.76 The Arbitrators recall their position, stated above , that it is appropriate to follow the prudent 
approach taken by earlier arbitrators in determining the level of nullification or impairment.  We are 
not aware of any basis in the WTO Agreements to support the view advanced by the European 
Communities that legal fees can be claimed as a loss of a benefit accruing to a WTO Member.  Moreover, we are not aware of any pr ior case in which such a claim has been permitted.  It is also not 
clear which fees, and under what circumstances, could be included in such a claim. 
5.77 In the circumstances of this case, it is uncont ested that the European Communities has not 
"meaningfully quantified" the amount of legal fees paid by EC entities as a result of the 1916 Act.  
Indeed, the European Communities acknowledges that it has provided only examples of such costs, 
not an overall, verifiable tabulation.  In addition,  as indicated above, these examples of legal fees have 
been contested by the United States. 
5.78 Accordingly, in our view, the litigation cost s incurred by EC entities under the 1916 Act 
could not be included in any calculation by the European Communities of the overall level of the 
nullification or impairment. 
                                                     
 
79 Written Submission of the United States , 20 October 2003, paragraph 30. 
80 Written Submission of the European Communities , 3 November 2003, paragraph 30. 
81 Written Submission of the European Communities , 3 November 2003, paragraph 29. 
82 Answers of the European Communities to the Questions of the Arbitrator,  20 November 2003, 
paragraph 49. 
83 Comments of the United States on the Answers of the European Communities to the Additional 
Questions of the Arbitrator , 22 December 2003, paragraph 8. 
84 Comments of the United States on the Answers of the European Communities to the Additional 
Questions of the Arbitrator , 22 December 2003, paragraph 14.  WT/DS136/ARB 
 Page 27 
 
 
(h) Conclusion on parameters for calcula ting nullification or impairment   
5.79 We have thus determined that in assessing whethe r the application of the proposed suspension 
of obligations by the European Communities would ex ceed the level of nullification or impairment, it 
would be appropriate to include final judgments under the 1916 Act, as well as settlement awards to 
settle claims under the Act.  In the present case, it would not be appropriate to include any claims 
related to the alleged chilling effect from the Act, or litigation and related costs.    
5.80 In the next section, we will apply these paramete rs to the specific facts of this case.   
VI. DETERMINATION OF THE LEVEL OF NULLIFICATION OR IMPAIRMENT IN 
THE PRESENT CASE 
1. Introduction 
6.1 We have emphasized throughout this award th at in assessing the WTO-consistency of the 
European Communities' request to suspend obligations , the determinative factor, in our view, is how 
the suspension would be applied  in practice.  It is therefore appropriate to provide views not just on 
how the EC suspension could be applied at present,  but also how it could be applied on an ongoing 
basis, in the event that the WTO-inconsistent US measure is not removed.   
6.2 We agree that the European  Communities may suspend obligations under the GATT 1994 and 
the Anti-Dumping Agreement, subject to the impor tant proviso that whatever obligations the 
European Communities suspends, the overall quan tified level of suspension cannot exceed the 
quantified level of nullification or impairment. 
6.3 In calculating the level of nullification or impa irment, we have indicated that the European 
Communities could include both final judgements u nder the 1916 Act, and settlement agreements 
under the Act.  We consider each of these below.  
2. Final judgments under the 1916 Act 
6.4 As indicated above, the amount of any final judgm ents entered against EC companies or their 
subsidiaries under the 1916 Act would constitute nullif ication or impairment of benefits accruing to 
the European Communities, up to the cumulative dollar or monetary value of the final judgements.   
6.5 To date, there have been no judgments ente red against EC entities under the 1916 Act.  
Therefore, at present, no such amounts could be included in any calculation of the level of nullification or impairment sustai ned by the European Communities. 
6.6 Future judgements against EC entities under the Act could, in our view, be included in a 
future calculation of the level of nullification or im pairment sustained by th e European Communities.  
What would be relevant for the purpose of this calcu lation would be the total monetary value of such 
judgments under the 1916 Act (i.e. regardless of the number of "treble damage" awards issued in the 
United States), which could be matched by th e suspension of obligations by the European 
Communities of an equivalent monetary amount (aga in, regardless of how many "treble duty" awards 
the European Communities may implement in response).   
3. Settlements under the 1916 Act 
6.7 As indicated above, the dollar value of any settle ment awards entered into by EC companies 
or their subsidiaries under the 1916 Act would constitu te nullification or impairment of benefits 
accruing to the European Communities, up to the cumulative dollar or monetary value of the 
settlements payable by Europ ean Communities entities.   WT/DS136/ARB 
Page 28  
 
6.8 The European Communities stated that Eur opean Communities entities have entered into 
settlement agreements since the expiration of the r easonable period of time.  However, the amounts of 
such settlements have not been disclosed, evidently because of confidentiality provisions in the 
applicable settlement agreements. 
6.9 The Arbitrators are well aware of the constraints applicable to the disclosure of such 
settlement awards.  The European Co mmunities advised us that it was not able to obtain the text of the 
settlement agreements, in part because the US companies involved in the settlements refused to 
disclose them.
85  The United States indicated that it could not gain access to the settlement agreements 
because of the confidentiality prov isions in those agreements. 86 
6.10 At the same time, we do not believe that undiscl osed settlement awards can be included in the 
calculation of the level of nullifi cation or impairment.  The Arbitrators recall that they cannot accept 
claims that are "too remote", "too speculativ e", or "not meaningfully quantified."   
6.11 We also recall that in accordan ce with the normal rules applicable to the burden of proof, as 
stated in EC – Hormones (US) (Article 22.6 – EC)  and EC – Hormones (Canada) (Article 22.6 – EC) , 
"where the existence of a specific fact is alleged….[ i]t is for the party alleging the fact to prove its 
existence."  In the present case, the European Communities has alleged "specific facts" – the 
settlement of claims under the 1916 Act involving EC entities. Yet it has not proved such facts.87    
                                                      
85 The European Communities stated that: 
 
"Despite its efforts, the European Communities has not been able to obtain the text of the settlement 
agreements.  In the case Goss International vs. MAN Roland, Koenig & Bauer  the European 
Communities was informed that the US company objected to the disclosure of the agreement. The 
European Communities has no legal means to enforce the disclosure of the terms of the agreement as 
provided for under the confidentiality terms of the agreement.  Finally, the European Communities is 
informed that even a direct request by the arbitrators to the companies would not satisfy the conditions 
in the settlement agreement and that unauthorized release of the document could expose the European companies to further legal action in the United States." 
 
Comments of the European Communities on the US Replies to the Additional Questions of the 
Arbitrator , 22 December 2003, paragraph 10.  
86 The United States advised that it had contacted parties to the recent 1916 Act litigation to seek 
information on the terms of settlement in those cases.  However, according to the United States: 
 
"… those settlement agreements between the private litigants in each case are su bject to confidentiality 
provisions that preclude access by non-parties.  These confidentiality  provisions are court-enforced, 
separate and apart from any concerns of business confidentiality.  Neither party has the authority to 
reveal the terms of the settlement.  Consequently, th e United States cannot gain access to the terms of 
the settlement and is therefore not in a position to judge their impact, if any."  
Answers of the United States to the Arbitrator's Additional Questions to the Parties , 16 December 
2003, paragraph 7. 
87 The European Communities put before the Arbitrat ors a damage award against a Japanese company 
under the 1916 Act, issued on December 3,  2003 by the United States District Court for the Northern District of 
Iowa.  The European Communities noted that this constituted the first award issued under the 1916 Act.  The 
European Communities argued that:  
 "… the company Goss International obtained the fi rst ever damages award under the 1916 Act against 
the Japanese company TKS. The damages were set at  US-$ 31,5 million….The European Communities 
would note that ... European companies ... were origin ally sued in the same process that was brought 
against TKS until they ente red into a settlement agreement with Goss in December 2002. However, if 
the damage award against TKS were to be extrapolat ed to both companies they could have easily faced 
damages up to US-$ 100 million plus even more extended legal fees and hidden stalled business costs."  WT/DS136/ARB 
 Page 29 
 
 
6.12 Therefore, to the extent that the European Communities can obtain credible information about 
existing settlement agreements under the 1916 Act – in other words, to the extent that it can obtain 
disclosure of such settlement agreements – it can  include in any calculation of the level of 
nullification or impairment the amounts payable by  EC entities in settlements under the 1916 Act.  
6.13 Future settlement awards under the 1916 Act i nvolving EC entities could equally be included 
in a future calculation of the overall quantified leve l of nullification or impairment sustained by the 
European Communities.  Once again, verifiable in formation about such awards would need to be 
obtained.  In other words, the disclosure of such awards would be necessary.   
4. Ongoing nullification or impairment 
6.14 The 1916 Act was found to be WTO-inconsistent  "as such", and the United States has not 
complied with the DSB recommendations and rulings to  bring its measure into conformity with its 
WTO obligations.  The European Communities has a right under the DSU to suspend obligations, 
subject to the conditions described in this award.  At the same time, we do not consider that the 
European Communities' right to susp end obligations must be frozen in time as of the date it made its 
request under DSU Article 22.2.  The existence and maintenance of the 1916 Act as such violates the 
rights of the European Communities, and each applica tion of the Act – i.e. if a court in the United 
States were to  issue an award of damages against an  EC entity, or if EC entities enter into agreements 
to settle claims under the 1916 Act – increases the le vel of nullification or impairment sustained by 
the European Communities as a result of the Act.   
6.15 The present situation needs to be distinguished  from a case in which the measure of the 
responding party had been found by the original panel to be WTO-inconsistent only "as applied."  In 
such a case, the Arbitrators cannot authorize th e suspension of concessions or other obligations 
beyond the level of the nullification or impairme nt caused by the specific application of the WTO-
inconsistent measure.  This was the situation before the arbitrator in Canada – Aircraft Credits and 
Guarantees (Article 22.6 – Canada) : 
"[T]he findings of the Panel do not exte nd beyond the particular instance where the 
application of those programmes was found to be  illegal. It is likely that an identical 
application of those programmes would, in  identical circumstances, lead to an 
identical ruling. However, as long as this is not a matter that was before the Panel and it did not lead to recommendations of the DSB, we are not, as Arbitrator under Article 22.6 of the DSU and Article 4.10 of  the SCM Agreement, allowed to address 
it."
88 
6.16 It is worth emphasizing that the basis for this determination by the Canada – Aircraft Credits 
and Guarantees (Article 22.6 – Canada)  arbitrator was the fact that  the Canadian measure was found 
to be WTO-inconsistent only as applied, and not "as such".  As this arbitrator stated: 
"In the present case, the measures found to be illegal were the granting of subsidies to 
a number of transactions. The Panel Report clearly ruled that the…programmes 'as 
such' did not constitute prohibited export subs idies contrary to Article 3.1(a) of the 
SCM Agreement. The DSB recommendations and rulings clearly cannot be 
                                                                                                                                                                     
 
Answers of the European Communities to the Additional Questions of the Arbitrator , 16 December 
2003, paragraphs 10-11. 
 We decline to "extrapolate", and reaffirm our view that the calculation of the level of nullification or 
impairment can be based only on credible, verifiable information. 
88 Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , paragraph 3.111. WT/DS136/ARB 
Page 30  
 
interpreted as extending the right to take countermeasures to the maintaining of those 
programmes 'as such'."
89 
6.17 By contrast, in the present case, of course, the 1916 Act was found to be WTO-inconsistent 
"as such".  Therefore, in our view, each applica tion of the Act, as indicated above, would entitle the 
European Communities to increase concomitantly the level of its suspension of obligations. 
VII. SUMMARY OF FINDINGS AND CONCLUSIONS 
7.1 We recall our findings that it is not possible to determine in the abstract the WTO-consistency 
of a request for a "qualitatively equivalent" suspen sion of obligations.  Instead, it is necessary to 
determine how such a suspension would be applied.  If the suspension were applied in such a manner 
that it was equal to the level of nullification or im pairment sustained by th e European Communities as 
a result of the 1916 Act, then the suspension would be  "equivalent" under Article 22.4 of the DSU.  If 
the suspension were applied in such  a manner that it exceeded the level of nullification or impairment 
sustained by the European Communities as a result of  the 1916 Act, then the suspension would not be 
"equivalent" under Article 22.4 of the DSU.  Instea d, the suspension would be punitive, which is not 
permitted under Article 22.4. 
7.2 In order to determine whether the "qualitative su spension" could be applied in such a manner 
that the suspension could exceed the level of nullific ation or impairment, it is necessary to determine 
the trade or economic effects on the European Communities of the 1916 Act.  The European 
Communities could then implement its suspension up to, but not beyond, this amount.  This, in turn, necessitates a determination of the trade or ec onomic effects of the 1916 Act on the European 
Communities in quantitative or monetary terms.  This is the only way that the arbitrators can 
determine "equivalence" in the present context. 
7.3 We note that the EC request places no quantifie d or monetary limits on how the suspension 
could be applied in practice.  Moreover, we do not accept the Europ ean Communities' argument that 
its suspension of obligations is "equivalent" because its proposed measure would replicate, or partially 
replicate, the 1916 Act.   
7.4 First, under Article 22.7 of the DSU, the arbitrators cannot examine the "nature" of the 
proposed suspension.  We do not have the jurisdic tion to determine equivale nce between the measure 
proposed to implement the suspension and the measu re causing the nullification or impairment.  
Article 22 of the DSU provides for the suspension of concessions or obligations.  The arbitrators 
cannot approve the adoption of measures  by the requesting party. 
7.5 Second, similar or even identical trade me asures can have dissimilar trade or economic 
effects, such that the suspension may not be "equivalent."   
7.6 At the same time, we do not accept the argument of the United States that the level of 
nullification or impairment in the present case is "zero. "  This is contrary to the clear findings of the 
original Panel that the 1916 Act nullifies or impair s benefits accruing to the European Communities.   
7.7 We therefore considered parameters for the de termination of the actual level of nullification 
or impairment sustained by the European Communiti es as a result of the 1916 Act.  In doing so, we 
emphasized the need to use credible, factual, and ve rifiable information.  We determined that the 
European Communities, in assessing the level of nullif ication or impairment, could include the total 
amounts of final judgments against EC entities unde r the 1916 Act, as well as awards payable by EC 
entities to settle claims under the Act.  In the presen t case, it would not be appropriate to include any 
claims related to the alleged 'chilling e ffect', or litigation or related costs. 
                                                     
 
89 Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada),  paragraph 3.110.  WT/DS136/ARB 
 Page 31 
 
 
7.8 The European Communities may apply these parameters in determining the level of 
nullification or impairment that it has sustained as a result of the 1916 Act.  In the event that there are 
future applications of the 1916 Act – such as future  US court decisions against EC entities, or future 
settlement awards involving European Communiti es entities – then the Eu ropean Communities  
would be entitled to adjust the quantified level of suspension to account for this additional level of 
nullification or impairment.  The 1916 Act is WTO-in consistent "as such", a nd each application of the 
Act further nullifies or impairs benefits accruing to the European Communities.   
7.9 If the United States is of the view that the actual application of the suspension by the 
European Communities exceeds the level of nullifica tion or impairment, then it may challenge the 
European Communities' suspension through the appropriate dispute settlement procedures. 
7.10 In our view, the approach set out in this report strikes an appropriate balance between: 
• the right of the European Communities to apply its qualitative suspension in response 
to the WTO-inconsistent US Anti-Dumping Act of 1916;  and 
 
• the right of the United States to ensure that the European Communities applies its 
suspension only up to the level of nullif ication or impairment the European 
Communities has sustained as a result of the 1916 Act. 
 
7.11 In other words, this approach provides for "e quivalence" between the level of suspension of 
obligations and the level of nullification or impairment. 
VIII.  AWARD AND DECISION OF THE ARBITRATORS 
8.1 For the reasons set out above, we conclude that the European Communities may suspend 
obligations under GATT 1994 and the Anti-Dumpi ng Agreement against imports from the United 
States.  The European Communities mu st ensure that the application of  this suspension is quantified, 
and does not exceed the quantified level of nullificat ion or impairment it has sustained as a result of 
the 1916 Act.   
8.2 In quantifying the monetary level of its nullification or impairment, the European 
Communities may include: 
 (a) the cumulative monetary value of any amounts payable by EC entities pursuant to 
final court judgments for claims under the 1916 Act;  and 
  (b) the cumulative monetary value of any amounts payable by EC entities pursuant to 
 the settlement of claims under the 1916 Act. 
 
IX. CONCLUDING OBSERVATIONS 
9.1 As noted above, the quantified amount of nu llification or impairment sustained by the 
European Communities as a result of the 1916 Act may vary over time, if there are new judgments or 
settlement agreements under the 1916 Act involving EC entities.  This may necessitate access by the 
parties to all relevant information, including settle ment awards.  The Arbitrators are confident that 
each party will abide fully by its obligation under Article 3.10 of the DSU to "engage in dispute 
settlement procedures in good faith in an effort to re solve the dispute."  In our view, this obligation 
applies to all stages of the dispute, including  during the implementation of the suspension of 
obligations. 
9.2 
We also recall that the United States may ha ve recourse to the appropriate dispute settlement 
procedures in the event that it considers that th e application of the suspension by the European WT/DS136/ARB 
Page 32  
 
Communities exceeds the level of nullification or impairment that the European Communities has 
sustained as a result of the 1916 Act.  This wa s similarly recognized by the arbitrators in EC – 
Hormones (US) (Article 22.6 – EC) : 
"We received confirmation from the US that the actual level of suspension once 
implemented will be equivalent to the leve l of nullification and impairment we have 
found. All we can do at this stage is to encourage the US to stand by this confirmation 
and to abide by Article 22.4 of the DSU. In the event of a future dispute on this issue, 
we note that the EC could start normal – or arguably even expedited – DSU procedures challenging the consistency of  the level of US suspension with 
Article 22.4."
90 
9.3 Finally, we note that Article 22.8 of the DSU provides that: 
"[T]he suspension of concessions or other obligations shall be temporary and shall 
only be applied until such time as the measure  found to be inconsis tent 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 … ." 
 
__________ 
 
 
                                                     
 
90 EC – Hormones (US) (Article 22.6) , paragraph 82.